(cid:10)
10-K(cid:10)
1(cid:10)
c54068_10k.txt(cid:10)
(cid:10)
UNITED STATES(cid:10)
SECURITIES AND EXCHANGE COMMISSION(cid:10)
WASHINGTON, D.C. 20549(cid:10)
FORM 10-K(cid:10)
(MARK ONE)(cid:10)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES(cid:10)
EXCHANGE ACT OF 1934(cid:10)
FOR THE FISCAL YEAR ENDED - March 31, 2008(cid:10)
OR(cid:10)
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE(cid:10)
SECURITIES EXCHANGE ACT OF 1934(cid:10)
FOR THE TRANSITION PERIOD FROM ______ TO ______(cid:10)
Commission File Number: 001-15697(cid:10)
ELITE PHARMACEUTICALS, INC.(cid:10)
(Exact name of registrant as specified in its charter)(cid:10)
DELAWARE 22-3542636(cid:10)
-------- ----------(cid:10)
(State or other jurisdiction (IRS Employer(cid:10)
of incorporation) Identification No.)(cid:10)
165 LUDLOW AVENUE, NORTHVALE, NEW JERSEY 07647(cid:10)
----------------------------------------------(cid:10)
(Address of principal executive offices)(cid:10)
(201) 750-2646(cid:10)
--------------(cid:10)
(Registrant's telephone number, including area code)(cid:10)
(cid:10)
(cid:10)
Securities registered pursuant to Section 12(b) of the Act: Common Stock - $.01 par value(cid:10)
The Common Stock is listed on The(cid:10)
American Stock Exchange(cid:10)
Securities registered pursuant to Section 12(g) of the Act: None(cid:10)
(cid:10)
Indicate by check mark if the registrant is a well-known seasoned issuer, as(cid:10)
defined in Rule 405 of the Securities Act. Yes [ ] No [X](cid:10)
Indicate by check mark if the registrant is not required to file reports(cid:10)
pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [X](cid:10)
(cid:10)
Indicate by check mark whether the registrant (1) has filed all reports required(cid:10)
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during(cid:10)
the preceding 12 months (or for such shorter period that registrant was required(cid:10)
to file such reports) and (2) has been subject to such filing requirements for(cid:10)
at least the past 90 days. Yes [X] No [ ](cid:10)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405(cid:10)
of Regulation S-K is not contained herein, and will not be contained, to the(cid:10)
best of registrant's knowledge, in definitive proxy or information statements(cid:10)
incorporated by reference in Part III of this Form 10-K. [ ](cid:10)
Indicate by check mark whether the registrant is a large accelerated filer, an(cid:10)
accelerated filer, or a non-accelerated filer. See definition of "accelerated(cid:10)
file and larger accelerated filer" in Rule 12b-2 of the Exchange Act.(cid:10)
(cid:10)
Indicate by check mark whether the registrant is a shell company (as defined in(cid:10)
Rule 12b-2 of the Act). Yes [ ] No [X](cid:10)
The aggregate market value of the voting common equity held by non-affiliates of(cid:10)
the Registrant as of June 18, 2008 was approximately $9,297,948.50 based upon(cid:10)
the closing price of $0.50 of the Registrant's Common Stock on the American(cid:10)
Stock Exchange, as of June 18, 2008. (For purposes of determining this amount,(cid:10)
only directors, executive officers, and, based on Schedule 13(d) filings as of(cid:10)
June 18, 2008, 10% or greater stockholders and their respective affiliates have(cid:10)
been deemed affiliates).(cid:10)
Registrant had 23,232,207 shares of common stock, par value $0.01 per share,(cid:10)
outstanding as of June 18, 2008.(cid:10)
DOCUMENTS INCORPORATED BY REFERENCE(cid:10)
List hereunder the following documents if incorporated by reference and the Part(cid:10)
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is(cid:10)
incorporated: (1) Any annual report to security holders; (2) Any proxy or(cid:10)
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or(cid:10)
(c) under the Securities Act of 1933. The listed documents should be clearly(cid:10)
described for identification purposes (e.g., annual report to security holders(cid:10)
for fiscal year ended December 24, 1980). N/A(cid:10)
ii(cid:10)
(cid:10)
FORWARD LOOKING STATEMENTS(cid:10)
THIS ANNUAL REPORT ON FORM 10-K AND THE DOCUMENTS INCORPORATED HEREIN CONTAIN(cid:10)
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES(cid:10)
LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND(cid:10)
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL(cid:10)
RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY RESULTS, TO BE(cid:10)
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS(cid:10)
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. WHEN USED IN THIS(cid:10)
ANNUAL REPORT, STATEMENTS THAT ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT(cid:10)
MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE FOREGOING,(cid:10)
THE WORDS "PLAN", "INTEND", "MAY," "WILL," "EXPECT," "BELIEVE", "COULD,"(cid:10)
"ANTICIPATE," "ESTIMATE," OR "CONTINUE" OR SIMILAR EXPRESSIONS OR OTHER(cid:10)
VARIATIONS OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY SUCH(cid:10)
FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON(cid:10)
THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. EXCEPT(cid:10)
AS REQUIRED BY LAW, THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE ANY(cid:10)
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE(cid:10)
EVENTS OR OTHERWISE.(cid:10)
ANY REFERENCE TO "ELITE", THE "COMPANY", "WE", "US", "OUR" OR THE "REGISTRANT"(cid:10)
MEANS ELITE PHARMACEUTICALS INC. AND ITS SUBSIDIARIES.(cid:10)
iii(cid:10)
(cid:10)
TABLE OF CONTENTS(cid:10)
Form 10-K Index(cid:10)
(cid:10)
(cid:10)
PAGE(cid:10)
(cid:10)
PART I(cid:10)
ITEM 1. BUSINESS.......................................................................................1(cid:10)
ITEM 1A. RISK FACTORS..................................................................................14(cid:10)
ITEM 1B. UNRESOLVED STAFF COMMENTS.....................................................................24(cid:10)
ITEM 2. PROPERTIES....................................................................................24(cid:10)
ITEM 3. LEGAL PROCEEDINGS.............................................................................25(cid:10)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........................................25(cid:10)
PART II(cid:10)
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............................25(cid:10)
ITEM 6. SELECTED FINANCIAL DATA.......................................................................30(cid:10)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION..........30(cid:10)
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................40(cid:10)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................................................40(cid:10)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..........40(cid:10)
ITEM 9A. CONTROLS AND PROCEDURES.......................................................................41(cid:10)
ITEM 9B. OTHER INFORMATION.............................................................................41(cid:10)
PART III(cid:10)
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY...............................................41(cid:10)
ITEM 11. EXECUTIVE COMPENSATION........................................................................47(cid:10)
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED(cid:10)
STOCKHOLDER MATTERS...........................................................................66(cid:10)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................68(cid:10)
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES........................................................70(cid:10)
PART IV(cid:10)
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES..................................................71(cid:10)
SIGNATURES..................................................................................................79(cid:10)
CONSOLIDATED FINANCIAL STATEMENTS..........................................................................F-1(cid:10)
(cid:10)
iv(cid:10)
(cid:10)
PART I(cid:10)
ITEM 1. BUSINESS(cid:10)
GENERAL(cid:10)
Elite Pharmaceuticals, Inc. ("ELITE PHARMACEUTICALS") was incorporated(cid:10)
on October 1, 1997 under the laws of the State of Delaware, and our wholly-owned(cid:10)
subsidiaries, Elite Laboratories, Inc. ("ELITE LABS") and Elite Research, Inc.(cid:10)
("ELITE RESEARCH") were incorporated on August 23, 1990 and December 20, 2002,(cid:10)
respectively, under the laws of the State of Delaware. Elite Pharmaceuticals,(cid:10)
Elite Labs, Elite Research and Novel, a variable interest entity, are referred(cid:10)
to herein, collectively, as "ELITE", "WE", "US", "OUR" or the "COMPANY".(cid:10)
On October 24, 1997, Elite Pharmaceuticals merged with and into our(cid:10)
predecessor company, Prologica International, Inc. ("PROLOGICA"), an inactive(cid:10)
publicly held Pennsylvania corporation. At the same time, Elite Labs merged with(cid:10)
a wholly-owned subsidiary of Prologica. Following these mergers, Elite(cid:10)
Pharmaceuticals survived as the parent to its wholly-owned subsidiary, Elite(cid:10)
Labs.(cid:10)
On September 30, 2002, we acquired from Elan Corporation, plc and Elan(cid:10)
International Services, Ltd. (together "ELAN") Elan's 19.9% interest in Elite(cid:10)
Research, Ltd. ("ERL"), a joint venture formed between Elite and Elan in which(cid:10)
our initial interest was 80.1% of the outstanding capital stock (100% of the(cid:10)
outstanding Common Stock). As a result of the termination of the joint venture,(cid:10)
we owned 100% of ERL's capital stock. On December 31, 2002, ERL (a Bermuda(cid:10)
Corporation) was merged into Elite Research, our wholly-owned subsidiary.(cid:10)
The address of our principal executive offices and our telephone and(cid:10)
facsimile numbers at that address are:(cid:10)
Elite Pharmaceuticals, Inc., 165 Ludlow Avenue, Northvale, New Jersey(cid:10)
07647; Phone No.: (201) 750-2646; Facsimile No.: (201) 750-2755.(cid:10)
We file registration statements, periodic and current reports, proxy(cid:10)
statements and other materials with the Securities and Exchange Commission (the(cid:10)
"SEC"). You may read and copy any materials we file with the SEC at the SEC's(cid:10)
Public Reference Room at 100 F Street, N.W., Washington, DC 20549. You may(cid:10)
obtain information on the operation of the Public Reference Room by calling the(cid:10)
SEC at 1-800-SEC-0330. The SEC maintains a web site at www.sec.gov that contains(cid:10)
reports, proxy and information statements and other information regarding(cid:10)
issuers that file electronically with the SEC, including our filings.(cid:10)
BUSINESS OVERVIEW AND STRATEGY(cid:10)
We are a specialty pharmaceutical company principally engaged in the(cid:10)
development and manufacture of oral, controlled-release products. We develop(cid:10)
oral, controlled-release products using proprietary technology. Our strategy(cid:10)
includes improving off-patent drug products for life cycle management and(cid:10)
developing generic versions of controlled-release drug products with high(cid:10)
barriers to entry. Our technology is applicable to develop delayed, sustained or(cid:10)
targeted release pellets, capsules, tablets, granules and powders.(cid:10)
We have two products, Lodrane 24(R) and Lodrane 24D(R), currently being(cid:10)
sold commercially, and(cid:10)
1(cid:10)
(cid:10)
a pipeline of five drug candidates under development in the therapeutic areas(cid:10)
that include pain management, allergy and infection. Of the products under(cid:10)
development, ELI-216, an abuse deterrent oxycodone product, and ELI-154, a once(cid:10)
daily oxycodone product, are in clinical trials and we have completed pilot(cid:10)
studies on two of our generic product candidates. The addressable market for the(cid:10)
pipeline of products exceeds $6 billion. Our facility in Northvale, New Jersey(cid:10)
also is a Good Manufacturing Practice ("GMP") and DEA registered facility for(cid:10)
research, development and manufacturing.(cid:10)
STRATEGY(cid:10)
We are focusing our efforts on the following areas: (i) development of(cid:10)
our pain management products, (ii) manufacturing of Lodrane 24(R) and Lodrane(cid:10)
24D(R) product; (ii) the development of the other products in our pipeline; and(cid:10)
(iii) commercial exploitation of our products either by license and the(cid:10)
collection of royalties, or through the manufacture of our formulations, and(cid:10)
(iv) development of new products and the expansion of our licensing agreements(cid:10)
with other pharmaceutical companies, including co-development projects, joint(cid:10)
ventures and other collaborations.(cid:10)
We are focusing on the development of various types of drug products,(cid:10)
including branded drug products (which require new drug applications ("NDA")(cid:10)
under Section 505(b)(1) or 505(b)(2) of the Drug Price Competition and Patent(cid:10)
Term Restoration Act of 1984 (the "DRUG PRICE ACT")) as well as generic drug(cid:10)
products (which require abbreviated new drug applications ("ANDA")).(cid:10)
We intend to continue to collaborate in the development of additional(cid:10)
products with our current partners. We also plan to seek additional(cid:10)
collaborations to develop more drug products.(cid:10)
We believe that our business strategy enables us to reduce our risk by(cid:10)
having a diverse product portfolio that includes both branded and generic(cid:10)
products in various therapeutic categories and build collaborations and(cid:10)
establish licensing agreements with companies with greater resources thereby(cid:10)
allowing us to share costs of development and to improve cash-flow.(cid:10)
RESEARCH AND DEVELOPMENT(cid:10)
During each of the last three fiscal years, we have focused on research(cid:10)
and development activities. We spent $5,795,779 for the fiscal year ended March(cid:10)
31, 2008, $5,777,865 for the fiscal year ended March 31, 2007 and $4,343,890 in(cid:10)
the fiscal year ended March 31, 2006 on research and development activities. Our(cid:10)
research and development spending has increased as we prepare for Phase III(cid:10)
clinical trials for ELI-216 and ELI-154 and spend more on development costs(cid:10)
including scale up and clinical studies.(cid:10)
Of our five products in the pipeline, three are for treatment or(cid:10)
management of pain (ELI 216 is an abuse resistant oxycodone, ELI 154 is a once(cid:10)
daily oxycodone and a third is for an analgesic indication), one is for(cid:10)
anti-infective indications, and one is for gastrointestinal disorders(cid:10)
It is our general policy not to disclose products in our development(cid:10)
pipeline or the status of such products until a product reaches a stage that we(cid:10)
determine, for competitive reasons, in our discretion, to be appropriate for(cid:10)
disclosure and because the disclosure of such information might suggest the(cid:10)
occurrence of future matters or events that may not occur. In this instance, we(cid:10)
believe that disclosure of the information in the following table is helpful for(cid:10)
the description of the general nature, orientation and activity of the Company,(cid:10)
and the disclosures are made for such purpose. No inference should be made as(cid:10)
2(cid:10)
(cid:10)
to the occurrence of matters or events not specifically described. We may or may(cid:10)
not disclose such information in the future based on competitive reasons and/or(cid:10)
contractual obligations. We believe that the information is helpful on a(cid:10)
one-time basis for the purpose described above.(cid:10)
The following table provides information concerning the(cid:10)
controlled-release products that Elite is currently developing and to which we(cid:10)
are devoting substantial resources and attention. None of these products has(cid:10)
been approved by the United Stated Food and Drug Administration (the "FDA") and(cid:10)
all are in development.(cid:10)
(cid:10)
(cid:10)
PRODUCT APPROX. U.S. NDA/ PARTNER INDICATION(cid:10)
SALES FOR BRAND ANDA (B)(cid:10)
AND/OR GENERIC(cid:10)
PRODUCTS(cid:10)
(2006) $MM(A)(cid:10)
(cid:10)
ELI 154 N/A(c) NDA None Pain Management(cid:10)
Once Daily oxycodone(cid:10)
ELI 216 N/A(c) NDA None Pain Management(cid:10)
Once daily oxycodone with(cid:10)
abuse resistant technology(cid:10)
(ART(TM))(cid:10)
Generic $30 ANDA None Infection(cid:10)
