UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K
(MARK ONE)
| x | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE FISCAL
YEAR ENDED – MARCH 31, 2015
| ¨ | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION
PERIOD FROM __________ TO __________
Commission File
Number: 001 – 15697
ELITE PHARMACEUTICALS,
INC.
(Exact name
of registrant as specified in its charter)
| Nevada |
22-3542636 |
| |
|
| (State or other jurisdiction
of incorporation) |
(IRS Employer Identification
No.) |
165 Ludlow
Avenue, Northvale, New Jersey 07647
(Address of
principal executive offices)
(201) 750
– 2646
(Registrant’s
telephone number, including area code)
Securities Registered
pursuant to Section 12(b) of the Act:
| Title
of Each Class |
|
Name
of Exchange on Which Registered |
| None |
|
|
Securities Registered
pursuant to Section 12(g) of the Act:
Common Stock,
$0.001 par value
| Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act |
|
Yes
¨ |
No
x |
| |
|
|
|
| Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act |
|
Yes
¨ |
No
x |
| |
|
|
|
| Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such
reports) and (2) has been subject to such filing requirements for at least the past 90 days. |
|
Yes
x |
No
¨ |
| |
|
|
|
| Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). |
|
Yes
x |
No
¨ |
| |
|
|
|
| Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K. |
|
Yes
¨ |
No
x |
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):
| Large
Accelerated Filer |
Accelerated
Filer |
Non-Accelerated
Filer |
Smaller
Reporting Company |
| ¨ |
x |
¨ |
¨ |
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).
| Title
of Class | |
Aggregate
Market Value | | |
As
of Close of Business on |
| Common Stock - $0.001 par value | |
$ | 153,849,213 | | |
September 30, 2014 |
Indicate the
number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practical date
| Title
of Class |
|
Shares
Outstanding |
|
As
of Close of Business on |
| Common
Stock - $0.001 par value |
|
658,419,047 |
|
June
8, 2014 |
DOCUMENTS INCORPORATED BY REFERENCE
None.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K and
the documents incorporated herein contain “forward-looking statements”. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results, performance or achievements expressed or implied by such
forward-looking statements. When used in this report, statements that are not statements of current or historical fact may be deemed
to be forward-looking statements. Without limiting the foregoing, the words “plan”, “intend”, “may,”
“will,” “expect,” “believe”, “could,” “anticipate,” “estimate,”
or “continue” or similar expressions or other variations or comparable terminology are intended to identify such forward-looking
statements. All statements other than statements of historical fact included in this report regarding our financial position, business
strategy and plans or objectives for future operations are forward-looking statements. Without limiting the broader description
of forward-looking statements above, we specifically note, without limitation, that statements regarding the preliminary nature
of the clinical program results and the potential for further product development, that involve known and unknown risks, delays,
uncertainties and other factors not under our control, the requirement of substantial future testing, clinical trials, regulatory
reviews and approvals by the Food and Drug Administration and other regulatory authorities prior to the commercialization of products
under development, and our ability to manufacture and sell any products, gain market acceptance earn a profit from sales or licenses
of any drugs or our ability to discover new drugs in the future are all forward-looking in nature. These risks and other factors
are discussed in our filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. Except as required by law, the Company undertakes no
obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
Table of Contents
PART I
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 and occupy manufacturing, warehouse,
laboratory and office space at 165 Ludlow Avenue and 135 Ludlow Avenue in Northvale, NJ (the “Northvale Facility”).
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.
Commercial Products
We own, license or contract manufacture
the following products currently being sold commercially:
| Product |
Branded Product Equivalent |
Therapeutic Category |
Launch Date |
|
Phentermine HCl 37.5mg tablets
(“Phentermine 37.5mg”) |
Adipex-P® |
Bariatric |
April 2011 |
|
Lodrane D ® Immediate Release capsules
(“Lodrane D”) |
n/a |
OTC Allergy |
September 2011 |
|
Methadone HCl 10mg tablets
(“Methadone 10mg”) |
Dolophine® |
Pain |
January 2012 |
|
Hydromorphone HCl 8mg tablets
(“Hydromorphone 8mg”) |
Dilaudid® |
Pain |
March 2012 |
|
Phendimetrazine Tartrate 35mg tablets
(“Phendimetrazine 35mg”) |
Bontril® |
Bariatric |
November 2012 |
|
Phentermine HCl 15mg and 30mg capsules
(“Phentermine 15mg” and “Phentermine 30mg”) |
Adipex-P® |
Bariatric |
April 2013 |
|
Naltrexone HCl 50mg tablets
(“Naltrexone 50mg”) |
Revia® |
Pain |
September 2013 |
|
Isradipine 2.5mg and 5mg capsules
(“Isradipine 2.5mg” and “Isradipine 5mg”) |
n/a |
Cardiovascular |
January 2015 |
|
Hydroxyzine HCl 10mg, 25mg and 50mg tablets
(“Hydroxyzine 10mg” and “Hydroxyzine 25mg”
and “Hydroxyzine 50mg”) |
Atarax®, Vistaril® |
Antihistamine |
April 2015 |
Note: Phentermine 15mg and Phentermine
30mg are collectively and individually referred to as “Phentermine Capsules”. Isradipine 2.5mg and Isradipine 5mg are
collectively and individually referred to as “Isradipine Capsules”. Hydroxyzine 10mg, Hydroxyzine 25mg and Hydroxyzine
50mg are collectively and individually referred to as “Hydroxyzine”.
Phentermine 37.5mg
The approved Abbreviated New Drug Application
“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”). For further details on the Phentermine Purchase Agreement,
please see exhibit 10.7 to the Quarterly Report on Form 10-Q, filed with the SEC on November 15, 2010, with such filing being herein
incorporated by reference.
Sales and marketing rights for Phentermine
37.5mg are included in the licensing agreement between the Company and Precision Dose Inc. (“Precision Dose”) dated
September 10, 2010 (the “Precision Dose License Agreement”). Please see the section below titled “Precision Dose
License Agreement” for further details of this agreement.
The first shipment of Phentermine 37.5mg
was made to Precision Dose’s wholly owned subsidiary, TAGI Pharmaceuticals Inc. (“TAGI”), pursuant to the Precision
Dose License Agreement, with such initial shipment triggering a milestone payment under this agreement. Phentermine 37.5mg is currently
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”), launched Lodrane D®, an immediate release formulation of brompheniramine maleate
and pseudoephedrine HCl, an effective, low-sedating antihistamine combined with a decongestant.
ECR products have since been divested so
that Lodrane D® is promoted and distributed in the U.S. now by Valeant Pharmaceuticals International Inc. Lodrane D® is
available over-the-counter but also has physician promotion. Lodrane D® is 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.
There have been several mergers relating
to ECR and successor entities and transfer of brand name ownership since this product was originally launched. Lodrane D® is
accordingly currently promoted and distributed in the U.S. by Valeant Pharmaceuticals International Inc. (“Valeant”).
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.
Elite is manufacturing the product for
Valeant 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
Methadone 10mg is contract manufactured
by Elite for Ascend Laboratories, LLC (“Ascend”), the owner of the approved ANDA.
On January 17, 2012, Elite commenced shipping
Methadone 10mg tablets to Ascend pursuant to a commercial manufacturing and supply agreement dated June 23, 2011, as amended on
September 24, 2012 and January 19, 2015, 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 approved ANDA for Hydromorphone 8mg
was acquired pursuant to an asset purchase agreement with Mikah Pharma LLC dated May 18, 2010 (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.
Sales and marketing rights for Hydromorphone
8mg are included in the Precision Dose License Agreement. Please see the section below titled “Precision Dose License Agreement”
for further details of this agreement.
The first shipment of Hydromorphone 8mg
was made to TAGI, pursuant to the Precision Dose License Agreement, in March 2012, with such initial shipment triggering a milestone
payment under this agreement. Hydromorphone 8mg is currently being manufactured by Elite and distributed by TAGI under the Precision
Dose License Agreement.
Phendimetrazine Tartrate 35mg tablets
The ANDA for Phendimetrazine 35mg was acquired
by Elite as part of the asset purchase agreement between the Company and Mikah Pharma, dated August 1, 2013 (the “Mikah ANDA
Purchase”). Please see “Elite’s Acquisition of 13 Abbreviated New Drug Applications (“ANDAs”)”
below for more information on this agreement. The Northvale Facility was already an approved manufacturing site for this product
as of the date of the Mikah ANDA Purchase. 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.
Phendimetrazine 35mg is currently a commercial
product being manufactured by Elite and distributed by Epic Pharma LLC (“Epic”) on a non-exclusive basis, and by Elite.
Phentermine 15mg and 30mg
capsules
Phentermine 15mg capsules and Phentermine
30mg capsules were developed by the Company, with Elite receiving approval of the related ANDA in September 2012.
Sales and marketing rights for Phentermine
15mg and Phentermine 30mg are included in the Precision Dose License Agreement. Please see the section below titled “Precision
Dose License Agreement” for further details of this agreement.
The first shipments of Phentermine 15mg
and Phentermine 30mg were made to TAGI, pursuant to the Precision Dose License Agreement, in April 2013, with such initial shipments
triggering a milestone payment under this agreement. Phentermine 15mg and Phentermine 30mg are currently being manufactured by
Elite and distributed by TAGI under the Precision Dose License Agreement.
Naltrexone 50mg
The approved ANDA for Naltrexone 50mg was
acquired by the Company pursuant to an asset purchase agreement between the Company and Mikah Pharma dated August 27, 2010 (the
“Naltrexone Acquisition Agreement”) for aggregate consideration of $200,000.
Sales and marketing rights for Hydromorphone
8mg are included in the Precision Dose License Agreement. Please see the section below titled “Precision Dose License Agreement”
for further details of this agreement.
The first shipment of Naltrexone 50mg was
made to TAGI, pursuant to the Precision Dose License Agreement, in September 2013, with such initial shipment triggering a milestone
payment under this agreement. Naltrexone 50mg is currently being manufactured by Elite and distributed by TAGI under the Precision
Dose License Agreement.
Isradipine 2.5mg and Isradipine 5mg
The approved ANDAs for Isradipine 2.5mg
and Isradipine 5mg were acquired by Elite as part of the Mikah ANDA Purchase
Sales and marketing rights for Isradipine
2.5mg and Isradipine 5mg are included in the manufacturing and license agreement between the Company and Epic Pharma LLC, dated
October 2, 2013 (the “Epic Manufacturing and License Agreement”). Please see the section below titled “Epic Manufacturing
and License Agreement” for further details of this agreement.
The first shipment of Isradipine 2.5mg
and Isradipine 5mg were made to Epic, pursuant to the Epic Manufacturing and License Agreement, in January 2015. Isradipine 2.5mg
and Isradipine 5mg are currently being manufactured by Elite and distributed by Epic under the Epic Manufacturing and License Agreement.
Hydroxyzine 10mg, Hydroxyzine 25mg
and Hydroxyzine 50mg
The approved ANDAs for Hydroxyzine 10mg,
Hydroxyzine 25mg and Hydroxyzine 50mg were acquired by Elite as part of the Mikah ANDA Purchase.
Sales and marketing rights for Hydroxyzine
10mg, Hydroxyzine 25mg and Hydroxyzine 50mg are included in the Epic Manufacturing and License Agreement.
The first shipment of Hydroxyzine 10mg,
Hydroxyzine 25mg and Hydroxyzine 50mg were made by Epic, pursuant to the Epic Manufacturing and License Agreement, in April 2015.
Hydroxyzine 10mg, Hydroxyzine 25mg and Hydroxyzine 50mg are currently being manufactured and distributed by Epic under the Epic
Manufacturing and License Agreement.
Approved products not yet commercialized
The Company currently owns seven different
approved ANDA’s, all of which were acquired as part of the Mikah ANDA Purchase. Each of these approved ANDA’s require
manufacturing site transfers as a prerequisite to commencement of commercial manufacturing and distribution. The products are relating
to each of these approved ANDA’s are included in the Epic Manufacturing and License Agreement, with Elite granting ANDA specific,
exclusive or non-exclusive market rights (depending on the ANDA) to Epic. Commercial manufacturing of these products is expected
to be transferred to either Epic or the Northvale Facility, with the required supplements to be filed with FDA in the manner and
time frame that is economically beneficial to the Company.
Asset Acquisition Agreements
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” ) 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
to the Precision Dose License Agreement, a description of which 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 Purchase Agreement”). Pursuant to
the Hydromorphone Purchase Agreement, the Company acquired from Mikah an approved ANDA for Hydromorphone 8 mg 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.
This product is currently being marketed
and distributed by Precision Dose and its wholly owned subsidiary, TAGI, pursuant to the Precision Dose License Agreement, a description
of which 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 Acquisition Agreement”). Pursuant to the Naltrexone Acquisition 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.
This product is currently being marketed
and distributed by Precision Dose and its wholly owned subsidiary, TAGI, pursuant to the Precision Dose License Agreement, a description
of which is set forth below.
Elite’s Acquisition of 13 Abbreviated
New Drug Applications
On August 1, 2013, Elite executed an asset
purchase agreement (the “Mikah ANDA Purchase”) with Mikah and acquired from Mikah a total of 13 ANDAs, consisting of
12 ANDAs approved by the FDA and one 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 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 the date filing of this Annual Report
on Form 10-K, the following products included in the Mikah Purchase Agreement have successfully achieved manufacturing site transfers:
| · | Isradipine 2.5mg and Isradipine 5mg |
| · | Hydroxyzine 10mg, Hydroxyzine 25mg and
Hydroxyzine 50mg |
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, Manufacturing and Development
Agreements
Sales and Distribution Licensing
Agreement with Epic for Abuse-Deterrent ELI-200
On June 4, 2015, Elite Pharmaceuticals
Inc. and its wholly-owned subsidiary Elite Laboratories, Inc. (collectively, “Elite”) executed an exclusive License
Agreement (the “Agreement”) with Epic Pharma LLC. (“Epic”), to market and sell in the United States, ELI-200,
an undisclosed opioid with sequestered naltrexone capsules, owned by Elite. Epic will have the exclusive right to market ELI-200
and its various dosage forms as listed in Schedule A of the Agreement (the “Products”). Epic is responsible for all
regulatory and pharmacovigilance matters related to the products. Pursuant to the Agreement, Elite will receive a license fee and
milestone payments. The license fee will be computed as a percentage of net sales of the Products as defined in the Agreement by
Epic. Elite will manufacture the product for sale by Epic on a cost plus basis and both parties agree to execute a separate Manufacturing
and Supply Agreement. The license fee is payable quarterly for the term of the Agreement. Epic shall pay to Elite certain milestone
payments as defined by the Agreement. The first milestone payment was due and was received upon signing the agreement. Subsequent
milestone payments are due upon the filing of a New Drug Application (“NDA”) with the U.S. Food and Drug Administration
(“FDA”) for the Products and upon receipt of the approval letter for the NDA from the FDA. The term of the License
Agreement is five years and may be extended for an additional five years upon mutual agreement of the parties. Elite can terminate
the Agreement on 90 days’ written notice in the Event that Epic does not pay to Elite certain minimum annual license fees
over the initial five year term of the Agreement. Either party may terminate this Agreement upon a material breach and failure
to cure that breach by the other party within a specified period.
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 2013. 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. To date, milestones totaling $1,000,000 have
been earned and received in relation to the signing of the Epic Pharma Manufacturing and License Agreement and the filing and approval
by the FDA of supplements relating to the transfer of manufacturing site for Isradipine 2.5mg and Isradipine 5mg. 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.
Methadone Manufacturing and Supply Agreement
On June 23, 2011 and as amended on September
24, 2012 and January 19, 2015, Elite entered into an agreement to manufacture and supply Methadone 10mg to ThePharmaNetwork LLC
(the “Methadone Manufacturing and Supply Agreement”). ThePharmaNetworkLLC was subsequently acquired by Alkem Laboratories
Ltd (“Alkem”) and now goes by the name Ascend Laboratories LLC (“Ascend”) and is a wholly owned subsidiary
of Alkem.
Ascend in the owner of the approved ANDA
for Methadone 10mg, and the Northvale Facility is an approved manufacturing site for this ANDA. The Methadone Manufacturing and
Supply Agreement provides for the manufacture and packaging by the Company of Ascend’s methadone hydrochloride 10mg tablets.
The initial shipment of Methadone 10mg
pursuant to the Methadone Manufacturing and Supply Agreement occurred in January 2012.
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.
As of the date of filing of this annual
report on Form 10-K, there has been minimal to no development activity being conducted pursuant to the D&L Agreement, and there
can be no assurances that development activities will resume or that the resumption of development activities will result in the
successful development of the product identified.
Development agreement with Akorn
Pharmaceuticals
On January 10, 2011, Elite and Hi-Tech
Pharmacal Co, Inc. (subsequently acquired by Akorn Pharmaceuticals), entered into an agreement for Elite to develop an intermediate
product for a generic version of a prescription product for Akorn Pharmaceuticals (“Akorn”). Under the terms of the
agreement, Elite will undertake a development program for an intermediate product that Akorn shall then incorporate into a final
product. Akorn or its designees, shall be responsible for the filing of the ANDA for the finished product and the ANDA will be
filed under the Akorn name. Upon approval of the ANDA, Elite will manufacture the intermediate product. Akorn will manufacture
the final product and will be responsible for the marketing and sales of the final product. Akorn will pay Elite milestone payments
for the development work. Upon commercialization, Elite will receive payment for the manufacturing of the intermediate product
and a percentage of the profits generated from the sale of the product.
Please note that there can be no assurances
that the development program will result in an intermediate product that can be incorporated into a final product. There can be
no assurances that an ANDA will be filed by Akorn or its designees or that any such ANDA filed will receive marketing approval
by the FDA. Furthermore, there can be no assurances of the commercialization of a final product containing the intermediate relating
to this agreement or that such commercialization will result in profits being generated from the sale of the product.
For further details, please refer to the
Current Report on Form 8-K filed with the SEC on January 10, 2011, such filing being herein incorporated by reference.
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 $14.8 million during the fiscal year ended March 31, 2015 (“Fiscal 2015”) and approximately
$4.0 million during the fiscal year ended March 31, 2014 (“Fiscal 2014”) 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.
In addition, Elite also has an undisclosed
generic product filed with the FDA that is awaiting review and for which Elite retains all rights.
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-Deterrent and Sustained Release
Opioids
The abuse-deterrent 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 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 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.
Elite also developed controlled release
technology for oxycodone 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 an oral controlled release formulation
of oxycodone for the treatment of pain, 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.
Patents
Since our incorporation, we have secured
the following patents, of which two have been assigned for a fee to another pharmaceutical company. Elite’s patents are:
| PATENT |
|
EXPIRATION DATE |
| U.S. patent 5,837,284 (assigned to Celgene Corporation) |
|
November 2018 |
| U.S. patent 6,620,439 |
|
October 2020 |
| U.S. patent 6,635,284 (assigned to Celgene Corporation) |
|
March 2018 |
| U.S. patent 6,926,909 |
|
April 2023 |
| U.S. patent 8,182,836 |
|
April 2024 |
| U.S. patent 8,425,933 |
|
April 2024 |
| U.S. patent 8,703,186 |
|
April 2024 |
| Canadian patent 2,521,655 |
|
April 2024 |
| Canadian patent 2,541,371 |
|
September 2024 |
| U.S. patent 9,056,054 |
|
June 2030 |
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 GATT, 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 at least some
of our products to other entities in the marketing of pharmaceuticals, but may also sell products under our own brand name in which
case we may register trademarks for those products.
Discontinued Products, Terminated Agreements,
Prior Investments
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.
Terminated Agreement - 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 Isradipine/Phendimetrazine Agreement has been terminated
by mutual consent of the parties thereto.
Terminated Agreement – Mikah Development
Agreement
On January 28, 2015, The Development and
License Agreement dated August 27, 2010 and between the Company and Mikah Pharma LLC (the “Mikah Development Agreement”)
was terminated by mutual agreement of the Company and Mikah Pharma LLC.
Pursuant to the Mikah Development Agreement,
Mikah Pharma LLC (“Mikah”) made advance consideration payments to the Company totaling $200,000 in exchange for product
development services to be provided at a future date. Subsequent to the execution of the Mikah Development Agreement, and before
any development milestones were achieved, the sole owner of Mikah, Mr. Nasrat Hakim, became the President and Chief Executive Officer
of the Company. Mikah has accordingly ceased operating and is in the process of winding down and liquidating its assets.
Any further development
of the product related to this agreement will belong to the Company, although there can be no assurances that such development
will occur or be successful.
The Mikah Development Agreement requires
that the consideration paid in advance to the Company be refunded in the event of no milestones being achieved. Mr. Hakim, as owner
of Mikah, has directed that the $200,000 refund due to Mikah not be paid currently, but rather be added to the amounts due under
the Hakim Credit Line.
For further details on the Mikah Development
Agreement, please see Exhibit 10.6 of the Quarterly Report on Form 10-Q filed with the SEC on November 14, 2010, with such filing
being herein incorporated by reference.
For further details on the termination
of the Mikah Development Agreement, please see Exhibit 10.84 of the Quarterly Report on Form 10-Q, filed with the SEC on February
17, 2015, with such filing being herein incorporated by reference.
Novel Labs Investment
At the end of 2006, Elite entered into
a joint venture with VGS Pharma, LLC (“VGS”) and created Novel Laboratories, Inc. (“Novel”), a privately-held
company specializing in pharmaceutical research, development, manufacturing, licensing, acquisition and marketing of specialty
generic pharmaceuticals. Novel's business strategy is to focus on its core strength in identifying and timely executing niche business
opportunities in the generic pharmaceutical area. Elite 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.
Other Business Factors and Details
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,
without limitation, 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:
| · | greater possibility for disruption due
to transportation or communication problems; |
| · | the relative instability of some foreign
governments and economies; |
| · | interim price volatility based on labor
unrest, materials or equipment shortages, export duties, restrictions on the transfer of funds, or fluctuations in currency exchange
rates; and |
| · | uncertainty regarding recourse to a dependable
legal system for the enforcement of contracts and other rights. |
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 Ascend 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.
Employees
As of June 15, 2015, we had 36 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.
Available Information
We file our annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Exchange Act electronically
with the Securities and Exchange Commission, or SEC. The public may read or copy any materials we file with the SEC at the SEC’s
Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.
You may obtain a free copy of our annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports on the day
of filing with the SEC on our website on the World Wide Web at http://www.Elitepharma.com under the Investor Relations
tab for SEC Filings or by contacting the Investor Relations Department by calling (518) 398-6222 or sending an e-mail message
to dianne@elitepharma.com.
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:
·
develop new products;
·
obtain regulatory approval of our products;
·
manage our growth, control expenditures and align costs with revenues;
·
attract, retain and motivate qualified personnel; and respond to competitive developments.
If we do not effectively address the risks
we face, our business model may become unworkable and we may not achieve or sustain profitability or successfully develop any products.
We have not been profitable and expect
future losses.
To date, we have not been profitable and
we may never be profitable or, if we become profitable, we may be unable to sustain profitability. We have sustained losses from
operations in each year since our incorporation in 1990. During the past two fiscal years, we incurred net losses from operations
of approximately $16.5 million and $5.3 million, 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
Although we believe that we have adequate
financial resources on hand as of March 31, 2015 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, 2016,
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, 2015, we had cash reserves
of approximately $7.5 million and a working capital surplus of $7.3 million, and, for the fiscal year ended March 31, 2015, we
had losses from operations totaling $16.5 million, net other income totaling $45.4 million and a net income of $28.9 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
8, 2015, we have sold approximately 55.1 million shares pursuant to the Purchase Agreement, with proceeds of such sales totaling
approximately $15.0 million. In addition, Nasrat Hakim, our President and CEO has 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 $0.22 per share (the closing sale price of the common stock on June 8, 2015) and only approximately
49.0 million shares available for purchase, we would receive $25.8 million in gross proceeds from purchases under the Purchase
Agreement by Lincoln Park, inclusive of the $15.0 million already received for sales of shares prior to June 8, 2015.
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 remaining shares 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, isradipine, hydroxyzine 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 depend on a limited number of customers and any reduction,
delay or cancellation of an order from these customers or the loss of any of these customers could cause our revenue to decline.
Five customers accounted for substantially all of our accounts
receivable as of March 31, 2015. Included in these five customers are three customers that accounted for approximately 89% of accounts
receivable as of March 31, 2015. Our dependence on a limited number of customers means that the loss of a major customer or any
reduction in orders by a major customer could materially reduce our net revenue and adversely affect our results of operations.
A notice of default was issued by
the New Jersey Economic Development Authority in relation to prior obligations of our tax-exempt bonds. Although we are current
in our payments under these bonds, if the principal balances due under these bonds are accelerated pursuant to the notice of default,
our ability to operate in the future will be materially and adversely affected.
Although we are current in our payments
under the NJEDA Bonds, we previously were in default and a notice of default was issued in March 2009. Should the principal balances
due under the NJEDA Bonds be accelerated pursuant to such notice of default, our ability to operate in the future will be materially
and adversely affected.
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, without limitation, for example:
| · | ineffectiveness of our product candidate
or perceptions by physicians that the product candidate is not safe or effective for a particular indication; |
| · | inability to manufacture sufficient quantities
of the product candidate for use in clinical trials; |
| · | delay or failure in obtaining approval
of our clinical trial protocols from the FDA or institutional review boards; |
| · | slower than expected rate of patient recruitment
and enrollment; inability to adequately follow and monitor patients after treatment; difficulty in managing multiple clinical sites; |
| · | unforeseen safety issues; |
| · | government or regulatory delays; and |
| · | clinical trial costs that are greater
than we currently anticipate. |
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:
| · | collaborations and licensing arrangements
may be terminated, in which case we will experience increased operating expenses and capital requirements if we elect to pursue
further development of the related product candidate; |
| · | collaborators and licensees may delay
clinical trials and prolong clinical development, under-fund a clinical trial program, stop a clinical trial or abandon a product
candidate; |
| · | expected revenue might not be generated
because milestones may not be achieved and product candidates may not be developed; |
| · | collaborators and licensees could independently
develop, or develop with third parties, products that could compete with our future products; |
| · | the terms of our contracts with current
or future collaborators and licensees may not be favorable to us in the future; |
| · | a collaborator or licensee with marketing
and distribution rights to one or more of our products may not commit enough resources to the marketing and distribution of our
products, limiting our potential revenues from the commercialization of a product; |
| · | disputes may arise delaying or terminating
the research, development or commercialization of our product candidates, or result in significant and costly litigation or arbitration;
and |
| · | 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. |
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 ten 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. In addition to modification or revocation
of patents in legal proceedings, issued patents may later be modified or revoked by the U.S. Patent and Trademark Office or by
analogous foreign offices. 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 be obtained by other entities or become known, obtained or independently developed
by our competitors or by other entities. We also cannot be sure that, if patents are not issued with respect to products arising
from research, 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, without limitation:
| · | obtaining new patents on drugs whose original
patent protection is about to expire; |
| · | filing patent applications that are more
complex and costly to challenge; |
| · | filing suits for patent infringement that
automatically delay approval from the FDA; |
| · | filing citizens’ petitions with
the FDA contesting approval of the generic versions of products due to alleged health and safety issues; developing controlled-release
or other “next-generation” products, which often reduce demand for the generic version of the existing product for
which we may be seeking approval; |
| · | changing product claims and product labeling; |
| · | developing and marketing as over-the-counter
products those branded products which are about to face generic competition; and |
| · | making arrangements with managed care
companies and insurers to reduce the economic incentives to purchase generic pharmaceuticals. |
These strategies may increase the costs
and risks associated with our efforts to introduce our generic products under development and may delay or prevent such introduction
altogether.
If our product candidates do not
achieve market acceptance among physicians, patients, health care payors and the medical community, they will not be commercially
successful and our business will be adversely affected.
