U.S. 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 December 31, 2001
-----------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended 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 of (I.R.S. Employer Identification No.)
incorporation or organization)
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)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the issuer has filed all documents and reports required to be
filed by Sections 12, 13 or 15 (d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the issuer's common stock as of December 31,
------------
2001 is 9,636,370.
- ---- ----------
1
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
INDEX
Page No.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 2001 (unaudited) and
March 31, 2001 (audited) 3
Consolidated Statements of Operations for the three and nine months
ended December 31, 2001 and December 31, 2000 (unaudited) 4
Consolidated Statements of Cash Flows for the nine months
Ended December 31, 2001 and December 31, 2000 (unaudited) 5
Notes to Consolidated Financial Statements 6-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11-13
PART II OTHER INFORMATION 14
Item 1 Legal Proceedings
Item 2 Changes in Securities
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 15
2
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
2001 2001
------------ ------------
(Unaudited) (Audited)
------------ ------------
ASSETS
--------
CURRENT ASSETS:
Cash and cash equivalents $ 7,743,800 $ 7,296,702
Contract revenue receivable --- 13,314
Restricted Cash 235,623 306,040
Amount receivable from Joint Venture 379,310 80,932
Prepaid expenses and other current assets 50,340 81,732
------------ ------------
Total current assets 8,409,073 7,778,720
------------ ------------
PROPERTY AND EQUIPMENT, net of accumulated
Depreciation and amortization 3,761,721 3,891,308
INTANGIBLE ASSETS, net of accumulated amortization 53,879 57,173
OTHER ASSETS:
Investment in Joint Venture 74,553 ---
Amount receivable from sale of state tax losses 66,077 146,132
Restricted Cash 300,000 300,000
EDA bond offering costs, net of accumulated amortization
of $30,792 and $20,892, respectively 167,068 176,968
------------ ------------
Total other assets 607,698 623,100
------------ ------------
$12,832,371 $12,350,301
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------
CURRENT LIABILITIES:
Current portion of EDA Bonds $ 130,000 $ 120,000
Accounts payable and accrued expenses 103,371 220,220
Deferred Income 100,000 ---
Amount payable to Joint Venture 328,306 64,827
------------ ------------
Total current liabilities 661,677 405,047
LONG TERM LIABILITIES:
EDA Bond - net of current portion 2,635,000 2,765,000
Dividends Payable - Preferred Series A 853,148 ---
------------ ------------
Total liabilities 4,149,825 3,170,047
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock at liquidating value of $1,000 per share -
$.01 par value; 20,000 shares authorized;
Series A convertible exchangeable preferred stock;
12,015 issued and outstanding 12,015,000 12,015,000
Preferred stock at liquidation value of $1 per share -
$.01 par value; 7,250,000 shares authorized;
Series B convertible preferred stock; 4,806,000 shares
Designated, and 200,000 shares issued and outstanding 200,000 ---
Common stock - $.01 par value;
Authorized - 25,000,000 shares; issued and outstanding -
9,636,370 and 9,376,389 shares, respectively 96,363 93,764
Dividends Paid - Preferred Stock - Series A (853,148) ---
Additional paid-in capital 19,283,709 18,071,503
Accumulated deficit (22,059,378) (21,000,013)
------------ ------------
Total stockholders' equity 8,682,546 9,180,254
------------ ------------
$12,832,371 $12,350,301
============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
3
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------- -----------------------
2001 2000 2001 2000
---- ---- ---- ----
REVENUES:
Research and Development $ 228,000 $ --- $ 478,000 $ ---
Product Formulation Revenues 245,597 7,781 455,108 7,781
Testing Fees --- 1,000 3,450 1,000
------------- ------------- ------------- -------------
Total revenues 473,597 8,781 936,558 8,781
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Research and development 431,239 330,096 1,061,305 1,035,996
General and administrative 214,456 219,978 519,752 540,747
Depreciation and amortization 70,848 58,980 212,544 176,940