Generic $3,300 ANDA IntelliPharmaceutics Gastrointestinal(cid:10)
(Toronto, Canada) disorders(d)(cid:10)
Generic $39 ANDA The PharmaNetwork, LLC Pain Management(cid:10)
(Montvale, NJ)(cid:10)
(cid:10)
---------------------(cid:10)
(a) Indicates the approximate amount of sales of our competitor's product(cid:10)
and any generics (if there are any). It does not represent the sales of(cid:10)
any of our products.(cid:10)
(b) "NDA" represents a new drug application which is filed with the FDA for(cid:10)
new drug products and "ANDA" represents an abbreviated new drug(cid:10)
application which is filed with the FDA for generic drug products.(cid:10)
(c) N/A means not applicable because there is no branded product on the(cid:10)
market. There is neither a once-daily oxycodone nor an abuse resistant(cid:10)
oxycodone on the market. The market for sustained release oxycodone was(cid:10)
approximately $2 billion in 2007.(cid:10)
(d) This includes an agreement that grants to Elite a percentage of(cid:10)
payments paid to its Canadian partner for commercial sale of a generic(cid:10)
of this product.(cid:10)
The table below presents information with respect to the development of(cid:10)
our five products under development. For some of the products, we intend to make(cid:10)
NDA filings under Sections 505(b)(1) or 505(b)(2) of the Drug Price Act.(cid:10)
Accordingly, we anticipate, as to which there is no assurance, that the(cid:10)
development timetable for the products for which such NDA filings are made would(cid:10)
be shorter and less expensive. Completion of development of products by us(cid:10)
depends on a number of factors, however, and there can be no assurance that(cid:10)
specific time frames will be met during the development process or that the(cid:10)
development of any particular products will be continued.(cid:10)
In the table, Pilot Phase I studies for the NDA products are generally(cid:10)
preliminary studies done in healthy human subjects to assess the(cid:10)
tolerance/safety and pharmacokinetics of the product. The Phase II(cid:10)
3(cid:10)
(cid:10)
study listed below was done in recreational drug users and a visual analog scale(cid:10)
for euphoria was measured in the study. Additional larger studies in humans will(cid:10)
be required prior to submission of the product to the FDA for review. Pilot(cid:10)
bioequivalence studies are initial studies done in humans for generic products(cid:10)
and are used to assess the likelihood of achieving bioequivalence for generic(cid:10)
products. Larger pivotal bioequivalence studies will be required prior to(cid:10)
submission of the product to the FDA for review.(cid:10)
DEVELOPMENT STAGE NUMBER OF PRODUCTS NDA/ANDA(cid:10)
----------------- ------------------ --------(cid:10)
Preclinical 1 ANDA(cid:10)
Pilot bioequivalence study 2 ANDA(cid:10)
Pilot Phase I study 1 NDA(cid:10)
Phase II 1 NDA(cid:10)
COMMERCIAL PRODUCTS(cid:10)
Elite manufactures two once-daily allergy products, Lodrane 24(R) and(cid:10)
Lodrane 24D(R), that were co-developed with our partner, ECR Pharmaceuticals(cid:10)
("ECR"). Elite entered into development agreements on these two products with(cid:10)
ECR in June 2001 whereby Elite agreed to commercially develop two products in(cid:10)
exchange for development fees, certain payments, royalties and manufacturing(cid:10)
rights. The products are being marketed by ECR which also has the responsibility(cid:10)
for regulatory matters. In addition to receiving revenues for manufacture of(cid:10)
these products, Elite also receives a royalty on in-market sales.(cid:10)
Lodrane 24(R), was first commercially offered in November 2004, and(cid:10)
Elite's revenues for manufacturing the product and a royalty on sales for the(cid:10)
years ended March 31, 2008, 2007 and 2006 aggregated $1,413,119, $1,143,841 and(cid:10)
$550,697 respectively. Lodrane 24D(R) was first commercially offered in(cid:10)
December, 2006 and Elite's revenues for manufacturing the product and a royalty(cid:10)
on sales for the years ended March 31, 2008 and March 31, 2007 aggregated(cid:10)
$498,144 and $555,221 respectively.(cid:10)
4(cid:10)
(cid:10)
PRODUCTS UNDER DEVELOPMENT(cid:10)
ELI-154 AND ELI-216(cid:10)
For ELI-154, Elite has developed a once-daily oxycodone formulation(cid:10)
using its proprietary technology. An investigational new drug application or IND(cid:10)
has been filed and Elite has completed two pharmacokinetic studies in healthy(cid:10)
subjects that compared blood levels of oxycodone from dosing ELI-154 and the(cid:10)
twice-a-day product that is on the market currently. ELI-154, when compared to(cid:10)
twice-daily delivery, demonstrated an equivalent onset, more constant blood(cid:10)
levels of the drug over the 24 hours and equivalent blood levels to the(cid:10)
twice-a-day product at the end of 24 hours. We are now scaling up that product(cid:10)
using commercial size equipment for manufacture of batches. Elite submitted a(cid:10)
proposed clinical plan and received guidance from the FDA for this product.(cid:10)
Elite has also requested a special protocol assessment ("SPA") for the ELI-154(cid:10)
Phase III protocol but has not yet received a final agreement for it. Elite is(cid:10)
also evaluating developing this product for markets outside the U.S.(cid:10)
ELI-216 utilizes our patent-pending abuse deterrent technology that is(cid:10)
based on a pharmacological intervention approach. ELI-216 is a combination of a(cid:10)
narcotic agonist, oxycodone hydrochloride, in a sustained release formulation(cid:10)
intended for use in patients with moderate to severe chronic pain, and an(cid:10)
antagonist, naltrexone hydrochloride, formulated to deter abuse of the drug.(cid:10)
Both of these compounds, oxycodone hydrochloride and naltrexone hydrochloride,(cid:10)
have been on the market for a number of years and sold separately in various(cid:10)
dose strengths. Elite has filed an IND for the product and has tested the(cid:10)
product in a series of pharmacokinetic studies. In single dose studies for(cid:10)
ELI-216, it was demonstrated that no quantifiable blood levels of naltrexone(cid:10)
hydrochloride were released at a limit of quantification ("LOQ") of 7.5 pg/ml.(cid:10)
When crushed, however, naltrexone hydrochloride was released at levels that(cid:10)
would be expected to eliminate the euphoria from the crushed oxycodone(cid:10)
hydrochloride. This data is consistent with the premise of Elite's abuse(cid:10)
resistant technology or ART, that essentially no naltrexone is released and(cid:10)
absorbed when administered as intended.(cid:10)
In further studies, ELI-216 demonstrated the euphoria-blocking effect(cid:10)
of ELI-216 when the product is crushed. This study was designed to determine the(cid:10)
optimal ratio of oxycodone hydrochloride and the opioid antagonist, naltrexone(cid:10)
hydrochloride, to significantly block the euphoric effect of the opioid if the(cid:10)
product is abused by physically altering it, (i.e., crushing). The study also(cid:10)
helped determine the appropriate levels of naltrexone hydrochloride required to(cid:10)
reduce or eliminate the euphoria experienced by subjects who might take crushed(cid:10)
product to achieve a "high". Elite intends to complete and submit to the FDA a(cid:10)
second stage of this study that will be a double blinded, cross-over pivotal(cid:10)
study.(cid:10)
Elite met with the FDA in October 2006 for a Type C clinical guidance(cid:10)
meeting regarding the NDA development program for ELI-216. Elite has(cid:10)
incorporated the FDA's guidance into its developmental plan. Elite has begun(cid:10)
scale up of ELI-216 to commercial size batches and Elite has obtained an SPA(cid:10)
with the FDA for the ELI-216 Phase III protocol. Elite will conduct additional(cid:10)
Phase I studies including, but not limited to, food effect, ascending dose and a(cid:10)
multi-dose studies.(cid:10)
Elite has developed ELI-154 and ELI-216 and retains the rights to these(cid:10)
products. Elite has currently chosen to develop these products itself but(cid:10)
expects to license these products at a later date to a third party for sales and(cid:10)
distribution. The drug delivery technology underlying ELI-154 was originally(cid:10)
developed under a joint venture with Elan which terminated in 2002.(cid:10)
According to the termination agreement, Elite acquired all proprietary,(cid:10)
development and commercial rights for the worldwide markets for the products(cid:10)
developed by the joint venture including ELI-154. Upon licensing or(cid:10)
commercialization of ELI-154, Elite will pay a royalty to Elan pursuant to(cid:10)
5(cid:10)
(cid:10)
the termination agreement with Elan. If Elite were to sell the product itself,(cid:10)
Elite would pay a 1% royalty to Elan based on the product's net sales and if(cid:10)
Elite enters into an agreement with another party to sell the product, Elite(cid:10)
will pay a 9% royalty to Elan based on Elite net revenues from this product(cid:10)
(Elite net product revenues would include license fees, royalties, manufacturing(cid:10)
profits and milestones). Elite is allowed to recoup all development costs(cid:10)
including research, process development, analytical development, clinical(cid:10)
development and regulatory costs before payment of any royalties to Elan.(cid:10)
MANUFACTURING, CO-DEVELOPMENT AND LICENSE AGREEMENTS(cid:10)
On March 30, 2005, Elite entered into a three party agreement with Tish(cid:10)
Technologies, Inc. and Harris Pharmaceuticals, Inc. ("HARRIS") for the(cid:10)
co-development and license of a controlled-release generic product. The(cid:10)
innovator has now received approval for an alternative dose form (a tablet(cid:10)
rather than capsule) and has discontinued the original dose form. While a(cid:10)
reference product remains for the capsule, the market opportunity has changed(cid:10)
and this affects how we might commercialize the capsule dosage form. On June 19,(cid:10)
2006, we received written notice from Harris of Harris' intent to terminate the(cid:10)
agreement in accordance with Section 9.3 of the agreement and therefore Elite is(cid:10)
not currently going forward with the development of this product. As of the date(cid:10)
hereof, Elite has received $29,700 for this development work.(cid:10)
On June 21, 2005, Elite entered into a product development and(cid:10)
commercialization agreement with IntelliPharmaCeutics Corp. ("IPC"), a privately(cid:10)
held, specialty pharmaceutical Canadian company that develops generic(cid:10)
controlled-release drug products. It is affiliated with IntelliPharmaCeutics,(cid:10)
Ltd. The agreement provides for the co-development and commercialization of a(cid:10)
controlled-released generic product. IPC has taken a formulation for the product(cid:10)
into a pilot bioequivalence biostudy. Upon commercialization, Elite is to share(cid:10)
the profits, if any, realized upon sales. A successful pivotal biostudy and an(cid:10)
approved ANDA filing is required to commercialize this product.(cid:10)
On December 12, 2005, Elite and IPC amended their obligations to(cid:10)
suspend their obligations under their agreement with respect to the development(cid:10)
and commercialization of the controlled-release drug product in Canada. IPC, in(cid:10)
turn, entered into an agreement with ratiopharm, inc., a Canadian company, for(cid:10)
the development and commercialization of the product in Canada and will pay(cid:10)
Elite a certain percentage of any payments received by IPC with respect to the(cid:10)
commercial sale of this product by ratiopharm, inc. in Canada.(cid:10)
On June 22, 2005, Elite entered into a Product Development and License(cid:10)
Agreement with PLIVA, Inc. ("PLIVA"), now a subsidiary of Barr Pharmaceuticals,(cid:10)
Inc. providing, for the development and license of a controlled-released generic(cid:10)
product. On June 28, 2007, shortly after the acquisition of Pliva by Barr(cid:10)
Pharmaceuticals, Inc., Elite and Pliva terminated the Product Development and(cid:10)
License Agreement and entered into a termination agreement according to which it(cid:10)
was agreed that Elite owns all intellectual property rights relating to the(cid:10)
controlled-released generic product under development and Pliva agreed to pay(cid:10)
Elite $100,000 in discharge of outstanding payments under the Product(cid:10)
Development and License Agreement.(cid:10)
On January 10, 2006, Elite entered into an agreement with Orit(cid:10)
Laboratories LLC ("ORIT"), an affiliate of Tish Technologies LLC, providing that(cid:10)
Elite and Orit will co-develop and commercialize an extended-release drug(cid:10)
product for treatment of anxiety, and, upon completion of development, may(cid:10)
license it for manufacture and sale. Orit has been providing formulation and(cid:10)
analytical resources for the development work. Elite's facility has been used(cid:10)
for manufacture of development batches. There have been a number of generic(cid:10)
approvals on this product and Elite has determined that it no longer is(cid:10)
6(cid:10)
(cid:10)
economically desirable to complete the development and to file this product. We(cid:10)
are in discussion with Orit about terminating the agreement.(cid:10)
On November 10, 2006, Elite entered into a product collaboration(cid:10)
agreement with The PharmaNetwork, LLC ("TPN") for the development of the generic(cid:10)
product equivalent of a synthetic narcotic analgesic drug product. TPN is to(cid:10)
perform development services and prepare and file an ANDA in the name of TPN(cid:10)
with the FDA. Elite is to provide development support, including the purchase of(cid:10)
active pharmaceutical ingredients and materials and supplies to manufacture the(cid:10)
batch, provide adequate facilities to TPN for use in its development work and(cid:10)
following ANDA approval, Elite will manufacture the drug product developed.(cid:10)
Elite is to pay TPN for the development services rendered upon the attainment of(cid:10)
certain milestones. The out-of-pocket costs are to be shared by TPN and Elite,(cid:10)
with TPN's obligation to be payable from the royalty compensation. We have(cid:10)
completed the formulation development work and compilation of the ANDA(cid:10)
submission is currently underway.(cid:10)
JOINT VENTURE WITH NOVEL(cid:10)
Under the terms of the Strategic Alliance Agreement (the "ALLIANCE(cid:10)
AGREEMENT"), dated as of December 6, 2006, between us, Dr. Veerappan S.(cid:10)
Subramanian and VGS Pharma, LLC, a Delaware limited liability company ("VGS"),(cid:10)
we and VGS jointly formed Novel Laboratories, Inc., a Delaware corporation(cid:10)
("NOVEL"), a specialty pharmaceutical company for the research, development,(cid:10)
manufacturing, licensing and acquisition of specialty generic pharmaceuticals.(cid:10)
Under the Alliance Agreement, we acquired 49% and VGS acquired 51% of Novel's(cid:10)
Class A Voting Common Stock, for $9,800 and $10,200 respectively. In order to(cid:10)
maintain our full 49% interest in Novel, we had agreed to provide additional(cid:10)
cash contributions to Novel upon achievement by Novel of certain performance(cid:10)
milestones. While the contributions were not mandatory obligations of Elite,(cid:10)
under the Stockholders Agreement, dated as of December 6, 2006, between Elite(cid:10)
and VGS, if we did not fund an agreed upon contribution after the occurrence of(cid:10)
the related performance milestone, VGS would have the right to purchase from us(cid:10)
a pre-defined portion of our shares of Class A Voting Common Stock, resulting in(cid:10)
a decrease in our ownership interest in Novel.(cid:10)
Subsequent to the entry into the Alliance Agreement, we and VGS agreed(cid:10)
that the performance milestones relating to the funding of our remaining(cid:10)
$20,000,000 of cash contributions would be (i) $10,000,000 upon the submission(cid:10)
to the FDA of three abbreviated new drug applications (ANDAs) related to three(cid:10)
different prospective products developed by Novel and (ii) $10,000,000 upon the(cid:10)
submission to the FDA of three ANDAs related to at least three additional(cid:10)
different prospective products developed by Novel. In October 2007, we were(cid:10)
notified by Novel of the submission to the FDA of its third ANDA and, pursuant(cid:10)