The degree of market acceptance of any
of our approved product candidates among physicians, patients, health care payors and the medical community will depend on a number
of factors, including, without limitation:
·
acceptable evidence of safety and efficacy;
·
relative convenience and ease of administration;
·
the prevalence and severity of any adverse side effects;
·
availability of alternative treatments;
·
pricing and cost effectiveness;
·
effectiveness of sales and marketing strategies; and
·
ability to obtain sufficient third-party coverage or reimbursement.
If we are unable to achieve market acceptance
for our product candidates, then such product candidates will not be commercially successful and our business will be adversely
affected.
We are dependent on a small number
of suppliers for our raw materials and any delay or unavailability of raw materials can materially adversely affect our ability
to produce products.
The FDA requires identification of raw
material suppliers in applications for approval of drug products. If raw materials were unavailable from a specified supplier,
FDA approval of a new supplier could delay the manufacture of the drug involved.
In addition, some materials used in our
products are currently available from only one supplier or a limited number of suppliers 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:
| · | greater possibility for disruption due
to transportation or communication problems; |
| · | the relative instability of some foreign
governments and economies; |
| · | interim price volatility based on labor
unrest, materials or equipment shortages, export duties, restrictions on the transfer of funds, or fluctuations in currency exchange
rates; and |
| · | uncertainty regarding recourse to a dependable
legal system for the enforcement of contracts and other rights. |
In addition, patent laws in certain foreign
jurisdictions (primarily, but not necessarily, 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.
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.
Our pipeline of products under development
include products that would be filed as branded pharmaceuticals and if generic manufacturers use litigation and regulatory means
to obtain approval for generic versions of one or more of such branded drugs, our sales may be adversely effected.
Under the Hatch-Waxman Act, the FDA can
approve an ANDA for a generic bioequivalent version of a previously approved drug, without undertaking the full clinical testing
necessary to obtain approval to market a new drug. In place of such clinical studies, an ANDA applicant usually needs only to submit
data demonstrating that its generic product is bioequivalent to the branded product.
Our product development pipeline includes
a range of abuse resistant opioid products, with full clinical testing activity being currently planned, in progress or successfully
completed. In recent years, various generic manufacturers have filed ANDAs seeking FDA approval for generic versions of opioids
and opioids with abuse resistant characteristics. In connection with our filings, these manufacturers may challenge the validity
and/or enforceability of one or more of the underlying patents protecting our products. While it is the Company’s intention
to vigorously defend and pursue all available legal and regulatory avenues in defense of the intellectual property rights protecting
our products, it must also be stressed that litigation is inherently uncertain and we cannot predict the timing or outcome of our
efforts. There can also be no assurance that our efforts in defense of the intellectual property rights protecting our products
will be successful.
If we are not successful in defending our
intellectual property rights, or opt to settle, or if a product’s marketing exclusivity rights expire or become otherwise
unenforceable, our competitors could ultimately launch generic versions of one or more of our branded products, after such products
have been approved by the FDA, which could significantly decrease our revenues and could have a material adverse effect on our
business, financial conditions, results of operations and cash flow. Furthermore such a material adverse effect may result in a
material adverse effect on our share price.
Agreements between branded pharmaceutical
companies and generic pharmaceutical companies are facing increased government scrutiny in the United States and Internationally.
There are numerous and continuing litigation
in which generic companies challenge the validity or enforceability of an innovator products patents and/or the applicability of
such patents to a generic applicant’s products. Settlement of such litigation is a common outcome, with review of such agreements
by the U.S. Federal Trade Commission (the “FTC”) and the Antitrust Division of the Department of Justice (the “DOJ”)
being required by law. The FTC has stated publicly its view that some of these settlement agreements violate antitrust laws and
has commenced actions against the branded and generic companies that are parties to these agreements. Accordingly, in the event
of the Company being party to a settlement agreement, either as the branded, innovator product owner, or as the generic applicant,
we may receive formal or informal requests from the FTC for information about a settlement agreement and there is a risk of the
FTC alleging a violation of antitrust laws and commencing an action against us.
In addition, the United States Congress
has proposed legislation that would limit the types of settlement agreements generic manufacturers can enter into with brand companies.
In 2013, the Supreme Court, in FTC v. Actavis, determined that reverse payment patent settlements between generic and brand
companies should be evaluated under the rule of reason, and provided limited guidance beyond the selection of this standard. Due
to the court’s non-articulation of a precise rule of lawfulness for such settlements, there may be extensive litigation over
what constitutes a reasonable and lawful patent settlement between and brand and generic company.
The impact of such future litigation, if
any, legislative proposals and potential future court decisions is uncertain, and there can be no assurances that such impact will
not have an adverse effect on the Company’s business, its financial condition, results of operations, cash flows and its
stock price.
We may incur significant liability if
it is determined that we are promoting or have in the past promoted the “off-label” use of drugs.
In jurisdictions including, without limitation,
the United States, a company is not permitted to promote drugs for uses that are not described in the product’s labeling
and that differ from those that were approved or cleared by the FDA. Such users are commonly referred to as “off-label uses”.
Under what is known as the “practice of medicine”, physicians and other healthcare practitioners may prescribe drug
products for off-label or unapproved uses. While the FDA does not regulate a physician’s choice of medications, treatments,
or product uses, the Federal Food Drug and Cosmetic Act (“FFDC”) and FDA regulations significantly restrict permissible
communications on the subject of off-label uses of drug products by pharmaceutical companies. The FDA, FTC, the Office of the Inspector
General of the Department of Health and Human Services (“HHS”), the DOJ and various state Attorneys General actively
enforce laws and regulations that prohibit the promotion of off-label uses. A company that is found to have improperly promoted
off-label uses may be subject to significant liability, including civil fines, criminal fines and penalties, civil damages, exclusion
from federal funded healthcare programs and potential liability under the federal False Claims Act and any applicable state false
claims act. Conduct giving rise to such liability could also form the basis for private civil litigation by third-party payers
or other persons claiming to be harmed by such conduct.
Notwithstanding the regulatory restrictions
on off-label promotion, the FDA’s regulations and judicial case law allows companies to engage in some forms of truthful,
non-misleading and non-promotional speech concerning the off-label use of products. Elite believes it and its marketing partners
comply with these restrictions.
Nonetheless, the FDA,
HHS, DOJ, and/or state Attorneys General, and qui tam relators may take the position that the Company is not in compliance
with such requirements, and if such non-compliance is proven, the consequences of such may have an adverse material effect on our
business, financial condition, results of operations, cash flows and stock price.
We have significant intangible assets
on our balance sheet. Consequently, potential impairment of intangible assets may have an adverse material effect on our profitability.
Intangible assets represent a significant
portion of our assets. As of March 31, 2015, intangible assets were approximately $6.4 million, or approximately 25% of our assets.
GAAP requires that intangible assets be
subject to regular impairment analysis to determine if changes in circumstances indicate that the value of the asset as recorded
may not be recoverable. Such events or changes in circumstances are an inherent risk in the pharmaceutical industry and often cannot
be predicted. However, should a change in circumstance occur, requiring the impairment of an intangible asset, the result of such
an impairment may have an adverse material effect on our business, financial condition, results of operations, cash flows and stock
price.
Our products contain narcotic ingredients.
As a result of reports of misuse or abuse of prescription narcotics, the sale of such drugs may be subject to increased litigation
risk and new regulation, including the development of REMS, which may prove difficult or expensive to comply with.
Many of our current products and products
under development contain narcotics. Misuse or abuse of such drugs can lead to physical or other hard. The FDA and/or the DEA may
impose new regulations concerning the manufacture, storage, transportation, distribution and sale of prescription narcotics. Such
regulations may include new labeling requirements, the development and implementation of a formal Risk Evaluation and Mitigation
Strategy (“REMS”), restrictions on prescription and sale of such products and mandatory reformulation in order to make
abuse of such products more difficult. In 2007, Congress passed legislation authorizing the FDA to require companies to undertake
post-approval studies in order to assess known or signaled potential serious safety risks and to make any labeling changes necessary
to address safety risks. Congress also empowered the FDA to require companies to formulate REMS to confirm a drug’s benefits
exceed its risks. In 2011, the FDA issued letters to manufacturers of long-acting and extended-release opioids requiring them to
develop and submit to the FDA a post-market REMS plan to require that training is provided to prescribers of these products and
that information is provided to prescribers that they can use in counseling patients on the risks and benefits of opioid drug use.
Elite does not currently own a product that requires a REMS plan, but some of the products in our pipeline may require a REMS plan.
The Obama administration has also released a comprehensive action plan to reduce prescription drug abuse, which may include proposed
legislation to amended existing controlled substances laws to require healthcare practitioners who request DEA registration to
prescribe controlled substances to receive training on opioid prescribing practices as a condition of registration. In addition,
state health departments and boards of pharmacy have authority to regulate distribution and may modify their regulations with respect
to prescription narcotics in an attempt to curb abuse.
Such new regulations or requirements may
be difficult or cost prohibitive for us to comply with, resulting in delays in the commercialization of new products, and decreased
profitability of existing and new products. Such occurrences may have material adverse effects on our business, financial condition,
results of operations, cash flows and stock price.
The growth of Elite will depend on developing,
commercializing and marketing new products.
Our future revenues and profitability is
significantly dependent on our ability to successfully commercialize new branded and generic pharmaceutical products in a timely
manner. Accordingly, we must continually develop, test, file, receive marketing authorization and manufacture new products. While
we are currently developing products and have plans in place for future products beyond those currently in development, there can
be no assurances that any of these products will receive marketing authorization and achieve commercialization. In addition, even
if a product receives marketing authorization, there can be no assurances that there will be future revenues or profits, or that
any such future revenues or profits would be in amounts that provide adequate return on the significant investments made to secure
the marketing authorization and create/support the infrastructure required for the commercial manufacture of such product.
We are engaged in the research and development
of pharmaceutical products with the objective of achieving marketing authorizations that enable us to manufacture and sell pharmaceuticals
in accordance with specific government regulations. Due to the inherent risk associated with pharmaceutical product research and
development, particularly with respect to new/innovative drugs, our research and development expenditures and efforts may not result
in a successful regulatory approval and commercialization of new products. Furthermore, after we submit a regulatory application,
the relevant government authority may require that we conduct additional studies, resulting in an inability for us to reasonably
predict the total research and development costs for a new product.
Circumstances in which the Company is unable
to successfully commercialize new products in a timely manner, or circumstances in which the profitability of a new product is
not sufficient with respect to the costs and investments required to develop such product may have a material adverse effect on
our business, financial condition, results of operations, cash flows and stock price.
If our manufacturing facilities are
unable to manufacture our products or the manufacturing process is interrupted due to failure to comply with regulations or for
other reasons, it could have a material adverse impact on our business.
If our manufacturing facilities fail to
comply with regulatory requirements or encounter other manufacturing difficulties, it could adversely affect our ability to supply
products. All facilities and manufacturing processes used for the manufacture of pharmaceutical products must be operated in conformity
with cGMP and, in the case of controlled substances, DEA regulations. Compliance with the FDA’s cGMP and DEA requirements
applies to both drug products seeking regulatory approval and to approved drug products. In complying with cGMP requirements, pharmaceutical
manufacturing facilities must continually expend significant time, money and effort in production, record-keeping and quality assurance
and control so that their products meet applicable specifications and other requirements product safety, efficacy and quality.
Failure to comply with applicable legal requirements subjects our manufacturing facilities to possible legal or regulatory action,
including, without limitation, shutdown, which may adversely affect our ability to manufacture product. Were we not able to manufacture
products at our manufacturing facilities because of regulatory, business or any other reason, the manufacture and marketing of
these products would be interrupted. This could have a material adverse impact on our business, results of operations, financial
condition, cash flows, competitive position and stock price.
The DEA limits the availability of the
active ingredients used in many of our current products and products in development, as well as the production and distribution
of these products, and, as a result, our procurement, production and distribution quotas may not be sufficient to meet commercial
demand or complete clinical trials.
The DEA regulates chemical compounds as
Schedule I, II, III, IV or V substances, with Schedule I substances considered to present the highest risk of substance abuse
and Schedule V substances the lowest risk. The active ingredients in some of our current products and products in development,
including, without limitation, hydromorphone, methadone, phentermine, phendimetrazine and oxycodone, are listed by the DEA as
Scheduled substances under the Controlled Substances Act of 1970. Consequently, their manufacture, shipment, storage, sale and
use are subject to a high degree of regulation. Furthermore, the DEA limits the availability of the active ingredients used in
many of our current products and products in development and we and/or our contract customers and suppliers, must annually apply
to the DEA for procurement quotas in order to obtain and distribute these substances. As a result, our procurement and production
quotas may not be sufficient to meet commercial demand or to complete clinical trials. Moreover, the DEA may adjust these quotas
from time to time during the year, although the DEA has substantial discretion in whether or not to make such adjustments. Any
delay or refusal by the DEA in establishing our quotas, or modification of our quotas, for controlled substances could delay or
result in the stoppage of our clinical trials or product launches, or could cause trade inventory disruptions for those products
that already been launched, which could have a material adverse effect on our business, financial position, cash flows and stock
price.
If we are unable to maintain an effective
system of internal control over financial reporting, we may be unable to accurately report our financial results.
Management and our independent registered public accounting firm have determined that there were
material weaknesses in our internal controls over financial reporting resulting from a lack of segregation of duties in the
Payroll, Accounting and Procure to Pay cycles. A material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or
interim financial statements will not be prevented or detected on a timely basis.
The reasons for these material weaknesses
and our plans to rectify these weaknesses are described in Part II, Item 9A “Controls and Procedures” of this
Report. There can be no assurance that we will be able to cure these weaknesses or that these weaknesses will not contribute
to, or cause, possible material weaknesses in the future or, that we will be able to implement effectively new or improved
controls. In addition, our management or our independent registered public accounting firm may determine that our internal
control over financial reporting is not effective in the future.
A lack of effective internal control over
financial reporting could cause us to fail to provide accurate financial statements or fail to meet our reporting obligations,
either of which could cause investors to lose confidence in our reported financial information, and have a negative effect on
the trading price of our common stock.
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, 2015, the closing sale price on the OTC Bulletin Board (“OTC-BB”)
of our Common Stock fluctuated from a high of $0.49 per share to a low of $0.20 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:
·
Results of our clinical trials;
·
Approval or disapproval of our ANDAs or NDAs;
·
Announcements of innovations, new products or new patents by us or by our competitors;
·
Governmental regulation;
·
Patent or proprietary rights developments;
·
Proxy contests or litigation;
·
News regarding the efficacy of, safety of or demand for drugs or drug technologies;
·
Economic and market conditions, generally and related to the pharmaceutical industry;
·
Healthcare legislation;
·
Changes in third-party reimbursement policies for drugs; and
·
Fluctuations in our operating results.
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 8, 2015, there
were outstanding shares of preferred stock convertible into approximately 142.9 million shares of Common Stock and warrants to
purchase an aggregate of approximately 70.7 million shares of Common Stock at exercise prices of $0.625 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.
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, distribution 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. On July 14, 2014, this lease was modified, with the material
terms of the modification including the Company occupying the entire 35,000 square feet in the building, with such expansion being
necessary to support our growing commercial operations.
The lease, as modified, includes an initial
term which expires on December 31, 2016 and two tenant renewal options of five years each, with such options being at the sole
discretion of the Company. The property related to this lease is used for the manufacture, packaging, storage and distribution
of pharmaceutical raw materials, finished goods and related documents and materials. The property requires significant construction
and qualification as a prerequisite to achieving suitability for its intended future use. Storage, manufacturing and distribution
operations at the initial 15,000 square foot section in January 2013. Such operations continue, currently.
The additional 20,000 square feet for which
leasehold rights were secured pursuant to the July 2014 lease modification, require significant leasehold improvements and qualification
as a prerequisite for its intended future use. These improvements are currently in progress.
165 Ludlow and 135 Ludlow are hereinafter
referred to as the “Facilities” or the “Northvale Facility”.
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.
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.
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.
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.”
| ITEM 4 | MINE SAFETY DISCLOSURES. |
Not Applicable.
PART II
| ITEM 5 | MARKET FOR COMPANY’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information
Our Common Stock is quoted on the Over-the-Counter
Bulletin Board (OTCBB) under the ticker symbol “ELTP”. The following table shows, for the periods indicated,
the high and low bid prices per share of our Common Stock as by OTC Bulletin Board. Over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
| Quarter Ended | |
High | | |
Low | |
| Fiscal Year Ending March 31, 2015 | |
| | | |
| | |
| March 31, 2015 | |
$ | 0.33 | | |
| 0.20 | |
| December 31, 2014 | |
$ | 0.34 | | |
| 0.17 | |
| September 30, 2014 | |
$ | 0.45 | | |
| 0.28 | |
| June 30, 2014 | |
$ | 0.51 | | |
| 0.27 | |
| | |
| | | |
| | |
| Fiscal Year Ending March 31, 2014 | |
| | | |
| | |
| March 31, 2014 | |
$ | 0.94 | | |
| 0.14 | |
| December 31, 2013 | |
$ | 0.14 | | |
| 0.10 | |
| September 30, 2013 | |
$ | 0.16 | | |
| 0.07 | |
| June 30, 2013 | |
$ | 0.08 | | |
| 0.07 | |
As of June 8, 2015, the last reported sale price of our Common
Stock, as reported by the OTCBB, was $0.22.
Holders
As of June 8, 2015, there were, respectively,
approximately 127 and 1 holders of record of our Common Stock and Series I Preferred Stock.
Dividends
We have never paid cash dividends on our
Common Stock. We currently anticipate that we will retain all available funds for use in the operation and expansion of our business.
Recent Sales of Unregistered Securities
During the quarter ended March 31, 2015,
the Company issued an aggregate of 6,602,847 shares of Common Stock, with such shares constituting unregistered securities, consisting
of 2,766,563 shares of Common Stock issued to Directors and Officers in payment of Directors Fees and Salaries in accordance with
the Company’s policy on Director Compensation, or the employment agreements with officers of the Company, as appropriate;
and 3,836,284 shares of Common Stock issued pursuant to the exercise of warrants
Securities Authorized for Issuance
under Equity Compensation Plans
The following table sets forth certain
information regarding Elite’s equity compensation plans as of March 31, 2015.
| Plan Category | |
Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | |
Weighted-average exercise price per share of outstanding options, warrants and rights (b) | | |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |
| Equity compensation plans approved by security holders | (1) |
| --- | | |
| --- | | |
| 3,000,000 | |
| Equity compensation plans not approved by security holders | |
| --- | | |
| --- | | |
| 3,029,227 | (2) |
| | |
| | | |
| | | |
| | |
| Total | |
| --- | | |
| --- | | |
| 6,029,227 | |
(1) Represents securities reserved and available for grant under
the 2014 Equity Incentive Plan
(2) Represents securities reserved and available for grant under
the 2009 Equity Incentive Plan
2014 Equity Incentive Plan
Our 2014 Equity Incentive Plan (the “2014
Plan”) was adopted by the Board on March 17, 2014, to attract, motivate and retain officers, employees, consultants, and
directors by issuing common stock based incentives to directors, officers, employees and consultants who are selected for participation.
By relating incentive compensation to increases in shareholder value, it is hoped that these individuals will both continue in
the long-term service of the Company and be motivated to experience a heightened interest and participate in the future success
of Company operations. An aggregate of 3,000,000 common shares are reserved for grant and issuance pursuant to the 2014 Plan. The
2014 Plan is administered and interpreted by our Compensation Committee (the “Administrator”). Awards under the 2014
Plan may be granted in any one or all of the following forms: (i) incentive stock options (“ISOs”) intended to qualify
under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”); (ii) non-qualified stock options (“NSOs”);
(iii) stock appreciation rights, which may be granted in tandem with options or on a stand-alone basis; (iv) shares of restricted
stock; (v) shares of unrestricted stock; (vi) performance shares, and (vii) performance units.
Options may not be granted under the 2014
Plan at an exercise price of less than the fair market value of the common stock on the date of grant and the term of options cannot
exceed ten years. ISOs may only be granted to persons who are employees of the Company. The exercise price of an ISO granted to
a holder of more than 10% of the common stock must be at least 110% of the fair market value of the common stock on the date of
grant, and the term of these options cannot exceed five years.
The Administrator also may grant stock
appreciation rights. Stock appreciation rights represent the right to receive upon exercise an amount payable in cash or common
stock equal to (A) the number of shares with respect to which the stock appreciation right is being exercised multiplied by (B)
the excess of (i) the fair market value of a share of common stock on the date the award is exercised over (ii) the exercise price
specified in the award agreement.
Under the performance award component of
the 2014 Plan, participants may be granted an award denominated in shares of common stock or in dollars. Achievement of the performance
targets, or multiple performance targets established by the Administrator relating to corporate, group, unit or individual performance
based upon standards set by the Administrator shall entitle the participant to payment at the full amount or a portion of the amount
specified with respect to the award, at the discretion of the Administrator based on its evaluation of the performance of the target
goals applicable to such award. Payment may be made in cash, common stock or any combination thereof, as determined by the Administrator,
and shall be adjusted in the event the participant ceases to be an employee of the Company before the end of a performance cycle
by reason of death, disability or retirement.
Under the stock component of the 2014 Plan,
the Administrator may, in selected cases, grant to a plan participant a given number of shares of restricted stock or unrestricted
stock. Restricted stock under the 2014 Plan is common stock restricted as to sale pending fulfillment of such vesting schedule
and employment requirements as the Administrator shall determine. Prior to the lifting of the restrictions, the participant will
nevertheless be entitled to receive distributions in liquidation and dividends on, and to vote the shares of, the restricted stock.
The 2014 Plan provides for forfeiture of restricted stock for breach of conditions of grant.
The 2014 Plan also permits the board of
directors (and not the Compensation Committee) to grant awards of NSOs, restricted stock or unrestricted stock to non-employee
directors. The board may authorize individual grants or adopt one or more formulas for grants of awards to the non-employee directors.
All options granted to non-employee directors must have an exercise price equal to the fair market value at the date of grant.
The exercise price of awards may be paid
in cash, in shares of common stock (valued at fair market value at the date of exercise), by delivery of a notice of exercise together
with irrevocable instructions to a broker to deliver to the Company the proceeds of the sale of common stock or of a loan from
the broker sufficient to pay the exercise price, by having the Company withhold from shares being exercised the number of shares
having a fair market value equal to the exercise price for all shares being exercised, or by a combination of the foregoing means
of payment, as may be determined by the Administrator.
2009 Equity Incentive Plan
Our 2009 Equity Incentive
Plan was adopted by the Board on November 24, 2009, to provide incentives to attract, retain and motivate eligible persons whose
present and potential contributions are important to the success of Elite and its subsidiaries, by offering them an opportunity
to participate in our future performance through awards of Options, the right to purchase Common Stock and Stock Bonuses. An aggregate
of 8,000,000 common shares are reserved for grant and issuance pursuant to the 2009 Equity Incentive Plan. The 2009 Equity Incentive
Plan is administered and interpreted by our Compensation Committee (the “Compensation Committee”). Under the 2009 Equity
Incentive Plan, we are permitted to grant both incentive stock options (“Incentive Stock Options” or “ISOs”)
within the meaning of Section 422 of the Internal Revenue Code (the “Code”) to employees, and other options
which do not qualify as Incentive Stock Options (the “Non-Qualified Options”) to employees, officers, Directors
of and consultants to Elite. The per share purchase price of options granted under the 2009 Equity Incentive Plan may not be less
than the fair market value of the shares on the date of the grant, provided that the exercise price of any ISO granted to a ten
percent stockholder will not be less than 110% of the fair market value on the date of the grant. Recipients of ISO’s and
Non-Qualified Options have no voting, dividend or other rights as stockholders with respect to shares of Common Stock covered by
options prior to becoming the holders of record of such shares.
Under the 2009 Equity Incentive Plan, we
also are permitted to offer stock awards (“2009 Equity Incentive Plan Stock Awards”) to eligible persons. The 2009
Equity Incentive Plan defines such stock awards as an offer by us to sell to an eligible person shares that may or may not be subject
to restrictions. The purchase of price of shares sold pursuant to an 2009 Equity Incentive Plan Stock Award may not be less than
the fair market value of the shares on the grant date, provided, however, that the number of shares issued for the payment of employee
and officers’ salaries, or directors’ fees will be computed using the average daily closing price, which is defined
as the simple average of the closing price of each trading day in the quarter or other applicable period for which payment is due.
We also are permitted to award stock bonuses
under the 2009 Equity Incentive Plan, which defines such stock bonuses as an award of shares for extraordinary services rendered
to the Company.
Issuer Purchases of Equity Securities
None.
| ITEM 6 | SELECTED FINANCIAL DATA |
Not applicable.
| ITEM 7 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION |
General
The following discussion and analysis should
be read with the financial statements and accompanying notes, included elsewhere in this Annual Report on Form 10-K and the information
described in Item 1A “Risk Factors” and in “Special Note Regarding Forward Looking Statements” above. The
following discussion is intended to assist the reader in understanding and evaluating our financial position.
Critical Accounting Policies and Estimates
Management’s discussion
addresses our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of
financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management
evaluates its estimates and judgment, including those related to bad debts, intangible assets, income taxes, workers compensation,
and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors
that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Management believes
the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation
of its Consolidated Financial Statements. Our most critical accounting policies include the recognition of revenue upon completion
of certain phases of projects under research and development contracts. We also assess a need for an allowance to reduce our deferred
tax assets to the amount that we believe is more likely than not to be realized. We assess the recoverability of inventory, long-lived
assets and intangible assets whenever events or changes in circumstances indicate that the carrying value of the asset may not
be recoverable. We assess our exposure to current commitments and contingencies. It should be noted that actual results may differ
from these estimates under different assumptions or conditions.
Liquidity and Capital
Resources
Cash and Working Capital
As of March 31, 2015, the Company had cash
on hand of $7.5 million and a working capital surplus of $7.3 million. The Company believes that such resources, combined with
the Company’s access to the remaining balance of the equity line with Lincoln Park Capital, and approximately $400,000 available
under the Hakim Credit Line are sufficient to fund operations through the current operating cycle. For the fiscal year ended March
31, 2015, it had losses from operations totaling $16.5 million, net other income totaling $45.4 million and a net income of $28.9
million. Please note that the Company’s other income/(expenses) are significantly influenced by the fluctuations in the fair
value of outstanding preferred share and warrant derivatives, and that such fair values strongly correlate to and vary inversely
with the market share price of the Company’s Common Stock.
The Company does not
anticipate being profitable for the fiscal year ending March 31, 2016, due in large part to its plans to conduct clinical development
and commercialization activities on a range of abuse deterrent opioid products, on an accelerated and simultaneous basis. Such
activities require the investment of significant amounts in clinical trials, safety and efficacy studies, bioequivalence studies,
product manufacturing, regulatory expertise and filings, as well as investments in manufacturing and lab equipment and software.
In order to finance these significant expenditures, the Company entered into two purchase agreements with Lincoln Park Capital
Fund, LLC (“Lincoln Park”), with such agreements providing the company with equity lines totaling $50 million. We believe
this amount of financing, if received, is sufficient to fund the commercialization of the abuse deterrent opioid products identified.
Please see below for further details on the financing transactions with Lincoln Park.
In addition, the Company had previously
received Notices of Default from the Trustee of the NJEDA Bonds as a result of the utilization of the debt service reserve being
used to pay interest payments as well as the company’s failure to make scheduled principal payments. All monetary defaults
have been cured during Fiscal 2015 and the Company is current on all NJEDA Bond interest and principal payments. See “NJEDA
Bonds” below and the Risk Factor in Part I, Item 1A entitled “A notice of default was issued by the New Jersey Economic
Development Authority in relation to prior obligations of our tax-exempt bonds. Although we are current in our payments under these
bonds, If the principal balances due under these bonds are accelerated pursuant to the notice of default, our ability to operate
in the future will be materially and adversely affected”.
