APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding
of the common stock, $.01 par value, as of
August 8, 2003: 10,559,426.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2003
-------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 333-45241
- --------------------------------------------------------------------------------
ELITE PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3542636
- ---------------------------------------- --------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
165 Ludlow Avenue, Northvale, New Jersey 07647
- ---------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
(201) 750-2646
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [x]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of the common stock, $.01 par value,
as of August 8, 2003: 10,559,426.
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 2003
(unaudited) and March 31, 2003 1 - 2
Consolidated Statements of Operations for the three months
ended June 30, 2003 and June 30, 2002 (unaudited) 3
Consolidated Statement of Changes in Stockholders' Equity
for the three months ended June 30, 2003 (unaudited) 4
Consolidated Statements of Cash Flows for the three months
ended June 30, 2003 and June 30, 2002 (unaudited) 5
Notes to Form 10-Q 6 - 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16 - 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 20
ITEM 4. CONTROLS AND PROCEDURES 20
PART II OTHER INFORMATION 20 - 22
Item 1 Legal Proceedings
Item 2 Changes in Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security-Holders
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
SIGNATURES 23
EXHIBITS
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, March 31,
2003 2003
---------- ----------
(Unaudited) (Audited)
CURRENT ASSETS:
Cash and cash equivalents $2,311,082 $3,264,081
Accounts and accrued interest receivable -- 4,681
Restricted cash 185,518 99,380
Prepaid expenses and other current assets 85,033 132,092
---------- ----------
Total current assets 2,581,633 3,500,234
---------- ----------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization 4,309,628 4,390,553
---------- ----------
INTANGIBLE ASSETS - net of accumulated amortization 99,457 104,842
---------- ----------
OTHER ASSETS:
Restricted cash - Debt Service Reserve 300,000 300,000
Restricted cash - Note payable 250,000 250,000
EDA bond offering costs, net of accumulated
amortization of $50,927 and $47,627, respectively 147,293 150,593
---------- ----------
Total other assets 697,293 700,593
---------- ----------
Total assets $7,688,011 $8,696,222
========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, March 31,
2003 2003
------------ ------------
(Unaudited) (Audited)
CURRENT LIABILITIES:
Current portion - Note payable $ 75,000 $ 75,000
Current portion of EDA bonds 140,000 140,000
Accounts payable and accrued expenses 384,031 334,721
------------ ------------
Total current liabilities 599,031 549,721
------------ ------------
LONG TERM LIABILITIES:
Note payable - net of current portion 206,250 225,000
EDA bonds - net of current portion 2,495,000 2,495,000
------------ ------------
Total long-term liabilities 2,701,250 2,720,000
------------ ------------
Total liabilities 3,300,281 3,269,721
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value;
Authorized - 25,000,000 shares
Issued and outstanding - 10,544,426 shares, 105,444 105,444
Additional paid-in capital 35,221,315 34,218,832
Accumulated deficit (30,632,188) (28,590,934)
------------ ------------
4,694,571 5,627,898
Cost of 100,000 shares of common stock held by
the Company (306,841) (306,841)
------------ ------------
Total stockholders' equity 4,387,730 5,426,501
------------ ------------
Total liabilities and stockholder's equity $ 7,688,011 $ 8,696,222
============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
-2-
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
JUNE 30,
----------------------------
2003 2002
------------ ------------
(Unaudited) (Unaudited)
REVENUES:
Product Formulation Revenues $ -- $ 105,011
------------ ------------
Total revenues -- 105,011
------------ ------------
OPERATING EXPENSES:
Research and development 487,482 433,260
General and administrative 413,556 223,560
Depreciation and amortization 89,610 78,210
------------ ------------
990,648 735,030
------------ ------------
LOSS FROM OPERATIONS (990,648) (630,019)
------------ ------------
OTHER INCOME (EXPENSES):
Interest income 5,385 35,965
Interest expense (53,508) (53,572)
Equity in loss of Joint Venture -- (118,950)
Charge relating to issuance of stock options (1,002,483) --
------------ ------------
(1,050,606) (136,557)
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (2,041,254) (766,576)
------------ ------------
PROVISION FOR INCOME TAXES -- 400
------------ ------------
NET LOSS $ (2,041,254) $ (766,976)
------------ ------------
BASIC AND DILUTED LOSS PER COMMON SHARE $ (.19) $ (.08)
------------ ------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 10,544,426 9,726,521
============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
-3-
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------- --------------- --------------------- PAID-IN TREASURY
SHARES AMOUNT EQUITY SHARES SHARES AMOUNT CAPITAL STOCK
------ ------ ------ ------ ------ ------ ------- -----
BALANCE AT MARCH 31, 2003 -- -- -- -- 10,544,426 $105,444 $34,218,832 $(306,841)
(Audited)
Issuance of stock options -- -- -- -- -- -- 1,002,483 --
Net loss for three months
ended June 30, 2003 -- -- -- -- -- -- -- --
------ ------ ------ ------ ---------- -------- ----------- ---------
BALANCE AT JUNE 30, 2003 -- $ -- -- $ -- 10,544,426 $105,444 $35,221,315 $(306,841)
(Unaudited) ====== ====== ====== ====== ========== ======== =========== =========
(CONT'D)
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------- ------
BALANCE AT MARCH 31, 2003 $(28,590,934) $ 5,426,501
(Audited)
Issuance of stock options -- 1,002,483
Net loss for three months
ended June 30, 2003 (2,041,254) (2,041,254)
------------ ------------
BALANCE AT JUNE 30, 2003 $(30,632,188) $ 4,387,730