to the terms of the Alliance Agreement, we requested and received, in November(cid:10)
2007, written evidence verifying that such ANDA filings related to prospective(cid:10)
products developed by Novel.(cid:10)
At the end of 2007, we elected not to fund our remaining contributions(cid:10)
to Novel upon the terms set forth in the Alliance Agreement because we had(cid:10)
reached agreement with the FDA under a Special Protocol Assessment on the Phase(cid:10)
III clinical trial of ELI-216, our abuse deterrent oxycodone product, and(cid:10)
determined that our funds would be better used to support the clinical trials(cid:10)
for ELI-216. We and VGS negotiated alternative structures that would permit(cid:10)
investments by us at valuations which differed from those set forth in the(cid:10)
7(cid:10)
(cid:10)
Alliance Agreement, however VGS and we were unable to agree upon an alternative(cid:10)
acceptable to both parties. Accordingly, upon our determination not to fund our(cid:10)
remaining contributions to Novel at the valuation set forth in the Alliance(cid:10)
Agreement, VGS exercised its rights to purchase from us our shares of Class A(cid:10)
Voting Common Stock of Novel proportionate to the amount of remaining(cid:10)
contributions which were not funded by us. As a result, our remaining ownership(cid:10)
interest in Class A Voting Common Stock of Novel is approximately 10% of the(cid:10)
outstanding shares of Class A Voting Common Stock of Novel.(cid:10)
PATENTS(cid:10)
Since our incorporation, we have secured seven United States patents of(cid:10)
which two have been assigned for a fee to another pharmaceutical company.(cid:10)
Elite's patents are:(cid:10)
U.S. patent 5,871,776(cid:10)
U.S. patent 5,902,632(cid:10)
U.S. patent 6,620,439(cid:10)
U.S. patent 5,837,284 (assigned to Celgene Corporation)(cid:10)
U.S. patent 6,635,284 (assigned to Celgene Corporation)(cid:10)
U.S. patent 6,926,909(cid:10)
U.S. patent 6,984,402(cid:10)
We have pending applications for three United States patents. The(cid:10)
pending patent applications relate to two different controlled-release(cid:10)
pharmaceutical products on which we are working. Two of these patents are for an(cid:10)
opioid agonist and antagonist product that we are developing to be used with(cid:10)
oxycodone and other opioids to minimize the abuse potential for the opioids.(cid:10)
Another U.S. patent is for formulation of oral sustained-release opioids(cid:10)
intended to improve the delivery of the opioids. We intend to apply for patents(cid:10)
for other products in the future; however, there can be no assurance that any of(cid:10)
the pending applications or other applications which we may file will be(cid:10)
granted. We have also filed corresponding foreign applications for key patents.(cid:10)
Prior to the enactment in the United States of new laws adopting(cid:10)
certain changes mandated by the General Agreement on Tariffs and Trade (GATT),(cid:10)
the exclusive rights afforded by a U.S. Patent were for a period of 17 years(cid:10)
measured from the date of grant. Under GAAT, the term of any U.S. Patent granted(cid:10)
on an application filed subsequent to June 8, 1995 terminates 20 years from the(cid:10)
date on which the patent application was filed in the United States or the first(cid:10)
priority date, whichever occurs first. Future patents granted on an application(cid:10)
filed before June 8, 1995, will have a term that terminates 20 years from such(cid:10)
date, or 17 years from the date of grant, whichever date is later.(cid:10)
Under the Drug Price Act, a U.S. product patent or use patent may be(cid:10)
extended for up to five years under certain circumstances to compensate the(cid:10)
patent holder for the time required for FDA regulatory review of the product.(cid:10)
The benefits of this Act are available only to the first approved use of the(cid:10)
active ingredient in the drug product and may be applied only to one patent per(cid:10)
drug product. There can be no assurance that we will be able to take advantage(cid:10)
of this law.(cid:10)
Also, different countries have different procedures for obtaining(cid:10)
patents, and patents issued by different countries provide different degrees of(cid:10)
protection against the use of a patented invention by others. There can be no(cid:10)
assurance, therefore, that the issuance to us in one country of a patent(cid:10)
covering an invention will be followed by the issuance in other countries of(cid:10)
patents covering the same invention, or that any judicial interpretation of the(cid:10)
validity, enforceability, or scope of the claims in a patent issued in one(cid:10)
country will be similar to the judicial interpretation given to a corresponding(cid:10)
patent issued in(cid:10)
8(cid:10)
(cid:10)
another country. Furthermore, even if our patents are determined to be valid,(cid:10)
enforceable, and broad in scope, there can be no assurance that competitors will(cid:10)
not be able to design around such patents and compete with us using the(cid:10)
resulting alternative technology.(cid:10)
We also rely upon unpatented proprietary and trade secret technology(cid:10)
that we seek to protect, in part, by confidentiality agreements with our(cid:10)
collaborative partners, employees, consultants, outside scientific(cid:10)
collaborators, sponsored researchers, and other advisors. There can be no(cid:10)
assurance that these agreements provide meaningful protection or that they will(cid:10)
not be breached, that we will have adequate remedies for any such breach, or(cid:10)
that our trade secrets, proprietary know-how, and technological advances will(cid:10)
not otherwise become known to others. In addition, there can be no assurance(cid:10)
that, despite precautions taken by us, others have not and will not obtain(cid:10)
access to our proprietary technology.(cid:10)
TRADEMARKS(cid:10)
We currently plan to license our products to marketing partners and not(cid:10)
to sell under our brand name and so we do not currently intend to register any(cid:10)
trademarks related to our products.(cid:10)
GOVERNMENT REGULATION AND APPROVAL(cid:10)
The design, development and marketing of pharmaceutical compounds, on(cid:10)
which our success depends, are intensely regulated by governmental regulatory(cid:10)
agencies, in particular the FDA. Non-compliance with applicable requirements can(cid:10)
result in fines and other judicially imposed sanctions, including product(cid:10)
seizures, injunction actions and criminal prosecution based on products or(cid:10)
manufacturing practices that violate statutory requirements. In addition,(cid:10)
administrative remedies can involve voluntary withdrawal of products, as well as(cid:10)
the refusal of the FDA to approve ANDAs and NDAs. The FDA also has the authority(cid:10)
to withdraw approval of drugs in accordance with statutory due process(cid:10)
procedures.(cid:10)
Before a drug may be marketed, it must be approved by the FDA either by(cid:10)
an NDA or an ANDA, each of which is discussed below.(cid:10)
NDAS AND NDAS UNDER SECTION 505(B) OF THE DRUG PRICE ACT(cid:10)
The FDA approval procedure for an NDA is generally a two-step process.(cid:10)
During the Initial Product Development stage, an investigational new drug(cid:10)
application ("IND") for each product is filed with the FDA. A 30-day waiting(cid:10)
period after the filing of each IND is required by the FDA prior to the(cid:10)
commencement of initial clinical testing. If the FDA does not comment on or(cid:10)
question the IND within such 30-day period, initial clinical studies may begin.(cid:10)
If, however, the FDA has comments or questions, they must be answered to the(cid:10)
satisfaction of the FDA before initial clinical testing can begin. In some(cid:10)
instances this process could result in substantial delay and expense. These(cid:10)
initial clinical studies generally constitute Phase I of the NDA process and are(cid:10)
conducted to demonstrate the product tolerance/safety and pharmacokinetic in(cid:10)
healthy subjects.(cid:10)
After Phase I testing, extensive efficacy and safety studies in(cid:10)
patients must be conducted. After completion of the required clinical testing,(cid:10)
an NDA is filed, and its approval, which is required for marketing in the United(cid:10)
States, involves an extensive review process by the FDA. The NDA itself is a(cid:10)
complicated and detailed application and must include the results of extensive(cid:10)
clinical and other testing, the cost of which is substantial. However, the NDA(cid:10)
filings contemplated by us, which are already marketed drugs, would be made(cid:10)
under Sections 505 (b)(1) or 505 (b)(2) of the Drug Price Act, which do(cid:10)
9(cid:10)
(cid:10)
not require certain studies that would otherwise be necessary; accordingly, the(cid:10)
development timetable should be shorter. While the FDA is required to review(cid:10)
applications within a certain timeframe, during the review process, the FDA(cid:10)
frequently requests that additional information be submitted. The effect of such(cid:10)
request and subsequent submission can significantly extend the time for the NDA(cid:10)
review process. Until an NDA is actually approved, there can be no assurance(cid:10)
that the information requested and submitted will be considered adequate by the(cid:10)
FDA to justify approval. The packaging and labeling of our developed products(cid:10)
are also subject to FDA regulation. It is impossible to anticipate the amount of(cid:10)
time that will be needed to obtain FDA approval to market any product.(cid:10)
Whether or not FDA approval has been obtained, approval of the product(cid:10)
by comparable regulatory authorities in any foreign country must be obtained(cid:10)
prior to the commencement of marketing of the product in that country. We intend(cid:10)
to conduct all marketing in territories other than the United States through(cid:10)
other pharmaceutical companies based in those countries. The approval procedure(cid:10)
varies from country to country, can involve additional testing, and the time(cid:10)
required may differ from that required for FDA approval. Although there are some(cid:10)
procedures for unified filings for certain European countries, in general each(cid:10)
country has its own procedures and requirements, many of which are time(cid:10)
consuming and expensive. Thus, there can be substantial delays in obtaining(cid:10)
required approvals from both the FDA and foreign regulatory authorities after(cid:10)
the relevant applications are filed. After such approvals are obtained, further(cid:10)
delays may be encountered before the products become commercially available.(cid:10)
ANDAS(cid:10)
The FDA approval procedure for an ANDA differs from the procedure for a(cid:10)
NDA in that the FDA waives the requirement of conducting complete clinical(cid:10)
studies, although it normally requires bioavailability and/or bioequivalence(cid:10)
studies. "Bioavailability" indicates the rate and extent of absorption and(cid:10)
levels of concentration of a drug product in the blood stream needed to produce(cid:10)
a therapeutic effect. "Bioequivalence" compares the bioavailability of one drug(cid:10)
product with another, and when established, indicates that the rate of(cid:10)
absorption and levels of concentration of the active drug substance in the body(cid:10)
are equivalent for the generic drug and the previously approved drug. An ANDA(cid:10)
may be submitted for a drug on the basis that it is the equivalent of a(cid:10)
previously approved drug or, in the case of a new dosage form, is suitable for(cid:10)
use for the indications specified.(cid:10)
The timing of final FDA approval of an ANDA depends on a variety of(cid:10)
factors, including whether the applicant challenges any listed patents for the(cid:10)
drug and whether the brand-name manufacturer is entitled to one or more(cid:10)
statutory exclusivity periods, during which the FDA may be prohibited from(cid:10)
accepting applications for, or approving, generic products. In certain(cid:10)
circumstances, a regulatory exclusivity period can extend beyond the life of a(cid:10)
patent, and thus block ANDAs from being approved on the patent expiration date.(cid:10)
In May 1992, Congress enacted the Generic Drug Enforcement Act of 1992,(cid:10)
which allows the FDA to impose debarment and other penalties on individuals and(cid:10)
companies that commit certain illegal acts relating to the generic drug approval(cid:10)
process. In some situations, the Generic Drug Enforcement Act requires the FDA(cid:10)
to not accept or review ANDAs for a period of time from a company or an(cid:10)
individual that has committed certain violations. It also provides for temporary(cid:10)
denial of approval of applications during the investigation of certain(cid:10)
violations that could lead to debarment and also, in more limited circumstances,(cid:10)
provides for the suspension of the marketing of approved drugs by the affected(cid:10)
company. Lastly, the Generic Drug Enforcement Act allows for civil penalties and(cid:10)
withdrawal of previously(cid:10)
10(cid:10)
(cid:10)
approved applications. Neither we nor any of our employees have ever been(cid:10)
subject to debarment. We do not believe that we receive any services from any(cid:10)
debarred person.(cid:10)
CONTROLLED SUBSTANCES(cid:10)
We are also subject to federal, state, and local laws of general(cid:10)
applicability, such as laws relating to working conditions. We are also licensed(cid:10)
by, registered with, and subject to periodic inspection and regulation by the(cid:10)
Drug Enforcement Agency ("DEA") and New Jersey state agencies, pursuant to(cid:10)
federal and state legislation relating to drugs and narcotics. Certain drugs(cid:10)
that we currently develop or may develop in the future may be subject to(cid:10)
regulations under the Controlled Substances Act and related statutes. As we(cid:10)
manufacture such products, we may become subject to the Prescription Drug(cid:10)
Marketing Act, which regulates wholesale distributors of prescription drugs.(cid:10)
GMP(cid:10)
All facilities and manufacturing techniques used for the manufacture of(cid:10)
products for clinical use or for sale must be operated in conformity with GMP(cid:10)
regulations issued by the FDA. We engage in manufacturing on a commercial basis(cid:10)
for distribution of products, and operate our facilities in accordance with GMP(cid:10)
regulations. If we hire another company to perform contract manufacturing for(cid:10)
us, we must ensure that our contractor's facilities conform to GMP regulations.(cid:10)
COMPLIANCE WITH ENVIRONMENTAL LAWS(cid:10)
We are subject to comprehensive federal, state and local environmental(cid:10)
laws and regulations that govern, among other things, air polluting emissions,(cid:10)
waste water discharges, solid and hazardous waste disposal, and the remediation(cid:10)
of contamination associated with current or past generation handling and(cid:10)
disposal activities, including the past practices of corporations as to which we(cid:10)
are the successor legally or in possession. We do not expect that compliance(cid:10)
with such environmental laws will have a material effect on our capital(cid:10)
expenditures, earnings or competitive position in the foreseeable future. There(cid:10)
can be no assurance, however, that future changes in environmental laws or(cid:10)
regulations, administrative actions or enforcement actions, or remediation(cid:10)
obligations arising under environmental laws will not have a material adverse(cid:10)
effect on our capital expenditures, earnings or competitive position.(cid:10)
COMPETITION(cid:10)
We have competition with respect to our two principal areas of(cid:10)
operation. We develop and manufacture products using controlled-release drug(cid:10)
technology for other pharmaceutical companies, and we develop and market (either(cid:10)
on our own or by license to other companies) proprietary controlled-release(cid:10)
pharmaceutical products. In both areas, our competition consists of those(cid:10)
companies which develop controlled-release drugs and alternative drug delivery(cid:10)
systems.(cid:10)
In recent years, an increasing number of pharmaceutical companies have(cid:10)