Lincoln Park Capital
Pursuant to an April
19, 2013 purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”) we had the right to sell to and Lincoln
Park was obligated to purchase up to $10 million in shares of the Company’s Common Stock, subject to certain limitations,
from time to time, over the 36 month period commencing on May 9, 2013. We raised the entire $10 million from the sale of shares
to Lincoln Park pursuant to that agreement. That agreement terminated in March 2014 with the sale of all shares covered by that
agreement.
On April 10, 2014, we
entered into another Purchase Agreement and a Registration Rights Agreement with Lincoln Park. Pursuant to the terms of the Purchase
Agreement, Lincoln Park has agreed to purchase from us up to $40 million of our common stock (subject to certain limitations) from
time to time over a 36-month period. Pursuant to the terms of the Registration Rights Agreement, we have filed with the SEC a registration
statement to register for resale under the Securities Act the shares that have been or may be issued to Lincoln Park under the
Purchase Agreement. That registration statement was declared effective by the SEC on May 1, 2014 A post-effective amendment to
that Registration Statement was subsequently filed with the SEC and declared effective on July 1, 2014.
Upon execution of the
Purchase Agreement, we have issued 1,928,641 shares of our common stock to Lincoln Park pursuant to the Purchase Agreement as consideration
for its commitment to purchase additional shares of our common stock under that agreement and we are obligated to issue up to an
additional 1,928,641 commitment shares to Lincoln Park pro rata as up to $40 million of our common stock is purchased by Lincoln
Park. Through June 8, 2015, we have sold to Lincoln Park an aggregate of 55,153,207 shares under the Purchase Agreement for aggregate
gross proceeds of approximately $15.0 million. In addition, we have issued an additional 2,649,494 Commitment Shares.
We may, from time to
time and at our sole discretion but no more frequently than every other business day, direct Lincoln Park to purchase (a “Regular
Purchase”) up to 500,000 shares of our common stock on any such business day, increasing up to 800,000 shares, depending
upon the closing sale price of the common stock, provided that in no event shall Lincoln Park purchase more than $760,000 worth
of our common stock on any single business day. The purchase price of shares of Common Stock related to the future Regular Purchase
funding will be based on the prevailing market prices of such shares at the time of sales (or over a period of up to 10 business
days leading up to such time), 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 of $0.10 per share, subject to adjustment.
In addition to Regular
Purchases, on any business day on which we have properly submitted a Regular Purchase notice and the closing sale price is not
below $0.15, we may purchase (an “Accelerated Purchase”) an additional “accelerated amount” under certain
circumstances. The amount of any Accelerated Purchase cannot exceed the lesser of three times the number of purchase shares purchased
pursuant to the corresponding Regular Purchase; and 30% of the aggregate shares of our common stock traded during normal trading
hours on the purchase date. The purchase price per share for each such Accelerated Purchase will be equal to the lower of (i) 97%
of the volume weighted average price during the purchase date; or (ii) the closing sale price of our common stock on the purchase
date.
In the case of both Regular
Purchases and Accelerated Purchases, the purchase price per share will be equitably adjusted for any reorganization, recapitalization,
non-cash dividend, stock split, reverse stock split or other similar transaction occurring during the business days used to compute
the purchase price.
Other than as set forth
above, there are no trading volume requirements or restrictions under the Purchase Agreement, and we will control the timing and
amount of any sales of our common stock to Lincoln Park.
Our sales of shares of
Common Stock to Lincoln Park under the Lincoln Park 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 Common Stock.
The Lincoln Park Purchase
Agreement and the Lincoln Park 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 Lincoln Park Purchase Agreement at any time, at no cost or penalty. Actual sales of shares of Common Stock to Lincoln Park
under the Lincoln Park Purchase Agreement will depend on a variety of factors to be determined by the Company from time to time,
including, without limitation, market conditions, the trading price of the Common Stock and determinations by the Company as to
appropriate sources of funding for the Company and its operations. There are no trading volume requirements or restrictions under
the Lincoln Park 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 Lincoln Park 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 Lincoln Park
Purchase Agreement will be used for general corporate purposes and working capital requirements.
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 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, 2015, the principal balance owed under the Credit Line was $583,071
with an additional $18,105 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”). Please see “Elite’s Acquisition of a 13 Abbreviated New Drug Applications (“ANDAs”)”
in Part I, Item 1 Business, above for more information on the Acquisition. 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.
Please also refer to our audited financial
statements and notes to financial statements as and for the fiscal year ended March 31, 2015 for further details.
Despite having entered
into the Hakim Credit Line Agreement and the Lincoln Park Purchase Agreement we still may be required to seek additional capital
in the future and there can be no assurances that Elite will be able to obtain such additional capital on favorable terms, if at
all.
Based upon our current cash position, management
has undertaken a review of our operations and implemented cost-cutting measures in an effort to eliminate any expenses which are
not deemed critical to our current strategic objectives. We will continue this process without impeding our ability to proceed
with our critical strategic goals, which, as noted above, include developing our pain management and other products and manufacturing
our current products.
Cash at March 31, 2015 was approximately
$7.5 million, an increase of approximately $0.6 million from the approximately $6.9 million balance of cash at March 31, 2014.
As of March 31, 2015,
our principal source of liquidity was approximately $6.9 million of cash. Additionally, we may have access to funds through the
exercise of outstanding stock options and warrants and, as mentioned above, from the Lincoln Park Purchase Agreement, and the Hakim
Credit Line. There can be no assurance that any of these sources will generate or provide sufficient cash.
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”). The
refinancing involved borrowing $4,155,000, evidenced by a 6.5% Series A Note in the principal amount of $3,660,000 maturing on
September 1, 2030 and a 9% Series B Note in the principal amount of $495,000 maturing on September 1, 2012. The net proceeds, after
payment of issuance costs, were used (i) to redeem the outstanding tax-exempt Bonds originally issued by the Authority on September
2, 1999, (ii) refinance other equipment financing and (iii) for the purchase of certain equipment to be used in the manufacture
of pharmaceutical products. As of March 31, 2015, 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 of $366,000 in relation to the Series A Notes.
Bond issue costs of $354,000 were paid
from the bond proceeds and are being amortized over the life of the bonds. Amortization of bond issuance costs amounted to $14,177
for the fiscal year ended March 31, 2015.
The NJEDA Bonds require the Company to
make an annual principal payment on September 1st of varying amounts as specified in the loan documents and semi-annual interest
payments on March 1st and September 1st, equal to interest due on the outstanding principal at the applicable rate for the semi-annual
period just ended.
As of the date of filing of this Annual
Report on Form 10-K, there are no interest or principal amounts in arrears. The Series B Notes were retired, at par in July 2014.
Off-Balance Sheet
Arrangements
We have not entered into
any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources
that would be considered material to investors.
Effects of Inflation
We are subject to price
risks arising from price fluctuations in the market prices of the products that we sell. Management does not believe that inflation
risk is material to our business or our consolidated financial position, results of operations, or cash flows.
Results of Consolidated Operations:
Year Ended March 31, 2015 as compared to the Year Ended
March 31, 2014
Our revenues for Fiscal 2015 were $5.0
million, an increase of $0.4 million or approximately 9% from revenues for the comparable period of the prior year, and consisted
of $3.9 million in manufacturing fees, $0.005 million in lab and product development fees and $1.1 million in license fees.
Revenues for Fiscal 2014 consisted of $3.0
million in manufacturing fees, $0.08 million in lab and product development fees, and $1.5 million in license fees. Manufacturing
fees increased by approximately 30% as a result of the continued growth in the Company’s generic product sales combine with
the launch of Isradipine product line in January 2015.
Licensing fees decreased by approximately
26% or $0.4 million, from $1.5 million in Fiscal 2014 to $1.2 million in Fiscal 2015. This decrease is due to Fiscal 2014 license
fee revenues including a one-time milestone of $0.6 million earned pursuant to the Epic Agreement.
Research and development costs for Fiscal
2015 were approximately $14.8 million, an increase of approximately $10.9 million or approximately 275% from $4.0 million of such
costs for the comparable period of the prior year. The increase was primarily due to increased activities related to the development
of Elite’s abuse deterrent opioid products. Spending included clinical and lab studies (such as category 1, category 2 and
category 3 testing as described under the FDA’s draft Guidance for Industry, Abuse-Deterrent Opioids – Evaluation and
Labeling, January 2013), process development, analytical development, and regulatory development for products in our pipeline.
General and administrative expenses for
Fiscal 2015 were $2.9 million an increase of $0.8 million or approximately 40% from $2.1 million of general and administrative
expenses for the comparable period of the prior year. The increase was primarily due to significant increases in regulatory and
regulatory compliance costs, including, without limitation, increased fees paid to the US-FDA and the hiring of additional staff
to support regulatory compliance activities, additional costs incurred in relation to compliance with the Sarbanes-Oxley Act and
significant increases in legal fees, insurance and employee benefits. Please note that these higher levels of overhead costs are
expected to continue.
Depreciation and amortization for Fiscal
2015 was $0.6 million, an increase of $0.1 million or approximately 23%, from $0.5 million for the comparable period of the prior
year. The increase was primarily due to the expansion and upgrading of the Northvale Facility, which has required substantial investments
in property, plant and equipment.
Non-cash compensation through the issuance
of stock options and warrants for Fiscal 2015 was approximately $0.3 million, an increase of $0.17 million, or approximately 205%
from $0.09 million for the comparable period of the prior year. The increase was due to the issuance of options to purchase an
aggregate of 2,590,000 shares of Common Stock to various employees during Fiscal 2015, primarily pursuant to employment agreements,
and the timing of the amortization schedule established at the time of issuance of the related stock options
As a result of the foregoing, our loss
from operations for Fiscal 2015 was $16.5 million, compared to a loss from operations of $5.3 million for Fiscal 2014.
Other expenses for Fiscal 2015 were a net
income of $45.4 million, an increase in net other income of $137.0 million from the net other expense of $91.5 million for the
comparable period of the prior year. The increase in other income was due to derivative income relating to changes in the fair
value of our preferred shares, outstanding warrants and convertible note payable derivatives during Fiscal 2015 totaling $44.1
million, as compared to a net derivative expense of $89.5 million for the comparable period of the prior year, a $133.6 million
overall increase in other income. Please note that derivative income/(expenses) are most significantly determined by the closing
price of the Company’s Common Stock as of the end of each annual or quarterly reporting period, and also as of the date on
which shares of the Company’s convertible preferred stock are converted into common stock, with incomes being generated by
decreases in such closing prices and expenses being incurred by increases in such closing prices. The closing price of the Company’s
Common Stock as of March 31, 2015 was $0.25, as compared to a closing price of $0.41 as of March 31, 2014. These variances in the
closing price of the Company’s Common Stock as compared with the closing price at the end of the immediately preceding fiscal
year end were significant factors in the derivative income recorded during the year ended March 31, 2015.
As a result of the foregoing, our net income
for Fiscal 2014 was $28.9 million, compared to a net loss of $96.6 million for Fiscal 2014.
Material Changes in Financial Condition
Our working capital
(total current assets less total current liabilities) increased by $3.5 million from $3.8 million as of March 31, 2014 to $7.3
million as of March 31, 2015, with such increase being primarily due to the loss from operations sustained during Fiscal 2015
being financed by capital financings that included $13.2 million in proceeds from the sale of Common Stock pursuant to the Purchase
Agreement with Lincoln Park, $0.8 million in proceeds from the exercise of cash warrants and options and $5.0 million in proceeds
from the sale of the Company’s investment in Novel Labs, offset in large part by purchases of fixed assets and leasehold
improvements totaling $1.9 million and the retirement of $1.3 million in NJEDA Bonds and other loans. Please note that capital
financings provide cash to the Company without a corresponding current liability and accordingly have an accretive effect on working
capital.
We experienced negative
cash flows from operations of $15.1 million for Fiscal 2015, primarily due to our net income of $28.9 million, offset by non-cash
other income items totaling $43.2 million included in the net income, combined with increases in accounts payable and accrued liabilities
of $1.2 million (resulting in a positive effect on cash flow), and offset by increases in accounts receivable, inventory and prepaid
expenses of $2.1 million (resulting in a negative effective on cash flow).
| ITEM 7A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK |
Not applicable
| ITEM 8 | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Attached hereto and filed as a part of
this Annual Report on Form 10-K are our Consolidated Financial Statements, beginning on page F-1.
| ITEM 9 | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE |
None
ITEM 9A
Evaluation of Disclosure Controls and Procedures
The Company has established disclosure
controls and procedures that are designed to ensure that information required to be disclosed in reports filed or submitted under
the Securities Exchange Act of 1934 (“the Exchange Act”), (i) recorded, processed, summarized and reported within the
time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management to allow for
timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the
controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of
fraud, if any, within a company have been detected.
Under the supervision and with the participation
of our management, including the Chief Executive and Chief Financial Officers, we evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act as of the
end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, our Chief Executive and Chief Financial
Officers concluded that, due to a material weakness in our internal control over financial reporting, as described below, our disclosure
controls and procedures were not effective as of March 31, 2015.
Management’s Annual Report on
Internal Control over Financial Reporting
The Company’s management is responsible
for establishing and maintaining adequate internal control over financial reporting, with such controls being as defined in Rule
13a-15(f) of the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of,
the Company’s principal executive and principal financial offers and effected by the Company’s Board of Directors,
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes, with such being in accordance with generally accepted accounting principles (“GAAP”).
Under the supervision of, and with the
participation of the Company’s management, including, without limitation, the Chief Executive Officer and Chief Financial
Officer, the Company conducted an evaluation of the effectiveness of its internal control over financial over financial reporting
as of March 31, 2015, using the criteria established in Internal Control-Integrated Framework issued by the Commission of
Sponsoring Organizations of the Treadway Commission (“COSO”), as revised in 2013. Based on that evaluation under those
criteria, management has determined that, at March 31, 2015, there were material weaknesses in our internal controls over financial
reporting resulting from a lack of segregation of duties in the Payroll, Accounting and Procure to Pay cycles. A material weakness
is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable
possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely
basis.
Adequate segregation of duties increases
the likelihood that unintentional or intentional errors will be detected by providing separate processing of different individuals
at various stages of transaction processing, with no single employee or group of employees being in a position to both perpetrate
and conceal errors or irregularities in the normal course of their duties.
Adequate segregation of duties is based
on the following principles:
| · | Access to master data is segregated from
transaction processing and transaction approval |
| · | The preparation/execution of an activity
is segregated from its approval process |
| · | System access rights are restricted and
granted on a “need only basis” with user profiles being duly approved by management, properly monitored and documented. |
| · | Mitigating controls being required in
situations where proper segregation of duties is not possible. However, it must be noted that mitigating controls are less desirable
than proper segregation of duties, because such controls are detective by nature, rather than preventative. Complete reliance on
mitigating controls is not ideal due to the increased effort required to investigate and correct errors identified, as opposed
to such errors being prevented from occurring under controls which provide adequate segregation of duties. |
Management’s evaluation of the internal
controls over financial reporting identified deficiencies in the design and operations of controls with respect to the above segregation
of duties objectives concerning the processing of payroll and payroll related transactions, the recording of payments and the processing
of vendor related transactions, with such deficiencies being primarily due to the size of the Company’s accounting department,
the lack of a separate and dedicated human resources function and department, and limited enterprise resource systems.
When financial conditions permit, the Company
intends on investing in more robust enterprise resource systems, increase accounting staff and establish a separate and independently
functioning human resources department. Please also note that there can be no assurances given that financial conditions will improve
to such an extent that the resources required for these investments in systems and personnel will be available.
The effectiveness of the Company’s
internal control over financial reporting as of March 31, 2015 has been audited by Demetrius Berkower LLC, the Company’s
independent registered public accounting firm, as stated in their report which is included in this Annual Report on Form 10-K.
Changes in Internal Control over Financial
Reporting
There have been no changes in our internal
control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during
the fourth quarter of Fiscal 2015 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and
Stockholders of Elite Pharmaceuticals, Inc. & Subsidiary
We
have audited Elite Pharmaceuticals, Inc. & Subsidiary’s (“the Company”) internal control over financial reporting
as of March 31, 2015, based on criteria established in Internal Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on the company’s internal control over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
A
company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets
that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A
material weakness is a control deficiency, or combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will
not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s
assessment. Material weaknesses in internal control over financials reporting resulted from a lack of segregation of duties in
the payroll, accounting and procure to pay cycles. These material weaknesses were considered in determining the nature, timing,
and extent of audit tests applied in our audit of the 2015 financial statements, and this report does not affect our report dated
June 15, 2015, on those financial statements.
In
our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control
criteria, Elite Pharmaceuticals Inc, & Subsidiary has not maintained effective internal control over financial reporting as
of March 31, 2015, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance
sheets and the related statements of operations, stockholders’ deficit, and cash flows of Elite Pharmaceuticals, Inc. and
Subsidiary, and our report dated June 15, 2015, expressed an unqualified opinion.
| /s/Demetrius Berkower LLC |
| |
|
| Wayne, New Jersey |
| June 15, 2015 |
|
None.
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 Tier2 |
| Nasrat Hakim |
54 |
President, Chief Executive Officer and Director |
August 1, 2013 |
III |
| Jerry Treppel1 |
61 |
Chairman |
November 2008 |
I |
| Barry Dash, Ph. D. |
84 |
Director |
April 2005 |
II |
| Jeenarine Narine |
65 |
Director |
June 2009 |
I |
| Jeffrey Whitnell |
59 |
Director |
October 2009 |
III |
| Ashok G. Nigalaye, Ph.D. |
63 |
Chief Scientific Officer and Director |
June 2009-June 20152 |
|
| Carter J. Ward |
51 |
Chief Financial Officer, Secretary and Treasurer |
July 2009 |
|
| Douglas Plassche |
51 |
Executive Vice President of Operations |
August 2013 |
|
(1)
Mr. Treppel served as CEO from September 15, 2009 to July 31, 2013.
(2)
Dr. Ashok G. Nigalaye served as a Director from June 2009 to June 5, 2015, and as Chief Scientific Officer from September 2009
to June 5, 2015.
(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.
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 (see Item 13: “Certain Relationships And Related Transactions And Director Independence; Certain Related Person
Transactions; Strategic Alliance Agreement/Transactions With Epic Pharma LLC And Epic Investments LLC” below). 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 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. Mr. Whitnell
was the Chief Financial Officer for Neurowave Medical Technologies, a medical device company from June 2010 to 2015. 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.
Ashok G. Nigalaye, Ph.D.
Dr. Ashok G. Nigalaye served as
a Director from June 24, 2009 to June 5, 2015, member of the Compensation Committee from October 23, 2009 to June 5, 2015 and
Chief Scientific Officer from September 15, 2009 to June 5, 2015. 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.
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.
Douglas Plassche
Douglas Plassche has served as Executive
Vice President of Operations since August 2013.
Prior to joining the Company, from 2009
to 2013, Mr. Plassche served as the Managing Director of the New Jersey Solid Oral Dose Operations of Actavis, overseeing 450 employees
and the production of more than 100 products. From 2007 to 2009, Mr. Plassche was the Senior Director of Manufacturing for PAR
Pharmaceuticals, overseeing 200 employees and the production of more than 70 products. From 1990 – 2007, Mr. Plassche was
employed by Schering-Plough, progressing steadily through multiple disciplines, locations and technical operations sectors with
increasing levels of responsibility. Mr. Plassche has a Bachelors Degree in Economics from Rochester University.
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, 2015, Mr. Douglass Plassche filed Form 3 late on Form 5 and reported two transactions late on this Form 5.
Committees of the Board
The Board of Directors has an Audit Committee,
a Compensation Committee and a Nominating Committee.
Audit Committee
During Fiscal 2015, 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 2015, the members of the
Compensation Committee were Dr. Barry Dash (Chairman of the Nominating Committee), Dr. Ashok Nigalaye and Jeffrey Whitnell. Please
note that Dr. Nigalaye resigned as a Director on June 5, 2015.
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, 2015, 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. Please note that Dr. Ashok Nigalaye resigned as a Director on June 5, 2015.
Named Executive Officers and Key Employees
The named executive officers and key employees
for the fiscal year ended March 31, 2015 were:
·
Nasrat Hakim, Chief Executive Officer and President for the full year.
·
Carter J. Ward, Chief Financial Officer, Secretary and Treasurer for the full year.
·
Douglas Plassche, Executive Vice President 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.
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.
On January 1, 2014, Mr. Ward’s compensation
was adjusted 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.
On March 1, 2015, Mr. Ward’s compensation
was adjusted to include a total compensation of $187,200, consisting of $157,200 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, divided by the average daily closing price of the Company’s Common Stock for the quarter just ended.
Douglas Plassche
On July 20, 2013, the Company entered into
an employment agreement with Mr. Douglas Plassche (the “Plassche Employment Agreement”). Pursuant to the Plassche Employment
Agreement, Mr. Plassche serves as an at-will employee, in the position of Vice President of Operations, commencing on August 12,
2013. The Plassche Employment Agreement includes a total base compensation of $236,000, consisting of $211,000 being paid in accordance
with the Company’s payroll practices and $25,000 being paid by the issuance of restricted shares of Common Stock in lieu
of cash. Mr. Plassche is also eligible for an annual bonus in cash and/or equity based awards for up to an equivalent of 30% of
base salary, with such annual bonus being granted based upon the achievement of agreed milestones and at the discretion of the
Company and its Chief Executive Officer. In addition, pursuant to the Plassche Employment Agreement, he was granted options to
purchase 3,000,000 shares of Common Stock, at a price of $ 0.07 per share, (the closing price of the Common Stock on the
date of the Plassche Employment Agreement). The options were issued pursuant to the 2004 Employee Stock Option Plan and vest over
a period of three years with the vesting period commencing one year from the date of issuance.
Mr. Plassche’s employment is terminable
by either party. If the Company terminates Mr. Plassche without cause, Mr. Plassche is entitled to an amount equal to six months
of base annual salary in effect upon the date of termination.
On March 1, 2015, Mr. Plassche’s
compensation was adjusted to include a total base compensation of $249,800, consisting of $224,800 being paid in accordance with
the Company’s payroll practices and $25,000 being paid by the issuance of restricted shares of Common Stock in lieu of cash.
The Common Stock component of Mr. Plassche’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, 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.
Potential Payments Upon Termination
or Change of Control
We do not presently provide the Named Executive
Officers with any plan or arrangement, other than those that may be contained in the employment contracts of Mr. Nasrat Hakim and
Mr. Douglass Plassche, as above, 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.
Compensation of named executive officers
| Summary Compensation Table |
| Name and Principal Position | |
Fiscal Year | | |
Salary ($) | | |
Bonus ($) | | |
Option Awards ($) | | |
All Other Compensation ($) | | |
Total ($) | |
| Nasrat Hakim, President and Chief
Executive Officer(2) |
| | |
| 2015 | (1) | |
| 350,000 | (3) | |
| 350,000 | (4) | |
| --- | | |
| 18,000 | (5) | |
| 718,000 | |
| | |
| 2014 | (1) | |
| 233,254 | (3) | |
| 233,254 | (4) | |
| --- | | |
| 12,000 | (5) | |
| 478,507 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Jerry Treppel, Chief Executive
Officer and Chairman of the Board of Directors(6) |
| | |
| 2015 | (1) | |
| --- | | |
| --- | | |
| --- | | |
| 30,000 | (7) | |
| 30,000 | |
| | |
| 2014 | (1) | |
| --- | | |
| --- | | |
| --- | | |
| 30,000 | (7) | |
| 30,000 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Chris Dick, President and Chief
Operating Officer(8) |
| | |
| 2015 | (1) | |
| --- | | |
| --- | | |
| --- | | |
| --- | | |
| --- | |
| | |
| 2014 | (1) | |
| 39,787 | (9) | |
| --- | | |
| --- | | |
| 1,400 | (5) | |
| 33,768 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Carter J. Ward, Chief Financial Officer |
| | |
| 2015 | (1) | |
| 180,600 | (10) | |
| 36,000 | (11) | |
| --- | | |
| --- | | |
| 216,600 | |
| | |
| 2014 | (1) | |
| 168,750 | (10) | |
| --- | | |
| --- | | |
| --- | | |
| 168,750 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Douglas Plassche, Executive Vice
President(12) |
| | |
| 2015 | (1) | |
| 231,150 | (13) | |
| 69,000 | (14) | |
| --- | | |
| 6,000 | (5) | |
| 306,150 | |
| | |
| 2014 | (1) | |
| 146,948 | (13) | |
| 23,926 | (14) | |
| 202,497 | (15) | |
| 3,750 | (5) | |
| 377,121 | |
| (1) |
Represents the fiscal years ended March 31, 2015 and 2014, respectively. |
| |
|
| (2) |
Mr. Hakim joined the Company in August 2013. |
| |
|
| (3) |
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 802,745 shares of Common Stock
were issued to, and 366,061 shares of Common Stock are due and owing to Mr. Hakim for salaries earned by Mr. Hakim during Fiscal
2015.
A total of 1,528,822 shares of Common Stock
were issued to Mr. Hakim for salaries earned during the portion of Fiscal 2014 that Mr. Hakim was employed by the Company. |
| |
|
| (4) |
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 802,745 shares of Common Stock
were issued to, and 366,061 shares of Common Stock are due and owing to Mr. Hakim for bonuses earned by Mr. Hakim during Fiscal
2015.
A total of 1,528,822 shares of Common Stock
were issued to Mr. Hakim for bonuses earned during the portion of Fiscal 2014 that Mr. Hakim was employed by the Company. |
| (5) |
Represents amounts paid for auto allowance. |
| |
|
| (6) |
Mr. Treppel stepped down from his position as Chief Executive Officer in August 2013 and is currently the Chairman of the Board of Directors. |
| |
|
| (7) |
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 68,807 shares of Common Stock
were issued to, and 31,377 shares of Common Stock are due and owing to Mr. Treppel for Chairman fees earned during Fiscal 2015.
A total of 349,062 shares of Common Stock
were issued to Mr. Treppel for Chairman fees earned during Fiscal 2014. |
| |
|
| (8) |
Mr. Dick stepped down from his position as President and Chief Operating Officer in May 2013. |
| |
|
| (9) |
Represents salaries due to Mr. Dick for the period beginning on April 1, 2013 and ending with Mr. Dick’s resignation on May 24, 2013, and consists of $27,951 in salaries paid in accordance with the Company’s payroll practices and $11,836 being paid via the issuance of 150,390 shares of Common Stock in lieu of cash, with the amount of shares being equal to the quotient of the amount due divided by the simple average of the closing prices on the Company’s Common Stock for each day of the period just ended, pursuant to the employment agreement with Mr. Dick and with |
| |
|
| (10) |
Represents total salaries due to Mr. Ward
pursuant to the Ward Employment Agreement.
Fiscal 2015 salaries consist of $150,600
being paid in accordance with the Company’s payroll practices and $30,000 being paid via the issuance of Common Stock in
lieu of cash.
Fiscal 2014 salaries consist of $131,250
being paid in accordance with the Company’s payroll practices and $30,000 being paid via the issuance of Common Stock in
lieu of cash.
A total of 68,807 shares of Common Stock
were issued to, and 31,377 shares of Common Stock are due and owing to Mr. Ward for salaries earned during Fiscal 2015.
A total of 349,062 shares of Common Stock
were issued to Mr. Ward for salaries earned during Fiscal 2014. |
| |
|
| (11) |
Discretionary bonuses awarded by the Chief Executive Officer |
| |
|
| (12) |
Mr. Plassche joined the Company in August 2013. |
| |
|
| (13) |
Represents total salaries due to Mr. Plassche
pursuant to the Plassche Employment Agreement.
Fiscal 2015 salaries consist of $206,150
being paid in accordance with the Company’s payroll practices and $25,000 being paid via the issuance of Common Stock in
lieu of cash.
Fiscal 2014 salaries consist of $137,222
being paid in accordance with the Company’s payroll practices and $9,726 being paid via the issuance of Common Stock in lieu
of cash, with such salaries being earned during the portion of Fiscal 2014 that Mr. Plassche was an employee of the Company.
A total of 57,339 shares of Common Stock
were issued to, and 26,147 shares of Common Stock are due and owing to Mr. Plassche for salaries earned during Fiscal 2015.