(Unaudited) ============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
-4-
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
JUNE 30,
--------------------------
2003 2002
----------- -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,041,254) $ (766,976)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and Amortization 89,610 78,210
Equity in loss of Joint Venture -- 118,950
Charge related to issuance of stock options 1,002,483 --
Changes in assets and liabilities:
Contract revenue receivable 4,681 10,000
Prepaid expenses and other current assets 47,059 35,176
Amount receivable from Joint Venture -- 274,298
Accounts payable, accrued expenses and other current
liabilities 49,310 (41,262)
----------- -----------
NET CASH (USED IN) OPERATING ACTIVITIES (848,111) (291,604)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturity of short-term investment -- 100,000
Purchase of property and equipment -- (98,782)
Purchase of patent -- (12,891)
Restricted cash (86,138) 31,972
----------- -----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (86,138) 20,299
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and warrants -- 65,843
Principal bank note payments (18,750) (18,750)
----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (18,750) 47,093
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (952,999) (224,212)
CASH AND CASH EQUIVALENTS - beginning of period 3,264,081 6,852,434
----------- -----------
CASH AND CASH EQUIVALENTS - end of period $ 2,311,082 $ 6,628,222
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 4,156 $ 3,186
Cash paid (received) for income taxes -- 400
SUPPLEMENTAL SCHEDULE NON-CASH TRANSACTIONS
Preferred stock issuance in exchange for interest
in joint venture $ -- $ 254,000
Paydown of amounts due to joint venture through the
issuance of Common Stock -- (317,144)
Reduction of Investment in Joint Venture -- 63,144
The accompanying notes are an integral part of the
consolidated financial statements.
-5-
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
---------------------
The information in this Form 10-Q includes the results of operations of
Elite Pharmaceuticals, Inc. and its consolidated subsidiaries ("the
Company") including its wholly-owned subsidiary, Elite Laboratories,
Inc. ("Elite Labs"), for the three months ended June 30, 2003 and 2002
and its wholly-owned subsidiary, Elite Research, Inc. ("ERI"), for the
three months ended June 30, 2003. On September 30, 2002, the "Company"
acquired from Elan Corporation, plc and Elan International Services,
Ltd. (together "Elan"). Elan's 19.9% interest in Elite Research Ltd.
("ERL), a joint venture formed between the Company and Elan where the
Company's interest originally was 80.1%. Proforma results of operations
are presented as part of Note 3. On December 31, 2002, the Company
entered into an agreement of merger whereby ERL (a Bermuda corporation)
was merged into a new Delaware corporation, ERI, a wholly owned
subsidiary of the Company. As a result of the merger, ERI became the
owner of all of the assets and liabilities of ERL. The merger was
accounted for as a tax free organization. As of June 30, 2003, the
financial statements of all entities are consolidated and all
significant intercompany accounts are eliminated upon consolidation.
The accompanying unaudited consolidated financial statements have been
prepared pursuant to rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial
statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair
presentation of the 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 consolidated financial statements of the Company have
been prepared in accordance with accounting principles generally
accepted for interim financial statement presentation and 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, 2003. There have been no changes in significant
accounting policies since March 31, 2003.
The Company does not anticipate being profitable for fiscal year 2004,
therefore a current provision for income tax was not established for
the three months ended June 30, 2003. Only the minimum corporation tax
liability required for state purposes is reflected.
NOTE 2 - STOCKHOLDERS' EQUITY
--------------------
Treasury Stock Transactions
---------------------------
At a special meeting of the Company's Board of Directors held on June
27, 2002, the Board authorized the Company to purchase up to 100,000
shares of its common stock in the open market no later than December
31, 2002. As of June 30, 2003, the Company had purchased 100,000 shares
of common stock for total consideration of $306,841.
Joint Venture Subscription Offering
-----------------------------------
In October 2000, the Company entered into a joint development and
operating agreement with Elan Corporation, plc, and Elan International
Services, Ltd. (together "Elan") to develop products using drug
delivery technologies and expertise of both companies. This joint
venture, Elite Research, Ltd. ("ERL"), a Bermuda corporation, was
-6-
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
NOTE 2 - STOCKHOLDERS' EQUITY (Continued)
--------------------
Joint Venture Subscription Offering (Continued)
-----------------------------------
initially owned 80.1% by the Company and 19.9% by Elan. ERL was to fund
its research through capital contributions from its partners based on
the partners' respective ownership percentage. ERL subcontracted
research and development efforts to the Company, Elan and others. It
was anticipated that the Company would provide most of the formulation
and development work. The Company had commenced work for three
products.
ERL was initially capitalized with $15,000,000 which included the
issuance of 6,000 voting common shares, par value $1.00 per share, and
6,000 non-voting convertible preferred shares, par value $1.00 per
share. All of the voting shares were held by the Company, with the
non-voting convertible preferred shares held by both the Company and
Elan, being split 3,612 shares and 2,388 shares, respectively. Elite's
and Elan's respective ownership in ERL did not change during the term
of the joint venture.