become interested in the development and commercialization of products(cid:10)
incorporating advanced or novel drug delivery systems. We expect that(cid:10)
competition in the field of drug delivery will significantly increase in the(cid:10)
future since smaller specialized research and development companies are(cid:10)
beginning to concentrate on this aspect of the business. Some of the major(cid:10)
pharmaceutical companies have invested and are continuing to invest significant(cid:10)
resources in the development of their own drug delivery systems and technologies(cid:10)
and some have invested funds in such specialized drug delivery companies. Many(cid:10)
of these companies have greater financial and other resources as well as more(cid:10)
experience than we do in commercializing(cid:10)
11(cid:10)
(cid:10)
pharmaceutical products. Certain companies have a track record of success in(cid:10)
developing controlled-release drugs. Significant among these are Alpharma, Inc.,(cid:10)
Sandoz (a Novartis company), Durect Corporation, Mylan Laboratories, Inc., Par(cid:10)
Pharmaceuticals, Inc., Teva Pharmaceuticals Industries Ltd., Biovail(cid:10)
Corporation, Ethypharm S.A., Eurand, Impax Laboratories, Inc., K-V(cid:10)
Pharmaceutical Company and Penwest Pharmaceuticals Company. Each of these(cid:10)
companies has developed expertise in certain types of drug delivery systems,(cid:10)
although such expertise does not carry over to developing a controlled-release(cid:10)
version of all drugs. Such companies may develop new drug formulations and(cid:10)
products or may improve existing drug formulations and products more efficiently(cid:10)
than we can. In addition, almost all of our competitors have vastly greater(cid:10)
resources than we do. While our product development capabilities and, if(cid:10)
obtained, patent protection may help us to maintain our market position in the(cid:10)
field of advanced drug delivery, there can be no assurance that others will not(cid:10)
be able to develop such capabilities or alternative technologies outside the(cid:10)
scope of our patents, if any, or that even if patent protection is obtained,(cid:10)
such patents will not be successfully challenged in the future.(cid:10)
In addition to competitors that are developing products based on drug(cid:10)
delivery technologies, there are also companies that have announced that they(cid:10)
are developing opioid abuse deterrent products that might compete directly or(cid:10)
indirectly with Elite's products. These include, but are not limited to(cid:10)
Alpharma, Inc., Pain Therapeutics (which has an agreement with Durect(cid:10)
Corporation), Shire Pharmaceuticals Group plc (which purchased New River(cid:10)
Pharmaceuticals Inc.), Endo Pharmaceuticals, Inc. through an agreement with(cid:10)
Collegium Pharmaceuticals, Inc., Purdue Pharma LP, and Acura Pharmaceuticals,(cid:10)
Inc.(cid:10)
We also face competition in the generic pharmaceutical market. The(cid:10)
principal competitive factors in the generic pharmaceutical market include: (i)(cid:10)
introduction of other generic drug manufacturers' products in direct competition(cid:10)
with our products under development, (ii) introduction of authorized generic(cid:10)
products in direct competition with any of our products under development,(cid:10)
particularly if such products are approved and sold during exclusivity periods,(cid:10)
(iii) consolidation among distribution outlets through mergers and acquisitions(cid:10)
and the formation of buying groups, (iv) ability of generic competitors to(cid:10)
quickly enter the market after the expiration of patents or exclusivity periods,(cid:10)
diminishing the amount and duration of significant profits, (v) the willingness(cid:10)
of generic drug customers, including wholesale and retail customers, to switch(cid:10)
among pharmaceutical manufacturers, (vi) pricing pressures and product deletions(cid:10)
by competitors, (vii) a company's reputation as a manufacturer and distributor(cid:10)
of quality products, (viii) a company's level of service (including maintaining(cid:10)
sufficient inventory levels for timely deliveries), (ix) product appearance and(cid:10)
labeling and (x) a company's breadth of product offerings.(cid:10)
SOURCES AND AVAILABILITY OF RAW MATERIALS; MANUFACTURING(cid:10)
We manufacture for commercial sale by our partner, ECR, two products,(cid:10)
Lodrane 24(R) and Lodrane 24D(R), for which to date we have obtained sufficient(cid:10)
amounts of the raw materials for its production. We are not currently in the(cid:10)
manufacturing phase for any other products and do not expect that significant(cid:10)
amounts of raw materials will be required for their production. We currently(cid:10)
obtain the raw materials that we need from over twenty suppliers.(cid:10)
We have acquired pharmaceutical manufacturing equipment for(cid:10)
manufacturing our products. We have registered our facilities with the FDA and(cid:10)
the DEA.(cid:10)
12(cid:10)
(cid:10)
DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS(cid:10)
Each year we have had one or a few customers that have accounted for a(cid:10)
large percentage of our limited revenues therefore the termination of a contract(cid:10)
with a customer may result in the loss of substantially all of our revenues. We(cid:10)
are constantly working to develop new relationships with existing or new(cid:10)
customers, but despite these efforts we may not, at the time that any of our(cid:10)
current contracts expire, have other contracts in place generating similar or(cid:10)
material revenue. We have an agreement with ECR which sells and distributes two(cid:10)
products that we manufacture: Lodrane 24(R) and Lodrane 24D(R). We receive(cid:10)
revenues to manufacture these products and also receive royalties based on(cid:10)
in-market sales of the products. These are our only products that are being sold(cid:10)
commercially now and are the primary source of our revenue currently. We receive(cid:10)
development fees or milestone payments under some of the co-development(cid:10)
agreements with partners, but these fees are currently small compared to the(cid:10)
Lodrane 24(R) and Lodrane 24D(R) revenues.(cid:10)
EMPLOYEES(cid:10)
As of June 18, 2008, we had 34 full-time employees and no part-time(cid:10)
employees. Full-time employees are engaged in administration, research and(cid:10)
development. None of our employees is represented by a labor union and we have(cid:10)
never experienced a work stoppage. We believe our relationship with our(cid:10)
employees to be good. However, our ability to achieve our financial and(cid:10)
operational objectives depends in large part upon our continuing ability to(cid:10)
attract, integrate, retain and motivate highly qualified personnel, and upon the(cid:10)
continued service of our senior management and key personnel.(cid:10)
13(cid:10)
(cid:10)
ITEM 1A. RISK FACTORS(cid:10)
In addition to the other information contained in this report, the(cid:10)
following risk factors should be considered carefully in evaluating an(cid:10)
investment in us and in analyzing our forward-looking statements.(cid:10)
RISKS RELATED TO OUR BUSINESS(cid:10)
WE HAVE A RELATIVELY LIMITED OPERATING HISTORY, WHICH MAKES IT DIFFICULT TO(cid:10)
EVALUATE OUR FUTURE PROSPECTS.(cid:10)
Although we have been in operation since 1990, we have a relatively(cid:10)
short operating history and limited financial data upon which you may evaluate(cid:10)
our business and prospects. In addition, our business model is likely to(cid:10)
continue to evolve as we attempt to expand our product offerings and our(cid:10)
presence in the generic pharmaceutical market. As a result, our potential for(cid:10)
future profitability must be considered in light of the risks, uncertainties,(cid:10)
expenses and difficulties frequently encountered by companies that are(cid:10)
attempting to move into new markets and continuing to innovate with new and(cid:10)
unproven technologies. Some of these risks relate to our potential inability to:(cid:10)
o develop new products;(cid:10)
o obtain regulatory approval of our products;(cid:10)
o manage our growth, control expenditures and align costs with revenues;(cid:10)
o attract, retain and motivate qualified personnel; and(cid:10)
o respond to competitive developments.(cid:10)
If we do not effectively address the risks we face, our business model(cid:10)
may become unworkable and we may not achieve or sustain profitability or(cid:10)
successfully develop any products.(cid:10)
WE HAVE NOT BEEN PROFITABLE AND EXPECT FUTURE LOSSES.(cid:10)
To date, we have not been profitable, and since our inception in 1990,(cid:10)
we have not generated any significant revenues. We may never be profitable or,(cid:10)
if we become profitable, we may be unable to sustain profitability. We have(cid:10)
sustained losses in each year since our incorporation in 1990. We incurred net(cid:10)
losses of $13,893,060, $11,803,512, $6,883,914, $5,906,890 and $6,514,217 for(cid:10)
the years ended March 31, 2008, 2007, 2006, 2005 and 2004, respectively. We(cid:10)
expect to realize significant losses for the current year of operation and to(cid:10)
continue to incur losses until we are able to generate sufficient revenues to(cid:10)
support our operations and offset operating costs.(cid:10)
THERE IS DOUBT AS TO OUR ABILITY TO CONTINUE AS A GOING CONCERN.(cid:10)
Our condensed consolidated unaudited financial statements were prepared(cid:10)
on the assumption that we will continue as a going concern. We estimate that our(cid:10)
cash reserves will be sufficient to permit us to continue at our anticipated(cid:10)
level of operations until September 30, 2008. During 2008, we will require(cid:10)
additional funding to continue our research and development programs, including(cid:10)
clinical testing of our product candidates, for operating expenses and to pursue(cid:10)
regulatory approvals for our product candidates. We intend to use our cash(cid:10)
reserves, as well as other funds in the event that they shall be available on(cid:10)
commercially reasonable terms, to finance these activities and other activities(cid:10)
described herein, although we can provide no assurance that these additional(cid:10)
funds will be available in the amounts or at the times we may require. If(cid:10)
sufficient capital is not available, we would likely be required to scale back(cid:10)
or terminate our research and development efforts. See "RISK FACTORS -- IF WE(cid:10)
ARE UNABLE TO OBTAIN(cid:10)
14(cid:10)
(cid:10)
ADDITIONAL FINANCING NEEDED FOR THE EXPENDITURES FOR THE DEVELOPMENT AND(cid:10)
COMMERCIALIZATION OF OUR DRUG PRODUCTS, IT WOULD IMPAIR OUR ABILITY TO CONTINUE(cid:10)
TO MEET OUR BUSINESS OBJECTIVES".(cid:10)
IF WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING NEEDED FOR THE EXPENDITURES FOR(cid:10)
THE DEVELOPMENT AND COMMERCIALIZATION OF OUR DRUG PRODUCTS, IT WOULD IMPAIR OUR(cid:10)
ABILITY TO CONTINUE TO MEET OUR BUSINESS OBJECTIVES.(cid:10)
We continue to require additional financing to ensure that we will be(cid:10)
able to meet our expenditures to develop and commercialize our products. As of(cid:10)
March 31, 2008, we had cash and cash equivalents of $3.7 million. We believe(cid:10)
that our existing cash and cash equivalents will be sufficient to fund our(cid:10)
anticipated operating expenses and capital requirements until September 30,(cid:10)
2008. We will require additional funding to continue our research and(cid:10)
development programs, including clinical testing of our product candidates, for(cid:10)
operating expenses and to pursue regulatory approvals for our product(cid:10)
candidates. We are considering a number of different financing alternatives and(cid:10)
we intend to seek additional capital in 2008 through private financing or(cid:10)
collaborative agreements. However, no assurance can be given that we will(cid:10)
consummate a financing or that any material cash will be generated to us(cid:10)
therefrom. Other possible sources of the required financing are income from(cid:10)
product sales or sales of market rights, income from co-development or(cid:10)
partnering arrangements and the cash exercise of warrants and options that are(cid:10)
currently outstanding. No representation can be made that we will be able to(cid:10)
obtain such revenue or additional financing or if obtained it will be on(cid:10)
favorable terms, or at all. No assurance can be given that any offering if(cid:10)
undertaken will be successfully concluded or that if concluded the proceeds will(cid:10)
be material. If adequate funds are not available to us as we need them, we will(cid:10)
be required to curtail significantly or delay or eliminate one or more product(cid:10)
development programs which would impair our ability to meet our business(cid:10)
objectives.(cid:10)
IF NOVEL LABORATORIES ISSUES ADDITIONAL EQUITY IN THE FUTURE OUR EQUITY INTEREST(cid:10)
IN NOVEL MAY BE DILUTED, RESULTING IN A DECREASE IN OUR SHARE OF REVENUE AND(cid:10)
CASH FLOW GENERATED BY NOVEL.(cid:10)
As a result of our determination not to fund our remaining(cid:10)
contributions to Novel at the valuation set forth in the Alliance Agreement and(cid:10)
the resulting purchase from us of a portion of our shares of Class A Voting(cid:10)
Common Stock of Novel by VGS Pharma, LLC, our remaining ownership interest in(cid:10)
equity of Novel was reduced to approximately 10% of the outstanding shares of(cid:10)
Novel. Novel may seek to raise additional operating capital in the future and(cid:10)
may do so by the issuance of equity. If Novel issues additional equity our(cid:10)
future equity interest in Novel will decrease and we will be entitled to a(cid:10)
decreased portion of any revenue and cash flow which Novel may generate in the(cid:10)
future.(cid:10)
SUBSTANTIALLY ALL OF OUR PRODUCT CANDIDATES ARE AT AN EARLY STAGE OF DEVELOPMENT(cid:10)
AND ONLY A PORTION OF THESE ARE IN CLINICAL DEVELOPMENT.(cid:10)
Other than ELI-154 which is in Phase III clinical development and(cid:10)
ELI-216 which is in Phase III clinical development, our three other product(cid:10)
candidates are still at an early stage of development. We do not have any(cid:10)
products that are commercially available other than Lodrane 24(R) and Lodrane(cid:10)
24D(R). We will need to perform additional development work for all of our(cid:10)
product candidates in our pipeline before we can seek the regulatory approvals(cid:10)
necessary to begin commercial sales.(cid:10)
IF WE ARE UNABLE TO SATISFY REGULATORY REQUIREMENTS, WE MAY NOT BE ABLE TO(cid:10)
COMMERCIALIZE OUR PRODUCT CANDIDATES.(cid:10)
15(cid:10)
(cid:10)
We need FDA approval prior to marketing our product candidates in the(cid:10)
United States of America. If we fail to obtain FDA approval to market our(cid:10)
product candidates, we will be unable to sell our product candidates in the(cid:10)
United States of America and we will not generate any revenue from the sale of(cid:10)
such products.(cid:10)
This regulatory review and approval process, which includes evaluation(cid:10)
of preclinical studies and clinical trials of our product candidates is lengthy,(cid:10)
expensive and uncertain. To receive approval, we must, among other things,(cid:10)
demonstrate with substantial evidence from well-controlled clinical trials that(cid:10)
our product candidates are both safe and effective for each indication where(cid:10)
approval is sought. Satisfaction of these requirements typically takes several(cid:10)
years and the time needed to satisfy them may vary substantially, based on the(cid:10)
type, complexity and novelty of the pharmaceutical product. We cannot predict if(cid:10)
or when we might submit for regulatory approval any of our product candidates(cid:10)
currently under development. Any approvals we may obtain may not cover all of(cid:10)
the clinical indications for which we are seeking approval. Also, an approval(cid:10)
might contain significant limitations in the form of narrow indications,(cid:10)
warnings, precautions, or contra-indications with respect to conditions of use.(cid:10)
The FDA has substantial discretion in the approval process and may(cid:10)
either refuse to file our application for substantive review or may form the(cid:10)