A total of 101,282 shares of Common Stock
were issued to Mr. Plassche for salaries earned during the portion of Fiscal 2014 that Mr. Plassche was employed by the Company. |
| (14) |
Cash bonuses paid pursuant to the Plassche Employment Agreement. |
| |
|
| (15) |
Options to purchase 3,000,000 shares of
Common Stock granted pursuant to the Plassche Employment Agreement.
The options include a purchase price equal
to the closing price of the Company’s Common Stock as of the date of the Plassche Employment and vest in 3 equal, annual
increments, beginning on the date that is one year after the date of the Plassche Employment Agreement.
Value of the options granted was determined
by applying the Black Scholes model for the valuation of options. |
Outstanding Equity Awards at March 31,
2015
| Name | |
Number of securities underlying unexercised options Exercisable (#) | | |
Number of securities underlying unexercised options Unexercisable (#) | | |
Equity Incentive Plan Awards: Number of securities underlying unexercised unearned options (#) | | |
Options Exercise Price ($) | | |
Option Expiration Date |
| Carter Ward | |
| 200,000 | | |
| --- | | |
| --- | | |
| 0.10 | | |
1/17/2020 |
| Carter Ward | |
| 100,000 | | |
| --- | | |
| 50,000 | (1) | |
| 0.12 | | |
6/19/2022 |
| Douglas Plassche | |
| 1,000,000 | | |
| --- | | |
| 2,000,000 | (2) | |
| 0.07 | | |
7/23/2023 |
| (1) |
Options vest in June of 2015. |
| |
|
| (2) |
Options vest in equal increments in July 2015 and July 2016. |
DIRECTOR COMPENSATION
The following table sets forth
information concerning director compensation for the year ended March 31, 2015
| Name | |
Fees Earned or Paid In Cash ($) | | |
Stock Awards ($) | | |
Option Awards ($) | | |
Non-Equity Incentive Plan Compensation ($) | | |
Non-qualified Deferred Compensation ($) | | |
All Other Compensation ($) | | |
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, 2015, 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 45,871 shares of
Common Stock were issued to, and 20,918 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, 2015. |
| |
|
| (2) |
Represents the Chairman’s
fee due to Mr. Treppel for his service as Chairman of the Board of Directors. A total of 68,807 shares of Common Stock were issued
to, and 31,377 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, 2015.
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. In addition, Dr. Nigalaye resigned
as a director on June 5, 2015. |
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, former 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 received 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, 2015 and March 31, 2014 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 8, 2015 (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 8, 2015, we had 658,319,047
shares of Common Stock outstanding (exclusive of 100,000 treasury shares) and 100.000 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 8, 2015. Except as otherwise indicated, the Shareholders listed
in the table have sole voting and investment powers with respect to the shares indicated.
|
Name and Address
|
|
Amount
and
Nature of
Beneficial Ownership |
|
|
Percent (%)
of Voting Securities
|
|
| Of |
|
|
|
|
Series I |
|
|
Beneficially |
|
| Beneficial Owner of Common Stock |
|
Common Stock |
|
|
Preferred Stock |
|
|
Owned |
|
| Nasrat Hakim, President Chief Executive Officer and Director* |
|
|
22,504,635 |
(1) |
|
|
100.000 |
(2) |
|
|
21 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Barry Dash, Director* |
|
|
1,225,145 |
(3) |
|
|
0 |
|
|
|
** |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Jerry Treppel, Chairman of the Board * |
|
|
9,835,644 |
(4) |
|
|
0 |
|
|
|
1 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Ashok G. Nigalaye(6)* |
|
|
59,350,990 |
(5) |
|
|
0 |
|
|
|
7 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Jeenarine Narine, Director * |
|
|
48,136,542 |
(7) |
|
|
0 |
|
|
|
6 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Jeffrey Whitnell, Director * |
|
|
1,056,790 |
(8) |
|
|
0 |
|
|
|
** |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Carter J. Ward, Chief Financial Officer * |
|
|
3,316,349 |
(9) |
|
|
0 |
|
|
|
** |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Douglas Plassche, Executive Vice President * |
|
|
1,099,238 |
(10) |
|
|
0 |
|
|
|
** |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| All Directors and Officers as a group |
|
|
146,075,333 |
(11) |
|
|
100.000 |
(2) |
|
|
35 |
% |
________________________
* The address is c/o
Elite Pharmaceuticals Inc., 165 Ludlow Avenue, Northvale, NJ 07647.
** Less than 1%
|
(1)
|
Includes 21,772,514 shares of Common Stock held as per the most recent Form 4 filing, 732,121 shares of Common Stock due and owing to Mr. Hakim as of March 31, 2015 (the latest practicable date) for compensation earned pursuant to Mr. Hakim’s employment agreement with the Company. |
| |
|
| (2) |
Series I Preferred Stock are convertible into Common Stock, with each share of Series I Preferred being convertible into 1,428,571 shares of Common Stock. Series I Preferred Stock also include voting rights of one vote for each Common Stock equivalent share. |
| |
|
| (3) |
Includes 1,084,229 shares of Common Stock held as per the most recent Form 4 filing and 20,916 shares of Common Stock due and owing to Dr. Dash as of March 31, 2015 (the latest practicable date) for Directors fees accrued as of such date and vested options to purchase 120,000 shares of Common Stock. |
| |
|
| (4) |
Includes 9,354,269 shares of Common Stock held as per the most recent Form 4 filing and 31,375 shares of Common Stock due and owing to Mr. Treppel as of March 31, 2015 (the latest practicable date) for Chairman fees accrued as of such date. |
| |
|
| (5) |
Includes 40,442,230 shares of Common Stock held as per the most recent Form 4 filing, 20,916 shares of Common Stock due and owing to Dr. Nigalaye as of March 31, 2015 (the latest practicable date) for Directors fees accrued as of such date, and warrants to purchase 18,887,844 shares of Common Stock. |
| (6) |
Dr. Nigalaye resigned from the Board of Directors and as Chief Scientific Officer on June 5, 2015. |
| |
|
| (7) |
Includes 31,269,108 shares of Common Stock held as per the most recent Form 4 filing, 20,916 shares of Common Stock due and owing to Mr. Narine as of March 31, 2015 (the latest practicable date) for Directors fees accrued as of such date, and warrants to purchase 16,846,518 shares of Common Stock. |
| |
|
| (8) |
Includes 1,035,874 shares of Common Stock held as per the most recent Form 4 filing and 20,916 shares of Common Stock due and owing to Mr. Whitnell as of March 31, 2015 (the latest practicable date) for Directors fees accrued as of such date. |
| |
|
| (9) |
Includes 2,318,307 shares of Common Stock held as per the most recent Form 4 filing, 31,375 shares of Common Stock due and owing to Mr. Ward as of March 31, 2015 (the latest practicable date) for salaries earned pursuant to Mr. Ward’s employment agreement with the Company, vested options to purchase 300,000 shares of Common Stock and warrants to purchase 666,667 shares of Common Stock. |
| |
|
| (10) |
Includes 73,094 shares of Common Stock held as per the most recent Form 4 filing, 26,144 shares of Common Stock due and owing to Mr. Plassche as of March 31, 2015 (the latest practicable date) for salaries earned pursuant to Mr. Plassche’s employment agreement with the Company, and vested options to purchase 1,000,000 shares of Common Stock. |
| |
|
| (11) |
Includes 107,349,625 shares of Common Stock held, as per the applicable most recent Form 4 filings, 904,679 shares of Common Stock due and owing as of March 31, 2015 (the latest practicable date) for Chairman fees, directors fees and salaries accrued as of such date, vested options to purchase 1,420,000 shares of Common Stock and warrants to purchase 36,401,029 shares of Common Stock |
| |
|
| ITEM 13 | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE |
Certain Related Person Transactions
Transactions with 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, and entered into a Development
and License Agreement dated August 27, 2010 between the Company and Mikah (the “Mikah Development Agreement”). 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.
On January 28, 2015, the Mikah Development
Agreement was terminated by mutual agreement of the parties thereto. Pursuant to the Mikah Development Agreement, Mikah made advance
consideration payments to the Company totaling $200,000 in exchange for product development services to be provided at a future
date. Subsequent to the execution of the Mikah Development Agreement, and before any development milestones were achieved, the
sole owner of Mikah, Mr. Nasrat Hakim, became the President and Chief Executive Officer of the Company. Mikah has accordingly ceased
operating and is in the process of winding down and liquidating its assets.
Any further development of the product
related to the Mikah Development Agreement will belong to the Company, although there can be no assurances that such development
will occur or be successful.
The Mikah Development Agreement required
that the consideration paid in advance to the Company be refunded in the event of no milestones being achieved. Mr. Hakim, as owner
of Mikah, has directed that the $200,000 refund due to Mikah not be paid currently, but rather be added to the amounts due under
the Hakim Credit Line.
For further details on the Mikah Development
Agreement, please see Exhibit 10.85 of the Quarterly Report on Form 10-Q filed with the SEC on February 17, 2015, with such filing
being herein incorporated by reference.
On October 15, 2013, we entered into a
bridge loan agreement (the “Hakim Loan Agreement”) with Nasrat Hakim, our President and CEO. For details on the Hakim
Credit Line, please see “Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results
of Operations; Liquidity and Capital Resources; Hakim $1,000,000 Bridge Revolving Credit Line” above, the notes to these
financial statements, as well as Exhibit 10.16 of the Quarterly Report on Form 10-Q filed with the SEC on November 13, 2013, the
Current Report on Form 8-K filed with the SEC on October 16, 2013 and Exhibit 10.84 of the Quarterly Report on Form 10-Q filed
with the SEC on February 17, 2015, with all such filings being herein incorporated by reference.
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.
For information about our employment agreement
with Mr. Hakim, please see “Executive Compensation-Agreements with Named Executive Officers” above.
Strategic Alliance Agreement/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. The Strategic Alliance Agreement expired on June 4, 2012. For more information on the Epic Strategic Alliance Agreement please
see 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 was 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 and Dr. Nigalaye resigned as a Company Director on June 5, 2015. 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 2015 and Fiscal 2014, an aggregate amount of zero and $9,009, 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 2015, an aggregate amount
of $7,937 was paid to Epic as reimbursement for costs associated with facility maintenance, engineering and regulatory resources
utilized by 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 2014, the Company did not
incur contract manufacturing and/or packaging costs from Epic Pharma. 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.
Total purchases from Epic by the Company
during the fiscal years ended March 31, 2015 and 2014 were $7,937 and $69,512, respectively.
Manufacturing and Licensing 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. To date, milestones totaling $1,000,000 have
been earned and received in relation to the signing of the Epic Pharma Manufacturing
and License Agreement and the filing and approval by the FDA of supplements relating to the transfer of manufacturing site for
Isradipine 2.5mg and Isradipine 5mg. 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.
Sales and Distribution Licensing
Agreement with Epic for Abuse-Deterrent ELI-200
On June 4, 2015, Elite Pharmaceuticals
Inc. and its wholly-owned subsidiary Elite Laboratories, Inc. (collectively, “Elite”) executed an exclusive License
Agreement (the “Agreement”) with Epic Pharma LLC. (“Epic”), to market and sell in the United States, ELI-200,
an undisclosed opioid with sequestered naltrexone capsules, owned by Elite. Epic will have the exclusive right to market ELI-200
and its various dosage forms as listed in Schedule A of the Agreement (the “Products”). Epic is responsible for all
regulatory and pharmacovigilance matters related to the products. Pursuant to the Agreement, Elite will receive a license fee and
milestone payments. The license fee will be computed as a percentage of net profit of the Products as defined in the Agreement
by Epic. Elite will manufacture the product for sale by Epic on a cost plus basis and both parties agree to execute a separate
Manufacturing and Supply Agreement. The license fee is payable quarterly for the term of the Agreement. Epic shall pay to Elite
certain milestone payments as defined by the Agreement. The first milestone payment was due and was received upon signing the agreement.
Subsequent milestone payments are due upon the filing of a New Drug Application (“NDA”) with the U.S. Food and Drug
Administration (“FDA”) for the Products and upon receipt of the approval letter for the NDA from the FDA. The term
of the License Agreement is five years and may be extended for an additional five years upon mutual agreement of the parties. Elite
can terminate the Agreement on 90 days’ written notice in the Event that Epic does not pay to Elite certain minimum annual
license fees over the initial five year term of the Agreement. Either party may terminate this Agreement upon a material breach
and failure to cure that breach by the other party within a specified period.
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 2015 and Fiscal 2014.
| | |
Fiscal 2015 | | |
Fiscal 2014 | |
| Audit Fees | |
| 103,600 | | |
| 81,150 | |
| Audit-Related Fees | |
| 4,000 | | |
| 6,400 | |
| Tax Fees | |
| 500 | | |
| --- | |
| All Other Fees | |
| --- | | |
| 1,150 | |
| | |
| | | |
| | |
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 2015 and 2014.
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.
PART IV
| ITEM 15. | EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES. |
| (a) |
The following are filed as part of this Annual Report on Form 10-K |
| |
|
|
| |
(1) |
The financial statements and schedules required to be filed by Item 8 of this Annual Report on Form 10-K and listed in the Index to Consolidated Financial Statements. |
| |
|
|
| |
(2) |
The Exhibits required by Item 601 of Regulation S-K and listed below in the “Index to Exhibits required by Item 601 of Regulation S-K.” |
| |
|
|
| (b) |
The Exhibits are filed with or incorporated by reference in this Annual Report on Form 10-K |
| |
|
|
| (c) |
None |
Index to Exhibits required by Item 601 of Regulation S-K.
|
Exhibit
No. |
|
Description |
| |
|
|
| 2.1 |
|
Agreement and Plan of Merger between Elite Pharmaceuticals, Inc., a Delaware corporation (“Elite-Delaware”) and Elite Pharmaceuticals, Inc., a Nevada corporation (“Elite-Nevada”), incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on January 9, 2012. |
| |
|
|
| 3.1(a) |
|
Articles of Incorporation of Elite-Nevada, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on January 9, 2012. |
| |
|
|
| 3.1(b) |
|
Certificate of Incorporation of Elite-Delaware, together with all other amendments thereto, as filed with the Secretary of State of the State of Delaware, incorporated by reference to (a) Exhibit 4.1 to the Registration Statement on Form S-4 (Reg. No. 333-101686), filed with the SEC on December 6, 2002 (the “Form S-4”), (b) Exhibit 3.1 to the Company’s Current Report on Form 8-K dated July 28, 2004 and filed with the SEC on July 29, 2004, (c) Exhibit 3.1 to the Company’s Current Report on Form 8-K dated June 26, 2008 and filed with the SEC on July 2, 2008, and (d) Exhibit 3.1 to the Company’s Current Report on Form 8-K dated December 19, 2008 and filed with the SEC on December 23, 2008.* |
| |
|
|
| 3.1(c) |
|
Certificate of Designations, Preferences and Rights of Series A Preferred Stock, as filed with the Secretary of the State of Delaware, incorporated by reference to Exhibit 4.5 to the Current Report on Form 8-K dated October 6, 2004, and filed with the SEC on October 12, 2004.* |
| |
|
|
| 3.1(d) |
|
Certificate of Retirement with the Secretary of the State of the Delaware to retire 516,558 shares of the Series A Preferred Stock, as filed with the Secretary of State of Delaware, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K dated March 10, 2006, and filed with the SEC on March 14, 2006.* |
| |
|
|
| 3.1(e) |
|
Certificate of Designations, Preferences and Rights of Series B 8% Convertible Preferred Stock, as filed with the Secretary of the State of Delaware, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K dated March 15, 2006, and filed with the SEC on March 16, 2006.* |
| |
|
|
| 3.1(f) |
|
Amended Certificate of Designations of Preferences, Rights and Limitations of Series B 8% Convertible Preferred Stock, as filed with the Secretary of State of the State of Delaware, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K dated April 24, 2007, and filed with the SEC on April 25, 2007.* |
| 3.1(g) |
|
Certificate of Designations, Preferences and Rights of Series C 8% Convertible Preferred Stock, as filed with the Secretary of the State of Delaware, incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K dated April 24, 2007, and filed with the SEC on April 25, 2007.* |
| |
|
|
| 3.1(h) |
|
Amended Certificate of Designations, Preferences and Rights of Series C 8% Convertible Preferred Stock, as filed with the Secretary of the State of Delaware, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K dated April 24, 2007, and filed with the SEC on April 25, 2007.* |
| |
|
|
| 3.1(i) |
|
Amended Certificate of Designations of Preferences, Rights and Limitations of Series B 8% Convertible Preferred Stock, as filed with the Secretary of State of the State of Delaware, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K dated September 15, 2008, and filed with the SEC on September 16, 2008.* |
| |
|
|
| 3.1(j) |
|
Amended Certificate of Designations, Preferences and Rights of Series C 8% Convertible Preferred Stock, as filed with the Secretary of the State of Delaware, incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K dated September 15, 2008, and filed with the SEC on September 16, 2008.* |
| |
|
|
| 3.1(k) |
|
Amended Certificate of Designations of Preferences, Rights and Limitations of Series D 8% Convertible Preferred Stock, as filed with the Secretary of State of the State of Delaware, incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K dated September 15, 2008, and filed with the SEC on September 16, 2008.* |
| |
|
|
| 3.1(l) |
|
Certificate of Designation of Preferences, Rights and Limitations of Series E Convertible Preferred Stock, as filed with the Secretary of State of the State of Delaware, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K dated June 1, 2009, and filed with the SEC on June 5, 2009.* |
| |
|
|
| 3.1(m) |
|
Amended Certificate of Designations of the Series D 8% Convertible Preferred Stock as filed with the Secretary of State of the State of Delaware on June 29, 2010, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, dated June 24, 2010 and filed with the SEC on July 1, 2010.* |
| |
|
|
| 3.1(n) |
|
Amended Certificate of Designations of the Series E Convertible Preferred Stock as filed with the Secretary of State of the State of Delaware on June 29, 2010, incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K, dated June 24, 2010 and filed with the SEC on July 1, 2010.* |
| |
|
|
| 3.1(o) |
|
Certificate of Designations of the Series G Convertible Preferred Stock as filed with the Secretary of State of the State of Nevada on April 18, 2013, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, dated April 18, 2013 and filed with the SEC on April 22, 2013 . |
| |
|
|
| 3.1(p) |
|
Certificate of Designation of the Series H Junior Participating Preferred Stock, incorporated by reference to Exhibit 2 (contained in Exhibit 1) to the Registration Statement on Form 8-A filed with the SEC on November 15, 2013. |
| |
|
|
| 3.1(q) |
|
Certificate of Designations of the Series I Convertible Preferred Stock as filed with the Secretary of State of the State of Nevada on February 6, 2014, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, dated February 6, 2014 and filed with the SEC on February 7, 2014 |
| |
|
|
| 3.2(a) |
|
Amended and Restated By-Laws of the Company, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K dated March 17, 2014 and filed with the SEC on March 18, 2014. |
| 3.2(b) |
|
By-Laws of Elite-Delaware, as amended, incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form SB-2 (Reg. No. 333-90633) made effective on February 28, 2000 (the “Form SB-2”).* |
| |
|
|
| 4.1 |
|
Form of specimen certificate for Common Stock of the Company, incorporated by reference to Exhibit 4.1 to the Form SB-2.* |
| |
|
|
| 4.2 |
|
Form of specimen certificate for Series B 8% Convertible Preferred Stock of the Company, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, dated March 15, 2006 and filed with the SEC on March 16, 2006.* |
| |
|
|
| 4.3 |
|
Form of specimen certificate for Series C 8% Convertible Preferred Stock of the Company, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, dated April 24, 2007 and filed with the SEC on April 25, 2007.* |
| |
|
|
| 4.4 |
|
Form of Warrant to purchase shares of Common Stock issued to purchasers in the private placement which closed on March 15, 2006 (the “Series B Financing”), incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K, dated March 15, 2006 and filed with the SEC on March 16, 2006.* |
| |
|
|
| 4.5 |
|
Form of Warrant to purchase shares of Common Stock issued to purchasers in the Series B Financing, incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K, dated March 15, 2006 and filed with the SEC on March 16, 2006.* |
| |
|
|
| 4.6 |
|
Form of Warrant to purchase shares of Common Stock issued to the Placement Agent, in connection with the Series B Financing, incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K, dated March 15, 2006 and filed with the SEC on March 16, 2006.* |
| |
|
|
| 4.7 |
|
Form of Warrant to purchase 600,000 shares of Common Stock issued to Indigo Ventures, LLC, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, dated July 12, 2006 and filed with the SEC on July 18, 2006.* |
| |
|
|
| 4.8 |
|
Form of Warrant to purchase up to 478,698 shares of Common Stock issued to VGS PHARMA, LLC, incorporated by reference as Exhibit 3(a) to the Current Report on Form 8-K, dated December 6, 2006 and filed with the SEC on December 12, 2006.* |
| |
|
|
| 4.9 |
|
Form of Non-Qualified Stock Option Agreement for 1,750,000 shares of Common Stock granted to Veerappan Subramanian, incorporated by reference as Exhibit 3(b) to the Current Report on Form 8-K, dated December 6, 2006 and filed with the SEC on December 12, 2006.* |
| |
|
|
| 4.10 |
|
Form of Warrant to purchase shares of Common Stock issued to purchasers in the private placement which closed on April 24, 2007 (the “Series C Financing”), incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K, dated April 24, 2007 and filed with the SEC on April 25, 2007.* |
| |
|
|
| 4.11 |
|
Form of Warrant to purchase shares of Common Stock issued to the placement agent in the Series C Financing, incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K, dated April 24, 2007 and filed with the SEC on April 25, 2007.* |
| |
|
|
| 4.12 |
|
Form of specimen certificate for Series D 8% Convertible Preferred Stock of the Company, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, dated September 15, 2008 and filed with the SEC on September 16, 2008.* |
| |
|
|
| 4.13 |
|
Form of Warrant to purchase shares of Common Stock issued to purchasers in the private placement which closed on September 15, 2008 (the “Series D Financing”), incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K, dated September 15, 2008 and filed with the SEC on September 16, 2008.* |
| 4.14 |
|
Form of Warrant to purchase shares of Common Stock issued to the placement agent in the Series D Financing, incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K, dated September 15, 2008 and filed with the SEC on September 16, 2008.* |
| |
|
|
| 4.15 |
|
Form of specimen certificate for Series E Convertible Preferred Stock of the Company, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, dated June 1, 2009, and filed with the SEC on June 5, 2009.* |
| |
|
|
| 4.16 |
|
Warrant to purchase shares of Common Stock issued to Epic Investments, LLC in the initial closing of the Strategic Alliance Agreement, dated as of March 18, 2009, by and among the Company, Epic Pharma, LLC and Epic Investments, LLC, incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K, dated June 1, 2009, and filed with the SEC on June 5, 2009.* |
| |
|
|
| 4.17 |
|
Form of specimen certificate for Series G Convertible Preferred Stock of the Company, incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K, dated April 18, 2013 and filed with the SEC on April 22, 2013. |
| |
|
|
| 4.18 |
|
Form of specimen certificate for Series I Convertible Preferred Stock of the Company, incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K, dated February 6, 2014 and filed with the SEC on February 7, 2014. |
| |
|
|
| 4.19 |
|
Rights Agreement, dated as of November 15, 2013, between the Company and American Stock Transfer & Trust Company, LLC., incorporated by reference to Exhibit 1 to the Registration Statement on Form 8-A filed with the SEC on November 15, 2013. |
| |
|
|
| 4.20 |
|
Form of Series H Preferred Stock Certificate, incorporated by reference to Exhibit 1 to the Registration Statement on Form 8-A filed with the SEC on November 15, 2013. |
| |
|
|
| 10.1 |
|
Elite Pharmaceuticals, Inc. 2014 Equity Incentive Plan, incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement for its Annual Meeting of Shareholders, filed with the SEC on April 3, 2014. |
| |
|
|
| 10.2 |
|
Form of Confidentiality Agreement (corporate), incorporated by reference to Exhibit 10.7 to the Form SB-2. |
| |
|
|
| 10.3 |
|
Form of Confidentiality Agreement (employee), incorporated by reference to Exhibit 10.8 to the Form SB-2. |
| |
|
|
| 10.4 |
|
Product Development and Commercialization Agreement, dated as of June 21, 2005, between the Company and IntelliPharmaceutics, Corp., incorporated by reference as Exhibit 10.1 to the Current Report on Form 8-K, dated June 21, 2005 and originally filed with the SEC on June 27, 2005, as amended on the Current Report on Form 8-K/A filed September 7, 2005, as further amended by the Current Report on Form 8-K/A filed December 7, 2005 (Confidential Treatment granted with respect to portions of the Agreement). |
| |
|
|
| 10.5 |
|
Agreement, dated December 12, 2005, by and among the Company, Elite Labs, and IntelliPharmaCeutics Corp., incorporated by reference as Exhibit 10.1 to the Current Report on Form 8-K, dated December 12, 2005, and originally filed with the SEC on December 16, 2005, as amended by the Current Report on Form 8-K/A filed March 7, 2006 (Confidential Treatment granted with respect to portions of the Agreement). |
| 10.6 |
|