------------- ------------- ------------- -------------
716,543 609,054 1,793,601 1,753,683
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS (242,946) (600,273) (857,043) (1,744,902)
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSES):
Interest income 39,867 101,008 215,902 221,504
Interest expense (53,572) (55,897) (164,591) (171,404)
Equity in loss of Joint Venture (221,202) (6,233) (389,021) (12,021,233)
------------- ------------- ------------- -------------
(234,907) 38,878 (337,710) (11,971,133)
------------- ------------- ------------- -------------
LOSS BEFORE BENEFIT FOR INCOME TAXES (477,853) (561,395) (1,194,753) (13,716,035)
------------- ------------- ------------- -------------
BENEFIT FOR INCOME TAXES (137,643) (368,343) (135,388) (367,088)
------------- ------------- ------------- -------------
NET LOSS $ (340,210) $ (193,052) $ (1,059,365) $(13,348,947)
============= ============= ============= =============
NET LOSS PER COMMON SHARE $ (.03) $ (.02) $ (.11) $(1.47)
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 9,631,634 9,140,337 9,528,362 9,110,569
============= ============= ============= =============
The accompanying notes are an integral part of the consolidated
financial statements.
4
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
DECEMBER 31,
---------------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,059,365) $(13,348,947)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation 199,350 165,288
Amortization of intangibles 13,194 11,652
Equity in loss of Joint Venture 389,021 12,021,233
Deferred income 100,000 ---
Changes in assets and liabilities:
Contract revenue receivable 13,314 ---
Prepaid expenses and other current assets 31,392 296,474
Amount receivable from Joint Venture (298,378) ---
Accounts payable, accrued expenses and other current liabilities (116,849) (491,633)
Amount payable to Joint Venture (95) ---
------------- -------------
NET CASH USED IN OPERATING ACTIVITIES (728,416) (1,345,933)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (69,763) (232,164)
Payment for deposit on property and equipment --- (1,230)
Receivable from sale of New Jersey Tax Losses 80,055 (146,132)
Restricted cash 70,417 239,840
------------- -------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 80,709 (139,686)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and warrants 1,214,805 5,518,111
Principal repayments of NJEDA Bonds (120,000) (115,000)
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,094,805 5,403,111
------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 447,098 3,917,492
CASH AND CASH EQUIVALENTS - beginning of period 7,296,702 3,937,217
------------- -------------
CASH AND CASH EQUIVALENTS - end of period $ 7,743,800 $ 7,854,709
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 111,794 $ 116,250
Cash paid for income taxes 2,255 1,255
SUPPLEMENTAL SCHEDULE NON-CASH TRANSACTIONS IN
CONNECTION WITH JOINT VENTURE:
Preferred Stock - Series A Issuance in Exchange for Interest in
Joint Venture $ --- $ 12,015,000
Preferred Stock - Series B Issuance 200,000 ---
Paydown of Amounts Due to Joint Venture (125,447) ---
Additional Investment in Joint Venture (74,553) ---
Dividends accrued on Preferred Stock - Series A 853,148 ---
The accompanying notes are an integral part of the consolidated
financial statements.
5
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED DECEMBER 31, 2001 AND 2000
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
---------------------
The information in this Form 10-Q includes the results of
operations of Elite Pharmaceuticals, Inc. ("the Company") and its
wholly-owned subsidiary, Elite Laboratories, Inc. ("Elite"), for
the three and nine months ended December 31, 2001 and 2000. All
significant intercompany accounts are eliminated upon
consolidation. The accompanying unaudited consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America for
interim financial statements. 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 have been included.
The accounting policies utilized in the preparation of this Form
10-Q are the same as those set forth in the Company's Form 10K-SB
at March 31, 2001 and should be read in conjunction with the
disclosures presented therein.
The Company does not anticipate being profitable for fiscal year
2002, therefore a current provision for income tax was not
established for the nine months ended December 31, 2001.