While the Company initially owned 80.1% of the outstanding capital
stock (100% of the outstanding common stock) of ERL until September 30,
2002, Elan and its subsidiaries retained significant minority investor
rights that were considered "participating rights" as defined in the
Emerging Issues Task Force Consensus No. 96-16. Accordingly, the
Company did not consolidate the financial statements of ERL until
September 30, 2002 but instead accounted for its investment in ERL
under the equity method of accounting until the joint venture was
terminated, effective September 30, 2002.
During fiscal year 2001, ERL paid $15,000,000 to Elan for a license
providing ERL non-exclusive rights to use certain Elan in-process drug
delivery technologies. The Elan technology rights acquired relate to
very early stage technology that, in the opinion of management, have
not reached technological feasibility and have no future alternative
uses. Through the date of its termination, ERL had not recognized any
revenue.
During the fiscal year ended March 31, 2003, the Company consummated a
termination agreement (the "Termination Agreement") with Elan to
acquire all of Elan's interest in ERL. As further discussed in Note 3,
the joint venture was terminated effective September 30, 2002. As of
September 30, 2002, ERL had completed in-vivo (pilot clinical trial) on
the first product and began formulation and development of two
additional products.
Under the Termination Agreement, among other things, the Company
acquired all proprietary, development and commercial rights for the
worldwide markets for the products developed by ERL. In exchange for
the assignment, ERL agreed to pay Elan a royalty on certain revenues
that may be realized from the once-a-day Oxycodone product that has
been developed by ERL. Effective October 2002, the Company was solely
responsible to fund ERL's product development.
The Company did not pay, nor did Elan receive any cash consideration
under the Termination Agreement. Furthermore, the Company has the
exclusive rights to the proprietary, development and commercial rights
for the worldwide markets for two other products developed by ERL. The
Company is not required to pay Elan royalties on revenues that may be
realized from these products.
The Company accounted for this acquisition by consolidating ERL as a
wholly-owned subsidiary as of September 30, 2002. Elan converted
773,000 shares of Series B Preferred Stock, according to their terms,
into 52,089 shares of the Company's common stock. This resulted in an
increase in common stock of $521 and an increase in additional paid in
capital of $772,479. As a result, the Series B Preferred Stock was
eliminated.
-7-
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
NOTE 2 - STOCKHOLDERS' EQUITY (Continued)
--------------------
Joint Venture Subscription Offering (Continued)
-----------------------------------
The acquisition resulted in the conversion of 13,756 shares of Series A
Preferred Stock into 764,221 shares of Elite's common stock in
accordance with their terms. The Company accounted for this conversion
by increasing common stock in the amount of $7,642 and by a
corresponding increase in additional paid in capital of $13,748,332. As
a result, the Series A Preferred Stock was eliminated.
As a result of the Termination Agreement, ERL became a wholly owned
subsidiary of the Company as of September 30, 2002. Elan retained
certain securities of Elite it had obtained in connection with the
joint venture and transferred other such securities to a third-party,
as further discussed in Note 3.
-8-
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
NOTE 2 - STOCKHOLDERS' EQUITY (Continued)
--------------------
Warrants and Options
--------------------
At June 30, 2003, Elite had outstanding approximately 2,776,850 options
with exercise prices ranging from $2.00 to $10.00. At June 30, 2002,
Elite had outstanding approximately 2,056,850 warrants with exercise
prices ranging from $2.00 to $18.00.
During the year ended March 31, 2003, the Company issued 210,000
options to purchase common stock to an employee and to members of the
Board of the Directors. The options have exercise prices of $5.00 per
share and vest over three years. The options expire 10 years from the
date of their issuance.
During the quarter ended June 30, 2003, the Company issued 615,000
options to purchase common stock to employees and to a member of the
Board of Directors. The options have exercise prices between $2.01 and
$5.00 per share. 600,000 options vested immediately and 15,000 options
vest straight-line over three years. The options expire ten years from
date of issuance. The per share weighted-average fair value of each
option granted during the quarter ended June 30, 2003, was $1.63 on the
date of grant using the Black-Scholes options pricing model with the
following weighted-average assumptions: no dividend yield; expected
volatility of 75.47%; risk-free interest rate of 4.0%; and expected
lives of ten years. The Company has taken a charge of $1,002,483 for
the three months ended June 30, 2003 which represents the fair value of
the options vested, utilizing the Black-Scholes options pricing model
on each grant date.
-9-
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
NOTE 2 - STOCKHOLDERS' EQUITY (Continued)
--------------------
Warrants and Options (Continued)
--------------------
The following table illustrates the effect on net loss and loss per
share as if the Company had applied the fair value recognition
provisions of SFAS No. 123 to all outstanding and unvested awards in
each period presented:
Three Months Ended
June 30,
--------------------------
2003 2002
----------- ----------
Net loss as reported $(2,041,254) $(766,976)
Add: Stock-based compensation
expense included in reported
net loss, net of related tax effects 1,002,483 --
Deduct: Total stock-based
Compensation expense determined
under fair value method for all
awards net of related tax effects (1,222,686) (267,663)
----------- ----------
Pro-forma net loss (2,261,457) (1,034,639)
Loss per share as reported (0.19) (0.08)
Pro-forma loss per share (0.21) (0.11)
Class A Warrant Exchange Offer
------------------------------
On October 23, 2002, the Company entered into a Settlement Agreement
with various parties in order to end a Consent Solicitation contest and
various litigation initiated by the Company. The Settlement Agreement
provided, among other things, an agreement to commence an exchange
offer (the "Exchange Offer") to which holders of the Company's Class A
Warrants which expired on November 30, 2002 (the "Old Warrants") would
have the opportunity to exchange those warrants for new warrants (the
"New Warrants") upon payment to the Company of $.10 per share of common
stock issuable upon the exercise of the old warrants. The Company
recently agreed to eliminate the $.10 per share exchange fee.