Loan Agreement, dated as of August 15, 2005, between New Jersey Economic Development Authority (“NJEDA”) and the Company, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated August 31, 2005 and filed with the SEC on September 6, 2005. |
| |
|
|
| 10.7 |
|
Series A Note in the aggregate principal amount of $3,660,000.00 payable to the order of the NJEDA, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, dated August 31, 2005 and filed with the SEC on September 6, 2005. |
| |
|
|
| 10.8 |
|
Series B Note in the aggregate principal amount of $495,000.00 payable to the order of the NJEDA, incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, dated August 31, 2005 and filed with the SEC on September 6, 2005. |
| |
|
|
| 10.9 |
|
Mortgage from the Company to the NJEDA, incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K, dated August 31, 2005 and filed with the SEC on September 6, 2005. |
| |
|
|
| 10.10 |
|
Indenture between NJEDA and the Bank of New York as Trustee, dated as of August 15, 2005, incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K, dated August 31, 2005 and filed with the SEC on September 6, 2005. |
| |
|
|
| 10.11 |
|
Form of Securities Purchase Agreement, between the Registrant and the signatories thereto, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated March 15, 2006 and filed with the SEC on March 16, 2006. |
| |
|
|
| 10.12 |
|
Form of Registration Rights Agreement, between the Registrant and signatories thereto, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, dated March 15, 2006 and filed with the SEC on March 16, 2006. |
| |
|
|
| 10.13 |
|
Form of Placement Agent Agreement, between the Registrant and Indigo Securities, LLC, incorporated by reference as Exhibit 10.3 to the Current Report on Form 8-K, dated March 15, 2006, and filed with the SEC on March 16, 2006. |
| |
|
|
| 10.14 |
|
Financial Advisory Agreement between the Registrant and Indigo Ventures LLC, incorporated by reference as Exhibit 10.1 to the Current Report on Form 8-K dated July 12, 2006 and filed with the SEC on July 18, 2006. |
| |
|
|
| 10.15 |
|
Product Collaboration Agreement between the Registrant and ThePharmaNetwork LLC, incorporated by reference as Exhibit 10.1 to the Current Report on Form 8-K, dated November 10, 2006 and filed with the SEC on November 15, 2006. (Confidential Treatment granted with respect to portions of the Agreement). |
| |
|
|
| 10.16 |
|
Strategic Alliance Agreement among the Registrant, VGS Pharma (“VGS”) and Veerappan S. Subramanian (“VS”), incorporated by reference as Exhibit 10(a) to the Current Report on Form 8-K, dated December 6, 2006 and filed with the SEC on December 12, 2006. |
| |
|
|
| 10.17 |
|
Advisory Agreement, between the Registrant and VS, incorporated by reference as Exhibit 10(b) to the Current Report on Form 8-K, dated December 6, 2006 and filed with the SEC on December 12, 2006. |
| |
|
|
| 10.18 |
|
Registration Rights Agreement between the Registrant, VGS and VS, incorporated by reference as Exhibit 10(c) to the Current Report on Form 8-K, dated December 6, 2006 and filed with the SEC on December 12, 2006. |
| |
|
|
| 10.19 |
|
Employment Agreement between Novel Laboratories Inc. (“Novel”) and VS, incorporated by reference as Exhibit 10(d) to the Current Report on Form 8-K, dated December 6, 2006 and filed with the SEC on December 12, 2006. |
| 10.20 |
|
Stockholders’ Agreement between Registrant, VGS, VS and Novel, incorporated by reference as Exhibit 10(e) to the Current Report on Form 8-K, dated December 6, 2006 and filed with the SEC on December 12, 2006. |
| |
|
|
| 10.21 |
|
Form of Securities Purchase Agreement, between the Registrant and the signatories thereto, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated April 24, 2007 and filed with the SEC on April 25, 2007. |
| |
|
|
| 10.22 |
|
Form of Registration Rights Agreement, between the Registrant and the signatories thereto, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, dated April 24, 2007 and filed with the SEC on April 25, 2007. |
| |
|
|
| 10.23 |
|
Form of Placement Agent Agreement, between the Company and Oppenheimer & Company, Inc., incorporated by reference as Exhibit 10.3 to the Current Report on Form 8-K, dated April 24, 2007 and filed with the SEC on April 25, 2007. |
| |
|
|
| 10.24 |
|
Form of Securities Purchase Agreement, between the Registrant and the signatories thereto, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated July 17, 2007 and filed with the SEC on July 23, 2007. |
| |
|
|
| 10.25 |
|
Form of Registration Rights Agreement, between the Registrant and the signatories thereto, incorporated by reference as Exhibit 10.2 to the Current Report on Form 8-K, dated July 17, 2007 and filed with the SEC on July 23, 2007. |
| |
|
|
| 10.26 |
|
Consulting Agreement, dated as of July 27, 2007, between the Registrant and Willstar Consultants, Inc., incorporated by reference as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the period ending September 30, 2007 and filed with the SEC on November 14, 2007. |
| |
|
|
| 10.27 |
|
Form of Securities Purchase Agreement, between the Company and the signatories thereto, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated September 15, 2008 and filed with the SEC on September 16, 2008. |
| |
|
|
| 10.28 |
|
Form of Placement Agent Agreement, between the Company, ROTH Capital Partners, LLC and Boenning & Scattergood, Inc., incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, dated September 15, 2008 and filed with the SEC on September 16, 2008. |
| |
|
|
| 10.29 |
|
Separation Agreement and General Release of Claims, dated as of October 20, 2008, by and between the Company and Stuart Apfel, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated October 15, 2008 and filed with the SEC on October 21, 2008. |
| |
|
|
| 10.30 |
|
Consulting Agreement, dated as of October 20, 2008, by and between the Company and Parallex Clinical Research, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, dated October 15, 2008 and filed with the SEC on October 21, 2008. |
| |
|
|
| 10.31 |
|
Separation Agreement and General Release of Claims, dated as of November 3, 2008, by and between the Company and Charan Behl, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated October 28, 2008 and filed with the SEC on November 3, 2008. |
| |
|
|
| 10.32 |
|
Consulting Agreement, dated as of November 3, 2008, by and between the Company and Charan Behl, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, dated October 28, 2008 and filed with the SEC on November 3, 2008. |
| |
|
|
| 10.33 |
|
Separation Agreement and General Release of Claims, dated as of November 5, 2008, by and between the Company and Bernard J. Berk, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated November 6, 2008 and filed with the SEC on November 6, 2008. |
| 10.34 |
|
Compensation Agreement, dated as of December 1, 2008, by and between the Company and Jerry I. Treppel, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated December 1, 2008 and filed with the SEC on December 4, 2008. |
| |
|
|
| 10.35 |
|
Strategic Alliance Agreement, dated as of March 18, 2009, by and among the Company, Epic Pharma, LLC and Epic Investments, LLC, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated March 18, 2009 and filed with the SEC on March 23, 2009. |
| |
|
|
| 10.36 |
|
Amendment to Strategic Alliance Agreement, dated as of April 30, 2009, by and among the Company, Epic Pharma, LLC and Epic Investments, LLC, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated April 30, 2009 and filed with the SEC on May 6, 2009. |
| |
|
|
| 10.37 |
|
Second Amendment to Strategic Alliance Agreement, dated as of June 1, 2009, by and among the Company, Epic Pharma, LLC and Epic Investments, LLC, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated June 1, 2009, and filed with the SEC on June 5, 2009. |
| |
|
|
| 10.38 |
|
Third Amendment to Strategic Alliance Agreement, dated as of Aug 18, 2009, by and among the Company, Epic Pharma LLC and Epic Investments, LLC, incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q, for the period ending June 30, 2009 and filed with the SEC on August 19, 2009. |
| |
|
|
| 10.39 |
|
Employment Agreement, dated as of November 13, 2009, by and between the Company and Chris Dick, , incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q, for the period ending September 30, 2009 and filed with the SEC on November 16, 2009. |
| |
|
|
| 10.40 |
|
Employment Agreement, dated as of November 13, 2009, by and between the Company and Carter J. Ward, incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q, for the period ending September 30, 2009 and filed with the SEC on November 16, 2009. |
| |
|
|
| 10.41 |
|
Elite Pharmaceuticals Inc. 2009 Equity Incentive Plan, as adopted November 24, 2009, incorporated by reference to Exhibit 10.1 to the Registration Statement Under the Securities Act of 1933 on Form S-8, dated December 18, 2009 and filed with the SEC on December 22, 2009. |
| |
|
|
| 10.42 |
|
Stipulation of Settlement and Release, dated as of June 25, 2010, by and among the Company, Midsummer Investment, Ltd., Bushido Capital Master Fund, LP, BCMF Trustees, LLC, Epic Pharma, LLC and Epic Investments, LLC, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated June 25, 2010 and filed with the SEC on July 1, 2010 |
| |
|
|
| 10.43 |
|
Amendment Agreement, dated as of June 25, 2010, by and among the Company, and the investors signatory thereto, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, dated June 25, 2010 and filed with the SEC on July 1, 2010 |
| |
|
|
| 10.44 |
|
Amendment Agreement, dated as of June 2010, by and among the Company, Epic Pharma, LLC and Epic Investments, LLC, incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, dated June 25, 2010 and filed with the SEC on July 1, 2010 |
| |
|
|
| 10.45 |
|
Asset Purchase Agreement dated as of May 18, 2010, by and among Mikah Pharma LLC and the Company, incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q, for the period ended September 30, 2010 and filed with the SEC on November 15, 2010. |
| |
|
|
| 10.46 |
|
Asset Purchase Agreement, dated as of August 27, 2010, by and among Mikah Pharma LLC and the Company, incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q, for the period ended September 30, 2010 and filed with the SEC on November 15, 2010 (Confidential Treatment granted with respect to portions of the Agreement). |
| 10.47 |
|
Master Development and License Agreement, dated as of August 27, 2010, by and among Mikah Pharma LLC and the Company incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q, for the period ended September 30, 2010 and filed with the SEC on November 15, 2010 (Confidential Treatment granted with respect to portions of the Agreement). |
| |
|
|
| 10.48 |
|
Purchase Agreement, dated as of September 10, 2010, by and among Epic Pharma LLC and the Company, incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q, for the period ended September 30, 2010 and filed with the SEC on November 15, 2010 (Confidential Treatment granted with respect to portions of the Agreement). |
| |
|
|
| 10.49 |
|
License Agreement, dated as of September 10, 2010, by and among Precision Dose Inc. and the Company, incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q, for the period ended September 30, 2010 and filed with the SEC on November 15, 2010 (Confidential Treatment granted with respect to portions of the Agreement). |
| |
|
|
| 10.50 |
|
Manufacturing and Supply Agreement, dated as of September 10, 2010, by and among Precision Dose Inc. and the Company, incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q, for the period ended September 30, 2010 and filed with the SEC on November 15, 2010 (Confidential Treatment granted with respect to portions of the Agreement). |
| |
|
|
| 10.51 |
|
Product Development Agreement between the Company and Hi-Tech Pharmacal Co., Inc. dated as of January 4, 2011, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated January 4, 2011 and filed with the SEC on January 10, 2011 (Confidential Treatment granted with respect to portions of the Agreement). |
| |
|
|
| 10.52 |
|
Settlement Agreement between the Company and ThePharmaNetwork, LLC, dated as of March 11, 2011, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated March 11, 2011 and filed with the SEC on March 17, 2011. |
| |
|
|
| 10.53 |
|
Manufacturing & Supply Agreement between the Company and Mikah Pharma LLC, dated as of June 1, 2011, incorporated by reference to Exhibit 10.70 to the Annual Report on Form 10-K, for the period ended March, 31, 2011 and filed with the SEC on June 29, 2011 (Confidential Treatment granted with respect to portions of the Agreement). |
| |
|
|
| 10.54 |
|
Manufacturing & Supply Agreement between the Company and ThePharmaNetwork, LLC, dated as of June 23, 2011, incorporated by reference to Exhibit 10.71 to the Annual Report on Form 10-K, for the period ended March, 31, 2011 and filed with the SEC on June 29, 2011 (Confidential Treatment granted with respect to portions of the Agreement). |
| |
|
|
| 10.55 |
|
Amendment, dated as of November 1, 2011, to the Master Development and License Agreement, dated as of August 27, 2010, by and amount Mikah Pharma LLC and the Company (Confidential Treatment granted with respect to portions of the Agreement), incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for three and nine months ended December 31, 2011. |
| |
|
|
| 10.56 |
|
Settlement Agreement between the Company and ThePharmaNetwork, LLC, dated as of March 11, 2011, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated March 11, 2011 and filed with the SEC on March 17, 2011. |
| |
|
|
| 10.57 |
|
Securities Purchase Agreement with Socius dated December 30, 2011, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on January 5, 2012. |
| 10.58 |
|
Amendment to Agreement with Socius dated February 28, 2012, incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K/A filed with the SEC February 29, 2012. |
| |
|
|
| 10.59 |
|
Manufacturing & Supply Agreement between the Company and Mikah Pharma LLC, dated as of June 1, 2011, incorporated by reference to Exhibit 10.70 to the Annual Report on Form 10-K, for the period ended March, 31, 2011 and filed with the SEC on June 29, 2011 (Confidential Treatment granted with respect to portions of the Agreement). |
| |
|
|
| |
|
|
| 10.60 |
|
Amendment, dated as of November 1, 2011, to the Master Development and License Agreement, dated as of August 27, 2010, by and amount Mikah Pharma LLC and the Company (Confidential Treatment granted with respect to portions of the Agreement), incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q for three and nine months ended December 31, 2011. |
| |
|
|
| 10.61 |
|
Treppel $500,000 Bridge Loan Agreement dated June 12, 2012, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on June 13, 2012. |
| |
|
|
| 10.62 |
|
December 5, 2012 amendment to the Treppel Bridge Loan Agreement incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on December 10, 2012. |
| |
|
|
| 10.63 |
|
Development And License Agreement between the Company and a Hong Kong-based client dated March 16, 2012 incorporated by reference to Exhibit 10.77 to the Annual Report on Form 10-K filed with the SEC on June 29,2012 (Confidential Treatment granted with respect to portions of the Agreement). |
| |
|
|
| 10.64 |
|
Letter Agreement between the Company and ThePharmaNetwork LLC, dated September 21, 2012 incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q filed with the SEC on November 14,2012 (Confidential Treatment granted with respect to portions of the Agreement). |
| |
|
|
| 10.65 |
|
Purchase Agreement between the Company and Lincoln Park Capital LLC dated April 19, 2013 , incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated April 18, 2013 and filed with the SEC on April 22, 2013. |
| |
|
|
| 10.66 |
|
Registration Rights Agreement between the Company and Lincoln Park Capital LLC dated April 19, 2013 , incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, dated April 18, 2013 and filed with the SEC on April 22, 2013. |
| |
|
|
| 10.67 |
|
August 1, 2013 Employment Agreement with Nasrat Hakim, incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K, dated August 1, 2013 and filed with the SEC on August 5, 2013. |
| |
|
|
| 10.68 |
|
August 1, 2013 Mikah LLC Asset Purchase Agreement, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated August 1, 2013 and filed with the SEC on August 5, 2013. (Confidential Treatment granted with respect to portions of the Agreement). |
| |
|
|
| 10.69 |
|
Revised Schedule 1 to the August 1, 2013 Mikah LLC Asset Purchase Agreement (revised to remove confidential treatment with regard to one item set forth thereon) incorporated by reference to Exhibit 10.12 to the Quarterly Report on Form 10-Q for the period ending December 31, 2013, filed with the SEC on February 14, 2014. |
| |
|
|
| 10.70 |
|
August 1, 2013 Secured Convertible Note from the Company to Mikah Pharma LLC., incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, dated August 1, 2013 and filed with the SEC on August 5, 2013. |
| 10.71 |
|
August 1, 2013 Security Agreement from the Company to Mikah Pharma LLC., incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, dated August 1, 2013 and filed with the SEC on August 5, 2013. |
| |
|
|
| 10.72 |
|
Termination of June 2011, Manufacturing and Supply Agreement between Mikah Pharma LLC and the Company, incorporated by reference to Exhibit 10.15 of the Quarterly Report on Form 10-Q for the period ending December 31, 2014 and filed with the SEC on February 14, 2014. |
| |
|
|
| 10.73 |
|
October 15, 2013 Hakim Credit Line Agreement, incorporated by reference to Exhibit 10.16 to the Quarterly Report on Form 10-Q for the period ended September 30, 2013. |
| |
|
|
| 10.74 |
|
October 2, 2013 Manufacturing and Licensing Agreement with Epic Pharma LLC, incorporated by reference to Exhibit 10.17 to the Amended Quarterly Report on Form 10-Q/A for the period ended September 30, 2013 and filed with the SEC on April 25, 2014. Confidential Treatment granted with respect to portions of the Agreement. |
| |
|
|
| 10.75 |
|
August 19, 2013, Master Services Agreement with Camargo Pharmaceutical Services, LLC, incorporated by reference to Exhibit 10.18 to the Quarterly Report on Form 10-Q for the period ended September 30, 2013 and filed with the SEC on November 14, 2013 |
| |
|
|
| 10.76 |
|
November 21, 2013 Unsecured Convertible Note from the Company to Jerry Treppel, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated November 26, 2013 and filed with the SEC on November 26, 2013. |
| |
|
|
| 10.77 |
|
February 7,2014 Amendment to Secured Convertible Note from the Company to Mikah, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated February 7, 2014 and filed with the SEC on February 7, 2014. |
| |
|
|
| 10.78 |
|
February 7, 2014 Amendment to Secured Convertible Note from the Company to Jerry Treppel, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, dated February 7, 2014 and filed with the SEC on February 7, 2014. |
| |
|
|
| 10.79 |
|
Purchase Agreement between the Company and Lincoln Park Capital LLC dated April 10, 2014 , incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated April 10, 2014 and filed with the SEC on April 14, 2014. |
| |
|
|
| 10.80 |
|
Registration Rights Agreement between the Company and Lincoln Park Capital LLC dated April 10, 2014 , incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated April 10, 2014 and filed with the SEC on April 14, 2014. |
| |
|
|
| 10.81 |
|
Employment Agreement with Dr. G. Kenneth Smith, dated October 20, 2014, incorporated by reference to Exhibit 10.82 to the Quarterly Report on Form 10-Q for the period ended September 30, 2014 and filed with the SEC on November 14, 2014. |
| |
|
|
| 10.82 |
|
January 19, 2015 Second Amendment to TPN-Elite Manufacturing and Supply Agreement dated June 23, 2011 and First Amendment to the TPN-Elite Manufacturing and Supply Agreement dated September 21, 2012, incorporated by reference to Exhibit 10.82 to the Quarterly Report on Form 10-Q for the period ended December 31, 2014, and filed with the SEC on February 17, 2015. Confidential Treatment granted with respect to portions of the Agreement. |
| |
|
|
| 10.83 |
|
January 28, 2015 First Amendment to the Loan Agreement between Nasrat Hakim and Elite Pharmaceuticals dated October 15, 2013, incorporated by reference to Exhibit 10.83 to the Quarterly Report on Form 10-Q for the period ended December 31, 2014 and filed with the SEC on February 17, 2015. |
| 10.84 |
|
January 28, 2015 Termination of Development and License Agreement for Mikah-001 between Elite Pharmaceuticals, Inc. and Mikah Pharma LLC and Transfer of Payment, incorporated by reference to Exhibit 10.84 to the Quarterly Report on Form 10-Q for the period ended December 31, 2014 and filed with the SEC on February 17, 2015 . |
| |
|
|
| 10.85 |
|
June 4, 2015 License Agreement with Epic Pharma LLC. Confidential portions of this exhibit have been redacted and filed separately with the Commission pursuant to a confidential treatment request in accordance with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.** |
|
|
|
| 21 |
|
Subsidiaries of the Company.** |
| |
|
|
| 23 |
|
Consent of Demetrius Berkower LLC, Independent Registered Public Accounting Firm** |
| |
|
|
| 31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002** |
| |
|
|
| 31.2 |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002** |
| |
|
|
| 32.1** |
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** |
| |
|
|
| 32.2** |
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** |
| |
|
|
| 101 |
|
The following materials from Elite Pharmaceuticals’ Annual Report on Form 10-K, related to the audited financial statements as and for the fiscal years ended March 31, 2014 and 2013, formatted in eXtensible Business Reporting Language (“XBRL”): (i) the Consolidated Statements of Income; (ii) the Consolidated Balance Sheets; (iii) the Consolidated Statements of Cash Flows; and (iv) Notes to Consolidated Financial Statements.** |
* On January 5, 2011, the Company changed its domicile
from Delaware to Nevada. All corporate documents from Delaware have been superseded by Nevada corporate documents filed or
incorporated by reference herein. All outstanding Delaware securities certificates are now outstanding Nevada securities
certificates.
** Filed herewith.
**** These exhibits are furnished with this Annual Report on
Form 10-K and are not deemed filed with the Securities and Exchange Commission and are not incorporated by reference in any filing
of Elite Pharmaceuticals, Inc. under the Securities Act or the Securities Exchange Act, whether made before or after the date hereof
and irrespective of any general incorporation language in any such filings.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
| |
ELITE PHARMACEUTICALS, INC. |
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|
|
| |
By: |
/s/ Nasrat Hakim |
| |
|
Nasrat Hakim |
| |
|
Chief Executive Officer |
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|
| |
Dated: June 15, 2015 |
| |
|
|
| |
By: |
/s/ Carter J. Ward |
| |
|
Carter J. Ward |
| |
|
Chief Financial Officer |
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|
| |
Dated: June 15, 2015 |
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
| Signature |
Title |
Date |
| |
|
|
| /s/ Nasrat Hakim |
Chief Executive Officer and President |
June 15, 2015 |
| |
|
|
| /s/ Jerry Treppel |
Chairman of the Board of Directors |
June 15, 2015 |
| |
|
|
| /s/ Carter J. Ward |
Chief Financial Officer, Treasurer, Secretary |
June 15, 2015 |
| |
|
|
| /s/ Barry Dash |
Director |
June 15, 2015 |
| |
|
|
| /s/ Jeenarine Narine |
Director |
June 15, 2015 |
| |
|
|
| /s/ Jeffrey Whitnell |
Director |
June 15, 2015 |
ELITE PHARMACEUTICALS,
INC. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEARS
ENDED MARCH 31, 2014 AND 2013
CONTENTS
REPORTS
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and
Shareholders of Elite Pharmaceuticals, Inc. & Subsidiary
We have audited the accompanying consolidated
balance sheets of Elite Pharmaceuticals, Inc. and Subsidiary (“the Company”) as of March 31, 2015 and 2014 and the
related consolidated statements of operations, stockholders' deficit and cash flows for each of the years in the two-year period
ended March 31, 2015. The Company’s management is responsible for these consolidated financial statements. Our responsibility
is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Elite Pharmaceuticals, Inc. and
Subsidiary as of March 31, 2015 and 2014 and the results of their operations and their cash flows for each of the years in the
two-year period ended March 31, 2015 in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States), Elite Pharmaceuticals, Inc. and Subsidiary’s
internal control over financial reporting as of March 31, 2015, based on criteria established in Internal Control-Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
June 15, 2015, expressed an adverse opinion.
/s/Demetrius Berkower LLC
Wayne, New Jersey
June 15, 2015
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
March 31,
2015 and 2014
| | |
2015 | | |
2014 | |
| ASSETS | |
| | | |
| | |
| CURRENT ASSETS | |
| | | |
| | |
| Cash | |
$ | 7,464,180 | | |
$ | 6,941,777 | |
| Accounts receivable (net of allowance for doubtful
accounts of $272,620 and $134,083 respectively) | |
| 1,446,441 | | |
| 732,076 | |
| Inventories | |
| 3,032,001 | | |
| 1,932,486 | |
| Prepaid expenses and other
current assets | |
| 388,061 | | |
| 318,424 | |
| | |
| | | |
| | |
| Total Current Assets | |
| 12,330,683 | | |
| 9,924,763 | |
| | |
| | | |
| | |
| PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $6,074,117 and $5,508,377, respectively | |
| 6,401,802 | | |
| 4,199,602 | |
| | |
| | | |
| | |
| INTANGIBLE ASSETS | |
| 6,381,774 | | |
| 6,349,922 | |
| | |
| | | |
| | |
| OTHER ASSETS | |
| | | |
| | |
| Investment | |
| — | | |
| 3,329,322 | |
| Security deposits | |
| 198,481 | | |
| 16,314 | |
| Restricted cash – debt service for EDA
bonds | |
| 388,959 | | |
| 265,043 | |
| EDA bond offering costs,
net of accumulated amortization of $135,874 and $121,697, respectively | |
| 218,579 | | |
| 232,756 | |
| | |
| | | |
| | |
| Total Other Assets | |
| 806,019 | | |
| 3,843,435 | |
| | |
| | | |
| | |
| TOTAL
ASSETS | |
$ | 25,920,279
| | |
$ | 24,317,722 | |
See accompanying
notes
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
March 31,
2015 and 2014
| | |
2015 | | |
2014 | |
| LIABILITIES
AND STOCKHOLDERS’ DEFICIT | |
| | | |
| | |
| CURRENT LIABILITIES | |
| | | |
| | |
| Current portion of EDA bonds
payable | |
$ | 210,000 | | |
$ | 3,385,000 | |
| Short term loans and current portion of long-term
debt | |
| 265,165 | | |
| 18,870 | |
| Related Party Lines of Credit | |
| 583,071 | | |
| 528,750 | |
| Accounts payable and accrued expenses | |
| 3,997,528 | | |
| 2,214,871 | |
| Deferred revenues –
current | |
| 13,333 | | |
| 13,333 | |
| Total Current Liabilities | |
| 5,069,097 | | |
| 6,160,824 | |
| | |
| | | |
| | |
| LONG TERM LIABILITIES | |
| | | |
| | |
| EDA Bonds Payable – Non Current | |
| 2,065,000 | | |
| — | |
| Deferred revenues | |
| 125,557 | | |
| 138,890 | |
| Other long term liabilities | |
| 629,138 | | |
| 131,144 | |
| Derivative liability – preferred shares | |
| 35,000,000 | | |
| 60,981,570 | |
| Derivative liability
– warrants | |
| 17,762,573 | | |
| 38,103,446 | |
| Total Long Term Liabilities | |
| 55,582,268 | | |
| 99,355,050 | |
| | |
| | | |
| | |
| TOTAL
LIABILITIES | |
| 60,651,365 | | |
| 105,515,874 | |
| | |
| | | |
| | |
| STOCKHOLDERS’ DEFICIT | |
| | | |
| | |
Common stock – par value $0.001, Authorized
995,000,000 and 690,000,000 shares, respectively.