opinion after review of our data that our application is insufficient to allow(cid:10)
approval of our product candidates. If the FDA does not file or approve our(cid:10)
application, it may require that we conduct additional clinical, preclinical or(cid:10)
manufacturing validation studies and submit that data before it will reconsider(cid:10)
our application. Depending on the extent of these or any other studies, approval(cid:10)
of any applications that we submit may be delayed by several years, or may(cid:10)
require us to expend more resources than we have available. It is also possible(cid:10)
that additional studies, if performed and completed, may not be considered(cid:10)
sufficient by the FDA to make our applications approvable. If any of these(cid:10)
outcomes occur, we may be forced to abandon our applications for approval, which(cid:10)
might cause us to cease operations.(cid:10)
We will also be subject to a wide variety of foreign regulations(cid:10)
governing the development, manufacture and marketing of our products. Whether or(cid:10)
not FDA approval has been obtained, approval of a product by the comparable(cid:10)
regulatory authorities of foreign countries must still be obtained prior to(cid:10)
manufacturing or marketing the product in those countries. The approval process(cid:10)
varies from country to country and the time needed to secure approval may be(cid:10)
longer or shorter than that required for FDA approval. We cannot assure you that(cid:10)
clinical trials conducted in one country will be accepted by other countries or(cid:10)
that approval in one country will result in approval in any other country.(cid:10)
BEFORE WE CAN OBTAIN REGULATORY APPROVAL, WE NEED TO SUCCESSFULLY COMPLETE(cid:10)
CLINICAL TRIALS, OUTCOMES OF WHICH ARE UNCERTAIN.(cid:10)
In order to obtain FDA approval to market a new drug product, we must(cid:10)
demonstrate proof of safety and effectiveness in humans. To meet these(cid:10)
requirements, we must conduct extensive preclinical testing and "adequate and(cid:10)
well-controlled" clinical trials. Conducting clinical trials is a lengthy, time(cid:10)
consuming, and expensive process. Completion of necessary clinical trials may(cid:10)
take several years or more. Delays associated with products for which we are(cid:10)
directly conducting preclinical or clinical trials may cause us to incur(cid:10)
additional operating expenses. The commencement and rate of completion of(cid:10)
clinical trials may be delayed by many factors, including, for example:(cid:10)
o ineffectiveness of our product candidate or perceptions by physicians(cid:10)
that the product candidate is not safe or effective for a particular(cid:10)
indication;(cid:10)
o inability to manufacture sufficient quantities of the product candidate(cid:10)
for use in clinical trials;(cid:10)
16(cid:10)
(cid:10)
o delay or failure in obtaining approval of our clinical trial protocols(cid:10)
from the FDA or institutional review boards;(cid:10)
o slower than expected rate of patient recruitment and enrollment;(cid:10)
o inability to adequately follow and monitor patients after treatment;(cid:10)
o difficulty in managing multiple clinical sites;(cid:10)
o unforeseen safety issues;(cid:10)
o government or regulatory delays; and(cid:10)
o clinical trial costs that are greater than we currently anticipate.(cid:10)
Even if we achieve positive interim results in clinical trials, these(cid:10)
results do not necessarily predict final results, and positive results in early(cid:10)
trials may not be indicative of success in later trials. A number of companies(cid:10)
in the pharmaceutical industry have suffered significant setbacks in advanced(cid:10)
clinical trials, even after promising results in earlier trials. Negative or(cid:10)
inconclusive results or adverse medical events during a clinical trial could(cid:10)
cause us to repeat or terminate a clinical trial or require us to conduct(cid:10)
additional trials. We do not know whether our existing or any future clinical(cid:10)
trials will demonstrate safety and efficacy sufficiently to result in marketable(cid:10)
products. Our clinical trials may be suspended at any time for a variety of(cid:10)
reasons, including if the FDA or we believe the patients participating in our(cid:10)
trials are exposed to unacceptable health risks or if the FDA finds deficiencies(cid:10)
in the conduct of these trials.(cid:10)
Failures or perceived failures in our clinical trials will directly(cid:10)
delay our product development and regulatory approval process, damage our(cid:10)
business prospects, make it difficult for us to establish collaboration and(cid:10)
partnership relationships, and negatively affect our reputation and competitive(cid:10)
position in the pharmaceutical community.(cid:10)
Because of these risks, our research and development efforts may not(cid:10)
result in any commercially viable products. Any delay in, or termination of, our(cid:10)
preclinical or clinical trials will delay the filing of our drug applications(cid:10)
with the FDA and, ultimately, our ability to commercialize our product(cid:10)
candidates and generate product revenues. If a significant portion of these(cid:10)
development efforts are not successfully completed, required regulatory(cid:10)
approvals are not obtained or any approved products are not commercially(cid:10)
successfully, our business, financial condition, and results of operations may(cid:10)
be materially harmed.(cid:10)
IF OUR COLLABORATION OR LICENSING ARRANGEMENTS ARE UNSUCCESSFUL, OUR REVENUES(cid:10)
AND PRODUCT DEVELOPMENT MAY BE LIMITED.(cid:10)
We have entered into several collaboration and licensing arrangements(cid:10)
for the development of generic products. However, there can be no assurance that(cid:10)
any of these agreements will result in FDA approvals, or that we will be able to(cid:10)
market any such finished products at a profit. Collaboration and licensing(cid:10)
arrangements pose the following risks:(cid:10)
o collaborations and licensing arrangements may be terminated, in which(cid:10)
case we will experience increased operating expenses and capital(cid:10)
requirements if we elect to pursue further development of the product(cid:10)
candidate;(cid:10)
o collaborators and licensees may delay clinical trials and prolong(cid:10)
clinical development, under-fund a clinical trial program, stop a(cid:10)
clinical trial or abandon a product candidate;(cid:10)
o expected revenue might not be generated because milestones may not be(cid:10)
achieved and product candidates may not be developed;(cid:10)
o collaborators and licensees could independently develop, or develop(cid:10)
with third parties,(cid:10)
17(cid:10)
(cid:10)
products that could compete with our future products;(cid:10)
o the terms of our contracts with current or future collaborators and(cid:10)
licensees may not be favorable to us in the future;(cid:10)
o a collaborator or licensee with marketing and distribution rights to(cid:10)
one or more of our products may not commit enough resources to the(cid:10)
marketing and distribution of our products, limiting our potential(cid:10)
revenues from the commercialization of a product;(cid:10)
o disputes may arise delaying or terminating the research, development or(cid:10)
commercialization of our product candidates, or result in significant(cid:10)
and costly litigation or arbitration; and(cid:10)
o one or more third party developers could obtain approval for a similar(cid:10)
product prior to the collaborator or licensee resulting in unforeseen(cid:10)
price competition in connection with the development product.(cid:10)
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND AVOID CLAIMS(cid:10)
THAT WE INFRINGED ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, OUR ABILITY TO(cid:10)
CONDUCT BUSINESS MAY BE IMPAIRED.(cid:10)
Our success depends on our ability to protect our current and future(cid:10)
products and to defend our intellectual property rights. If we fail to protect(cid:10)
our intellectual property adequately, competitors may manufacture and market(cid:10)
products similar to ours.(cid:10)
We currently hold five patents, have two patents pending and we intend(cid:10)
to file further patent applications in the future. With respect to our pending(cid:10)
patents, we cannot be certain that these applications will result in the(cid:10)
issuance of patents. If patents are issued, third parties may sue us to(cid:10)
challenge such patent protection, and although we know of no reason why they(cid:10)
should prevail, it is possible that they could. It is likewise possible that our(cid:10)
patent rights may not prevent or limit our present and future competitors from(cid:10)
developing, using or commercializing products that are similar or functionally(cid:10)
equivalent to our products.(cid:10)
In addition, we may be required to obtain licenses to patents, or other(cid:10)
proprietary rights of third parties, in connection with the development and use(cid:10)
of our products and technologies as they relate to other persons' technologies.(cid:10)
At such time as we discover a need to obtain any such license, we will need to(cid:10)
establish whether we will be able to obtain such a license on favorable terms.(cid:10)
The failure to obtain the necessary licenses or other rights could preclude the(cid:10)
sale, manufacture or distribution of our products.(cid:10)
We rely particularly on trade secrets, unpatented proprietary expertise(cid:10)
and continuing innovation that we seek to protect, in part, by entering into(cid:10)
confidentiality agreements with licensees, suppliers, employees and consultants.(cid:10)
We cannot provide assurance that these agreements will not be breached or(cid:10)
circumvented. We also cannot be certain that there will be adequate remedies in(cid:10)
the event of a breach. Disputes may arise concerning the ownership of(cid:10)
intellectual property or the applicability of confidentiality agreements. We(cid:10)
cannot be sure that our trade secrets and proprietary technology will not(cid:10)
otherwise become known or be independently developed by our competitors or, if(cid:10)
patents are not issued with respect to products arising from research, that we(cid:10)
will be able to maintain the confidentiality of information relating to these(cid:10)
products. In addition, efforts to ensure our intellectual property rights can be(cid:10)
costly, time-consuming and/or ultimately unsuccessful.(cid:10)
LITIGATION IS COMMON IN OUR INDUSTRY, PARTICULARLY THE GENERIC PHARMACEUTICAL(cid:10)
INDUSTRY, AND CAN BE PROTRACTED AND EXPENSIVE AND COULD DELAY AND/OR PREVENT(cid:10)
ENTRY OF OUR PRODUCTS INTO THE MARKET, WHICH, IN TURN, COULD HAVE A MATERIAL(cid:10)
ADVERSE EFFECT ON OUR BUSINESS.(cid:10)
18(cid:10)
(cid:10)
Litigation concerning patents and proprietary rights can be protracted(cid:10)
and expensive. Companies that produce brand pharmaceutical products routinely(cid:10)
bring litigation against applicants that seek FDA approval to manufacture and(cid:10)
market generic forms of their branded products. These companies allege patent(cid:10)
infringement or other violations of intellectual property rights as the basis(cid:10)
for filing suit against an applicant. Likewise, other patent holders may bring(cid:10)
patent infringement suits against us alleging that our products, product(cid:10)
candidates and technologies infringe upon intellectual property rights.(cid:10)
Litigation often involves significant expense and can delay or prevent(cid:10)
introduction or sale of our products.(cid:10)
There may also be situations where we use our business judgment and(cid:10)
decide to market and sell products, notwithstanding the fact that allegations of(cid:10)
patent infringement(s) have not been finally resolved by the courts. The risk(cid:10)
involved in doing so can be substantial because the remedies available to the(cid:10)
owner of a patent for infringement include, among other things, damages measured(cid:10)
by the profits lost by the patent owner and not by the profits earned by the(cid:10)
infringer. In the case of a willful infringement, the definition of which is(cid:10)
subjective, such damages may be trebled. Moreover, because of the discount(cid:10)
pricing typically involved with bioequivalent products, patented brand products(cid:10)
generally realize a substantially higher profit margin than bioequivalent(cid:10)
products. An adverse decision in a case such as this or in other similar(cid:10)
litigation could have a material adverse effect on our business, financial(cid:10)
position and results of operations and could cause the market value of our(cid:10)
common stock, par value $0.01 per share (the "COMMON STOCK") to decline.(cid:10)
THE PHARMACEUTICAL INDUSTRY IS HIGHLY COMPETITIVE AND SUBJECT TO RAPID AND(cid:10)
SIGNIFICANT TECHNOLOGICAL CHANGE, WHICH COULD IMPAIR OUR ABILITY TO IMPLEMENT(cid:10)
OUR BUSINESS MODEL.(cid:10)
The pharmaceutical industry is highly competitive, and we may be unable(cid:10)
to compete effectively. In addition, it is undergoing rapid and significant(cid:10)
technological change, and we expect competition to intensify as technical(cid:10)
advances in each field are made and become more widely known. An increasing(cid:10)
number of pharmaceutical companies have been or are becoming interested in the(cid:10)
development and commercialization of products incorporating advanced or novel(cid:10)
drug delivery systems. We expect that competition in the field of drug delivery(cid:10)
will increase in the future as other specialized research and development(cid:10)
companies begin to concentrate on this aspect of the business. Some of the major(cid:10)
pharmaceutical companies have invested and are continuing to invest significant(cid:10)
resources in the development of their own drug delivery systems and technologies(cid:10)
and some have invested funds in such specialized drug delivery companies. Many(cid:10)
of our competitors have longer operating histories and greater financial,(cid:10)
research and development, marketing and other resources than we do. Such(cid:10)
companies may develop new formulations and products, or may improve existing(cid:10)
ones, more efficiently than we can. Our success, if any, will depend in part on(cid:10)
our ability to keep pace with the changing technology in the fields in which we(cid:10)
operate.(cid:10)
As we expand our presence in the generic pharmaceuticals market our(cid:10)
product candidates may face intense competition from brand-name companies that(cid:10)
have taken aggressive steps to thwart competition from generic companies. In(cid:10)
particular, brand-name companies continue to sell or license their products(cid:10)
directly or through licensing arrangements or strategic alliances with generic(cid:10)
pharmaceutical companies (so-called "authorized generics"). No significant(cid:10)
regulatory approvals are required for a brand-name company to sell directly or(cid:10)
through a third party to the generic market, and brand-name companies do not(cid:10)
face any other significant barriers to entry into such market. In addition, such(cid:10)
companies continually seek to delay generic introductions and to decrease the(cid:10)
impact of generic competition, using tactics which include:(cid:10)
19(cid:10)
(cid:10)
o obtaining new patents on drugs whose original patent protection is(cid:10)
about to expire;(cid:10)
o filing patent applications that are more complex and costly to(cid:10)
challenge;(cid:10)
o filing suits for patent infringement that automatically delay approval(cid:10)
of the FDA;(cid:10)
o filing citizens' petitions with the FDA contesting approval of the(cid:10)
generic versions of products due to alleged health and safety issues;(cid:10)
o developing controlled-release or other "next-generation" products,(cid:10)
which often reduce demand for the generic version of the existing(cid:10)
product for which we may be seeking approval;(cid:10)
o changing product claims and product labeling;(cid:10)
o developing and marketing as over-the-counter products those branded(cid:10)
products which are about to face generic competition; and(cid:10)
o making arrangements with managed care companies and insurers to reduce(cid:10)