This quarterly report may contain forward-looking statements
which involve certain risks and uncertainties. Important factors
could arise which could cause the Company's operating results to
differ materially from those contained in any forward looking
statement.
NOTE 2 - EARNINGS PER SHARE
------------------
Earnings per share are based on the weighted average number of
shares outstanding during each period presented. Common stock
equivalents have not been included as their effect would be
antidilutive.
NOTE 3 - COMMITMENTS
-----------
On October 1, 1998, the Company entered into a consulting
agreement with an investment banking firm ("Consultant"). The
terms of the agreement provide for the consultant to render
various services to the Company relating to financial and
investment activities for a term of twenty four months.
As compensation for the consultant's services, the Company shall
grant warrants to purchase 300,000 shares of the Company's common
stock at an exercise price of $6 per share. The warrants shall
vest at the rate of 50,000 warrants every ninety days after the
commencement of the agreement.
On December 31, 1999, this consulting agreement was amended to
provide for payment of a monthly consulting fee of $5,000,
commencing on July 1, 1999 and was terminated on December 1,
2000.
On November 14, 2000, the Company amended its referral agreement
with a member of its Board of Directors to provide certain
consulting services for the period of November 1, 2000 through
October 31, 2003. The Company previously advanced $20,000 under a
prior agreement dated April 8, 1997 in addition to a payment of
$50,000 made during the quarter ended December 31, 2000.
The agreement calls for 25 monthly installments of $3,200
beginning on December 1, 2001.
6
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED DECEMBER 31, 2001 AND 2000
(UNAUDITED)
NOTE 4 - STOCKHOLDERS' EQUITY
--------------------
Private Placement Offering
--------------------------
In a private placement offering dated May 17, 1999, the Company
raised $4,462,500 from the sale of 12.75 units of its securities;
each unit consisting of 100,000 shares of common stock of the
Company and 50,000 warrants, each warrant entitling the holder to
purchase one share of common stock at an exercise price of $5.00
per share during the five year period commencing with the date of
closing of the private placement memorandum (June 16,1999). The
price per unit was $350,000. The Company issued 1,275,000 shares
of common stock and 637,500 warrants to purchase common stock, at
an exercise price of $5.00 per share.
The Company raised net proceeds of $4,452,500 from the private
placement after legal fees of $10,000
Joint Venture Subscription Offering
-----------------------------------
On September 21, 2000, 409,165 shares of the Company's common
stock and 12,015 shares of a newly created Elite Series A
convertible exchangeable preferred stock ("Series A Preferred
Stock") were issued to Elan International Services, Ltd. ("EIS")
for consideration of $5,000,000 and $12,015,000, respectively,
during the month of October. Proceeds from the sale of the Series
A Preferred Stock were used to fund the Company's 80.1% share of
Elite Research, Ltd. ("ERL"), a joint venture with EIS.
The Series A Preferred Stock accrues a dividend of 7% per annum,
compounded annually and payable in shares of Series A Preferred
Stock. Dividends shall be accrued and compounded annually
beginning on October 16, 2001. The Series A Preferred Stock is
convertible at anytime after two years, at EIS's option, into the
Company's common stock at a price of $18.00 per share and has a
term of six years. At the end of the sixth year, at the option of
Elite, the Series A Preferred Stock shall either be redeemed in
cash or in shares of Elite common stock at a fair market value
equal to the aggregate outstanding Series A liquidation
preference and accrued dividends. As of December 31, 2001, the
Company has accrued dividends on the Series A Preferred Stock,
totaling $853,148.
The Series A Preferred Stock is exchangeable at the option of EIS
at any time during the term of the agreement for that amount of
the preferred shares of ERL which will allow EIS to own a total
of 50% of the issued and outstanding common and preferred shares
of ERL.
