AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ON APRIL 28, 2014
REGISTRATION NO. 333-195265
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-3
ON FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
ELITE PHARMACEUTICALS, INC.
(Exact name of registrant as specified in
its charter)
Nevada
|
2834
|
22-3542636
|
(State or jurisdiction of
incorporation or organization)
|
(Primary Standard Industrial
Classification
Code Number)
|
(I.R.S. Employer Identification
No.)
|
165 Ludlow Avenue
Northvale, NJ 07647
201-750-2646
(Address and telephone number of principal
executive offices)
Nasrat Hakim
Chief Executive Officer
165 Ludlow Avenue
Northvale, NJ 07647
201-750-2646
(Name, address and telephone number
of agent for service)
Copies to:
Richard Feiner, Esq
381 Park Avenue South, 16
th
Floor
New York, NY 10016
212-779-8600
917-720-0863 (fax)
Approximate date of commencement of
proposed sale to the public:
From time to time after the effective date of this registration statement.
If any of the securities being registered
on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the
following box.
x
If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering.
¨
(COVER CONTINUES ON FOLLOWING PAGE)
If this Form is a post-effective amendment
filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering.
¨
If this Form is a post-effective amendment
filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering.
¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “non-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
x
Smaller reporting company
CALCULATION OF REGISTRATION FEE
Title
of each class of
securities
to be registered
|
|
Amount
to be
Registered(1)
|
|
|
Proposed
Maximum
Offering Price
Per Security
|
|
|
Proposed
Maximum
Aggregate
Offering Price
|
|
|
Amount
Of
Registration
Fee(2)
|
|
Common Stock, $0.001 par value per share
|
|
|
108,000,000
|
|
|
|
|
|
|
$
|
41,600,000
|
|
|
$
|
5,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,358
|
|
|
(1)
|
The registrant is registering for resale, from time to time, up to 108,000,000 shares of its common
stock, par value $0.001, that the registrant has issued and may sell and issue to Lincoln Park Capital Fund, LLC (“Lincoln
Park”) pursuant to a Purchase Agreement (the “Purchase Agreement”), dated as of April 10, 2014, by and between
Lincoln Park and the registrant. In the event of stock splits, stock dividends, or similar transactions involving the common
stock, the number of shares of common stock registered shall, unless otherwise expressly provided, automatically be deemed
to cover the additional securities to be offered or issued pursuant to Rule 416 promulgated under the Securities Act of 1933,
as amended (the “Securities Act”).
|
|
(2)
|
The registration fee has been calculated in accordance with Rule 457(o) under the Securities Act of 1933, as amended.
|
The registrant hereby amends this Registration
Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment
which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
The information in this
prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting
an offer to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS, SUBJECT TO
COMPLETION, DATED APRIL 28, 2014
PROSPECTUS
ELITE PHARMACEUTICALS, INC.
108,000,000 Shares of
Common Stock
This prospectus relates to the offer
and sale of up to 108,000,000 shares of common stock, par value $0.001, of Elite Pharmaceuticals, Inc., a Nevada corporation,
by Lincoln Park Capital Fund, LLC, or Lincoln Park or the selling shareholder.
The shares of common stock being offered
by the selling shareholder have been or may be issued pursuant to the purchase agreement dated April 10, 2014 that we entered into
with Lincoln Park. See “The Lincoln Park Transaction” in “Selling Shareholder” for a description of that
agreement and “Selling Shareholder” for additional information regarding Lincoln Park. The prices at which Lincoln
Park may sell the shares will be determined by the prevailing market price for the shares or in negotiated transactions.
We are not selling any securities under
this prospectus and will not receive any of the proceeds from the sale of shares by the selling shareholder.
The selling shareholder may sell the shares
of common stock described in this prospectus in a number of different ways and at varying prices. See “Plan of Distribution”
for more information about how the selling shareholder may sell the shares of common stock being registered pursuant to this prospectus.
The selling shareholder is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act of 1933, as
amended.
We will pay the expenses incurred in registering
the shares, including legal and accounting fees. See “Plan of Distribution”.
Our common stock is currently quoted
on the Over-the-Counter Bulletin Board, or the OTCBB, under the symbol “ELTP”. On April 22, 2014, the last reported
sale price of our common stock on the OTCBB was $0.39.
Investment in the Common Stock involves
a high degree of risk. You should consider carefully the risk factors beginning on page 4 of this prospectus as well as in any
prospectus supplement related to these specific offerings before purchasing any of the shares offered by this prospectus.
We may amend or supplement this prospectus
from time to time by filing amendments or supplements as required. You should read the entire prospectus and any amendments or
supplements carefully before you make your investment decision.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is
________
,
2014.
ELITE
PHARMACEUTICALS, INC.
TABLE OF CONTENTS
|
|
Page
|
About This Prospectus
|
|
1
|
|
|
|
Prospectus Summary
|
|
1
|
|
|
|
Risk Factors
|
|
4
|
Forward-Looking Statements
|
|
16
|
Use of Proceeds
|
|
16
|
Determination of Offering Price
|
|
16
|
Selling Shareholder
|
|
16
|
Plan of Distribution
|
|
21
|
Business
|
|
22
|
Property
|
|
38
|
Legal Proceedings
|
|
39
|
Market Price of and Dividends on
Registrant’s Common Equity
|
|
39
|
Management’s Discussion and
Analysis of Financial Condition and Results of Operations
|
|
39
|
Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure
|
|
47
|
Directors and Executive Officers
|
|
47
|
Executive Compensation
|
|
50
|
Security Ownership of Certain Beneficial
Owners and Management
|
|
59
|
Certain Relationships and Related
Transactions
|
|
61
|
Where You Can Find Additional Information
|
|
64
|
Legal Matters
|
|
65
|
Experts
|
|
65
|
Limitation On Liability And Disclosure Of Commission Position
On Indemnification For Securities Act Liabilities
|
|
65
|
Audited Financial Statements
|
|
F-1
|
Unaudited Financial Statements
|
|
F-40
|
ABOUT THIS PROSPECTUS
You may only rely on the information
contained in this prospectus and any prospectus supplement. We have not authorized anyone to provide you with different information.
The selling shareholder is not making an offer of these securities in any jurisdiction where the offer or sale is not permitted.
You should assume that the information in this prospectus or any prospectus supplement is accurate only as of the date on the
front of that document. Our business, financial condition, results of operations and prospects may have changed materially since
those dates.
PROSPECTUS SUMMARY
This prospectus summary highlights certain
information about our company and other information contained elsewhere in this prospectus. This summary does not contain all
of the information that you should consider before making an investment decision. You should carefully read the entire prospectus,
any prospectus supplement, including the section entitled “Risk Factors”, before making an investment decision.
About Us
Elite Pharmaceuticals, Inc., a Nevada corporation
(the “Company”, “Elite”, “we”, “us” or “our”), through its wholly-owned
subsidiaries, is a specialty pharmaceutical company We are a specialty pharmaceutical company principally engaged in the development
and manufacture of oral, controlled-release products, using proprietary know-how and technology, particularly as it relates to
abuse resistant products. Our strategy includes improving off-patent drug products for life cycle management and developing generic
versions of controlled-release drug products with high barriers to entry.
We own, license or contract manufacture
eight products currently being sold commercially, as follows:
|
·
|
Phentermine
37.5mg tablets (“Phentermine 37.5mg”)
|
|
·
|
Lodrane
D
®
Immediate Release capsules (“Lodrane D”)
|
|
·
|
Methadone
10mg tablets (“Methadone 10mg”)
|
|
·
|
Hydromorphone
Hydrochloride 8mg tablets (“Hydromorphone 8mg”)
|
|
·
|
Phendimetrazine
tartrate 35mg tablets
|
|
·
|
Phentermine
15mg capsules (“Phentermine 15mg”)
|
|
·
|
Phentermine
30mg capsules (“Phentermine 30mg”)
|
|
·
|
Naltrexone
HCl 50mg tablets (“Naltrexon 50mg”)
|
In October 2013, we acquired approved Abbreviated
New Drug Applications (“ANDAs”) for 12 products and one ANDA that is under active review with the FDA from Mikah Pharma,
and we executed a Manufacturing and License Agreement with Epic Pharma LLC to manufacture, market and sell in the United States
and Puerto Rico 12 generic products owned by Elite.
Elite has a license agreement with Precision
Dose, Inc. (the “Precision Dose License Agreement”) and a manufacturing agreement with The PharmaNetwork LLC (now Ascend
Laboratories LLC) (the “TPN Agreement”).
The Precision Dose License Agreement provides
for the marketing and distribution, in the United States, Puerto Rico and Canada, of Phentermine 37.5mg, Phentermine Capsules,
Hydromorphone 8mg, Naltrexone Generic, and certain additional products that require approval from the FDA. Phentermine 37.5mg tablets
were launched in April 2011. Hydromorphone 8mg was launched in March 2012. Phentermine 15mg and Phentermine 30mg were launched
in April 2013. Naltrexone 50mg was launched in September 2013.
The TPN Agreement provides for the manufacture
and packaging by the Company of Ascend’s methadone hydrochloride, 10mg tablets (“Methadone 10mg”), with the Methadone
10mg to be marketed by Ascend. The FDA has approved the manufacturing of Methadone 10mg at the Northvale Facility and the initial
shipment of Methadone 10mg occurred during January 2012.
In addition, Elite also has an undisclosed
generic product filed with the FDA that is awaiting review and for which Elite retains all rights.
The Company also has a pipeline of additional
generic drug candidates under active development.
Additionally, the Company is developing
abuse resistant opioid products, and once-daily opioid products.
On May 22, 2012, the United States Patent
and Trademark Office (“USPTO”) issued U.S. Patent No. 8,182,836, entitled “Abuse-Resistant Oral Dosage Forms
and Method of Use Thereof, with such patent providing further protection for the Company’s Abuse Resistant Technology.
On April 23, 2013, the USPTO issued U.S.
Patent No. 8,425,933, entitled “Abuse-Resistant Oral Dosage Forms and Method of User Thereof”, with such patent providing
further protection for the Company’s Abuse Resistant Technology.
On April 22, 2014, the USPTO issued
U.S. Patent No. 8,703,186, entitled “Abuse-Resistant Oral Dosage Forms and Method of Use Thereof”, with such patent
providing further protection for the Company’s Abuse Resistant Technology.
The Northvale Facility operates under Current
Good Manufacturing Practice and is a United States Drug Enforcement Agency (“DEA”) registered facility for research,
development and manufacturing.
Our principal executive offices are located
at 165 Ludlow Avenue, Northvale, New Jersey 07647, and our telephone number is (201) 750-2646. We maintain a website at “http://www.elitepharma.com.”
Information contained on our website is not considered to be a part of, nor incorporated by reference in, this Prospectus.
Elite’s facility in Northvale, New
Jersey operates under Good Manufacturing Practice (“GMP”) and is a United States DEA registered facility for research,
development and manufacturing.
About This Offering
On April 10, 2014, we entered into a purchase
agreement with Lincoln Park, which we refer to in this prospectus as the Purchase Agreement, pursuant to which Lincoln Park has
agreed to purchase from us up to $40,000,000 of our common stock (subject to certain limitations) from time to time over a 36-month
period. Also, on April 10, 2014, we entered into a Registration Rights Agreement, or the Registration Rights Agreement, with Lincoln
Park, pursuant to which we have filed with the SEC the registration statement that includes this prospectus to register for resale
under the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Act, the shares that have been
or may be issued to Lincoln Park under the Purchase Agreement.
Other
than 1,928,641
shares of our common stock that we have already issued
to Lincoln Park pursuant to the terms of the Purchase Agreement as consideration for its commitment to purchase shares of our common
stock under the Purchase Agreement, we do not have the right to commence any sales to Lincoln Park under the Purchase Agreement
until the SEC has declared effective the registration statement of which this prospectus forms a part. Thereafter, we may, from
time to time and at our sole discretion, direct Lincoln Park to purchase up to 500,000 shares of our common stock on any business
day, provided that at least one business day has passed since the most recent purchase. However, in no event shall 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. Except as described in this prospectus, 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. The purchase
price of the up to 500,000 shares that may be sold to Lincoln Park under the Purchase Agreement on any business day will be based
on the market price of our common stock immediately preceding the time of sale as computed under the Purchase Agreement without
any fixed discount; provided that in no event will such shares be sold to Lincoln Park when our closing sale price is less than
$0.10 per share, subject to adjustment as provided in the Purchase Agreement. The purchase price per share will be equitably adjusted
for any reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction occurring during the business
days used to compute such price. We may at any time in our sole discretion terminate the Purchase Agreement without fee, penalty
or cost upon one business day’s notice. Lincoln Park may not assign or transfer its rights and obligations under the Purchase
Agreement.
As
of April 22, 2014, there were 560,354,843 shares of our common stock outstanding, of which 451,791,002 shares were held by non-affiliates,
excluding the 1,928,641 shares that we have already issued to Lincoln Park under the Purchase Agreement. Although the Purchase
Agreement provides that we may sell up to $40,000,000 of our common stock to Lincoln Park, only 108,000,000 shares of our common
stock are being offered under this prospectus, which represents (i) 1,928,641
shares
that we issued to Lincoln Park as a commitment fee and (ii) an additional 106,071,359 shares which may be issued to Lincoln Park
in the future under the Purchase Agreement. If all of the 108,000,000 shares offered by Lincoln Park under this prospectus were
issued and outstanding as of the date hereof, such shares would represent 15.9% of the total number of shares of our common stock
outstanding and 19.0% of the total number of outstanding shares held by non-affiliates, in each case as of the date hereof. If
we elect to issue and sell more than the 108,000,000 shares offered under this prospectus to Lincoln Park, which we have the right,
but not the obligation, to do, we must first register for resale under the Securities Act any such additional shares, which could
cause additional substantial dilution to our stockholders. The number of shares ultimately offered for resale by Lincoln Park
is dependent upon the number of shares we sell to Lincoln Park under the Purchase Agreement.
Issuances of our common stock in this offering
will not affect the rights or privileges of our existing shareholders, except that the economic and voting interests of each of
our existing shareholders will be diluted as a result of any such issuance. Although the number of shares of common stock that
our existing shareholders own will not decrease, the shares owned by our existing shareholders will represent a smaller percentage
of our total outstanding shares after any such issuance to Lincoln Park.
For more detailed information on the transaction
with Lincoln Park, please see “The Lincoln Park Transaction” in “Selling Shareholder” below.
Securities Offered
|
|
|
Common stock to be offered
|
|
108,000,000 shares
|
by the selling shareholder
|
|
|
|
|
|
Common stock outstanding prior to this offering
|
|
562,283,484
shares
|
|
|
|
Common stock to be outstanding after giving effect to the issuance
of 106,071,359 additional shares under the Purchase Agreement
|
|
668,354,843 shares
|
|
|
|
Use of Proceeds
|
|
We will receive no proceeds from the sale of shares of common stock
by Lincoln Park in this offering. However, we may receive up to $40,000,000 under the Purchase Agreement with Lincoln
Park. Any proceeds that we receive from sales to Lincoln Park under the Purchase Agreement will be used to fund the production
development and commercial activities of the Company, for general and administrative expenses, to pay down liabilities and
for working capital. See “Use of Proceeds.”
|
Risk factors
|
|
This investment involves a high degree of risk.
See “Risk Factors” for a discussion of factors you should consider carefully before making an investment decision.
|
|
|
|
Symbol on OTCBB
|
|
ELTP
|
RISK FACTORS
An investment in our company involves
a high degree of risk. In addition to the other information included in this prospectus, you should carefully consider the following
risk factors described in this prospectus and the risk factors that may be described in any applicable prospectus supplement.
You should consider these matters in conjunction with the other information included in this prospectus. The risks and uncertainties
described in this prospectus and any applicable prospectus supplement are not the only ones facing us. Additional risks and uncertainties
that we do not presently know about or that we currently believe are not material may also adversely affect our business. Our
business, results of operations or financial condition could be seriously harmed, and the trading price of our common stock may
decline due to any of these or other risks.
This prospectus contains statements that
constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements
appear in a number of places in this prospectus and include statements regarding the intent, belief or current expectations of
our management, directors or officers primarily with respect to our future operating performance. Prospective purchasers of our
securities are cautioned that these forward-looking statements are not guarantees of future performance and involve risks and uncertainties.
Actual results may differ materially from those in the forward-looking statements due to various factors. The accompanying information
contained in this prospectus, including the information set forth below, identifies important factors that could cause these differences.
See “Forward-Looking Statements” below.
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:
|
·
|
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 nine months ended December 31, 2013 and for the past two fiscal
years, we incurred net losses from operations of $2,899,322, $1,563,133 and $1,966,138, respectively We expect to continue to incur
losses until we are able to generate sufficient revenues to support our operations and offset operating costs.
We may require additional financing
to meet our business objectives and to continue as a going concern.
The independent auditor’s report for the year ended March
31, 2013, includes an explanatory paragraph to their audit opinion stating that our recurring losses from operations and working
capital deficiency raise substantial doubt about our ability to continue as a going concern. As of December 31, 2013, we had cash
reserves of approximately $1.1 million and a working capital deficit of $8.6 million, and we had losses from operations totaling
$2.9 million for the nine months ended December 31, 2013, net other expenses totaling $6.9 million for the nine months then ended
and a net loss of $ 9.8 million for the nine months ended December 31, 2013. In addition, as discussed below in “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 March 2011. The Lodrane
®
extended release products constituted approximately 97% of our revenues at the time of FDA’s directive.
Over the past year, we raised approximately
$10 million from the sale of shares to Lincoln Park pursuant to a prior April 19, 2013 purchase agreement. That agreement terminated
in March 2014 with the sale of all shares covered by that agreement. In addition, both Nasrat Hakim, our CEO, and Jerry Treppel,
our Chairman, have each provided Elite with a revolving bridge credit line of up to $1,000,000.
Pursuant to the Purchase Agreement with
Lincoln Park, we may direct Lincoln Park to purchase up to $40,000,000 worth of shares of our common stock under our agreement
over a 36 month period generally in amounts up to 500,000 shares on any such business day. However, Lincoln Park shall not be
required to purchase more than $760,000 worth of stock on any business day and cannot purchase any shares of our common stock
on any business day that the closing sale price of our common stock is less than $0.10 per share, subject to adjustment as set
forth in the Purchase Agreement. Assuming a purchase price of $0.39 per share (the closing sale price of the common stock on April
22, 2014) and only 104,142,718 shares available for purchase, we would only receive $40 million in gross proceeds from purchases
under the Purchase Agreement by Lincoln Park of shares registered herein.
The extent we rely on Lincoln Park as a
source of funding will depend on a number of factors including, the prevailing market price of our common stock and the extent
to which we are able to secure working capital from other sources. If obtaining sufficient funding from Lincoln Park were to prove
unavailable or prohibitively dilutive, we will need to secure another source of funding in order to satisfy our working capital
needs. Even if we sell all $40,000,000 under the Purchase Agreement to Lincoln Park, we may still need additional capital to fully
implement our business, operating and development plans.
Our ability to raise additional funds
from the sale of equity securities to Lincoln Park or others is limited. In this regard, we only have approximately 108,139,572
shares authorized but unissued and unreserved. At our upcoming annual shareholders’ meeting scheduled to be held on May
21, 2014 we are seeking to amend our Articles of Incorporation to increase the number of authorized shares of Common Stock. If
we are unable to obtain approval for this increase, the amount of proceeds we may receive from the sale of our remaining Common
Stock is limited.
We are anticipating that, with the growth
of the current generic product line consisting of generic phentermine tablets and capsules, hydromorphone, naltrexone, methadone,
phendimetrazine and immediate release Lodrane D
®
, combined with the successful transfer of manufacturing site and
commercial launch of the 12 approved generic products licensed to Epic Pharma LLC and other opportunities in our pipeline, Elite
eventually could be profitable. However, there can be no assurances that we will be able to timely raise additional funds 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 and we are unable to timely generate greater revenues from our operations, we will be required to reduce
and, possibly, cease operations and liquidate our assets. No assurance can be given that we will be able to commercialize the new
opportunities, or consummate such other financing or strategic alternative in the time necessary to avoid the cessation of our
operations and liquidation of our assets.
We are in default on our obligations
under the NJEDA Bonds. If we are unable to work out an arrangement to delay payment, repay or otherwise cure or settle this default,
our ability to operate in the future will be materially and adversely affected.
We are in default of our obligations on
a loan through tax-exempt bonds from the New Jersey Economic Development Authority (“NJEDA”). Our liability under this
obligation as of March 31, 2014 was approximately $3.4 million. Our real property and the improvements thereon are encumbered by
a mortgage in favor of as security for a loan through the NJEDA Bonds. We have received Notices of Default from the Trustee in
relation to the utilization of the debt service reserve fund for of semi-annual interest payments from March 2009 to the present
and for the non-payment of principal amounts due on September 1, 2010, 2011, 2012 and 2013. While the Company has replenished all
amounts withdrawn from the debt service reserve fund in accordance with the terms of the bond agreement, there can be no assurances
of the Company being able to make future semi-annual interest payments without utilizing the debt service reserve fund, nor can
there be assurances of the Company being able to replenish the debt service reserve fund in the future. In addition, there can
be no assurances of the Company being able to pay the principal payments currently due as well as those which are due in the future
Resolution of our default under the
NJED Bonds will have a significant effect on our ability to operate in the future. For more information on the NJEDA Bonds. For
more information on the NJEDA Bonds, see “Management’s Discussion and Analysis of Financial Condition and Results
of Operations; Liquidity and Capital Resources; NJEDA Bonds”.
Elite’s pipeline consists of
products in various stages of development, including products in early development.
Elite’s product pipeline, including
its abuse deterrent opioid products, are in various stages of development. Prior to commercialization, product development must
be completed that could include scale-up, clinical studies, regulatory filing, regulatory review, approval by the FDA, and/or other
development steps. Additionally, Elite has 12 approved generic products for which a site transfer must be completed prior to product
launches. For these generic products, Elite must complete site transfer studies, file a changes being effective in 30 days (CBE
30) and await FDA review and approval. Development is subject to risks. We cannot assure you that development will be successful,
or that during development unexpected delays might occur or additional costs might be incurred.
If we are unable to satisfy regulatory
requirements, we may not be able to commercialize our product candidates.
We need FDA approval prior to marketing
our product candidates in the United States of America. If we fail to obtain FDA approval to market our product candidates, we
will be unable to sell our product candidates in the United States of America and we will not generate any revenue from the sale
of such products.
This regulatory review and approval process,
which includes evaluation of preclinical studies and clinical trials of our product candidates, is lengthy, expensive and uncertain.
To receive approval, we must, among other things, demonstrate with substantial evidence from well-controlled clinical trials that
our product candidates are both safe and effective for each indication where approval is sought. Satisfaction of these requirements
typically takes several years and the time needed to satisfy them may vary substantially, based on the type, complexity and novelty
of the pharmaceutical product. We cannot predict if or when we might submit for regulatory approval any of our product candidates
currently under development. Any approvals we may obtain may not cover all of the clinical indications for which we are seeking
approval. Also, an approval might contain significant limitations in the form of narrow indications, warnings, precautions, or
contra-indications with respect to conditions of use.
The FDA has substantial discretion in the
approval process and may either refuse to accept an application for substantive review or may form the opinion after review of
an application that the application is insufficient to allow approval of a product candidate. If the FDA does not accept our application
for review or approve our application, it may require that we conduct additional clinical, preclinical or manufacturing validation
studies and submit the data before it will reconsider our application. Depending on the extent of these or any other studies that
might be required, approval of any applications that we submit may be delayed by several years, or we may be required to expend
more resources than we have available. It is also possible that any such additional studies, if performed and completed, may not
be considered sufficient by the FDA to make our applications approvable. If any of these outcomes occur, we may be forced to abandon
our applications for approval.
We will also be subject to a wide variety
of foreign regulations governing the development, manufacture and marketing of our products. Whether or not an FDA approval has
been obtained, approval of a product by the comparable regulatory authorities of foreign countries must still be obtained prior
to manufacturing or marketing the product in those countries. The approval process varies from country to country and the time
needed to secure approval may be longer or shorter than that required for FDA approval. We cannot assure you that clinical trials
conducted in one country will be accepted by other countries or that approval of our product in one country will result in approval
in any other country.
Before we can obtain regulatory approval,
we need to successfully complete clinical trials, outcomes of which are uncertain.
In order to obtain FDA approval to market
a new drug product, we must demonstrate proof of safety and effectiveness in humans. To meet these requirements, we must conduct
extensive preclinical testing and “adequate and well-controlled” clinical trials. Conducting clinical trials is a lengthy,
time-consuming, and expensive process. Completion of necessary clinical trials may take several years or more. Delays associated
with products for which we are directly conducting preclinical or clinical trials may cause us to incur additional operating expenses.
The commencement and rate of completion of clinical trials may be delayed by many factors, including, for example:
|
·
|
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 eight patents and
we have five patents pending. We intend to file further patent applications in the future. We cannot be certain that our pending
patent applications will result in the issuance of patents. If patents are issued, third parties may sue us to challenge our patent
protection, and although we know of no reason why they should prevail, it is possible that they could. It is likewise possible
that our patent rights may not prevent or limit our present and future competitors from developing, using or commercializing products
that are similar or functionally equivalent to our products.
In addition, we may be required to obtain
licenses to patents, or other proprietary rights of third parties, in connection with the development and use of our products and
technologies as they relate to other persons’ technologies. At such time as we discover a need to obtain any such license,
we will need to establish whether we will be able to obtain such a license on favorable terms, if at all. The failure to obtain
the necessary licenses or other rights could preclude the sale, manufacture or distribution of our products.
We rely particularly on trade secrets,
unpatented proprietary expertise and continuing innovation that we seek to protect, in part, by entering into confidentiality
agreements with licensees, suppliers, employees and consultants. We cannot provide assurance that these agreements will not be
breached or circumvented. We also cannot be certain that there will be adequate remedies in the event of a breach. Disputes may
arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. We cannot be sure
that our trade secrets and proprietary technology will not otherwise become or obtained by other entities or become known, obtained
or independently developed by our competitors or, if patents are not issued with respect to products arising from research, that
we will be able to maintain the confidentiality of information relating to these products. In addition, efforts to ensure our
intellectual property rights can be costly, time-consuming and/or ultimately unsuccessful.
Litigation is common in the pharmaceutical
industry, and can be protracted and expensive and could delay and/or prevent entry of our products into the market, which, in turn,
could have a material adverse effect on our business.
Litigation concerning patents and proprietary
rights can be protracted and expensive. Companies routinely bring litigation against applicants and allege patent infringement
or other violations of intellectual property rights as the basis for filing suit against an applicant. Elite develops, owns and/or
manufactures generic and branded pharmaceutical products and such drug products may be subject to such litigation. Litigation often
involves significant expense and can delay or prevent introduction or sale of our products.
There may also be situations where we use
our business judgment and decide to market and sell products, notwithstanding the fact that allegations of patent infringement(s)
have not been finally resolved by the courts. The risk involved in doing so can be substantial because the remedies available to
the owner of a patent for infringement include, among other things, damages measured by the profits lost by the patent owner and
not by the profits earned by the infringer. In the case of a willful infringement, the definition of which is subjective, such
damages may be trebled. Moreover, because of the discount pricing typically involved with bioequivalent products, patented brand
products generally realize a substantially higher profit margin than bioequivalent products. An adverse decision in a case such
as this or in other similar litigation could have a material adverse effect on our business, financial position and results of
operations and could cause the market value of our Common Stock to decline.
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:
|
·
|
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:
|
·
|
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 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.
If Novel Laboratories issues additional
equity in the future our equity interest in Novel may be diluted, resulting in a decrease in our share of any dividends or other
distributions which Novel may issue in the future.
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 owns less than 10% of the outstanding shares of Class A Voting Common Stock
of Novel. To date, Elite has received no distributions or dividends from this investment.
As a result of our determination not to
fund our remaining contributions to Novel at the valuation set forth in the Novel Alliance Agreement and the resulting purchase
from us of a portion of our shares of Class A Voting Common Stock of Novel by VGS Pharma, LLC, our remaining ownership interest
in equity of Novel was reduced to approximately 10% of the outstanding shares of Novel. Novel may seek to raise additional operating
capital in the future and may do so by the issuance of equity. If Novel issues additional equity, our future equity interest in
Novel will decrease and we will be entitled to a decreased portion of any dividends or other distributions which Novel may issue
in the future. Novel also has a company sponsored stock option plan and any equity issued from this stock plan will also reduce
Elite’s equity interest in Novel.
RISKS RELATED TO OUR COMMON STOCK
Our stock price has been volatile and
may fluctuate in the future.
The market price for the publicly traded
stock of pharmaceutical companies is generally characterized by high volatility. There has been significant volatility in the market
prices for our Common Stock. For the twelve months ended March 31, 2014, the closing sale price on the OTC Bulletin Board (“OTC-BB”)
of our Common Stock fluctuated from a high of $0.9379 per share to a low of $0.07 per share. The price per share of our Common
Stock may not exceed or even remain at current levels in the future. The market price of our Common Stock may be affected by a
number of factors, including, without limitation:
|
·
|
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 commencing after the SEC
has declared effective the registration statement that includes this prospectus. 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 April 22, 2014, there
were outstanding shares of preferred stock convertible into approximately 148.9 million shares of Common Stock and warrants to
purchase an aggregate of approximately 102.0 million shares of Common Stock at exercise prices that range from $0.625 per share
to $0.25 per share. Additional shares of Common Stock may be issuable as a result of anti-dilution provisions in the outstanding
preferred stock and warrants
As a result of the above discussed potential
issuance of securities, such issuances by us could result in substantial dilution to the interests of other holders of our common
stock. Additionally, the sale of a substantial number of shares of our common stock to Lincoln Park or pursuant to the conversion
or exercise of outstanding shares of preferred stock and warrants, or the anticipation of such issuances, could make it more difficult
for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect
sales.
Raising of additional funding through
sales of our securities could cause existing holders of our Common Stock to experience substantial dilution.
Any additional financing that involves the
further sale of our securities could cause existing holders of our Common Stock to experience substantial dilution. On the other
hand, if we incurred debt, we would be subject to risks associated with indebtedness, including the risk that interest rates might
fluctuate and cash flow would be insufficient to pay principal and interest on such indebtedness.
The issuance of additional shares
of our Common Stock or our preferred stock could make a change of control more difficult to achieve.
The issuance of additional shares of our
Common Stock or the issuance of shares of an additional series of preferred stock could be used to make a change of control of
us more difficult and expensive. Under certain circumstances, such shares could be used to create impediments to, or frustrate
persons seeking to cause, a takeover or to gain control of us. Such shares could be sold to purchasers who might side with our
Board of Directors in opposing a takeover bid that the Board of Directors determines not to be in the best interests of our shareholders.
It might also have the effect of discouraging an attempt by another person or entity through the acquisition of a substantial number
of shares of our Common Stock to acquire control of us with a view to consummating a merger, sale of all or part of our assets,
or a similar transaction, since the issuance of new shares could be used to dilute the stock ownership of such person or entity.
Provisions of our Articles of Incorporation and By-Laws
could defer a change of our Management which could discourage or delay offers to acquire us.
Provisions of our Articles of Incorporation
and By-Laws law may make it more difficult for someone to acquire control of us or for our shareholders to remove existing management,
and might discourage a third party from offering to acquire us, even if a change in control or in Management would be beneficial
to our shareholders. For example, as discussed above, our Articles of Incorporation allows us to issue shares of preferred stock
without any vote or further action by our shareholders. Our Board of Directors has the authority to fix and determine the relative
rights and preferences of preferred stock. Our Board of Directors also has the authority to issue preferred stock without further
shareholder approval. As a result, our Board of Directors could authorize the issuance of a series of preferred stock that would
grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are
distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the
redemption of our common stock. In this regard, on November 15, 2013, we entered into a Shareholder Rights Plan and, under the
Rights Plan, our Board of Directors declared a dividend distribution of one Right for each outstanding share of our common stock
and one right for each share of Common Stock into which any of our outstanding Preferred Stock is convertible, to shareholders
of record at the close of business on that date. Each Right entitles the registered holder to purchase from us one “Unit”
consisting of one one-millionth (1/1,000,000) of a share of Series H Junior Participating preferred stock, at a purchase price
of $2.10 per Unit, subject to adjustment, and may be redeemed prior to November 15, 2023, the expiration date, at $0.000001 per
Right, unless earlier redeemed by the Company. The Rights generally are not transferable apart from the common stock and will
not be exercisable unless and until a person or group acquires or commences a tender or exchange offer to acquire, beneficial
ownership of 15% or more of our common stock. However, for Mr. Hakim, our Chief Executive Officer, the Rights Plan’s the
15% threshold excludes shares beneficially owned by him as of November 15, 2013 and all shares issuable to him pursuant to his
employment agreement and the Mikah Note. Our By-Laws provide for the classification of our Board of Directors into three classes.
Our Common Stock is considered a
“penny stock”. The application of the “penny stock” rules to our Common Stock could limit the trading and
liquidity of our Common Stock, adversely affect the market price of our Common Stock and increase the transaction costs to sell
shares of our Common Stock.
Our common stock is a “low-priced”
security or “penny stock” under rules promulgated under the Securities Exchange Act of 1934, as amended. In accordance
with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure document
which describes the risks associated with such stocks, the broker-dealers duties in selling the stock, the customer’s rights
and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination approving
the customer for low- priced stock transactions based on the customer’s financial situation, investment experience and objectives.
Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer,
and provide monthly account statements to the customer. The effect of these restrictions will likely decrease the willingness of
broker-dealers to make a market in our Common Stock, will decrease liquidity of our Common Stock and will increase transaction
costs for sales and purchases of our Common Stock as compared to other securities.
Our Common Stock is quoted on
the Over-the-Counter Bulletin Board. The Over-the-Counter Bulletin Board is a quotation system, not an issuer listing service,
market or exchange, therefore, buying and selling stock on the Over-the-Counter Bulletin Board is not as efficient as buying and
selling stock through an exchange. As a result, it may be difficult to sell our Common Stock for an optimum trading price or at
all.
The Over-the-Counter Bulletin Board (the
“OTCBB”) is a regulated quotation service that displays real-time quotes, last sale prices and volume limitations in
over-the-counter securities. Because trades and quotations on the OTCBB involve a manual process, the market information for such
securities cannot be guaranteed. In addition, quote information, or even firm quotes, may not be available. The manual execution
process may delay order processing and intervening price fluctuations may result in the failure of a limit order to execute or
the execution of a market order at a significantly different price. Execution of trades, execution reporting and the delivery of
legal trade confirmations may be delayed significantly. Consequently, one may not be able to sell shares of our Common Stock at
the optimum trading prices.
When fewer shares of a security are being
traded on the OTCBB, volatility of prices may increase and price movement may outpace the ability to deliver accurate quote information.
Lower trading volumes in a security may result in a lower likelihood of an individual’s orders being executed, and current
prices may differ significantly from the price one was quoted by the OTCBB at the time of the order entry. Orders for OTCBB securities
may be canceled or edited like orders for other securities. All requests to change or cancel an order must be submitted to, received
and processed by the OTCBB. Due to the manual order processing involved in handling OTCBB trades, order processing and reporting
may be delayed, and an individual may not be able to cancel or edit his order. Consequently, one may not be able to sell shares
of Common Stock at the optimum trading prices.
The dealer’s spread (the difference
between the bid and ask prices) may be large and may result in substantial losses to the seller of securities on the OTCBB if the
Common Stock or other security must be sold immediately. Further, purchasers of securities may incur an immediate “paper”
loss due to the price spread. Moreover, dealers trading on the OTCBB may not have a bid price for securities bought and sold through
the OTCBB. Due to the foregoing, demand for securities that are traded through the OTCBB may be decreased or eliminated.
FORWARD-LOOKING
STATEMENTS
This prospectus contains “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 prospectus, 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 prospectus 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 identified under “Risk
Factors” and from time to time in our other 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.
USE OF PROCEEDS
This prospectus relates to shares of our
common stock that may be offered and sold from time to time by Lincoln Park. We will receive no proceeds from the sale of shares
of common stock by Lincoln Park in this offering. However, we may receive gross proceeds of up to $40,000,000 under the Purchase
Agreement. See “Plan of Distribution” elsewhere in this prospectus for more information.
We expect to use any proceeds that we receive
under the Purchase Agreement to fund the product development and commercial activities of the Company, for general and administrative
expenses, to pay down liabilities and for working capital.
DETERMINATION
OF OFFERING PRICE
The selling shareholder may offer and sell
the shares of common stock covered by this prospectus at prevailing market prices or privately negotiated prices. See “Plan
of Distribution.”
SELLING SHAREHOLDER
This prospectus relates to the possible
resale by the selling shareholder, Lincoln Park, of shares of common stock that have been or may be issued to Lincoln Park pursuant
to the Purchase Agreement. We are filing the registration statement of which this prospectus forms a part pursuant to the provisions
of the Registration Rights Agreement, which we entered into with Lincoln Park on April 10, 2014 concurrently with our execution
of the Purchase Agreement, in which we agreed to provide certain registration rights with respect to sales by Lincoln Park of the
shares of our common stock that have been or may be issued to Lincoln Park under the Purchase Agreement.
Lincoln Park, as the selling shareholder,
may, from time to time, offer and sell pursuant to this prospectus any or all of the shares that we have sold or may sell to Lincoln
Park under the Purchase Agreement. The selling shareholder may sell some, all or none of its shares. We do not know how long the
selling shareholder will hold the shares before selling them, and we currently have no agreements, arrangements or understandings
with the selling shareholder regarding the sale of any of the shares.
The following table presents information
regarding the selling shareholder and the shares that it may offer and sell from time to time under this prospectus. The table
is prepared based on information supplied to us by the selling shareholder, and reflects its holdings as of April 22, 2014. Neither
Lincoln Park nor any of its affiliates has held a position or office, or had any other material relationship, with us or any of
our predecessors or affiliates. As used in this prospectus, the term “selling shareholder” includes Lincoln Park and
any donees, pledgees, transferees or other successors in interest selling shares received after the date of this prospectus from
Lincoln Park as a gift, pledge or other non-sale related transfer. Beneficial ownership is determined in accordance with Rule
13d-3(d) promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). The percentage of shares beneficially owned prior to the offering is based on 562,283,484
shares of our common stock actually outstanding as of April 22, 2014.
Selling Shareholder
|
|
Shares Beneficially
Owned
Before this Offering
|
|
|
Percentage of
Outstanding
Shares
Beneficially
Owned Before
this Offering
|
|
|
No. of Shares to
be Sold in this
Offering
|
|
|
Percentage of
Outstanding
Shares
Beneficially
Owned After
this Offering
|
|
Lincoln Park Capital Fund, LLC (1)
|
|
|
1,928,641
|
(2)
|
|
|
*
|
(3)
|
|
|
108,000,000
|
(4)
|
|
|
*
|
|
* Less than 1%
|
(1)
|
Josh Scheinfeld and Jonathan Cope, the Managing Members of Lincoln Park Capital, LLC, are deemed to be beneficial owners of
all of the shares of common stock owned by Lincoln Park Capital Fund, LLC. Messrs. Cope and Scheinfeld have shared voting and investment
power over the shares being offered under the prospectus filed with the SEC in connection with the transactions contemplated under
the Purchase Agreement. Lincoln Park Capital, LLC is not a licensed broker dealer or an affiliate of a licensed broker dealer.
|
|
(2)
|
Represents 1,928,641 shares of our common stock issued to Lincoln
Park on or about April 11, 2014 as a fee for its commitment to purchase additional shares
of our common stock under the Purchase Agreement, all of which shares are covered by
the registration statement that includes this prospectus. See the description under the
heading “The Lincoln Park Transaction” for more information about the Purchase
Agreement.
|
|
(3)
|
Based on 562,283,484 outstanding shares of our common stock
as of April 22, 2014, with the above mentioned commitment shares deemed issued as of
that date.
|
|
(4)
|
Although the Purchase Agreement provides that we may sell up
to $40,000,000 of our common stock to Lincoln Park, we have reserved approximately 108,000,000
shares for sale to Lincoln Park under the Purchase Agreement. See “We may require
additional financing to meet our business objectives and to continue as a going concern”
in “Risk Factors”.
|
The Lincoln Park Transaction
General
On April 10, 2014, we entered into the
Purchase Agreement and the Registration Rights Agreement with Lincoln Park. Pursuant to the terms of the Purchase Agreement, Lincoln
Park has agreed to purchase from us up to $40,000,000 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 the registration statement
that includes this prospectus to register for resale under the Securities Act the shares that have been or may be issued to Lincoln
Park under the Purchase Agreement.
Pursuant to the Purchase Agreement we have
issued 1,928,641 shares of our common stock to Lincoln Park pursuant to the terms of the Purchase Agreement as consideration for
its commitment to purchase additional shares of our common stock under the Purchase Agreement and we are obligated to issue up
to an additional 1,928,641 commitment shares to Lincoln Park pro rata as up to $40,000,000 of our common stock is purchased by
Lincoln Park.