The New Warrants will be exercisable for the same number of shares of
common stock as the Old Warrants, have an exercise price of $5.00 per
share, will expire on November 30, 2005 and will not be transferable
except pursuant to operation of law.
The Exchange Offer must be registered under applicable federal and
state securities laws and will only be made pursuant to an effective
registration statement meeting applicable legal requirements. A
registration statement was filed with the Securities and Exchange
Commission on December 6, 2002, with respect to the Exchange Offer, but
has not yet been declared effective by the SEC.
During the year ended March 31, 2003, the Company incurred a charge of
$242,338 relating to the Exchange Offer, which represents the fair
value of the new warrants, net of anticipated proceeds, assuming all
Class A Warrants will be exchanged. In connection with the elimination
of the $.10 per share exchange fee, the Company anticipates incurring a
charge in the second quarter of approximately $172,324.
-10-
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
NOTE 3 - JOINT VENTURE ACTIVITIES
------------------------
For the three months ended June 30, 2002, the Company charged $105,011
to ERL representing research and development subcontractor work
performed on behalf of ERL, which was reflected in product formulation
revenues. Intercompany profits and losses were eliminated.
For the three months ended June 30, 2002, ERL recognized net losses of
$148,502. The net losses included $105,011 due to the Company for
services rendered to ERL for the three months ended June 30, 2002. The
Company recognized 80.1% of ERL's losses, or $118,950, for the three
months ended June 30, 2002.
As further discussed in Note 2, the joint venture was terminated
effective September 30, 2002 and the Company now owns 100 percent of
ERL's capital stock.
The following is a condensed balance sheet of ERL on September 30, 2002
(the date of acquisition):
Current Assets
Cash $ 1,084
-------
Total assets $ 1,084
-------
Current Liabilities
Accounts payable $84,597
-------
Total liabilities 84,597
Shareholders' deficit (83,513)
-------
$ 1,084
=======
The following are unaudited pro-forma consolidated results of
operations of ERL for the three months ended June 30, 2002, assuming
the acquisition was completed on April 1, 2002.
THREE MONTHS ENDED
JUNE 30, 2002
------------------
(Unaudited)
Revenue $ --
Net (loss) available to common
shareholders $ (796,528)
Net (loss) per share available to common
shareholders - basic and diluted $ (0.08)
Unaudited pro-forma data may not be indicative of the results that
would have been obtained had these events actually occurred at the
beginning of the periods presented, nor does it intend to be a
projection of future results.
-11-
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
NOTE 4 - COMMITMENTS AND CONTINGENCIES
-----------------------------
Litigation with Atul M. Mehta
-----------------------------
The Company had an employment agreement ("Employment Agreement") with
its former President/CEO, Atul M. Mehta.
On June 3, 2003, Dr. Mehta resigned from all positions that he held
with the Company, while reserving his rights under his Employment
Agreement and under common law. On July 3, 2003, Dr. Mehta instituted
litigation against the Company and one of its directors, in the
Superior Court of New Jersey, for, among other things, allegedly
breaching his Employment Agreement and for defamation, and claims that
he is entitled to receive his salary through June 6, 2006. His salary
would total approximately $1 million through June 6, 2006.
The Company believes Dr. Mehta's claims are without merit and intends
to vigorously contest this action. Prior to Dr. Mehta's resignation, a
majority of the members of the Company's Board of Directors had
notified Dr. Mehta that they believed that sufficient grounds existed
for the termination of his employment for "Severe cause" pursuant to
his Employment Agreement. If the Company is ordered to pay Dr. Mehta,
it would have a material adverse effect on the Company's financial
condition and results of operations.
Consulting Agreement
--------------------
The Company entered into a consulting agreement with a company for the
purpose of providing management, marketing and financial consulting
services for an unspecified term. Terms of the agreement provide for a
nonrefundable monthly fee of $2,000. This compensation will be applied
against amounts due pursuant to a business referral agreement entered
into on April 8, 1997 (the "1997 Agreement") with the same party.
Terms of the 1997 Agreement provide, for payments by the Company based
upon a formula, as defined, for an unspecified term. On November 14,
2000, the Company amended its 1997 Agreement to provide certain
consulting services for the period of November 1, 2000 through October
31, 2003. The Company previously advanced $20,000 under the 1997
Agreement in addition to a payment of $50,000 made during the year
ended March 31, 2001. The 1997 Agreement calls for 25 monthly
installments of $3,200 beginning on December 1, 2001.
For the three months ended June 30, 2003 and 2002, consulting expense
under this 1997 Agreement amounted to $6,400 and $9,600, respectively.
Referral Agreement
------------------
The Company entered into a Referral Agreement with an individual
(Referring Party) whereby the Company will pay the Referring Party a
fee based upon payments received by the Company from sales of products,
development fees, licensing fees and royalties generated as a direct
result of the Referring Party identifying customers for the Company.