For a period of one year after the issuance of the above
securities, EIS shall have the right to require registration
under the Securities Act of all or part of these securities. All
registration expenses will be borne by EIS. EIS also has the
right to piggyback registration if at any time the Company shall
propose to register shares of common stock under the Securities
Act.
On October 17, 2000, the Company also authorized 7,250,000 shares
of newly created Elite Series B Preferred Stock of which
4,806,000 has been designated for issuance to EIS for a total
consideration of $4,806,000. These shares can be issued upon
demand by Elite in increments of $100,000 and shall be used to
fund Elite's 80.10% portion of the future capital contributions
to ERL and for subsequent funding of the research and development
activities for ERL.
7
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED DECEMBER 31, 2001 AND 2000
(UNAUDITED)
Series B Preferred Stock shall be entitled to receive a mandatory
dividend equal to 7% per year of the original issue price. Such
dividend shall be accrued and compounded on each succeeding
twelve month anniversary of the first issuance and is payable
solely by the issuance of additional Series B Preferred Stock, at
a price per share equal to the original issue price and not in
cash. Dividends shall be compounded commencing one year after
issuance. Additionally, Class B Preferred Stock shall have a
senior liquidation preference of $1 per share (original issue
price) plus any accrued and unpaid dividends. As of December 31,
2001, the Company has accrued no dividends on the Series B
Preferred Stock.
Additionally, Series B Stock shall be exchangeable, at the option
of EIS, at any time after two years from the date of issuance,
into shares of the Company's common stock using an exchange price
of $14.84 per share and has a term of six years from the date of
first issuance.
At the end of the sixth year, at the option of Elite, Series B
Stock can be redeemed in cash or by the issuance of shares of
Elite common stock at a fair market value equal to the Series B
liquidation preference and accrued dividends.
In addition to the offering above, on October 17, 2000 the
Company issued EIS 100,000 warrants to purchase common stock of
Elite Pharmaceuticals at the exercise price of $18 per share. The
warrants are exercisable at any time on or before October 17,
2005.
As of December 31, 2001, a $200,000 capital contribution was made
on behalf of ERL and financed through the issuance of 200,000
shares of Series B Preferred Stock.
NOTE 5 - BOND FINANCING OFFERING
-----------------------
On September 2, 1999, the Company completed the issuance of
tax-exempt bonds by the New Jersey Economic Development
Authority. The aggregate principal proceeds of the fifteen-year
term bonds were $3,000,000. Interest on the bonds accrues at
7.75% per annum. The proceeds, net of offering costs of $60,000,
are being used by the Company to refinance the land and building
it currently owns, and for the purchase of certain manufacturing
equipment and related building improvements.
Offering costs in connection with the bond issuance totaled
$197,860, including the $60,000 mentioned above which were paid
from bond proceeds. Offering costs included underwriter fees
equal to $90,000 (three percent (3%) of the par amount of the
bonds).
The bonds are collateralized by a first lien on the building,
which includes property and equipment. Several restricted cash
accounts are maintained in connection with the issuance of these
bonds. These include amounts restricted for payments of bond
principal and interest, for the refinancing of the land and
building the Company currently owns, for the purchase of certain
manufacturing equipment and related building improvements as well
as for the maintenance of a $300,000 Debt Service Reserve. All
restricted amounts other than the $300,000 Debt Service Reserve
are expected to be expended within twelve months and are
therefore categorized as current assets.
8
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED DECEMBER 31, 2001 AND 2000
(UNAUDITED)
NOTE 6 - MEMORANDUM OF UNDERSTANDING
---------------------------
On June 1, 2000, the Company entered into a Memorandum of
Understanding (MOU) with Inabata America Corporation ("Inabata"),
an international trading company which markets specialty
chemicals throughout the world in several industry segments
including the pharmaceutical industry. The purpose of the
Memorandum was to agree that the two parties would explore the
possibility of entering into a joint venture for the purpose of
marketing Elite products in Japan through the efforts of Inabata.