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 up to 500,000 shares of our common
stock on any such business day, provided that in no event shall 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, at a purchase price
per share based on the market price of our common stock immediately preceding the time of sale as computed under the Purchase Agreement
without any fixed discount.
Purchase of Shares Under the Purchase Agreement
Under the Purchase Agreement, on any business
day selected by us, we may direct Lincoln Park to purchase up to 500,000 shares of our common stock on any such business day. On
any day that the closing sale price of our common stock is not below $.65 the purchase amount may be increased, at our sole discretion,
to up to 600,000 shares per purchase, on any day that the closing sale price of our common stock is not below $.80 the purchase
amount may be increased, at our sole discretion, to up to 700,000 shares per purchase, on any day that the closing sale price of
our common stock is not below $.95 the purchase amount may be increased, at our sole discretion, to up to 800,000 shares per purchase.
Notwithstanding the foregoing, in no event shall Lincoln Park purchase more than $760,000 worth of our common stock on any single
business day. Such purchases are hereinafter referred to as “Regular Purchases”. The purchase price per share for each
such Regular Purchase will be equal to the lower of:
|
·
|
the lowest sale price for our common stock on the purchase date of
such shares; or
|
|
·
|
the arithmetic average of the three lowest closing sale prices for
our common stock during the 10 consecutive business days ending on the business day immediately preceding the purchase date of
such shares.
|
In addition to Regular Purchases described
above, we may also direct Lincoln Park, on any business day on which we have properly submitted a Regular Purchase notice and the
closing sale price is not below $0.15, to purchase an additional amount of our common stock, which we refer to as an Accelerated
Purchase, not to 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:
|
·
|
97% of the volume weighted average price during (i) the entire trading
day on the purchase date, if the volume of shares of our common stock traded on the purchase date has not exceeded a volume maximum
calculated in accordance with the Purchase Agreement, or (ii) the portion of the trading day of the purchase date (calculated starting
at the beginning of normal trading hours) until such time at which the volume of shares of our common stock traded has exceeded
such volume maximum; or
|
|
·
|
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.
Minimum Purchase Price
Under the Purchase Agreement, we have set
a floor price of $0.10 per share. Lincoln Park shall not purchase any shares of our common stock on any day that the closing sale
price of our common stock is below the floor price. The floor price will be appropriately adjusted for any reorganization, recapitalization,
non-cash dividend, stock split or other similar transaction and, effective upon the consummation of any such event, the floor price
will be the lower of (i) the adjusted price and (ii) $1.00.
Events of Default
Events of default under the Purchase Agreement
include the following:
|
·
|
the effectiveness of the registration statement of which this prospectus
forms a part lapses for any reason (including, without limitation, the issuance of a stop order), or any required prospectus supplement
and accompanying prospectus are unavailable for the resale by Lincoln Park of our common stock offered hereby, and such lapse or
unavailability continues for a period of 10 consecutive business days or for more than an aggregate of 30 business days in any
365-day period;
|
|
·
|
suspension by our principal market of our common stock from trading
for a period of three consecutive business days;
|
|
·
|
the de-listing of our common stock from our principal market, provided
our common stock is not immediately thereafter trading on the New York Stock Exchange, The NASDAQ Global Market, The NASDAQ Global
Select Market, The NASDAQ Capital Market, the NYSE MKT, the NYSE Arca or the OTC Bulletin Board (or nationally recognized successor
thereto);
|
|
·
|
the transfer agent’s failure for five business days to issue
to Lincoln Park shares of our common stock which Lincoln Park is entitled to receive under the Purchase Agreement;
|
|
·
|
any breach of the representations or warranties or covenants contained
in the Purchase Agreement or any related agreement which has or which could have a material adverse effect on us subject to a cure
period of five business days;
|
|
·
|
any voluntary or involuntary participation or threatened participation
in insolvency or bankruptcy proceedings by or against us; or
|
|
·
|
if at any time we are not eligible to transfer our common stock electronically
or a material adverse change in our business, financial condition, operations or prospects has occurred.
|
Lincoln Park does not have the right to
terminate the Purchase Agreement upon any of the events of default set forth above. During an event of default, all of which are
outside of Lincoln Park’s control, shares of our common stock cannot be sold by us or purchased by Lincoln Park under the
Purchase Agreement.
Our Termination Rights
We have the unconditional right, at any
time, for any reason and without any payment or liability to us, to give notice to Lincoln Park to terminate the Purchase Agreement.
In the event of bankruptcy proceedings by or against us, the Purchase Agreement will automatically terminate without action of
any party.
No Short-Selling or Hedging by Lincoln Park
Lincoln Park has agreed that neither it
nor any of its affiliates shall engage in any direct or indirect short-selling or hedging of our common stock during any time prior
to the termination of the Purchase Agreement.
Effect of Performance of the Purchase Agreement on Our Shareholders
All of the shares of our common stock registered
in this offering which may be sold by us to Lincoln Park under the Purchase Agreement are expected to be freely tradable. It is
anticipated that shares registered in this offering will be sold over a period of up to 36 months commencing on the date that the
registration statement including this prospectus becomes effective. The sale by Lincoln Park of a significant amount of shares
registered in this offering at any given time could cause the market price of our common stock to decline and to be highly volatile.
Lincoln Park may sell all, some or none of the shares it has purchased or will purchase under the Purchase Agreement. Therefore,
sales to Lincoln Park by us under the Purchase Agreement may result in substantial dilution to the interests of other holders of
our common stock. In addition, if we sell a substantial number of shares to Lincoln Park under the Purchase Agreement, or if investors
expect that we will do so, the actual sales of shares or the mere existence of our arrangement with Lincoln Park may 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 such sales. However, we have the right to control the timing and amount of any sales of our shares to Lincoln Park and
the Purchase Agreement may be terminated by us at any time at our discretion without any cost to us.
Pursuant to the terms of the Purchase Agreement,
we have the right, but not the obligation, to direct Lincoln Park to purchase up to $40,000,000 of our common stock exclusive of
the shares issued to Lincoln Park as a commitment fee. Depending on the price per share at which we sell our common stock to Lincoln
Park, we may be authorized to issue and sell to Lincoln Park under the Purchase Agreement more shares of our common stock than
are offered under this prospectus. If we choose to do so, we must first register for resale under the Securities Act any such additional
shares, which could cause additional substantial dilution to our shareholders. The number of shares ultimately offered for resale
by Lincoln Park under this prospectus is dependent upon the number of shares we direct Lincoln Park to purchase under the Purchase
Agreement.
The following table sets forth the amount
of gross proceeds we would receive from Lincoln Park from our sale of shares to Lincoln Park under the Purchase Agreement at varying
purchase prices:
Assumed
Average
Purchase Price
Per Share
|
|
|
Number
of Registered
Shares to be Issued
if Full Purchase
|
|
|
Percentage
of
Outstanding Shares
After Giving Effect to
the Issuance to
Lincoln Park (1)
|
|
|
Proceeds
from the Sale
of Shares to Lincoln
Park Under the
Purchase Agreement (2)
|
|
$
|
0.10
|
(2)
|
|
|
108,000,000
|
(4)
|
|
|
19.2
|
%
|
|
$
|
10,556,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.39
|
(3)
|
|
|
106,421,385
|
(4)
|
|
|
15.9
|
%
|
|
$
|
40,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.45
|
|
|
|
92,746,171
|
(4)
|
|
|
16.5
|
%
|
|
$
|
40,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.55
|
|
|
|
76,584,555
|
(4)
|
|
|
13.6
|
%
|
|
$
|
40,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.65
|
|
|
|
65,395,744
|
(4)
|
|
|
11.6
|
%
|
|
$
|
40,000,000
|
|
(1)
|
The denominator is based on the number of shares outstanding
as of April 22, 2014, inclusive of 1,928,641 commitment shares issued as of that date.
|
(2)
|
Under the Purchase Agreement, we may not sell and Lincoln Park may not purchase any shares on a day in which the closing sale
price of our common stock is below $0.10, as may be adjusted in accordance with the Purchase Agreement.
|
|
(3)
|
The closing sale price of our shares on April 22, 2014.
|
|
(4)
|
Although the Purchase Agreement provides that we may sell up
to $40,000,000 of our common stock to Lincoln Park, we have initially reserved approximately
108,000,000 shares for sale to Lincoln Park under the Purchase Agreement. See “We
may require additional financing to meet our business objectives and to continue as a
going concern.” in “Risk Factors”.
|
PLAN OF DISTRIBUTION
The common stock offered by this prospectus
is being offered by the selling shareholder, Lincoln Park. The common stock may be sold or distributed from time to time by the
selling shareholder directly to one or more purchasers or through brokers, dealers, or underwriters who may act solely as agents
at market prices prevailing at the time of sale, at prices related to the prevailing market prices, at negotiated prices, or at
fixed prices, which may be changed. The sale of the common stock offered by this prospectus could be effected in one or more of
the following methods:
|
·
|
ordinary brokers’ transactions;
|
|
·
|
transactions involving cross or block trades;
|
|
·
|
through brokers, dealers, or underwriters who may act solely as agents
|
|
·
|
“at the market” into an existing market for the common
stock;
|
|
·
|
in other ways not involving market makers or established business
markets, including direct sales to purchasers or sales effected through agents;
|
|
·
|
in privately negotiated transactions; or
|
|
·
|
any combination of the foregoing.
|
In order to comply with the securities
laws of certain states, if applicable, the shares may be sold only through registered or licensed brokers or dealers. In addition,
in certain states, the shares may not be sold unless they have been registered or qualified for sale in the state or an exemption
from the state’s registration or qualification requirement is available and complied with.
Lincoln Park is an “underwriter”
within the meaning of Section 2(a)(11) of the Securities Act.
Lincoln Park has informed us that it intends
to use an unaffiliated broker-dealer to effectuate all sales, if any, of the common stock that it may purchase from us pursuant
to the Purchase Agreement. Such sales will be made at prices and at terms then prevailing or at prices related to the then current
market price. Each such unaffiliated broker-dealer will be an underwriter within the meaning of Section 2(a)(11) of the Securities
Act. Lincoln Park has informed us that each such broker-dealer will receive commissions from Lincoln Park that will not exceed
customary brokerage commissions. In compliance with the guidelines of the Financial Industry Regulatory Authority, Inc., or FINRA,
the maximum consideration or discount to be received by any FINRA member or independent broker dealer may not exceed 8% of the
aggregate amount of the securities offered pursuant to this prospectus.
Brokers, dealers, underwriters or agents
participating in the distribution of the shares as agents may receive compensation in the form of commissions, discounts, or concessions
from the selling shareholder and/or purchasers of the common stock for whom the broker-dealers may act as agent. The compensation
paid to a particular broker-dealer may be less than or in excess of customary commissions. Neither we nor Lincoln Park can presently
estimate the amount of compensation that any agent will receive.
We know of no existing arrangements between
Lincoln Park or any other shareholder, broker, dealer, underwriter or agent relating to the sale or distribution of the shares
offered by this prospectus. At the time a particular offer of shares is made, a prospectus supplement, if required, will be distributed
that will set forth the names of any agents, underwriters or dealers and any compensation from the selling shareholder, and any
other required information.
We will pay the expenses incident to the
registration, offering, and sale of the shares to Lincoln Park. We have agreed to indemnify Lincoln Park and certain other persons
against certain liabilities in connection with the offering of shares of common stock offered hereby, including liabilities arising
under the Securities Act or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities.
Lincoln Park has agreed to indemnify us against liabilities under the Securities Act that may arise from certain written information
furnished to us by Lincoln Park specifically for use in this prospectus or, if such indemnity is unavailable, to contribute amounts
required to be paid in respect of such liabilities.
Lincoln Park has represented to us that
at no time prior to the Purchase Agreement has Lincoln Park or its agents, representatives or affiliates engaged in or effected,
in any manner whatsoever, directly or indirectly, any short sale (as such term is defined in Rule 200 of Regulation SHO of the
Exchange Act) of our common stock or any hedging transaction, which establishes a net short position with respect to our common
stock. Lincoln Park agreed that during the term of the Purchase Agreement, it, its agents, representatives or affiliates will not
enter into or effect, directly or indirectly, any of the foregoing transactions.
We have advised Lincoln Park that it is
required to comply with Regulation M promulgated under the Exchange Act. With certain exceptions, Regulation M precludes the selling
shareholder, any affiliated purchasers, and any broker-dealer or other person who participates in the distribution from bidding
for or purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the distribution
until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price
of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the securities
offered by this prospectus.
This offering will terminate on the date
that all shares offered by this prospectus have been sold by Lincoln Park.
Our common stock is quoted on the OTCBB
under the symbol “ELTP”.
BUSINESS
Business Overview
and Strategy
We are a specialty pharmaceutical company
principally engaged in the development and manufacture of oral, controlled-release products, using proprietary know-how and technology,
particularly as it relates to abuse resistant products. Our strategy includes improving off-patent drug products for life cycle
management and developing generic versions of controlled-release drug products with high barriers to entry.
We own, license
or contract manufacture eight products currently being sold commercially, as follows:
|
·
|
Phentermine
37.5mg tablets (“Phentermine 37.5mg”)
|
|
·
|
Lodrane
D
®
Immediate Release capsules (“Lodrane D”)
|
|
·
|
Methadone
10mg tablets (“Methadone 10mg”)
|
|
·
|
Hydromorphone
Hydrochloride 8mg tablets (“Hydromorphone 8mg”)
|
|
·
|
Phendimetrazine
tartrate 35mg tablets (“Phendimetrazine 35mg”)
|
|
·
|
Phentermine
15mg capsules (“Phentermine 15mg”)
|
|
·
|
Phentermine
30mg capsules (“Phentermine 30mg”)
|
|
·
|
Naltrexone
HCl 50mg tablets (“Naltrexone 50mg”)
|
We also recently
acquired approved Abbreviated New Drug Applications (“ANDAs”) for 12 products (the “Mikah Approved ANDAs”)
and one ANDA that is under active review with the FDA (the “Mikah ANDA Application Product”) that were acquired pursuant
to the asset purchase agreement with Mikah Pharma dated August 1, 2013 (the “Mikah Asset Purchase Agreement”). On
October 2, 2013, we executed a Manufacturing and License Agreement (the “Epic Agreement”) with Epic Pharma LLC. (“Epic”),
to manufacture, market and sell in the United States and Puerto Rico 12 generic products owned by Elite. Of the 12 products, Epic
will have the exclusive right to market six products as listed in Schedule A of the Epic Agreement, and a non-exclusive right
to market six products as listed in Schedule D of the Epic Agreement. Epic is responsible for all regulatory and pharmacovigilance
matters related to the products and for all costs related to the site transfer for all products. Pursuant to the Epic Agreement,
Elite will receive a license fee and milestone payments. The license fee will be computed as a percentage of the gross profit,
as defined in the Epic Agreement, earned by Epic as a result of sales of the products. The manufacturing cost used for the calculation
of the license fee is a predetermined amount per unit plus the cost of the drug substance (API) and the sales cost for the calculation
is predetermined based on net sales. If Elite manufactures any product for sale by Epic, then Epic shall pay that same predetermined
manufacturing cost per unit plus the cost of the API. The license fee is payable monthly for the term of the Epic Agreement. Epic
shall pay to Elite certain milestone payments as defined by the Epic Agreement. We received the first milestone payment in November
2013. Subsequent milestone payments are due upon the filing of each product’s supplement with the FDA and the FDA approval
of site transfer for each product as specifically itemized in the Epic Agreement. The term of the Epic Agreement is five years
and may be extended for an additional five years upon mutual agreement of the parties. Twelve months following the launch of a
product covered by the Epic Agreement, Elite may terminate the marketing rights for any product if the license fee paid by Epic
falls below a designated amount for a six month period of that product. Elite may also terminate the exclusive marketing rights
if Epic is unable to meet the annual unit volume forecast for a designated Product group for any year, subject to the ability
of Epic, during the succeeding six month period, to achieve at least one-half of the prior year’s minimum annual unit volume
forecast. The Epic Agreement may be terminated by mutual agreement of Elite and Epic, as a result of a breach by either party
that is not cured within 60 days’ notice of the breach or by Elite as a result of Epic becoming a party to a bankruptcy,
reorganization or other insolvency proceeding that continues for a period of 30 days or more.
Elite has executed
a license agreement with Precision Dose, Inc. (the “Precision Dose License Agreement”) and a manufacturing agreement
with The PharmaNetwork LLC (the “TPN Agreement”). The PharmaNetwork LLC was recently purchased by Alkem Laboratories
Ltd (“Alkem”). The PharmaNetwork now goes by the name Ascend Laboratories LLC (“Ascend”) and is a wholly
owned subsidiary of Alkem.
The Precision Dose
License Agreement provides for the marketing and distribution, in the United States, Puerto Rico and Canada, of Phentermine 37.5mg,
Phentermine Capsules, Hydromorphone 8mg, Naltrexone Generic, and certain additional products that require approval from the FDA.
Phentermine 37.5mg tablets were launched in April 2011. Hydromorphone 8mg was launched in March 2012. Phentermine 15mg and Phentermine
30mg were launched in April 2013. Naltrexone 50mg was launched in September 2013.
The TPN Agreement,
executed on June 23, 2011, and amended on September 24, 2012, provides for the manufacture and packaging by the Company of Ascend’s
methadone hydrochloride, 10mg tablets (“Methadone 10mg”), with the Methadone 10mg to be marketed by Ascend. The FDA
has approved the manufacturing of Methadone 10mg at the Northvale Facility and the initial shipment of Methadone 10mg occurred
during January 2012.
In addition, Elite
also has an undisclosed generic product filed with the FDA that is awaiting review and for which Elite retains all rights.
The Company also has a pipeline of additional
generic drug candidates under active development.
Additionally, the Company is developing
abuse resistant opioid products, and once-daily opioid products.
On May 22, 2012,
the United States Patent and Trademark Office (“USPTO”) issued U.S. Patent No. 8,182,836, entitled “Abuse-Resistant
Oral Dosage Forms and Method of Use Thereof, with such patent providing further protection for the Company’s Abuse Resistant
Technology.
On April 23, 2013,
the USPTO issued U.S. Patent No. 8,425,933, entitled “Abuse-Resistant Oral Dosage Forms and Method of User Thereof”,
with such patent providing further protection for the Company’s Abuse Resistant Technology.
On April 22, 2014, the USPTO issued
U.S. Patent No. 8,703,186, entitled “Abuse-Resistant Oral Dosage Forms and Method of Use Thereof”, with such patent
providing further protection for the Company’s Abuse Resistant Technology.
The Northvale Facility
operates under Current Good Manufacturing Practice (“cGMP”) and is a United States Drug Enforcement Agency (“DEA”)
registered facility for research, development and manufacturing.
Strategy
Elite is focusing
its efforts on the following areas: (i) development of Elite’s pain management products; (ii) manufacturing of a line of
generic pharmaceutical products with approved ANDAs; (iii) development of additional generic pharmaceutical products; (iv) development
of the other products in our pipeline including the products with our partners; (v) commercial exploitation of our products either
by license and the collection of royalties, or through the manufacture of our formulations; and (vi) development of new products
and the expansion of our licensing agreements with other pharmaceutical companies, including co-development projects, joint ventures
and other collaborations.
Elite is focusing
on the development of various types of drug products, including branded drug products which require new drug applications (“NDAs”)
under Section 505(b)(1) or 505(b)(2) of the Drug Price Competition and Patent Term Restoration Act of 1984 (the “ Drug Price
Competition Act ”) as well as generic drug products which require ANDAs.
Elite believes
that its business strategy enables it to reduce its risk by having a diverse product portfolio that includes both branded and
generic products in various therapeutic categories and to build collaborations and establish licensing agreements with companies
with greater resources thereby allowing us to share costs of development and improve cash-flow.
Elite’s Purchase of a Generic
Phentermine Product
On September 10, 2010, Elite, together
with its subsidiary, Elite Laboratories, Inc., executed a Purchase Agreement (the “Phentermine Purchase Agreement”)
with Epic Pharma, LLC (“Epic Pharma”) for the purpose of acquiring from Epic an ANDA for a generic phentermine product
(the “Phentermine ANDA”), with such being filed with the FDA at the time the Phentermine Purchase Agreement was executed.
On February 4, 2011, the FDA approved the Phentermine ANDA. The acquisition of the Phentermine ANDA closed on March 31, 2011 and
Elite paid the full acquisition price of $450,000 from the purchase agreement with Epic Pharma.
This product is being marketed and distributed
by Precision Dose Inc (“Precision Dose”) and its wholly owned subsidiary, TAGI Pharma Inc. (“TAGI”) pursuant
license and manufacturing agreements dated September 10, 2010. A description of such manufacturing and licensing agreement with
Precision Dose is set forth below.
Elite’s Purchase of a Generic
Hydromorphone HCl Product
On May 18, 2010, Elite executed an asset
purchase agreement with Mikah Pharma LLC (“Mikah”) (the “Hydromorphone Agreement”). Pursuant to the Hydromorphone
Agreement, the Company acquired from Mikah an ANDA for Hydromorphone Hydrochloride Tablets USP, 8 mg (“Hydromorphone 8mg”)
for aggregate consideration of $225,000, comprised of an initial payment of $150,000, which was made on May 18, 2010. A second
payment of $75,000 was due to be paid to Mikah on June 15, 2010, with the Company having the option to make this payment in cash
or by issuing to Mikah 937,500 shares of the Company’s Common Stock. The Company elected and did issue 937,500 shares of
Common Stock during the quarter ended December 31, 2010, in full payment of the $75,000 due to Mikah pursuant to the asset purchase
agreement dated May 18, 2010.
On May 31, 2011, the Company received
a letter from the FDA responding to a Changes Being Effected in 30 Days (“CBE 30”) supplement filed by the Company
with the agency to change the manufacturing and packaging location of the Hydromorphone Hydrochloride Tablets USP, 8 mg ANDA purchased
from Mikah Pharma. The letter from the FDA informed the Company that the agency has reclassified the application as a prior approval
supplemental application which has delayed the commercialization. On January 23, 2012, the Company received a letter from the
FDA approving the application.
As a result of the delay in commercialization
resulting from the reclassification of the Company’s application, the Company recorded an impairment of the ANDA asset acquired
from Mikah Pharma pursuant to the Hydromorphone Agreement in an amount equal to the entire purchase price of the acquisition.
This product is being marketed and distributed
by Precision Dose and its wholly owned subsidiary, TAGI, pursuant license and manufacturing agreements dated September 10, 2010.
A description of such manufacturing and licensing agreement with Precision Dose is set forth below.
Elite’s Purchase of a Generic
Naltrexone Product
On August 27, 2010, Elite executed an
asset purchase with Mikah (the “Naltrexone Agreement”). Pursuant to the Naltrexone Agreement, Elite acquired from
Mikah the ANDA number 75-274 (Naltrexone Hydrochloride Tablets USP, 50 mg), and all amendments thereto, that have to date been
filed with the FDA seeking authorization and approval to manufacture, package, ship and sell the products described in this ANDA
within the United States and its territories (including Puerto Rico) for aggregate consideration of $200,000. In lieu of cash,
Mikah agreed to accept from Elite product development services to be performed by Elite.
On December 14, 2011, the Company received
an e-mail from the FDA responding to a Changes Being Effected in 30 Days (“CBE 30”) supplement filed by the Company
with the agency to change the manufacturing and packaging location of the Naltrexone Hydrochloride Tablets USP, 50 mg ANDA purchased
from Mikah Pharma. The e-mail from the FDA informed the Company that the agency has reclassified the application as a prior approval
supplemental application which will delay the commercialization. The Company received approval from the FDA of its application
for transfer of manufacturing site and made its initial shipment in September 2013.
As a result of the delay in commercialization
resulting from the reclassification of the Company’s application, the Company recorded an impairment of the ANDA asset acquired
from Mikah Pharma pursuant to the Naltrexone Agreement in an amount equal to the entire purchase price of the acquisition.
This product is being marketed and distributed
by Precision Dose Inc (“Precision Dose”) and its wholly owned subsidiary, TAGI Pharma Inc. (“TAGI”) pursuant
license and manufacturing agreements dated September 10, 2010. A description of such manufacturing and licensing agreement with
Precision Dose is set forth below.
Elite’s Acquisition of a 13
Abbreviated New Drug Applications (“ANDAs”)
As disclosed
above, o
n August 1, 2013, Elite executed an asset purchase agreement (the “Mikah Purchase Agreement”) with
Mikah and acquired from Mikah a total of 13 ANDAs, consisting of 12 ANDAs approved by the FDA and on ANDA under active review
with the FDA, and all amendments thereto (the “Mikah 13 ANDA Acquisition”) for aggregate consideration of $10,000,000,
payable pursuant to a secured convertible note due in August 2016.
Each of the products
referenced in the 12 approved ANDAs require manufacturing site approval with the FDA. Elite will submit filings to the FDA for
each of the products for the manufacturing site transfer. Elite believes that the site transfers qualify for CBE 30 review, with
one exception, which would allow for the product manufacturing transfer on an expedited basis. However, Elite can give no assurances
that all will qualify for CBE 30 review, or on the timing of these transfers of manufacturing site, or on the approval by the
FDA of the transfers of manufacturing site.
As of April 22,
2014 (the latest practicable date), Elite has been approved to manufacture, Phendimetrazine 35mg tablets at the Northvale Facility.
A CBE 30 application has been filed with the FDA and is pending for the manufacture of Isradipine 2.5mg 5mg capsules at the Northvale
Facility.
Elite has executed
a Manufacturing and License Agreement with Epic Pharma dated October 2, 2013 (the “Epic Pharma Manufacturing and License
Agreement”), relating to the manufacturing, marketing and sale of these 12 ANDAs. Please see below for further details on
the Epic Pharma Manufacturing and License Agreement.
Licensing Agreement with Precision
Dose Inc.
On September 10, 2010, Elite executed
a License Agreement with Precision Dose (the “Precision Dose License Agreement”) to market and distribute Phentermine
37.5mg, Phentermine 15mg, Phentermine 30mg, Hydromorphone 8mg, Naltrexone 50mg, and certain additional products that require approval
from the FDA, through its wholly-owned subsidiary, TAGI Pharma, Inc. in the United States, Puerto Rico and Canada (the “Precision
Dose License Agreement”). Phentermine 37.5mg was launched in April 2011. Hydromorphone 8mg was launched in March 2012. Phentermine
15mg and Phentermine 30mg were launched in April 2013. Naltrexone 50mg was launched in September . Precision Dose will have the
exclusive right to market these products in the United States and Puerto Rico and a non-exclusive right to market the products
in Canada.
Pursuant to the Precision Dose License
Agreement, Elite will receive a license fee and milestone payments. The license fee will be computed as a percentage of the gross
profit, as defined in the Precision Dose License Agreement, earned by Precision Dose as a result of sales of the products. The
license fee is payable monthly for the term of the Precision Dose License Agreement. The milestone payments will be paid in six
installments. The first installment was paid upon execution of the License Agreement. The remaining installments are to be paid
upon FDA approval and initial shipment of the products to Precision Dose. The term of the License Agreement is 15 years and may
be extended for 3 successive terms, each of 5 years.
Manufacturing and License Agreement with Epic Pharma
LLC
On October 2, 2013, Elite executed the
Epic Pharma Manufacturing and License Agreement. This agreement granted Epic Pharma certain rights to manufacture, market and
sell in the United States and Puerto Rico the 12 approved ANDAs acquired by Elite pursuant to the Mikah Purchase Agreement. Of
the 12 approved ANDAs, Epic Pharma will have the exclusive right to market six products as listed in Schedule A of the Epic Pharma
Manufacturing and License Agreement, and a non-exclusive right to market six products as listed in Schedule D of the Epic Pharma
Manufacturing and License Agreement. Epic Pharma is responsible for all regulatory and pharmacovigilance matters related to the
products and for all costs related to the site transfer for all products. Pursuant to the Epic Pharma Manufacturing and License
Agreement, Elite will receive a license fee and milestone payments. The license fee will be computed as a percentage of the gross
profit, as defined in the Epic Pharma Manufacturing and License Agreement, earned by Epic Pharma a result of sales of the products.
The manufacturing cost used for the calculation of the license fee is a predetermined amount per unit plus the cost of the drug
substance (API) and the sales cost for the calculation is predetermined based on net sales. If Elite manufactures any product
for sale by Epic Pharma, then Epic Pharma shall pay to Elite that same predetermined manufacturing cost per unit plus the cost
of the API. The license fee is payable monthly for the term of the Epic Pharma Manufacturing and License Agreement. Epic Pharma
shall pay to Elite certain milestone payments as defined by the Epic Pharma Manufacturing and License Agreement. The first milestone
payment of $600,000 has been paid. Subsequent milestone payments are due upon the filing of each product’s supplement with
the FDA, and the FDA approval of site transfer for each product as specifically itemized in the Epic Pharma Manufacturing and
License Agreement. The filing of the supplement with the FDA for Isradipine 2.5mg and Isradipine 5mg was made on March 24, 2014
and accordingly a milestone of $200,000 has been earned and is due and owing from Epic Pharma to Elite. The term of the Epic Pharma
Manufacturing and License Agreement is five years and may be extended for an additional five years upon mutual agreement of the
parties. Twelve months following the launch of a product covered by the Epic Pharma Manufacturing and License Agreement, Elite
may terminate the marketing rights for any product if the license fee paid by Epic Pharma falls below a designated amount for
a six month period of that product. Elite may also terminate the exclusive marketing rights if Epic Pharma is unable to meet the
annual unit volume forecast for a designated product group for any year, subject to the ability of Epic Pharma, during the succeeding
six month period, to achieve at least one-half of the prior year’s minimum annual unit forecast. The Epic Pharma Manufacturing
and License Agreement may be terminated by mutual agreement of Elite and Epic Pharma, as a result of a breach by either party
that is not cured within 60 days notice of the breach, or by Elite as a result of Epic Pharma becoming a party to a bankruptcy,
reorganization or other insolvency proceeding that continues for a period of 30 days or more.
Research and Development
Elite is actively involved in research
and development activities, particularly in relation to the development of a line of abuse deterrent opioid products. We incurred
total costs of $975,250 during the fiscal year ended March 31, 2013 (“Fiscal 2013”) and $1,735,689 during the fiscal
year ended March 31, 2012 (“Fiscal 2012”) in relation to research and development activities. It is, however, our
general policy, for competitive reasons, and because disclosure of certain information might suggest the occurrence of future
matters or events that may not occur, not to disclose specific products in our development pipeline or the status of such product
development activities until a product reaches a stage that we determine, in our discretion, to be appropriate for disclosure.
Commercial Products
Phentermine 37.5mg, Phentermine
15mg and Phentermine 30mg
The first shipment of Phentermine 37.5
mg to TAGI was made in April 2011, with such initial shipment triggering a milestone payment under the Precision Dose License
Agreement. The first shipments of Phentermine 15mg and Phentermine 30mg were made in April 2013, with such initial shipments triggering
a milestone payment under the Precision Dose License Agreement, with such milestone payments being made. All three products are
now commercial products being manufactured by Elite and distributed by TAGI under the Precision Dose License Agreement.
Lodrane D
®
Immediate
Release capsules
On September 27, 2011, the Company,
along with ECR Pharmaceuticals (“ECR”), a wholly owned subsidiary of Hi-Tech Pharmacal (“Hi-Tech”) launched
Lodrane D
®
, an immediate release formulation of brompheniramine maleate and pseudoephedrine HCl, an effective,
low-sedating antihistamine combined with a decongestant.
Lodrane D
®
is promoted
and distributed in the U.S. by ECR, Hi-Tech’s branded division. Lodrane D
®
is available over-the-counter
but also has physician promotion. Lodrane D
®
is the one of the only adult brompheniramine containing products available
to the consumer at this time.
Lodrane D
®
is marketed
under the Over-the-Counter Monograph (the “OTC Monograph”) and accordingly, under the Code of Federal Regulations
can be lawfully marketed in the US without prior approval. Under the Federal Food Drug and Cosmetic Act (“FDCA”),
FDA regulations and statements of FDA policy, certain drug products are permitted to be marketed in the U.S. without prior approval.
Within the past few years, the FDA has revised its enforcement policies, significantly limiting the circumstances under which
these unapproved products may be marketed. If the FDA determines that a company is distributing an unapproved product that requires
approval, the FDA may take enforcement action in a variety of ways, including, without limitation, product seizures and seeking
a judicial injunction against distribution.
Elite is manufacturing the product for
ECR and will receive revenues for the manufacturing, packaging and laboratory stability study services for the product, as well
as royalties on sales.
Methadone 10mg tablets
On January 17, 2012, Elite commenced
shipping Methadone 10mg tablets to Ascend Laboratories, LLC. (“Ascend”) pursuant to a commercial manufacturing and
supply agreement dated June 23, 2011 between Elite and Ascend (the “Methadone Manufacturing and Supply Agreement”).
Under the terms of the Methadone Manufacturing and Supply Agreement, Elite performs manufacturing and packaging of Methadone 10mg
for Ascend.
Hydromorphone 8mg tablets
The first shipment of Hydromorphone
8mg to TAGI was made in March 2012, with such initial shipment triggering a milestone payment under the Precision Dose License
Agreement. This product is now a commercial product being manufactured by Elite and distributed by TAGI under the Precision Dose
License Agreement.
Phendimetrazine Tartrate 35 mg
tablets
On November 13, 2012, the Company made
the initial shipment of Phendimetrazine tartrate 35mg tablets, the generic equivalent of Bontril PDM
®
35mg tablets
under a previously announced manufacturing and supply agreement with Mikah Pharma (“Mikah”). Subsequently, Elite acquired
the ANDA for Phendimetrazine 35mg as part of the Mikah 13 ANDA Acquisition. This product is now a commercial product being manufactured
by Elite and distributed by Epic on a non-exclusive basis, and by Elite.
Naltrexone 50mg tablets
The first shipment of Hydromorphone 8mg to TAGI was made
in September 2013, with such initial shipment triggering a milestone payment under the Precision Dose License Agreement. This
product is now a commercial product being manufactured by Elite and distributed by TAGI under the Precision Dose License Agreement.
Approved Products
Elite is the owner of the following
approved Abbreviated New Drug Applications:
|
·
|
Isradipine
2.5mg tablets and Isradipine 5mg tablets (“Isradipine tablets”)
|
|
·
|
10
undisclosed ANDAs acquired as part of the Mikah 13 ANDA Acquisition
|
Phentermine HCl 37.5mg tablets
The ANDA for Phentermine 37.5mg was
acquired pursuant to an asset purchase agreement with Epic Pharma LLC (“Epic”) dated September 10, 2010 (the “Phentermine
Purchase Agreement”).
Hydromorphone HCl 8mg tablets
The ANDA for Hydromorphone 8mg was acquired
pursuant to an asset purchase agreement with Mikah Pharma LLC (the “Hydromorphone Purchase Agreement”).
Transfer of the manufacturing process
of Hydromorphone 8mg to the Northvale Facility, a prerequisite of the Company’s commercial launch of the product, was approved
by the FDA on January 23, 2012. However, please note that the completion of such transfer had been significantly delayed as a
result of the FDA’s reclassification of the Company’s CBE-30 supplement filing to a prior approval supplement filing.
As a result of the delays caused by this reclassification, the Company recorded an impairment of the Hydromorphone 8mg ANDA in
an amount equal to the entire purchase price of the acquisition. This impairment was recorded and is included in the Company’s
audited financial statements as of March 31, 2011.
Naltrexone HCl 50mg tablets
The ANDA for Naltrexone 50mg was acquired
pursuant to an asset purchase agreement with Mikah Pharma LLC (the “Naltrexone Purchase Agreement”).
Transfer of the manufacturing process
of Naltrexone 50mg to the Northvale Facility, a prerequisite of the Company’s commercial launch of the product, was approved
and initial shipment of Naltrexone 50mg was made in September 2013. However, please note that the completion of such transfer
had been significantly delayed as a result of the FDA’s reclassification of the Company’s CBE-30 supplement filing
to a prior approval supplement filing. As a result of the delays caused by this reclassification, the Company recorded an impairment
of the Naltrexone 50mg ANDA in an amount equal to the entire purchase price of the acquisition. This impairment was recorded and
is included in the Company’s audited financial statements as of March 31, 2011.
Phentermine 15mg and Phentermine
30mg
Elite received approval as of September
28, 2012 from the FDA for Phentermine 15mg and Phentermine 30mg. These products were developed by Elite. The commercial launch
of Phentermine 15mg and Phentermine 30mg had been delayed due to the sole supplier of the API approved for these products restricting
the amount of such API available to Elite. We resolved this issue and the Phentermine 15mg and Phentermine 30mg products were
launched in April 2013. The resolution of this issue related to the supply of API, however, required us to pay substantially higher
prices than previously paid for the Phentermine API in order to launch the products in April 2013, while seeking approval from
the FDA of an alternate supplier of the API. Approval by the FDA of the alternate supplier was received in January 2014, resulting
in lower prices and a sufficient supply of materials.
Phendimetrazine 35mg
The ANDA for Phendimetrazine 35mg was
acquired by Elite as part of the Mikah 13 ANDA Acquisition. The Northvale Facility was already an approved manufacturing site
for this product as of the date of the Mikah Purchase Agreement. Prior to the acquisition of this ANDA, Elite had been manufacturing
this product on a contract basis pursuant to a manufacturing and supply agreement with Mikah Pharma, dated June 1, 2011 (please
see below for details).
Contract Manufacturing of Isradipine
and Phendimetrazine
On June 1, 2011, Elite executed a Manufacturing
and Supply Agreement (the “Isradipine/ Phendimetrazine Agreement”) with Mikah Pharma, LLC (“Mikah”) to
undertake and perform certain services relating to two generic products: Isradipine Capsules USP, 2.5 mg and 5 mg (“Isradipine”)
and Phendimetrazine Tartrate Tablets USP, 35 mg (“Phendimetrazine”), including (a) developing and preparing the documentation
required for the transfer of the manufacturing process to Elite’s facility and the appropriate regulatory filing for the
ANDA, and (b) manufacturing finished dosage forms appropriate for commercial sale, marketing and distribution in the United States,
its territories, possessions, and commonwealths in accordance with the requirements of the Isradipine/ Phendimetrazine Agreement;
Elite is required to perform, at its sole cost and expense, all Technology Transfer, validation and qualification services (including:
equipment, methods and facility qualification), validation and stability services required by Applicable Laws to commence manufacturing
Isradipine and Phendimetrazine for commercial sale by Mikah or its designees in accordance with the terms of the Isradipine/ Phendimetrazine
Agreement. During the term of the Isradipine/ Phendimetrazine Agreement and subject to the provisions therein, Mikah is required
to purchase from Elite and Elite agrees to manufacture and supply solely and exclusively to Mikah, such Isradipine and Phendimetrazine
as Mikah may order from time to time pursuant to the Isradipine/ Phendimetrazine Agreement. Mikah will compensate Elite at an
agreed upon transfer price for the manufacturing and packaging of Isradipine and Phendimetrazine. For the Isradipine product,
Elite will also receive a 10% royalty on net profits of the finished Product. The payment is to be calculated and paid quarterly.
Elite will also receive a onetime milestone payment for each Product for the work associated with the Technology transfer. The
milestone payment shall be made upon the successful manufacturing and testing of the exhibit batch. The Isradipine/ Phendimetrazine
Agreement has a term of five years and automatically renews for additional periods of one year unless Mikah provides written notice
of termination to Elite at least six months prior to the expiration of the Term or any Renewal Term.
On November 13, 2012, the Company made
the initial shipment of Phendimetrazine tartrate 35mg tablets, the generic equivalent of Bontril PDM
®
35mg tablets
under a previously announced manufacturing and supply agreement with Mikah Pharma (“Mikah”).
Bontril PDM
®
and its
generic equivalents had total U.S. sales of approximately $3.5 million for the twelve months ended September 2012, based on IMS
Health Data. The Company will be compensated at an agreed upon price for the manufacturing and packaging of this product.
On August 1, 2013, Elite executed the
Mikah Purchase Agreement in relation to the Mikah 13 ANDA Acquisition, with such transaction including the transfer of ANDAs for
Phendimetrazine 35mg and Isradipine 2.5mg and 5mg. In addition, the principal owner of Mikah, Mr. Nasrat Hakim, assumed the position
of Elite’s Chief Executive Officer and President on August 2, 2013. Accordingly, the Mikah Purchase Agreement has been terminated
by mutual consent of the parties thereto.
Development and License Agreement
with Hong Kong based company
On March 16, 2012, Elite executed a
Development and License Agreement (“D&L Agreement”) with a private Hong Kong-based company (the “Hong Kong-based
Customer”) for Elite to develop for the Hong Kong-based Customer a branded prescription pharmaceutical product in the United
States. The Hong Kong-based Customer has informed us that it has been in business for more than five years and it has multiple
FDA approved manufacturing sites outside of the United States.