These amounts shall be reduced by the cost of goods sold directly
incurred in the manufacturing or development of products as well as any
direct expenses associated with these efforts. The Company will pay
Referring Party a referral fee each year equal to:
-12-
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
NOTE 4 - COMMITMENTS AND CONTINGENCIES (Continued)
-----------------------------
Percentage
of Referral
Base From To
----------- ----------- ----------
5% $ 0 $1,000,000
4% 1,000,000 2,000,000
3% 2,000,000 3,000,000
2% 3,000,000 4,000,000
1% 4,000,000 5,000,000
Collaborative Agreements
------------------------
The Company entered into two separate and distinct development and
license agreements with another pharmaceutical company ("partner"). The
Company is developing two drug compounds for the partner in exchange
for certain payments and royalties. The Company also reserves the right
to manufacture the compounds. The Company received $250,000 and
$300,000, respectively, on these two agreements. These amounts have
been earned as of March 31, 2002. The Company is currently proceeding
with development and formulation for both products as specified in the
development agreements. During the three months ended June 30, 2003 and
2002 the Company earned no revenues for additional development and
formulation for both products.
On September 13, 2002, the Company, entered into a manufacturing
agreement with Ethypharm S.A. ("Ethypharm"). Under the terms of this
agreement, the Company has initiated the manufacturing of a new
prescription drug product for Ethypharm. The Company received an
upfront manufacturing fee for the first phase of the technology
transfer and billed an additional amount upon the completion of the
first phase of manufacturing. The Company is entitled to receive
additional fees in advance for the final phase of the manufacturing. In
addition, if and when FDA approval is obtained and if requested by
Ethypharm, the Company will manufacture commercial batches of the
product on terms to be agreed upon.
As of June 30, 2003, the Company billed and earned revenues of $280,000
under this agreement, in accordance with the substantive milestone
method of revenue recognition. Under this method, the milestone
payments are considered to be payments received for the accomplishment
of a discrete, substantive earnings event. Accordingly, the
non-refundable milestone payments are recognized in full when the
milestone is achieved.
Contingencies
-------------
Elite Labs is the plaintiff in a civil action brought in the Superior
Court of New Jersey on November 20, 2000 against three parties to
recover damages in an unspecified amount based on the alleged failure
of the defendants to perform properly and complete certain
pharmaceutical tests and studies for which Elite Labs paid
approximately $950,000.
The defendants brought a counterclaim of approximately $250,000
allegedly due for services rendered to Elite Labs by the defendants for
the completion of bioequivalency studies and for the storage of
laboratory samples. Elite Labs is vigorously contesting the
counterclaim.
The action and counterclaim are proceeding in pretrial discovery under
a Case Management Order entered by the court. All discovery is expected
to be completed by September 15, 2003. If such action or counterclaim
-13-
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
NOTE 4 - COMMITMENTS AND CONTINGENCIES (Continued)
-----------------------------
is in favor of the defendants, the recovery, if any, is not expected to
have a material effect on the Company's financial condition or results
of operations. Legal counsel is unable to predict the outcome of these
actions.
Accordingly, no provision for liability, if any, has been provided in
the accompanying consolidated financial statements.
The Company's former President/CEO instituted litigation against the
Company and one of its directors in the Superior Court of New Jersey on
July 3, 2003, as further discussed above under "Litigation with Atul M.
Mehta".
NOTE 5 - SUBSEQUENT EVENTS
-----------------
Employment Agreement
--------------------
On July 23, 2003, the Company entered into an employment agreement with
its new Chief Executive Officer, Bernard Berk. The initial term of this
agreement is three years. Pursuant to this agreement:
- Mr. Berk is entitled to receive a base salary of $200,000 per annum,
subject to increase to $330,140 if and when the Company consummates a
Strategic Transaction (as defined in the employment agreement);
-the Company confirmed its grant to Mr. Berk on June 3, 2003 of options
to purchase 300,000 shares of the Company's common stock at $2.01 per
share. All of these options are vested.
-the Company granted Mr. Berk options to purchase an additional 300,000
shares of its common stock, with an exercise price equal to $2.15, the
closing price of the Company's common stock on the date of grant. These
options will vest solely upon consummation of a Strategic Transaction.
- Mr. Berk will be appointed as a director of the Company if he is
serving as its Chief Executive Officer following the consummation of a
Strategic Transaction.
- Mr. Berk will be entitled to receive severance in accordance with the
employment agreement if he is terminated without cause or because of
his death or permanent disability or if he terminates his employment
for good reason. The severance will be payable in accordance with the
terms of his employment agreement.
Change to Class A Warrant Exchange Offer
----------------------------------------
The Company recently agreed to eliminate the $.10 per share exchange
fee associated with the exchange of the Company's Class A Warrants,
which expired on November 30, 2002, for new Class C Warrants. All other
significant provisions of the exchange offer as contained in the
Settlement Agreement, dated October 23, 2002, among the Company and the
members of the Freedman Group remain the same.
Merger Agreement
----------------
On August 6, 2003, the Board of Directors authorized the Company's
management to negotiate a merger agreement with Nostrum
-14-
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
NOTE 5 - SUBSEQUENT EVENTS (Continued)
-----------------
Pharmaceuticals, Inc. ("Nostrum"), a privately-held company engaged in
the development of drug delivery products, whereby, Nostrum would be
merged into a new subsidiary of the Company in exchange for
approximately 32,000,000 shares of the Company's common stock and
options to acquire additional shares of the Company's common stock on
terms to be agreed upon by the parties. The proposed merger agreement
is subject to the approval of the Board of Directors of the Company and
will provide, as conditions to the merger, that the merger be approved
by the Company's shareholders, that the Company's Board of Directors be
expanded with certain members designated by former Nostrum
shareholders, and that the Company maintain a designated amount of
working capital as of the effective date and other customary closing
conditions.