The parties will review each other's capabilities and obtain
information concerning regulatory procedures, price restrictions
and marketing information for the Japanese markets. The parties
will perform other due diligence investigations and analyses.
Although Elite declined to extend the term of the MOU after its
initial term of six months expired, both Inabata and the Company
continued in good faith to explore opportunities. On October 8,
2001, Inabata acknowledged that the Memorandum of Understanding
would not be extended. Both Parties later agreed to devise a more
definitive collaboration agreement.
NOTE 7 - COLLABORATIVE AGREEMENTS
------------------------
In October 2000, Elite 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, is initially owned 80.1% by Elite and 19.9%
by Elan. ERL will fund its research through capital contributions
from its partners based on the partners' ownership percentage.
ERL will subcontract research and development efforts to Elite,
Elan and others. It is anticipated that Elite will likely provide
most of the formulation and development work. Elite has completed
in-vivo (pilot clinical trial) on the first product it has
formulated and began formulation and development of a second
product. For the nine months ending December 31, 2001, Elite
charged $455,108 to this joint venture which is reflected in
product formulation revenues.
While the Company owns 80.1% of the outstanding common stock of
ERL, Elan and its subsidiaries have retained significant minority
investor rights that are considered "participating rights" as
defined in the Emerging Issues Task Force Consensus No. 96-16.
Accordingly, the Company will not consolidate the financial
statements of ERL, but will instead account for its investment in
ERL under the equity method of accounting.
For the nine months ended December 31, 2001, ERL recognized a net
loss of $485,669. Elite recognized 80.1% of ERL's loss, or
$389,021 for the nine months ended December 30, 2001. To date,
ERL has not recognized any revenue. In December 2000, the joint
venture had its first organizational meeting and approved one
product for development. In March 2001, the management committee
of ERL met to finalize its budget and business plan and to
complete a preliminary formulation of the drug product.
As of December 31, 2001, the Company owed ERL $328,306
representing its 80.1% contribution to ERL to cover ERL's
expenses for the nine months ending December 31, 2001.
On June 27, 2001, the Company entered into two separate and
distinct development and license agreements with another
pharmaceutical company ("partner"). The Company will develop two
drug compounds for the partner in exchange for certain milestone
payments and royalties. Elite also reserves the right to
manufacture the compounds. On July 2, 2001, the Company received
$250,000 as its first milestone payment on one of the two
agreements. In November the Company received $300,000 as its
first milestone payment on the second agreement. Of these amounts
$100,000 is reflected as deferred income on the accompanying
balance sheet, in accordance with SAB 101 as this income was not
earned in the period ending December 31, 2001.
9
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED DECEMBER 31, 2001 AND 2000
(UNAUDITED)
NOTE 8 - SALE OF STATE TAX LOSSES
------------------------
In the prior fiscal year, the Company received approval for the
sale of $4,872,267 of New Jersey net operating losses under the
Technology Tax Certificate Transfer Program sponsored by the New
Jersey Economic Development Authority (NJEDA). The total tax
benefit receivable by the Company was $368,343 of which $222,211
and $146,132 was received in 2000 and in 2001, respectively.
During the current year the Company received approval for the
sale of an additional $1,822,989 of New Jersey net-operating
losses under the Technology Tax Certificate Transfer Program
sponsored by the New Jersey Economic Development Authority
(NJEDA). The total tax benefit receivable by the Company is
$137,818, of which $71,741 was received. The remaining balance of
$66,077 will be received pending the NJEDA's authorization. Such
amounts are classified as non current assets on the accompanying
consolidated balance sheet.