Pursuant to the D&L Agreement, the
Hong Kong-based Customer has engaged Elite to develop and manufacture a prescription pharmaceutical product (the “Prescription
Product”). Elite agrees to be the Preferred Manufacturer and supplier of the Prescription Product pursuant to the D&L
Agreement and perform maintenance activities such as stability or annual report filings for the Prescription Product. The Hong
Kong-based Customer, or its designees, shall prepare all applications necessary to obtain any Prescription Product registration
and permits required to file the Prescription Product in the Territories required to market the Prescription Product. All Registrations
shall be solely owned by the Hong Kong-based Customer including any NDA filed with the FDA for the Prescription Product. Elite
shall provide the Hong Kong-based Customer with all pharmaceutical, technical, and clinical data and information in support of
the NDA application by the Hong Kong-based Customer for the approval of the Prescription Product. In consideration of Elite’s
performance in accordance with the terms and conditions of the D&L Agreement, the Hong Kong-based Customer shall pay Elite
milestone for the Development Program and shall pay Elite for the manufacturing of the Prescription Product. Maintenance activities
will be paid separately on a quarterly basis.
The Hong Kong-based Customer shall own
and market the Prescription Product under its own Trademark. The term of this D&L Agreement shall be effective from the date
consummated and shall continue for a five (5) year term after the commercial launch of the Prescription Product. Upon the expiration
of the initial term or any renewal term, this D&L Agreement will automatically renew for an additional one (1) year term,
unless one Party gives at least six (6) months notice in writing in advance of its intent not to renew.
Discontinued Products - Lodrane
24
®
and Lodrane 24D
®
On March 3, 2011, the FDA announced
its intention to remove approximately 500 cough/cold and allergy related products from the U.S. market. The once daily allergy
products manufactured by Elite, Lodrane 24
®
and Lodrane 24D
®
(the “Lodrane
®
Extended Release Products”), were included in the FDA list of 500 products. After this announcement by the FDA, the Company’s
customer for the Lodrane
®
Extended Release Products cancelled all outstanding orders and manufacturing of the Lodrane
®
Extended Release Products has ceased. The shipments made during the quarter ended June 30, 2011 consisted solely of quantities
that were in production at the time ECR cancelled all outstanding orders. There were no shipments of the Lodrane Extended Release
Products subsequent to those that were made during the quarter ended June 30, 2011.
ECR (the owner and marketer of the Lodrane
®
Extended Release Products) initiated a formal approval process with the FDA in 2010 regarding the Lodrane
®
Extended Release Products and issued a press release on March 3, 2011 stating that they will continue to actively pursue approval
for the Lodrane
®
Extended Release Products. In addition, on April 29, 2011, ECR filed a Petition for Review with
the United States Court of Appeals for the District of Columbia, petitioning such court to review and set aside the final order
of the FDA with relation to the Lodrane
®
Extended Release Products. The Company has received no further information
from ECR with regards to the status of the Petition filed.
The Lodrane
®
Extended
Release Products were co-developed with our partner, ECR, and the Company was receiving revenues from the manufacture of the Lodrane
®
Products and laboratory stability study services, as well as royalties on in-market sales. Contracts relating to the manufacture
and sale of the Lodrane
®
Extended Release Products were formally terminated on April 26, 2013.
During the three months ended June 30,
2011, Elite made its final shipments of the Lodrane
®
Extended Release Products. In addition, the Company sold to
ECR, at cost without markup, all raw materials related to the manufacture of the Lodrane
®
Extended Release Products
which remained in stock subsequent to the final shipment of the Lodrane
®
Extended Release Products. As manufacturing
of the Lodrane
®
Extended Release Products has ceased, there will be no further manufacturing revenues derived from
the Lodrane
®
Extended Release Products unless and until such products receive the necessary approvals from the
FDA.
Please note that there can be no assurances
that such approvals will be granted or that future manufacturing revenues will be earned by the Company from the manufacture of
the Lodrane
®
Extended Release Products, should such approvals be granted by the FDA. Furthermore, the Company has
been advised that ECR has decided not to proceed with the development of the extended release formulations marketed under the
Lodrane
®
brand. The Company also has no plans currently to proceed with the development of an extended release
brompheniramine/pseudoephedrine product. Notwithstanding the foregoing, Elite may proceed with the development of these formulations
and may seek partners in conjunction with such activities, but there can be no assurances that the Company will pursue the development
of these formulations, or that such development activities, if pursued, will result in approvals from the FDA. Please also note
that the Company does not have ownership of the Lodrane
®
brand name, and that if any products containing the formulations
associated with the Lodrane
®
brand name are approved and marketed, such would be done under a different brand name.
While Elite’s manufacturing of
the Lodrane® Extended Release Products has ceased, the sale of such products in the US market was still permitted by the FDA
until August 30, 2011. The Company earned royalties on any in-market sales that occurred up to that date.
Contract laboratory services for the
Lodrane® Extended Products will continue, on a residual basis, as such services consist of stability studies that must be
performed over certain defined time periods. These revenues are expected to be significantly less than laboratory service revenues
earned in periods prior to the removal of the Extended Release Lodrane products from the market and eventually ending.
Products Under Development
It is our general policy not to disclose
products in our development pipeline or the status of such products until a product reaches a stage that we determine, for competitive
reasons, in our discretion, to be appropriate for disclosure and because the disclosure of such information might suggest the
occurrence of future matters or events that may not occur.
Abuse Resistant and Sustained Release
Opioids
The abuse resistant opioid products
utilize our patented abuse-deterrent technology that is based on a pharmacological approach. These products are combinations of
a narcotic agonist formulation intended for use in patients with moderate to severe pain, and an antagonist, formulated to deter
abuse of the drug. Both, agonist and antagonist, have been on the market for a number of years and sold separately in various
dose strengths. Elite has filed INDs for the first two abuse resistant products under development and has tested products
in various pharmacokinetic studies. Elite expects to continue to develop multiple abuse resistant products. Products utilizing
the pharmacological approach to deter abuse such as Suboxone®, a product marketed in the United States by Reckitt Benckiser
Pharmaceuticals, Inc., and Embeda®, a product marketed in the United States by Pfizer, Inc., have been approved by the FDA
and are being marketed in the United States.
Elite has developed, and retains the
rights to these abuse resistant and sustained release opioid products. Elite may license these products at a later
date to a third party who could provide funding for the remaining clinical studies and who could provide sales and distribution
for the product. The drug delivery technology development underlying the sustained release products was initiated under a joint
venture with Elan which terminated in 2002.
According to the Elan Termination Agreement,
Elite acquired all proprietary, development and commercial rights for the worldwide markets for the products developed by the
joint venture, including the sustained release opioid products. Upon licensing or commercialization of a once daily oxycodone
product, Elite will pay a royalty to Elan pursuant to the Termination Agreement. If Elite were to sell the product
itself, Elite will pay a 1% royalty to Elan based on the product’s net sales, and if Elite enters into an agreement with
another party to sell the product, Elite will pay a 9% royalty to Elan based on Elite’s net revenues from this product.
(Elite’s net product revenues would include license fees, royalties, manufacturing profits and milestones) Elite is allowed
to recoup all development costs including research, process development, analytical development, clinical development and regulatory
costs before payment of any royalties to Elan.
Novel Labs Investment
At the end of 2006, Elite entered into
a joint venture with VGS Pharma, LLC (“VGS”) and created Novel Laboratories, Inc. (“Novel”), a privately-held
company specializing in pharmaceutical research, development, manufacturing, licensing, acquisition and marketing of specialty
generic pharmaceuticals. Novel's business strategy is to focus on its core strength in identifying and timely executing niche
business opportunities in the generic pharmaceutical area. Elite owns less than 10% of the outstanding shares of Class A Voting
Common Stock of Novel. To date, Elite has received no distributions or dividends from this investment.
Patents
Since our incorporation, we have secured
six United States 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
|
We also have pending applications for
two additional U.S. patents and three foreign patents. We intend to apply for patents for other products in the future; however,
there can be no assurance that any of the pending applications or other applications which we may file will be granted. We have
also filed corresponding foreign applications for key patents.
Prior to the enactment in the United
States of new laws adopting certain changes mandated by the General Agreement on Tariffs and Trade (“GATT”), the exclusive
rights afforded by a U.S. Patent were for a period of 17 years measured from the date of grant. Under GAAT, the term of any U.S.
Patent granted on an application filed subsequent to June 8, 1995 terminates 20 years from the date on which the patent application
was filed in the United States or the first priority date, whichever occurs first. Future patents granted on an application filed
before June 8, 1995, will have a term that terminates 20 years from such date, or 17 years from the date of grant, whichever date
is later.
Under the Drug Price Competition Act,
a U.S. product patent or use patent may be extended for up to five years under certain circumstances to compensate the patent
holder for the time required for FDA regulatory review of the product. Such benefits under the Drug Price Competition Act are
available only to the first approved use of the active ingredient in the drug product and may be applied only to one patent per
drug product. There can be no assurance that we will be able to take advantage of this law.
Also, different countries have different
procedures for obtaining patents, and patents issued by different countries provide different degrees of protection against the
use of a patented invention by others. There can be no assurance, therefore, that the issuance to us in one country of a patent
covering an invention will be followed by the issuance in other countries of patents covering the same invention, or that any
judicial interpretation of the validity, enforceability, or scope of the claims in a patent issued in one country will be similar
to the judicial interpretation given to a corresponding patent issued in another country. Furthermore, even if our patents are
determined to be valid, enforceable, and broad in scope, there can be no assurance that competitors will not be able to design
around such patents and compete with us using the resulting alternative technology.
We also rely upon unpatented proprietary
and trade secret technology that we seek to protect, in part, by confidentiality agreements with our collaborative partners, employees,
consultants, outside scientific collaborators, sponsored researchers, and other advisors. There can be no assurance that these
agreements provide meaningful protection or that they will not be breached, that we will have adequate remedies for any such breach,
or that our trade secrets, proprietary know-how, and technological advances will not otherwise become known to others. In addition,
there can be no assurance that, despite precautions taken by us, others have not and will not obtain access to our proprietary
technology.
Trademarks
We currently plan to license our products
to other entities engaged in the marketing of pharmaceuticals and not to sell under our own brand name and so we do not currently
intend to register any trademarks related to our products.
Government Regulation and Approval
The design, development and marketing
of pharmaceutical compounds, on which our success depends, are intensely regulated by governmental regulatory agencies, in particular
the FDA. Non-compliance with applicable requirements can result in fines and other judicially imposed sanctions, including product
seizures, injunction actions and criminal prosecution based on products or manufacturing practices that violate statutory requirements.
In addition, administrative remedies can involve voluntary withdrawal of products, as well as the refusal of the FDA to approve
ANDAs and NDAs. The FDA also has the authority to withdraw approval of drugs in accordance with statutory due process procedures.
Before a drug may be marketed, it must
be approved by the FDA either by an NDA or an ANDA, each of which is discussed below.
Please note that, as discussed in “Discontinued
Products” above, in March 2011, the FDA announced its intention to remove approximately 500 cough/cold and allergy related
products from the U.S. market, with such list of 500 products including the Lodrane Extended Release Products. After this announcement
by the FDA, the Company’s customer for the Lodrane Products cancelled all outstanding orders and manufacturing of the Lodrane
Products has ceased. This cancellation of outstanding orders and the cessation of manufacturing of Lodrane Products has had a
material adverse effect on revenues for periods beginning subsequent to March 31, 2011.
Lodrane D® which is an immediate
release product that is different from the Lodrane Products that were included in the list of products removed from the market
by the FDA, is marketed under the Over-the-Counter Monograph (the “OTC Monograph”) and accordingly, under the Code
of Federal Regulations can be lawfully marketed in the U.S. without prior approval. Under the Federal Food Drug and Cosmetic Act
(“FDCA”), FDA regulations and statements of FDA policy, certain drug products are permitted to be marketed in the
U.S. without prior approval. Within the past few years, the FDA has revised its enforcement policies, significantly limiting the
circumstances under which these unapproved products may be marketed. If the FDA determines that a company is distributing an unapproved
product that requires approval, the FDA may take enforcement action in a variety of ways, including, without limitation, product
seizures and seeking a judicial injunction against distribution.
NDAs and NDAs under Section 505(b)
of the Drug Price Competition Act
The FDA approval procedure for an NDA
is generally a two-step process. During the Initial Product Development stage, an investigational new drug application (“IND”)
for each product is filed with the FDA. A 30-day waiting period after the filing of each IND is required by the FDA prior to the
commencement of initial clinical testing. If the FDA does not comment on or question the IND within such 30-day period, initial
clinical studies may begin. If, however, the FDA has comments or questions, they must be answered to the satisfaction of the FDA
before initial clinical testing may begin. In some instances this process could result in substantial delay and expense. Initial
clinical studies generally constitute Phase I of the NDA process and are conducted to demonstrate the product tolerance/safety
and pharmacokinetic in healthy subjects.
After Phase I testing, extensive efficacy
and safety studies in patients must be conducted. After completion of the required clinical testing, an NDA is filed, and its
approval, which is required for marketing in the United States, involves an extensive review process by the FDA. The NDA itself
is a complicated and detailed application and must include the results of extensive clinical and other testing, the cost of which
is substantial. However, the NDA filings contemplated by us, which are already marketed drugs, would be made under Sections 505
(b)(1) or 505 (b)(2) of the Drug Price Competition Act, which do not require certain studies that would otherwise be necessary;
accordingly, the development timetable should be shorter. While the FDA is required to review applications within a certain timeframe,
during the review process, the FDA frequently requests that additional information be submitted. The effect of such request and
subsequent submission can significantly extend the time for the NDA review process. Until an NDA is actually approved, there can
be no assurance that the information requested and submitted will be considered adequate by the FDA to justify approval. The packaging
and labeling of our developed products are also subject to FDA regulation. It is impossible to anticipate the amount of time that
will be needed to obtain FDA approval to market any product.
Whether or not FDA approval has been
obtained, approval of the product by comparable regulatory authorities in any foreign country must be obtained prior to the commencement
of marketing of the product in that country. We intend to conduct all marketing in territories other than the United States through
other pharmaceutical companies based in those countries. The approval procedure varies from country to country, can involve additional
testing, and the time required may differ from that required for FDA approval. Although there are some procedures for unified
filings for certain European countries, in general each country has its own procedures and requirements, many of which are time
consuming and expensive. Thus, there can be substantial delays in obtaining required approvals from both the FDA and foreign regulatory
authorities after the relevant applications are filed. After such approvals are obtained, further delays may be encountered before
the products become commercially available.
ANDAs
The FDA approval procedure for an ANDA
differs from the procedure for a NDA in that the FDA waives the requirement of conducting complete clinical studies, although
it normally requires bioavailability and/or bioequivalence studies. “Bioavailability” indicates the rate and extent
of absorption and levels of concentration of a drug product in the blood stream needed to produce a therapeutic effect. “Bioequivalence”
compares the bioavailability of one drug product with another, and when established, indicates that the rate of absorption and
levels of concentration of the active drug substance in the body are equivalent for the generic drug and the previously approved
drug. An ANDA may be submitted for a drug on the basis that it is the equivalent of a previously approved drug or, in the case
of a new dosage form, is suitable for use for the indications specified.
The timing of final FDA approval of
an ANDA depends on a variety of factors, including whether the applicant challenges any listed patents for the drug and whether
the brand-name manufacturer is entitled to one or more statutory exclusivity periods, during which the FDA may be prohibited from
accepting applications for, or approving, generic products. In certain circumstances, a regulatory exclusivity period can extend
beyond the life of a patent, and thus block ANDAs from being approved on the patent expiration date.
In May 1992, Congress enacted the Generic
Drug Enforcement Act of 1992, which allows the FDA to impose debarment and other penalties on individuals and companies that commit
certain illegal acts relating to the generic drug approval process. In some situations, the Generic Drug Enforcement Act requires
the FDA to not accept or review ANDAs for a period of time from a company or an individual that has committed certain violations.
It also provides for temporary denial of approval of applications during the investigation of certain violations that could lead
to debarment and also, in more limited circumstances, provides for the suspension of the marketing of approved drugs by the affected
company. Lastly, the Generic Drug Enforcement Act allows for civil penalties and withdrawal of previously approved applications.
Neither we nor any of our employees have ever been subject to debarment. We do not believe that we receive any services from any
debarred person.
Controlled Substances
We are also subject to federal, state,
and local laws of general applicability, such as laws relating to working conditions. We are also licensed by, registered with,
and subject to periodic inspection and regulation by the Drug Enforcement Agency (“DEA”) and New Jersey state agencies,
pursuant to federal and state legislation relating to drugs and narcotics. Certain drugs that we currently develop or may develop
in the future may be subject to regulations under the Controlled Substances Act and related statutes. As we manufacture such products,
we may become subject to the Prescription Drug Marketing Act, which regulates wholesale distributors of prescription drugs.
cGMP
All facilities and manufacturing techniques
used for the manufacture of products for clinical use or for sale must be operated in conformity with cGMP regulations issued
by the FDA. We engage in manufacturing on a commercial basis for distribution of products, and operate our facilities in accordance
with cGMP regulations. If we hire another company to perform contract manufacturing for us, we must ensure that our contractor’s
facilities conform to cGMP regulations.
Compliance with Environmental Laws
We are subject to comprehensive federal,
state and local environmental laws and regulations that govern, among other things, air polluting emissions, waste water discharges,
solid and hazardous waste disposal, and the remediation of contamination associated with current or past generation handling and
disposal activities, including the past practices of corporations as to which we are the legal successor or in possession. We
do not expect that compliance with such environmental laws will have a material effect on our capital expenditures, earnings or
competitive position in the foreseeable future. There can be no assurance, however, that future changes in environmental laws
or regulations, administrative actions or enforcement actions, or remediation obligations arising under environmental laws will
not have a material adverse effect on our capital expenditures, earnings or competitive position.
Competition
We have competition with respect to
our two principal areas of operation. We develop and manufacture generic products and products using controlled-release drug technology
, and we develop and market (either on our own or by license to other companies) generic and proprietary controlled-release pharmaceutical
products. In both areas, our competition consists of those companies which develop controlled-release drugs and alternative drug
delivery systems. We do not represent a significant presence in the pharmaceutical industry.
An increasing number of pharmaceutical
companies have become interested in the development and commercialization of products incorporating advanced or novel drug delivery
systems. Some of the major pharmaceutical companies have invested and are continuing to invest significant resources in the development
of their own drug delivery systems and technologies and some have invested funds in such specialized drug delivery companies.
Many of these companies have greater financial and other resources as well as more experience than we do in commercializing pharmaceutical
products. Certain companies have a track record of success in developing controlled-release drugs. Significant among these are
Pfizer, Sandoz (a Novartis company), Durect Corporation, Mylan Laboratories, Inc., Par Pharmaceuticals, Inc., Alkermes, Inc.,
Teva Pharmaceuticals Industries Ltd., Actavis 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 entitled
“We are dependent on a small number of suppliers for our raw materials and any delay or unavailability of raw materials
can materially adversely affect our ability to produce products”.
While we currently obtain the raw materials
that we need from over 20 suppliers, some materials used in our products are currently available from only one supplier or a limited
number of suppliers. The FDA requires identification of raw material suppliers in applications for approval of drug products.
If raw materials were unavailable from a specified supplier, FDA approval of a new supplier could delay the manufacture of the
drug involved.
In this regard, the commercial launch
of Phentermine 15mg and Phentermine 30mg was delayed due to the sole supplier of the API approved for these products restricting
the amount of such API available to Elite. The API supplier required us to pay substantially higher prices than previously paid
for the Phentermine API while we sought approval from the FDA of an alternate supplier of the API. Such approval was recently
received, resulting in lower prices and a sufficient supply of materials. Please see “Approved Products; Phentermine 15mg
and Phentermine 30mg “ above.
We have acquired pharmaceutical manufacturing
equipment for manufacturing our products. We have registered our facilities with the FDA and the DEA.
Dependence on One or a Few Major
Customers
Each year we have had one or a few customers
that have accounted for a large percentage of our limited revenues therefore the termination of a contract with a customer may
result in the loss of substantially all of our revenues. We are constantly working to develop new relationships with existing
or new customers, but despite these efforts we may not, at the time that any of our current contracts expire, have other contracts
in place generating similar or material revenue. We have agreements with Epic, ECR, Precision Dose and TPN for the sales and distribution
of products that we manufacture. We receive revenues to manufacture these products and also receive a profit split or royalties
based on in-market sales of the products.
In April 2011, we ceased production
of the Lodrane Extended Release Products, which are the subject of the agreements with ECR, pursuant to the FDA’s announcement
of its intention to remove approximately 500 cough/cold and allergy related products from the US market, including the Lodrane
Extended Release Products. While the announcement by the FDA had a minimal effect on the Company’s results for Fiscal 2011,
the Lodrane Extended Release Products for which production has ceased were responsible for 97% of the Company’s revenues.
The announcement by the FDA accordingly has a material adverse effect on the Company’s revenues for periods beginning after
March 31, 2011.
Employees
As of the date of this Prospectus, we
had 35 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.
PROPERTY
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. We are currently using the Facility as a laboratory, manufacturing, storage and office
space.
We entered into a lease for a portion
of a one-story warehouse, located at 135 Ludlow Avenue, Northvale, New Jersey (“135 Ludlow”), consisting of approximately
15,000 square feet of floor space. The lease term began on July 1, 2010. The lease includes an initial term of 5 years and 6 months
and we have the option to renew the lease for two additional terms, each of 5 years. The property related to this lease will be
used for the storage of pharmaceutical finished goods, raw materials, equipment and documents as well as engaging in manufacturing,
packaging and distribution activities. This property requires significant construction and qualification as a prerequisite to
achieving suitability for such intended future use. Approximately 3,500 square feet of this property was constructed and qualified
as suitable for use for storage of pharmaceutical finished goods, raw materials, equipment and documents and was placed into service
on or before the expiration of the lease for the warehouse at 80 Oak Street, as noted below. Construction and qualification as
suitable for manufacturing, packaging and distribution operations are expected to be achieved within two years from the beginning
of the lease term. These are estimates based on current project plans, which are subject to change. There can be no assurance
that the construction and qualification will be accomplished during the estimated time frames, or that the property located at
135 Ludlow Avenue, Northvale, New Jersey will ever achieve qualification for intended future utilization.
165 Ludlow and 135 Ludlow are hereinafter
referred to as the “Facilities”.
Properties used in our operation are
considered suitable for the purposes for which they are used, at the time they are placed into service, and are believed adequate
to meet our needs for the reasonably foreseeable future.
LEGAL PROCEEDINGS
In the ordinary course of business we
may be subject to litigation from time to time. 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.
MARKET PRICE OF AND DIVIDENDS ON
REGISTRANT’S COMMON EQUITY
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, 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
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ending March 31, 2013
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
$
|
0.10
|
|
|
|
0.06
|
|
December 31, 2012
|
|
$
|
0.12
|
|
|
|
0.05
|
|
September 30, 2012
|
|
$
|
0.14
|
|
|
|
0.10
|
|
June 30, 2012
|
|
$
|
0.17
|
|
|
|
0.08
|
|
As of April 22, 2014, the last reported
sale price of our Common Stock, as reported by the OTCBB, was $0.39.
Holders
As of April 22, 2014, there were, respectively,
approximately 119 and 2 holders of record of our Common Stock and Series I Preferred Stock, respectively.
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.
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis
should be read with the financial statements and accompanying notes included elsewhere in this Prospectus
and
the information described under the captions “
Business
”, “
Risk Factors
” and “
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
Going concern considerations
As of December 31, 2013, the Company
had a working capital deficit of $8.6 million, losses from operations totaling $2.9 million for the nine months then ended, net
other expenses totaling $6.9 million for the nine months then ended and a net loss of $9.7 million for the nine months ended December
31, 2013. 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, 2014. In addition, the Company has received Notice 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. See “NJEDA Bonds” below.
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 with Lincoln Park pursuant to which Lincoln Park has agreed to purchase from us up
to $40,000,000 of our common stock. Please see “The Lincoln Park Transaction” in “Selling Shareholder”
for a description of that agreement.
Treppel $1,000,000 Bridge Revolving
Credit Line
On June 12, 2012 (the “Effective
Date”), we entered into a bridge loan agreement (the “Treppel Loan Agreement”) with Jerry Treppel, our Chairman
and CEO. Under the terms of the Treppel Loan Agreement, we have the right, in our sole discretion, to a line of credit (the “Treppel
Credit Line”) in the maximum principal amount of up to $500,000 at any one time. By amendments, the maximum principal amount
was increased to $1,000,000 and the maturity date was amended and extended Mr. Treppel provided the Treppel Credit Line for the
purpose of supporting the acceleration of our product development activities. The current term of the Treppel Loan Agreement ends
on July 31, 2014, at which time the entire unpaid principal balance plus accrued interest thereon shall be due and payable in
full. We may prepay any amounts owed without penalty. Any such prepayments shall first be attributable to interest due and owing
and then to principal. Interest only shall be payable quarterly on July 1, October 1, January 1 and April 1 of each year. Prior
to maturity or the occurrence of an Event of Default as defined in the Loan Agreement, we may borrow, repay, and reborrow under
the Treppel Credit Line through maturity. Amounts borrowed under the Treppel Credit Line will bear interest at the rate of ten
percent (10%) per annum. As of December 31, 2013, the principal balance owed under the Treppel Credit Line was zero with an additional
$8,384 in accrued interest being also owed, in accordance with the terms and conditions of the Credit Line.
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 December 31, 2013, the principal balance owed
under the Credit Line was $320,150 with an additional $8,384 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 “Overview; Commercial Products; Approved Products” 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.
Please also refer to Note 14 of the
unaudited financial statements as and for the nine months ended December 31, 2013 for further details.
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.
Convertible Note Payable to Jerry
Treppel
On November 21, 2013,
Elite entered into an unsecured convertible note (the “Treppel Note”) with Jerry Treppel (“Treppel”),
Elite’s Chairman of the Board, in the amount of $600,000 for the unpaid current principal amount owed pursuant to the Treppel
Bridge Loan Agreement (“Treppel Credit Line”). The original Treppel Credit Line agreement was executed on June 12,
2012 and amended on December 5, 2012 and August 2, 2013. The Treppel Note was amended on February 7, 2014 to make it convertible
into shares of the Company’s Series I Preferred Stock. The Treppel Note, as amended, was interest free and due and payable
on the third anniversary of its issuance. Subject to certain limitations, the principal amount of the Note was convertible at
the option of Treppel on and after the first anniversary of the date of the Note into shares of the Company’s Common Stock
at a rate of $0.099 (approximately 10,101 shares per $1,000 in principal amount), the closing market price of the Company’s
Common Stock on the date that the Note was executed, and/or into shares of the Company’s Series I Preferred Stock at a rate
of 1 share of Series I Preferred Stock for each $141,442.7157 of principal owed on the Treppel Note. The conversion rate was adjustable
for customary corporate actions such as stock splits and, subject to certain exclusions, includes weighted average anti-dilution
for common stock transactions at prices below the then applicable conversion rate.
On February 7, 2014,
Treppel converted the principal amount of $600,000, representing the entire principal balance due under the Treppel Note into
4.242 shares of the Company’s Series I Preferred Stock.
Despite having entered
into the Treppel Credit Line Agreement, 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 December 31, 2013 was approximately
$1.1 million, an increase of approximately $1.0 million from the approximately $0.1 million balance of cash at December 31, 2012.
As of December 31,
2013, our principal source of liquidity was approximately $1.1 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, the
Treppel Credit Line 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, 2013, 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 $415,500
Debt Service Reserve Fund consisting of $366,000 from the Series A Notes proceeds and $49,500 from the Series B Notes proceeds.
The Debt Service Reserve is maintained in restricted cash accounts that are classified in Other Assets. $1,274,311 of the proceeds
had been deposited in a short-term restricted cash account to fund the purchase of manufacturing equipment and development of
the Company’s facility.
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 $10,634
for the nine months ended December 31, 2013.
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.
The interest payments due on March 1st
and September 1st of 2009, 2010 2011, 2012 and 2013, totaling $1,146,150 for all ten payments, were paid from the debt service
reserved held in the restricted cash account, due to the Company not having sufficient funds to make such payments when they were
due.
The principal payment due on September
1, 2009, totaling $210,000 was paid from the debt service reserve held in the restricted cash account, due to the Company not
having sufficient funds to make the payment when due.
The Company did not have sufficient
funds available to make the principal payments due on September 1, 2010, totaling $225,000 and requested that the Trustee withdraw
such funds from the debt service reserve. The Company’s request was denied and accordingly the principal payment due on
September 1, 2010, totaling $225,000 was not made.
The Company did not have sufficient
funds available to make the principal payments due on September 1, 2011, totaling $470,000, with such amount including the principal
payments due on September 1, 2010 and not paid. There were not sufficient funds available in the debt service reserve and accordingly,
the principal payment totaling $470,000 was not made.
The Company did not have sufficient
funds available to make the principal payments due on September 1, 2012, totaling $730,000, with such amount including the principal
payments due on September 1, 2011 and not paid. There were not sufficient funds available in the debt service reserve and accordingly,
the principal payment totaling $730,000 was not made.
The Company did not have sufficient
funds available to make the principal payments due on September 1, 2013, totaling $915,000, with such amount including the principal
payments due on September 1, 2012 and not paid. There were not sufficient funds available in the debt service reserve and accordingly,
the principal payment totaling $915,000 was not made.
Pursuant to the terms of the NJEDA Bonds,
the Company is required to replenish any amounts withdrawn from the debt service reserve and used to make principal or interest
payments in six monthly installments, each being equal to one-sixth of the amount withdrawn and with the first installment due
on the 15th of the month in which the withdrawal from debt service reserve occurred and the remaining five monthly payments being
due on the 15th of the five immediately subsequent months. The Company has, to date, made all payments required in relation to
the withdrawals made from the debt service reserve on March 1, 2009, September 1, 2009, March 1, 2010, September 1, 2010, March
1, 2011, September 1, 2011, March 1, 2012, September 1, 2012, March 1, 2013 and September 1, 2013.
The Company has received Notice of Default
from the Trustee of the NJEDA Bonds in relation to the withdrawals from the debt service reserve, and no payment of scheduled
principal amounts. Resolution of the Company’s default under the NJED Bonds will have a significant effect on our ability
to operate in the future.
Due to issuance of a Notice of Default
being received from the Trustee of the NJEDA Bonds, and until the event of default is waived or rescinded, the Company has classified
the entire principal due, an amount aggregating $3.385 million, as a current liability.
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:
Nine Months Ended December 31, 2013 Compared to the Nine
Months Ended December 31, 2012
Our revenues for the
nine months ended December 31, 2013 were $3.6 million an increase of $1.7 million or approximately 90% over revenues for the comparable
period of the prior year, and consisted of $2.4 million in manufacturing fees, $0.1 million in lab and product development fees
and $1.1 million in royalties and license fees. Revenues for the nine months ended December 31, 2012, consisted of $1.2 million
in manufacturing fees, $0.2 million in lab and product development fees, and $0.4 million in royalties and license fees. Manufacturing
fees increased by approximately 89% as a result of the launch of new products in April 2013 (Phentermine 15mg and 30mg capsules)
and in September 2013 (Naltrexone 50mg tablets) and the strong year-on-year growth of Elite’s Phentermine 37.5mg tablets,
Hydromorphone 8mg tablets and contract manufactured Methadone 10mg product lines. Please note that the profit margins earned on
the Phentermine 37.5mg tablets, and the Phentermine 15mg and 30mg capsules have been adversely effected by significant increases
in the price of raw materials required for the manufacture of these products. Lab and product development fees decreased by approximately
65% due to the decreased lab stability study revenues relating to the discontinuance of the Lodrane® Extended Release Products
and also development fees being earned in the prior year in relation to the Hi-Tech Development Agreement. Royalties and license
fees increased by approximately 161% due to milestones earned pursuant to the Epic Agreement, the strong growth in sales from
the Phentermine and Hydromorphone product lines and the launch in September 2013 of Naltrexone 50mg, for which a milestone was
also earned. Please see the discussion above in “Overview; Approved Products” concerning certain delays related to
Phentermine due to issues with the sole supplier that have been resolved.
Research and development
costs for the nine months ended December 31, 2013 were $2.7 million an increase of $2.1 million or approximately 309% from $0.7
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 resistant opioid products, for which a second patent was issued in May 2013 and a notice
of allowance for a third patent was issued by the USPTO in December 2013.
General and administrative
expenses for the nine months ended December 31, 2013, were $1.1 million, a decrease of approximately 0.3% from $1.1 million of
general and administrative expenses for the comparable period of the prior year. While general and administrative expenses are
almost unchanged on a year to year basis for the nine months ended December 31
st
, please note that significant increases
in regulatory costs, including, without limitation, increased fees paid to the FDA, and the hiring of additional staff to support
regulatory compliance activities have been incurred for approximately the last six months of the nine month period ended December
31, 2013. In addition, there have also been significant increases in legal fees, insurance and employee benefits that have occurred
during the same six month period. These significantly higher overhead costs are expected to continue.
Depreciation and amortization
for the nine months ended December 31, 2013 was $0.4 million, an increase of $0.1 million, or approximately 244%, from $0.1 million
for the comparable period of the prior year. The increase was primarily due to the commissioning, for commercial operations, of
the new facility at 135 Ludlow in January of 2013, with the cost related assets and capital investments being placed in service
and absorbed into manufacturing operations through depreciation expenses.
Non-cash compensation
through the issuance of stock options and warrants for the nine months ended December 31, 2013 was $52k, an increase of $16k,
or approximately 43% from $36k for the comparable period of the prior year. The increase is due to the issuance of employee stock
options in June of 2012 and August 2013.
As a result of the
foregoing, our loss from operations for the nine months ended December 31, 2013 was $2.9 million, compared to a loss from operations
of $1.3 million for the nine months ended December 31, 2012.
Other income/expenses
for the nine months ended December 31, 2013 were a net expense of $6.9 million, an decrease in other income of $8.1 million from
the net other income of $1.2 million for the comparable period of the prior year. The increase in other income/expense was due
to derivative income relating to changes in the fair value of our preferred shares and outstanding warrants during the nine months
ended December 31, 2013 totaling an expense of $6.2 million, as compared to a net derivative income of $1.9 million for the comparable
period of the prior year. Please note that derivative income/(expenses) are most significantly determined by the number of preferred
shares and warrants outstanding and the change in the closing price of the Company’s Common Stock as of the end of the period,
as compared to the closing price at the beginning of the period, with a strong inverse correlation between derivative revenues
and increases in the closing price of the Company’s Common Stock. As of December 31, 2013, there were an aggregate of 24
shares of Preferred Series C, Preferred Series E and Preferred Series G outstanding, as compared to an aggregate of 3,562.5 shares
of Preferred Series B, Preferred Series C and Preferred Series E outstanding as of December 31, 2012. As of December 31, 2013,
there were approximately 118 million warrants outstanding as compared to approximately 145 million warrants outstanding as of
December 31, 2012.
As a result of the
foregoing, our net loss for the nine months ended December 31, 2013 was $9.7 million, compared to a net loss of $0.1 million for
the nine months ended December 31, 2012.
Material Changes
in Financial Condition
Our working capital
(total current assets less total current liabilities), decreased to a deficit of $8.6 million as of December 31, 2013 from a working
capital deficit of $2.8 million as of March 31, 2013, primarily due to our net loss from operations, exclusive of non-cash charges.
In addition, it should be noted that current liabilities includes the entire principal amount due on the Company’s NJEDA
Bonds Payable (“NJEDA Bonds”) and the liability recorded for the note payable the Mikah Note (as defined below) to
Mikah Pharma LLC issued in conjunction with the Mikah Asset Purchase Agreement (see “Liquidity and Capital Resources; Convertible
Note Payable to Mikah Pharma LLC” below) and the Treppel Note (as defined below) to Jerry Treppel issued in lieu of cash
in payment of principal amounts due and owing on the Treppel Credit Line (as defined below) (see “Liquidity and Capital
Resources: Convertible Note Payable to Jerry Treppel”, below). The NJEDA Bonds, totaling $3.4 million, have been classified
as a current liability as a result of the Company receiving a notice of default from the Trustee of the NJ-EDA Bonds. Please refer
to Note 6 to our Unaudited financial statements as of and for the nine months ended December 31, 2013.
The Mikah Note, with
a net liability of $5.8 million, is classified as a current liability because the note includes an option to convert into shares
of Common Stock after the first anniversary of the issue date.
Net cash used by operations
was $2.7 million for the nine months ended December 31, 2013, primarily due to our net loss from continuing operations of $9.7
million, offset by non-cash charges totaling $7.3 million, which included, without limitation, depreciation and amortization of
$0.3 million and net income from the change in fair value of derivative liabilities of $6.2 million. In addition, net cash used
by operations was effected by changes in the balances of assets and liabilities, including, without limitation, increases in inventories
of $0.1, increases in accounts receivable of $0.4 million and increases in prepaid expenses of $0.2 million, all of which result
in a net outflow of cash.
Year Ended March 31, 2013 as compared to the Year Ended
March 31, 2012
Our revenues for Fiscal 2013 were $3.4
million an increase of $1.0 million or approximately 40% from revenues for the comparable period of the prior year, and consisted
of $2.2 million in manufacturing fees, $0.4 million in lab and product development fees and $0.8 million in royalties and license
fees. Revenues for the year ended March 31, 2012 (“Fiscal 2012”) consisted of $1.1 million in manufacturing fees,
$0.7 million in lab and product development fees, and $0.6 million in royalties and license fees. Manufacturing fees increased
by approximately 98% due to the launch of three new products during Fiscal 2013 and the continued growth of the two products launched
during Fiscal 2012. Lab and product development fees decreased by approximately 42% due to decreased lab stability study revenues
relating the discontinuance of the Lodrane® Extended Release Products. Royalties and license fees increased by approximately
24% due to the growth of the Phentermine and Hydromorphone product revenue streams and the related profit splits earned by the
Company from TAGI Pharmaceuticals Inc.
Research and development costs for Fiscal
2013 were $1.0 million, a decrease of $0.8 million or approximately 44% from $1.7 million of such costs for the comparable period
of the prior year. The decrease was primarily due to the launch of five new products during a period beginning at the end of Fiscal
2012 and throughout Fiscal 2013. Prior to the launch of a new product, research and development costs are higher, due to the increased
resources required to get a new product approved and introduced into the market. Subsequent to launch, these research and development
costs are no longer incurred, as the new products are now revenue producing, commercial manufacturing operations. Research and
development costs currently being incurred are related to the development of the Company’s pipeline of products.
General and administrative expenses
for Fiscal2013 were $1.5 million an increase of $0.1 million or approximately 7% from $1.4 million of general and administrative
expenses for the comparable period of the prior year. The increase was primarily due to the introduction of significant new, annual
fees being charged to the Company by the US FDA during Fiscal 2013, substantial increases in the cost of providing health insurance
benefits to our employees and increased legal fees related to funding activities.
Depreciation and amortization for Fiscal
2013 was $0.1 million, a decrease of $0.1 million or approximately 43%, from $0.2 million for the comparable period of the prior
year. The decrease was primarily due to increased utilization of manufacturing assets in commercial production resulting from
the growing volumes of our products being sold in the market.
Non-cash compensation through the issuance
of stock options and warrants for Fiscal 2013 was $0.046 million, an increase of $0.021 million, or approximately 88% from $0.024
million for the comparable period of the prior year. The increase was due to the issuance of options to purchase an aggregate
of 985,000 shares of Common Stock to various employees during Fiscal 2013 and the timing of the amortization schedule established
at the time of issuance of the related stock options and warrants.
As a result of the foregoing, our loss
from operations for Fiscal 2013 was $1.6 million, compared to a loss from operations of $2.0 million for Fiscal 2012.
Other expenses for Fiscal 2013 were
a net income of $2.7 million, an increase in other net income of $16.3 million from the net other expense of $13.6 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 and outstanding warrants during Fiscal 2013 totaling $3.5 million, as compared to a net derivative
expense of $12.7 million for the comparable period of the prior year. 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, 2013 was $0.0761, as compared to a closing price of $0.0900
as of March 31, 2012. Closing prices on the various dates on which shares of convertible preferred stock were converted to common
stock ranged from $0.08 to $0.17 during the year ended March 31, 2013. 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, 2013.
As a result of the foregoing, our net
income for Fiscal 2013 was $1.5 million, compared to a net loss of $15.1 million for Fiscal 2012.
Material Changes in Financial Condition
Our working capital
(total current assets less total current liabilities) deficiency was reduced to $2.8 million as of March 31, 2013 from a working
capital deficiency of $3.1 million as of March 31, 2012, primarily due to the loss from operations sustained during Fiscal 2013
being financed by approximately $1.0 million in cash warrant exercises (a capital financing), and the issuance of Series E Preferred
Stock (a non-current derivative liability financing). Capital and non-current 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 $1.9 million for Fiscal 2013, primarily due to our net income of $1.5 million, offset by non-cash
other income items totaling $4.1 million included in the net income, combined with increases in accounts receivable and inventory
of $0.3 million and $1.1 million respectively.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth biographical
information about each of our directors and executive officers:
Name
|
|
Age
|
|
Position
|
|
Director
/ Officer Since
|
Nasrat Hakim
|
|
53
|
|
President, Chief Executive Officer
and Director
|
|
August 1, 2013
|
Jerry
Treppel
1
|
|
59
|
|
Chairman
|
|
November
2008
|
Barry Dash, Ph. D.
|
|
82
|
|
Director
|
|
April 2005
|
Ashok G. Nigalaye, Ph.D.
|
|
61
|
|
Chief Scientific Officer and Director
|
|
June 2009
2
|
Jeenarine Narine
|
|
62
|
|
Director
|
|
June 2009
|
Jeffrey Whitnell
|
|
57
|
|
Director
|
|
October 2009
|
Carter J. Ward
|
|
49
|
|
Chief Financial Officer, Secretary
and Treasurer
|
|
July 2009
|
|
(1)
|
Mr. Treppel served as CEO from
September 15, 2009 to July 31, 2013.
|
|
(2)
|
Dr. Nigalaye has served as
a Director since June 2009 and as Chief Scientific Officer since September 2009.
|
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 nominee’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.