No assurance can be given that a definitive merger agreement will be
executed or that if executed the conditions to the merger will be
satisfied. The actual number of shares of the Company's common stock,
and options exercisable for the Company's common stock, issuable upon
closing of the proposed transaction will be determined in the
definitive merger agreement, as may be approved, and may vary from the
amounts set forth above.
-15-
ELITE PHARMACEUTICALS, INC.
PART I. ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED JUNE 30, 2003 COMPARED TO
THE THREE MONTH PERIOD ENDED JUNE 30, 2002
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements, the related Notes to Consolidated
Financial Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 2003 (the "10-K") and the
Unaudited Consolidated Financial Statements and related Notes to Consolidated
Financial Statements included in Item 1 of Part I of this Quarterly Report on
Form 10-Q.
The Company has included in this Quarterly Report certain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 concerning the Company's business, operations and
financial condition. "Forward-looking statements" consist of all non-historical
information, and the analysis of historical information, including the
references in this Quarterly Report to future revenue growth, future expense
growth, future credit exposure, EBITDA, future profitability, anticipated cash
resources, anticipated capital expenditures, capital requirements, and the
Company's plans for future periods. In addition, the words "could", "expects",
"anticipates", "objective", "plan", "may affect", "may depend", "believes",
"estimates", "projects" and similar words and phrases are also intended to
identify such forward-looking statements.
Actual results could differ materially from those projected in the
Company's forward-looking statements due to numerous known and unknown risks and
uncertainties, including, among other things, unanticipated technological
difficulties, the volatile and competitive environment for drug delivery
products, changes in domestic and foreign economic, market and regulatory
conditions, the inherent uncertainty of financial estimates and projections, the
difficulties of integrating businesses which were previously operated as
stand-alone units, the creditworthiness of the Company's customers, the
uncertainties involved in certain legal proceedings, instabilities arising from
terrorist actions and responses thereto, and other considerations described as
"Risk Factors" in other filings by the Company's with the SEC including the Form
10-K. Such factors may also cause substantial volatility in the market price of
the Company's common stock. All such forward-looking statements are current only
as of the date on which such statements were made. The Company does not
undertake any obligation to publicly update any forward-looking statement to
reflect events or circumstances after the date on which any such statement is
made or to reflect the occurrence of unanticipated events.
Overview
The Company is involved in the development of controlled drug delivery
systems and products. Its products are in varying stages of development and
testing. In addition, from time to time, the Company has also conducted research
and development projects on behalf of other pharmaceutical companies although
these activities have generated only limited revenue to date.
Critical Accounting Policies and Estimates
Management's discussion addresses the Company's 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.
-16-
ELITE PHARMACEUTICALS, INC.
PART I. ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED JUNE 30, 2003 COMPARED TO
THE THREE MONTH PERIOD ENDED JUNE 30, 2002
(CONTINUED)
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. The Company's most
critical accounting policies include the recognition of revenue upon completion
of certain phases of projects under research and development contracts. The
Company also assesses a need for an allowance to reduce its deferred tax assets
to the amount that it believes is more likely than not to be realized. The
Company assesses the recoverability of long-lived assets and intangible assets
whenever events or changes in circumstances indicate that the carrying value of
the asset may not be recoverable. The Company assesses its exposure to current
commitments and contingencies. It should be noted that actual results may differ
from these estimates under different assumptions or conditions.
During the fiscal year ended March 31, 2003, the Company elected to
prospectively recognize the fair value of stock options granted to employees and
members of the Board of Directors, effective as of the beginning of the fiscal
year. The prospective method allowed by the Financial Accounting Standards Board
effects the Company's results of operations for the three-month period ended
June 30, 2003 since 600,000 options were granted which vested immediately. The
Company does not know the future effect of options which may be granted to
employees and members of the Board of Directors.
Results of Consolidated Operations
Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002
The Company had no revenues for the three months ended June 30, 2003 as
compared with $105,011 over the comparable period of the prior year. For the
three months ended June 30, 2002, revenues consisted of product formulation fees
of $105,011 earned in conjunction with the Company's joint venture in Elite
Research, Limited ("ERL"). Elan Corporation's obligation to make payments to the
Company or to ERL terminated upon the termination of the joint venture on
September 30, 2002. The absence of payments from Elan has effected and will
affect revenues for periods subsequent to September 30, 2002.
General and administrative expenses for the three months ended June 30,
2003 were $413,556, an increase of $189,996 or 85% from the comparable period of
the prior year. The increase in general and administrative expenses was
substantially due to increases in legal fees, consulting fees, and increases in
administrative salaries partly due to business development wages.
Research and development costs for the three months ended June 30, 2003
were $487,472, an increase of $54,222 or approximately 13% from the comparable
period of the prior year. Research and development costs have increased
primarily from the result of increased research and development wages,
additional biostudies, and as a result of the termination of the joint venture
as the Company will be solely responsible to fund product development, which it
will do from internal resources or through loans or investment by third parties.