NOTE 9 - RECENTLY ISSUED ACCOUNTING STANDARDS
------------------------------------
In June 2001, the Financial Accounting Standards Board (FASB)
issued Statements No. 141, Business Combinations, No. 142,
Goodwill and Other Intangible Assets, and No. 143, Accounting for
Asset Retirement Obligations. In August 2001, the FASB issued
Statement No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. FASB Statement No. 141 eliminated the pooling
method of accounting for business combinations after June 30,
2001. FASB Statement No. 142 eliminated the amortization of
goodwill and requires periodic testing for impairment of goodwill
and other intangibles, effective for the Company beginning April
1, 2002. FASB Statement No. 143 applies to legal obligations
associated with the retirement of a tangible long-lived asset,
and is effective for the Company beginning April 1, 2003. FASB
No. 144 describes the accounting for the impairment or disposal
of long-lived assets, and is effective for the Company beginning
April 1, 2002. These standards do not have a material effect on
the financial position or results of operations of the Company.
NOTE 10 - CONTINGENCY
-----------
Elite is the plaintiff in a civil action brought in the Superior
Court of New Jersey on November 20, 2000 against one party and
its affiliates to recover damages in an unspecified amount based
on the alleged failure of the defendants to properly perform and
complete certain pharmaceutical tests and studies for which Elite
paid approximately $950,000. The defendants have brought a
counterclaim of approximately $253,000 allegedly due for services
rendered to Elite by the defendants. Elite will vigorously
contest the counterclaim.
The action and counterclaim are in their preliminary stages.
10
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
PART I. ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
The Company has developed nine oral controlled release pharmaceutical
products to varying states of the development process.
Elite Labs has also conducted several research and development projects on
behalf of several large pharmaceuticals companies. These activities have
generated only limited revenue for Elite Labs to date.
In October 2000, Elite 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, is initially owned 80.1% by Elite and 19.9% by Elan. ERL
will fund its research through capital contributions from its partners based on
the partners' ownership percentage. ERL will subcontract research and
development efforts to Elite, Elan and others. The in-vivo (pilot clinical
trial) has been completed on the first product formulated. Elite has begun to
develop formulation for the second product.
In September 2000, Elite received approval of its application to sell
$4,872,267 in New Jersey Net Operating Tax Losses under the New Jersey Economic
Development Agency's Technology Business Tax Certificate Program. The Company
received $368,343 of proceeds from this sale.
In November 2001, Elite received approval of its application to sell an
additional $1,822,929 in New Jersey Net Operating Tax Losses under the New
Jersey Economic Development Agency's Technology Business Tax Certificate
Program. The Company expects to receive $137,818. $71,741 was received during
the quarter ending December 31, 2001.
In June 2001, the Company entered into two separate and distinct
development and license agreements with another U.S. pharmaceutical company to
develop two products in exchange for development fees, certain milestone
payments, royalties and manufacturing rights. Elite has undertaken formulation
development for these two products in the period ending December 31, 2001.
In October 2001, the Company authorized the purchase of up to 100,000
shares of its common stock in the open market at the then prevailing market
price on or before March 31, 2002. To date, there have been no repurchases of
any common stock.
The Company plans to focus its efforts on the following areas: (i) to
receive FDA approval for one or all nine of the oral controlled release
pharmaceutical products already developed, either directly or through other
companies; (ii) to commercially exploit these drugs either by licensure and the
collection of royalties, or through the manufacturing of tablets and capsules
using the formulations developed by the Company, and (iii) to continue the
development of new products and the expansion of its licensing agreements with
other large multinational pharmaceutical companies including contract research
and development projects.
Results of Consolidated Operations
Nine Months Ended December 31, 2001 Compared to Nine Months Ended
December 31, 2000
Elite's revenues for the nine months ended December 31, 2001 were $936,558,
an increase of $927,777 over the comparable period of the prior year. For the
nine months ended December 31, 2001, revenues consisted of product formulation
fees of $455,108 earned in conjunction with the Company's joint venture in ERL,
development fees of $478,000 and testing fees of $3,450.