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.
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.
Ashok G. Nigalaye, Ph.D.
Dr. Ashok G. Nigalaye
has served as a Director since June 24, 2009, member of the Compensation Committee since October 23, 2009 and Chief Scientific
Officer since September 15, 2009. Dr. Nigalaye was elected as a member of Elite’s Board in June 2009 as one of three directors
designated by Epic pursuant to the terms of the Epic Strategic Alliance Agreement. Since December 2010, Dr. Nigalaye has been
the Chairman and Chief Executive Officer of Epic Pharma, LLC, a manufacturer of generic pharmaceuticals and Elite’s strategic
partner pursuant to the Epic Strategic Alliance Agreement. From July 2008 to December 2010, Dr. Nigalaye served as Epic Pharma’s
President and Chief Executive Officer. From August 1993 to February 2008, Dr. Nigalaye served as Vice President of Scientific
Affairs and Operations of Actavis Totowa LLC, a manufacturer of generic pharmaceuticals, where he was responsible for directing
and organizing company activities relating to pharmaceutical drug manufacturing, regulatory affairs and research and development.
Dr. Nigalaye currently serves as a director of GTI Inc., a privately held company. Dr. Nigalaye holds a B.S. in Pharmacy from
the University of Bombay, an M.S. in Industrial Pharmacy from Long Island University, and a Ph.D. in Industrial Pharmacy from
St. John’s University. Dr. Nigalaye is also a licensed pharmacist in the State of New York.
Jeenarine Narine
Jeenarine Narine
has served
as a Director since June 24, 2009 and member of the Nominating Committee since October 23, 2009. Mr. Narine was elected as a member
of Elite’s Board in June 2009 as one of three directors designated by Epic pursuant to the terms of the Epic Strategic Alliance
Agreement. Since December 2010, Mr. Narine has been the President and Chief Operating Officer of Epic Pharma, LLC, a manufacturer
of generic pharmaceuticals and Elite’s strategic partner pursuant to the Epic Strategic Alliance Agreement, in which capacity
he oversees all manufacturing operations. From July 2008 to December 2010, Mr. Narine served as Epic Pharma’s Executive
Vice President of Manufacturing and Operations. Mr. Narine is also the current President of Eniran Manufacturing Inc., a contract
manufacturer of dietary and nutritional supplements, and has held such office since 2000. In addition, Mr. Narine has been since
1989 the President of A&J Machine Inc., a company owned by Mr. Narine that is engaged in the sales of new and used pharmaceutical
manufacturing equipment. In addition to this professional experience, Mr. Narine graduated from the Guyana Industrial Institute,
where he studied Metalology and Welding.
Jeffrey Whitnell
Jeffrey Whitnell
has served
as a Director since October 23, 2009, Chairman of the Audit Committee since October 23, 2009, member of the Nominating Committee
since October 23, 2009, member of the Compensation Committee since October 23, 2009 and designated by the Board as an “audit
committee financial expert” as defined under applicable rules under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), since October 23, 2009. Since June 2010, Mr. Whitnell has been the Chief Financial Officer
for Neurowave Medical Technologies, a medical device company. From June 2009 to June 2010, Mr. Whitnell provided financial consulting
services to various healthcare companies, including Neurowave Medical Technologies. From June 2004 to June 2009, Mr. Whitnell
was Chief Financial Officer and Senior Vice President of Finance at Akorn, Inc. From June 2002 to June 2004, Mr. Whitnell
was Vice President of Finance and Treasurer for Ovation Pharmaceuticals. From 1997 to 2001, Mr. Whitnell was Vice President
of Finance and Treasurer for MediChem Research. Prior to 1997, Mr. Whitnell held various finance positions at Akzo Nobel
and Motorola. Mr. Whitnell began his career as an auditor with Arthur Andersen & Co. He is a certified public accountant
and holds an M.B.A. in Finance from the University of Chicago and a B.S. in Accounting from the University of Illinois.
Mr. Whitnell’s qualifications as an accounting and audit expert provide specific experience to serve as a director for the
Company.
Carter J. Ward
Carter J. Ward has served as Chief Financial
Officer, Secretary and Treasurer of the Company since July 1, 2009. Prior to joining the Company, from July 2005 to April 2009,
Mr. Ward filled multiple finance and supply chain leadership roles with the Actavis Group and its U.S. subsidiary, Amide Pharmaceuticals.
From September 2004 to June 2005, Mr. Ward was a consultant, mainly engaged in improving internal controls and supporting Sarbanes
Oxley compliance of Centennial Communications Inc., a NASDAQ listed wireless communications provider. From 1999 to September
2004, Mr. Ward was the Chief Financial Officer for Positive Healthcare/Ceejay Healthcare, a U.S.-Indian joint venture engaged
in the manufacture and distribution of generic pharmaceuticals and nutraceuticals in India. Mr. Ward began his career as a certified
public accountant in the audit department of KPMG and is a Certified Supply Chain Professional (“CSCP”). Mr. Ward
holds a B.S. in Accounting from Long Island University, Brooklyn, NY, from where he graduated summa cum laude Mr. Ward’s
experience and expertise in the area of finance and more specifically, as a Certified Supply Chain Professional, provides the
qualifications, attributes and skills to serve as an officer for the Company.
Each director currently holds office
until the next annual meeting of stockholders 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 classes of directors, with each respective
class to serve a three-year term and until their successors are duly elected and qualified. At our annual meeting of shareholders
scheduled for May 21, 2014, the first election of directors after this change, (A) two Class I directors will be elected to an
initial one-year term expiring at the 2015 annual meeting and until their respective successors are elected and qualified, (B)
two Class II directors will be elected to an initial two-year term expiring at the 2016 annual meeting and until their respective
successors are elected and qualified and (C) two Class III directors will be elected to an initial three-year term expiring at
the 2017 annual meeting and until their respective successors are elected and qualified. At each annual meeting commencing with
the 2015 annual meeting, directors will be elected to succeed those directors whose terms then expire, with each person so elected
to serve for a three-year term and until his or her respective successor is elected and qualified.
There are no family relationships between
any of our directors and executive officers.
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, 2013, the members of the Compensation Committee were Barry Dash, Ashok Nigalaye and Jeffrey Whitnell. The Committee
operates pursuant to a charter. Under the Compensation Committee charter, the Compensation Committee has authority to retain compensation
consultants, outside counsel, and other advisors that the committee deems appropriate, in its sole discretion, to assist it in
discharging its duties, and to approve the terms of retention and fees to be paid to such consultants. The Compensation Committee
did not engage any advisors.
Named Executive Officers and Key
Employees
The named executive officers and key
employees for the fiscal year ended March 31, 2013 were:
|
·
|
Jerry
Treppel, Chief Executive Officer for the full year
|
|
·
|
Chris
C. Dick, President and Chief Operating Officer for the full year
|
|
·
|
Carter
J. Ward, Chief Financial Officer, Secretary and Treasurer for the full year.
|
Please note that
Chris C. Dick stepped down from his positions as President and Chief Operating Officer in May 2013, Jerry Treppel resigned as
Chief Executive Officer on August 2, 2013, and Nasrat Hakim was named Chief Executive Officer on August 2, 2013. These individuals,
other than for the fiscal year ending March 31, 2013, including Mr. Hakim 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 any other
Named Executive Officers with any plan or arrangement 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. We also do no presently provide any other the Named Executive Officers any plan or
arrangement in connection with a change in control of the Company.
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
Although Mr. Hakim joined us after our
fiscal year ended March 31, 2013, he will be a Named Executive Officer during the current fiscal year ending March 31, 2014. Pursuant
to his August 2013 employment agreement (the “Hakim Employment Agreement”), Mr. Hakim receives an annual salary of
$350,000 per year. The Salary is paid in shares of the Company’s Common Stock pursuant to the Company’s current procedures
for paying Company executives in Stock. He also is entitled to an annual bonus equal to up to 100% of his annual salary (also
payable in stock) based upon his ability to meet certain Company milestones to be determined by the Company’s Board of Directors.
The Board may also award discretionary bonuses in its sole discretion. Mr. Hakim is entitled to employee benefits (e.g., health,
vacation, employee benefit plans and programs) consistent with other Company employees of his seniority and a car allowance. The
Hakim Employment Agreement contains confidentially, non-competition and other standard restrictive covenants.
Mr. Hakim’s employment is terminable
by the Company for cause (as defined in the Hakim Employment Agreement). The Hakim Employment Agreement also may be terminated
by the Company upon at least 30 days written notice due to disability (as defined in the Hakim Employment Agreement) or without
cause. Mr. Hakim can terminate the Hakim Employment Agreement by resigning, provided he gives notice at least 60 days prior to
the effective resignation date. If Mr. Hakim is terminated for cause or he resigns, he only is entitled to accrued and unpaid
annual salary, accrued vacation time and any reasonable and necessary business expenses, all through the date of termination and
payable in stock (“Basic Termination Benefits”). If Mr. Hakim is terminated because of disability or death, in addition
to Basic Termination Benefits, He is entitled his pro rata annual bonus through the date of termination (payable in Stock). If
the Company terminates Mr. Hakim without cause, In addition to Basic Termination Benefits, Mr. Hakim is entitled to his pro rata
annual bonus through the date of termination and an amount equal to two years’ annual salary (all payable in Stock).
Upon a Change of Control (as defined
in the Hakim Employment Agreement), Mr. Hakim is entitled to a payment in an amount equal to two years base annual salary in effect
upon the Date of Termination, less applicable deductions and withholdings, payable in Stock computed in the same manner as set
forth as the Salary.
Jerry Treppel
On December 1, 2008, Elite entered into
a compensation agreement with Mr. Treppel (the “
First Treppel Agreement
”) providing for the terms under which
Mr. Treppel will serve as the non-executive Chairman of the Board. Pursuant to the First Treppel Agreement, Mr. Treppel will serve
as the non-executive Chairman of the Board until immediately prior to the next annual meeting of the Company’s stockholders;
provided, however, that following such annual meeting, and each subsequent annual meeting of the Company’s stockholders,
if the Board elects Mr. Treppel as the non-executive Chairman of the Board, the term of the First Treppel Agreement will be extended
through the earlier of (a) the date of the next subsequent annual meeting of the Company’s stockholders and (b) the date
upon which Mr. Treppel no longer serves as the non-executive Chairman.
During the term of the First Treppel
Agreement, including any applicable extensions thereof, Mr. Treppel is entitled to cash compensation of $2,083.33 on a monthly
basis in lieu of, and not in addition to, any cash directors’ fees and other compensation paid to other non-employee members
of the Board. Mr. Treppel is also entitled to reimbursement of any expenses reasonably incurred in the performance of his duties
under the First Treppel Agreement upon presentation of proper written evidence of such expenditures.
In addition, pursuant to the terms of
the First Treppel Agreement, Elite granted to Mr. Treppel under its 2004 Stock Option Plan non-qualified stock options to purchase
180,000 shares of Common Stock of Elite, par value $0.001 per share, exercisable for a period of 10 years at an exercise price
per share of $0.06, subject to the terms and conditions of the related option agreement.
Under the First Treppel Agreement, Elite
has also agreed to indemnify Mr. Treppel to the fullest extent permitted by law in accordance with the By-Laws of Elite against
(a) reasonable expenses, including attorneys’ fees, incurred by him in connection with any threatened, pending, or completed
civil, criminal, administrative, investigative, or arbitrative action, suit, or proceeding (and any appeal therein) seeking to
hold him liable for actions taken in his capacity as Chairman of the Board, and (b) reasonable payments made by him in satisfaction
of any judgment, money decree, fine (including assessment of excise tax with respect to an employee benefit plan), penalty or
settlement for which he may have become liable in any such action, suit or proceeding, provided that any such expenses or payments
are not the result of Mr. Treppel’s gross negligence, willful misconduct or reckless actions.
Either party may terminate the First
Treppel Agreement, effective immediately upon the giving of written notice to the other party. If no such written notice is given,
then the term of the First Treppel Agreement shall end immediately prior to the next annual meeting of the Company’s stockholders
(the “Treppel Term”), provided however, that following such annual meeting, and each subsequent meeting of the Company’s
stockholders, if the Board elects Mr. Treppel to continue to serve as the non-executive Chairman of the Board, the Treppel Term
shall be extended through the earlier of (a) the date of the next subsequent annual meeting of the Company’s stockholders
and (b) the date upon which Mr. Treppel shall no longer serve as the non-executive Chairman of the Board.
On
September 15, 2009, Mr. Treppel was appointed Chief Executive Officer of the Company
and
he served in that capacity until his resignation in August 2013. He continues to also serve as Chairman of the Board and he has
agreed to forego any additional compensation related to his activities and Chief Executive Officer. Accordingly, Mr. Treppel’s
compensation as Chief Executive Officer and Chairman of the Board remains unchanged from the First Treppel Agreement.
On October 23, 2009, at the meeting
of the Board held immediately after the annual stockholders meeting, Mr. Treppel’s compensation as Chairman of the Board
was revised to an annual amount of $30,000, payable in common shares of the Company. The amount of common shares to be issued
to Mr. Treppel in payment of compensation due to him as Chairman of the Board is calculated on a quarterly basis, and is equal
to the quotient of the quarterly amount due of $7,500, divided by the average daily closing price of the Company’s Common
Stock for the quarter just ended.
Mr. Treppel agreed to forego any additional
compensation for his services as Chief Executive Officer of the Company.
Mr. Treppel stepped down from his position
as Chief Executive Officer and was replaced by Mr. Nasrat Hakim in this position in August 2013. Mr. Treppel is currently the
Chairman of the Board of Directors.
Chris C. Dick
In November 13, 2009, we entered into
an employment agreement with Mr. Dick as our President and Chief Operating Officer (the “Dick Employment Agreement”).
The Dick Employment Agreement is terminable at the will of either the Company or Mr. Dick, with or without notice and for any
reason or no reason.
The Dick Employment Agreement provided
for a base salary of $200,000, with $175,000 of this amount being paid in cash and $25,000 of this amount being paid in restricted
shares of the Company’s Common Stock. The Common Stock component of Mr. Dick’s compensation was computed on a quarterly
basis, with the number of shares issued equal to the quotient of the quarterly amount due of $6,250 divided by the average daily
closing price of the Company’s Common Stock for the quarter just ended.
In addition, the Dick Employment Agreement
provided for 25 days of paid vacation, the right to participate in all health insurance plans maintained by the Company for its
employees, a monthly auto allowance of $700 and term life insurance in the amount of $500,000 payable to Mr. Dick’s estate.
The Dick Employment Agreement also required
Mr. Dick’s execution of a Proprietary Rights Agreement.
The Board of Directors of the Company
increased Mr. Dick’s base salary to $205,000 retroactive to January 1, 2013. This $5,000 increase to be paid in restricted
shares of the Company’s Common Stock. The Common Stock component of Mr. Dick’s compensation is to be computed on a
quarterly and pro-rata basis, with the number of shares issued equal to the quotient of the quarterly amount due of $7,500 divided
by the average daily closing price of the Company’s Common Stock for the quarter just ended.
Mr. Dick stepped down from his employment
with the Company on May 24, 2013 and accordingly, the Dick Employment Agreement was terminated. Mr. Dick continues to consult
for the Company.
Carter J. Ward
On November 12, 2009, the Company entered
into an employment agreement with Mr. Carter J. Ward (the “Ward Employment
Agreement
”). Pursuant to the terms
of the Ward Employment Agreement, Mr. Ward continues as an at-will employee of the Company as its Chief Financial Officer. Mr.
Ward receives a base salary of $150,000, with $125,000 of such amount being paid in accordance with the Company’s payroll
practices and $25,000 of such amount being paid by the issuance of restricted shares of Common Stock, in lieu of cash. The Common
Stock component of Mr. Ward’s compensation is to be computed on a quarterly basis, with the number of shares issued equal
to the quotient of the quarterly amount due of $6,250 divided by the average daily closing price of the Company’s Common
Stock for the quarter just ended.
The Board of Directors increased Mr.
Ward’s base salary to $155,000 retroactive to January 1, 2013. This $5,000 increase to be paid by the issuance of restricted
shares of Common Stock. The Common Stock component of Mr. Ward’s compensation is to be computed on a quarterly basis, with
the number of shares issued equal to the quotient of the quarterly amount due of $7,500 divided by the average daily closing price
of the Company’s Common Stock for the quarter just ended.
Mr. Ward’s compensation was adjusted,
effective January 1, 2014, to include a total compensation of $180,000, consisting of $150,000 being paid in accordance with the
Company’s payroll practices and $30,000 being paid by the issuance of restricted shares of Common Stock in lieu of cash.
The Common Stock component of Mr. Ward’s compensation is to be computed on a quarterly basis, with the number of shares
issued being equal to the quotient of the quarterly amount due of $7,500, divided by the average daily closing price of the Company’s
Common Stock for the quarter just ended.
Hedging Policy
We do not permit the Named Executive
Officers to “hedge” ownership by engaging in short sales or trading in any options contracts involving securities.
Options Exercises and Stock Vested
No options have been exercised by our
Named Executive Officers during the 2013 Fiscal Year.
Pension Benefits
We do not provide pension benefits to
the Named Executive Officers
Nonqualified Deferred Compensation
We do not have any defined contribution
or other plan that provides for the deferral of compensation on a basis that is not tax-qualified.
Potential Payments Upon Termination
or Change of Control
We do not presently provide the Named
Executive Officers with any plan or arrangement in connection with any termination, including, without limitation, through retirement,
resignation, severance or constructive termination (including a change in responsibilities) of such Named Executive Officer’s
employment with the Company. We also do not presently provide the Named Executive Officers any plan or arrangement in connection
with a change in control of the Company.
Compensation of named executive
officers
Summary Compensation Table
|
|
Name
And
Principal
Position
|
|
Fiscal
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Option
Awards
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
Jerry Treppel
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chairman of the Board and
|
|
|
2013
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,000
|
(2)
|
|
|
30,000
|
|
Chief Executive Officer
|
|
|
2012
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,000
|
(2)
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chris Dick
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President and
|
|
|
2013
|
(1)
|
|
|
201,250
|
(3)
|
|
|
—
|
|
|
|
—
|
|
|
|
8,400
|
(4)
|
|
|
209,650
|
|
Chief Operating Officer
|
|
|
2012
|
(1)
|
|
|
200,000
|
(3)
|
|
|
—
|
|
|
|
—
|
|
|
|
8,400
|
(4)
|
|
|
208,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carter J. Ward
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer
|
|
|
2013
|
(1)
|
|
|
151,250
|
(5)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
151,250
|
|
Secretary and Treasurer
|
|
|
2011
|
(1)
|
|
|
150,000
|
(5)
|
|
|
600
|
(6)
|
|
|
—
|
|
|
|
—
|
|
|
|
150,600
|
|
(1)
|
Represents the fiscal years ended March 31,
2013 and 2012, respectively.
|
|
|
(2)
|
Represents compensation due to Mr. Treppel for his
service as Chairman of the Board of Directors. Mr. Treppel receives 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 284,662 shares of Common Stock were issued
to Mr. Treppel in payment of compensation due to him for Fiscal 2012. A total of 202,998 shares of Common Stock were issued
to, and 90,200 shares of Common Stock are due and owing to, Mr. Treppel in payment of compensation due to him for Fiscal
2013.
|
|
|
(3)
|
Represents total salaries due to Mr. Dick pursuant to the Dick
Employment. Of the total salary amount, $175,000 was paid in cash as salary in accordance with the Company’s payroll
practices, and $25,000 annually is to be paid via the issuance of Common Shares in lieu of cash through December 31, 2012
and $30,000 annually is to be paid via the issuance of Common Shares in lieu of cash since January 1, 2013. A total
of 237,220 shares of Common Stock were issued to Mr. Dick in payment of salaries due to him for Fiscal 2012. A
total of 169,165 shares of Common Stock were issued to, and 90,200 shares of Common Stock are due and owing to, Mr. Dick in
payment of salaries due to him for Fiscal 2013.
|
|
|
(4)
|
Represents amounts paid for auto allowance
|
|
|
(5)
|
Represents total salaries due to Mr. Ward pursuant to the Ward
Employment. Of the total salary amount, $125,000 was paid in cash as salary in accordance with the Company’s
payroll practices, and $25,000 is to be paid annually via the issuance of Common Shares in lieu of cash through December 31,
2012 and $30,000 annually is to be paid via the issuance of Common Shares in lieu of cash since January 1, 2013. A
total of 237,220 shares of Common Stock were issued to Mr. Ward in payment of salaries due to him for Fiscal 2012. A
total of 169,165 shares of Common Stock were issued to, and 90,200 shares of Common Stock are due and owing to, Mr. Ward in
payment of salaries due to him for Fiscal 2013.
|
(6)
|
Represents discretionary bonuses award to
Mr. Ward by the Chief Executive Officer
|
|
|
(7)
|
Mr. Treppel stepped down from his position as Chief Executive
Officer in August 2013 and is currently the Chairman of the Board of Directors.
|
|
|
(8)
|
Mr. Dick stepped down from his position as President and Chief
Operating Officer in May 2013.
|
Outstanding Equity Awards at March
31, 2013
Name
|
|
Number of
securities
underlying
unexercised
options
Exercisable
(#)
|
|
|
Number of
securities
underlying
unexercised
options
Unexercisable
(#)
|
|
|
Equity Incentive
Plan Awards:
Number of
securities
underlying
unexercised
unearned options
(#)
|
|
|
Options
Exercise
Price
($)
|
|
|
|
Option
Expiration
Date
|
|
Chris
Dick
(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
2.21
|
|
|
|
6/13/2013
|
|
|
|
|
10,000
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
2.21
|
|
|
|
6/13/2013
|
|
|
|
|
10,000
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
2.21
|
|
|
|
6/13/2013
|
|
|
|
|
40,000
|
(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
2.80
|
|
|
|
7/14/2015
|
|
|
|
|
250,000
|
(3)
|
|
|
—
|
|
|
|
—
|
|
|
|
2.25
|
|
|
|
11/13/2016
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
150,000
|
(4)
|
|
|
2.25
|
|
|
|
11/13/2016
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
150,000
|
(4)
|
|
|
2.25
|
|
|
|
11/13/2016
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
200,000
|
(6)
|
|
|
2.25
|
|
|
|
11/13/2016
|
|
|
|
|
200,000
|
(7)
|
|
|
—
|
|
|
|
—
|
|
|
|
0.10
|
|
|
|
1/17/2020
|
|
|
|
|
|
|
|
|
—
|
|
|
|
150,000
|
(8)
|
|
|
0.12
|
|
|
|
6/19/2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry Treppel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
(9)
|
|
|
—
|
|
|
|
—
|
|
|
|
0.06
|
|
|
|
12/1/2018
|
|
|
|
|
60,000
|
(10)
|
|
|
—
|
|
|
|
—
|
|
|
|
0.06
|
|
|
|
12/1/2018
|
|
|
|
|
60,000
|
(11)
|
|
|
—
|
|
|
|
—
|
|
|
|
0.06
|
|
|
|
12/1/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carter J. Ward
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
(7)
|
|
|
—
|
|
|
|
—
|
|
|
|
0.10
|
|
|
|
1/17/2020
|
|
|
|
|
|
|
|
|
—
|
|
|
|
150,000
|
(8)
|
|
|
0.12
|
|
|
|
6/19/2022
|
|
(1)
|
Options vested on June
13, 2004, 2005 and 2006, respectively.
|
|
|
(2)
|
Options vested on July 14, 2005.
|
|
|
(3)
|
Options vested on November 3, 2006.
|
(4)
|
These options vest upon
the closing of an exclusive product license for the first of the United States national market, the entire European Union
market or the Japan market or product sale transaction of all of our ownership rights in the United States (only once for
each individual product) for our first Non-Generic Opioid Product.
|
|
|
(6)
|
These options vest as follows: upon
the commencement of the first Phase III clinical trial relating to the first “Non-Generic Opioid Product” developed
by the Company as to 125,000 options and relating to the second “Non-Generic Opioid Product” developed by the
Company as to 75,000 options.
|
|
|
(7)
|
Total of 200,000 options granted
with such options vesting in annual increments on January 18, 2011, 2012 and 2013, with each increment equal to one-third
of the total options granted. The options issued to Mr. Dick expired, unexercised, ninety days after Mr. Dick’s resignation
in May 2013.
|
|
|
(8)
|
Total of 200,000 options granted
with such options vesting in annual increments on June 19, 2013, 2014 and 2015, with each increment equal to one-third of
the total options granted. The options issued to Mr. Dick expired, unexercised, ninety days after Mr. Dick’s resignation
in May 2013.
|
|
|
(9)
|
Options vested on December 1, 2009
|
|
|
(10)
|
Options vested on December 1, 2010
|
|
|
(11)
|
Options vest on December 1, 2011
|
|
|
(12)
|
Mr. Dick stepped down from his position
with the Company in May 2013.
|
DIRECTOR
COMPENSATION
The following table sets forth information
concerning director compensation for the year ended March 31, 2013:
Name
|
|
Fees
Earned
or Paid
In Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-
Equity
Incentive
Plan
Compensation
($)
|
|
|
Non-
qualified
Deferred
Compen-
sation
($)
|
|
|
All
Other
Compen-
sation
($)
|
|
|
Total
($)
|
|
Barry Dash
|
|
|
—
|
|
|
|
15,000
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,000
|
(2)
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ashok Nigalaye
|
|
|
—
|
|
|
|
15,000
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,000
|
(2)
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeenarine Narine
|
|
|
—
|
|
|
|
15,000
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,000
|
(2)
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ram Potti*
|
|
|
—
|
|
|
|
15,000
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey Whitnell
|
|
|
—
|
|
|
|
15,000
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,000
|
(2)
|
|
|
20,000
|
|
(1)
|
Represents directors fees earned during the
quarters ended June 30, 2012, September 30, 2012 and December 31, 2012. Each Director received 135,332 shares of
Common Stock in payment of these director fees, pursuant to the Company’s policy regarding payment of Directors’
fees.
|
|
|
(2)
|
Represents directors fees earned during the quarter ended March
31, 2013 for which 60,133 shares of Common Stock is due and owing to each Director.
|
|
|
*
|
Mr. Potti resigned as a director in December 2012.
|
Director Fee Compensation
The Company’s policy regarding
director fees is as follows: ((i) Directors who are employees or consultants of the Company (and/or any of its subsidiaries),
except for Mr. Jerry Treppel, Chief Executive Officer and Dr. Ashok Nigalaye, Chief Scientific Officer, receive no additional
remuneration for serving as directors or members of committees of the Board; (ii) all Directors are entitled to reimbursement
for out-of-pocket expenses incurred by them in connection with their attendance at the Board or committee meetings; (iii) Directors
who are not employees or consultants of the Company (and/or any of its subsidiaries) receive $20,000 annual retainer fee, payable
on a quarterly basis, in arrears, for their service on the Board and all committees; (iv) The Chairman of the Board receives a
$30,000 annual retainer fee, payable on a quarterly basis, in arrears; (v) Directors and the Chairman do not receive any additional
compensation for attendance at or chairing of any meetings. (vi) Mr. Jerry Treppel receives no additional compensation, above
the annual retainer fee due to the Chairman of the Board, for his services as Chief Executive Officer (vii) Dr. Ashok Nigalaye
receives no additional compensation, above the annual retainer fee due to Directors, for his services as Chief Scientific Officer.
(viii) All Director and Chairman fees are paid via the issuance of Common Stock of the Company, in lieu of cash, as described
below.
Director Equity Compensation
Members of the Board of Directors and
the Chairman are paid their annual retainer fees via the issuance of restricted shares of Common Stock of the Company, in lieu
of cash. The number of shares to be issued to each Director and the Chairman is equal to the quotient of the quarterly amount
due to each Director and the Chairman, respectively, divided by the average daily closing price of the Company’s stock for
the quarter just ended.
Members of the Board of Directors during
the fiscal years ended March 31, 2013 and March 31, 2012 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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain
information, as of April 22, 2014 (except as otherwise indicated), regarding beneficial ownership of our Common Stock and our
Series I Preferred Stock by (i) each person who is known by us to own beneficially more than 5% of each such class, (ii) each
of our directors, (iii) each of our executive officers and (iv) all our directors and executive officers as a group. As of April
22, 2014, we had 562,183,484 shares of Common Stock outstanding (exclusive of 100,000 treasury shares) and 104.242 shares of Series
I Preferred Stock outstanding. On any matter presented to the holders of our Common Stock for their action or consideration at
any meeting of our Shareholders, each share of Common Stock entitles the holder to one vote and each share of Series I Preferred
Stock entitles the holder to the number of votes equal to the number of shares of Common Stock into which such share of Series
I Preferred Stock is convertible (1,428,571.4 per whole share).
As used in the table below and elsewhere
in this prospectus, 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 April 22, 2014. 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
Beneficial Owner of Common Stock
|
|
Common Stock
|
|
|
Series I
Preferred Stock
|
|
|
Beneficially
Owned
|
|
Nasrat Hakim, President Chief Executive Officer and
Director*
|
|
|
13,943,608
|
(1)
|
|
|
100.000
|
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barry Dash, Director*
|
|
|
1,158,686
|
(2)
|
|
|
0
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry Treppel, Chairman of the Board *
|
|
|
3,226,227
|
(3)
|
|
|
4.242
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ashok G. Nigalaye, Chief Scientific Officer and Director*
|
|
|
160,896,964
|
(4)(5)
|
|
|
0
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeenarine Narine, Director *
|
|
|
151,461,567
|
(4)(6)
|
|
|
0
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey Whitnell, Director *
|
|
|
990,511
|
(7)
|
|
|
0
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carter J. Ward, Chief Financial Officer *
|
|
|
3,166,932
|
(8)
|
|
|
0
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Epic Investments LLC
227-15 North Conduit Ave.
Laurelton,
NY 11413
|
|
|
140,850,897
|
(4)
|
|
|
0
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Directors and Officers as a group
|
|
|
193,993,779
|
(9)
|
|
|
104.242
|
|
|
|
36
|
%
|
________________________
* The address is c/o
Elite Pharmaceuticals Inc., 165 Ludlow Avenue, Northvale, NJ 07647.
** Less than 1%
(1)
|
Includes 13,714,141
shares of Common Stock, and 229,467 shares of Common Stock accrued (but not issued) and owed to Mr. Hakim as of April 22,
2014, pursuant to his employment agreement with the Company.
|
|
|
(2)
|
Includes 1,025,754 shares of Common
Stock, options to purchase 120,000 shares of Common Stock and 13,112 shares of Common Stock for Board of Directors fees accrued
(but not issued) and owed to Dr. Dash as of April 22, 2014.
|
|
|
(3)
|
Includes 2,831,558 shares of
Common Stock, warrants to purchase up to 375,000 of Common Stock, and 19,669 shares of Common Stock for Chairman of the
Board Directors fees accrued (but not issued) and owed to Mr. Treppel as of April 22, 2014.
|
(4)
|
Includes 67,669,232
shares of Common Stock and warrants to purchase 73,181,665 shares of Common Stock held by Epic Investments, LLC. Messrs.
Nigalaye and Narine are executive officers and equity owners of Epic Pharma, LLC and Epic Investments, LLC. Epic
Pharma, LLC is an equity owner of Epic Investments, LLC. Epic Pharma LLC and Messrs. Nigalaye and Narine share
voting and investment control over, and are indirect beneficial owners of, the shares. The interest of Epic Pharma
LLC and Messrs. Nigalaye, Narine and Potti in the shares is limited, and each disclaims beneficial ownership of such shares
except to the extent of his pecuniary interest in Epic Investments, LLC.
|
|
|
(5)
|
Includes 14,275,289 shares of
Common Stock, warrants to purchase 5,757,666 shares of Common Stock, and 13,112 shares of Common Stock for Board of Directors
fees accrued (but not issued) and owed to Dr. Nigalaye as of April 22, 2014.
|
|
|
(6)
|
Includes 5,839,892 shares of
Common Stock, warrants to purchase 4,757,666 shares of Common Stock, and 13,112 shares of Common Stock for Board of Directors
fees accrued (but not issued) and owed to Mr. Narine as of April 22, 2014.
|
(7)
|
Includes 977,399 shares of common
stock and 13,112 shares of Common Stock for Board of Directors fees accrued (but not issued) and owed to Mr. Whitnell as of
April 22, 2014.
|
|
|
(8)
|
Includes 2,230,596 shares of Common
Stock, options to purchase 250,000 shares of Common Stock, warrants to purchase 666,667 shares of Common Stock and 19,669
shares of Common Stock accrued (but not issued) and owed to Mr. Ward as of April 22, 2014 pursuant to his employment agreement
with the Company.
|
|
|
(9)
|
Includes 108,563,861 shares of
Common Stock, warrants to purchase 84,738,664 shares of Common Stock, options to purchase 370,000 shares of Common Stock and
321,254 shares of Common Stock accrued (but not issued) and owing as of April 22, 2014 for payment of Chairman’s Fees,
Directors Fees in accordance with the Company’s policy regarding compensation of the Chairman and Director, and for
payment of salaries pursuant to applicable employment agreements for the Company’s Chief Executive Officer and Chief
Financial Officer.
|
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTION
Certain Related Person Transactions
Transactions with Nasrat Hakim
On August 1, 2013, Elite Laboratories
Inc. (“Elite Labs”), our wholly owned subsidiary, executed an asset purchase agreement (the “Mikah Purchase
Agreement”) with Mikah Pharma LLC (“Mikah”), an entity that is wholly owned by Mr. Nasrat Hakim, who, in conjunction
with this transaction, was appointed as our Chief Executive Officer, President and a Director on August 2, 2012, and acquired
from Mikah a total of 13 Abbreviated New Drug Applications (“ANDAs”) consisting of 12 ANDAs approved by the FDA and
one ANDA under active review with the FDA, and all amendments thereto (the “Acquisition”) for aggregate consideration
of $10,000,000, inclusive of imputed interest payable pursuant to a non-interest bearing, secured convertible note due in August
2016 (the “Mikah Note”). The Mikah Note was amended on February 7, 2014 to make it convertible into shares of the
Company’s Series I Convertible Preferred Stock.
The Mikah Note, as amended, was interest
free and due and payable on the third anniversary of its issuance. Subject to certain limitations, the principal amount of the
Mikah Note was convertible at the option of Mikah into shares of Common Stock at a rate of $0.07 (approximately 14,286 shares
per $1,000 in principal amount), the closing market price of the Company’s Common Stock on the date that the asset purchase
agreement and Note were executed and/or into shares of the Company’s Series I Convertible Preferred Stock at the rate of
1 share of Series I Preferred Stock for each $100,000 of principal owed on the Mikah Note. The conversion rate was adjustable
for customary corporate actions such as stock splits and, subject to certain exclusions, includes weighted average anti-dilution
for common stock transactions at prices below the then applicable conversion rate. Pursuant to a security agreement (the “Security
Agreement”), repayment of the Mikah Note was secured by the ANDAs acquired in the Acquisition.
On February 7, 2014, Mikah converted
the principal amount of $10,000,000, representing the entire principal balance due under the Mikah Note, into 100 shares of the
Company’s Series I Preferred Stock.
On October 15, 2013, Elite entered into
a bridge loan agreement (the “Hakim Credit Line Agreement”) with Mr. Hakim. Under the terms of the Hakim Credit Line
Agreement, Elite has the right, in its sole discretion to a line of credit (the “Hakim Credit Line”) in the maximum
principal amount of up to $1,000,000 at any one time. Mr. Hakim provided the Hakim Credit Line for the purpose of supporting the
acceleration of Elite’s product development activities. The outstanding amount is evidenced by a promissory note which shall
mature on June 30, 2015, at which time the entire unpaid principal balance, plus accrued interest thereon shall be due and payable
in full. Elite may prepay any amounts owed without penalty. Any such prepayments shall first be applied to interest due and owing
and then to principal. Interest only shall be payable quarterly on July 1, October 1, January 1 and April 1 of each year. Prior
to maturity or the occurrence of an Event of Default as defined in the Hakim Credit Line Agreement, the Company may borrow, repay
and reborrow under the Hakim Credit Line through maturity. Amounts borrowed under the Hakim Credit Line bear interest at the rate
of ten percent (10%) per annum.
For information about our employment
agreement with Mr. Hakim, please see “Executive Compensation-Agreements with Named Executive Officers” above.
Transactions with Jerry Treppel
On June 12, 2012 (the “Effective
Date”), we entered into a bridge loan agreement (the “Loan Agreement”) with Jerry Treppel, our Chairman and
CEO. Under the terms of the Loan Agreement, we have the right, in our sole discretion, to a line of credit (the “Credit
Line”) in the maximum principal amount of up to $500,000 at any one time. By amendment, the maximum principal amount was
increased to $1,000,000 in December 2012. Mr. Treppel provided the Credit Line for the purpose of supporting the acceleration
of our product development activities. The outstanding amount will be evidenced by a promissory note which shall mature on the
earlier of (i) such date as we raise at least $2,000,000 in gross proceeds from the sale of any of our equity securities or (ii)
July 31, 2013, at which time the entire unpaid principal balance plus accrued interest thereon shall be due and payable in full.
We may prepay any amounts owed without penalty. Any such prepayments shall first be attributable to interest due and owing and
then to principal. Interest only shall be payable quarterly on July 1, October 1, January 1 and April 1 of each year. Prior to
maturity or the occurrence of an Event of Default as defined in the Loan Agreement, we may borrow, repay, and reborrow under the
Credit Line through maturity. Amounts borrowed under the Credit Line will bear interest at the rate of ten percent (10%) per annum.
As of March 31, 2013, the principal balance owed under the Credit Line was $600,000 with an additional $13,151 in accrued interest
also owed, in accordance with the terms and conditions of the Credit Line.
On November 21, 2013, Mr. Treppel converted
the $600,000 unpaid balance into an unsecured convertible note (the “Treppel Note”). The Treppel Note was amended
on February 7, 2014 to make it convertible into shares of the Company’s Series I Preferred Stock. The Treppel Note, as amended,
was interest free and due and payable on the third anniversary of its issuance. Subject to certain limitations, the principal
amount of the Note was convertible at the option of Treppel on and after the first anniversary of the date of the Note into shares
of the Company’s Common Stock at a rate of $0.099 (approximately 10,101 shares per $1,000 in principal amount), the closing
market price of the Company’s Common Stock on the date that the Note was executed, and/or into shares of the Company’s
Series I Preferred Stock at a rate of 1 share of Series I Preferred Stock for each $141,442.7157 of principal owed on the Treppel
Note. The conversion rate was adjustable for customary corporate actions such as stock splits and, subject to certain exclusions,
includes weighted average anti-dilution for common stock transactions at prices below the then applicable conversion rate.
On February 7, 2014, Treppel converted
the principal amount of $600,000, representing the entire principal balance due under the Treppel Note into 4.242 shares of the
Company’s Series I Preferred Stock.
For information about our employment
agreement with Mr. Treppel, please see “Executive Compensation-Agreements with Named Executive Officers” above.
Transactions with Epic Pharma LLC and Epic Investments
LLC
On March 18, 2009, the Company entered
into the Epic Strategic Alliance Agreement with Epic Pharma, LLC and Epic Investments, LLC, a subsidiary controlled by Epic Pharma
LLC. Ashok G. Nigalaye, Jeenarine Narine and Ram Potti, each were elected as members of our Board of Directors, effective June
24, 2009, as the three directors that Epic is entitled to designate for appointment to the Board pursuant to the terms of the
Epic Strategic Alliance Agreement. Messrs. Nigalaye, Narine and Potti are also officers of Epic Pharma, LLC, in the following
capacities:
|
•
|
Mr.
Nigalaye, Chairman and Chief Executive Officer of Epic Pharma, LLC;
|
|
•
|
Mr. Narine,
President and Chief Operating Officer of Epic Pharma, LLC;
|
|
•
|
Mr. Potti,
Vice President of Epic Pharma, LLC.
|
The Strategic Alliance Agreement expired
on June 4, 2012.
On December 31, 2012, Mr. Potti resigned
as a Director of the Company. His seat on the Board of Directors was not filled.
As part of the operation of the strategic
alliance, the Company and Epic identified areas of synergy, including, without limitation, raw materials used by both entities,
equipment purchases, contract manufacturing/packaging and various regulatory and operational resources existing at Epic that could
be utilized by the Company.