the economic incentives to purchase generic pharmaceuticals.(cid:10)
These strategies may increase the costs and risks associated with our(cid:10)
efforts to introduce our generic products under development and may delay or(cid:10)
prevent such introduction altogether.(cid:10)
IF OUR PRODUCT CANDIDATES DO NOT ACHIEVE MARKET ACCEPTANCE AMONG PHYSICIANS,(cid:10)
PATIENTS, HEALTH CARE PAYORS AND THE MEDICAL COMMUNITY, THEY WILL NOT BE(cid:10)
COMMERCIALLY SUCCESSFUL AND OUR BUSINESS WILL BE ADVERSELY AFFECTED.(cid:10)
The degree of market acceptance of any of our approved product(cid:10)
candidates among physicians, patients, health care payors and the medical(cid:10)
community will depend on a number of factors, including:(cid:10)
o acceptable evidence of safety and efficacy;(cid:10)
o relative convenience and ease of administration;(cid:10)
o the prevalence and severity of any adverse side effects;(cid:10)
o availability of alternative treatments;(cid:10)
o pricing and cost effectiveness;(cid:10)
o effectiveness of sales and marketing strategies; and(cid:10)
o ability to obtain sufficient third-party coverage or reimbursement.(cid:10)
If we are unable to achieve market acceptance for our product(cid:10)
candidates, then such product candidates will not be commercially successful and(cid:10)
our business will be adversely affected.(cid:10)
WE ARE DEPENDENT ON A SMALL NUMBER OF SUPPLIERS FOR OUR RAW MATERIALS AND ANY(cid:10)
DELAY OR UNAVAILABILITY OF RAW MATERIALS CAN MATERIALLY ADVERSELY AFFECT OUR(cid:10)
ABILITY TO PRODUCE PRODUCTS.(cid:10)
The FDA requires identification of raw material suppliers in(cid:10)
applications for approval of drug products. If raw materials were unavailable(cid:10)
from a specified supplier, FDA approval of a new supplier could delay the(cid:10)
manufacture of the drug involved. In addition, some materials used in our(cid:10)
products are currently available from only one supplier or a limited number of(cid:10)
suppliers.(cid:10)
Further, a significant portion of our raw materials may be available(cid:10)
only from foreign sources. Foreign sources can be subject to the special risks(cid:10)
of doing business abroad, including:(cid:10)
o greater possibility for disruption due to transportation or(cid:10)
communication problems;(cid:10)
o the relative instability of some foreign governments and economies;(cid:10)
o interim price volatility based on labor unrest, materials or equipment(cid:10)
shortages, export duties,(cid:10)
20(cid:10)
(cid:10)
restrictions on the transfer of funds, or fluctuations in currency(cid:10)
exchange rates; and(cid:10)
o uncertainty regarding recourse to a dependable legal system for the(cid:10)
enforcement of contracts and other rights.(cid:10)
In addition, recent changes in patent laws in certain foreign(cid:10)
jurisdictions (primarily in Europe) may make it increasingly difficult to obtain(cid:10)
raw materials for research and development prior to expiration of applicable(cid:10)
United States or foreign patents. Any delay or inability to obtain raw materials(cid:10)
on a timely basis, or any significant price increases that cannot be passed on(cid:10)
to customers, can materially adversely affect our ability to produce products.(cid:10)
This can materially adversely affect our business and operations.(cid:10)
EVEN AFTER REGULATORY APPROVAL, WE WILL BE SUBJECT TO ONGOING SIGNIFICANT(cid:10)
REGULATORY OBLIGATIONS AND OVERSIGHT.(cid:10)
Even if regulatory approval is obtained for a particular product(cid:10)
candidate, the FDA and foreign regulatory authorities may, nevertheless, impose(cid:10)
significant restrictions on the indicated uses or marketing of such products, or(cid:10)
impose ongoing requirements for post-approval studies. Following any regulatory(cid:10)
approval of our product candidates, we will be subject to continuing regulatory(cid:10)
obligations, such as safety reporting requirements, and additional(cid:10)
post-marketing obligations, including regulatory oversight of the promotion and(cid:10)
marketing of our products. If we become aware of previously unknown problems(cid:10)
with any of our product candidates here or overseas or our contract(cid:10)
manufacturers' facilities, a regulatory agency may impose restrictions on our(cid:10)
products, our contract manufacturers or on us, including requiring us to(cid:10)
reformulate our products, conduct additional clinical trials, make changes in(cid:10)
the labeling of our products, implement changes to or obtain re-approvals of our(cid:10)
contract manufacturers' facilities or withdraw the product from the market. In(cid:10)
addition, we may experience a significant drop in the sales of the affected(cid:10)
products, our reputation in the marketplace may suffer and we may become the(cid:10)
target of lawsuits, including class action suits. Moreover, if we fail to comply(cid:10)
with applicable regulatory requirements, we may be subject to fines, suspension(cid:10)
or withdrawal of regulatory approvals, product recalls, seizure of products,(cid:10)
operating restrictions and criminal prosecution. Any of these events could harm(cid:10)
or prevent sales of the affected products or could substantially increase the(cid:10)
costs and expenses of commercializing and marketing these products.(cid:10)
IF KEY PERSONNEL WERE TO LEAVE US OR IF WE ARE UNSUCCESSFUL IN ATTRACTING(cid:10)
QUALIFIED PERSONNEL, OUR ABILITY TO DEVELOP PRODUCTS COULD BE MATERIALLY HARMED.(cid:10)
Our success depends in large part on our ability to attract and retain(cid:10)
highly qualified scientific, technical and business personnel experienced in the(cid:10)
development, manufacture and marketing of oral, controlled-release drug delivery(cid:10)
systems and generic products. Our business and financial results could be(cid:10)
materially harmed by the inability to attract or retain qualified personnel.(cid:10)
IF WE WERE SUED ON A PRODUCT LIABILITY CLAIM, AN AWARD COULD EXCEED OUR(cid:10)
INSURANCE COVERAGE AND COST US SIGNIFICANTLY.(cid:10)
The design, development and manufacture of our products involve an(cid:10)
inherent risk of product liability claims. We have procured product liability(cid:10)
insurance; however, a successful claim against us in excess of the policy limits(cid:10)
could be very expensive to us, damaging our financial position. The amount of(cid:10)
our insurance coverage, which has been limited due to our limited financial(cid:10)
resources, may be materially below the coverage maintained by many of the other(cid:10)
companies engaged in similar activities. To the best of our knowledge, no(cid:10)
product liability claim has been made against us as of(cid:10)
21(cid:10)
(cid:10)
March 31, 2008.(cid:10)
RISKS RELATED TO OUR COMMON STOCK(cid:10)
FUTURE SALES OF OUR COMMON STOCK COULD LOWER THE MARKET PRICE OF OUR COMMON(cid:10)
STOCK.(cid:10)
Sales of substantial amounts of our shares in the public market could(cid:10)
harm the market price of our Common Stock, even if our business is doing well. A(cid:10)
significant number of shares of our Common Stock are eligible for sale in the(cid:10)
public market under SEC Rule 144 subject in some cases to volume and other(cid:10)
limitations. In addition, we filed a registration statement for the resale of(cid:10)
6,465,504 shares of Common Stock issuable upon conversion of outstanding shares(cid:10)
of our Series C 8% Convertible Preferred Stock, par value $0.01 per share (the(cid:10)
"SERIES C PREFERRED STOCK") issued in the private placement that closed on April(cid:10)
24, 2007, 4,187,643 shares of Common Stock issuable in satisfaction of certain(cid:10)
Series C Preferred Stock dividend obligations and 2,133,606 shares of Common(cid:10)
Stock issuable upon exercise of warrants issued in the private placement; and a(cid:10)
registration statement for the resale of 957,396 shares of Common Stock and(cid:10)
478,698 shares of Common Stock issuable upon the exercise of warrants issued to(cid:10)
VGS Pharma, an affiliate of Veerappan Subramanian, one of our directors and(cid:10)
former acting Chief Scientific Officer and 1,750,000 shares of Common Stock(cid:10)
issuable upon the exercise of options granted to Dr. Subramanian of which(cid:10)
750,000 options have since expired; and a registration statement for the resale(cid:10)
of 1,313,747 shares of Common Stock issuable upon conversion of outstanding(cid:10)
shares of our Series C Preferred Stock issued in a private placement that closed(cid:10)
on July 17, 2007 and in satisfaction of certain Series C Preferred Stock(cid:10)
dividend obligations and 242,068 shares of Common Stock issuable upon exercise(cid:10)
of warrants issued in the private placement.(cid:10)
Due to the foregoing factors sales of a substantial number of shares of(cid:10)
our Common Stock in the public market could occur at any time. These sales, or(cid:10)
the perception in the market that the holders of a large number of shares intend(cid:10)
to sell shares, could reduce the market price of our Common Stock.(cid:10)
OUR STOCK PRICE HAS BEEN VOLATILE AND MAY FLUCTUATE IN THE FUTURE.(cid:10)
There has been significant volatility in the market prices for publicly(cid:10)
traded shares of pharmaceutical companies, including ours. For the twelve months(cid:10)
ended March 31, 2008, the closing sale price on the American Stock Exchange(cid:10)
("AMEX") of our Common Stock fluctuated from a high of $2.75 per share to a low(cid:10)
of $0.78 per share. The per share price of our Common Stock may not remain at or(cid:10)
exceed current levels. The market price for our Common Stock, and for the stock(cid:10)
of pharmaceutical companies generally, has been highly volatile. The market(cid:10)
price of our Common Stock may be affected by:(cid:10)
o Results of our clinical trials;(cid:10)
o Approval or disapproval of abbreviated new drug applications or new(cid:10)
drug applications;(cid:10)
o Announcements of innovations, new products or new patents by us or by(cid:10)
our competitors;(cid:10)
o Governmental regulation;(cid:10)
o Patent or proprietary rights developments;(cid:10)
o Proxy contests or litigation;(cid:10)
o News regarding the efficacy of, safety of or demand for drugs or drug(cid:10)
technologies;(cid:10)
o Economic and market conditions, generally and related to the(cid:10)
pharmaceutical industry;(cid:10)
o Healthcare legislation;(cid:10)
o Changes in third-party reimbursement policies for drugs; and(cid:10)
o Fluctuations in our operating results.(cid:10)
22(cid:10)
(cid:10)
THE FAILURE TO MAINTAIN THE AMERICAN STOCK EXCHANGE LISTING OF THE COMMON STOCK(cid:10)
WOULD HAVE A MATERIAL ADVERSE AFFECT ON THE MARKET FOR OUR COMMON STOCK AND OUR(cid:10)
MARKET PRICE.(cid:10)
On January 4, 2006, we received a letter from the AMEX notifying us(cid:10)
that, based on our unaudited financial statements as of September 30, 2005, we(cid:10)
were not in compliance with the continued listing standards set forth in the(cid:10)
AMEX Company Guide in that under one listing standard our shareholders' equity(cid:10)
is less than $4,000,000 and we had losses from continuing operations and/or net(cid:10)
losses in three of our four most recent fiscal years and under another listing(cid:10)
standard our shareholders' equity is less than $6,000,000 and we had losses from(cid:10)
continuing operations and/or net losses in our five most recent fiscal years. At(cid:10)
the request of AMEX, we submitted a plan on February 3, 2006 advising AMEX of(cid:10)
action, we had taken and will take, to bring ourselves in compliance with the(cid:10)
continued listing standards within a maximum of 18 months from January 4, 2006.(cid:10)
On March 15, 2006, we completed a private placement of our Series B 8%(cid:10)
Convertible Preferred Stock, par value $0.01 per share (the "SERIES B PREFERRED(cid:10)
STOCK") and warrants to purchase Common Stock. We received $10,000,000 in gross(cid:10)
proceeds from the private placement. On March 21, 2006, we submitted an update(cid:10)
to the plan we had previously submitted on February 6, 2006. Upon notice of the(cid:10)
March 2006 private placement and the acceptance of the updated plan, AMEX(cid:10)
allowed us to maintain our AMEX listing, subject to periodic review of the our(cid:10)
progress by the AMEX staff. If we are not in compliance with the continued(cid:10)
listing standards, AMEX may then initiate delisting proceedings. The failure to(cid:10)
maintain listing of our Common Stock on AMEX will have an adverse effect on the(cid:10)
market and the market price for our Common Stock.(cid:10)
IF WE RAISE ADDITIONAL FUNDING THROUGH SALES OF OUR SECURITIES, OUR EXISTING(cid:10)
STOCKHOLDERS WILL LIKELY EXPERIENCE SUBSTANTIAL DILUTION.(cid:10)
If any future financing involves the further sale of our securities, our(cid:10)
then-existing stockholders' equity could be substantially diluted. On the other(cid:10)
hand, if we incurred debt, we would be subject to risks associated with(cid:10)
indebtedness, including the risk that interest rates might fluctuate and cash(cid:10)
flow would be insufficient to pay principal and interest on such indebtedness.(cid:10)
THE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK OR OUR PREFERRED STOCK(cid:10)
COULD MAKE A CHANGE OF CONTROL MORE DIFFICULT TO ACHIEVE.(cid:10)
The issuance of additional shares of our Common Stock or the issuance(cid:10)
of shares of an additional series of preferred stock could be used to make a(cid:10)
change of control of us more difficult and expensive. Under certain(cid:10)
circumstances, such shares could be used to create impediments to or frustrate(cid:10)
persons seeking to cause a takeover or to gain control of us. Such shares could(cid:10)
be sold to purchasers who might side with the Board of Directors in opposing a(cid:10)
takeover bid that the Board of Directors determines not to be in the best(cid:10)
interests of our stockholders. It might also have the effect of discouraging an(cid:10)
attempt by another person or entity through the acquisition of a substantial(cid:10)
number of shares of our Common Stock to acquire control of us with a view to(cid:10)
consummating a merger, sale of all or part of our assets, or a similar(cid:10)
transaction, since the issuance of new shares could be used to dilute the stock(cid:10)
ownership of such person or entity.(cid:10)
IF PENNY STOCK REGULATIONS BECOME APPLICABLE TO OUR COMMON STOCK THEY WILL(cid:10)
IMPOSE RESTRICTIONS ON THE MARKETABILITY OF OUR COMMON STOCK AND THE ABILITY OF(cid:10)
OUR STOCKHOLDERS TO SELL SHARES OF OUR STOCK COULD BE IMPAIRED.(cid:10)
23(cid:10)
(cid:10)
The SEC has adopted regulations that generally define a "penny stock"(cid:10)
to be an equity security that has a market price of less than $5.00 per share or(cid:10)
an exercise price of less than $5.00 per share subject to certain exceptions.(cid:10)
Exceptions include equity securities issued by an issuer that has (i) net(cid:10)
tangible assets of at least $2,000,000, if such issuer has been in continuous(cid:10)
operation for more than three years, or (ii) net tangible assets of at least(cid:10)
$5,000,000, if such issuer has been in continuous operation for less than three(cid:10)
years, or (iii) average revenue of at least $6,000,000 for the preceding three(cid:10)
years. Unless an exception is available, the regulations require that prior to(cid:10)
any transaction involving a penny stock, a risk of disclosure schedule must be(cid:10)
delivered to the buyer explaining the penny stock market and its risks. Our(cid:10)
Common Stock is currently trading at under $5.00 per share. Although we(cid:10)
currently fall under one of the exceptions, if at a later time we fail to meet(cid:10)
one of the exceptions, our Common Stock will be considered a penny stock. As(cid:10)
such the market liquidity for our Common Stock will be limited to the ability of(cid:10)
broker-dealers to sell it in compliance with the above-mentioned disclosure(cid:10)
requirements.(cid:10)
You should be aware that, according to the SEC, the market for penny(cid:10)
stocks has suffered in recent years from patterns of fraud and abuse. Such(cid:10)
patterns include:(cid:10)
o Control of the market for the security by one or a few broker-dealers;(cid:10)
o "Boiler room" practices involving high-pressure sales tactics;(cid:10)