11
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
PART I. ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Nine Months Ended December 31, 2001 Compared to Nine Months Ended
December 31, 2000 (Continued)
General and administrative expenses for the nine months ended December 31,
2001 were $519,752, a decrease of $20,995, or approximately 4% from the
comparable period of the prior year. The decrease in general and administrative
expenses was substantially due to a decrease in consulting fees.
Research and development costs for the nine months ended December 31, 2001,
were $1,061,305, an increase of $25,309 or approximately 2% from the comparable
period of the prior year. Research and development costs have increased as the
Company has undertaken more biostudies than were undertaken in the comparable
period of the prior year.
Elite's net loss for period ended December 31, 2001 was $1,059,365 as
compared to $13,348,947 for the comparable period of the prior year. The
decrease in the net loss was primarily due to the increase in revenues and to
the fact that a one time charge of $12,015,000 was made in the period ending
December 31, 2000 relating to the Company's equity loss in its 80.1% owned joint
venture, Elite Research, Ltd.
Three Months Ended December 31, 2001 Compared to Three Months Ended
December 31, 2000
Elite's revenues for the three months ended December 31, 2001 were
$473,597, an increase of $464,816 over the comparable period of the prior year.
For the three months ended December 31, 2001, revenues consisted of product
formulation fees of $245,597 earned in conjunction with the Company's joint
venture in ERL, and development fees of $228,000.
General and administrative expenses for the three months ended December 31,
2001 were $214,456, a decrease of $5,522, or approximately 2% from the
comparable period of the prior year. The decrease in general and administrative
expenses was substantially due to a decrease in consulting fees.
Research and development costs for the three months ended December 31,
2001, were $431,239, an increase of $101,143 or approximately 31% from the
comparable period of the prior year. Research and development costs have
increased as the Company has undertaken more biostudies and testing than were
undertaken in the comparable period of the prior year.
Elite's net loss for period ended December 31, 2001 was $340,210 as
compared to $193,052 for the comparable period of the prior year. The increase
in the net loss was primarily due to the reduction of investment interest rates,
the decrease in the credit for sale of NJ tax losses, and the increase in equity
loss of joint venture, offset by increases in revenues.
12
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
PART I. ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Material Changes in Financial Condition
The Company's working capital (total current assets less total current
liabilities), which was $7,373,673 as of March 31, 2001, increased to $7,747,396
as of December 31, 2001. The increase in working capital is primarily due to the
receipt of $1,014,805 from the issuance of common stock and $200,000 from the
issuance of Series B preferred stock partially offset by the Company's net loss
from operations.
The Company experienced negative cash flow from operations of $728,416 for
the period ended December 31, 2001 as compared to $1,345,933 for the comparative
period of the prior year. This was primarily due to the Company's net loss of
$1,059,365 as compared to $13,348,947 for the comparative period of the prior
year.
Forward Looking Statements
This report contains forward-looking statements that describe the Company's
business prospects. These statements involve risks and uncertainties including,
but not limited to, rapid technology changes, regulatory uncertainty, level of
demand for the Company's products and services, product acceptance, industry
wide competitive factors, and political, economic or other conditions.
Furthermore, market trends are subject to changes which could adversely affect
future results. Reference should be made to the Company's Prospectus for its
initial public offering declared effective on August 14, 1998, and the
supplement to the Prospectus dated August 19, 1998, for additional discussion
concerning such risk factors.
13
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No Report Required
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No Report Required
ITEM 2. CHANGES IN SECURITIES
No Report Required
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No Report Required
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No Report Required
ITEM 5. OTHER INFORMATION
No Report Required
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K. No report on Form 8-K has been
filed during quarter ending December 31, 2001.
14
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: February 12, 2002 By: /s/Atul M. Mehta
------------------------------------------
Atul M. Mehta
President & Chief Executive Officer
(Principal Executive Officer)
Date: February 11, 2002 By: /s/Mark I. Gittelman
------------------------------------------
Mark I. Gittelman
Chief Financial Officer and Treasurer
(Principal Financial & Accounting Officer)
15