With regards to synergies related to
raw materials usage, the strategic alliance allowed the Company to purchase such raw materials from Epic, at the Epic acquisition
cost, without markup. In all cases, the acquisition cost of Epic was lower than those costs available to the Company, mainly as
a result of efficiencies of scale generated by significantly larger volumes purchased by Epic during the course of their normal
operations. During the fiscal years ended March 31, 2013 and March 31, 2012, an aggregate amount of $71,480 and $15,552, respectively,
in such materials was purchased from Epic Pharma LLC. All purchases were at Epic Pharma’s acquisition cost, without markup
and evidenced by supporting documents of Epic Pharma LLC’s acquisition cost.
With regards to synergies related to
regulatory and operational resources, the strategic alliance allowed the Company to utilize Epic’s substantial resources
and technical competencies on an “as needed” basis at a cost equal to Epic’s actual cost for only the resources
utilized by the Company. Without such access to Epic’s resources, the Company would have to invest significant amounts in
human resources and fixed assets as well as incur substantial costs with third party providers to provide the same resources provided
by Epic and necessary for the operations of the Company.
During the fiscal years ended March
31, 2013 and March 31, 2012, an aggregate amount of $31,354 and $133,003, respectively, was paid to Epic as reimbursement for
costs associated with facility maintenance, engineering and regulatory resources utilized by the Company.
During the fiscal years ended March
31, 2013 and March 31, 2012, the Company incurred a total of $362,347 and $275,768, respectively in contract manufacturing and/or
packaging costs for the Company’s Phentermine, Hydromorphone, Methadone and Immediate Release Lodrane products.
During the fiscal years ended March
31, 2013 and 2012, equipment purchases from Epic totaled $-0- and $52,000, respectively.
Total purchases from Epic by the Company
during the fiscal years ended March 31, 2013 and 2012 were $465,181 and $476,323, respectively.
On October 2, 2013, we executed a Manufacturing
and License Agreement (“M&L Agreement”) with Epic Pharma LLC. (“Epic”), to manufacture, market and
sell in the United States and Puerto Rico 12 generic products owned by Elite. Of the 12 products, Epic will have the exclusive
right to market six products as listed in Schedule A of the M&L Agreement, and a non-exclusive right to market six products
as listed in Schedule D of the M&L Agreement. Epic is responsible for all regulatory and pharmacovigilance matters related
to the products and for all costs related to the site transfer for all products. Pursuant to the M&L Agreement, Elite will
receive a license fee and milestone payments. The license fee will be computed as a percentage of the gross profit, as defined
in the M&L Agreement, earned by Epic as a result of sales of the products. The manufacturing cost used for the calculation
of the license fee is a predetermined amount per unit plus the cost of the drug substance (API) and the sales cost for the calculation
is predetermined based on net sales. If Elite manufactures any product for sale by Epic, then Epic shall pay that same predetermined
manufacturing cost per unit plus the cost of the API. The license fee is payable monthly for the term of the M&L Agreement.
Epic shall pay to Elite certain milestone payments as defined by the M&L Agreement. The first milestone payment was due on
or before November 15, 2013 and has been paid. Subsequent milestone payments are due upon the filing of each product’s supplement
with the U.S. Food and Drug Administration (“FDA”) and the FDA approval of site transfer for each product as specifically
itemized in the M&L Agreement. The term of the M&L Agreement is five years and may be extended for an additional five
years upon mutual agreement of the parties. Twelve months following the launch of a product covered by the M&L Agreement,
Elite may terminate the marketing rights for any product if the license fee paid by Epic falls below a designated amount for a
six month period of that product. Elite may also terminate the exclusive marketing rights if Epic is unable to meet the annual
unit volume forecast for a designated Product group for any year, subject to the ability of Epic, during the succeeding six month
period, to achieve at least one-half of the prior year’s minimum annual unit volume forecast. The M&L Agreement may
be terminated by mutual agreement of Elite and Epic, as a result of a breach by either party that is not cured within 60 days
notice of the breach or by Elite as a result of Epic becoming a party to a bankruptcy, reorganization or other insolvency proceeding
that continues for a period of 30 days or more.
Director Independence
All related person transactions are
reviewed and, as appropriate, may be approved or ratified by the Board of Directors. If a Director is involved in the transaction,
he or she may not participate in any review, approval or ratification of such transaction. Related person transactions are approved
by the Board of Directors only if, based on all of the facts and circumstances, they are in, or not inconsistent with, our best
interests and the best interests of our stockholders, as the Board of Directors determines in good faith. The Board of Directors
takes into account, among other factors it deems appropriate, whether the transaction is on terms generally available to an unaffiliated
third-party under the same or similar circumstances and the extent of the related person’s interest in the transaction.
The Board of Directors may also impose such conditions as it deems necessary and appropriate on us or the related person in connection
with the transaction.
In the case of a transaction presented
to the Board of Directors for ratification, the Board of Directors may ratify the transaction or determine whether rescission
of the transaction is appropriate.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Federal securities laws require us to
file information with the Commission concerning our business and operations. Accordingly, we file annual, quarterly, and special
reports, and other information with the Commission. You can inspect and copy this information at the public reference facility
maintained by the Commission at 100 F Street, NE, Washington, D.C. 20549.
You can get additional information about
the operation of the Commission's public reference facilities by calling the Commission at 1-800-SEC-0330. The Commission also
maintains a web site (http://www.sec.gov) at which you can read or download our reports and other information.
We have filed with the Commission a
registration statement on Form S-1 under the Securities Act of 1933 with respect to the Common Stock being offered hereby, including
post-effective amendment no. 1 thereto. As permitted by the rules and regulations of the Commission, this prospectus does not
contain all the information set forth in the registration statement and the exhibits and schedules thereto. For further information
with respect to Elite Pharmaceuticals, Inc. and the Common Stock offered hereby, reference is made to the registration statement,
and such exhibits and schedules. A copy of the registration statement, and the exhibits and schedules thereto, may be inspected
without charge at the public reference facilities maintained by the Commission at the addresses set forth above, and copies of
all or any part of the registration statement may be obtained from such offices upon payment of the fees prescribed by the Commission.
In addition, the registration statement may be accessed at the Commission’s web site.
LEGAL MATTERS
The validity of the Common Stock offered
in this Prospectus has been passed upon for us by Richard Feiner, Esq., 381 Park Avenue South, Suite 1601, New York, New York 10016.
EXPERTS
The consolidated balance sheets of Elite
Pharmaceuticals, Inc. as of March 31, 2013 and 2012 and the related consolidated statements of operations, stockholder's deficit,
and cash flows for each of the two years in the period ended March 31, 2013, included in this registration statement on Form S-1,
have been audited by Demetrius Berkower LLC , an independent registered public accounting firm, as stated in their report appearing
with the financial statements. These financial statements are included in reliance upon the report of Demetrius Berkower LLC given
upon their authority as experts in accounting and auditing.
LIMITATION ON LIABILITY AND DISCLOSURE
OF COMMISSION POSITION ON
INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Our directors and officers are indemnified
by our articles of incorporation and bylaws to the fullest extent legally permissible under the laws of Nevada against all expenses,
liability and loss, reasonably incurred by them in connection with the defense of any action, suit or proceeding in which they
are a party by reason of being or having been directors or officers of the Company. Unless our Board determines by a majority vote
of a quorum of disinterested directors that, based upon the facts known, such person acted in bad faith and in a manner that such
person did not believe to be in or not opposed to our best interest (or, with respect to any criminal proceeding, that such person
believed or had reasonable cause to believe his conduct was unlawful), costs, charges and expenses (including attorneys' fees)
incurred by such person in defending a civil or criminal proceeding shall be paid by the Company in advance upon receipt of an
undertaking to repay all amounts advanced if it is ultimately determined that the person is not entitled to be indemnified by the
Company as authorized by the bylaws, and upon satisfaction of other conditions required by current or future legislation. Insofar
as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to such directors, officers
and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification
against such liabilities, other than the payment by us of expenses incurred or paid by such director, officer or controlling person
in the successful defense of any action, suit or proceeding, is asserted by such director, officer or controlling person in connection
with the securities being registered, we will, unless in the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of such issue.
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
|
|
PAGE
|
Reports
Of Independent Registered Public Accounting Firm
|
|
F-1
|
|
|
|
Consolidated
Balance Sheets- As of March 31, 2013 and 2012
|
|
F-2
|
|
|
|
Consolidated Statements Of
Operations- Fiscal Years ended March 31, 2013 and 2012
|
|
F-4
|
|
|
|
Consolidated Statements Of Changes In Stockholders
(Deficit) E
quity-
Fiscal Years ended March 31, 2012 and
2013
|
|
F-5
|
|
|
|
Consolidated Statements Of Cash
Flows- Fiscal Years ended March 31, 2013 and 2012
|
|
F-
7
|
|
|
|
Notes To Consolidated Financial
Statements
|
|
F-8
|
|
|
|
Consolidated Balance Sheets-
As of December 31, 2013 (unaudited)
|
|
F –
40
|
|
|
|
Consolidated Statements Of Operations-
Three and Nine Months ended December
31, 2013 (unaudited)
|
|
F –
42
|
|
|
|
Consolidated Statements Of Changes In Stockholders
(Deficit) E
quity-
Nine Months ended December 31, 2013
(unaudited)
|
|
F –
43
|
|
|
|
Consolidated Statements Of Cash Flows-
Three and Nine Months ended December
31, 2013 (unaudited)
|
|
F –
44
|
|
|
|
Notes To Consolidated Financial
Statements (unaudited)
|
|
F - 45
|
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2013 and 2012
|
|
2013
|
|
|
2012
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
369,023
|
|
|
$
|
668,407
|
|
Accounts receivable (net of allowance for doubtful accounts of -0- and
-0- respectively)
|
|
|
665,154
|
|
|
|
396,847
|
|
Inventories (net of reserve of $93,338)
|
|
|
1,358,146
|
|
|
|
304,882
|
|
Prepaid expenses and other current assets
|
|
|
151,051
|
|
|
|
127,704
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
2,543,374
|
|
|
|
1,497,840
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT
, net of accumulated
depreciation of $5,068,522 and $4,659,670, respectively
|
|
|
4,028,943
|
|
|
|
4,284,786
|
|
|
|
|
|
|
|
|
|
|
INTANGIBLE ASSETS
– net of
accumulated amortization of $-0- and $-0-, respectively
|
|
|
694,426
|
|
|
|
642,848
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Investment in Novel Laboratories, Inc.
|
|
|
3,329,322
|
|
|
|
3,329,322
|
|
Security deposits
|
|
|
14,314
|
|
|
|
14,913
|
|
Restricted cash – debt service for EDA bonds
|
|
|
267,820
|
|
|
|
280,585
|
|
EDA bond offering costs, net of accumulated amortization
of $107,519 and $93,030, respectively
|
|
|
246,934
|
|
|
|
261,423
|
|
|
|
|
|
|
|
|
|
|
Total Other Assets
|
|
|
3,858,390
|
|
|
|
3,886,243
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
11,125,133
|
|
|
$
|
10,311,717
|
|
The accompanying
notes are an integral part of the consolidated financial statements
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2013 and 2012
|
|
2013
|
|
|
2012
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
EDA bonds payable
|
|
$
|
3,385,000
|
|
|
$
|
3,385,000
|
|
Short term loans and current portion of long-term debt
|
|
|
606,296
|
|
|
|
13,316
|
|
Accounts payable and accrued expenses
|
|
|
1,325,126
|
|
|
|
1,066,494
|
|
Deferred revenues – current
|
|
|
13,333
|
|
|
|
13,333
|
|
Preferred share derivative interest payable
|
|
|
27,500
|
|
|
|
70,966
|
|
Total Current Liabilities
|
|
|
5,357,255
|
|
|
|
4,549,109
|
|
|
|
|
|
|
|
|
|
|
LONG TERM LIABILITIES
|
|
|
|
|
|
|
|
|
Deferred revenues
|
|
|
152,223
|
|
|
|
165,558
|
|
Other long term liabilities
|
|
|
91,571
|
|
|
|
87,404
|
|
Derivative liability – preferred shares
|
|
|
6,334,621
|
|
|
|
8,506,106
|
|
Derivative liability – warrants
|
|
|
7,862,848
|
|
|
|
11,987,222
|
|
Total Long Term Liabilities
|
|
|
14,441,263
|
|
|
|
20,746,290
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
19,798,518
|
|
|
|
25,295,399
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Common stock – par value $0.001, Authorized 690,000,000 shares.
Issued 374,493,959 shares and 331,649,738 shares, respectively. Outstanding 374,393,959 shares and 331,549,738 shares, respectively.
|
|
|
374,495
|
|
|
|
331,650
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in-capital
|
|
|
119,690,336
|
|
|
|
114,910,812
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(128,431,375
|
)
|
|
|
(129,919,303
|
)
|
|
|
|
|
|
|
|
|
|
Treasury stock at cost (100,000 common shares)
|
|
|
(306,841
|
)
|
|
|
(306,841
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS’ DEFICIT
|
|
|
(8,673,385
|
)
|
|
|
(14,983,682
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
11,125,133
|
|
|
$
|
10,311,717
|
|
The accompanying notes are an integral
part of the consolidated financial statements
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
Years Ended
March 31,
|
|
|
|
2013
|
|
|
2012
|
|
REVENUES
|
|
|
|
|
|
|
|
|
Manufacturing Fees
|
|
$
|
2,214,271
|
|
|
$
|
1,120,050
|
|
Royalties & Profit Splits
|
|
|
806,365
|
|
|
|
648,211
|
|
Lab Fee Revenues
|
|
|
382,889
|
|
|
|
655,857
|
|
Total Revenues
|
|
|
3,403,526
|
|
|
|
2,424,118
|
|
|
|
|
|
|
|
|
|
|
COSTS OF REVENUES
|
|
|
2,315,154
|
|
|
|
1,013,674
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
1,088,372
|
|
|
|
1,410,444
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
Research and Development
|
|
|
975,250
|
|
|
|
1,735,689
|
|
General and Administrative
|
|
|
1,513,468
|
|
|
|
1,410,192
|
|
Non-cash compensation through issuance of stock options
|
|
|
45,866
|
|
|
|
24,453
|
|
Depreciation and Amortization
|
|
|
116,921
|
|
|
|
206,248
|
|
Total Operating Expenses
|
|
|
2,651,505
|
|
|
|
3,376,582
|
|
|
|
|
|
|
|
|
|
|
(LOSS) FROM OPERATIONS
|
|
|
(1,563,133
|
)
|
|
|
(1,966,138
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME / (EXPENSES)
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(253,745
|
)
|
|
|
(229,592
|
)
|
Change in fair value of warrant derivatives
|
|
|
4,089,491
|
|
|
|
(1,444,075
|
)
|
Change in fair value of preferred share derivatives
|
|
|
(561,684
|
)
|
|
|
(11,227,957
|
)
|
Interest expense attributable to preferred share derivatives
|
|
|
(139,219
|
)
|
|
|
(424,465
|
)
|
Discount in Series E issuance attributable to beneficial
conversion features
|
|
|
(437,500
|
)
|
|
|
(250,000
|
)
|
Total Other Income / (Expense)
|
|
|
2,697,343
|
|
|
|
(13,576,088
|
)
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
|
|
|
1,134,210
|
|
|
|
(15,542,226
|
)
|
|
|
|
|
|
|
|
|
|
CREDIT FOR INCOME TAXES
|
|
|
353,718
|
|
|
|
483,952
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS
|
|
$
|
1,487,928
|
|
|
$
|
(15,058,274
|
)
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) PER SHARE
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
|
$
|
(0.06
|
)
|
Diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
Basic
|
|
|
349,075,642
|
|
|
|
259,163,279
|
|
Diluted
|
|
|
526,880,118
|
|
|
|
259,163,279
|
|
The accompanying notes are an integral
part of the consolidated financial statements
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS (DEFICIT) EQUITY
FOR THE YEAR ENDED MARCH 31, 2012
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Treasury
Stock
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Deficit
|
|
Balance at March 31, 2011
|
|
|
180,545,657
|
|
|
$
|
180,546
|
|
|
$
|
97,116,044
|
|
|
|
100,000
|
|
|
$
|
(306,841
|
)
|
|
$
|
(114,861,029
|
)
|
|
$
|
(17,871,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,058,274
|
)
|
|
|
(15,058,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued in lieu of cash in payment
of preferred share derivative interest expense
|
|
|
8,410,384
|
|
|
|
8,410
|
|
|
|
627,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
636,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series B, Series C, Series D and
Series E Preferred Shares into Common Shares
|
|
|
140,493,195
|
|
|
|
140,493
|
|
|
|
17,023,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,164,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation through the issuance of
stock options
|
|
|
|
|
|
|
|
|
|
|
24,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs associated with raising capital
|
|
|
|
|
|
|
|
|
|
|
(342,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(342,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued in payment of Directors’
Fees
|
|
|
1,505,613
|
|
|
|
1,506
|
|
|
|
144,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued in payment of employee salaries
|
|
|
694,889
|
|
|
|
695
|
|
|
|
66,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds received in exchange
for beneficial conversion provisions embedded in Series E Preferred Shares
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31,
2012
|
|
|
331,649,738
|
|
|
$
|
331,650
|
|
|
$
|
114,910,812
|
|
|
|
100,000
|
|
|
$
|
(306,841
|
)
|
|
$
|
(129,919,303
|
)
|
|
$
|
(14,983,682
|
)
|
The accompanying notes are an integral
part of the consolidated financial statements
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS (DEFICIT) EQUITY
FOR THE YEAR ENDED MARCH 31, 2013
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Treasury
Stock
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Deficit
|
|
Balance at March 31, 2012
|
|
|
331,649,738
|
|
|
$
|
331,650
|
|
|
$
|
114,910,812
|
|
|
|
100,000
|
|
|
$
|
(306,841
|
)
|
|
$
|
(129,919,303
|
)
|
|
$
|
(14,983,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,487,928
|
|
|
|
1,487,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued in lieu of cash in payment
of preferred share derivative interest expense
|
|
|
1,860,943
|
|
|
|
1,861
|
|
|
|
180,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series B, Series C and Series E
Preferred Shares into Common Shares
|
|
|
29,863,563
|
|
|
|
29,865
|
|
|
|
3,140,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,170,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation through the issuance of
stock options
|
|
|
|
|
|
|
|
|
|
|
45,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs associated with raising capital (net of
adjustments)
|
|
|
|
|
|
|
|
|
|
|
240,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Shares pursuant to the exercise
of warrants
|
|
|
9,293,227
|
|
|
|
9,293
|
|
|
|
590,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
599,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued in payment of Directors’
Fees
|
|
|
1,200,588
|
|
|
|
1,201
|
|
|
|
94,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued in payment of employee salaries
|
|
|
625,900
|
|
|
|
626
|
|
|
|
49,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds received in exchange
for beneficial conversion provisions embedded in Series E Preferred Shares
|
|
|
|
|
|
|
|
|
|
|
437,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
437,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31,
2013
|
|
|
374,493,959
|
|
|
$
|
374,495
|
|
|
$
|
119,690,336
|
|
|
|
100,000
|
|
|
$
|
(306,841
|
)
|
|
$
|
(128,431,375
|
)
|
|
$
|
(8,673,385
|
)
|
The accompanying notes are an integral
part of the consolidated financial statements
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
YEARS ENDED MARCH
31,
|
|
|
|
2013
|
|
|
2012
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
1,487,928
|
|
|
$
|
(15,058,274
|
)
|
Adjustments to reconcile net loss to cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
423,340
|
|
|
|
484,151
|
|
Change in fair value of warrant derivative liability
|
|
|
(4,089,491
|
)
|
|
|
(1,444,075
|
)
|
Change in fair value of preferred share derivative liability
|
|
|
561,684
|
|
|
|
11,227,957
|
|
Discount in Series E issuance attributable to embedded beneficial conversion
feature
|
|
|
437,500
|
|
|
|
250,000
|
|
Preferred share derivative interest satisfied by the issuance of common
stock
|
|
|
182,684
|
|
|
|
636,179
|
|
Salaries and Directors Fees satisfied by the issuance of common stock
|
|
|
146,119
|
|
|
|
213,230
|
|
Non-cash compensation satisfied by the issuance of common stock and
options
|
|
|
45,866
|
|
|
|
24,452
|
|
Non-cash rent expense
|
|
|
9,112
|
|
|
|
11,090
|
|
Non-cash lease accretion
|
|
|
1,356
|
|
|
|
1,276
|
|
|
|
|
|
|
|
|
|
|
Changes in Assets and Liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(268,305
|
)
|
|
|
174,820
|
|
Inventories
|
|
|
(1,053,264
|
)
|
|
|
311,480
|
|
Prepaid and other current assets
|
|
|
(22,748
|
)
|
|
|
19,231
|
|
Accounts payable, accrued expenses and other current liabilities
|
|
|
251,611
|
|
|
|
(133,749
|
)
|
Deferred revenues and Customer deposits
|
|
|
(13,335
|
)
|
|
|
—
|
|
Derivative interest payable
|
|
|
(43,466
|
)
|
|
|
—
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(1,943,409
|
)
|
|
|
(394,082
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(119,489
|
)
|
|
|
(201,777
|
)
|
Cost of leasehold improvements
|
|
|
(33,519
|
)
|
|
|
(421,556
|
)
|
Costs incurred for intellectual property assets
|
|
|
(51,578
|
)
|
|
|
(45,292
|
)
|
Withdrawals from restricted cash, net
|
|
|
12,765
|
|
|
|
10,835
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(191,822
|
)
|
|
|
(657,790
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Series E Convertible Preferred Stock
|
|
|
437,500
|
|
|
|
250,000
|
|
Proceeds from Executions of Cash Warrants
|
|
|
564,500
|
|
|
|
—
|
|
Proceeds from draws against Treppel Credit Line
|
|
|
600,000
|
|
|
|
—
|
|
Other loan payments
|
|
|
(6,297
|
)
|
|
|
(13,411
|
)
|
Costs associated with raising capital, net of adjustments
|
|
|
240,144
|
|
|
|
(342,169
|
)
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
|
1,835,847
|
|
|
|
(105,580
|
)
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
(299,384
|
)
|
|
|
(1,157,451
|
)
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS – beginning of period
|
|
|
668,407
|
|
|
|
1,825,858
|
|
CASH AND CASH EQUIVALENTS – end of period
|
|
$
|
369,023
|
|
|
$
|
668,407
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
|
237,874
|
|
|
|
228,317
|
|
Cash paid for taxes
|
|
|
6,099
|
|
|
|
2,849
|
|
|
|
|
|
|
|
|
|
|
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Loan to purchase equipment
|
|
|
—
|
|
|
|
13,200
|
|
The accompanying notes are integral
part of the consolidated financial statements
|
NOTE 1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
BASIS OF PRESENTATION
The accompanying audited financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
PRINCIPLES OF CONSOLIDATION
The consolidated financial
statements include the accounts of Elite Pharmaceuticals, Inc. and its consolidated subsidiaries, (collectively the “Company”)
including its wholly-owned subsidiary, Elite Laboratories, Inc. (“Elite Labs”) for the years ended March 31, 2013
(“Fiscal 2013”) and 2012 (“Fiscal 2012”). Our Company consolidates all entities that we control by ownership
of a majority voting interest. As of March 31, 2013, the financial statements of all wholly-owned entities are consolidated and
all significant intercompany accounts are eliminated upon consolidation.
NATURE OF BUSINESS
Elite Pharmaceuticals, Inc.
was incorporated on October 1, 1997 under the laws of the State of Delaware, and its wholly-owned subsidiary Elite Laboratories,
Inc. was incorporated on August 23, 1990 under the laws of the State of Delaware. 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 AND CASH EQUIVALENTS
The Company considers all highly
liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist
of cash on deposit with banks and money market instruments. The Company places its cash and cash equivalents with high-quality,
U.S. financial institutions and, to date has not experienced losses on any of its balances.
INVENTORIES
Inventories are stated at the
lower of cost (first-in, first-out basis) or market (net realizable value).
LONG-LIVED ASSETS
The Company periodically evaluates
the fair value of long-lived assets, which include property and equipment and intangibles, whenever events or changes in circumstances
indicate that its carrying amounts may not be recoverable. Such conditions may include an economic downturn or a change in the
assessment of future operations. A charge for impairment is recognized whenever the carrying amount of a long-lived asset exceeds
its fair value. Management has determined that no impairment of long-lived assets has occurred.
Property and equipment are
stated at cost. Depreciation is provided on the straight-line method based on the estimated useful lives of the respective assets
which range from five to forty years. Major repairs or improvements are capitalized. Minor replacements and maintenance and repairs
which do not improve or extend asset lives are expensed currently.
Upon retirement or other disposition
of assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss, if any,
is recognized in income.
Costs incurred to acquire intangible
assets such as for the application of patents and trademarks are capitalized and amortized on the straight-line method, based
on their estimated useful lives ranging from five to fifteen years, commencing upon approval of the patent and trademarks. Such
costs are charged to expense if the patent or trademark is unsuccessful.
RESEARCH AND DEVELOPMENT
Research and development expenditures
are charged to expense as incurred.
CONCENTRATION OF CREDIT
RISK
The Company maintains cash
balances, which, at times, may exceed the amounts insured by the Federal Deposit Insurance Corp. Uninsured balances at March 31,
2013 are $369,023. 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 2013 and Fiscal 2012 the Company generated
all its revenues from six companies. The termination of the contracts with either of such four 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 2013 and Fiscal 2012.
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, 2013 and March 31, 2012.
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, 2013, a summary of the tax years that remain subject to examination in our major tax jurisdictions
are: United States – Federal, 2009 and forward, and State, 2005 and forward. The Company did not record unrecognized tax
positions for the years ended March 31, 2013 and 2012.
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 by licensing
certain pharmaceutical products developed by the Company are recognized at the beginning of a license term when the Company’s
customer has legal right to the use of the product. Revenues are recognized on licensing income on a straight line basis over
the life of the 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, 2013 and 2012 was $45,866 and $24,453, respectively.
FAIR VALUE MEASUREMENTS
The Company adopted Accounting
Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, for financial and non-financial
assets and liabilities.
ASC 820 discusses valuation
techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash
flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The Company utilizes the market
approach. The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair
value into three broad levels. The following is a brief description of those three levels:
|
Level 1:
|
Observable
inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
Level 2:
|
Inputs
other than quoted prices that are observable for the asset or liability, either directly
or indirectly. These include quoted prices for similar assets or liabilities in active
markets and quoted prices for identical or similar assets or liabilities in markets that
are not active.
|
|
Level 3:
|
Unobservable
inputs that reflect the reporting entity’s own assumptions.
|
RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENTS
The Company believes that all
recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either
will not have an impact on its accounting or reporting or that such impact will not be material to its financial statements.
|
NOTE 2
|
MANAGEMENT’S
LIQUIDITY PLANS
|
The Company reported a net
profits of approximately $1.5 million for Fiscal 2013 and a net loss of approximately $15.1 million for Fiscal 2012. At March
31, 2013, the Company had a working capital deficiency of approximately $2.8 million and an accumulated deficit of approximately
$128.6 million, consolidated assets of approximately $11.1 million, and negative stockholders’ equity of approximately $8.8
million. The Company has not generated any significant operating profits to date. During the fiscal year ended March 31, 2013,
the Company raised $437,500 of net proceeds from the sale of Series E Preferred Stock and $564,500 from the exercise of cash warrants.
On June 12,
2012, Elite entered into a bridge loan agreement, as amended on December 5, 2012, (the “Treppel Credit Line Agreement”)
with Jerry Treppel, the Company’s Chairman and CEO. Under the terms of the Treppel Credit Line Agreement, Elite has the
right, in its sole discretion to a line of credit (the “Treppel Credit Line”) in the maximum principal amount of up
to $1,000,000, at any one time. Mr. Treppel provided the Treppel Credit Line for the purpose of supporting the acceleration of
Elite’s product development activities. The outstanding amount is evidenced by a promissory note which shall mature on the
earlier of (i) such date as Elite raises at least two million dollars in gross proceeds from the sale of any of its equity securities
or (ii) July 31, 2013, at which time the entire unpaid principal balance, plus accrued interest thereon shall be due and payable
in full. Elite may prepay any amounts owed without penalty. Any such prepayments shall first be due and owing and then to principal.
Interest only shall be payable quarterly on July 1, October 1, January 1 and April 1 of each year. Prior to maturity or the occurrence
of an Event of Default as defined in the Treppel Credit Line Agreement, the Company may borrow, repay and reborrow under the Treppel
Credit Line through maturity. Amounts borrowed under the Treppel Credit Line bear interest at the rate of ten percent (10%) per
annum. For more detailed information, please refer to the Current Reports on Form 8-K filed with the SEC on June 13, 2012 and
December 10,2012, with such filings being herein incorporated by reference.
As of the
March 31, 2013, the principal balance of the Treppel Credit Line was $600,000.
On April 19, 2013, subsequent
to the end of Fiscal 2013, the Company entered into a purchase agreement (the “LPC Purchase Agreement”), together
with a registration rights agreement (the “LPC Registration Rights Agreement”), with Lincoln Park Capital Fund, LLC
(“LPC”).
Under the terms and subject
to the conditions of the LPC Agreement, the Company has the right to sell to and LPC is 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, the date that the registration statement, which the Company agreed to file with the Securities and Exchange Commission
(the “SEC”) pursuant to the LPC Registration Rights Agreement, was declared effective by the SEC. The Company may
direct LPC, at its sole discretion and subject to certain conditions, to purchase stock in amounts of up to $80,000 on any single
business day, so long as at least two business days have passed since the most recent purchase, increasing to up to $500,000 per
purchase, depending upon the closing sale price of the Common Stock. The purchase price of the shares of Common Stock related
to the future funding will be based on the prevailing market prices of such shares at the time of sales (or over a period of up
to 12 business days leading up to such time), but in no event will shares be sold to LPC on a day the Common Stock closing price
is less than the floor price of $0.07 per share, subject to adjustment. The Company’s sales of shares of Common Stock to
LPC under the LPC Purchase Agreement are limited to no more than the number of shares that would result in the beneficial ownership
by LPC and its affiliates, at any single point in time, of more than 9.99% of the then outstanding shares of Common Stock.
A Current Report on Form 8-K
was filed with the SEC on April 22, 2013 with regards to the LPC Purchase Agreement and LPC Registration Rights Agreement with
such filing being herein incorporated by reference. A Securities Registration Statement on Form S-1 was filed with the SEC on
April 25, 2013, with such filing being herein incorporated by reference. The registration statement was declared effective by
the SEC on May 9, 2013, with such filings being herein incorporated by reference.
The Company’s strategy
is to continue to be engaged in the development and manufacturing of oral controlled-release products. It will continue to develop
generic versions of controlled-release drug products with high barriers to entry and assist partner companies in the life cycle
management of products to improve off-patent drug products. The Company has four products currently being sold commercially. In
addition, the Company has a generic product which was purchased and for which the Company is in the process of transferring the
manufacture of such product to its facility in Northvale, New Jersey, and a pipeline of products under development.
As of March 31, 2013, the Company’s
principal source of liquidity was approximately $0.4 million of cash and cash equivalents. The Company may also receive funds
through the exercise of outstanding stock options and warrants and, subsequent to March 31, 2013, entered into the LPC Purchase
Agreement and LPC Registration Rights Agreement, which could provide up to $10 million from the sale shares of the Company’s
Common Stock to LPC. The Company also is exploring raising additional funds through the sale of its equity or debt securities
or otherwise. However, there can be no assurance of the exercise of any outstanding options or warrants, the sale of shares of
Common Stock pursuant to the LPC Purchase Agreement, the raising of funds pursuant to any new funding arrangements, or that any
cash received from such sources will be material to contribute sufficient amounts to continue operating activities. Even if the
Company were to receive the amounts enumerated in the LPC Purchase Agreement or from the exercise of outstanding options and warrants,
there can be no assurances that the Company will not be required to seek additional capital in the future and that the Company
will be able to obtain such additional capital on favorable terms, if at all.
As a result there is no assurance
that the Company’s business strategy will be successfully implemented, and with the Company’s existing working capital
levels, there can be no assurance that the Company will continue as a going concern.
Inventories
are recorded at the lower of cost or market.
Inventories at March 31, 2013 and 2012 consist of the following:
|
|
2013
|
|
|
2012
|
|
Finished Goods
|
|
$
|
—
|
|
|
$
|
—
|
|
Work-in-Process
|
|
|
676,726
|
|
|
|
25,200
|
|
Raw Materials
|
|
|
774,758
|
|
|
|
373,020
|
|
|
|
|
1,451,484
|
|
|
|
398,220
|
|
Less: Inventory Valuation Reserve
|
|
|
(93,338
|
)
|
|
|
(93,338
|
)
|
|
|
$
|
1,358,146
|
|
|
$
|
304,882
|
|
The Inventory Valuation Reserve
as of March 31, 2013 and March 31, 2012, consists of raw materials with an aggregate cost of $93,338 being expired materials with
no commercial value
|
NOTE 4
-
|
PROPERTY
AND EQUIPMENT
|
Property and equipment at March
31, 2013 and 2012 consists of the following:
|
|
2013
|
|
|
2012
|
|
Laboratory manufacturing, and
warehouse equipment
|
|
$
|
5,563,694
|
|
|
$
|
5,448,732
|
|
Office equipment
|
|
|
67,414
|
|
|
|
64,927
|
|
Furniture and fixtures
|
|
|
49,804
|
|
|
|
49,804
|
|
Transportation equipment
|
|
|
66,855
|
|
|
|
66,855
|
|
Land, building and
improvements
|
|
|
3,349,696
|
|
|
|
3,314,138
|
|
|
|
|
9,097,463
|
|
|
|
8,944,456
|
|
Less: Accumulated
depreciation and amortization
|
|
|
(5,068,522
|
)
|
|
|
(4,659,670
|
)
|
|
|
$
|
4,028,941
|
|
|
$
|
4,284,786
|
|
Depreciation and amortization
expense amounted to $423,340 and $484,156 for the years ended March 31, 2013 and 2012, respectively.
|
NOTE 5 -
|
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, 2013 and 2012,
the following costs were recorded as intangible assets on the Company’s balance sheet:
|
|
2013
|
|
|
2012
|
|
Intangible assets at beginning of fiscal year
|
|
|
|
|
|
|
|
|
Patent application costs
|
|
|
192,848
|
|
|
|
147,556
|
|
ANDA acquisitions
|
|
|
450,000
|
|
|
|
450,000
|
|
Less: Accumulated Amortization
|
|
|
—
|
|
|
|
—
|
|
Net Intangible Assets at beginning of fiscal year
|
|
|
642,848
|
|
|
|
597,556
|
|
|
|
|
|
|
|
|
|
|
Intangible asset costs capitalized during the fiscal year
|
|
|
|
|
Patent application costs
|
|
|
51,578
|
|
|
|
45,292
|
|
ANDA acquisition costs
|
|
|
|
|
|
|
—
|
|
Total cost of intangible assets capitalized
|
|
|
51,578
|
|
|
|
45,291
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets during fiscal year
|
|
|
|
|
|
|
|
|
Patent application costs
|
|
|
—
|
|
|
|
—
|
|
ANDA acquisition costs
|
|
|
—
|
|
|
|
—
|
|
Total amortization of intangible assets
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Impairment of intangible assets during the fiscal year
|
|
|
|
|
|
|
|
|
Patent application costs
|
|
|
—
|
|
|
|
—
|
|
ANDA acquisition costs
|
|
|
—
|
|
|
|
—
|
|
Accumulated amortization of impaired assets
|
|
|
—
|
|
|
|
—
|
|
Net impairment of intangible assets
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Intangible assets at end of fiscal year
|
|
|
|
|
Patent application costs
|
|
|
244,424
|
|
|
|
192,848
|
|
Trademarks
|
|
|
|
|
|
|
—
|
|
ANDA acquisition costs
|
|
|
450,000
|
|
|
|
450,000
|
|
Less: Accumulated Amortization
|
|
|
|
|
|
|
—
|
|
Net Intangible Assets
|
|
$
|
694,424
|
|
|
$
|
642,848
|
|
The costs incurred in patent
applications totaling $51,578 and $45,292 for Fiscal 2013 and Fiscal 2012, 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.
On May 22, 2012, the United
States Patent and Trademark Office (“USPTO”) issued U.S. Patent No. 8,182,836, entitled “Abuse-Resistant Oral
Dosage Forms and Method of Use Thereof. A Current Report on Form 8-K was filed with the SEC on May 22, 2012, with such filing
being herein incorporated by reference.
On April 23, 2013, the USPTO
issued Patent No. 8,425,933 entitled “Abuse-Resistant Oral Dosage Forms and Method of Use Thereof”. A Current Report
on Form 8-K was filed with the SEC on April 23, 2013, with such filing being herein incorporated by reference.
The ANDA acquisition costs
of $450,000 recorded as of the beginning of Fiscal 2012 and included as a part of intangible assets as of March 31, 2013 and March
31, 2012, are related to our acquisition of the ANDA for Phentermine 37.5mg tablets.
|
NOTE 6
|
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’s Class A Voting
Common Stock of Novel is approximately 10% of the outstanding shares of Class A Voting Common Stock of Novel. As of October 1,
2007, Elite deconsolidated its financial statements from Novel and the investment in Novel is accounted for under the cost method
of accounting.
As of June 2013, the US-FDA
website lists 19 products approved in the name of Novel and an additional 8 products approved in the name of the Novel’s
marketing arm, Gavis Pharmaceuticals (“Gavis”). Market data also list three additional products being marketed by
Gavis. There are accordingly a total of 30 products currently identified as being approved/marketed by Novel and Gavis, with such
total representing an increase of 4 products as compared to a comparable point in the prior year.
Furthermore, Novel has provided
to the Company, copies of its prior year tax returns and management prepared forecasts showing growing revenues.
We also know from public information
that Perrigo Company acquired rights in 2010 for an undisclosed amount to an additional Novel ANDA approved in 2010 for the product
HalfLytely®. Novel believes this is a first to file ANDA. Perrigo expects to be in a position to launch a generic version
of this product later this year and they expect to have 180 days of generic exclusivity. Novel will manufacture the product exclusively
for Perrigo. Annual sales for the branded product were approximately $80 million according to Wolters Kluwer.
In accordance with GAAP, the
company records an impairment write-down to such investments when the cost of the investment exceeds its fair value and when the
decline in value is determined to be other-than temporary. Indicators of an other-than-temporary decline in value include, without
limitation, the following:
|
·
|
A
significant deterioration in the earnings performance, credit rating, asset quality,
or business prospects of the investee
|
|
·
|
A
significant adverse change in the regulatory, economic, or technological environment
of the investee
|
|
·
|
A
significant adverse change in the general market condition of either the geographic area
or the industry in which the investee operates
|
|
·
|
A
bona fide offer to purchase (whether solicited or unsolicited), an offer by the investee
to sell, or a completed auction process for the same or similar security for an amount
less than the cost of the investment
|
|
·
|
Factors
that raise significant concerns about the investee's ability to continue as a going concern,
such as negative cash flows from operations, working capital deficiencies, or noncompliance
with statutory capital requirements or debt covenants.
|
A review and assessment of
all documents available, public announcements by Novel and communications with the management of Novel does not indicate the existence
of impairment indicators. Accordingly, the Company determined that no impairment is required in the valuation of its investment
in Novel as of March 31, 2013. The valuation of the Company’s investment in Novel remains at $3,329,322, an amount equal
to the valuation as of March 31, 2012 with no impairment write downs.
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, 2013, all of the proceeds were utilized by the Company for such stated purposes.
Interest is payable semiannually
on March 1 and September 1 of each year. The Bonds are collateralized by a first lien on the Company’s facility and equipment
acquired with the proceeds of the original and refinanced Bonds. The related Indenture requires the maintenance of a Debt Service
Reserve Fund as follows:
Description
|
|
Amount
|
|
Series A Note Proceeds
|
|
$
|
366,000
|
|
Series B Note Proceeds
|
|
|
49,500
|
|
Total
|
|
$
|
415,500
|
|
The Debt Service Reserve is
maintained in restricted cash accounts that are classified in Other Assets.
Bond issue costs were paid
from the bond proceeds and are being amortized over the life of the bonds. These costs and amortization activity are summarized
as follows:
Description
|
|
Balances
As of
March 31, 2012
|
|
|
Amortization
Expense
Current YTD
|
|
|
Balances
As of
Current
Balance Sheet
Date
|
|
Bond Issue Costs
|
|
$
|
354,453
|
|
|
|
|
|
|
$
|
354,453
|
|
Accumulated Amortization
|
|
|
(93,030
|
)
|
|
|
(14,489
|
)
|
|
|
(107,519
|
)
|
Unamortized Balance
|
|
$
|
261,423
|
|
|
|
|
|
|
$
|
246,934
|
|
The NJEDA Bonds require the
Company to make an annual principal payment on September 1
st
of varying amounts as specified in the loan documents
and semi-annual interest payments on March 1
st
and September 1
st
, equal to interest due on the outstanding
principal at the applicable rate for the semi-annual period just ended.