o Manipulation of prices through prearranged matching of purchases and(cid:10)
sales;(cid:10)
o The release of misleading information;(cid:10)
o Excessive and undisclosed bid-ask differentials and markups by selling(cid:10)
broker-dealers; and(cid:10)
o Dumping of securities by broker-dealers after prices have been(cid:10)
manipulated to a desired level, which hurts the price of the stock and(cid:10)
causes investors to suffer loss.(cid:10)
We are aware of the abuses that have occurred in the penny stock(cid:10)
market. Although we do not expect to be in a position to dictate the behavior of(cid:10)
the market or of broker-dealers who participate in the market, we will strive(cid:10)
within the confines of practical limitations to prevent such abuses with respect(cid:10)
to our Common Stock.(cid:10)
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW MAY DETER A THIRD PARTY FROM(cid:10)
ACQUIRING US.(cid:10)
Section 203 of the Delaware General Corporation Law prohibits a merger(cid:10)
with a 15% shareholder within three years of the date such shareholder acquired(cid:10)
15%, unless the merger meets one of several exceptions. The exceptions include,(cid:10)
for example, approval by the holders of two-thirds of the outstanding shares(cid:10)
(not counting the 15% shareholder), or approval by the Board of Directors prior(cid:10)
to the 15% shareholder acquiring its 15% ownership. This provision makes it(cid:10)
difficult for a potential acquirer to force a merger with or takeover of us, and(cid:10)
could thus limit the price that certain investors might be willing to pay in the(cid:10)
future for shares of our Common Stock.(cid:10)
ITEM 1B. UNRESOLVED STAFF COMMENTS.(cid:10)
Not applicable.(cid:10)
ITEM 2. PROPERTIES.(cid:10)
Our facility, which we own, is located at 165 Ludlow Avenue, Northvale,(cid:10)
New Jersey, and contains approximately 20,000 square feet of floor space. This(cid:10)
real property and the improvements(cid:10)
24(cid:10)
(cid:10)
thereon are encumbered by a mortgage in favor of the New Jersey Economic(cid:10)
Development Authority ("NJEDA") as security for a loan through tax-exempt bonds(cid:10)
from the NJEDA to Elite. The mortgage contains certain customary provisions(cid:10)
including, without limitation, the right of NJEDA to foreclose upon a default by(cid:10)
Elite.(cid:10)
On July 15, 2005, we entered into a lease for two years commencing on(cid:10)
July 1, 2005 for a portion of a one-story warehouse for the storage of finished(cid:10)
and raw material of pharmaceutical products and equipment. We have exercised an(cid:10)
option to rent the property through July 1, 2008.(cid:10)
We are currently using our facilities as a laboratory, manufacturing,(cid:10)
storage and office space. Properties used in our operations are considered(cid:10)
suitable for the purposes for which they are used and are believed to be(cid:10)
adequate to meet our needs for the reasonably foreseeable future.(cid:10)
ITEM 3. LEGAL PROCEEDINGS.(cid:10)
In the ordinary course of business we may be subject to litigation from(cid:10)
time to time. There is no past, pending or, to our knowledge, threatened(cid:10)
litigation or administrative action (including litigation or action involving(cid:10)
our officers, directors or other key personnel) which in our opinion has or is(cid:10)
expected to have, a material adverse effect upon our business, prospects(cid:10)
financial condition or operations.(cid:10)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.(cid:10)
No matters were submitted to a vote of security holders during the(cid:10)
three months ended March 31, 2008.(cid:10)
Stockholders at the Company's Annual Meeting of Stockholders held on(cid:10)
June 26, 2008 took the following actions:(cid:10)
1. Elected its four Directors.(cid:10)
No. of Votes For No. of Votes Against(cid:10)
Bernard Berk 16,460,240 3,161,806(cid:10)
Barry Dash 17,692,942 1,931,104(cid:10)
Robert Levensen 17,692,942 1,931,104(cid:10)
Melvin Van Woert 16,937,460 2,684,586(cid:10)
2. Approved the proposal to approve and ratify the amendment to the(cid:10)
Company's Certificate of Incorporation to increase the number of(cid:10)
authorized shares of Common Stock from 65,000,000 to 150,000,000(cid:10)
by a vote of a majority of the shares of Common Stock outstanding:(cid:10)
16,774,807 shares for, 2,843,614 shares against and 28,854 shares(cid:10)
abstaining.(cid:10)
3. Approved the proposal to approve and ratify the amendment to the(cid:10)
Company's Certificate of Incorporation to provide that holders of(cid:10)
Common Stock are not entitled to vote on any amendment to the(cid:10)
Company's Certificate of Incorporation (including any Preferred(cid:10)
Stock certificate of designation) that relates solely to the terms(cid:10)
of one or more outstanding series of the Company's Preferred Stock(cid:10)
if the holders of such affected series are entitled to vote on(cid:10)
such amendment by a vote of a majority of the shares of Common(cid:10)
Stock outstanding: 13,645,843 shares for, 5,946,664 shares against(cid:10)
and 29,537 shares abstaining.(cid:10)
4. Did not approve the proposal to ratify certain amendments made to(cid:10)
the Company's Certificate of Incorporation which relate solely to(cid:10)
the Series B Preferred Stock which were previously approved by a(cid:10)
majority of the holders of the Series B Preferred Stock by a vote(cid:10)
of less than a majority of the Common Stock outstanding: 4,393,575(cid:10)
shares for, 1,492,691 shares against and 61,450 shares abstaining.(cid:10)
5. Approved the proposal to approve and ratify the amendment to the(cid:10)
Company's Stock Option Plan to increase the number of shares of(cid:10)
Common Stock reserved for issuance under the Stock Option Plan(cid:10)
from 7,000,000 shares to 10,000,000 shares by a vote of a majority(cid:10)
of the shares voting in person or proxy: 4,057,474 shares for,(cid:10)
209,460 shares against and 219,313 shares abstaining.(cid:10)
6. Approved the engagement of Miller, Ellin & Company LLP as the(cid:10)
Company's independent auditors for the year ended March 31, 2008(cid:10)
by a vote of a majority of the shares voting in person or by(cid:10)
proxy: 19,193,274 shares for, 209,460 shares against and 219,313(cid:10)
shares abstaining.(cid:10)
PART II(cid:10)
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.(cid:10)
Our Common Stock is quoted on the American Stock Exchange under the(cid:10)
symbol "ELI". The following table shows, for the periods indicated, the high and(cid:10)
low sales prices per share of our Common Stock as reported by the American Stock(cid:10)
Exchange.(cid:10)
COMMON STOCK(cid:10)
QUARTER ENDED HIGH LOW(cid:10)
FISCAL YEAR ENDING MARCH 31, 2008:(cid:10)
March 31, 2008.......................................$1.80 $0.72(cid:10)
December 31, 2007....................................$2.75 $1.45(cid:10)
September 30, 2007...................................$2.77 $1.95(cid:10)
June 30, 2007 .......................................$2.70 $2.08(cid:10)
FISCAL YEAR ENDING MARCH 31, 2007:(cid:10)
March 31, 2007.......................................$2.40 $1.94(cid:10)
December 31, 2006....................................$2.49 $2.02(cid:10)
September 30, 2006...................................$2.46 $2.03(cid:10)
June 30, 2006 .......................................$2.54 $2.02(cid:10)
25(cid:10)
(cid:10)
On June 18, 2008, the last reported sale price of our Common Stock, as(cid:10)
reported by the American Stock Exchange, was $0.50 per share.(cid:10)
As of June 18, 2008, there were approximately 115 holders of record(cid:10)
and, we believe, approximately 2,482 are beneficial owners of our Common Stock.(cid:10)
We are informed and believe that as of June 18, 2008, Cede & Co. held 20,756,593(cid:10)
shares of our Common Stock as nominee for Depository Trust Company, 55 Water(cid:10)
Street, New York, New York 10004. It is our understanding that Cede & Co. and(cid:10)
Depository Trust Company both disclaim any beneficial ownership therein and that(cid:10)
such shares are held for the account of numerous other persons.(cid:10)
We have never paid cash dividends on our Common Stock. During the(cid:10)
fiscal year ended March 31, 2008, we have paid dividends in the aggregate(cid:10)
principal amount of $2,104,797 on our Series B Preferred Stock and Series C(cid:10)
Preferred Stock. Such amount reflects $474,087 paid in cash and 1,116,173 shares(cid:10)
of Common Stock. We currently anticipate that we will retain all available funds(cid:10)
for use in the operation and expansion of our business.(cid:10)
Please see our Quarterly Reports on Form 10-Q for the three month(cid:10)
periods ending June 30, 2007, September 30, 2007 and December 31, 2007 and our(cid:10)
Current Reports on Form 8-K dated April 25, 2007, July 17, 2007 and January 3,(cid:10)
2008, for information concerning our issuances of unregistered securities during(cid:10)
the 12 months ended March 31, 2008.(cid:10)
EQUITY COMPENSATION PLAN INFORMATION(cid:10)
The following table sets forth certain information regarding Elite's(cid:10)
equity compensation plans as of March 31, 2008.(cid:10)
(cid:10)
(cid:10)
Number of(cid:10)
Number of securities remaining(cid:10)
securities available for future(cid:10)
to be issued upon Weighted-average issuance under(cid:10)
exercise of exercise price per equity compensation(cid:10)
outstanding options, share of outstanding plans (excluding(cid:10)
warrants and options, warrants and securities reflected(cid:10)
Plan Category rights rights in column (a))(cid:10)
------------- -------------------- --------------------- ---------------------(cid:10)
(a) (b) (c)(cid:10)
(cid:10)
Equity compensation(cid:10)
plans approved by(cid:10)
security holders 4,468,300(1) $2.18 2,531,700(cid:10)
Equity compensation(cid:10)
plans not approved(cid:10)
by security holders 1,075,000(2) $2.06 --(cid:10)
------------------------ ------------------------------------ -----------------------(cid:10)
Total: 5,543,300 $2.16 2,531,700(cid:10)
------------------------ ------------------------------------ -----------------------(cid:10)
(cid:10)
(1) Stock options issued under the 2004 Stock Option Plan(cid:10)
(2) Represents 1,000,000 non-qualified options issued to Veerappan Subramanian(cid:10)
and 75,000 non-qualified options to The Investor Relations Group.(cid:10)
26(cid:10)
(cid:10)
2004 STOCK OPTION PLAN(cid:10)
Our 2004 Stock Option Plan (the "STOCK OPTION PLAN") permits us to(cid:10)
grant both incentive stock options ("INCENTIVE STOCK OPTIONS" or "ISOS") within(cid:10)
the meaning of Section 422 of the Internal Revenue Code (the "CODE"), and other(cid:10)
options which do not qualify as Incentive Stock Options (the "NON-QUALIFIED(cid:10)
OPTIONS") to employees, officers, Directors of and consultants to Elite.(cid:10)
Unless earlier terminated by the Board of Directors, the Stock Option(cid:10)
Plan (but not outstanding options issued thereunder) terminates on March 1,(cid:10)
2014, after which no further awards may be granted under the Stock Option Plan.(cid:10)
The Stock Option Plan is administered by the full Board of Directors or, at the(cid:10)
Board of Directors' discretion, by a committee of the Board of Directors(cid:10)
consisting of at least two persons who are "disinterested persons" as defined(cid:10)
under Rule 16b-2(c)(ii) under the Securities Exchange Act of 1934, as amended(cid:10)
(the "Committee").(cid:10)
Recipients of options under the Stock Option Plan ("OPTIONEES") are(cid:10)
selected by the Board of Directors or the Committee. The Board of Directors or(cid:10)
Committee determines the terms of each option grant including (1) the purchase(cid:10)
price of shares subject to options, (2) the dates on which options become(cid:10)
exercisable and (3) the expiration date of each option (which may not exceed ten(cid:10)
years from the date of grant). The minimum per share purchase price of options(cid:10)
granted under the Stock Option Plan for Incentive Stock Options is the fair(cid:10)
market value (as defined in the Stock Option Plan) or for Nonqualified Options(cid:10)
is 85% of fair market value of one share of the Common Stock on the date the(cid:10)
option is granted.(cid:10)
Optionees have no voting, dividend or other rights as stockholders with(cid:10)
respect to shares of Common Stock covered by options prior to becoming the(cid:10)
holders of record of such shares. The purchase price upon the exercise of(cid:10)
options may be paid in cash, by certified bank or cashier's check, by tendering(cid:10)
stock held by the Optionee, as well as by cashless exercise either through the(cid:10)
surrender of other shares subject to the option or through a broker. The total(cid:10)
number of shares of Common Stock available under the Stock Option Plan, and the(cid:10)
number of shares and per share exercise price under outstanding options will be(cid:10)
appropriately adjusted in the event of any stock dividend, reorganization,(cid:10)
merger or recapitalization or similar corporate event. Subject to limitations(cid:10)
set forth in the Stock Option Plan, the terms of option agreements will be(cid:10)
determined by the Board of Directors or Committee, and need not be uniform among(cid:10)
Optionees.(cid:10)
The Board of Directors may at any time terminate the Stock Option Plan(cid:10)
or from time to time make such modifications or amendments to the Stock Option(cid:10)
Plan as it may deem advisable and the Board of Directors or Committee may(cid:10)
adjust, reduce, cancel and regrant an unexercised option if the fair market(cid:10)
value declines below the exercise price except as may be required by any(cid:10)
national stock exchange or national market association on which the Common Stock(cid:10)
is then listed. In no event may the Board of Directors, without the approval of(cid:10)
stockholders, amend the Stock Option Plan to increase the maximum number of(cid:10)
shares of Common Stock for which options may be granted under the Stock Option(cid:10)
Plan or change the class of persons eligible to receive options under the Stock(cid:10)
Option Plan.(cid:10)
FEDERAL INCOME TAX CONSEQUENCES. The following is a brief discussion of the(cid:10)
Federal income tax consequences of transactions under the Stock Option Plan.(cid:10)
This discussion is not intended to be exhaustive and does not describe state or(cid:10)
local tax consequences.(cid:10)
INCENTIVE OPTIONS(cid:10)
No taxable income is realized by the Optionee upon the grant or(cid:10)
exercise of an Incentive Option, except as noted below with respect to the(cid:10)
alternative minimum tax. If Common Stock is issued to an Optionee pursuant to(cid:10)
the exercise of an Incentive Option, and if no disqualifying disposition of such(cid:10)
shares is made by such Optionee within two years after the date of grant or(cid:10)
within one year after the(cid:10)
27(cid:10)
(cid:10)
transfer of such shares to such Optionee, then (1) upon sale of such shares, any(cid:10)
amount realized in excess of the option price will be taxed to such Optionee as(cid:10)
a long-term capital gain and any loss sustained will be a long-term capital(cid:10)
loss, and (2) no deduction will be allowed to the Optionee's employer for(cid:10)
Federal income tax purposes.(cid:10)
Except as noted below for corporate "insiders," if the Common Stock(cid:10)
acquired upon the exercise of an Incentive Stock Option is disposed of prior to(cid:10)
the expiration of either holding period described above, generally (1) the(cid:10)
Optionee will realize ordinary income in the year of disposition in an amount(cid:10)
equal to the excess (if any) of the fair market value of such shares at exercise(cid:10)
(or, if less, the amount realized on the disposition of such shares) over the(cid:10)
option price paid for such shares and (2) the Optionee's employer will be(cid:10)
entitled to deduct such amount for Federal income tax purposes if the amount(cid:10)
represents an ordinary and necessary business expense. Any further gain (or(cid:10)
loss) realized by the Optionee will be taxed as short-term or long-term capital(cid:10)
gain (or loss), as the case may be, and will not result in any deduction by the(cid:10)
employer.(cid:10)
Subject to certain exceptions for disability or death, if an Incentive(cid:10)