Other expenses for the three months ended June 30, 2003 were $1,050,606
an increase of $914,049, or approximately 669% from the comparable period of the
prior year. A decrease in equity loss in joint venture of $118,950 due to its
termination was more than offset by charges related to the issuance of stock
options in the amount of $1,002,483 and the reduction in interest income due to
lower rates and compensating balances in the amount of $30,580.
-17-
ELITE PHARMACEUTICALS, INC.
PART I. ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED JUNE 30, 2003 COMPARED TO
THE THREE MONTH PERIOD ENDED JUNE 30, 2002
(CONTINUED)
The Company's net loss for the three months ended June 30, 2003 was
$2,041,254 compared to $766,976 for the comparable period of the prior year. The
increase in the net loss was primarily due to charges of $1,002,483 relating to
the issuance of stock options. Also contributing to the increase in loss for the
three months ended June 30, 2003 was an increase in research and development
costs as a result of the joint venture termination and the fact that no revenues
were earned.
Material Changes in Financial Condition
The Company's working capital (total current assets less total current
liabilities), which was $2,950,513 as of March 31, 2003, decreased to $1,982,602
as of June 30, 2003. The decrease in working capital is primarily due to the
Company's net loss from operations.
The Company experienced negative cash flow from operations of $848,111
for the three months ended June 30, 2003, primarily due to the Company's net
loss from operations of $2,041,254, offset by non-cash charges of $1,092,093.
Liquidity and Capital Resources
For the three months ended June 30, 2003, the Company's operations have
not generated positive cash flow. The Company has financed its operations
primarily through the private sale of its equity and debt securities. The
Company had working capital (current assets less current liabilities) of $2.0
million at June 30, 2003 compared with $6.6 million at June 30, 2002. Cash and
cash equivalents at June 30, 2003 were $2.3 million, a decrease of $4.3 million
from the $6.6 million reported at June 30, 2002.
Net cash used in operating activities was $848,000 during the three
months ended June 30, 2003, compared to $292,000 for the three months ended June
30, 2002. Net cash used in operating activities during the three months ended
June 30, 2003 resulted primarily from the Company's net loss of $2,041,000,
offset in part by a reduction in accounts receivable and an increase in accrued
expenses and certain non-cash expenses. Net cash used in operating activities
during the three months ended June 30, 2002 resulted primarily from a net loss
of $767,000 and lower accounts payable, offset in part by certain non-cash
expenses.
Investing activities utilized net cash of $86,000 during the three
months ended June 30, 2003 and provided net cash of $20,000 during the three
months ended June 30, 2002. Net cash used in investing activities during the
three months ended June 30, 2003 resulted in an increase in restricted cash. Net
cash provided by investing activities during the three months ended June 30,
2002 resulted primarily from the maturity of short-term investments and a
decrease in restricted cash, partially offset by the acquisition of property and
equipment.
Financing activities utilized net cash of $19,000 during the three
months ended June 30, 2003 and provided net cash of $47,000 during the three
months ended June 30, 2002. Net cash used in financing activities during the
three months ended June 30, 2003 resulted from the repayment of indebtedness.
Net cash provided by financing activities
-18-
ELITE PHARMACEUTICALS, INC.
PART I. ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED JUNE 30, 2003 COMPARED TO
THE THREE MONTH PERIOD ENDED JUNE 30, 2002
(CONTINUED)
during the three months ended June 30, 2002 resulted primarily from the sale of
common stock and warrants, offset in part by the repayment of indebtedness.
The Company anticipates that its capital expenditures for the fiscal
year ending March 31, 2004 will be limited to expenditures that can be funded
entirely by development contracts that include provisions for such funding for
these expenditures. There can be no assurance that the Company will enter into
any such agreements.
The Company's capital expenditures aggregated $99,000 for the
three-month period ended June 30, 2002. Such expenditures consisted primarily of
the acquisition of property and equipment necessary to support the Company's
existing operations and expected growth.
The Company has outstanding $2,635,000 in aggregate amount of bonds.
The bonds bear interest at a rate of 7.75% per annum and are due on various
dates between 2005 and thereafter. The bonds are secured by a first lien on the
Company's facility in Northvale, New Jersey. Pursuant to the terms of the bonds,
several restricted cash accounts have been established for the payment of bond
principal and interest. Bond proceeds were utilized for the refinancing of the
land and building the Company currently owns, for the purchase of certain
manufacturing equipment and related building improvements and the maintenance of
a $300,000 debt service reserve. All of the restricted cash, other than the debt
service reserve, is expected to be expended within twelve months and is
therefore categorized as a current asset on the Company's consolidated balance
sheet as of June 30, 2003. Pursuant to the terms of the bond indenture agreement
pursuant to which the bonds were issued, the Company is required to observe
certain covenants, including covenants relating to the incurrence of additional
indebtedness, the granting of liens and the maintenance of certain financial
covenants. As of June 30, 2003 the Company was in compliance with the covenants
contained in the bond indenture agreement.
As a result of expenditures associated with operating the Company's
business and the joint venture termination, the Company's cash expenses have
exceeded its generated revenues for the three months ended June 30, 2003. In
order to conserve cash for the next twelve months, the Company intends to reduce
costs by reducing the number of products under active development to six.