Due to the Company not having
sufficient funds, the following withdrawals were made from the debt service reserve, with the funds being used to make interest
payments due to the holders of the NJEDA Bonds:
Payment Date
|
|
Amount
|
|
March 1, 2009
|
|
$
|
120,775
|
|
September 1, 2009
|
|
|
120,775
|
|
March 1, 2010
|
|
|
113,075
|
|
September 1, 2010
|
|
|
113,075
|
|
March 1, 2011
|
|
|
113,075
|
|
September 1, 2011
|
|
|
113,075
|
|
March 1, 2012
|
|
|
113,075
|
|
September 1, 2012
|
|
|
113,075
|
|
March 1, 2013
|
|
|
113,075
|
|
|
|
|
|
|
Due to the Company not having
sufficient funds, a the following withdrawal was made from the debt service reserve, with the funds being used to make a principal
payment due to the holders of the NJEDA Bonds:
Payment Date
|
|
Amount
|
|
September 1, 2009
|
|
$
|
210,000
|
|
Pursuant to the terms of the
NJEDA Bonds, the Company is required to replenish any amounts withdrawn from the debt service reserve and used to make principal
or interest payments in six monthly installments, each being equal to one-sixth of the amount withdrawn and with the first installment
due on the 15
th
of the month in which the withdrawal from debt service reserve occurred and the remaining five monthly
payments being due on the 15
th
of the five immediately subsequent months. The Company has, to date, made all payments
required in relation to the withdrawals made from the debt service reserve in relation to the Restricted Cash Interest Payments
and the Restricted Cash Principal Payment.
In addition, the Company did
not have sufficient funds available to make the principal payments due on September 1, 2010, September 1, 2011 and September 1,
2012. These principal payments are summarized as follows:
Payment Date
|
|
Amount
|
|
September 1, 2010
|
|
$
|
225,000
|
(1)
|
September 1, 2011
|
|
|
470,000
|
(2)
|
September 1, 2012
|
|
|
730,000
|
(3)
|
|
(1)
|
The
Company request to withdraw funds from the debt service reserve to pay the amount due
on September 1, 2010 was denied by the Trustee and accordingly, the principal payment
due on such date was not made.
|
|
(2)
|
The
principal payment due on September 1, 2011, included the amount due and September 1,
2010 and not paid. There were not sufficient funds available in the debt service reserve
and the principal payment due on September 1, 2011 was not made.
|
|
(3)
|
The
principal payment due on September 1, 2012, included the amount due and September 1,
2011 and not paid. There were not sufficient funds available in the debt service reserve
and the principal payment due on September 1, 2012 was not made.
|
The Company has received Notices
of Default from the Trustee of the NJEDA Bonds in relation to the withdrawals from the debt service reserve and non-payment of
principal amounts due on September 1, 2010, 2011 and 2012. Resolution of the Company’s default under the NJED Bonds will
have a significant effect on our ability to operate in the future.
Due to issuance of a Notice
of Default being received from the Trustee of the NJEDA Bonds, and until the event of default is waived or rescinded, the Company
has classified the entire principal balance due on the NJEDA Bonds, as a current liability.
Bond financing consisting
of the following, as of March 31,
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Refinanced NJEDA Bonds
|
|
$
|
3,385,000
|
|
|
$
|
3,385,000
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
(3,385,000
|
)
|
|
|
(3,385,000
|
|
|
|
|
|
|
|
|
|
|
Long term portion, net of current maturities
|
|
$
|
—
|
|
|
$
|
—
|
|
Maturities of Bonds for the
next five years are as follows:
YEAR ENDING MARCH 31,
|
|
AMOUNT
|
|
2014
|
|
$
|
915,000
|
|
2015
|
|
|
195,000
|
|
2016
|
|
|
210,000
|
|
2017
|
|
|
220,000
|
|
2018
|
|
|
85,000
|
|
Thereafter
|
|
|
1,760,000
|
|
|
|
$
|
3,385,000
|
|
|
NOTE 8 -
|
LOANS
PAYABLE AND LONG TERM DEBT
|
Loans payable and long term
debt consisted of the following:
|
|
March 31, 2013
|
|
|
March 31, 2012
|
|
|
|
Current
|
|
|
Long-
Term
|
|
|
Current
|
|
|
Long-
Term
|
|
Note payable to First Niagara Bank in 60 monthly installments of $1,180, including
interest at the rate of 9.00% per annum; Final payment in September 2012 ; Secured by vehicle purchased with proceeds of loan
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,923
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease payable to Shimadzu Financial Services; 24 payments of $594; Final payment
due in March 2014
|
|
|
6,295
|
|
|
|
—
|
|
|
|
6,393
|
|
|
|
6,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance due on Treppel Credit Line (note 2)
|
|
|
600,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
606,295
|
|
|
$
|
—
|
|
|
$
|
13,316
|
|
|
$
|
6,295
|
|
|
NOTE 9 -
|
LEASES
OF RENTAL PROPERTIES
|
The following leases for rental
properties were operative during the year ended March 31, 2013:
|
|
135 Ludlow Ave
(see note 10)
|
|
Effective Date
|
|
|
July
1, 2010
|
|
|
|
|
|
|
Termination Date
|
|
|
December
31, 2015
|
|
|
|
|
|
|
Lease term
|
|
|
5
years with 2 tenant
renewal options for 5
years each
|
|
|
|
|
|
|
Rent expense for the 2012 Fiscal Year
|
|
$
|
90,338
|
|
Rent expense for the 2013 Fiscal Year
|
|
$
|
90,338
|
|
|
|
|
|
|
Minimum 5 Year Lease Payments*
|
|
|
|
|
Fiscal year ended March 31, 2014
|
|
|
83,259
|
|
Fiscal year ended March 31, 2015
|
|
|
85,344
|
|
Fiscal year ended March 31, 2016
|
|
|
87,363
|
|
Fiscal year ended March 31, 2017
|
|
|
89,112
|
|
Fiscal year ended March 31, 2018
|
|
|
90,894
|
|
|
|
$
|
435,972
|
|
* Minimum lease payments are
exclusive of additional expenses related to certain expenses incurred in the operation and maintenance of the premises, including,
without limitation, real estate taxes and common area charges which may be due under the terms and conditions of the lease, but
which are not quantifiable at the time of filing of this annual report on Form 10-K
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, 2013
|
|
|
Fiscal Year
Ended
March 31, 2012
|
|
Rent Expense
|
|
$
|
90,338
|
|
|
$
|
90,338
|
|
|
|
|
|
|
|
|
|
|
Actual lease payments
|
|
|
81,228
|
|
|
|
79,248
|
|
|
|
|
|
|
|
|
|
|
Increase in deferred rent liability
|
|
|
9,110
|
|
|
|
11,090
|
|
|
|
|
|
|
|
|
|
|
Balance of deferred rent liability
|
|
|
68,263
|
|
|
|
59,154
|
|
|
NOTE 10 -
|
LEASE
OF 135 LUDLOW AVENUE
|
The Company entered into a
lease for a portion of a one-story warehouse, located at 135 Ludlow Avenue, Northvale, New Jersey, consisting of approximately
15,000 square feet of floor space. The lease term began on July 1, 2010 and is classified as an operating lease.
The lease includes an initial
term of 5 years and 6 months and the Company has the option to renew the lease for two additional 5 year terms. The property related
to this lease will be used for the storage of pharmaceutical finished goods, raw materials, equipment and documents as well as
pharmaceutical manufacturing, packaging and distribution activities.
This property required significant
leasehold improvements and qualification as a prerequisite to achieving suitability for such intended future use and in January
2013, the Company began shipping commercial product that was manufactured and packaged at the 135 Ludlow Avenue facility.
Please refer to Note 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 $165,556, consisting of a current component of $13,333 and a long term component of $152,223 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 -
|
RELATED
PARTY TRANSACTION – BORROWING AGAINST TREPPEL CREDIT LINE
|
Activity
on the Treppel Credit Line Agreement during Fiscal 2013 and Fiscal 2012 is summarized as follows:
|
|
Fiscal 2013
|
|
|
Fiscal 2012
|
|
Balance of Credit Line at beginning of Fiscal Year
|
|
$
|
—
|
|
|
$
|
—
|
|
Draws on credit line
|
|
|
600,000
|
|
|
|
—
|
|
Repayment of credit line
|
|
|
—
|
|
|
|
—
|
|
Balance of Credit Line at end
of Fiscal Year
|
|
$
|
600,000
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Interest expense accrued
|
|
$
|
22,493
|
|
|
$
|
—
|
|
Interest expense paid
|
|
|
9,342
|
|
|
|
—
|
|
Interest owed as of March 31,
|
|
$
|
13,151
|
|
|
$
|
—
|
|
For further
details on the Treppel Credit Line, please refer to Note 2 of these financial statements as well as Current Reports on Form 8-K
filed with the SEC on June 13, 2012 and December 10, 2012.
|
NOTE 14 -
|
PREFERRED
SHARE DERIVATIVE INTEREST PAYABLE
|
Preferred share derivative
interest payable as of March 31, 2013 consisted of $27,500 in derivative interest accrued as of March 31, 2013. The full amount
of derivative interest payable as of March 31, 2013 was paid via the issuance of 358,663 shares of Common Stock, in lieu of cash,
in April 2013.
Preferred share derivative
interest payable as of March 31, 2012 consisted of $70,965 in derivative interest accrued as of March 31, 2012. The full amount
of derivative interest payable as of March 31, 2012 was paid via the issuance of 802,789 shares of Common Stock, in lieu of cash,
in April 2012.
|
NOTE 15 -
|
DERIVATIVE
LIABILITIES – PREFERRED SHARES
|
Accounting Standard Codification
“ASC” 815 –
Derivatives and Hedging
, which provides guidance on determining what types of instruments
or embedded features in an instrument issued by a reporting entity can be considered indexed to its own stock for the purpose
of evaluating the first criteria of the scope exception in the pronouncement on accounting for derivatives. These requirements
can affect the accounting for warrants and convertible preferred instruments issued by the Company. As the conversion features
within, and the detachable warrants issued with the Company’s Series B, Series C, and Series E Preferred Stock, do not have
fixed settlement provisions because their conversion and exercise prices may be lowered if the Company issues securities at lower
prices in the future, we have concluded that the instruments are not indexed to the Company’s stock and are to be treated
as derivative liabilities.
The 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, 2013 and March 31, 2012, in accordance with the valuation techniques discussed in ASC 820.
Preferred Stock Derivative Liabilities – Fiscal 2013
|
|
|
Series B
|
|
|
Series C
|
|
|
Series E
|
|
|
Total
|
|
Preferred shares Outstanding as of March 31, 2013
|
|
|
—
|
|
|
|
1,375
|
|
|
|
1,800
|
|
|
|
3,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying common shares into which Preferred may convert
|
|
|
—
|
|
|
|
9,166,669
|
|
|
|
74,074,075
|
|
|
|
83,240,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing price on valuation date
|
|
$
|
0.0761
|
|
|
$
|
0.0761
|
|
|
$
|
0.0761
|
|
|
$
|
0.0761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock derivative liability at March 31,
2013
|
|
$
|
—
|
|
|
$
|
697,584
|
|
|
$
|
5,637,037
|
|
|
$
|
6,334,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in preferred stock derivative liability for Fiscal 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
561,684
|
|
The change of $561,684 in value
of the preferred stock derivative liability occurring during Fiscal 2013 is included in the amount reported in the “Other
Income/(Expense)” section of the statement of operations. Increases in value are reported as other expenses and decreases
in value are reported as other income. During Fiscal 2013 there was a net increase in the value of the preferred stock derivative
liability, so therefore the amount shown above represents another expense item on the income statement.
Preferred Stock Derivative Liabilities – Fiscal 2012
|
|
|
Series B
|
|
|
Series C
|
|
|
Series E
|
|
|
Total
|
|
Preferred shares Outstanding as of March 31, 2012
|
|
|
797
|
|
|
|
2,666
|
|
|
|
1,750
|
|
|
|
5,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying common shares into which Preferred may convert
|
|
|
5,310,393
|
|
|
|
17,773,333
|
|
|
|
71,428,571
|
|
|
|
94,512,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing price on valuation date
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock derivative liability at March 31,
2012
|
|
$
|
477,935
|
|
|
$
|
1,599,600
|
|
|
$
|
6,428,571
|
|
|
$
|
8,506,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in preferred stock derivative liability for Fiscal 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,227,957
|
|
The change of $11,227,957 in
value of the preferred stock derivative liability occurring during the 2012 Fiscal Year 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.
|
NOTE 16 -
|
DERIVATIVE
LIABILITIES - WARRANTS
|
To date, the Company has authorized
the issuance of Common Stock Purchase Warrants, with terms of five to seven years, to various corporations and individuals, in
connection with the sale of securities, loan agreements and consulting agreements. Exercise prices range from $0.0625 to $0.25
per warrant. The warrants expire at various times through April 25, 2018.
A summary of warrant activity
for the fiscal years indicated below is as follows:
|
|
Fiscal Year 2013
|
|
|
Fiscal Year 2012
|
|
|
|
Warrant
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Warrant
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Balance at beginning of year
|
|
|
161,478,979
|
|
|
$
|
0.09
|
|
|
|
155,325,048
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued
|
|
|
—
|
|
|
|
—
|
|
|
|
4,000,000
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant Adjustments
|
|
|
—
|
|
|
|
—
|
|
|
|
3,379,551
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant exercises, forfeited or expired
|
|
|
22,134,040
|
|
|
$
|
0.20
|
|
|
|
1,225,620
|
|
|
$
|
3.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
|
139,344,939
|
|
|
$
|
0.08
|
|
|
|
161,478,979
|
|
|
$
|
0.09
|
|
Accounting Standard Codification
“ASC” 815 –
Derivatives and Hedging
, which provides guidance on determining what types of instruments
or embedded features in an instrument issued by a reporting entity can be considered indexed to its own stock for the purpose
of evaluating the first criteria of the scope exception in the pronouncement on accounting for derivatives. These requirements
can affect the accounting for warrants and convertible preferred instruments issued by the Company. As the conversion features
within, and the detachable warrants issued with the Company’s Series B, Series C, and Series E Preferred Stock, do not have
fixed settlement provisions because their conversion and exercise prices may be lowered if the Company issues securities at lower
prices in the future, we have concluded that the instruments are not indexed to the Company’s stock and are to be treated
as derivative liabilities.
The Warrant Derivative Liabilities
are measured at fair market value, using the market approach and a level 3 fair value hierarchy, on a recurring basis as of March
31, 2013 and March 31, 2012, 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
2013
|
|
|
March 31
2012
|
|
Risk-Free interest rate
|
|
|
.04%
- .77%
|
|
|
|
.05%
- 1.3%
|
|
Expected volatility
|
|
|
106%
- 168%
|
|
|
|
57%
- 181%
|
|
Expected life (in years)
|
|
|
0.5
– 5.1
|
|
|
|
0.1
– 6.1
|
|
Expected dividend yield
|
|
|
—
|
|
|
|
—
|
|
Number of warrants
|
|
|
139,344,939
|
|
|
|
161,478,979
|
|
|
|
|
|
|
|
|
|
|
Fair value – Warrant Derivative Liability
|
|
$
|
7,862,848
|
|
|
$
|
11,987,222
|
|
|
|
|
|
|
|
|
|
|
Change in warrant derivative liability for the
twelve months ended
|
|
$
|
(4,089,491
|
)
|
|
$
|
1,444,075
|
|
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 $(4,089,491)
and $1,444,075 in value of the warrant derivative liability occurring during the years ended March 31, 2013 and 2012, 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, 2013, 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 2013
|
|
|
Fiscal 2012
|
|
Balance at Beginning of Fiscal Year
|
|
$
|
11,987,222
|
|
|
$
|
10,543,145
|
|
Warrants Issued
|
|
|
—
|
|
|
|
815,761
|
|
Warrants Exercised
|
|
|
(707,216
|
)
|
|
|
—
|
|
Change in fair value of warrant liability
|
|
|
(3,417,158
|
)
|
|
|
628,316
|
|
Balance at End of Fiscal Year
|
|
|
7,862,848
|
|
|
$
|
11,987,222
|
|
|
NOTE 17 -
|
BENEFICIAL
CONVERSION FEATURES OF SERIES E PREFERRED SHARES
|
The Series E Preferred shares
include an option, exercisable from the issuance date, to convert to common shares at prices which were less than the market price
of the Company’s Common Stock on the date such Series E Preferred shares were issued. The difference between the share price
and option price represents a beneficial conversion feature existing on the issue date.
In accordance with GAAP, the
beneficial conversion feature was valued separately and allocated to additional paid in capital. The valuations were calculated
using the relative fair value method allocating the proceeds from each issuance of the Series E Preferred shares to the conversion
option and detachable warrants, if such warrants were included with an issuance.
The beneficial conversion option
is then required to be recognized as a discount and amortized over a period that begins on the date of issuance and ends on the
earliest conversion date. As the conversion options were exercisable on their issue date, the full value assigned to the conversion
option was immediately amortized and charged to interest expense.
During Fiscal 2013, the Company
issued a total of 437.5 shares of Series E Preferred Stock which included a conversion option at a price that was less than the
market price of the Company’s Common Stock on the date of issuance of the Series E Preferred Stock.
The valuation of the beneficial
conversion feature, and detachable warrants, where applicable, for Series E Preferred Share issuances during Fiscal 2013 and Fiscal
2012 is summarized as follows:
|
|
Fiscal 2013
|
|
|
Fiscal 2012
|
|
Series E Shares Issued
|
|
|
437.5
|
|
|
|
250
|
|
Detachable Warrants Issued
|
|
|
—
|
|
|
|
—
|
|
Gross Proceeds Received
|
|
$
|
437,500
|
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
|
Gross Valuation of Warrants Issued
|
|
|
—
|
|
|
|
—
|
|
Gross Valuation of Beneficial Conversion
|
|
$
|
437,500
|
|
|
$
|
763,619
|
|
|
|
|
|
|
|
|
|
|
Proceeds Allocated to Warrants
|
|
|
—
|
|
|
|
—
|
|
Proceeds Allocated to Beneficial Conversion Feature
|
|
$
|
437,500
|
|
|
$
|
250,000
|
|
Total Allocation of Proceeds
|
|
$
|
437,500
|
|
|
$
|
250,000
|
|
During Fiscal Years 2013 and
2012, the Company issued a total of 42,844,221 shares and 151,104,071 shares of Common Stock, respectively, with such issuances
of Common Stock being summarized as follows:
Description
|
|
Fiscal Year
2013
|
|
|
Fiscal Year
2012
|
|
|
|
|
|
|
|
|
Common Shares issued in lieu of cash payment in payment of preferred share
derivative interest expenses totaling $182,684 and $636,179 for Fiscal 2013 and Fiscal 2012, respectively
|
|
|
1,860,943
|
|
|
|
8,410,374
|
|
|
|
|
|
|
|
|
|
|
Common Shares issued pursuant to the conversion of Series B, Series C, and Series E Convertible
Preferred Share derivatives, with such derivative liabilities totaling $3,170,670 and $17,164,181, for Fiscal 2013 and Fiscal
2012, respectively, at the time of their conversion.
|
|
|
29,863,563
|
|
|
|
140,493,195
|
|
|
|
|
|
|
|
|
|
|
Common Shares issued in payment of Director’s fees totaling $96,047 and $145,894
for Fiscal 2013 and Fiscal 2013, respectively
|
|
|
1,200,588
|
|
|
|
1,505,613
|
|
|
|
|
|
|
|
|
|
|
Common shares issued in payment of employee salaries totaling $50,072 and $67,336 for Fiscal
2013 and Fiscal 2012, respectively.
|
|
|
625,900
|
|
|
|
694,889
|
|
|
|
|
|
|
|
|
|
|
Common shares issued pursuant to warrants exercised
|
|
|
9,293,227
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total Common Shares issued during Fiscal 2013
and 2012
|
|
|
42,844,221
|
|
|
|
151,104,071
|
|
|
|
|
|
|
|
|
|
|
Common Shares outstanding at March 31,
|
|
|
374,493,949
|
|
|
|
331,649,738
|
|
|
NOTE 19 -
|
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 2012,
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
2013
|
|
|
Fiscal Year
2012
|
|
Numerator
|
|
|
|
|
|
|
|
|
Net Income (Loss) attributable to common shareholders
|
|
$
|
1,487,928
|
|
|
$
|
(15,167,289
|
)
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
349,075,642
|
|
|
|
259,163,279
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) per Share – Basic
|
|
$
|
0.00
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
Potentially dilutive securities excluded from the calculation
of diluted loss per share for Fiscal 2012 ( in accordance with GAAP)
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
—
|
|
|
|
2,999,000
|
|
|
|
|
|
|
|
|
|
|
Convertible Preferred Stock
|
|
|
—
|
|
|
|
94,512,298
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
—
|
|
|
|
161,478,979
|
|
Diluted EPS (for Fiscal
2013) is calculated as follows:
|
|
Fiscal Year
2013
|
|
Numerator
|
|
|
|
|
Net Income attributable to common shareholders
|
|
$
|
1,487,928
|
|
Adjustments to Net Income
|
|
|
|
|
Reversal of Change in Value of Preferred Share Derivatives
|
|
|
561.684
|
|
Reversal of Change in Value of Warrant Derivatives
|
|
|
(4,089,491
|
)
|
Reversal of Derivative Interest Expense
|
|
|
139,219
|
|
|
|
|
|
|
Net loss attributable to common shareholders on a diluted basis
|
|
$
|
(1,900,660
|
)
|
|
|
|
|
|
Denominator
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
349,075,642
|
|
Dilutive effects of convertible preferred stock, warrants and options
|
Convertible preferred Stock
|
|
|
83,240,744
|
|
Warrants
|
|
|
94,421,813
|
|
Stock Options
|
|
|
141,919
|
|
Weighted average shares outstanding – diluted
|
|
|
526,880,118
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
(0.00
|
)
|
|
NOTE 20 -
|
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 2013, the Company
issued 1,200,588 shares of Common Stock to its Directors in payment of Director’s fees in the aggregate amount of $130,000
and related to the calendar year ending on December 31, 2012. On the date of their issuance, the Common Shares had a value of
$96,047, based upon the closing price of the Company’s Common Stock on such date. Please note that the shares issued during
Fiscal 2013, include those shares owed and not yet issued at the end of Fiscal Year 2012.
During Fiscal Year 2012, the
Company issued 1,505,613 shares of Common Stock to its Directors in payment of Director’s fees in the aggregate amount of
$130,000 and related to the period beginning on January 1, 2011 and ending on December 31, 2011. On the date of their issuance,
the Common Shares had a value of $145,894, based upon the closing price of the Company’s Common Stock on such date. Please
note that the shares issued during Fiscal Year 2012, include those shares owed and not yet issued at the end of Fiscal Year 2011.
As of March 31, 2013, the Company
owes its Directors a total of 327,635 shares of Common Stock in payment of Directors Fees totaling $27,500 for the three months
ended March 31, 2013. The Company anticipates that these shares of Common Stock will be issued during the fiscal year ended March
31, 2014.
Stock-based Employee Compensation
Employment contracts with the
Company’s President, 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 2013, the
Company issued a total of 625,900 shares of Common Stock to its President, Chief Financial Officer and certain other employees
in payment of salaries in the aggregate amount of $67,917 and related to the period calendar year ended December 31, 2012. On
the date of their issuance, the Common Shares had a value of $50,072, based upon the closing price of the Company’s Common
Stock on such date. Please note that the shares issued during Fiscal 2013, include those shares owed and not yet issued at the
end of Fiscal 2012.
During Fiscal Year 2012, the
Company issued a total of 694,889 shares of Common Stock to its President, Chief Financial Officer and certain other employees
in payment of salaries in the aggregate amount of $60,000 and related to the period beginning on January 1, 2011 and ending on
December 31, 2011. On the date of their issuance, the Common Shares had a value of $67,336, based upon the closing price of the
Company’s Common Stock on such date. Please note that the shares issued during Fiscal Year 2012, include those shares owed
and not yet issued at the end of Fiscal Year 2011.
As of March 31, 2013, the Company
owes its President, Chief Financial Officer and certain other employees a total of 288,913 shares of Common Stock in payment of
salaries totaling $24,250 for the three months ended March 31, 2013, 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, 2014.
Stock option based Employee
Compensation
During Fiscal 2013, the Company
issued, to various employees, options to purchase a total of 985,000 shares Common Stock, in aggregate (the “2013 Options”).
The 2013 Options have an exercise price of $0.12 per share, vest equally over a three year period which commences one year from
the date of grant and expire ten years from the date of grant. The fair value of the 2013 Options was $113,842, computed using
the Black-Scholes options pricing model on the grant date. Such fair value is being amortized by the Company, on a straight line
basis, over the vesting period and recorded on the Company’s Statement of Income as “Non-cash compensation through
the issuance of stock options”.
During the year ended March
31, 2010 (“Fiscal 2010”) the Company issued, to various employees, options to purchase a total of 1,000,000 shares
of Common Stock, in aggregate (the “2010 Options”). The 2010 Options have an exercise price of $0.10, vest over a
three year period which commences one year from the date of grant and expire ten years from the date of grant. The fair value
of the 2010 Options was $93,452, computed using the Black-Scholes options pricing model on the grant date. Such fair value is
being amortized by the Company, on a straight line basis, over the vesting period, and recorded on the Company’s Statement
of Income as “Non-cash compensation through the issuance of stock options”.
Stock option based employee
compensation is summarized as follows:
|
|
Fiscal Year
2013
|
|
|
Fiscal Year
2012
|
|
|
|
|
|
|
|
|
Non-cash compensation expense related to the 2010 Options
|
|
$
|
17,405
|
|
|
$
|
24,453
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation expense related to the 2013 Options
|
|
|
28,461
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total non-cash compensation through the issuance
of stock options
|
|
$
|
45,866
|
|
|
$
|
24,453
|
|
|
NOTE 21 -
|
STOCK
OPTION PLANS
|
Under its 2004 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 2013
|
|
|
Fiscal Year 2012
|
|
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at beginning of year
|
|
|
2,999,000
|
|
|
$
|
1.53
|
|
|
|
3,057,000
|
|
|
$
|
1.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
985,000
|
|
|
$
|
0.12
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Expired/Forfeited
|
|
|
(45,000
|
)
|
|
$
|
1.59
|
|
|
|
(58,000
|
)
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
3,939,000
|
|
|
$
|
0.86
|
|
|
|
2,999,000
|
|
|
$
|
1.53
|
|
The following table summarizes information about
stock options outstanding at March 31, 2013:
Range
|
|
Options
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Options
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
$ 0.01 – 1.00
|
|
|
1,890,000
|
|
|
|
8.3
|
|
|
$
|
0.11
|
|
|
|
905,000
|
|
|
$
|
0.09
|
|
1.01 – 2.00
|
|
|
99,000
|
|
|
|
4.8
|
|
|
$
|
1.08
|
|
|
|
99,000
|
|
|
$
|
1.08
|
|
2.01 – 3.00
|
|
|
1,950,000
|
|
|
|
3.2
|
|
|
$
|
2.22
|
|
|
|
1,450,000
|
|
|
$
|
2.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.01 – 3.00
|
|
|
3,939,000
|
|
|
|
5.5
|
|
|
$
|
1.18
|
|
|
|
2,454,000
|
|
|
$
|
1.38
|
|
As of March 31, 2013, there
were 5,535,100 options available for future grant under our Stock Option Plan.
The components of the credit
for income taxes are as follows:
|
|
Year Ended March 31,
|
|
|
|
2013
|
|
|
2012
|
|
Federal:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
(6,099
|
)
|
|
$
|
(2,849
|
)
|
Deferred
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Sale of New Jersey Net Operating Losses
|
|
|
359,817
|
|
|
$
|
486,801
|
|
|
|
|
|
|
|
|
|
|
Net Credit for Income Taxes
|
|
$
|
353,718
|
|
|
$
|
483,952
|
|
The Major components of deferred
tax assets and liabilities at March 31, 2013 and 2012 are as follows:
|
|
March 31,
|
|
|
|
2013
|
|
|
2012
|
|
Federal
|
|
|
|
|
|
|
|
|
Net Operating Loss Carry forward
|
|
$
|
17,968,000
|
|
|
$
|
16,826,617
|
|
Valuation Allowance
|
|
|
(17,968,000
|
)
|
|
|
(16,826,617
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
Net Operating Loss Carryforwards
|
|
$
|
2,420,000
|
|
|
$
|
897,589
|
|
Valuation Allowance
|
|
|
(2,420,000
|
)
|
|
|
897,589
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
At March 31, 2013 and 2012,
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.
|
NOTE 23 -
|
REMOVAL
OF LODRANE PRODUCTS FROM THE US MARKET
|
On March 3, 2011, the U.S.
Food and Drug Administration (“US-FDA”) announced its intention to remove approximately 500 cough/cold and allergy
related products from the U.S. market. The Company manufactured two of the drugs impacted by the US-FDA’s action. The affected
products are:
Product
|
Active Ingredient , Strength
|
Lodrane
®
24 Capsules
|
Brompheniramine maleate, 12mg
|
Lodrane
®
24D Capsules
|
Brompheniramine maleate, 12mg/pseudoephedrine HCl, 90mg
|
According to the press release
issued by the US-FDA, manufacturers must stop manufacturing the affected products within 90 days after March 3, 2011 and distribution
of the effected products must stop within 180 days after March 3, 2011.
For the year ended March 31,
2011, gross revenues earned by the Company from the Lodrane® products equaled $4.2 million, or approximately 97% of the Company’s
total income for the year.
Shortly after the announcement
by the US-FDA, the Company’s customer for the Lodrane® products cancelled all outstanding orders, other than those for
which manufacturing had already begun, advising the Company that existing stocks of Lodrane® were sufficient and that additional
quantities could not be sold prior to the 180 day deadline announced by the US-FDA.
The last shipment of Lodrane®
products was made by the Company in April 2011 and manufacturing of Lodrane® has ceased.
While the timing of the announcement
by the US-FDA resulted in such having a minimal effect on the Company’s operations for the 2011 Fiscal Year, the Company’s
inability to manufacture Lodrane® has a material adverse effect on its revenues for periods beginning after March 31, 2011.
Please refer to the Current
Report on Form 8-K filed with the SEC on March 4, 2011, such filing being herein incorporated by reference, for further details
on this announcement.
|
NOTE 24 -
|
MAJOR
CUSTOMERS
|
Six customers accounted for
substantially all of the Company’s revenues for Fiscal 2013. Included in these six customers are three customers that accounted
for approximately 90 percent of revenues for Fiscal 2012, and three additional customers that had little or no related revenues
for Fiscal 2012.
|
NOTE 25 -
|
TRANSACTIONS
WITH RELATED PARTIES
|
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, 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 2013 and Fiscal 2012, an aggregate amount of $71,480 and $15,552, respectively, in such materials was
purchased from Epic Pharma LLC. All purchases were at Epic Pharma’s acquisition cost, without markup and evidenced by supporting
documents of Epic Pharma LLC’s acquisition cost.
With regards to synergies related
to regulatory and operational resources, the strategic alliance allowed the Company to utilize Epic’s substantial resources
and technical competencies on an “as needed” basis at a cost equal to Epic’s actual cost for only the resources
utilized by the Company. Without such access to Epic’s resources, the Company would have to invest significant amounts in
human resources and fixed assets as well as incur substantial costs with third party providers to provide the same resources provided
by Epic and necessary for the operations of the Company.
During Fiscal 2013, an aggregate
amount of $31,354 was paid to Epic as reimbursement for costs associated with facility maintenance, engineering and regulatory
resources utilized by the Company. During Fiscal 2012, an aggregate amount of $133,003 was paid to Epic as reimbursement for costs
associated with facility maintenance, engineering and regulatory resources utilized by the Company.
During Fiscal 2013, the Company
incurred a total of $362,347 in contract manufacturing and/or packaging costs to Epic Pharma for the Company’s Phentermine,
Hydromorphone, Methadone and Immediate Release Lodrane products. During Fiscal 2012, the Company incurred a total of $275,678
in these costs.
During the fiscal years ended
March 31, 2013 and 2012, equipment purchases from Epic totaled $-0- and $52,000, respectively.
Total purchases from Epic by
the Company during the fiscal years ended March 31, 2013 and 2012 were $465,181 and $476,323, respectively.
|
NOTE 27 -
|
CONVERSIONS
OF PREFERRED STOCK DERIVATIVES TO COMMON STOCK
|
The Amended Certificate of
Designations of the Series B 8% Convertible Preferred Stock of Elite Pharmaceuticals (the “Series B Preferred Derivatives”),
the Series C 8% Convertible Preferred Stock of Elite Pharmaceuticals (the “Series C Preferred Derivatives”), the Series
D 8% Convertible Preferred Stock of Elite Pharmaceuticals (the “Series D Preferred Derivatives”) and the Series E
Convertible Preferred Stock Derivatives (the “Series E Preferred Derivatives”, and together with the Series B Preferred
Derivatives, the Series C Preferred Derivatives and the Series D Preferred Derivatives, the “Preferred Derivatives”)
include provisions entitling the holders of these Preferred Derivatives to convert shares of the Preferred Derivatives into shares
of Common Stock. The Preferred Derivatives are classified as a liability to the Company, and the liability represented by those
shares of Preferred Derivatives being converted must be valued at the time of such conversion, with increases/(decreases) in the
value of preferred share derivative liabilities being appropriately recorded and reflected in the Other Income section of the
Company’s Statement of Operations. The amount of equity recorded as a result of the conversion of Preferred Derivatives
is equal to the value of such Preferred Derivatives being converted, at the time of the conversion, with such amount also representing
the decrease in the Preferred Share Derivative Liability on the Company’s Balance Sheet.
Conversions
of Preferred Derivatives during Fiscal 2013 and Fiscal 2012, are summarized as follows:
|
|
Fiscal 2013
|
|
|
Fiscal 2012
|
|
Series B Derivatives
|
|
|
|
|
|
|
|
|
Number of Derivative Shares Converted
|
|
|
797
|
|
|
|
99
|
|
Number of Common Shares issued pursuant to conversion
|
|
|
5,310,387
|
|
|
|
660,001
|
|
Value of Preferred Derivative shares at time of conversion (represents
decrease in derivative liability resulting from conversions)
|
|
|
690,350
|
|
|
$
|
72,600
|
|
Change in value of preferred share derivative liability recorded at
time of conversion
|
|
|
212,415
|
|
|
$
|
(39,600
|
)
|
Par value of Common Shares issued
|
|
|
5,310
|
|
|
$
|
660
|
|
Additional paid in capital recorded as a result of the conversions
|
|
|
685,040
|
|
|
$
|
71,940
|
|
|
|
|
|
|
|
|
|
|
Series C Preferred Derivatives
|
|
|
|
|
|
|
|
|
Number of Derivative Shares Converted
|
|
|
1,291
|
|
|
|
2,752
|
|
Number of Common Shares issued pursuant to conversion
|
|
|
8,606,667
|
|
|
|
18,346,673
|
|
Value of Preferred Derivative shares at time of conversion (represents
decrease in derivative liability resulting from conversions)
|
|
|
1,204,600
|
|
|
$
|
1,712,667
|
|
Change in value of preferred share derivative liability recorded at
time of conversion
|
|
|
414,280
|
|
|
$
|
(518,387
|
)
|
Par value of Common Shares issued
|
|
|
8,607
|
|
|
$
|
18,347
|
|
Additional paid in capital recorded as a result of the conversions
|
|
|
1,195,993
|
|
|
$
|
1,694,321
|
|
|
|
|
|
|
|
|
|
|
Series D Preferred Derivatives
|
|
|
|
|
|
|
|
|
Number of Derivative Shares Converted
|
|
|
—
|
|
|
|
4,063
|
|
Number of Common Shares issued pursuant to conversion
|
|
|
—
|
|
|
|
58,042,862
|
|
Value of Preferred Derivative shares at time of conversion (represents
decrease in derivative liability resulting from conversions)
|
|
|
—
|
|
|
$
|
9,473,715
|
|
Change in value of preferred share derivative liability recorded at
time of conversion
|
|
|
—
|
|
|
$
|
4,946,372
|
|
Par value of Common Shares issued
|
|
|
—
|
|
|
$
|
58,043
|
|
Additional paid in capital recorded as a result of the conversions
|
|
|
—
|
|
|
$
|
9,415,672
|
|
|
|
|
|
|
|
|
|
|
Series E Preferred Derivatives
|
|
|
|
|
|
|
|
|
Number of Derivative Shares Converted
|
|
|
388
|
|
|
|
1,563
|
|
Number of Common Shares issued pursuant to conversion
|
|
|
15,946,502
|
|
|
|
63,443,670
|
|
Value of Preferred Derivative shares at time of conversion (represents
decrease in derivative liability resulting from conversions)
|
|
|
1,275,720
|
|
|
$
|
5,905,197
|
|
Change in value of preferred share derivative liability recorded at
time of conversion
|
|
|
—
|
|
|
$
|
1,166,521
|
|
Par value of Common Shares issued
|
|
|
15,947
|
|
|
$
|
63,444
|
|
Additional paid in capital recorded as a result of the conversions
|
|
|
1,259,774
|
|
|
$
|
5,841,754
|
|
|
|
|
|
|
|
|
|
|
Total Preferred Derivatives
|
|
|
|
|
|
|
|
|
Number of Derivative Shares Converted
|
|
|
2,475
|
|
|
|
8,477
|
|
Number of Common Shares issued pursuant to conversion
|
|
|
29,863,556
|
|
|
|
140,493,206
|
|
Value of Preferred Derivative shares at time of conversion (represents
decrease in derivative liability resulting from conversions)
|
|
|
3,170,671
|
|
|
$
|
17,164,180
|
|
Change in value of preferred share derivative liability recorded at
time of conversion
|
|
|
626,696
|
|
|
$
|
5,554,906
|
|
Par value of Common Shares issued
|
|
|
29,864
|
|
|
$
|
140,493
|
|
Additional paid in capital recorded as a result of the conversions
|
|
|
3,140,807
|
|
|
$
|
17,023,687
|
|
On March 1, 2013, the Company
did not renew its Directors and Officers insurance policy. As of the date of filing this Annual Report on Form 10-K, management
has not been notified any claims against the Company
|
NOTE 29 -
|
SUBSEQUENT
EVENTS
|
The Company has evaluated subsequent
events from the balance sheet date through June 21, 2013, the date the accompanying financial statements were issued. The following
are material subsequent events:
Common shares issued in
lieu of cash in payment of derivative interest expense due as of March 31, 2013
Derivative interest expense
related to the Preferred Share derivatives due and payable as of March 31, 2013 were paid during April 2013 through the issuance
of 358,663 shares of common stock.
Purchase Agreement with
Lincoln Park Capital
On April 19, 2013 (subsequent
to the end of Fiscal 2013), the Company entered into a purchase agreement (the “Lincoln Park Purchase Agreement”),
together with a registration rights agreement (the “Lincoln Park Registration Rights Agreement”) with Lincoln Park
Capital Fund, LLC (“Lincoln Park”).
Under the terms and subject
to the conditions of the Lincoln Park Purchase Agreement, the Company has the right to sell to, and Lincoln Park is obligated
to purchase up to $10 million in shares of the Company’s common stock (“Common Stock”), subject to certain limitations,
from time to time, over the 36-month period commencing on May 9, 2013, the date that the registration statement which the Company
agreed to file with the SEC pursuant to the Lincoln Park Registration Rights Agreement was declared effective by the SEC. The
Company may direct Lincoln Park, at its sole discretion and subject to certain conditions, to purchase stock in amounts up to
$80,000 on any single business day so long as at least two business days have passed since the most recent purchase, increasing
to up to $500,000 per purchase, depending upon the closing sale price of the Common Stock. The purchase price of shares of Common
Stock related to the future funding will be based on the prevailing market prices of such shares at the time of sales (or over
a period of up to 12 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 $0.07 per share, subject to adjustment. The Company’s sales of
shares of Common Stock to Lincoln Park and its affiliates, at any single point in time, of more than 9.99% of the then outstanding
shares of the Common Stock.
In connection with the Purchase
Agreement, the Company issued to Lincoln Park 2,929,115 shares of Common Stock and is required to issue up to 2,929,115 additional
shares of Common Stock pro rata as the Company requires Lincoln Park to purchase the Company’s shares under the Lincoln
Park Purchase Agreement over the term of the agreement. Lincoln Park represented to the Company, among other things, that it was
an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933,
as amended (the “Securities Act”)), and the Company sold the securities in reliance upon an exemption from registration
contained in Section 4(2) under the Securities Act. The securities sold may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements.
The 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 convenanted 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.
The foregoing descriptions
of the Lincoln Park Purchase Agreement and the Lincoln Park Registration Rights Agreement are qualified in their entirety by reference
to the full text of the Lincoln Park Purchase Agreement and the Lincoln Park Registration Rights Agreement, copies of which are
attached as Exhibit 10.1 and Exhibit 10.2, respectively, to the Current Report on Form 8-K filed with the SEC on April 22, 2013,
with such filing and each exhibit being incorporated herein in its entirety by reference. The representations, warranties and
covenants contained in such agreements were made only for purposes of such agreements and as of specific dates, were solely for
the benefit of the parties to such agreements, and may be subject to limitations agreed upon by the contracting parties, including
being qualified by confidential disclosures exchanged between the parties in connection with execution of the agreements.