Issued 631,160,701 shares and 560,242,430 shares, respectively. Outstanding 631,060,701 shares and 560,142,430 shares, respectively. | |
| 631,162 | | |
| 560,244 | |
| | |
| | | |
| | |
| Additional paid-in-capital | |
| 161,021,568 | | |
| 143,555,091 | |
| | |
| | | |
| | |
| Accumulated deficit | |
| (196,076,975 | ) | |
| (225,006,646 | ) |
| | |
| | | |
| | |
| Treasury stock at cost
(100,000 common shares) | |
| (306,841 | ) | |
| (306,841 | ) |
| | |
| | | |
| | |
| TOTAL
STOCKHOLDERS’ DEFICIT | |
| (34,731,087 | ) | |
| (81,198,152 | ) |
| | |
| | | |
| | |
| TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT | |
$ | 25,920,279
| | |
$ | 24,317,722 | |
See accompanying
notes
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS
| | |
Years
Ended
March 31, | |
| | |
2015 | | |
2014 | |
| REVENUES | |
| | | |
| | |
| Manufacturing Fees | |
$ | 3,870,457 | | |
$ | 2,982,400 | |
| Licensing Fees | |
| 1,139,789 | | |
| 1,536,039 | |
| Lab Fee Revenues | |
| 5,000 | | |
| 82,937 | |
| Total Revenues | |
| 5,015,246 | | |
| 4,601,376 | |
| | |
| | | |
| | |
| COSTS OF REVENUES | |
| 3,013,592 | | |
| 3,236,106 | |
| | |
| | | |
| | |
| Gross Profit | |
| 2,001,654 | | |
| 1,365,270 | |
| | |
| | | |
| | |
| OPERATING EXPENSES | |
| | | |
| | |
| Research and Development | |
| 14,727,472 | | |
| 3,959,316 | |
| General and Administrative | |
| 2,904,114 | | |
| 2,105,725 | |
| Non-cash compensation through issuance of stock
options | |
| 260,045 | | |
| 82,947 | |
| Depreciation and Amortization | |
| 616,995 | | |
| 500,906 | |
| Total Operating Expenses | |
| 18,508,626 | | |
| 6,648,894 | |
| | |
| | | |
| | |
| (LOSS) FROM OPERATIONS | |
| (16,506,971 | ) | |
| (5,283,624 | ) |
| | |
| | | |
| | |
| OTHER INCOME / (EXPENSES) | |
| | | |
| | |
| Interest expense, net | |
| (287,231 | ) | |
| (859,328 | ) |
| Change in fair value of warrant derivatives | |
| 18,447,573 | | |
| (32,997,869 | ) |
| Change in fair value of preferred share derivatives | |
| 25,602,370 | | |
| (56,518,425 | ) |
| Change in fair value of convertible note payable
derivative | |
| — | | |
| (1,187,879 | ) |
| Interest expense attributable to preferred share
derivatives | |
| — | | |
| (40,588 | ) |
| Gain on Sale of Investment | |
| 1,670,685 | | |
| — | |
| Other Income | |
| — | | |
| 19,831 | |
| Total Other Income /
(Expense) | |
| 45,433,397 | | |
| (91,584,258 | ) |
| | |
| | | |
| | |
| INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | |
| 28,926,426 | | |
| (96,867,882 | ) |
| | |
| | | |
| | |
| CREDIT FOR INCOME TAXES | |
| 3,248 | | |
| 292,611 | |
| | |
| | | |
| | |
| NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS | |
$ | 28,929,674 | | |
$ | (96,575,271 | ) |
| | |
| | | |
| | |
| NET INCOME (LOSS) PER SHARE | |
| | | |
| | |
| Basic | |
$ | 0.05 | | |
$ | (0.21 | ) |
| Diluted | |
$ | (0.02 | ) | |
$ | (0.21 | ) |
| | |
| | | |
| | |
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | |
| | | |
| | |
| Basic | |
| 591,214,959 | | |
| 463,021,991 | |
| Diluted | |
| 757,579,152 | | |
| 463,021,991 | |
See accompanying
notes
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS (DEFICIT) EQUITY
FOR THE YEAR
ENDED MARCH 31, 2014
| | |
Common Stock | | |
| | |
Treasury Stock | | |
| | |
| |
| | |
Shares | | |
Amount | | |
Additional
Paid-In
Capital | | |
Shares | | |
Amount | | |
Accumulated
Deficit | | |
Stockholders’
Deficit | |
Balance
at March
31, 2013 | |
| 374,493,959 | | |
$ | 374,495 | | |
$ | 119,690,336 | | |
| 100,000 | | |
$ | (306,841 | ) | |
$ | (128,431,375 | ) | |
$ | (8,673,385 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net Income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (96,575,271 | ) | |
| (96,575,271 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common shares sold pursuant to the Lincoln Park Capital
purchase agreement | |
| 65,143,216 | | |
| 65,143 | | |
| 9,934,857 | | |
| | | |
| | | |
| | | |
| 10,000,000 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common shares issued in lieu of cash in payment of
preferred share derivative interest expense | |
| 878,543 | | |
| 879 | | |
| 67,210 | | |
| | | |
| | | |
| | | |
| 68,089 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Conversion of Series B, Series C and Series E Preferred
Shares into Common Shares | |
| 91,796,043 | | |
| 91,797 | | |
| 9,733,269 | | |
| | | |
| | | |
| | | |
| 9,825,066 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Non-cash compensation through the issuance of stock
options | |
| | | |
| | | |
| 82,947 | | |
| | | |
| | | |
| | | |
| 82,947 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Costs associated with raising capital (net of adjustments) | |
| 5,858,230 | | |
| 5,858 | | |
| (53,845 | ) | |
| | | |
| | | |
| | | |
| (47,987 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of Common Shares pursuant to the exercise
of warrants | |
| 16,904,038 | | |
| 16,904 | | |
| 3,584,116 | | |
| | | |
| | | |
| | | |
| 3,601,020 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of Common Shares pursuant to the exercise
of options | |
| 308,333 | | |
| 308 | | |
| 23,992 | | |
| | | |
| | | |
| | | |
| 24,300 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common shares issued in payment of Directors’
Fees | |
| 1,210,583 | | |
| 1,211 | | |
| 108,789 | | |
| | | |
| | | |
| | | |
| 110,000 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common shares issued in payment of employee salaries | |
| 3,439,467 | | |
| 3,439 | | |
| 364,794 | | |
| | | |
| | | |
| | | |
| 368,233 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common shares issued in payment
of consulting expenses | |
| 210,018 | | |
| 210 | | |
| 18,626 | | |
| | | |
| | | |
| | | |
| 18,836 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
at March
31, 2014 | |
| 560,242,430 | | |
$ | 560,244 | | |
$ | 143,555,092 | | |
| 100,000 | | |
$ | (306,841 | ) | |
$ | (225,006,646 | ) | |
$ | (81,198,152 | ) |
See accompanying
notes
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS (DEFICIT) EQUITY
FOR THE YEAR
ENDED MARCH 31, 2015
| | |
Common Stock | | |
| | |
Treasury Stock | | |
| | |
| |
| | |
Shares | | |
Amount | | |
Additional
Paid-In
Capital | | |
Shares | | |
Amount | | |
Accumulated
Deficit | | |
Stockholders’
Deficit | |
Balance
at March
31, 2014 | |
| 560,242,430 | | |
$ | 560,244 | | |
$ | 143,555,092 | | |
| 100,000 | | |
$ | (306,841 | ) | |
$ | (225,006,646 | ) | |
$ | (81,198,152 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net Income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 28,929,674 | | |
| 28,929,674 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common shares sold pursuant to the Lincoln Park Capital
purchase agreement | |
| 47,172,240 | | |
| 47,172 | | |
| 13,189,452 | | |
| | | |
| | | |
| | | |
| 13,236,624 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common shares issued as commitment shares pursuant
to the Lincoln Park Capital purchase agreement | |
| 2,566,861 | | |
| 2,567 | | |
| (2,567 | ) | |
| | | |
| | | |
| | | |
| — | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Conversion of Series I Preferred Shares into Common
Shares | |
| 6,060,000 | | |
| 6,060 | | |
| 2,266,440 | | |
| | | |
| | | |
| | | |
| 2,272,500 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Non-cash compensation through the issuance of stock
options | |
| | | |
| | | |
| 260,047 | | |
| | | |
| | | |
| | | |
| 260,047 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Costs associated with raising capital (net of adjustments) | |
| | | |
| | | |
| (16,365 | ) | |
| | | |
| | | |
| | | |
| (16,365 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of Common Shares pursuant to the exercise
of warrants | |
| 11,985,388 | | |
| 11,985 | | |
| 762,868 | | |
| | | |
| | | |
| | | |
| 774,853 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Issuance of Common Shares pursuant to the exercise
of options | |
| 223,334 | | |
| 223 | | |
| 25,777 | | |
| | | |
| | | |
| | | |
| 26,000 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common shares issued in payment of Directors’
Fees | |
| 321,611 | | |
| 322 | | |
| 109,678 | | |
| | | |
| | | |
| | | |
| 110,000 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common shares issued in payment of employee salaries | |
| 2,518,668 | | |
| 2,519 | | |
| 847,218 | | |
| | | |
| | | |
| | | |
| 849,737 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Common shares issued in payment
of consulting expenses | |
| 70,169 | | |
| 70 | | |
| 23,929 | | |
| | | |
| | | |
| | | |
| 23,999 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
at March
31, 2015 | |
| 631,160,701 | | |
$ | 631,162 | | |
$ | 161,021,568 | | |
| 100,000 | | |
$ | (306,841 | ) | |
$ | (196,076,975 | ) | |
$ | (34,731,087 | ) |
See accompanying
notes
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
| | |
YEARS
ENDED MARCH 31, | |
| | |
2015 | | |
2014 | |
| CASH FLOWS FROM OPERATING
ACTIVITIES | |
| | | |
| | |
| Net Income (Loss) | |
$ | 28,929,674 | | |
$ | (96,575,269 | ) |
| Adjustments to reconcile net loss to cash used in operating activities: | |
| | | |
| | |
| Depreciation and amortization | |
| 581,855 | | |
| 453,746 | |
| Change in fair value of warrant derivative liability | |
| (18,447,573 | ) | |
| 32,997,869 | |
| Change in fair value of preferred share derivative
liability | |
| (25,602,370 | ) | |
| 56,518,425 | |
| Change in value of convertible note payable
derivative | |
| —
| | |
| 1,187,879 | |
| Preferred share derivative interest satisfied
by the issuance of common stock | |
| —
| | |
| 68,089 | |
| Salaries and Directors Fees satisfied by the
issuance of common stock | |
| 959,737 | | |
| 478,233 | |
| Consulting expenses paid via the issuance of
common stock | |
| 23,999 | | |
| 18,836 | |
| Non-cash compensation satisfied by the issuance
of common stock and options | |
| 260,047 | | |
| 82,947 | |
| Non-cash interest expense | |
| — | | |
| 568,395 | |
| Non-cash rent expense | |
| 23,703 | | |
| (49,439 | ) |
| Non-cash lease accretion | |
| 1,526 | | |
| 1,438 | |
| Gain on Sale of Investment | |
| (1,670,685 | ) | |
| —
| |
| Changes in Assets and Liabilities | |
| | | |
| | |
| Accounts receivable | |
| (714,365 | ) | |
| (66,922 | ) |
| Inventories | |
| (1,099,518 | ) | |
| (574,340 | ) |
| Prepaid and other current assets | |
| (147,188 | ) | |
| (169,373 | ) |
| Accounts payable, accrued expenses and other
current liabilities | |
| 1,811,258 | | |
| 883,446 | |
| Deferred revenues and Customer deposits | |
| (13,333 | ) | |
| (13,333 | ) |
| Derivative interest payable | |
| —
| | |
| (27,500 | ) |
| NET
CASH USED IN OPERATING ACTIVITIES | |
| (15,103,233 | ) | |
| (4,216,875 | ) |
| | |
| | | |
| | |
| CASH FLOWS FROM INVESTING
ACTIVITIES | |
| | | |
| | |
| Purchases of property and equipment | |
| (1,545,131 | ) | |
| (455,323 | ) |
| Cost of leasehold improvements | |
| (419,887 | ) | |
| (46,945 | ) |
| Costs incurred for intellectual property assets | |
| (31,853 | ) | |
| (58,178 | ) |
| Withdrawals from restricted cash, net | |
| (123,916 | ) | |
| 2,777 | |
| Proceeds from Sale of Investment in Novel | |
| 5,000,000 | | |
| —
| |
| NET
CASH USED IN INVESTING ACTIVITIES | |
| 2,879,213 | | |
| (557,669 | ) |
| | |
| | | |
| | |
| CASH FLOWS FROM FINANCING
ACTIVITIES | |
| | | |
| | |
| Proceeds from Exercise of Cash Warrants and Options | |
| 800,853 | | |
| 868,050 | |
| Proceeds from draws against related party Credit
Lines | |
| 54,322 | | |
| 528,750 | |
| Payment of NJEDA Bonds | |
| (1,110,000 | ) | |
| | |
| Other loan payments | |
| (219,010 | ) | |
| (1,515 | ) |
| Proceeds from sale of common stock to Lincoln Park
Capital | |
| 13,236,624 | | |
| 10,000,000 | |
| Costs associated with raising
capital | |
| (16,365 | ) | |
| (47,987 | ) |
| NET
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | |
| 12,746,424 | | |
| 11,347,299 | |
| | |
| | | |
| | |
| NET CHANGE IN CASH AND
CASH EQUIVALENTS | |
| 522,403 | | |
| 6,572,754 | |
| | |
| | |
| CASH AND CASH EQUIVALENTS – beginning of
period | |
| 6,941,777 | | |
| 369,023 | |
| CASH AND CASH EQUIVALENTS – end of period | |
$ | 7,464,180 | | |
$ | 6,941,777 | |
See accompanying
notes
Continued
on next page
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(continued
from previous page)
| | |
YEARS
ENDED MARCH 31, | |
| | |
2015 | | |
2014 | |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | |
| | |
| |
| Cash paid for interest | |
| 89,336 | | |
$ | 289,494 | |
| Cash paid for taxes | |
| 2,500 | | |
| 3,099 | |
| SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES | |
| | | |
| | |
| Commitment shares issued to Lincoln Park Capital | |
| 830,521 | | |
| 1,112,838 | |
| Conversion of Preferred Shares to Common Shares | |
| 2,272,500 | | |
| 9,825,066 | |
| Acquisition of Intellectual Property with convertible
note payable | |
| —
| | |
| 5,597,317 | |
| Issuance of note payable to related party in payment
of balance due on line of credit owed to the same related party | |
| —
| | |
| 600,000 | |
| Issuance of Series I Preferred Shares in satisfaction
of amounts due on Notes Payable | |
| —
| | |
| 7,953,591 | |
| Financing of equipment purchases | |
| 804,861 | | |
| 107,960 | |
See accompanying
notes
| 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 wholly-owned subsidiary, Elite Laboratories, Inc. (“Elite Labs”,
and collectively, the “Company”) for the years ended March 31, 2015 (“Fiscal 2015”) and 2014 (“Fiscal
2014”). As of March 31, 2015, 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 twenty 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, 2015 are $7,464,180. 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 2015 and Fiscal 2014 the
Company generated all its revenues from seven and ten 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 2015 and Fiscal 2014.
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, 2015 and March 31, 2014.
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, 2015, 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, 2015 and 2015.
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, 2015 and 2014 was $260,045 and $82,947, 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
In
May 2014, the Financial Accounting Standards Board issued amended accounting guidance on revenue recognition that will be applied
to all contracts with customers. The objective of the new guidance is to improve comparability of revenue recognition practices
across entities and to provide more useful information to users of financial statements through improved disclosure requirements.
This guidance is effective for annual and interim periods beginning in 2017. Early adoption is not permitted. The Company is currently
assessing the impact of adoption on its consolidated financial statements.
Inventories
are recorded at the lower of cost or market. Inventories at March 31, 2015 and 2014 consist of the following:
| | |
2015 | | |
2014 | |
| Finished Goods | |
$ | 122,772 | | |
$ | —
| |
| Work-in-Process | |
| 58,770 | | |
| 409,146 | |
| Raw Materials | |
| 2,850,459 | | |
| 1,523,341 | |
| | |
$ | 3,032,001 | | |
$ | 1,932,487 | |
| NOTE 3 - | PROPERTY
AND EQUIPMENT |
Property and
equipment at March 31, 2015 and 2014 consists of the following:
| | |
2015 | | |
2014 | |
| Laboratory manufacturing, and warehouse
equipment | |
$ | 7,593,017 | | |
$ | 5,952,084 | |
| Office equipment and Software | |
| 209,551 | | |
| 95,309 | |
| Furniture and fixtures | |
| 49,804 | | |
| 49,804 | |
| Transportation equipment | |
| 66,855 | | |
| 66,855 | |
| Land, building and improvements | |
| 4,556,692 | | |
| 3,543,927 | |
| | |
| 12,475,919 | | |
| 9,707,979 | |
| Less: Accumulated depreciation | |
| (6,074,117 | ) | |
| (5,508,377 | ) |
| | |
$ | 6,401,802 | | |
$ | 4,199,602 | |
Depreciation
expense amounted to $567,679 and $486,726 for the years ended March 31, 2015 and 2014, 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, 2015 and 2014, the following costs were recorded as intangible assets on the Company’s balance sheet:
| | |
2015 | | |
2014 | |
| Intangible assets at beginning of fiscal
year | |
| | | |
| | |
| Patent application costs | |
$ | 302,602 | | |
$ | 244,424 | |
| ANDA acquisitions | |
| 6,047,317 | | |
| 450,000 | |
| Less: Accumulated Amortization | |
| — | | |
| — | |
| Net Intangible Assets at beginning of fiscal
year | |
$ | 6,349,922 | | |
$ | 694,424 | |
| | |
| | | |
| | |
| Intangible asset costs capitalized during the fiscal year | |
| | | |
| | |
| Patent application costs | |
$ | 31,855 | | |
$ | 58,178 | |
| ANDA acquisition costs | |
| — | | |
| 5,597,317 | |
| Total cost of intangible assets capitalized | |
$ | 31,853 | | |
$ | 5,655,495 | |
| | |
| | | |
| | |
| Intangible assets at end of fiscal
year | |
| | |
| Patent application costs | |
$ | 334,457 | | |
$ | 302,602 | |
| ANDA acquisition costs | |
| 6,047,317 | | |
| 6,047,317 | |
| Less: Accumulated Amortization | |
| | | |
| | |
| Net
Intangible Assets | |
$ | 6,381,774 | | |
$ | 6,349,922 | |
The costs incurred in patent
applications totaling $31,855 and $58,178 for Fiscal 2015 and Fiscal 2014, 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.
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 consisted 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 was 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. At the
time of this transaction, the investment had a book value of $3,329,322, with a gain on sale of investment of $1,670,685 being
realized and recorded as an other income item.
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, 2015, all of the proceeds were utilized by the Company for
such stated purposes.
On
July 23, 2014, the Company retired all outstanding Series B notes, at par, along with all accrued interest due and owing as of
such date. As of March 31, 2015, there are no amounts due and owing in relation the Series B notes.
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 of $366,000 in relation to the Series A Notes.
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, 2014 | | |
Amortization
Expense
Current YTD | | |
Balances
As of
March 31, 2015 | |
| Bond Issue Costs | |
$ | 354,453 | | |
| | | |
$ | 354,453 | |
| Accumulated Amortization | |
| (121,697 | ) | |
| (14,177 | ) | |
| (135,874 | ) |
| Unamortized Balance | |
$ | 232,756 | | |
| | | |
$ | 218,579 | |
The
NJEDA Bonds require the Company to make an annual principal payment on September 1st of varying amounts as specified
in the loan documents and semi-annual interest payments on March 1st and September 1st, equal to interest
due on the outstanding principal at the applicable rate for the semi-annual period just ended.
Balance
Sheet Classification of Bond 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 classified the entire principal balance due on the NJEDA Bonds as a current liability, as of
such date.
During
Fiscal 2015, all monetary defaults were cured and accordingly, bond principal amounts scheduled to mature within 12 months of
March 31, 2015 were recorded as current liabilities as of such date. All bond principal amounts scheduled to mature on dates later
than March 31, 2016 were recorded as non-current liabilities as of March 31, 2015.
Bond
financing consisting of the following, as of March 31,
| | |
2015 | | |
2014 | |
| | |
| | |
| |
| Refinanced NJEDA Bonds | |
$ | 2,275,000 | | |
$ | 3,385,000 | |
| | |
| | | |
| | |
| Current portion | |
| (210,000 | ) | |
| (3,385,000 | |
| | |
| | | |
| | |
| Long term portion, net of current maturities | |
$ | 2,065,000 | | |
$ | — | |
Maturities of Bonds for
the next five years are as follows:
| YEAR ENDING
MARCH 31, | |
AMOUNT | |
| 2016 | |
$ | 210,000 | |
| 2017 | |
| 220,000 | |
| 2018 | |
| 85,000 | |
| 2019 | |
| 90,000 | |
| 2020 | |
| 95,000 | |
| Thereafter | |
| 1,575,000 | |
| | |
$ | 2,275,000 | |
| NOTE 7 - | LOANS
PAYABLE AND LONG TERM DEBT |
Loans
Payable
During
the ordinary course of business, the Company has secured loans to support the collateralized financing of fixed asset acquisition,
or the renewal of insurance policies. The Company has secured such loans with initial principal amounts totaling $909,477 and
$107,960 during Fiscal 2015 and Fiscal 2014, respectively. Payment terms of these loans range from 9 months to 60 months at annual
interest rates that range from 5.7% to 13.1%.
Principal
amounts scheduled for payment within 12 months of the balance sheet date are classified as current liabilities on the balance
sheet.
Principal
amounts scheduled for payment on dates later than 12 months after the balance sheet date are classified as non-current liabilities
on the balance sheet.
Loans
payable and long term debt consisted of the following:
| | |
March
31, 2015 | | |
March
31, 2014 | |
| | |
Current | | |
Long-
Term | | |
Current | | |
Long-
Term | |
| Equipment and Insurance financing loans payable | |
$ | 265,165 | | |
$ | 560,338 | | |
$ | 18,870 | | |
$ | 87,574 | |
| | |
| | | |
| | | |
| | | |
| | |
| Deferred Rent-135 Ludlow Ave Lease (see note 9) | |
| | | |
| 42,524 | | |
| | | |
| 18,821 | |
| | |
| | | |
| | | |
| | | |
| | |
| Lease termination costs – 135 Ludlow Ave
lease (see note 9) | |
| — | | |
| 26,275 | | |
| — | | |
| 24,749 | |
| | |
| | | |
| | | |
| | | |
| | |
| TOTAL | |
$ | 265,165 | | |
$ | 629,137 | | |
$ | 18,870 | | |
$ | 131,144 | |
Loan
principal payments for the next five years are as follows:
| YEAR
ENDING MARCH 31, | |
AMOUNT | |
| 2016 | |
$ | 265,165 | |
| 2017 | |
| 250,856 | |
| 2018 | |
| 137,711 | |
| 2019 | |
| 104,676 | |
| 2020 | |
| 67,095 | |
| Thereafter | |
| — | |
| | |
$ | 825,503 | |
| NOTE 8 - | RELATED PARTY LINES OF CREDIT AND
NOTES PAYABLE |
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 March 31, 2016, as amended., 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, 2015, the principal
balance owed under the Hakim Credit Line was $583,071, with an additional $18,105 in accrued interest being also owed, in accordance
with the terms and conditions of the Hakim Credit Line.
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.
| NOTE 9 - | LEASES
OF RENTAL PROPERTIES |
The
following leases for rental properties were operative during the year ended March 31, 2015:
| | |
135 Ludlow Ave
(see notes 10 and 11) | |
| Effective Date | |
| July
1, 2010 | (c) |
| | |
| | |
| Termination Date | |
| December
31, 2016 | |
| | |
| | |
| Lease term | |
| 6
years with 2 tenant renewal options for 5 years each | |
| | |
| | |
| Rent expense for the 2015 Fiscal
Year | |
$ | 153,430 | |
| Rent expense for the 2014 Fiscal Year | |
$ | 33,820 | |
| | |
| | |
| Minimum
5 Year Lease Payments(a) | |
| | |
| Fiscal
year ended March 31, 2016(b) | |
| 203,850 | |
| Fiscal
year ended March 31, 2017(b) | |
| 155,169 | |
| Fiscal
year ended March 31, 2018(b) | |
| — | |
| Fiscal
year ended March 31, 2019(b) | |
| — | |
| Fiscal
year ended March 31, 2020(b) | |
| — | |
| | |
$ | 359,019 | |
| (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. |
| (b) | Minimum
lease payments calculated for the initial term of the lease only, with such initial term
expiring on December 31, 2016. |
| (c) | Inclusive
of a modification of lease agreement dated July 29, 2014 |
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, 2015 | | |
Fiscal Year
Ended
March 31, 2014 | |
| Rent Expense | |
$ | 153,430 | | |
$ | 33,820 | |
| | |
| | | |
| | |
| Actual lease payments | |
| 114,321 | | |
| 83,259 | |
| | |
| | | |
| | |
| Increase in deferred rent liability | |
| 39,109 | | |
| 7,079 | |
| | |
| | | |
| | |
| Adjustments to deferred rent liability | |
| (15,409 | ) | |
| (56,518 | ) |
| | |
| | | |
| | |
| Balance of deferred rent liability | |
| 42,524 | | |
| 18,824 | |
| 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.
On
July 29, 2014, the Company modified this operating lease, with the material terms of the modification including the Company being
permitted to occupy the entire 35,000 square feet in the building, with this expansion being necessary to support the Company’s
growing and projected commercial operations.
The
lease, as modified, includes an initial term which expires on December 31, 2016 and two tenant renewal options of five years each,
with such options being at the sole discretion of the Company. 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, distribution
activities and related regulatory activities.
The
additional 20,000 square feet for which the Company secured occupancy rights pursuant to the July 2014 modification agreement
requires significant leasehold improvements and qualification as a prerequisite for its intended future use. These improvements
are currently in progress.
Please
refer to Note 9 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 $138,889, consisting of a current component of $13,333 and a long term component of $125,556
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 - | 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 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, 2015 and March 31, 2014, in accordance with the valuation techniques discussed in ASC 820.
| Preferred
Stock Derivative Liabilities – Fiscal 2015 | |
| | |
Series
I | | |
Total | |
| Preferred Shares Authorized | |
| 500 | | |
| | |
| | |
| | | |
| | |
| Preferred shares Outstanding as of March 31, 2015 | |
| 100 | | |
| 100 | |
| | |
| | | |
| | |
| Underlying common shares into which Preferred may convert | |
| 142,857,143 | | |
| 142,857,143 | |
| | |
| | | |
| | |
| Closing price on valuation date | |
$ | 0.245 | | |
$ | 0.245 | |
| | |
| | | |
| | |
| Preferred stock derivative
liability at March 31, 2015 | |
$ | 35,000,000 | | |
$ | 35,000,000 | |
| | |
| | | |
| | |
| Change in preferred stock
derivative liability for Fiscal 2015 | |
| | | |
$ | (25,602,370 | ) |
The
change of ($25,602,370) in value of the preferred stock derivative liability occurring during Fiscal 2015 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 2015 there was a net decrease in the value of
the preferred stock derivative liability, so therefore the amount shown above represents an other income item on the income statement.
| | |
Preferred Stock Derivative Liabilities – Fiscal 2014 | |
| | |
Series C | | |
Series E | | |
Series I | | |
Total | |
| Preferred Shares Authorized | |
| 3,200 | | |
| 4,000 | | |
| 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 | |
$ | — | | |
$ | — | | |
$ | 60,981,570 | | |
$ | 60,981,570 | |
| | |
| | | |
| | | |
| | | |
| | |
| Change in Preferred 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.
| NOTE 14 - | 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
on those warrants outstanding during Fiscal 2015 and Fiscal 2014 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 2015 | | |
Fiscal Year 2014 | |
| | |
Warrant
Shares | | |
Weighted
Average
Exercise
Price | | |
Warrant
Shares | | |
Weighted
Average
Exercise
Price | |
| Balance at beginning of year | |
| 102,143,091 | | |
$ | 0.06 | | |
| 139,344,939 | | |
$ | 0.08 | |
| | |
| | | |
| | | |
| | | |
| | |
| Warrant exercises, forfeited or expired | |
| 12,273,057 | | |
$ | 0.07 | | |
| 37,201,848 | | |
$ | 0.09 | |
| | |
| | | |
| | | |
| | | |
| | |
| Ending Balance | |
| 89,870,034 | | |
$ | 0.06 | | |
| 102,143,091 | | |
$ | 0.06 | |
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, if any, issued with the Company’s 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
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, 2015 and March 31, 2014, 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 2015 | | |
March
31 2014 | |
| Risk-Free interest rate | |
| 0.05%
- 0.89% | | |
| .05%
- 1.32% | |
| Expected volatility | |
| 93%
- 113% | | |
| 111%
- 207% | |
| Expected life (in years) | |
| 1.2
– 3.1 | | |
| 0.3
– 4.1 | |
| Expected dividend yield | |
| 0% | | |
| 0% | |
| Number of warrants | |
| 89,870,034 | | |
| 102,143,091 | |
| | |
| | | |
| | |
| Fair value – Warrant
Derivative Liability | |
$ | 17,762,573 | | |
$ | 38,103,446 | |
| | |
| | | |
| | |
| Change in warrant derivative
liability for the twelve months ended | |
$ | (18,447,573 | ) | |
$ | 32,997,869 | |
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 $(18,447,573) and $32,997,869 in value of the warrant derivative liability occurring during the years ended March 31,
2015 and 2014, 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
2015 | | |
Fiscal
2014 | |
| Balance at Beginning of Fiscal Year | |
$ | 38,103,446 | | |
$ | 7,862,848 | |
| Warrants Exercised | |
| 1,893,300 | | |
| (2,757,271 | ) |
| Change in fair value of warrant liability | |
| (18,447,573 | ) | |
| 32,997,869 | |
| Balance at End of Fiscal Year | |
$ | 17,762,573 | | |
$ | 38,103,446 | |
Lincoln
Park Capital
Pursuant
to an April 19, 2013 purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”) we had the right to sell
to and Lincoln Park was obligated to purchase up to $10 million in shares of the Company’s Common Stock, subject to certain
limitations, from time to time, over the 36 month period commencing on May 9, 2013. We raised the entire $10 million from the
sale of shares to Lincoln Park pursuant to that agreement. That agreement terminated in March 2014 with the sale of all shares
covered by that agreement.
On
April 10, 2014, we entered into another Purchase Agreement and a Registration Rights Agreement with Lincoln Park. Pursuant to
the terms of the Purchase Agreement, Lincoln Park has agreed to purchase from us up to $40 million of our common stock (subject
to certain limitations) from time to time over a 36-month period. Pursuant to the terms of the Registration Rights Agreement,
we have filed with the SEC a registration statement to register for resale under the Securities Act the shares that have been
or may be issued to Lincoln Park under the Purchase Agreement. That registration statement was declared effective by the SEC on
May 1, 2014 A post-effective amendment to that Registration Statement was subsequently filed with the SEC and declared effective
on July 1, 2014.
Upon
execution of the Purchase Agreement, we have issued 1,928,641 shares of our common stock to Lincoln Park pursuant to the Purchase
Agreement as consideration for its commitment to purchase additional shares of our common stock under that agreement and we are
obligated to issue up to an additional 1,928,641 commitment shares to Lincoln Park pro rata as up to $40 million of our common
stock is purchased by Lincoln Park. Through June 8, 2015, we have sold to Lincoln Park an aggregate of 55,153,207 shares under
the Purchase Agreement for aggregate gross proceeds of approximately $15.0 million. In addition, we have issued an additional
2,649,494 Commitment Shares.