However, while the Company anticipates having adequate capital to support its
operations through the end of the Company's current fiscal year, it will need to
raise capital and/or generate additional revenues in order to support its
operations beyond that time.
As of June 30, 2003, the Company's principal source of liquidity was
approximately $2,311,000 of cash and cash equivalents.
-19-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company had no investments in marketable securities as of June 30,
2003 or assets and liabilities which are denominated in a currency
other than U.S. dollars or involve commodity price risks.
ITEM 4. CONTROLS AND PROCEDURES
(a) Disclosure controls and procedures. As of the end of the Company's
most recently completed fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) covered by this
report , the Company carried out an evaluation, with the
participation of the Company's management, including the Company's
Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the Company's disclosure controls and procedures
pursuant to Securities Exchange Act Rule 13a-15. Based upon that
evaluation, the Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls
and procedures are effective in ensuring that information required
to be disclosed by the Company in the reports that it files or
submits under the Securities Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the
SEC's rules and forms.
(b) Changes in internal controls over financial reporting. There have
been no changes in the Company's internal controls over financial
reporting that occurred during the Company's last fiscal quarter
to which this report relates that have materially affected, or are
reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - As reported in the Company's Annual Report on Form
10-K for the year ended March 31, 2003, the Company's former President
and Chief Executive Officer, Atul M. Mehta, filed suit against the
Company. See the Company's Annual Report on Form 10-K for the year
ended March 31, 2003 for the complete description of this matter.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Employment Agreement with Bernard Berk
--------------------------------------
On July 23, 2003, the Company entered into an employment agreement with
its new Chief Executive Officer, Bernard Berk. The initial term of this
agreement is three years. Pursuant to this agreement:
- Mr. Berk is entitled to receive a base salary of $200,000 per annum,
subject to increase to $330,140 if and when the Company consummates a
Strategic Transaction (as defined in the employment agreement);
- the Company confirmed its grant to Mr. Berk on June 3, 2003 of
options to purchase 300,000 shares of the Company's common stock at
$2.01 per share. All of these options are vested.
-20-
-the Company granted Mr. Berk options to purchase an additional 300,000
shares of its common stock, with an exercise price equal to $2.15, the
closing price of the Company's common stock on the date of grant. These
options will vest solely upon consummation of a Strategic Transaction.
- Mr. Berk will be appointed as a director of the Company if he is
serving as its Chief Executive Officer following the consummation of a
Strategic Transaction.
- Mr. Berk will be entitled to receive severance in accordance with the
employment agreement if he is terminated without cause or because of
his death or permanent disability or if he terminates his employment
for good reason. The severance will be payable in accordance with the
terms of his employment agreement.
Change to Class A Warrant Exchange Offer
----------------------------------------
The Company recently agreed to eliminate the $.10 per share exchange
fee associated with the exchange of the Company's Class A Warrants,
which expired on November 30, 2002, for new Class C Warrants. All other
significant provisions of the exchange offer as contained in the
Settlement Agreement, dated October 23, 2002, among the Company and the
members of the Freedman Group remain the same.
Proposed Merger with Nostrum Pharmaceuticals, Inc.
--------------------------------------------------
On August 6, 2003, the Board of Directors authorized the Company's
management to negotiate a merger agreement with Nostrum
Pharmaceuticals, Inc. ("Nostrum"), a privately-held company engaged in
the development of drug delivery products, whereby, Nostrum would be
merged into a new subsidiary of the Company in exchange for
approximately 32,000,000 shares of the Company's common stock and
options to acquire additional shares of the Company's common stock on
terms to be agreed upon by the parties.
The proposed merger agreement is subject to the approval by the Board
of Directors of the Company and will provide, as conditions to the
merger, that the merger be approved by the Company's shareholders, that
the Company's Board of Directors be expanded with certain members
designated by former Nostrum shareholders, and that the Company
maintain a designated amount of working capital as of the effective
date and other customary closing conditions.
No assurance can be given that a definitive merger agreement will be
executed or that if executed the conditions to the merger will be
satisfied. The actual number of shares of the Company's common stock,
and options exercisable for the Company's common stock, issuable upon
closing of the proposed transaction will be determined in the
definitive merger agreement, as may be approved, and may vary from the
amounts set forth above.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.9 Employment Agreement between Bernard Berk and Elite
Pharmaceuticals, Inc., dated as of July 23, 2003
10.10 Option Agreement between Bernard Berk and Elite
Pharmaceuticals, Inc., dated as of July 23, 2003
10.11 Option Agreement between Bernard Berk and Elite
Pharmaceuticals, Inc., dated as of July 23, 2003
10.12 Option Agreement between John Moore and Elite
Pharmaceuticals, Inc., dated as of July 23, 2003
-21-
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification by Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
A Report on Form 8-K containing responses to Items 5, 6 and 7 was
filed on June 3, 2003 with respect to the resignation of Atul M.
Mehta from all positions with the Company.
A Report on Form 8-K containing responses to Items 5 and 7 was
filed on August 8, 2003 with respect to the Company's press
release reporting its Board of Directors' authorization of the
Company's management to negotiate a definitive merger agreement
with Nostrum Pharmaceuticals, Inc.
-22-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ELITE PHARMACEUTICALS, INC.
Date: August 13, 2003 By: /s/ Bernard Berk
----------------------------
Bernard Berk
Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 2003 By: /s/Mark I. Gittelman
----------------------------
Mark I. Gittelman
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
-25-