A Securities Registration on
Form S-1 was filed with the SEC on April 25, 2013 and declared effective by the SEC on May 9, 2013 (the “Lincoln Park Registration
Statement”), with such filing being herein incorporated by reference. The requisite Prospectus was filed with the SEC on
May 10, 2013, with such filing being herein incorporated by reference.
Issuance of Series G Preferred
Stock and Conversion of Series C Preferred Stock
On April 18, 2013, the Company
filed a Certificate of Designations with the Nevada Secretary of State designating a new series of convertible preferred stock
– Series G Preferred Stock (the “G Preferred Stock”) and setting forth various rights, preferences, restrictions
and other matters related to the G Preferred Stock. 1,375 shares were designated as G Preferred Stock, the same number of the
then outstanding shares of the Company’s Series C Preferred Stock. On April 19, 2013, the holders of substantially all of
the Company’s Series C Preferred Stock exchanged all of their shares of Series C Preferred Stock for an identical number
of shares of G Preferred Stock. The various rights, preferences, restrictions and other terms of the G Preferred Stock are substantially
the same as those of the Series C Preferred Stock, except that the conversion price of the G Preferred was changed. The foregoing
description of the Certificate of Designations is qualified in its entirety by reference to the full text of the Certificate of
Designations attached as Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on April 22, 2013, with such filing
and exhibit being herein incorporated by reference.
Conversion of Series G to
Common
During the period beginning
on April 1, 2013 and up to June 21, 2013, an aggregate of 266 shares of G Preferred Stock were converted into Common Stock, with
an aggregate of 3,800,000 shares of Common Stock being issued accordingly.
Shares issued to Lincoln
Park
During the period beginning
on April 1, 2013 and up to June 21, 2013, an aggregate of 4,785,084 shares of Common Stock were issued to Lincoln Park in accordance
with sales of Common Stock made pursuant to the Lincoln Park Purchase Agreement together with the Lincoln Park Registration Rights
Agreement.
Initial Shipment of Phentermine
Capsules
On April 11, 2013, the Company
made the initial shipment of Phentermine HCl capsules 15mg and 30mg, under the license, manufacturing and supply agreement with
its sales and marketing partner, triggering a milestone payment. Elite’s sales and marketing partner will distribute the
product as part of a multi-product distribution agreement.
A Current Report on Form 8-K
was filed with the SEC on April 11, 2013, with such filing being herein incorporated by reference.
Issuance of U.S. Patent
for Abuse Resistant Drug Formulation
On April 23, 2013, the Company
announced the issuance of U.S. Patent No. 8,425,933, entitled “Abuse-Resistant Oral Dosage Forms and Method of Use Thereof”
by the United States Patent and Trademark Office. This is the second issued U.S. patent covering Elite’s abuse resistant
technology for opioid products. Elite has additional patents pending in the U.S., Canada and Europe.
A Current Report on Form 8-K
was filed with the SEC on April 23, 2013, with such filing being herein incorporated by reference.
Change in Executive Leadership
Effective May 24, 2013, Mr.
Chris Dick stepped down as the Company’s President and Chief Operating Officer and as a member of the Board of Directors.
Mr. Dick will remain as a consultant with Elite to ensure a smooth transition while the Board of Directors conducts a search for
a permanent replacement.
A Current Report on Form 8-K
was filed with the SEC on May 21, 2013, with such filing being herein incorporated by reference.
Filing of Citizen Petition
with the FDA
On June 10, 2013, the Company
submitted a Citizen Petition to the U.S. Food and Drug Administration (the “FDA”) requesting that the FDA make a determination
that (a) it is suitable to use the currently approved and marketed ANDA product (ANDA 078648, generic to Drixoral brand) as the
Reference Listed Drug (“RLD”) since the current RLD Drixoral brand is no longer available in the marketplace, and
(b) that this currently approved and marketed ANDA product is suitable to use as a RLD for an equivalent active ingredient comprised
of a different salt.
The filing of the Citizen Petition
represents another step forward in the Company’s continuing efforts to reintroduce its extended release brompheniramine
maleate and pseudoephedrine hydrochloride to the marketplace.
Citizen petitions are filed
to ask that the FDA take, or refrain from taking, a particular action. Any person may file a citizen petition, and any person
may comment on a petition that has been filed. Petitions are governed by and must comply with FDA regulations, specifically 21
C.F.R §10.30, as well as the Federal Food, Drug and Cosmetic Act, specifically §355(q), when applicable.
The Company cannot predict
when or if the FDA will respond to, or otherwise take any action with respect to, the Citizen Petition.
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2013
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,080,792
|
|
|
$
|
369,023
|
|
Accounts receivable (net of allowance for doubtful accounts of -0-)
|
|
|
1,024,284
|
|
|
|
665,154
|
|
Inventories (net of reserve of -0- and $93,338, respectively)
|
|
|
1,531,645
|
|
|
|
1,358,146
|
|
Prepaid expenses and other current assets
|
|
|
281,065
|
|
|
|
151,051
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
3,917,786
|
|
|
|
2,543,374
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT,
net of accumulated
depreciation of $5,391,686 and $5,068,522, respectively
|
|
|
4,116,597
|
|
|
|
4,028,943
|
|
|
|
|
|
|
|
|
|
|
INTANGIBLE ASSETS
– net of
accumulated amortization of $-0-
|
|
|
6,314,621
|
|
|
|
694,426
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Investment in Novel Laboratories, Inc.
|
|
|
3,329,322
|
|
|
|
3,329,322
|
|
Security deposits
|
|
|
35,083
|
|
|
|
14,314
|
|
Restricted cash – debt service for EDA bonds
|
|
|
327,014
|
|
|
|
267,820
|
|
EDA bond offering costs, net of accumulated amortization
of $118,153 and $107,519, respectively
|
|
|
236,300
|
|
|
|
246,934
|
|
|
|
|
|
|
|
|
|
|
Total Other Assets
|
|
|
3,927,719
|
|
|
|
3,858,390
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
18,276,723
|
|
|
$
|
11,125,133
|
|
The accompanying notes are an integral
part of the condensed consolidated financial statements
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2013
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
EDA bonds payable
|
|
$
|
3,385,000
|
|
|
$
|
3,385,000
|
|
Short term loans and current portion of long-term debt
|
|
|
1,177
|
|
|
|
6,296
|
|
Convertible Note Payable (net of debt discount of $3,932,879 and -0-, respectively
|
|
|
6,067,121
|
|
|
|
-0-
|
|
Derivative Liability – convertible note payable
|
|
|
727,273
|
|
|
|
-0-
|
|
Related Party Line of Credit
|
|
|
320,148
|
|
|
|
600,000
|
|
Accounts payable and accrued expenses
|
|
|
1,990,728
|
|
|
|
1,325,126
|
|
Deferred revenues
|
|
|
13,333
|
|
|
|
13,333
|
|
Preferred share derivative interest payable
|
|
|
480
|
|
|
|
27,500
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
12,505,260
|
|
|
|
5,357,255
|
|
|
|
|
|
|
|
|
|
|
LONG TERM LIABILITIES
|
|
|
|
|
|
|
|
|
Deferred revenues
|
|
|
142,223
|
|
|
|
152,223
|
|
Other long term liabilities
|
|
|
98,340
|
|
|
|
91,571
|
|
Derivative liability – preferred shares
|
|
|
19,200
|
|
|
|
6,334,621
|
|
Derivative liability – warrants
|
|
|
10,439,126
|
|
|
|
7,862,848
|
|
|
|
|
|
|
|
|
|
|
Total Long Term Liabilities
|
|
|
10,698,889
|
|
|
|
14,441,263
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
23,204,149
|
|
|
|
19,798,518
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Common stock – par value $0.001, Authorized 690,000,000 shares.
Issued 513,217,800 shares and 374,493,959 shares, respectively. Outstanding 513,117,800 shares and 374,393,959 shares, respectively
|
|
|
513,219
|
|
|
|
374,495
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in-capital
|
|
|
133,075,266
|
|
|
|
119,690,336
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(138,209,070
|
)
|
|
|
(128,431,375
|
)
|
|
|
|
|
|
|
|
|
|
Treasury stock at cost (100,000 common shares)
|
|
|
(306,841
|
)
|
|
|
(306,841
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS’ DEFICIT
|
|
|
(4,927,426
|
)
|
|
|
(8,673,385
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
18,276,723
|
|
|
$
|
11,125,133
|
|
The accompanying notes are an integral
part of the condensed consolidated financial statements
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
(Unaudited)
|
|
THREE MONTHS ENDED
|
|
|
NINE MONTHS ENDED
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing Fees
|
|
$
|
891,838
|
|
|
$
|
400,494
|
|
|
$
|
2,356,619
|
|
|
$
|
1,246,210
|
|
Royalties & Profit Splits
|
|
|
743,125
|
|
|
|
156,454
|
|
|
|
1,147,958
|
|
|
|
439,117
|
|
Lab Fee Revenues
|
|
|
58,283
|
|
|
|
110,734
|
|
|
|
69,255
|
|
|
|
195,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
1,693,246
|
|
|
|
667,682
|
|
|
|
3,573,832
|
|
|
|
1,880,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS OF REVENUES
|
|
|
994,582
|
|
|
|
266,792
|
|
|
|
2,190,229
|
|
|
|
1,200,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
698,664
|
|
|
|
400,890
|
|
|
|
1,383,603
|
|
|
|
679,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development
|
|
|
1,290,858
|
|
|
|
238,268
|
|
|
|
2,715,126
|
|
|
|
663,625
|
|
General and Administrative
|
|
|
494,469
|
|
|
|
380,976
|
|
|
|
1,143,487
|
|
|
|
1,147,112
|
|
Non-cash compensation through issuance of stock options
|
|
|
23,662
|
|
|
|
15,133
|
|
|
|
52,085
|
|
|
|
36,379
|
|
Depreciation and Amortization
|
|
|
126,827
|
|
|
|
40,723
|
|
|
|
372,227
|
|
|
|
108,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
1,935,816
|
|
|
|
675,100
|
|
|
|
4,282,925
|
|
|
|
1,955,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) FROM OPERATIONS
|
|
|
(1,237,152
|
)
|
|
|
(274,210
|
)
|
|
|
(2,899,322
|
)
|
|
|
(1,275,243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME / (EXPENSES)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(359,130
|
)
|
|
|
(63,924
|
)
|
|
|
(689,852
|
)
|
|
|
(183,709
|
)
|
Change in fair value of warrant derivatives
|
|
|
656,844
|
|
|
|
5,765,992
|
|
|
|
(2,576,278
|
)
|
|
|
2,770,912
|
|
Change in fair value of preferred share derivatives
|
|
|
4,228
|
|
|
|
3,963,126
|
|
|
|
(3,462,104
|
)
|
|
|
(867,741
|
)
|
Change in fair value of convertible note derivative
|
|
|
(127,273
|
)
|
|
|
—
|
|
|
|
(127,273
|
)
|
|
|
—
|
|
Interest expense attributable to preferred share
derivatives
|
|
|
632
|
|
|
|
(27,818
|
)
|
|
|
(40,428
|
)
|
|
|
(111,719
|
)
|
Discount in Series E issuance attributable to beneficial conversion
features
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(437,500
|
)
|
Other Income
|
|
|
—
|
|
|
|
—
|
|
|
|
19,831
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Income / (Expense)
|
|
|
175,301
|
|
|
|
9,637,376
|
|
|
|
(6,876,104
|
)
|
|
|
1,170,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
|
|
|
(1,061,851
|
)
|
|
|
9,363,166
|
|
|
|
(9,775,426
|
)
|
|
|
(105,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,269
|
)
|
|
|
(4,023
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS
|
|
$
|
(1,061,851
|
)
|
|
$
|
9,363,166
|
|
|
$
|
(9,777,695
|
)
|
|
$
|
(109,023
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.00
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.00
|
)
|
Diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
508,638,816
|
|
|
|
350,220,224
|
|
|
|
439,720,987
|
|
|
|
345,384,514
|
|
Diluted
|
|
|
508,638,816
|
|
|
|
486,207,413
|
|
|
|
439,720,987
|
|
|
|
345,384,514
|
|
The accompanying notes are an integral
part of the condensed consolidated financial statements
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT
OF CHANGES IN STOCKHOLDERS’ DEFICIT
(Unaudited)
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Treasury Stock
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
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 Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,777,695
|
)
|
|
|
(9,777,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares sold pursuant to the Lincoln Park Capital purchase
agreement
|
|
|
39,630,813
|
|
|
|
39,631
|
|
|
|
3,470,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,510,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued in lieu of cash in payment of preferred
share derivative interest expense
|
|
|
873,518
|
|
|
|
874
|
|
|
|
66,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series C, Series E and Series G Preferred Shares
into Common Shares
|
|
|
91,628,937
|
|
|
|
91,629
|
|
|
|
9,685,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,777,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash compensation through the issuance of stock options
|
|
|
|
|
|
|
|
|
|
|
52,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs associated with raising capital
|
|
|
|
|
|
|
|
|
|
|
(47,987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued as commitment shares pursuant to the Lincoln
Park Capital purchase agreement
|
|
|
3,957,239
|
|
|
|
3,957
|
|
|
|
(3,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued pursuant to the exercise
of cash warrants
|
|
|
2,633,334
|
|
|
|
2,633
|
|
|
|
161,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
164,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
|
|
513,217,800
|
|
|
$
|
513,219
|
|
|
$
|
133,075,266
|
|
|
|
100,000
|
|
|
$
|
(306,841
|
)
|
|
$
|
(138,209,070
|
)
|
|
$
|
(4,927,426
|
)
|
The accompanying notes are an integral
part of the condensed consolidated financial statements
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
|
|
NINE MONTHS ENDED
DECEMBER 31
|
|
|
|
2013
|
|
|
2012
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(9,777,695
|
)
|
|
$
|
(109,023
|
)
|
Adjustments to reconcile net loss to cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
334,277
|
|
|
|
330,543
|
|
Change in fair value of warrant derivative liability
|
|
|
2,576,278
|
|
|
|
(2,770,912
|
)
|
Change in fair value of preferred share derivative liability
|
|
|
3,462,104
|
|
|
|
867,741
|
|
Change in fair value of convertible note derivative
|
|
|
127,273
|
|
|
|
—
|
|
Discount in Series E issuance attributable to embedded beneficial conversion
feature
|
|
|
—
|
|
|
|
437,500
|
|
Preferred share derivative interest satisfied by the issuance of common
stock
|
|
|
67,449
|
|
|
|
155,184
|
|
Non-cash compensation accrued
|
|
|
344,500
|
|
|
|
190,000
|
|
Non-Cash Interest Expense
|
|
|
469,805
|
|
|
|
—
|
|
Non-cash compensation from the issuance of options
|
|
|
52,085
|
|
|
|
36,379
|
|
Non-cash rent expense
|
|
|
5,698
|
|
|
|
7,215
|
|
Non-cash lease accretion
|
|
|
1,070
|
|
|
|
1,008
|
|
Changes in Assets and Liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(359,130
|
)
|
|
|
(129,539
|
)
|
Inventories
|
|
|
(173,499
|
)
|
|
|
(679,549
|
)
|
Prepaid and other current assets
|
|
|
(150,783
|
)
|
|
|
62,425
|
|
Accounts payable, accrued expenses and other current liabilities
|
|
|
315,980
|
|
|
|
137,640
|
|
Deferred revenues and Customer deposits
|
|
|
(10,000
|
)
|
|
|
40,130
|
|
Derivative interest payable
|
|
|
(27,020
|
)
|
|
|
(43,466
|
)
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(2,741,608
|
)
|
|
|
(1,466,724
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(379,615
|
)
|
|
|
(110,787
|
)
|
Cost of leasehold improvements
|
|
|
(31,682
|
)
|
|
|
(32,801
|
)
|
Costs incurred for intellectual property assets
|
|
|
(22,878
|
)
|
|
|
(40,001
|
)
|
Deposits to / (withdrawals from) restricted cash,
net
|
|
|
(59,194
|
)
|
|
|
(62,466
|
)
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(493,369
|
)
|
|
|
(246,055
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Series E Convertible Preferred Stock
|
|
|
—
|
|
|
|
437,500
|
|
Proceeds from sale of common shares to Lincoln Park Capital
|
|
|
3,510,000
|
|
|
|
—
|
|
Proceeds from exercise of cash warrants
|
|
|
164,583
|
|
|
|
187,500
|
|
Proceeds from draws against credit lines from related parties
|
|
|
320,150
|
|
|
|
500,000
|
|
Other loan payments
|
|
|
—
|
|
|
|
(5,117
|
)
|
Costs associated with raising capital
|
|
|
(47,987
|
)
|
|
|
(9,856
|
)
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
3,946,746
|
|
|
|
1,110,027
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
711,769
|
|
|
|
(602,752
|
)
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS – beginning of period
|
|
|
369,023
|
|
|
|
668,407
|
|
CASH AND CASH EQUIVALENTS – end of period
|
|
$
|
1,080,792
|
|
|
$
|
65,655
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
160,680
|
|
|
$
|
115,623
|
|
Cash paid for taxes
|
|
|
2,269
|
|
|
|
4,023
|
|
Non-Cash Financing Transactions
|
|
|
|
|
|
|
|
|
Commitment shares issued to Lincoln Park Capital
|
|
|
320,522
|
|
|
|
—
|
|
Conversion of Preferred Shares to Common Shares
|
|
|
9,777,524
|
|
|
|
—
|
|
Acquisition of intellectual property
|
|
|
5,597,317
|
|
|
|
—
|
|
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
|
|
|
|
|
|
The accompanying notes are an integral
part of the condensed consolidated financial statements
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
THREE AND NINE MONTHS ENDED DECEMBER
31, 2013 AND 2012
(
UNAUDITED
)
“Cash Reserves”
are equal to the amount listed in Note 2
“Current Balance Sheet
Date”
means December 31, 2013
“Current Bond Liability”
is equal to the amount listed in Note 2
“Current Fiscal Year”
means the twelve months ended March 31, 2014
“Current Quarter”
means the three months ended December 31, 2013
“Current YTD”
means the nine months ended December 31, 2013
“Derivative
Interest Liability Common Shares”
means the following Common Shares issued in lieu of cash in payment of Derivative
Interest due and owing as of the Current Balance Sheet Date:
Common Shares Issued
|
4,295
|
“
FDA
” means
the U.S. Food and Drug Administration
“Hakim Credit Line
Limit”
equals $1,000,000
“Hakim Credit Line
Balance”
equals $320,150
“Hakim Credit Line
Interest Due”
equals $6,527
“
Outstanding
Bond Principal Payments”
means principal payments which were due and owing on the NJEDA Bonds on or before the Current
Balance Sheet Date and not made, consisting of the following:
Payment Date
|
|
Amount
|
|
September 1, 2010
|
|
|
225,000
|
|
September 1, 2011
|
|
|
470,000
|
|
September 1, 2012
|
|
|
730,000
|
|
September 1, 2013
|
|
|
915,000
|
|
“
Prior Year Balance
Sheet Date
” means December 31, 2012
“
Prior Fiscal Year
”
means the twelve months ended March 31, 2013
“
Prior Year Quarter
”
means the three months ended December 31, 2012
“
Restricted
Cash Interest Payments
” means the following withdrawal of funds from the debt service reserve, with such funds being
used to make interest payments due to holders of the NJEDA Bonds:
Payment Date
|
|
Amount
|
|
March 1, 2009
|
|
$
|
120,775
|
|
September 1, 2009
|
|
|
120,775
|
|
March 1, 2010
|
|
|
113,075
|
|
September 1, 2010
|
|
|
113,075
|
|
March 1, 2011
|
|
|
113,075
|
|
September 1, 2011
|
|
|
113,075
|
|
March 1, 2012
|
|
|
113,075
|
|
September 1, 2012
|
|
|
113,075
|
|
March 1, 2013
|
|
|
113,075
|
|
September 1, 2013
|
|
|
113,075
|
|
“
Restricted
Cash Principal Payments
” means the following withdrawal of funds from the debt service reserve, with such funds being
used to make principal payments due to holders of the NJEDA Bonds:
Payment Date
|
|
Amount
|
|
September 1, 2009
|
|
|
210,000
|
|
“SEC”
means the Securities and Exchange Commission
“Treppel Credit Line
Balance”
equals zero
“Treppel Credit Line
Interest Due”
equals $8,384
“Treppel Credit Line
Limit”
equals $1,000,000
“Working Capital Deficit”
is equal to the amount listed in Note 2
NOTE 2
-
|
BASIS OF PRESENTATION AND LIQUIDITY
|
The information
in this quarterly report on Form 10-Q includes the results of operations of Elite Pharmaceuticals, Inc. and its consolidated subsidiaries
(collectively the “Company” or “Elite”) for the Current Quarter and Prior Year Quarter. The accompanying
unaudited condensed consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and
Exchange Commission in accordance with accounting principles generally accepted for interim financial statement presentation.
Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in
the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair presentation of the condensed consolidated financial
position, results of operations and cash flows of the Company for the periods presented have been included.
The financial
results for the interim periods are not necessarily indicative of the results to be expected for the full year or future interim
periods.
The accompanying
unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements
and notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2013 and filed with the SEC
on June 21, 2013. There have been no changes in significant accounting policies since March 31, 2013.
The Company
does not anticipate being profitable for the Current Fiscal Year; therefore a current provision for income tax was not established
for the Current Quarter. Only the minimum liability required for state corporation taxes was considered.
The accompanying
unaudited condensed consolidated financial statements were prepared on the assumption that the Company will continue as a going
concern. As of the Current Balance Sheet Date, the Company had the following:
Cash reserves (“Cash Reserves”)
|
|
$
|
1.1
|
million
|
Working capital deficit (“Working Capital Deficit”)
|
|
$
|
8.6
|
million
|
Losses from operations for the Current Quarter
|
|
$
|
1.2
|
million
|
Other income for the Current Quarter
|
|
$
|
0.2
|
million
|
Net loss for the Current Quarter
|
|
$
|
1.1
|
million
|
NJEDA Bonds Payable (“Current Bond Liability”)
|
|
$
|
3.4
|
million
|
The financial
statements do not include adjustments relating to the recoverability and realization of assets and classification of liabilities
that might be necessary should the Company be unable to continue in operation.
In addition,
the Company has received Notice of Default from the Trustee of the NJEDA Bonds as a result of the utilization of the debt service
reserve being used to pay semi-annual interest payments due on September 1
st
and March 1
st
of each year.
The debt service reserve was first used to make such semi-annual interest payments on March 1, 2009 and has been utilized for
all semi-annual interest payments due since then, with the Restricted Cash Interest Payments constituting such payments.
The Company
has replenished all amounts withdrawn from the debt service reserve for the payment of semi-annual interest payments, as required,
and in accordance with the applicable terms and conditions of such replenishments.
The Company
did not have sufficient funds available to make the Restricted Cash Principal Payments and the Outstanding Principal Payments.
The debt
service reserve was utilized to make the Restricted Cash Principal Payments, with the Company replenishing such amounts withdrawn
from the debt service reserve, as required and in accordance with the applicable terms and conditions of such replenishments.
The Company
requested that the Trustee utilize the debt service reserve to pay the principal payment due on September 1, 2010. This
request was denied and accordingly the principal payment due on September 1, 2010 was not made.
The Company
did not have sufficient funds available to make the principal payments due on September 1, 2011, 2012 and 2013, with such amount
due including principal payments due in the prior year but not paid. There were not sufficient funds available in the debt
service reserve and the payment was not made.
Please
refer to the definition of Outstanding Bond Principal Payments for details on the amounts of the principal payments which were
due and not made.
Resolution
of the Company’s default on the NJEDA Bonds and our request for postponement of principal payments will have a significant
effect on our ability to operate in the future.
Please
refer to Note 6 to our financial statements for a more detailed discussion of the NJEDA Bonds and Notice of Default.
Please
also note that the Working Capital Deficit includes the Current Bond Liability. This amount was first classified as a current
liability as of March 31, 2010, due to the Notice of Default received from the Trustee in relation to the NJEDA Bonds. Please
refer to the balance sheet and note 6 to our financial statements for details on the Current Bond Liability.
As of
the Current Balance Sheet Date, we had Cash Reserves.
On June
12, 2012, Elite entered into a bridge loan agreement, as amended on December 5, 2012, and August 2, 2013, (the “Treppel
Credit Line Agreement”) with Jerry Treppel, the Company’s Chairman. Under the terms of the Treppel Credit Line
Agreement, Elite has the right, in its sole discretion to a line of credit (the “Treppel Credit Line”) in the maximum
principal amount of up to the Treppel Credit Line Limit, at any one time. Mr. Treppel provided the Treppel Credit Line for
the purpose of supporting the acceleration of Elite’s product development activities. The outstanding amount is evidenced
by a promissory note which shall mature on July 31, 2014, at which time the entire unpaid principal balance, plus accrued interest
thereon shall be due and payable in full. Elite may prepay any amounts owed without penalty. Any such prepayments
shall first be due and owing and then to principal. Interest only shall be payable quarterly on July 1, October 1, January
1 and April 1 of each year. Prior to maturity or the occurrence of an Event of Default as defined in the Treppel Credit
Line Agreement, the Company may borrow, repay and reborrow under the Treppel Credit Line through maturity. Amounts borrowed
under the Treppel Credit Line bear interest at the rate of ten percent (10%) per annum. For more detailed information, please
refer to the Current Reports on Form 8-K filed with the SEC on June 13, 2012 December 10, 2012 and August 6, 2013, with such filings
being herein incorporated by reference.
On November
21, 2013, Elite entered into an unsecured convertible note (the “Treppel Note”) with Jerry Treppel (“Treppel”),
Elite’s Chairman of the Board, in the amount of $600,000 for the unpaid current principal amount owed pursuant to the Treppel
Bridge Loan Agreement (“Treppel Credit Line”). The original Treppel Credit Line agreement was executed on June 12,
2012 and amended on December 5, 2012 and August 2, 2013.
The Note
is interest free and due and payable on the third anniversary of its issuance. Subject to certain limitations, the principal amount
of the Note is convertible at the option of Treppel on and after the first anniversary of the date of the Note into shares of
the Company’s Common Stock at a rate of $0.099 (approximately 10,101 shares per $1,000 in principal amount), the closing
market price of the Company’s Common Stock on the date that the Note was executed. The conversion rate is 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.
The foregoing
description of the Note is qualified in its entirety by reference to the full text of the Note, a copy of which is attached as
Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on November 26, 2013, with such exhibit and filing being herein
in its entirety by reference. The representations, warranties and covenants contained in such Note was made only for purposes
of such Note and as of a specific date, was solely for the benefit of the parties to such Note, and may be subject to limitations
agreed upon by the contracting parties.
As of
the Current Balance Sheet Date, the principal balance of the Treppel Credit Line was equal to the Treppel Credit Line Balance
and the interest due was equal to the Treppel Credit Line Interest Due. Please also see Note 16- Subsequent Transaction.
On October
15, 2013, Elite entered into a bridge loan agreement (the “Hakim Credit Line Agreement”) with Nasrat Hakim, the Company’s
CEO and President. Under the terms of the Hakim Credit Line Agreement, Elite has the right, in its sole discretion to a
line of credit (the “Hakim Credit Line”) in the maximum principal amount of up to the Hakim Credit Line Limit, at
any one time. Mr. Hakim provided the Hakim Credit Line for the purpose of supporting the acceleration of Elite’s product
development activities. The outstanding amount is evidenced by a promissory note which shall mature on June 30, 2015, at which
time the entire unpaid principal balance, plus accrued interest thereon shall be due and payable in full. Elite may prepay
any amounts owed without penalty. Any such prepayments shall first be applied to interest due and owing and then to principal.
Interest only shall be payable quarterly on July 1, October 1, January 1 and April 1 of each year. Prior to maturity or
the occurrence of an Event of Default as defined in the Hakim Credit Line Agreement, the Company may borrow, repay and reborrow
under the Hakim Credit Line through maturity. Amounts borrowed under the Hakim Credit Line bear interest at the rate of
ten percent (10%) per annum. For more detailed information, please refer to the Current Reports on Form 8-K filed with the
SEC on October 16, 2013 and exhibit 10.16 to the Quarterly Report on Form 10-Q filed with the SEC on November 14, 2013, with such
filings being herein incorporated by reference.
As of
the Current Balance Sheet Date, the principal balance of the Hakim Credit Line was equal to the Hakim Credit Line Balance and
the interest due was equal to the Hakim Credit Line Interest Due.
On April
19, 2013, the Company entered into a purchase agreement (the “LPC Purchase Agreement”), together with a registration
rights agreement (the “LPC Registration Rights Agreement”), with Lincoln Park Capital Fund, LLC (“LPC”).
Under
the terms and subject to the conditions of the LPC Agreement, the Company has the right to sell to and LPC is 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, the date that the registration statement, which the Company agreed to file with the Securities
and Exchange Commission (the “SEC”) pursuant to the LPC Registration Rights Agreement, was declared effective by the
SEC. The Company may direct LPC, at its sole discretion and subject to certain conditions, to purchase stock in amounts
of up to $80,000 on any single business day, so long as at least two business days have passed since the most recent purchase,
increasing to up to $500,000 per purchase, depending upon the closing sale price of the Common Stock. The purchase price
of the shares of Common Stock related to the future funding will be based on the prevailing market prices of such shares at the
time of sales (or over a period of up to 12 business days leading up to such time), but in no event will shares be sold to LPC
on a day the Common Stock closing price is less than the floor price of $0.07 per share, subject to adjustment. The Company’s
sales of shares of Common Stock to LPC under the LPC Purchase Agreement are limited to no more than the number of shares that
would result in the beneficial ownership by LPC and its affiliates, at any single point in time, of more than 9.99% of the then
outstanding shares of Common Stock.
A Current
Report on Form 8-K was filed with the SEC on April 22, 2013 with regards to the LPC Purchase Agreement and LPC Registration Rights
Agreement with such filing being herein incorporated by reference. A Securities Registration Statement on Form S-1 was filed
with the SEC on April 25, 2013 and declared effective by the SEC on May 9, 2013. A post-effective amendment to the Registration
Statement was filed with the SEC and declared effective on June 26, 2013.
Shares issued pursuant to the
LPC Purchase Agreement are summarized as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Initial commitment shares issued
|
|
|
—
|
|
|
|
—
|
|
|
|
2,929,115
|
|
|
|
—
|
|
Additional commitment shares issued
|
|
|
471,590
|
|
|
|
—
|
|
|
|
1,028,124
|
|
|
|
—
|
|
Purchased shares issued
|
|
|
13,774,792
|
|
|
|
—
|
|
|
|
39,630,813
|
|
|
|
—
|
|
Proceeds from purchased shares
|
|
$
|
1,610,000
|
|
|
|
—
|
|
|
$
|
3,510,000
|
|
|
$
|
—
|
|
Despite having entered into
the Treppel Credit Line Agreement, the Hakim Credit Line Agreement and the LPC 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.
Management
has evaluated subsequent events or transactions occurring through the date the financial statements were issued (please see note
16).
Segment Reporting
FASB ASC
280-10-50, “Disclosure about Segments of an Enterprise and Related Information” requires use of the “management
approach” model for segment reporting. The management approach is based on the way a company’s management organizes
segments within the company for making operating decisions and assessing performance. Reportable segments are based on products
and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
The Company operates in one segment for the three and nine months ended December 31, 2013.
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
consist of raw materials, work in process and finished goods and are stated at the lower of cost (first-in, first-out basis) or
market (net realizable value), and summarized as follows:
|
|
December 31, 2013
|
|
|
March 31, 2013
|
|
Raw Materials
|
|
$
|
978,192
|
|
|
$
|
774,758
|
|
Work-in-Process
|
|
|
553,453
|
|
|
|
676,726
|
|
Finished Goods
|
|
|
—
|
|
|
|
—
|
|
Less: Inventory Reserve
|
|
|
—
|
|
|
|
(93,338
|
)
|
Total Inventory
|
|
$
|
1,531,645
|
|
|
$
|
1,358,146
|
|
NOTE 5
-
|
INTANGIBLE ASSETS
|
Costs
to acquire intangible assets, such as asset purchases of Abbreviated New Drug Applications (“ANDAs”) 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 the Current Balance Sheet Date, the following costs
were recorded as intangible assets on the Company’s balance sheet:
|
|
Patent
|
|
|
|
|
|
Total
|
|
|
|
Application
|
|
|
ANDA
|
|
|
Intangible
|
|
|
|
Costs
|
|
|
Acquisitions
|
|
|
Assets
|
|
Intangible Assets as of March 31, 2013
|
|
$
|
244,424
|
|
|
$
|
450,000
|
|
|
$
|
694,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs Capitalized During Current Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2013
|
|
|
18,498
|
|
|
|
—
|
|
|
|
18,498
|
|
Three months ended September 30, 2013
|
|
|
3,765
|
|
|
|
5,597,317
|
|
|
|
5,601,082
|
|
Three months ended December 31, 2013
|
|
|
617
|
|
|
|
—
|
|
|
|
617
|
|
Total Costs Capitalized-nine months ended December 31, 2013
|
|
|
22,880
|
|
|
|
5,597,317
|
|
|
|
5,620,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of Intangible Assets During Current Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2013
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Three months ended September 30, 2013
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Three months ended December 31, 2013
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total Amortization – nine months ended December
31, 2013
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets as of December 31, 2013
|
|
$
|
267,304
|
|
|
$
|
6,047,317
|
|
|
$
|
6,314,621
|
|
The costs incurred in patent
applications for the Current YTD and Current Quarter, were related to our abuse resistant opioid product lines. 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.
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:
|
|
Principal
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
On
|
|
|
Interest
|
|
|
|
|
Description
|
|
Issue Date
|
|
|
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 the Current Balance Sheet Date, all of the proceeds were utilized by the Company for such
stated purposes.
Interest is payable semiannually
on March 1 and September 1 of each year. The Bonds are collateralized by a first lien on the Company’s facility and equipment
acquired with the proceeds of the original and refinanced Bonds. The related Indenture requires the maintenance of a Debt Service
Reserve Fund as follows:
Description
|
|
Amount
|
|
Series A Note Proceeds
|
|
$
|
366,000
|
|
Series B Note Proceeds
|
|
|
49,500
|
|
Total
|
|
$
|
415,500
|
|
The Debt Service Reserve
is maintained in restricted cash accounts that are classified in Other Assets.
Bond issue costs were paid
from the bond proceeds and are being amortized over the life of the bonds. These costs and amortization activity are summarized
as follows:
|
|
|
|
|
|
|
|
Balances
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
Balances
As of
|
|
|
Amortization
Expense
|
|
|
Current
Balance Sheet
|
|
Description
|
|
March 31, 2013
|
|
|
Current YTD
|
|
|
Date
|
|
Bond Issue Costs
|
|
$
|
354,453
|
|
|
|
|
|
|
$
|
354,453
|
|
Accumulated Amortization
|
|
|
(107,519
|
)
|
|
|
(10,634
|
)
|
|
|
(118,153
|
)
|
Unamortized Balance
|
|
$
|
246,934
|
|
|
|
|
|
|
$
|
236,300
|
|
The NJEDA Bonds require
the Company to make an annual principal payment on September 1
st
of varying amounts as specified in the loan documents
and semi-annual interest payments on March 1
st
and September 1
st
, equal to interest due on the outstanding
principal at the applicable rate for the semi-annual period just ended.
Due to the Company not having
sufficient funds, the following withdrawals were made from the debt service reserve, with the funds being used to make interest
payments due to the holders of the NJEDA Bonds:
Payment Date
|
|
Amount
|
|
March 1, 2009
|
|
$
|
120,775
|
|
September 1, 2009
|
|
|
120,775
|
|
March 1, 2010
|
|
|
113,075
|
|
September 1, 2010
|
|
|
113,075
|
|
March 1, 2011
|
|
|
113,075
|
|
September 1, 2011
|
|
|
113,075
|
|
March 1, 2012
|
|
|
113,075
|
|
September 1, 2012
|
|
|
113,075
|
|
March 1, 2013
|
|
|
113,075
|
|
September 1, 2013
|
|
|
113,075
|
|
Due to the Company not having
sufficient funds, the following withdrawal was made from the debt service reserve, with the funds being used to make a principal
payment due to the holders of the NJEDA Bonds:
Payment Date
|
|
Amount
|
|
September 1, 2009
|
|
$
|
210,000
|
|
|
|
|
|
|
Pursuant to the terms of
the NJEDA Bonds, the Company is required to replenish any amounts withdrawn from the debt service reserve and used to make principal
or interest payments in six monthly installments, each being equal to one-sixth of the amount withdrawn and with the first installment
due on the 15
th
of the month in which the withdrawal from debt service reserve occurred and the remaining five monthly
payments being due on the 15
th
of the five immediately subsequent months. The Company has, to date, made all payments
required in relation to the withdrawals made from the debt service reserve in relation to the Restricted Cash Interest Payments
and the Restricted Cash Principal Payment.
In addition, the Company
did not have sufficient funds available to make the principal payments due on September 1, 2010, September 1, 2011, September
1, 2012 and September 1, 2013. These principal payments are summarized as follows:
Payment Date
|
|
Amount
|
|
September 1, 2010
|
|
$
|
225,000
|
(1)
|
September 1, 2011
|
|
|
470,000
|
(2)
|
September 1, 2012
|
|
|
730,000
|
(3)
|
September 1, 2013
|
|
|
915,000
|
(4)
|
|
(1)
|
The Company request to withdraw funds from the debt service reserve
to pay the amount due on September 1, 2010 was denied by the Trustee and accordingly, the principal payment due on such date
was not made.
|
|
(2)
|
The principal payment due on September 1, 2011, included the amount due and September
1, 2010 and not paid. There were not sufficient funds available in the debt service reserve and the principal payment
due on September 1, 2011 was not made.
|
|
(3)
|
The principal payment due on September 1, 2012, included the amount due and September
1, 2011 and not paid. There were not sufficient funds available in the debt service reserve and the principal payment
due on September 1, 2012 was not made.
|
|
(4)
|
The principal payment due on September 1, 2013, included the amount due and September
1, 2012 and not paid. There were not sufficient funds available in the debt service reserve and the principal payment
due on September 1, 2013 was not made.
|
The Company has received
Notice of Default from the Trustee of the NJEDA Bonds in relation to the withdrawals from the debt service reserve, and no payment
of scheduled principal amounts. Resolution of the Company’s default under the NJED Bonds will have a significant effect
on our ability to operate in the future.
Due to issuance of a Notice
of Default being received from the Trustee of the NJEDA Bonds, and until the event of default is waived or rescinded, the Company
has classified the Current Bond Liability, as a current liability.
NOTE 7 -
|
DERIVATIVE LIABILITIES
|
Accounting Standard Codification
“ASC” 815 –
Derivatives and Hedging
, which provides guidance on determining what types of instruments
or embedded features in an instrument issued by a reporting entity can be considered indexed to its own stock for the purpose
of evaluating the first criteria of the scope exception in the pronouncement on accounting for derivatives. These requirements
can affect the accounting for warrants and convertible preferred instruments issued by the Company. As the conversion features
within, and the detachable warrants issued with the Company’s Series B, Series C, Series E and Series G 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.
Preferred Stock Derivative
Liabilities
Preferred Stock Derivative Liability as of Current Balance Sheet Date
|
|
|
|
Series C
|
|
|
Series E
|
|
|
Series G
|
|
|
Total
|
|
Preferred Shares Authorized
|
|
|
3,200
|
|
|
|
4,000
|
|
|
|
1,375
|
|
|
|
8,575
|
|
Preferred shares Outstanding
|
|
|
24
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying common shares into which Preferred may convert
|
|
|
160,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
160,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing price on valuation date
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock derivative liability at Current Balance Sheet Date
|
|
$
|
19,824
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
19,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock derivative liability at March 31, 2013
|
|
$
|
697,584
|
|
|
$
|
5,637,037
|
|
|
|
—
|
|
|
$
|
6,334,621
|
|
CHANGE IN VALUE OF PREFERRED STOCK DERIVATIVE LIABILITY
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Change in Preferred Stock Derivative Liability
|
|
$
|
4,228
|
|
|
$
|
3,963,126
|
|
|
$
|
(3,462,104
|
)
|
|
$
|
(867,741
|
)
|
Warrant Derivative Liabilities
The portion of derivative
liabilities related to outstanding warrants was valued using the Black-Scholes option valuation model and the following assumptions
on the following dates:
FAIR VALUE OF WARRANT DERIVATIVE LIABILITY
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
2013
|
|
|
2013
|
|
|
2013
|
|
|
2013
|
|
Risk-Free interest rate
|
|
|
0.04% - 0.77
|
%
|
|
|
0.02% - 1.41
|
%
|
|
|
0.03% - 1.39
|
%
|
|
|
.01% - 1.26
|
%
|
Expected volatility
|
|
|
106% - 168
|
%
|
|
|
35% - 97
|
%
|
|
|
62% - 117
|
%
|
|
|
70% - 124
|
%
|
Expected life (in years)
|
|
|
0.5 – 5.1
|
|
|
|
0.2 – 4.8
|
|
|
|
0.8 – 4.6
|
|
|
|
0.5 – 4.3
|
|
Expected dividend yield
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Number of warrants
|
|
|
139,344,939
|
|
|
|
139,344,939
|
|
|
|
120,491,539
|
|
|
|
117,958,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Warrant Derivative Liability
|
|
$
|
7,862,848
|
|
|
$
|
4,966,391
|
|
|
$
|
11,095,970
|
|
|
$
|
10,439,126
|
|
CHANGE IN VALUE OF WARRANT DERIVATIVE LIABILITY
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Change in Warrant Derivative Liability
|
|
$
|
656,844
|
|
|
$
|
5,765,992
|
|
|
$
|
(2,576,278
|
)
|
|
$
|
2,770,912
|
|
The risk free interest rate
was based on rates established by the U.S. 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.