We
may, from time to time and at our sole discretion but no more frequently than every other business day, direct Lincoln Park to
purchase (a “Regular Purchase”) up to 500,000 shares of our common stock on any such business day, increasing up to
800,000 shares, depending upon the closing sale price of the common stock, provided that in no event shall Lincoln Park purchase
more than $760,000 worth of our common stock on any single business day. The purchase price of shares of Common Stock related
to the future Regular Purchase funding will be based on the prevailing market prices of such shares at the time of sales (or over
a period of up to 10 business days leading up to such time), 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 of $0.10 per share, subject to adjustment.
In
addition to Regular Purchases, on any business day on which we have properly submitted a Regular Purchase notice and the closing
sale price is not below $0.15, we may purchase (an “Accelerated Purchase”) an additional “accelerated amount”
under certain circumstances. The amount of any Accelerated Purchase cannot exceed the lesser of three times the number of purchase
shares purchased pursuant to the corresponding Regular Purchase; and 30% of the aggregate shares of our common stock traded during
normal trading hours on the purchase date. The purchase price per share for each such Accelerated Purchase will be equal to the
lower of (i) 97% of the volume weighted average price during the purchase date; or (ii) the closing sale price of our common stock
on the purchase date.
In
the case of both Regular Purchases and Accelerated Purchases, the purchase price per share will be equitably adjusted for any
reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction occurring during
the business days used to compute the purchase price.
Other
than as set forth above, there are no trading volume requirements or restrictions under the Purchase Agreement, and we will control
the timing and amount of any sales of our common stock to Lincoln Park.
Our
sales of shares of Common Stock to Lincoln Park under the Lincoln Park 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 Common Stock.
The
Lincoln Park Purchase Agreement and the Lincoln Park 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 Lincoln Park Purchase Agreement at any time, at no cost or penalty. Actual sales of shares of Common
Stock to Lincoln Park under the Lincoln Park Purchase Agreement will depend on a variety of factors to be determined by the Company
from time to time, including, without limitation, market conditions, the trading price of the Common Stock and determinations
by the Company as to appropriate sources of funding for the Company and its operations. There are no trading volume requirements
or restrictions under the Lincoln Park 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 Lincoln Park 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 Lincoln Park Purchase Agreement will be used for general corporate purposes and working capital requirements.
Summary
of Common Stock Activity
During
Fiscal Years 2015 and 2014, the Company issued a total of 70,918,271 shares and 185,748,471 shares of Common Stock, respectively,
with such issuances of Common Stock being summarized as follows:
| Description | |
Fiscal
Year
2015 | | |
Fiscal
Year 2014 | |
| | |
| | |
| |
| Common shares sold pursuant to the Lincoln Park Capital
Purchase Agreements, with net proceeds of such shares totaling $13,236,624 and $10,000,000 in Fiscal 2015 and Fiscal 2014,
respectively. | |
| 47,172,240 | | |
| 65,143,216 | |
| | |
| | | |
| | |
| Common shares issued as commitment shares pursuant to the Lincoln
Park Capital Purchase Agreements | |
| 2,566,861 | | |
| 5,858,230 | |
| | |
| | | |
| | |
| Common Shares issued in lieu of cash payment in payment of preferred
share derivative interest expenses totaling zero and $68,089 for Fiscal 2015 and Fiscal 2014, respectively | |
| — | | |
| 878,543 | |
| | |
| | | |
| | |
| Common Shares issued pursuant to the conversion of Series B, Series
C, Series E and Series I Convertible Preferred Share derivatives, with such derivative liabilities totaling $2,272,500 and $9,825,066,
for Fiscal 2015 and Fiscal 2014, respectively, at the time of their conversion. | |
| 6,060,000 | | |
| 91,796,043 | |
| | |
| | | |
| | |
| Common Shares issued in payment of Director’s fees totaling
$110,000 and $110,000 for Fiscal 2015 and Fiscal 2014, respectively | |
| 321,611 | | |
| 1,210,583 | |
| | |
| | | |
| | |
| Common shares issued in payment of employee salaries totaling $849,737
and $368,233 for Fiscal 2015 and Fiscal 2014, respectively. | |
| 2,518,668 | | |
| 3,439,467 | |
| | |
| | | |
| | |
| Common shares issued in payment of consulting expenses totaling
$23,999 and $18,836 for Fiscal 2015 and Fiscal 2014, respectively | |
| 70,169 | | |
| 210,018 | |
| | |
| | | |
| | |
| Common shares issued pursuant to warrants exercised | |
| 11,985,388 | | |
| 16,904,038 | |
| | |
| | | |
| | |
| Common shares issued pursuant to options exercised | |
| 223,334 | | |
| 308,333 | |
| | |
| | | |
| | |
| Total Common Shares issued
during Fiscal 2015 and 2014 | |
| 70,918,271 | | |
| 185,748,471 | |
| | |
| | | |
| | |
| Common Shares issued
at March 31, | |
| 631,160,701 | | |
| 560,242,430 | |
| NOTE 16 - | 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 2015 | | |
Fiscal
Year 2014 | |
| Numerator | |
| | | |
| | |
| Net Income (Loss) attributable
to common shareholders | |
$ | 28,932,671 | | |
$ | (96,575,271 | ) |
| | |
| | | |
| | |
| Denominator | |
| | | |
| | |
| Weighted average shares
of common stock outstanding | |
| 591,214,959 | | |
| 463,021,991 | |
| | |
| | | |
| | |
| Net Earnings (Loss) per
Share – Basic | |
$ | 0.05 | | |
$ | (0.21 | ) |
Potentially
dilutive securities excluded from the calculation of diluted loss per share for Fiscal 2014
| Stock Options | |
| 174,359 | |
| | |
| | |
| Convertible Preferred Stock | |
| 148,917,143 | |
| | |
| | |
| Warrants | |
| 15,782,718 | |
| | |
| | |
Diluted
Earnings (Loss) per share (for Fiscal 2015) is calculated as follows:
| | |
Fiscal
Year 2015 | |
| Numerator | |
| | |
| Net Income attributable to common shareholders | |
$ | 28,932,671 | |
| Adjustments to Net Income | |
| | |
| Reversal of Change in Value of Warrant Derivatives | |
| (18,447,573 | ) |
| Reversal of Change in
Value of Preferred Share Derivatives | |
| (25,602,370 | ) |
| | |
| | |
| Net loss attributable to common shareholders
on a diluted basis | |
$ | (15,117,272 | ) |
| | |
| | |
| Denominator | |
| | |
| Weighted average shares of common stock outstanding | |
| 591,214,959 | |
| Dilutive effects of convertible preferred
stock, warrants and options | |
| | |
| Convertible preferred Stock | |
| 142,857,143 | |
| Warrants | |
| 22,926,029 | |
| Stock Options | |
| 581,020 | |
| Weighted average shares outstanding – diluted | |
| 757,579,152 | |
| | |
| | |
| Fully Diluted Earnings (Loss) per Share | |
$ | (0.02 | ) |
| NOTE 17 - | 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 2015, the Company issued 321,611 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, 2014. Please note that the shares issued during Fiscal
2015, include those shares owed and not yet issued at the end of Fiscal Year 2014.
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.
As
of March 31, 2015, the Company owes its Directors a total of 115,038 shares of Common Stock in payment of Directors Fees totaling
$27,500 for the three months ended March 31, 2015. The Company anticipates that these shares of Common Stock will be issued during
the fiscal year ended March 31, 2016.
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 2015, the Company issued a total of 2,518,668 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 $849,737 and related to
the calendar year ended December 31, 2014. Please note that the shares issued during Fiscal 2015, include those shares owed and
not yet issued at the end of Fiscal 2014.
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.
As
of March 31, 2015, the Company owes its President and Chief Executive Officer, Chief Financial Officer and certain other employees
a total of 1,089,991 shares of Common Stock in payment of salaries totaling $259,750 for the three months ended March 31, 2015,
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, 2016.
Stock
option based Employee Compensation
During
Fiscal 2015, the Company issued, to various employees, options to purchase a total of 2,590,000 shares Common Stock, in aggregate
(the “2015 Options”). The 2015 Options have exercise prices equal to the closing price of the Company’s common
stock on the grant date of each such option, such prices ranging from $0.26 per share to $0.46 per share. The 2015 Options vest
in equal increments over a three year period which commences one year from the date of grant. The 2015 Options expire ten years
from the date of grant. The fair value of the 2015 Options was $769,400, 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 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 exercise prices equal to the closing price of the Company’s common
stock on the grant date of each such option, such prices being $0.07 per share. The 2014 Options vest in equal increments over
a three year period which commences one year from the date of grant. The 2014 Options expire ten years from the date of grant.
The fair value of the 2015 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”.
Stock
option based employee compensation is summarized as follows:
| | |
Fiscal Year
2015 | | |
Fiscal Year
2014 | |
| | |
| | |
| |
| Non-cash compensation through issuance of stock options | |
| 260,045 | | |
| 82,947 | |
| NOTE 18 - | 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 2015 | | |
Fiscal Year 2014 | |
| | |
Options | | |
Weighted Average Exercise Price | | |
Options | | |
Weighted Average Exercise Price | |
| Outstanding at beginning of year | |
| 5,435,667 | | |
$ | 0.54 | | |
| 3,939,000 | | |
$ | 1.18 | |
| | |
| | | |
| | | |
| | | |
| | |
| Options Granted | |
| 2,590,000 | | |
$ | 0.31 | | |
| 3,000,000 | | |
$ | 0.07 | |
| | |
| | | |
| | | |
| | | |
| | |
| Options Exercised | |
| 223,334 | | |
$ | 0.12 | | |
| 308,333 | | |
$ | 0.08 | |
| | |
| | | |
| | | |
| | | |
| | |
| Options Expired/Forfeited | |
| 160,166 | | |
$ | 0.18 | | |
| 1,195,000 | | |
$ | 1.60 | |
| | |
| | | |
| | | |
| | | |
| | |
| Outstanding at end of year | |
| 7,642,167 | | |
$ | 0.48 | | |
| 5,435,667 | | |
$ | 0.54 | |
The following table
summarizes information about stock options outstanding at March 31, 2015:
| Range | |
Options Outstanding | | |
Weighted Average Remaining Contractual Life (Years) | |
Weighted Average Exercise Price | | |
Options Exercisable | | |
Weighted Average Exercise Price | |
| $ 0.01 – 1.00 | |
| 6,419,167 | | |
8.5 | |
$ | 0.17 | | |
| 1,674,167 | | |
$ | 0.09 | |
| 1.01 – 2.00 | |
| 96,000 | | |
2.8 | |
$ | 1.08 | | |
| 96,000 | | |
$ | 1.08 | |
| 2.01 – 3.00 | |
| 1,127,000 | | |
1.7 | |
$ | 2.18 | | |
| 1,127,000 | | |
$ | 2.18 | |
| | |
| | | |
| |
| | | |
| | | |
| | |
| $ 0.01 – 3.00 | |
| 7,642,167 | | |
7.4 | |
$ | 0.48 | | |
| 2,897,167 | | |
$ | 0.93 | |
As
of March 31, 2015, there were 6,029,227 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, | |
| | |
2015 | | |
2014 | |
| Federal: | |
| | | |
| | |
| Current | |
$ | — | | |
$ | — | |
| Deferred | |
| — | | |
| — | |
| | |
| | | |
| | |
| State | |
| | | |
| | |
| Current | |
| (3,248 | ) | |
$ | (3,099 | ) |
| Deferred | |
| — | | |
| — | |
| | |
| | | |
| | |
| Sale of New Jersey Net Operating Losses | |
| — | | |
| 295,710 | |
| | |
| | | |
| | |
| Net Credit for Income Taxes | |
$ | 3,248 | | |
$ | 292,611 | |
The
Major components of deferred tax assets and liabilities at March 31, 2015 and 2014 are as follows (amounts in thousands of dollars):
| | |
March
31, | |
| | |
2015 | | |
2014 | |
| Federal | |
| | | |
| | |
| Net Operating Loss Carry forward | |
$ | 24,547 | | |
$ | 19,813 | |
| Valuation Allowance | |
| (24,547 | ) | |
| (19,813 | ) |
| | |
$ | — | | |
$ | — | |
| | |
| | | |
| | |
| State | |
| | | |
| | |
| Net Operating Loss Carryforwards | |
$ | 2,602 | | |
$ | 1,318 | |
| Valuation Allowance | |
| (2,602 | ) | |
| (1,318 | ) |
| | |
$ | — | | |
$ | — | |
At
March 31, 2015 and 2014, 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
Seven customers accounted for
substantially all of the Company’s revenues for Fiscal 2015. Included in these customers are three customers that accounted
for approximately 96 percent of revenues for Fiscal 2015.
Ten customers accounted for
substantially all of the Company’s revenues for Fiscal 2014. Included in these customers are three customers that accounted
for approximately 88 percent of revenues for Fiscal 2014.
Accounts Receivable Concentrations
Five customers accounted for
substantially all of the Company’s accounts receivable as of March 31, 2015. Included in these customers are three customers
that accounted for approximately 89% of accounts receivable as of March 31, 2015.
Five customers accounted for
substantially all of the Company’s accounts receivable as of March 31, 2014. Included in these customers are three customers
that accounted for approximately 83% of accounts receivable as of March 31, 2014.
Purchasing Concentrations
Five suppliers accounted for
more than 80% of the Company’s purchases of raw materials for Fiscal 2015. Included in these seven suppliers are three suppliers
that accounted for approximately 68% of raw material purchases for Fiscal 2015.
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.
| NOTE 21 - | 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 2015 and Fiscal 2014, an aggregate amount of zero and $9,009, 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 2015, an aggregate amount of $7,937 was paid to Epic as reimbursement for costs associated with facility maintenance, engineering
and regulatory resources utilized by 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 2014, the Company did not incur contract manufacturing and/or packaging costs from Epic Pharma. 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.
Total
purchases from Epic by the Company during the fiscal years ended March 31, 2015 and 2014 were $7,937 and $69,512, respectively.
The
Epic Strategic Alliance Agreement expired on June 4, 2012.
| NOTE 22 - | 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. To date,
milestones totaling $1,000,000 have been earned and received in relation to the signing of the Epic Pharma Manufacturing and License
Agreement and the filing and approval by the FDA of supplements relating to the transfer of manufacturing site for Isradipine
2.5mg and Isradipine 5mg. 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 23 - | 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, and entered into a Development and License Agreement dated August 27, 2010 between the Company
and Mikah (the “Mikah Development Agreement”).
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.
On
January 28, 2015, the Mikah Development Agreement was terminated by mutual agreement of the parties thereto. Pursuant to the Mikah
Development Agreement, Mikah made advance consideration payments to the Company totaling $200,000 in exchange for product development
services to be provided at a future date. Subsequent to the execution of the Mikah Development Agreement, and before any development
milestones were achieved, the sole owner of Mikah, Mr. Nasrat Hakim, became the President and Chief Executive Officer of the Company.
Mikah has accordingly ceased operating and is in the process of winding down and liquidating its assets.
Any
further development of the product related to the Mikah Development Agreement will belong to the Company, although there can be
no assurances that such development will occur or be successful.
The
Mikah Development Agreement requires that the consideration paid in advance to the Company be refunded in the event of no milestones
being achieved. Mr. Hakim, as owner of Mikah, has directed that the $200,000 refund due to Mikah not be paid currently, but rather
be added to the amounts due under the Hakim Credit Line.
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 24 - | CONVERSIONS
OF PREFERRED STOCK DERIVATIVES TO COMMON STOCK |
The
Certificate of Designations of 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”, 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 2015 and Fiscal 2014, are summarized as follows:
| | |
Fiscal
2015 | | |
Fiscal
2014 | |
| Series
C Preferred Derivatives | |
| | | |
| | |
| Number of Derivative Shares Converted | |
| — | | |
| 24 | |
| Number of Common Shares issued pursuant to
conversion | |
| — | | |
| 167,106 | |
| Value of Preferred Derivative shares at time
of conversion (represents decrease in derivative liability resulting from conversions) | |
| — | | |
| 47,452 | |
| Change in value of preferred share derivative
liability recorded at time of conversion | |
| — | | |
| 27,489 | |
| Par value of Common Shares issued | |
| — | | |
| 167 | |
| Additional paid in capital recorded as a
result of the conversions | |
| — | | |
| 47,375 | |
| * |
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 | |
| Number of Common Shares issued pursuant to conversion | |
| — | | |
| 74,074,074 | |
| Value of Preferred Derivative shares at time
of conversion (represents decrease in derivative liability resulting from conversions) | |
| — | | |
| 7,888,066 | |
| Change in value of preferred share derivative
liability recorded at time of conversion | |
| — | | |
| 2,652,675 | |
| Par value of Common Shares issued | |
| — | | |
| 74,074 | |
| Additional paid in capital recorded as a result
of the conversions | |
| — | | |
| 7,813,991 | |
| 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 | |
| | |
| | | |
| | |
| Series
I Preferred Derivatives | |
| | | |
| | |
| Number of Derivative Shares Converted | |
| 4.242 | | |
| — | |
| Number of Common Shares issued pursuant to
conversion | |
| 6,060,000 | | |
| — | |
| Value of Preferred Derivative shares at time
of conversion (represents decrease in derivative liability resulting from conversions) | |
| 2,272,500 | | |
| — | |
| Change in value of preferred share derivative
liability recorded at time of conversion | |
| (303,000 | ) | |
| — | |
| Par value of Common Shares issued | |
| 6,060 | | |
| — | |
| Additional paid in capital recorded as a
result of the conversions | |
| 2,266,440 | | |
| — | |
| | |
| | | |
| | |
| Total
Preferred Derivatives | |
| | | |
| | |
| Number of Derivative Shares Converted | |
| 4.242 | | |
| 3,175 | |
| Number of Common Shares issued pursuant to
conversion | |
| 6,060,000 | | |
| 91,796,043 | |
| Value of Preferred Derivative shares at time
of conversion (represents decrease in derivative liability resulting from conversions) | |
| 2,272,500 | | |
| 9,825,066 | |
| Change in value of preferred share derivative
liability recorded at time of conversion | |
| (303,000 | ) | |
| 3,237,937 | |
| Par value of Common Shares issued | |
| 6,060 | | |
| 91,796 | |
| Additional paid in capital recorded as a
result of the conversions | |
| 2,266,440 | | |
| 9,733,270 | |
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.
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.
| NOTE 27 - | 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 such party) which in our
opinion has, or is expected to have, a material adverse effect upon our business, prospects, financial condition or operations.
Arbitration
with Precision Dose Inc.
On May 9, 2014, Precision Dose
Inc., the parent company of TAGI Pharmaceuticals Inc., commenced an arbitration proceeding 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. This arbitration proceeding
is currently ongoing.
Generally Accepted Accounting
Principles require that a contingency loss may only be recognized if the event is (i) probable and (ii) the amount of the loss
can be reasonably estimated. There were no liabilities meeting this criteria at March 31, 2015.
| NOTE 28 - | SUBSEQUENT
EVENTS |
The
Company has evaluated subsequent events from the balance sheet date through June 30, 2015, the date the accompanying financial
statements were issued. The following are material subsequent events:
Sales
and Distribution Licensing Agreement for Abuse-Deterrent ELI-200
On
June 4, 2015, Elite Pharmaceuticals Inc. and its wholly-owned subsidiary Elite Laboratories, Inc. (collectively, “Elite”)
executed an exclusive License Agreement (the “Agreement”) with Epic Pharma LLC. (“Epic”), to market and
sell in the United States, ELI-200, an undisclosed opioid with sequestered naltrexone capsules, owned by Elite. Epic will have
the exclusive right to market ELI-200 and its various dosage forms as listed in Schedule A of the Agreement (the “Products”).
Epic is responsible for all regulatory and pharmacovigilance matters related to the products. Pursuant to the Agreement, Elite
will receive a license fee and milestone payments. The license fee will be computed as a percentage of net sales of the Products
as defined in the Agreement by Epic. Elite will manufacture the product for sale by Epic on a cost plus basis and both parties
agree to execute a separate Manufacturing and Supply Agreement. The license fee is payable quarterly for the term of the Agreement.
Epic shall pay to Elite certain milestone payments as defined by the Agreement. The first milestone payment was due and was received
upon signing the agreement. Subsequent milestone payments are due upon the filing of a New Drug Application (“NDA”)
with the U.S. Food and Drug Administration (“FDA”) for the Products and upon receipt of the approval letter for the
NDA from the FDA. The term of the License Agreement is five years and may be extended for an additional five years upon mutual
agreement of the parties. Elite can terminate the Agreement on 90 days’ written notice in the Event that Epic does not pay
to Elite certain minimum annual license fees over the initial five year term of the Agreement. Either party may terminate this
Agreement upon a material breach and failure to cure that breach by the other party within a specified period.
Launch
of generic Hydroxyzine Tablets
On
April 21, 2015, the first shipment of generic Hydroxyzine 10mg, 25mg and 50mg tablets was made through Epic Pharma LLC, pursuant
to the Epic Pharma Manufacturing and License Agreement. Hydroxyzine is indicated for symptomatic relief of anxiety and tension
associated with certain disease states and management of pruritus due to certain allergic conditions. Manufacturing, packaging
and distribution are being performed by Epic, under the Epic Pharma Manufacturing and License Agreement, with the Company earning
royalties which are based on net sales achieved.
Common
Stock sold pursuant to the LPC-40 Purchase Agreement
Subsequent
to March 31, 2015 and up to June 8, 2015 (the latest practicable date), a total of 7,662,233 shares of Common Stock were sold
and 79,020 additional commitment shares were issued, pursuant to the LPC-40 Purchase Agreement. Proceeds received from such transactions
totaled $1,638,914.
Common
Stock issued pursuant to the exercise of cash warrants
Subsequent
to March 31, 2015 and up to June 8, 2015 (the latest practicable date), a total of 19,194,756 shares of Common Stock were issued
pursuant to the exercise of cash warrants. Proceeds received from such warrant exercises totaled $1,199,672.
Exhibit 10.85
Redacted Version
LICENSE AGREEMENT
Between
Elite Pharmaceuticals, Inc.
and
Epic Pharma LLC
{***} Confidential portions of this
exhibit have been redacted and filed separately with the Commission pursuant to a confidential treatment request in accordance
with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Confidential
Redacted Version
LICENSE AGREEMENT
This License Agreement (“Agreement”)
is entered into as of the 4th day of June, 2015 by and between EPIC PHARMA LLC,
a Delaware limited liability company (“EPIC”) located at 227-15 N. Conduit Avenue, Laurelton, New York 11413
and ELITE PHARMACEUTICALS, INC., a Nevada corporation and ELITE LABORATORIES, INC. (a subsidiary of Elite Pharmaceuticals, Inc.),
a Delaware corporation (collectively, “ELITE”) located at 165 Ludlow Avenue, Northvale, New Jersey 07647.
WHEREAS, ELITE has
ownership rights to product/NDA specified on Schedule A (the “Product” or “Products”), and EPIC wishes
to license from ELITE the right to market and sell the Product on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in
consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereto agree as follows:
Article 1
GRANT OF LICENSE
1.1
Exclusive Product License. ELITE hereby grants to EPIC an exclusive license (“License” or “Licensing
Rights”) without the right to sublicense, to market and sell the Products as listed in Schedule A in the United States, including
the right to reference the NDA Number, where appropriate, for approval to market the Product in the United States.
1.2
Trademarks. EPIC agrees and acknowledges that it shall not acquire by virtue of this Agreement any interest in any
trademarks or trade names of ELITE, except that ELITE authorizes EPIC to place the ELITE trade names and trademarks on marketing
and packaging materials of the Products during the term of this Agreement. The labeling will incorporate a statement that Products
are manufactured by Elite Laboratories, Inc., 165 Ludlow Avenue, Northvale, NJ 07647 and distributed by Epic Pharma LLC, 227-15
N. Conduit Avenue, Laurelton, New York 11413.
1.3
Regulatory and Pharmacovigilance. EPIC shall be responsible for all regulatory and pharmacovigilance matters related
to these Product.
1.4
Improvements. Any new information, developments, or improvements relating to the Product subject to this Agreement,
and any patent or copyright rights arising from or related thereto (collectively, “Improvements”) will be owned solely
by ELITE but shall be automatically included in the License, and if EPIC develops an Improvement that may be used beyond the Product
which are the subject of this Agreement, then ELITE does now automatically grant a worldwide, non-exclusive, irrevocable, royalty-free
right for EPIC to use the Improvement.
{***} Confidential portions of this
exhibit have been redacted and filed separately with the Commission pursuant to a confidential treatment request in accordance
with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Confidential
Redacted Version
Article 2
COMPENSATION
2.1.
License Fee, Milestone, and Transfer Cost Payments. In return for the Licensing Rights described in this Agreement,
EPIC shall pay to ELITE the milestone payments (“Milestone Payments”) and a license fee (“License Fee”)
all as specified in Schedule B.
2.2.
Records. EPIC shall keep complete and accurate records of all of the components of the calculations in Appendix B
including sales of the Product and the calculation of all gross invoice sales, cash, discounts, net invoice sales, deductions and
net sales of the Product. ELITE shall have the right, at ELITE’s expense and after thirty (30) days’ prior written
notice to EPIC, through an independent certified public accountant, on a mutually agreeable date, to examine such records at any
time within one (1) year after the due date of the License Fee payments to which such records relate, during regular business hours,
during the term of this Agreement and for twelve (12) months after expiration of the last production lot of Product sold by EPIC,
in order to verify the accuracy of the reports to be made under this Agreement. If the accountant determines that EPIC has under-compensated
ELITE, the findings shall be shared with EPIC. If EPIC agrees that EPIC has not paid ELITE all of the compensation ELITE was entitled
to receive, or it is later determined that EPIC did not pay all of the compensation due to ELITE, then EPIC shall pay the proper
amount of compensation and all costs and expenses incurred by ELITE to hire the accountant and all of the accountant’s expenses,
and all legal expenses, to obtain the appropriate compensation. If EPIC disputes in good faith the accuracy of the results of such
examination, the parties will retain a second independent certified public accountant whose examination will be binding upon both
parties. The if the second independent certified public accountant verifies the findings of the first independent certified public
accountant then EPIC will pay all of the expenses of both independent certified public accountant examinations.
2.3.
Reports. EPIC will provide Reports as described in Schedule B.
2.4.
Payments by EPIC.
(a)
All Milestone Payments will be made by check and mailed to ELITE within ten (10) days after the payment becomes due.
| (b) | The License Fee shall be paid to ELITE in quarterly payments based upon the previous quarterly’s Products that EPIC shipped
to its customers. All License Fee payments shall be made by check and mailed to ELITE within thirty (30) days after the end of
each quarterly. A copy of the Report for the prior quarter will accompany the check. |
| (c) | A late fee of 1% per month will be accrued for all payments which EPIC fails to pay when due. |
{***} Confidential portions of this
exhibit have been redacted and filed separately with the Commission pursuant to a confidential treatment request in accordance
with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Confidential
Redacted Version
Article 3
MANUFACTURING
3.1.
Manufacturing and Supply Agreement. ELITE shall supply Product to EPIC at cost plus ten percent (10%) and the parties
agree to execute a separate Manufacturing and Supply Agreement (the “Manufacturing Agreement”).
3.2.
PDUFA Fees and Pediatric Study. Prescription Drug User Fee Act (PDUFA) fees will be paid for at cost out of Net
Product Sales and will be shared {***} by the partners based on the profit split. A pediatric study is required by the FDA for
the Product. The costs of the pediatric study will be paid for at cost out of Net Product Sales and will be shared equally by the
partners based on the profit split.
3.3.
Quality Agreement. In conjunction with the execution of this Agreement, the parties shall execute a Quality Agreement.