NOTE 8
-
|
PREFERRED SHARE DERIVATIVE INTEREST PAYABLE
|
Preferred share derivative
interest payable as of the Current Balance Sheet Date consisted of the amount reported on the liability section of the balance
sheet and titled “Preferred Share Derivative Interest Payable”. This amount was paid via the issuance of the
Derivative Interest Liability Common Shares in January 2014.
NOTE 9
-
|
OPERATING LEASES
|
The Company entered into
a lease for a portion of a one-story warehouse, located at 135 Ludlow Avenue, Northvale, New Jersey, consisting of approximately
15,000 square feet of floor space. The lease term began on July 1, 2010 and is classified as an operating lease. The lease includes
an initial term of 5 years and 6 months and the Company has the option to renew the lease for two additional terms, each of 5
years. The property related to this lease will be used for the storage of pharmaceutical finished goods, raw materials, equipment
and documents as well as engaging in manufacturing, packaging and distribution activities.
This property required significant
leasehold improvements and qualification as a prerequisite to achieving suitability for such intended future use and in January
2013, the Company began using the facility at 135 Ludlow Avenue for commercial production and commenced shipping packaged products
from the facility.
Minimum 5 year payments*
for the leasing of 15,000 square feet at 135 Ludlow are as follows:
Fiscal year ended March 31, 2014
|
|
|
83,259
|
|
Fiscal year ended March 31, 2015
|
|
|
85,344
|
|
Fiscal year ended March 31, 2016
|
|
|
87,363
|
|
Fiscal year ended March 31, 2017
|
|
|
89,112
|
|
Fiscal year ended March 31, 2018
|
|
|
90,894
|
|
Total Minimum 5 year lease payments
|
|
$
|
435,972
|
|
* Minimum lease payments
are exclusive of additional expenses related to certain expenses incurred in the operation and maintenance of the premises, including,
without limitation, real estate taxes and common area charges which may be due under the terms and conditions of the lease, but
which are not quantifiable at the time of filing of this quarterly report on Form 10-Q.
Rent expense relating to
the operating lease is recorded using the straight line method, and is summarized as follows:
RENT EXPENSE
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Rent Expense
|
|
$
|
22,584
|
|
|
$
|
22,584
|
|
|
$
|
67,753
|
|
|
$
|
67,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in deferred rent liability
|
|
$
|
1,899
|
|
|
$
|
2,403
|
|
|
$
|
5,698
|
|
|
$
|
7,215
|
|
DEFERRED RENT LIABILITY (LONG-TERM LIABILITY)
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
2013
|
|
|
2013
|
|
|
2013
|
|
|
2013
|
|
Balance of Deferred Rent Liability
|
|
$
|
68,260
|
|
|
$
|
70,160
|
|
|
$
|
72,062
|
|
|
$
|
73,961
|
|
NOTE 10
-
|
DEFERRED REVENUES
|
Deferred revenues are summarized
as follows:
Advance payment received
|
|
$
|
200,000
|
|
Total revenue recognized as of March 31, 2013
|
|
|
(34,444
|
)
|
Revenue recognized nine months ended December 31, 2013
|
|
|
(10,000
|
)
|
Total Deferred Revenues as of Current Balance Sheet Date
|
|
$
|
155,556
|
|
|
|
|
|
|
Current Portion of Deferred Revenues as of Current Balance Sheet Date
|
|
$
|
13,333
|
|
Non-Current Portion of Deferred Revenues as of Current Balance Sheet Date
|
|
$
|
142,223
|
|
Deferred revenues represents
the unamortized amount of an advance payment received from Precision Dose Inc. 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 portion of deferred revenues,
represents the revenue that will be recognized over the 12 months immediately subsequent to Current Balance Sheet Date.
The long term portion of deferred revenues, represents the revenue that will be recognized during the period that begins more
than twelve months subsequent to the Current Balance Sheet Date. Please refer to exhibit 10.9 of the quarterly report on
form 10-Q filed on November 15, 2010 for further details on the Precision Dose Manufacturing Agreement, with such exhibit
being herein incorporated by this reference.
NOTE 11
-
|
STOCKHOLDERS’ EQUITY
|
Common Stock
During the Current YTD,
the Company issued shares of Common Stock, as follows:
|
|
Shares
|
|
|
|
Of
|
|
Description
|
|
Common Stock
|
|
Common Shares issued in lieu of cash in payment of Preferred Share Derivative
Interest
|
|
|
873,518
|
|
|
|
|
|
|
Common Shares issued pursuant to the conversion of Series C, Series E and Series
G Preferred
Share derivatives
|
|
|
91,628,937
|
|
|
|
|
|
|
Common shares sold pursuant to the LPC Purchase Agreement
|
|
|
39,630,813
|
|
|
|
|
|
|
Common shares issued as commitment shares pursuant to the LPC Purchase
Agreement
|
|
|
3,957,239
|
|
|
|
|
|
|
Common shares issued pursuant to the exercise of cash warrants
|
|
|
2,633,334
|
|
|
|
|
|
|
Total Common Shares issued during the Current YTD
|
|
|
138,723,841
|
|
Options
Options issued and outstanding
as of the Current Balance Sheet Date are summarized as follows:
|
|
Number of Options
|
|
|
Range of Exercise Prices
|
|
Vested Options
|
|
|
2,203,999
|
|
|
|
$0.06 to $2.75
|
|
Non-Vested Options
|
|
|
3,540,001
|
|
|
|
$0.07 to $0.12
|
|
Each option represents the
right to purchase one share of common stock. The non-vested options are scheduled to vest in various increments during dates
that are within the period beginning on January 18, 2013 and through August 15, 2016, or upon the occurrence of certain defined
events and require that employees awarded such options be employed by the Company on the vesting date.
NOTE 12
-
|
PER SHARE INFORMATION
|
Basic earnings per share
of common stock (“Basic EPS”) is computed by dividing the net (loss) income by the weighted-average number of shares
of common stock outstanding. Diluted earnings per share of common stock (“Diluted EPS”) are computed by dividing
the net (loss) income 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 and Diluted EPS, if such Diluted EPS is not anti-dilutive,
on the face of Company’s Condensed Statements of Operations.
The calculation of Basic
EPS and Diluted EPS is summarized as follows:
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended December 31,
|
|
|
Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss) attributable to common
shareholders
- Basic
|
|
$
|
(1,061,851
|
)
|
|
$
|
9,363,166
|
|
|
$
|
(9,777,695
|
)
|
|
$
|
(109,023
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income attributable to common
shareholders - Diluted
|
|
|
n/a
|
|
|
|
(365,952
|
)
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common
stock outstanding
|
|
|
508,638,816
|
|
|
|
350,220,224
|
|
|
|
439,720,987
|
|
|
|
345,384,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options, warrants
and convertible securities
|
|
|
n/a
|
|
|
|
135,987,189
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.00
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.00
|
)
|
Diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.00
|
)
|
NOTE 13
-
|
RELATED PARTY TRANSACTION -
BORROWING AGAINST THE TREPPEL AND HAKIM
CREDIT LINES
|
As of the Current Balance
Sheet Date, Elite owed the Treppel Credit Line Balance and the Treppel Credit Line Interest Due in relation to the Treppel Credit
Line. Both amounts were recorded as current liabilities on Elite’s balance and included in the line item titled
“Short term loans and current portion of long-term debt”.
As of the Current Balance
Sheet Date, Elite owed the Hakim Credit Line Balance and the Hakim Credit Line Interest Due in relation to the Hakim Credit Line.
Both amounts were recorded as current liabilities on Elite’s balance and included in the line item titled “Short term
loans and current portion of long-term debt”.
For further details on the
Treppel Credit Line, please refer to Note 2 of these financial statements and the Current Reports on Form 8-K filed with the SEC
on June 13, 2012 and December 10, 2012, with such filings being herein incorporated by reference.
For further details on the
Hakim Credit Line, please refer to Note 2 of these financial statements, exhibit 10.16 of the Quarterly Report on Form 10-Q filed
with the SEC on November 14, 2013 and the Current Report on Form 8-K filed with the SEC on October 16, 2013 with filings being
herein incorporated by reference.
|
NOTE 14-
|
RELATED PARTY TRANSACTION – MIKAH PURCHASE AGREEMENT AND NOTE PAYABLE; HAKIM
EMPLOYMENT AGREEMENT
|
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, 2013,
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”).
Elite previously purchased
two ANDA products and has a development agreement with Mikah (please see the relevant disclosure in the Company’s Annual
Report on Form 10-K for the fiscal year ended March 31, 2013 and filed with the SEC on June 21, 2013).
The products referenced
in the approved ANDAs require site transfer approval with the FDA. The Company believes that the site transfers qualify
for a CBE 30 review with one exception, which would allow for the product manufacturing transfer on an expedited basis.
However, the Company can give no assurances that the site transfers will qualify for a CBE 30 review, or on the timing of these
transfers and the timing is dependent on the FDA reviews. The approved ANDAs include pain, antipsychotic, hypertension,
antihistamine, bariatric and muscle relaxant products. Of the thirteen products, two products are in markets where there
is only one other generic competitor.
Please note that on October
2, 2013, Elite executed a manufacturing and licensing agreement with Epic Pharma LLC (“Epic”) to manufacture, market
and sell in the United States and Puerto Rico twelve of the thirteen products. Of the 12 products, Epic will have the exclusive
right to market six products, and a non-exclusive right to market six. Please refer to the applicable section of Note 15
of these financial statements, Exhibit 10.17 of the Quarterly Report on Form 10-Q filed with the SEC on November 14, 2013 and
the Current Report on Form 8-K filed with the SEC on October 2, 2013, with all such filings being herein incorporated by reference.
The Mikah Note is interest
free and due and payable on the third anniversary of its issuance. Subject to certain limitations, the principal amount
of the Mikah Note is convertible at the option of Mikah on and after the first anniversary of the date of the Mikah Note 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. The conversion
rate is 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 is secured by the ANDAs acquired in the Acquisition.
In accordance with GAAP,
an imputed interest rate was estimated by management, with factors considered in such estimation including, without limitation,
rates paid by the Company on loans owed at the date of the transaction, yields on current debt obligations, the credit standing
of the Company and management’s estimation of rates which other debtors of similar credit standing can obtain financing
of a similar nature from other sources at the date of the transaction.
The Mikah Note is classified
as a current liability on the balance sheet, due to the conversion option being exercisable on the first anniversary of the date
of the Mikah Note, at the option of the holder.
The difference between the
face value of the Mikah Note and the net present value of the Mikah Note, inclusive of discount for imputed interest at the date
of issuance of the Note was recorded as a debt discount and the ANDA’s assigned an aggregate cost equal to the net present
value of the Note. The cost assigned to the ANDA’s was evaluated for fairness, summarized as follows:
Face value of Note
|
|
$
|
10,000,000
|
|
Net present value of Note at date of issuance
|
|
|
5,597,317
|
|
Aggregate cost of ANDA’s acquired
|
|
|
5,597,317
|
|
Debt discount at date of Note issuance
|
|
|
4,140,018
|
|
Management has determined,
based on the evaluation conducted, that the fair value exceeds the cost of the ANDA’s acquired.
The foregoing descriptions
of the Purchase Agreement, Mikah Note and Security Agreement are qualified in their entirety by reference to the full text of
the Purchase Agreement, Note and Security Agreement, copies of which are attached as Exhibit 10.1 10.2 and 10.3, respectively
to the Current Report on Form 8-K filed with the SEC on August 5, 2013, with the exhibits and current report being herein incorporated
by reference. The representations, warranties and covenants contained in such agreements were made only for purposes of
such agreements and as of specific dates, were solely for the benefit of the parties to such agreements, and may be subject to
limitations agreed upon by the contracting parties, including being qualified by confidential disclosures exchanged between the
parties in connection with execution of the agreements.
The debt discount is being
amortized to interest expense over the life of the Mikah Note, using the interest method, with such amortization being summarized
as follows:
|
|
For the Three Months
Ended December 31,
|
|
|
For the Nine Months
Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on note payable to Mikah Pharma LLC
|
|
$
|
286,414
|
|
|
|
—
|
|
|
$
|
469,805
|
|
|
|
—
|
|
Please also see Note 16-
Subsequent Transactions.
On August 1, 2013, the Company
hired Nasrat Hakim as its President and Chief Executive Officer, effective August 2, 2013, pursuant to an executive employment
agreement (the “Hakim Employment Agreement”). Pursuant to the Hakim Employment Agreement, Mr. Hakim will receive
an annual salary of $350,000 per year (the “Hakim Salary”). The Hakim Salary will be paid in shares of the Common
Stock pursuant to the Company’s current procedures for paying Company executives in Common Stock. He also will be
entitled to an annual bonus equal to up to 100% of his annual salary (also payable in Common Stock) based upon his ability to
meet certain Company milestones to be determined by the Company’s Board of Directors (the “Board”). The
Board may also award discretionary bonuses in its sole discretion. Mr. Hakim is entitled to employee benefits (e.g. health
insurance, vacation, employee benefit plans and programs) consistent with other Company employees of his seniority and a car allowance.
The Hakim Employment Agreement contains confidentiality, 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 give notice of 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 salary, accrued vacation time and any reasonable and necessary business expenses, all through the date of
termination and payable in Common Stock (“Basic Termination Benefits”). If Mr. Hakim is terminated because of
disability or death, in addition to Basic Termination Benefits, he is entitled to his pro rata annual bonus through the date of
termination (payable in Common 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 Common 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 Common Stock computed in
the same manner as set forth as the Hakim Salary.
The foregoing description
of the Hakim Employment Agreement is qualified in its entirety by reference to the full text of the Hakim Employment Agreement,
a copy of which is attached as Exhibit 10.4 to the Current Report on Form 8-K filed with the SEC on August 5, 2013, with such
filing being herein incorporated by reference.
|
NOTE 15
-
|
RELATED
PARTY TRANSACTION: TREPPEL NOTE PAYABLE
|
On November 21, 2013, Elite
entered into an unsecured convertible note (the “Treppel Note”) with Jerry Treppel (“Treppel”), Elite’s
Chairman of the Board, in the amount of $600,000 for the unpaid current principal amount owed pursuant to the Treppel Bridge Loan
Agreement (“Treppel Credit Line”). The original Treppel Credit Line agreement was executed on June 12, 2012 and amended
on December 5, 2012 and August 2, 2013.
The Treppel Note is interest
free and due and payable on the third anniversary of its issuance. Subject to certain limitations, the principal amount of the
Treppel Note is convertible at the option of Treppel on and after the first anniversary of the date of the Treppel Note into shares
of the Company’s Common Stock at a rate of $0.099 (approximately 10,101 shares per $1,000 in principal amount), the closing
market price of the Company’s Common Stock on the date that the Treppel Note was executed. The conversion rate is 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.
The foregoing description
of the Treppel Note is qualified in its entirety by reference to the full text of the Note, a copy of which is attached as Exhibit
10.1 to the Current Report on Form 8-K filed with the SEC on November 26, 2013, with such exhibit and filing being herein in its
entirety by reference. The representations, warranties and covenants contained in such Note was made only for purposes of such
Note and as of a specific date, was solely for the benefit of the parties to such Note, and may be subject to limitations agreed
upon by the contracting parties.
The Treppel Note has been
recorded as a derivative instrument using the fair value method, with such fair value being recorded at issuance, and subsequently
as of the Balance Sheet Date. Furthermore, as a result of the requirement to record the fair value both initially and subsequently,
there were insufficient proceeds to allocate any amount the conversion feature of the Treppel Note, and accordingly, it has no
carrying value on the inception date.
The following table summarizes
the relevant components of the valuation at issuance and as of the Balance Sheet Date:
|
|
Issuance Date
|
|
|
Balance
|
|
|
|
Nov 21, 2013
|
|
|
Sheet Date
|
|
Principal amount of Treppel Note
|
|
$
|
600,000
|
|
|
$
|
600,000
|
|
Conversion Rate
|
|
$
|
0.099
|
|
|
$
|
0.099
|
|
Underlying common shares into which the Treppel Note may
convert
|
|
|
6,060,606
|
|
|
|
6,060,606
|
|
|
|
|
|
|
|
|
|
|
Closing price of Common Stock at valuation date
|
|
$
|
0.099
|
|
|
$
|
0.12
|
|
Treppel Note derivative liability at valuation date
|
|
$
|
600,000
|
|
|
$
|
727,273
|
|
|
|
|
|
|
|
|
|
|
Derivative expense from the change in fair value of the
Treppel
Note
|
|
$
|
-0-
|
|
|
$
|
127,273
|
|
Please see Note 16-Subsequent
Events.
|
NOTE 16 -
|
SUBSEQUENT
EVENTS
|
Common shares issued
in lieu of cash in payment of derivative interest expense
The Derivative Interest
Liability Common Shares were issued during January 2014 in payment of those amounts listed as a current liability as of the Current
Balance Sheet Date under the line item “Preferred Share Derivative Interest Payable”.
Common Stock sold
pursuant to the LPC Purchase Agreement
Subsequent to the Current
Balance Sheet Date and up to February 5, 2013 (the latest practicable date), a total of 11,275,832 shares of Common Stock were
sold pursuant to the LPC Purchase Agreement inclusive of purchase and commitment shares.
For further details on the
LPC Agreement and LPC Registration Rights Agreement, please refer to the Current Report on Form 8-K filed with the SEC on April
22, 2013, with such filing being herein incorporated by reference. A Registration Statement on Form S-1 was
filed with the SEC on April 25, 2013 and declared effective by the SEC on May 9, 2013. A post-effective amendment to the
Registration Statement was filed with the SEC and declared effective on June 26, 2013.
Conversion of Series
C to Common
On February 3, 2014, pursuant
to the Certificate of Designations of the Company’s Series C Preferred Stock, an automatic conversion of all outstanding
shares of the Series C Preferred Stock occurred. A total of 167,836 shares of Common Stock were issued pursuant to the automatic
conversion, consisting of 167,106 shares issued in relation to the conversion of a total of 24 shares of Series C Preferred
Stock into Common Stock and 730 shares issued in lieu of cash in payment of derivative interest expense totaling $160 due and
owing to the holder of the Series C Preferred shares being converted for the month of January 2014. After this automatic
conversion, there were no outstanding shares of Series C Preferred Stock.
Designation of new
Series I Preferred Stock
On February 6, 2014, the
Company filed a Certificate of Designations (the “COD”) with the Nevada Secretary of State designating a new series
of convertible preferred stock - Series I Preferred Stock (the “I Preferred Stock”) and setting forth the various
rights, preferences, restrictions and other matters related to the I Preferred Stock. 500 shares were designated as I Preferred
Stock. Each share of I Preferred Stock has a Stated Value of $100,000 and is convertible at the option of the holder thereof
(the “Holder”) into such number of shares of Common Stock determined by dividing the Stated Value of such share of
I Preferred Stock by the Conversion Price (currently $0.07, subject to adjustment pursuant to the terms of the COD). Each
share of I Preferred is entitled to vote along with the holders of Common Stock and each share is entitled to votes equal to the
number of shares of Common Stock into which they are convertible. Holders are entitled to dividends if and when declared in an
amount equal to the dividend he or she would have been entitled to receive upon conversion, in full, of one share of Series I
Preferred in to Common Stock. Upon any liquidation, dissolution or winding-up of the Company, each Holder is entitled to
receive, pari passu and pro rata with the holders of Common Stock, out of the assets of the Company an amount equal to the amount
distributable with regard to the number of shares of Common Stock into which the shares of Series I Preferred Stock held by the
Holder are convertible.
The foregoing description of
the Certificate of Designations is qualified in its entirety by reference to the full text of the Certificate of Designations,
which is included as Exhibit 4.1 to the Current Report on Form 8K filed with the SEC on February 7, 2014 with such filing being
herein incorporated in its entirety by reference.
Amendment of Mikah
and Treppel Notes
On February 7, 2014, the
Company, and Elite Laboratories, Inc., its wholly-owned subsidiary, amended the following convertible promissory notes: (i) an
August 1, 2013 Secured Convertible Note to Mikah Pharma LLC (“Mikah”) due August 1, 2016 in the principal amount of
$10,000,000 (the “Mikah Note”), and (ii) a November 21, 2013 Convertible Note to Jerry Treppel due November 21, 2016
in the principal amount of $600,000 (the “Treppel Note” and, together with the Mika Note, the “Notes”).
Mikah is owned by the Company’s CEO and President and Mr. Treppel is a director of the Company. Generally, the Notes
were amended to make them convertible into shares of the Company’s newly created Series I Convertible Preferred Stock.
For a description of this new series of preferred stock, please see “Item 5.03” below. The Mikah Note also was
amended to make it immediately exercisable.
The foregoing description
of the Amendments to the Notes is qualified in its entirety by reference to the full text of the Amendments, copies of which are
attached as Exhibits 10.1 and 10.2, respectively, to the Current Report on Form 8K filed with the SEC on February 7, 2014 and
are incorporated herein in their entirety by reference.
Conversion of Mikah
and Treppel Notes Payable to Series I
On February 7, 2014, Mikah
converted the entire Mikah Note into 100 shares of I Preferred Stock and Treppel converted the entire Treppel Note into 4.242
shares of the Company’s Series I Convertible Preferred Stock. We relied on the exemption from registration provided
by Section 4(a)(2) of the Securities Act of 1933.
Common shares issued
pursuant to the exercise of cash warrants
Subsequent to the Current
Balance Sheet date and through February 5, 2014 (the latest practicable date), the Company issued a total of 2,416,334 shares
of common stock pursuant to the exercise of cash warrants. Proceeds received from such warrant exercises totaled $151,021.
Sale of New Jersey
State Net Operating Losses
In January 2014, Elite Laboratories
Inc., a wholly owned subsidiary of Elite Pharmaceuticals Inc. received final approval from the New Jersey Economic Development
Authority for the sale of New Jersey net operating losses with net tax benefits equal to $332,424 under the Technology Business
Tax Certificate Transfer Program. The Company sold the net operating loss approved for sale at a transfer price equal to
ninety two cents for every benefit dollar. The proceeds of such sale, totaling $295,710, were received by Elite Laboratories
Inc. during February 2014.
On November 15, 2013, our
board of directors declared a dividend distribution of one right for each outstanding share of our common stock and one right
for each share of Common Stock into which any of our outstanding Preferred Stock is convertible, to stockholders of record at
the close of business on that date. Each Right entitles the registered holder to purchase from us one “Unit” consisting
of one one-millionth (1/1,000,000) of a share of Series H Junior Participating preferred stock, par value $0.01 per share (the
“H Preferred Stock”), at a purchase price of $2.10 per Unit, subject to adjustment, and may be redeemed prior to November
15, 2023, the expiration date, at $0.000001 per Right, unless earlier redeemed by the Company. The Rights generally are not transferable
apart from the common stock and will not be exercisable unless and until a person or group acquires or commences a tender or exchange
offer to acquire, beneficial ownership of 15% or more of our common stock. However, for Mr. Hakim, our Chief Executive Officer,
the Rights Plan's the 15% threshold excludes shares beneficially owned by him as of November 15, 2013 and all shares issuable
to him pursuant to his employment agreement and the Mikah Note. The description and terms of the Rights are set forth in a Rights
Agreement (“Rights Agreement”) between the Company and American Stock Transfer & Trust Company, LLC, as Rights
Agent. For more detailed information, please refer to the Registration Statement on Form 8-A filed with the SEC on November 15,
2013, and exhibits 1 (Rights Agreement) and 2 (Series H Junior Participating Preferred Stock Certificate of Designations) filed
therewith, with such filings being herein incorporated by reference.
The foregoing description of
the Certificate of Designations is qualified in its entirety by reference to the full text of the Certificate of Designations,
which is included as Exhibit 4.1 to the Current Report on Form 8K filed with the SEC on February 7, 2014 with such filing being
herein incorporated in its entirety by reference.
Amendment of Mikah
and Treppel Notes
On February 7, 2014, the
Company, and Elite Laboratories, Inc., its wholly-owned subsidiary, amended the following convertible promissory notes: (i) an
August 1, 2013 Secured Convertible Note to Mikah Pharma LLC (“Mikah”) due August 1, 2016 in the principal amount of
$10,000,000 (the “Mikah Note”), and (ii) a November 21, 2013 Convertible Note to Jerry Treppel due November 21, 2016
in the principal amount of $600,000 (the “Treppel Note” and, together with the Mika Note, the “Notes”).
Mikah is owned by the Company’s CEO and President and Mr. Treppel is a director of the Company. Generally, the Notes
were amended to make them convertible into shares of the Company’s newly created Series I Convertible Preferred Stock.
For a description of this new series of preferred stock, please see “Item 5.03” below. The Mikah Note also was
amended to make it immediately exercisable.
The foregoing description
of the Amendments to the Notes is qualified in its entirety by reference to the full text of the Amendments, copies of which are
attached as Exhibits 10.1 and 10.2, respectively, to the Current Report on Form 8K filed with the SEC on February 7, 2014 and
are incorporated herein in their entirety by reference.
Conversion of Mikah
and Treppel Notes Payable to Series I
On February 7, 2014, Mikah
converted the entire Mikah Note into 100 shares of I Preferred Stock and Treppel converted the entire Treppel Note into 4.242
shares of the Company’s Series I Convertible Preferred Stock. We relied on the exemption from registration provided
by Section 4(a)(2) of the Securities Act of 1933.
Common shares issued
pursuant to the exercise of cash warrants
Subsequent to the Current
Balance Sheet date and through February 5, 2014 (the latest practicable date), the Company issued a total of 2,416,334 shares
of common stock pursuant to the exercise of cash warrants. Proceeds received from such warrant exercises totaled $151,021.
Sale of New Jersey
State Net Operating Losses
In January 2014, Elite Laboratories
Inc., a wholly owned subsidiary of Elite Pharmaceuticals Inc. received final approval from the New Jersey Economic Development
Authority for the sale of New Jersey net operating losses with net tax benefits equal to $332,424 under the Technology Business
Tax Certificate Transfer Program. The Company sold the net operating loss approved for sale at a transfer price equal to
ninety two cents for every benefit dollar. The proceeds of such sale, totaling $295,710, were received by Elite Laboratories
Inc. during February 2014.
On November 15, 2013, our
board of directors declared a dividend distribution of one right for each outstanding share of our common stock and one right
for each share of Common Stock into which any of our outstanding Preferred Stock is convertible, to stockholders of record at
the close of business on that date. Each Right entitles the registered holder to purchase from us one “Unit” consisting
of one one-millionth (1/1,000,000) of a share of Series H Junior Participating preferred stock, par value $0.01 per share (the
“H Preferred Stock”), at a purchase price of $2.10 per Unit, subject to adjustment, and may be redeemed prior to November
15, 2023, the expiration date, at $0.000001 per Right, unless earlier redeemed by the Company. The Rights generally are not transferable
apart from the common stock and will not be exercisable unless and until a person or group acquires or commences a tender or exchange
offer to acquire, beneficial ownership of 15% or more of our common stock. However, for Mr. Hakim, our Chief Executive Officer,
the Rights Plan's the 15% threshold excludes shares beneficially owned by him as of November 15, 2013 and all shares issuable
to him pursuant to his employment agreement and the Mikah Note. The description and terms of the Rights are set forth in a Rights
Agreement (“Rights Agreement”) between the Company and American Stock Transfer & Trust Company, LLC, as Rights
Agent. For more detailed information, please refer to the Registration Statement on Form 8-A filed with the SEC on November 15,
2013, and exhibits 1 (Rights Agreement) and 2 (Series H Junior Participating Preferred Stock Certificate of Designations) filed
therewith, with such filings being herein incorporated by reference.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses
of Issuance and Distribution
We will pay all expenses in connection with the registration
and sale of the common stock by the selling shareholder. The estimated expenses of issuance and distribution are set
forth below.
SEC filing fee
|
|
$
|
5,358
|
|
Legal expenses
|
|
$
|
8,000
|
*
|
Accounting expenses
|
|
$
|
5,000
|
*
|
Miscellaneous
|
|
$
|
3,000
|
*
|
Total
|
|
$
|
21,358
|
*
|
* Estimate
Item 14. Indemnification of Directors and
Officers
Our directors and officers are indemnified
by our articles of incorporation and bylaws to the fullest extent legally permissible under the laws of Nevada against all expenses,
liability and loss, reasonably incurred by them in connection with the defense of any action, suit or proceeding in which they
are a party by reason of being or having been directors or officers of the Company. Unless our Board determines by a majority vote
of a quorum of disinterested directors that, based upon the facts known, such person acted in bad faith and in a manner that such
person did not believe to be in or not opposed to our best interest (or, with respect to any criminal proceeding, that such person
believed or had reasonable cause to believe his conduct was unlawful), costs, charges and expenses (including attorneys' fees)
incurred by such person in defending a civil or criminal proceeding shall be paid by the Company in advance upon receipt of an
undertaking to repay all amounts advanced if it is ultimately determined that the person is not entitled to be indemnified by the
Company as authorized by the bylaws, and upon satisfaction of other conditions required by current or future legislation. Insofar
as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to such directors, officers
and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification
against such liabilities, other than the payment by us of expenses incurred or paid by such director, officer or controlling person
in the successful defense of any action, suit or proceeding, is asserted by such director, officer or controlling person in connection
with the securities being registered, we will, unless in the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of such issue.
Item 15.
Recent Sales of Unregistered
Securities
|
|
Year Ended March 31,
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
7
|
|
COMMON STOCK ISSUANCES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in lieu of cash in payment of
preferred share derivative interest due and owing on Series B, Series C, Series D and Series G Preferred Stock
|
|
|
8,410,374
|
|
|
|
1,860,943
|
|
|
|
878,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued pursuant to conversions of Series B, Series
C, Series D, Series E and Series G Preferred Stock
|
|
|
140,493,195
|
|
|
|
29,863,563
|
|
|
|
91,796,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in payment of the Chairman’s
fee and Directors’ Fees in accordance with the Company’s policy regarding payment of Chairman’s fees
and Directors’ fees
|
|
|
1,505,613
|
|
|
|
1,200,588
|
|
|
|
1,210,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in payment of employee salaries pursuant
to applicable employment contracts
|
|
|
694,889
|
|
|
|
625,900
|
|
|
|
3,589,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued pursuant to exercise of warrants
|
|
|
|
|
|
|
9,293,227
|
|
|
|
16,904,038
|
|
|
|
112,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued pursuant to exercise of options
|
|
|
|
|
|
|
|
|
|
|
308,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued in payment of consulting expenses
|
|
|
|
|
|
|
|
|
|
|
59,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued as commitment shares pursuant to the Purchase
Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,928,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Common Stock Issuances
|
|
|
151,104,071
|
|
|
|
42,844,221
|
|
|
|
114,747,025
|
|
|
|
2,041,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock Issuances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series E Preferred Stock
|
|
|
2501
|
1
|
|
|
437.5
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series G Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
1,085
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series I Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
104.242
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Warrants Issued
|
|
|
4,000,000
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Options Issued
|
|
|
|
|
|
|
985,000
|
6
|
|
|
3,000,000
|
6
|
|
|
|
|
1
|
Represents the following issuances
of Series E Preferred Stock:
·
125
shares of Series E Preferred Stock issued in July 2011 at a price of $1,000 per share
·
125
shares of Series E Preferred Stock issued in February 2012 at a price of $1,000 per share
|
|
|
2
|
Represents the following issuances of Series E Preferred
Stock:
·
187.5
shares of Series E Preferred Stock issued in June 2012 at a price of $1,000 per share
·
250
shares of Series E Preferred Stock issued in September 2012 at a price of $1,000 per share
|
3
|
Represents the issuance of 1,085 shares of
Series G Preferred Stock, in exchange for the retirement of 1,085 shares of Series C Preferred Stock
|
|
|
4
|
Represents 104.242 shares of Series I Preferred Stock, issued
in full payment of convertible notes payable to Mr. Nasrat Hakim and Mr. Jerry Treppel, with such notes payable having an
aggregate principal value of $10,600,000.
|
|
|
5
|
Represents warrants to purchase up to 4 million shares of Common
Stock at an exercise price of $0.0625 issued to Epic Investments LLC as milestone warrants for the acceptance by the FDA of
the filing of an immediate release product developed at the Northvale Facility, pursuant to the Strategic Alliance Agreement
between Elite and Epic, dated June 9, 2009.
|
|
|
6
|
Represents qualified stock options issued to employees. Such
options are non-vested on the date of issue and vest in equal annual increments over a three year period, beginning on the
first anniversary of the issue date. The options expire on the earlier of the 10
th
anniversary of the
issue date, or 90 days after an employee’s termination date.
|
|
|
7
|
Represents the period beginning on April 1, 2014 through April
22, 2014.
|
In connection with the foregoing, the Company relied upon
the exemption from securities registration afforded by Rule 506 of Regulation D as promulgated by the United States Securities
and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”) and/or Section 4(a)(2)
of the Securities Act.
Item 16. Exhibits
The exhibits listed in the index below
are filed as part of this report.
Exhibit
Number
|
|
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 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, 2013 and filed with the SEC on February 7, 2014.
|
|
|
|
3.1(q)
|
|
Certificate of Designations of the Series H Junior Participating
Preferred Stock as filed with the Secretary of State of the State of Nevada on November 15, 2013, 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.
|
3.2(a)
|
|
Amended and Restated By-Laws of Elite-Nevada,
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 Elite-Delaware,
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 Elite-Delaware, 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 Elite-Delaware, 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 Elite-Delaware, 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 Elite-Delaware, 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
|
|
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.
|
|
|
|
4.19
|
|
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.
|
|
|
|
4.20
|
|
Form of Series I Preferred Stock Certificate, 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.
|
|
|
|
5.1
|
|
Opinion of Richard Feiner, Esq.
|
|
|
|
10.1
|
|
2004 Employee Stock Option Plan approved by stockholders on
June 22, 2004, incorporated by reference to Exhibit A to the Proxy Statement filed on Schedule 14A with respect to the Annual
Meeting of Stockholders held on June 22, 2004.
|
|
|
|
10.2
|
|
Form of Confidentiality Agreement (corporate), incorporated
by reference to Exhibit 10.7 to the Form SB-2.
|
|
|
|
10.3
|
|
Form of Confidentiality Agreement (employee), incorporated by
reference to Exhibit 10.8 to the Form SB-2.
|
|
|
|
10.4
|
|
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 the signatories thereto, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, dated March 15,
2006 and filed with the SEC on March 16, 2006.
|
|
|
|
10.13
|
|
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
|
|
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).
|
|
|
|
10.61
|
|
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.
|
|
|
|
10.62
|
|
Treppel 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.
|
|
|
|
10.63
|
|
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.
|
|
|
|
10.64
|
|
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).
|
|
|
|
10.65
|
|
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).
|
|
|
|
10.66
|
|
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.
|
|
|
|
10.67
|
|
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.
|
|
|
|
10.68
|
|
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.
|
10.69
|
|
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).
|
|
|
|
10.70
|
|
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)
|
|
|
|
10.71
|
|
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.
|
|
|
|
10.72
|
|
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.
|
|
|
|
10.73
|
|
Termination of June 2011, Manufacturing and Supply Agreement
between Mikah Pharma LLC and the Company.
|
|
|
|
10.74
|
|
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.
|
|
|
|
10.75
|
|
October 2, 2013 Manufacturing and Licensing Agreement with Epic
Pharma LLC, incorporated by reference to Exhibit 10.17 to the Quarterly Report on Form 10-Q for the period ended September
30, 2013. 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.
|
|
|
|
10.76
|
|
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.
|
|
|
|
10.77
|
|
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.
|
|
|
|
10.78
|
|
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.
|
|
|
|
10.79
|
|
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.
|
|
|
|
10.66
|
|
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.
|
|
|
|
10.67
|
|
Registration Rights Agreement between the Company and Lincoln
Park Capital LLC dated April 10, 2014, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, dated
April 10, 2014 and filed with the SEC on April 14, 2014.
|
21
|
|
Subsidiaries of the Company.
|
|
|
|
23.1
|
|
Consent of Demetrius Berkower LLC, Independent Registered Public
Accounting Firm**
|
|
|
|
23.2
|
|
Consent of Richard Feiner, Esq. (included in Exhibit 5.1)
|
|
|
|
101.INS
|
|
XBRL Instance Document*
|
|
|
|
101.SCH
|
|
XBRL Extension Schema*
|
|
|
|
101.CAL
|
|
XBRL Calculation Linkbase*
|
|
|
|
101.DEF
|
|
XBRL Definition Linkbase*
|
|
|
|
101.LAB
|
|
XBRL Label Linkbase*
|
|
|
|
101.PRE
|
|
XBRL Presentation Linkbase*
|
|
*
|
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.
|
Item 17. Undertakings
1. The
undersigned registrant hereby undertakes to file, during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(i) To
include any prospectus required by Section 10(a)(3) of the Securities Act of 1933.
(ii) To
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price
set forth in the “Calculation of Registration Fee” table in the effective registration statement.
(iii) To
include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
Provided,
however, that paragraphs (B)(1)(i) and (B)(1)(ii) of this section do not apply if the registration statement is on Form S-3,
Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs
is contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of
the Exchange Act that are incorporated by reference in the registration statement.
2. The
undersigned registrant hereby undertakes that, for the purpose of determining any liability under the Securities Act of 1933,
as amended, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
3. The
undersigned registrant hereby undertakes to remove from registration by means of a post-effective amendment any of the securities
being registered that remain unsold at the termination of the offering.
4. The
undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing
of the registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide
offering thereof.
5. The
undersigned registrant hereby undertakes that, for the purposes of determining liability to any purchaser:
(i) If
the registrant is relying on Rule 430B:
(A) For purposes
of determining liability under the Securities Act of 1933, each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall
be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the
registration statement; and
(B) Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in
reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose
of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included
in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date
of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability
purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date
of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the
offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that
no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated
or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will,
as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made
in the registration statement or prospectus that was part of the registration statement or made in any such document immediately
prior to such effective date; or
(ii) If the
registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance
on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede
or modify any statement that was made in the registration statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such date of first use.
6. Insofar
as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers
and controlling persons of the undersigned registrant according the foregoing provisions, or otherwise, the undersigned registrant
has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933, as amended, and will be governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act
of 1933, as amended, the registrant has duly caused this Amendment No. 1 to the Registration Statement on Form S-3 on Form S-1
to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Northvale, State of New Jersey, on April
28, 2014.
|
|
ELITE PHARMACEUTICALS, INC.
|
|
|
(Registrant)
|
|
|
|
|
By:
|
/s/ Nasrat Hakim
|
|
|
Nasrat Hakim,
|
|
|
Chief Executive Officer
|
Pursuant to the requirements of the
Securities Act of 1933, this Amendment to the Registration Statement on Form S-3 on Form S-1 has been signed by the following
persons in the capacities indicated on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Nasrat Hakim
|
|
Chairman of the Board, Chief Executive Officer
|
|
|
Nasrat Hakim
|
|
(Principal Executive) and Director
|
|
April 28, 2014
|
|
|
|
|
|
|
|
|
|
|
/s/ Carter Ward
|
|
Chief Financial Officer (Principal Financial Officer),
|
|
|
Carter Ward
|
|
Treasurer, Secretary and Chief Accounting Officer
|
|
April 28, 2014
|
|
|
|
|
|
*
|
|
Director
|
|
|
Barry Dash
|
|
|
|
April 28, 2014
|
|
|
|
|
|
*
|
|
Director
|
|
|
Jeenarine Narine
|
|
|
|
April 28, 2014
|
|
|
|
|
|
*
|
|
Director
|
|
|
Ashok Nigalaye
|
|
|
|
April 28, 2014
|
|
|
|
|
|
*
|
|
Director
|
|
|
Jeffrey Whitnell
|
|
|
|
April 28, 2014
|
* By:
|
/s/Nasrat
Hakim
|
|
|
Nasrat Hakim,
|
|
|
Attorney-in-Fact
|
|
Elite Pharmaceuticals, Inc.
Amendment No. 1 to Form S-3 on Form S-1
Index to Exhibits
Exhibit No.
|
|
Description
|
5.1
|
|
Opinion of Richard Feiner, Esq.
|
21
|
|
Subsidiaries
|
23.1
|
|
Consent of Demetrius Berkower LLC, independent registered public accounting firm.
|
Elite Pharmaceuticals (QB) (USOTC:ELTP)
Historical Stock Chart
From Apr 2024 to May 2024
Elite Pharmaceuticals (QB) (USOTC:ELTP)
Historical Stock Chart
From May 2023 to May 2024