Article 4
CONFIDENTIALITY
4.1
Confidential Information. Both
Parties acknowledge that it may be necessary for each to disclose certain technical and proprietary information with respect to
the Product to the other and such disclosures may also include either party’s know-how and intellectually property. For purposes
of this Agreement, the term "Confidential Information" shall mean all such information, but not limited to, inventions,
works of authorship, trade secrets, formula, strategy, patents, trademarks, patent applications or trademark applications or other
intellectual property rights, knowledge, know-how, data, processes, proposed processes, procedures, specifications, tests, forms,
customer lists, employee lists, associate lists and supplier lists, techniques, algorithms, software, programs, designs, drawings,
formula or test data relating to any research project or product, works-in-process, future development, market research, marketing
strategies, information relating to products, proposed products, agreements with proprietary information of third parties and clinical
data and analysis, clinical trials, applications and communications with the United States Food and Drug Administration or other
similar governmental bodies or agencies, or other results, regardless of form (whether written, oral, photographic, electronic,
magnetic, computer or otherwise), treated or designated by the Disclosing Party as confidential or proprietary and relating to
a party’s business, finances, intellectual property or other proprietary rights, Specifications, all technical and/or proprietary
information relating to the Product, information relating to the marketing of, customers, customer lists, and sales as well as
the pricing of Product, and all other written information clearly identified as "Confidential" when submitted by the
disclosing party to the receiving party.
{***} Confidential portions of this
exhibit have been redacted and filed separately with the Commission pursuant to a confidential treatment request in accordance
with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Confidential
Redacted Version
4.2
Obligations. Each Party shall
hold in strict confidence any such Confidential Information received from the other and shall not disclose it to anyone, other
than a Party's Representatives or use it for its own benefit or the benefit of others except as may be necessary to fulfill its
obligations hereunder, provided such Party first obtains the prior written consent of the disclosing party. In such case, the Party
requesting such consent of the disclosing party shall cause any person to whom such disclosure may be authorized as aforesaid,
to agree to hold such information in confidence and not to use or disclose same to the same extent as such Party. However, the
foregoing obligations shall not apply to information which the receiving party can demonstrate:
| (a) | at the time of disclosure to the receiving party or at the time the receiving party learns of such Confidential Information,
was in the public domain, or which thereafter enters the public domain, through no act or omission of the receiving Party; or |
| (b) | at the time of disclosure to the receiving Party or at the time the receiving Party learns of such Confidential Information,
was already in the possession of the receiving Party or its Representatives, and was not acquired (i) from the disclosing Party,
or (ii) from another source under an obligation of confidence and/or non-use, as documented by receiving Party’s written
records documenting such knowledge; or |
| (c) | is hereafter lawfully received by the receiving Party or its Representatives on a non-restricted basis from another source
having rightful possession of such Confidential Information and the legal right to disclose it to the receiving Party as documented
by the receiving Party’s written records; or |
| (d) | is hereafter independently developed by the receiving Party or its Representatives who is shown not to have received or have
available to him or her any such Confidential Information, as documented by the receiving Party’s written records. |
4.3
Additional Obligations. The burden of proving
the applicability of any one or more of the above exceptions shall at all times be with the receiving Party. The mutual obligations
of confidentiality under this Section shall survive expiration or earlier termination of this Agreement. If a receiving Party is
required by a government body or court of law to disclose Confidential Information, the receiving Party agrees, to the extent permitted
by law, to give the disclosing Party reasonable advance notice thereof and to cooperate with the reasonable efforts of disclosing
Party to contest the disclosure or seek an appropriate protective order.
{***} Confidential portions of this
exhibit have been redacted and filed separately with the Commission pursuant to a confidential treatment request in accordance
with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Confidential
Redacted Version
Article 5
TERM AND TERMINATION
5.1.
Term. This Agreement shall become effective as of the date hereof and shall continue until five (5) years from such
date (the “Initial Term”), unless terminated earlier by mutual agreement of the parties or by one of the parties in
accordance with this Article 5; provided further that the parties shall have the option, by mutual agreement, to extend the Initial
Term of this Agreement for an additional five (5) years (a “Renewal Term” and collectively with the Initial Term, the
“Term”) by the parties exchanging written notice of such election not less than six (6) months prior to the expiration
of the Initial Term.
5.2.
Modification for Lack of Licensing Fees.
| (a) | EPIC hereby agrees to exert commercially reasonable efforts and shall devote the same efforts to marketing the Products that
EPIC exerts for its other major pharmaceutical products being marketed in the United States. |
| (b) | If the License Fee paid to ELITE is less than the amounts listed in Schedule C for each year, then at the end of five year
ELITE may terminate the License granted hereunder to EPIC for the Product. If ELITE desires to terminate the License granted hereunder,
then ELITE shall give EPIC ninety (90) days written notice of the License termination. |
5.3.
Termination by Mutual Agreement. The parties may terminate this Agreement any time by mutual written agreement.
5.4.
Termination by Breach. Upon the breach or default in the performance or observance of any of the material provisions
of this Agreement by either Party, when such breach or default is not cured by the Party responsible for the breach or default
within sixty (60) days after written notice by the non-breaching Party, the non-breaching Party may terminate this Agreement upon
an additional thirty (30) days written notice to the breaching Party. termination will be without prejudice to either Party to
recover any and all damages to which it may be entitled, or to exercise any other remedies.
5.5.
Termination by ELITE Upon Bankruptcy or Reorganization of EPIC. If EPIC enters into any proceeding (whether voluntary
or otherwise) in bankruptcy, reorganization or arrangement for the appointment of a receiver or trustee to take possession of its
assets, or any other proceeding under any law for the relief of creditors or makes an arrangement for the benefit of its creditors,
and remains in such proceeding for 30 days, then ELITE shall retain its rights to the Product and may terminate this Agreement
without further payment to EPIC.
5.6.
Licensing Rights upon Termination. Except as otherwise provided in this Agreement, upon termination of this Agreement:
all rights, privileges, and licenses will terminate and revert to ELITE, and EPIC must not thereafter make any use whatsoever of
any confidential information as described in section 3 of this Agreement, except that it is agreed that upon termination notwithstanding
any other terms of this Agreement, EPIC may retain one archival copy to have sufficient information solely to respond to state
and federal regulatory inquiries regarding the Product.
{***} Confidential portions of this
exhibit have been redacted and filed separately with the Commission pursuant to a confidential treatment request in accordance
with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Confidential
Redacted Version
5.7.
Accrued Rights. Expiration or termination of this Agreement shall be without prejudice to the right of either Party
to receive all payments accrued and unpaid at the effective date of such expiration or termination, without prejudice to the remedy
of either Party in respect to any previous breach of the representations, warranties or covenants herein contained, without prejudice
to any rights to indemnification set forth herein and without prejudice to any other provision hereof which expressly or necessarily
calls for performance after such expiration or termination. EPIC expressly retains the right to sell Product on-hand after termination
of this Agreement and shall remain bound to pay ELITE the Licensing Fee as provided in this Agreement.
Article 6
REPRESENTATIONS, WARRANTIES AND COMPETITION, COOPERATION UPON BANKRUPTCY OF ELITE
6.1.
EPIC Representations. EPIC hereby represents and warrants to ELITE that (a) it has obtained all necessary licenses,
authorizations and approvals required by applicable Law, including those required by the FDA, DEA or any other applicable regulatory
agency to enter into this Agreement and perform its obligations hereunder; (b) the execution, delivery and performance of this
Agreement by EPIC does not conflict with or constitute a breach of any order, judgment, agreement, or instrument to which it is
a party; (c) the execution, delivery and performance of this Agreement by EPIC does not require the consent of any person; and
(d) none of its officers or directors has ever been convicted of a felony under the laws of the United States for conduct relating
to the development or approval of a drug product or relating to the marketing or sale of a drug product
6.2.
ELITE Representations. ELITE hereby represents and warrants to EPIC that (a) it has obtained all necessary licenses,
authorizations and approvals required by applicable Law, including those required by the FDA, DEA or any other applicable regulatory
agency to enter into this Agreement and perform its obligations hereunder; (b) the execution, delivery and performance of
this Agreement by ELITE does not conflict with or constitute a breach of any order, judgment, agreement, or instrument to which
it is a party; (c) the execution, delivery and performance of this Agreement by ELITE does not require the consent of any
person; and (d) none of its officers or directors has ever been convicted of a felony under the laws of the United States
for conduct relating to the development or approval of a drug product or relating to the marketing or sale of a drug product.
6.3.
Non-competition by EPIC. EPIC hereby covenants and agrees that without the prior written consent of ELITE during
the Term of this Agreement, and for two (2) years after the last shipment of Product by EPIC, EPIC will not directly or indirectly
market a product which addresses the same therapeutic indication as the Product, contains the same active pharmaceutical ingredient
as the Product, and has an abuse-deterrent designation in the label.
{***} Confidential portions of this
exhibit have been redacted and filed separately with the Commission pursuant to a confidential treatment request in accordance
with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Confidential
Redacted Version
6.4.
Cooperation Upon Bankruptcy Event of ELITE. ELITE shall use, and cause its representatives and affiliates to use,
best efforts to make all necessary arrangements and take all required actions to permit EPIC to retain all rights licensed hereunder
with respect to the Product in the event that ELITE (i) is dissolved or liquidated,
(ii) commences a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar
law, (iii) is subject to an involuntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to ELITE and an order for relief entered or such proceeding has not be dismissed or
discharged within sixty (60) days of commencement, (v) has made an assignment for the benefit of creditors, or (vi)
otherwise ceases to conduct business during the Term (each, an “Extraordinary Event”).
Article 7
INDEMNIFICATION AND INSURANCE
7.1.
ELITE Indemnity. Subject to Sections 5.2 and 5.4, ELITE shall indemnify and hold harmless EPIC and its Affiliates
against all third party claims, actions, costs, expenses, including court costs and legal fees or other third party liabilities
("Third Party Liabilities") whatsoever in respect of:
| (a) | any breach of any representation, warranty, covenant or similar promise made under this Agreement or arising out of this Agreement; |
| (b) | any negligence or willful misconduct by ELITE and/or any of its employees; and |
any claim of patent infringement or intellectual
property, trademark or tradedress violation;
| (c) | any product liability claims in connection with the Products caused by ELITE or any third party acting on behalf of ELITE or
its Affiliates; |
| 7.1 | EPIC Indemnity. Subject to Sections 5.1 and 5.4, EPIC shall indemnify and hold harmless ELITE and its Affiliates against
all Third Party Liabilities whatsoever in respect of: |
| 1) | EPIC’s and/or it Affiliates’, subcontractors’ or suppliers’ failure to comply with the cGMP or applicable
Laws; |
| i. | the use, marketing, storage, distribution, handling
or sale of the Product after the Effective Date by EPIC or any third party, other than a third party acting on behalf of ELITE
or its Affiliates; |
{***} Confidential portions of this
exhibit have been redacted and filed separately with the Commission pursuant to a confidential treatment request in accordance
with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Confidential
Redacted Version
| iii. | any negligent or wrongful act by EPIC and any breach
by EPIC of any representation or warranty, covenant or similar promise made under this Agreement or arising out of this Agreement. |
| 7.2 | Procedures for Indemnification. In the event that a party (the "Indemnified Party") is seeking indemnification
under Sections 6.1 or 6.2, the Indemnified Party shall inform the other party (the "Indemnifying Party") of a
claim as soon as reasonably practicable after the Indemnified Party receives notice of the claim, shall permit the Indemnifying
Party to assume direction and control of the defense of the claim, and shall cooperate as requested by the Indemnifying Party (at
the expense of the Indemnifying Party) in the defense of the claim; provided, however, if the defendants in any such action include
both the Indemnified Party and the Indemnifying Party and the Indemnified Party shall have reasonably concluded that a conflict
may arise between the positions of the Indemnifying Party and the Indemnified Party in conducting the defense of any such action
or that there may be legal defenses available to it that are different from or additional to those available to the Indemnifying
Party, the Indemnified Party shall have the right to select separate counsel to assume such legal defenses and to otherwise participate
in the defense of such action or on behalf of the Indemnified Party. No Indemnifying Party shall, without the prior written consent
of the Indemnified Party, settle or compromise or consent to the entry of judgment with respect to any pending or threatened action
or claim whatsoever, in respect of which indemnification could be sought under Sections 6.1 or 6.2 (whether or not the Indemnified
Party is an actual or potential party thereto), unless such settlement, compromise or consent (i) includes an unconditional release
of the Indemnified Party in form and substance reasonably satisfactory to the Indemnified Party from all liability arising out
of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of the Indemnified Party. The Indemnifying Party shall not be liable for settlement of any pending or threatened action
or any claim whatsoever that is effected without its written consent (which consent shall not be unreasonably withheld or delayed). |
| 7.3 | Mitigation. In the event of any occurrence which may result in either party becoming liable under Section 7.1 or
Section 7.2, each party shall use its best efforts to take such actions as may be reasonably necessary to mitigate the damages
payable by the other party under Section 7.1 or Section 7.2, as the case may be. |
| 7.4 | Limitation of Liability. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, IN NO EVENT SHALL ANY PARTY, ITS
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR AFFILIATES BE LIABLE TO THE OTHER PARTIES FOR ANY CLAIMS RELATED TO LOST PROFITS AND
GOODWILL, WHETHER BASED UPON A CLAIM OR ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, OR OTHERWISE,
ARISING OUT OF THIS AGREEMENT. |
{***} Confidential portions of this
exhibit have been redacted and filed separately with the Commission pursuant to a confidential treatment request in accordance
with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Confidential
Redacted Version
| 7.5 | Insurance. Each party shall maintain commercial general liability insurance through the term of this Agreement upon
launch of the first Product, which insurance shall afford limits of not less than $5,000,000 for each occurrence for personal injury
or property damage liability. Furthermore, each party shall maintain product liability insurance, through the term of this Agreement
upon launch of the first Product and for a period of three (3) years thereafter, which insurance shall afford limits of not
less than $5,000,000 in the aggregate per annum with respect to product and completed operations liability. This insurance shall
be written to cover claims incurred, discovered, manifested, or made during or after the expiration of this Agreement. Each party
shall provide the other with a certificate of insurance evidencing the above and showing the name of the issuing company, the policy
number, the effective date, the expiration date and the limits of liability. The insurance certificate shall further provide for
a minimum of thirty (30) days' written notice to the insured of a cancellation of, or material change in, the insurance. If
a party is unable to maintain the insurance policies required under this Agreement through no fault on the part of such party,
then such party shall forthwith notify the other party in writing and the parties shall in good faith negotiate appropriate amendments
to the insurance provision of this Agreement in order to provide adequate assurances. In the event that either a customer or an
insurer of either party requires such party to increase its insurance limits above the $5,000,000 described above for any policy,
then the other party to this Agreement must also match the required insurance increase, so that the parties to this Agreement are
carrying the same insurance policy limits. It is the express intention of the parties that the parties shall endeavor to avoid
insurance policy limits above $10,000,000. |
8
MISCELLANEOUS
| 8.1 | Waiver; Remedies and Amendment. Any waiver by any party hereto of a breach of any provisions of this Agreement will
not be implied and will not be valid unless such waiver is recited in writing and signed by such party. Failure of any party to
require, in one or more instances, performance by the other party or parties in strict accordance with the terms and conditions
of this Agreement will not be deemed a waiver or relinquishment of the future performance of any such terms or conditions or of
any other terms and conditions of this Agreement. A waiver by any party of any term or condition of this Agreement, including this
Section 8.1, shall be valid only if in writing and will not be deemed or construed to be a waiver of such term or condition for
any other term. All rights, remedies, undertakings, obligations and agreements contained in this Agreement will be cumulative and
none of them will be a limitation of any other remedy, right, undertaking, obligation or agreement of any party. This Agreement
may not be amended except in a writing signed by all parties. |
{***} Confidential portions of this
exhibit have been redacted and filed separately with the Commission pursuant to a confidential treatment request in accordance
with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Confidential
Redacted Version
| 8.2 | Affiliates, Assignment, No Inconsistent Agreements. EPIC may not assign its rights and obligations hereunder without
the prior written consent of ELITE. Neither EPIC nor ELITE will enter into any agreement that is inconsistent with its obligations
hereunder. Notwithstanding the foregoing, either party may assign this Agreement to an acquirer that acquires more than a fifty
(50%) interest in the party. |
| 8.3 | Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed will be deemed
to be an original and all of which when taken together will constitute this Agreement. |
| 8.4 | Governing Law; Dispute Resolution; Venue. This Agreement will be governed by and construed in accordance with the laws
of the state of New York without regard to conflict of law or choice of law rules. Any controversy or claim pursuant to this Agreement
or the breach thereof shall be referred for decision forthwith to a senior executive of each Party not directly involved in the
dispute. If no agreement is reached within thirty (30) days of the request by one Party to the other to refer the same to such
senior executive, then such controversy or claim shall be settled by arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association; such arbitration to be held in New York City on an expedited basis. Judgment upon
the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof. |
| 8.5 | Headings. The headings set forth at the beginning of the various sections of this Agreement are for convenience and
form no part of the Agreement between the parties. |
| 8.6 | Notices. All notices, requests, instructions, consents and other communications to be given pursuant to this Agreement
shall be in writing and shall be deemed received (a) on the same day if delivered in person, by same-day courier or by facsimile,
electronic mail or other electronic transmission, (b) on the next day if delivered by overnight mail or courier, or (c) on the
date indicated on the return receipt, or if there is no such receipt, on the third calendar day (excluding Sundays) if delivered
by certified or registered mail, postage prepaid, to the party for whom intended to the following addresses: |
| If to EPIC: |
|
| |
|
|
EPIC
227-15 North Conduit Avenue
Laurelton, NY 11413
Attn: President |
|
{***} Confidential portions of this
exhibit have been redacted and filed separately with the Commission pursuant to a confidential treatment request in accordance
with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Confidential
Redacted Version
| If to ELITE: |
|
| |
|
|
ELITE PHARMACEUTICALS, Inc.
165 Ludlow Avenue
Northvale, New Jersey 07647
Attention: President and CEO |
|
| 8.7 | Notice. Each party may by written notice given to the other in accordance with this Agreement change the address to
which notices to such party are to be delivered. |
| 8.8 | Severability. If any provision of this Agreement is held by
a court of competent jurisdiction to be invalid or unenforceable, it will be modified, if possible, to the minimum extent
necessary to make it valid and enforceable or, if such modification is not possible, it will be stricken and the remaining provisions
will remain in full force and effect. |
| 8.9 | Survival. The rights and obligations which accrue to a party during the term of this agreement shall survive the termination
of this Agreement. |
| 8.10 | Force Majeure. No party to this Agreement will be liable for failure or delay in the performance of any of its obligations
hereunder, if such failure or delay is due to causes beyond its reasonable control including, without limitation, acts of God,
earthquakes, fires, strikes, acts of war, or intervention of any governmental authority, but any such delay or failure will be
remedied by such party as soon as possible after the removal of the cause of such failure or delay. |
| 8.11 | Entire Understanding. This Agreement, including the schedules attached hereto, contains the entire understanding relative
to the matters addressed herein, and supersedes all prior and collateral communications, reports, and understandings, if any, between
the parties regarding the matters addressed herein. |
| 8.12 | Drafting. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity
or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption
or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. |
| 8.13 | Not a Joint Venture. This Agreement does not constitute or create (and the Parties do not intend to create hereby) a
joint venture, pooling arrangement, Partnership, or formal business organization of any kind between and among any of the Parties,
and the rights and obligations of the Parties shall be only those expressly set forth herein. The relationship hereby established
between EPIC and ELITE is solely that of licensee and licensor, each is an independent contractor engaged in the operation of its
own respective business. Neither Party shall be considered to be an agent of the other for any purpose whatsoever. Each Party shall
be responsible for providing its own personnel and workers compensation, medical coverage or similar benefits and shall be solely
responsible for the payment of social security benefits, unemployment insurance, pension benefits, withholding any required amounts
for income and other employment-related taxes and benefits of its own employees, and shall make its own arrangements for injury,
illness or other insurance coverage to protect itself, its Affiliates, its subcontractors and personnel from any damages, loss
and/or liability arising out of the performance of this Agreement. Neither Party has the power or authority to act for, represent
or bind the other (or its Affiliates) in any manner. |
{***} Confidential portions of this
exhibit have been redacted and filed separately with the Commission pursuant to a confidential treatment request in accordance
with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Confidential
Redacted Version
IN WITNESS WHEREOF,
the parties have executed this Agreement on the date first set forth above.
| ELITE PHARMACEUTICALS, INC. |
|
EPIC PHARMA LLC |
| |
|
|
| By: |
|
|
By: |
|
| |
|
|
|
Name: Nasrat Hakim |
|
Name: Ashok Nagalye |
| |
|
|
|
Title: CEO and President |
|
Title: CEO |
| |
|
|
| Date: |
|
|
Date: |
|
{***} Confidential portions of this
exhibit have been redacted and filed separately with the Commission pursuant to a confidential treatment request in accordance
with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Confidential
Redacted Version
SCHEDULE A
Product List
| Name |
NDA # |
| {***} with sequestered naltrexone capsules with strengths of {***} |
To be determined |
{***} Confidential portions of this
exhibit have been redacted and filed separately with the Commission pursuant to a confidential treatment request in accordance
with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Confidential
Redacted Version
SCHEDULE B
Compensation
for Licensing Rights
Milestone Payments
EPIC shall pay to ELITE
Milestone Payments equal to fifteen million dollars ($15,000,000) in compensation for Elite’s R&D costs.
| · | {***} ({***})
shall be paid to Elite upon signing the agreement to be used for clinical studies including a bunionectomy. |
| · | {***} ({***}),
covering ELI-200 R&D expenses which expenses shall be documented and provided to Epic prior to the following payments: {***}
Dollars upon filing of the NDA; |
| · | {***} Dollars upon receipt of the approval letter for
the NDA from the Food and Drug Administration. |
· All
milestone payments shall be non-refundable and shall be credited towards research and development costs for ELI-200. Elite shall
document the ELI-200 research and development costs paid for by these milestones including but not limited to manufacturing of
clinical lots and registration batches, Bio-Equivalence studies, Methods Development, Analytical and Stability testing, Process
Development costs, Human Abuse Liability Clinical Trials, Withdrawal Studies and Regulatory Costs etc.
License Fee
EPIC will pay to ELITE a License Fee of {***}%
of Product Net Sales (“Product Net Sales”) of EPIC, as defined below, generated on Product sold and shipped to its
customers by EPIC.
Net Sales is defined as: Net Invoice Price less the following:
Charge backs, Buying Groups/Wholesaler Administrative Fees/Rebates, Allowances, Medicaid and Returns.
The calculation of Product Gross Profit and the Licensing Fee
shall be performed by Epic and presented to Elite as a report (“Report”) which shall include the following information:
{***} Confidential portions of this
exhibit have been redacted and filed separately with the Commission pursuant to a confidential treatment request in accordance
with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Confidential
Redacted Version
SCHEDULE B (cont’)
REPORT ITEMS
| Gross Invoice Sales |
|
Total Sales for Month |
| Cash Discount |
|
Cash Discount |
| Net Invoice Sales |
|
Total Sales - Cash Discount |
| |
|
|
| Deductions |
|
Allowances including Medicaid rebate; state program rebates, price adjustments; returns, charge backs and GOGS |
| Net Sales |
|
Net Invoice Sales – Deductions |
| Marketing Costs |
|
Less {***}% of the Gross Sales |
| Amount Due |
|
Net Sales dollars x {***}% ({***}% after payments of R&D/Development cost) |
Whenever possible, the Report will be made using actual sales,
charge backs, administrative fees/rebates, price adjustments, and returns; however, in some cases estimated numbers may be required
because of timing of charge backs, fees, returns, etc. A true up Report will be completed and presented to ELITE within 60 days
after the end of each calendar year.
{***} Confidential portions of this
exhibit have been redacted and filed separately with the Commission pursuant to a confidential treatment request in accordance
with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Confidential
Redacted Version
SCHEDULE C
Minimum Annual License Fee Paid to Elite
Epic to comply with the following minimum
License Fee amounts each year post Product launch
| |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
| ($ million) |
|
|
|
|
|
| Product |
${***} M |
${***} M |
${***} M |
${***} M |
${***} M |
{***} Confidential portions of this
exhibit have been redacted and filed separately with the Commission pursuant to a confidential treatment request in accordance
with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Confidential
Exhibit 21
Subsidiary of the Company
Elite Laboratories, Inc., a Delaware corporation.
Exhibit 23
Consent of Independent Registered Public
Accounting Firm
We consent to the incorporation by reference
in the following documents of our report dated June 15, 2015, relating to the consolidated financial statements of Elite Pharmaceuticals,
Inc. and Subsidiary (which report expresses an unqualified opinion) and internal control over financial reporting (which report
expresses an adverse opinion because of material weaknesses), incorporated by reference in the Annual Report on Form 10-K of the
Company for the year ended March 31, 2015.
Registration Statement No. 333-197694 on
Form S-8 dated July 29, 2014
Post Effective Amendment No. 1 to
Registration Statement No. 333-195265 on Form S-1 on S-3 dated July 1, 2014
Registration Statement No. 333-163907 on
Form S-8 dated December 22, 2009
Registration Statement No. 333-132140 on
From S-8 dated March 1, 2006
Registration Statement No. 333-118524 on
From S-8 dated August 24, 2004
/s/ Demetrius Berkower LLC
Wayne, New Jersey
June 15, 2015
Exhibit 31.1
CERTIFICATION
I, Nasrat Hakim, certify that:
| 1) | I have reviewed this annual report on Form 10-K for
the year ended March 31, 2015 of Elite Pharmaceuticals, Inc. (the “Registrant”) |
| 2) | Based on my knowledge, this report does not contain
any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3) | Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report ; |
| 4) | The Registrant’s other certifying officer and
I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
Registrant and have: |
| a) | Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the Registrant’s
disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the Registrant’s
internal control over financial reporting that occurred during the Registrant’s fourth fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
| 5) | The Registrant’s other certifying officer and
I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s
auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses
in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s
ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the Registrant’s internal control over financial reporting. |
| Date: June 15, 2015 |
/s/ Nasrat Hakim |
|
| |
Nasrat Hakim, Chief Executive Officer |
|
Exhibit 31.2
CERTIFICATION
I, Carter J. Ward certify that:
| 1) | I have reviewed this annual report on Form 10-K for
the year ended March 31, 2015 of Elite Pharmaceuticals, Inc. (the “Registrant”) |
| 2) | Based on my knowledge, this report does not contain
any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3) | Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this report ; |
| 4) | The Registrant’s other certifying officer and
I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
Registrant and have: |
| a) | Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the Registrant’s
disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the Registrant’s
internal control over financial reporting that occurred during the Registrant’s fourth fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
| 5) | The Registrant’s other certifying officer and
I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s
auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses
in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s
ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management
or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
| Date:
June 15, 2015 |
/s/ Carter J. Ward |
|
| |
Carter J. Ward, Chief Financial Officer |
|
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION
1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of
Elite Pharmaceuticals, Inc. (the “Company”) on Form 10-K for the year ended March 31, 2015 filed with Securities and
Exchange Commission (the “Report”), I, Nasrat Hakim, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act
of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the consolidated
financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods
presented. |
| Date: June 15, 2015 |
/s/ Nasrat Hakim |
|
| |
Nasrat Hakim, Chief Executive Officer |
|
This certification has been furnished solely
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
A signed original of this written statement
required by Section 906 has been provided to Elite Pharmaceuticals, Inc. and will be retained by Elite Pharmaceuticals Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION
1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of
Elite Pharmaceuticals, Inc. (the “Company”) on Form 10-K for the year ended March 31, 2015 filed with Securities and
Exchange Commission (the “Report”), I, Carter J. Ward, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act
of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the consolidated
financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods
presented. |
| Date: June 15, 2015 |
/s/ Carter Ward |
|
| |
Carter J. Ward, Chief Financial Officer |
|
This certification has been furnished solely
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
A signed original of this written statement
required by Section 906 has been provided to Elite Pharmaceuticals, Inc. and will be retained by Elite Pharmaceuticals Inc. and
furnished to the Securities and Exchange Commission or its staff upon request.
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