Stock Option is exercised more than three months following termination of(cid:10)
employment, the exercise of the Option will generally be taxed as the exercise(cid:10)
of a Non-Qualified Option.(cid:10)
For purposes of determining whether an Optionee is subject to any(cid:10)
alternative minimum tax liability, an Optionee who exercises an Incentive Stock(cid:10)
Option generally would be required to increase his or her alternative minimum(cid:10)
taxable income, and compute the tax basis in the stock so acquired, in the same(cid:10)
manner as if the Optionee had exercised a Non-Qualified Option. Each Optionee is(cid:10)
potentially subject to the alternative minimum tax. In substance, a taxpayer is(cid:10)
required to pay the higher of his/her alternative minimum tax liability or(cid:10)
his/her "regular" income tax liability. As a result, a taxpayer has to determine(cid:10)
his potential liability under the alternative minimum tax.(cid:10)
NON-QUALIFIED OPTIONS(cid:10)
With respect to Non-Qualified Options: (1) no income is realized by the(cid:10)
Optionee at the time the Option is granted; (2) generally, at exercise, ordinary(cid:10)
income is realized by the Optionee in an amount equal to the difference between(cid:10)
the option price paid for the shares and the fair market value of the shares, if(cid:10)
unrestricted, on the date of exercise, and the Optionee's employer is generally(cid:10)
entitled to a tax deduction in the same amount subject to applicable tax(cid:10)
withholding requirements; and (3) at sale, appreciation (or depreciation) after(cid:10)
the date of exercise is treated as either short-term or long-term capital gain(cid:10)
(or loss) depending on how long the shares have been held.(cid:10)
Pursuant to Section 409A of the Internal Revenue Code (the "CODE"),(cid:10)
Non-Qualified Options must be issued at fair market value at the time of the(cid:10)
grant in order to achieve the federal tax consequences described above and to(cid:10)
avoid substantial penalties.(cid:10)
COMPLIANCE WITH SECTION 409A OF THE CODE(cid:10)
To the extent that the Board of Directors or Committee determines that(cid:10)
any option granted under the Stock Option Plan is subject to Section 409A of the(cid:10)
Code, the award agreement evidencing such option shall incorporate the terms and(cid:10)
conditions required by Section 409A. To the extent applicable, the Stock Option(cid:10)
Plan and award agreements shall be interpreted in accordance with Section 409A.(cid:10)
Notwithstanding any provision of the Stock Option Plan to the contrary, in the(cid:10)
event that, following the effective date of this amendment to the Stock Option(cid:10)
Plan, the Board of Directors or Committee(cid:10)
28(cid:10)
(cid:10)
determines that any option may be subject to Section 409A of the Code, the Board(cid:10)
of Directors or Committee may adopt such amendments to the Stock Option Plan and(cid:10)
the applicable award agreement or adopt such other policies and procedures(cid:10)
(including amendments, policies and procedures with retroactive effect), or take(cid:10)
any other actions that the Board of Directors or Committee determines are(cid:10)
necessary or appropriate to (a) exempt the option from Section 409A and/or(cid:10)
preserve the intended tax treatment of the benefits provided with respect to the(cid:10)
option or (b) comply with the requirements of Section 409A of the Code.(cid:10)
SPECIAL RULES APPLICABLE TO CORPORATE INSIDERS(cid:10)
As a result of the rules under Section 16(b) of the Exchange Act,(cid:10)
"insiders" (as defined in the Securities Exchange Act of 1934), depending upon(cid:10)
the particular exemption from the provisions of Section 16(b) utilized, may not(cid:10)
receive the same tax treatment as set forth above with respect to the grant(cid:10)
and/or exercise of options. Generally, insiders will not be subject to taxation(cid:10)
until the expiration of any period during which they are subject to the(cid:10)
liability provisions of Section 16(b) with respect to any particular option.(cid:10)
Insiders should check with their own tax advisers to ascertain the appropriate(cid:10)
tax treatment for any particular option.(cid:10)
COMPARATIVE STOCKHOLDER RETURN(cid:10)
The graph that follows compares the yearly percentage change in Elite's(cid:10)
cumulative total stockholder return on its Common Stock for the five year period(cid:10)
ended March 31, 2008 with the cumulative total stockholder return of (1) all(cid:10)
United States companies traded on the American Stock Exchange (where Elite's(cid:10)
Common Stock is now traded) and (2) all companies traded on the American Stock(cid:10)
Exchange which carry the Standard Industrial Classification (SIC) code 283(cid:10)
(Pharmaceuticals). The table was prepared by the Research Data Group, Inc.(cid:10)
Elite's Common Stock was traded on the NASDAQ over-the-counter bulletin(cid:10)
board from July 23, 1998 until February 24, 2000. Elite's Common Stock began(cid:10)
trading on the American Stock Exchange on February 24, 2000. Elite's fiscal year(cid:10)
ends on March 31.(cid:10)
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*(cid:10)
Among Elite Pharmaceuticals Inc, The AMEX Composite Index(cid:10)
And Amex Stocks (SIC 2830-2839 US Companies)(cid:10)
[DATA BELOW REPRESENTS A LINE GRAPH IN PRINTED PIECE](cid:10)
(cid:10)
29(cid:10)
(cid:10)
ITEM 6. SELECTED FINANCIAL DATA(cid:10)
The following consolidated selected financial data, at the end of and(cid:10)
for the last five fiscal years, should be read in conjunction with our(cid:10)
Consolidated Financial Statements and related Notes thereto appearing elsewhere(cid:10)
in this Annual Report on Form 10-K. The consolidated selected financial data are(cid:10)
derived from our audited Consolidated Financial Statements. The audit report of(cid:10)
Miller, Ellin & Company, LLP, our independent auditors, for the three years(cid:10)
ended March 31, 2008, 2007 and 2006 is included herein. The selected financial(cid:10)
data provided below is not necessarily indicative of our future results of(cid:10)
operations or financial performance.(cid:10)
(cid:10)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS(cid:10)
OF OPERATION(cid:10)
GENERAL(cid:10)
The following discussion and analysis should be read with the financial(cid:10)
statements and accompanying notes, included elsewhere in this Annual Report on(cid:10)
Form 10-K. It is intended to assist the reader in understanding and evaluating(cid:10)
our financial position.(cid:10)
OVERVIEW(cid:10)
We are a specialty pharmaceutical company principally engaged in the(cid:10)
development and manufacture of oral, controlled-release products. We develop(cid:10)
oral, controlled-release products using proprietary technology. Our strategy(cid:10)
includes improving off-patent drug products for life cycle management and(cid:10)
developing generic versions of controlled release drug products with high(cid:10)
barriers to entry. Our technology is applicable to develop delayed, sustained or(cid:10)
targeted release pellets, capsules, tablets, granules and powders.(cid:10)
We have two products, Lodrane 24(R) and Lodrane 24D(R), currently being(cid:10)
sold commercially, and a pipeline of five drug candidates under development in(cid:10)
the therapeutic areas that include pain management, allergy and infection. Of(cid:10)
the products under development, ELI-216, an abuse deterrent oxycodone product,(cid:10)
and ELI-154, a once daily oxycodone product, are in clinical trials and we have(cid:10)
completed pilot studies on two of our generic product candidates. The(cid:10)
addressable market for the pipeline of products exceeds $6 billion. Our facility(cid:10)
in Northvale, New Jersey also is a Good Manufacturing Practice ("GMP") and DEA(cid:10)
registered facility for research, development and manufacturing.(cid:10)
In January 2006, the FDA accepted our IND for ELI-154, our once-a-day(cid:10)
oxycodone painkiller. We completed a second pharmacokinetic study to evaluate(cid:10)
ELI-154's sustained release formation in 2006. In December 2007, we submitted to(cid:10)
the FDA a Special Protocol Assessment ("SPA") for the Phase III protocol for(cid:10)
ELI-154. We are currently scaling up the product and expect to wait until we(cid:10)
reach agreement with the FDA on this SPA before beginning the Phase III.(cid:10)
Currently there is no once-daily oxycodone available. We estimate that the U.S.(cid:10)
market for sustained release, twice-daily oxycodone was about $1.6 billion as of(cid:10)
September, 2006.(cid:10)
30(cid:10)
(cid:10)
In May 2005, the FDA accepted our IND for ELI-216, our once-a-day,(cid:10)
abuse resistant oxycodone painkiller. After the acceptance of the IND, we(cid:10)
completed two pharmacokinetic studies and a euphoria study in recreational drug(cid:10)
users to assess the abuse deterrent properties of ELI-216. In November 2007, we(cid:10)
reached agreement with the FDA on a Special Protocol Assessment for the Phase(cid:10)
III protocol for ELI-216. We are currently scaling up the product and preparing(cid:10)
for additional studies including a multi-dose study in opioid dependent(cid:10)
patients, a food effect study and the Phase III study for ELI-216, Currently(cid:10)
there is no abuse deterrent oxycodone product available.(cid:10)
At the end of 2006, we entered into a joint venture with VGS Pharma,(cid:10)
LLC ("VGS") and created Novel Laboratories, Inc. ("NOVEL"), a privately-held(cid:10)
company specializing in pharmaceutical research, development, manufacturing,(cid:10)
licensing, acquisition and marketing of specialty generic pharmaceuticals.(cid:10)
Novel's business strategy is to focus on its core strength in identifying and(cid:10)
timely executing niche business opportunities in the generic pharmaceutical(cid:10)
area.(cid:10)
At the end of 2007, we elected not to fund our remaining contributions(cid:10)
to Novel upon the terms set forth in the Alliance Agreement because we had(cid:10)
reached agreement with the FDA under a SPA on the Phase III clinical trial of(cid:10)
ELI-216, our abuse deterrent oxycodone product and determined that our funds(cid:10)
would be better used to support the clinical trials for ELI-216. Upon our(cid:10)
determination not to fund our remaining contributions to Novel at the valuation(cid:10)
set forth in the Alliance Agreement, VGS exercised its rights to purchase from(cid:10)
us our shares of Class A Voting Common Stock of Novel proportionate to the(cid:10)
amount of remaining contributions which were not funded by us. As a result, our(cid:10)
remaining ownership interest in Class A Voting Common Stock of Novel is(cid:10)
approximately 10% of the outstanding shares of Class A Voting Common Stock of(cid:10)
Novel.(cid:10)
Until VGS purchased our shares of Class A Voting Common Stock of Novel,(cid:10)
Novel was consolidated into our financial statements as a "variable interest(cid:10)
entity" because of the extent of its dependence on the Company. Since then,(cid:10)
Novel is no longer considered a "variable interest entity" of the Company and(cid:10)
therefore is not consolidated into our financial statements. Accordingly, the(cid:10)
information in our Quarterly Report on Form 10-Q consolidates the results of(cid:10)
operations of Novel for the six months ended September 30, 2007. As of October(cid:10)
1, 2007, Elite deconsolidated its financial statements from that of Novel. Our(cid:10)
investment in Novel was decreased from $7,009,800 to $3,329,322 to recognize the(cid:10)
cumulative losses of $3,672,638 from Novel from inception through September 30,(cid:10)
2007 and the return of 80% of our initial investment of $9,800.(cid:10)
STRATEGY(cid:10)
We are focusing our efforts on the following areas: (i) development of(cid:10)
our pain management products, (ii) manufacture of Lodrane 24(R) and Lodrane(cid:10)
24D(R) products; (iii) development of the other products in our pipeline; (iv)(cid:10)
commercial exploitation of our products either by license and the collection of(cid:10)
royalties, or through the manufacture of our formulations, and (v) development(cid:10)
of new products and the expansion of our licensing agreements with other(cid:10)
pharmaceutical companies, including co-development projects, joint ventures and(cid:10)
other collaborations, including Novel.(cid:10)
We are focusing on the development of various types of drug products,(cid:10)
including branded drug products (which require NDAs) under Section 505(b)(1) or(cid:10)
505(b)(2) of the Drug Price(cid:10)
31(cid:10)
(cid:10)
Competition and Patent Term Restoration Act of 1984 as well as generic drug(cid:10)
products (which require ANDAs).(cid:10)
We intend to continue to collaborate in the development of additional(cid:10)
products with our current partners. We also plan to seek additional(cid:10)
collaborations to develop more drug products.(cid:10)
We believe that our business strategy enables us to reduce our risk by(cid:10)
having a diverse product portfolio that includes both branded and generic(cid:10)
products in various therapeutic categories and build collaborations and(cid:10)
establish licensing agreements with companies with greater resources thereby(cid:10)
allowing us to share costs of development and to improve cash-flow.(cid:10)
CRITICAL ACCOUNTING POLICIES AND ESTIMATES(cid:10)
Management's discussion addresses our Consolidated Financial(cid:10)
Statements, which have been prepared in accordance with accounting principles(cid:10)
generally accepted in the United States of America. The preparation of these(cid:10)
financial statements requires management to make estimates and assumptions that(cid:10)
affect the reported amounts of assets and liabilities, the disclosure of(cid:10)
contingent assets and liabilities at the date of financial statements and the(cid:10)
reported amounts of revenues and expenses during the reporting period. On an(cid:10)
ongoing basis, management evaluates its estimates and judgment, including those(cid:10)
related to bad debts, intangible assets, income taxes, workers compensation, and(cid:10)
contingencies and litigation. Management bases its estimates and judgments on(cid:10)
historical experience and on various other factors that are believed to be(cid:10)
reasonable under the circumstances, the results of which form the basis for(cid:10)
making judgments about the carrying values of assets and liabilities that are(cid:10)
not readily apparent from other sources. Actual results may differ from these(cid:10)
estimates under different assumptions or conditions.(cid:10)
Management believes the following critical accounting policies, among(cid:10)
others, affect its more significant judgments and estimates used in the(cid:10)
preparation of its Consolidated Financial Statements. Our most critical(cid:10)
accounting policies include the recognition of revenue upon completion of(cid:10)
certain phases of projects under research and development contracts. We also(cid:10)
assess a need for an allowance to reduce our deferred tax assets to the amount(cid:10)
that we believe is more likely than not to be realized. We assess the(cid:10)
recoverability of long-lived assets and intangible assets whenever events or(cid:10)
changes in circumstances indicate that the carrying value of the asset may not(cid:10)
be recoverable. We assess our exposure to current commitments and contingencies.(cid:10)
It should be noted that actual results may differ from these estimates under(cid:10)
different assumptions or conditions.(cid:10)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET EFFECTIVE(cid:10)
EFFECTIVE FOR FISCAL YEAR BEGINNING AFTER DECEMBER 15, 2008(cid:10)
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS (SFAS):(cid:10)
SFAS 157, "FAIR VALUE MEASUREMENTS" - defines fair value, establishes a(cid:10)
framework for measuring fair value, and expands disclosures about fair value(cid:10)
measurements. This Statement applies under other accounting pronouncements that(cid:10)
require or permit fair value measurements, where the Board previously concluded(cid:10)
in those accounting pronouncements that fair value is the relevant measurement(cid:10)
attribute. Accordingly, this Statement does not require any new fair value(cid:10)
measurements. However, for some entities, the application of this Statement will(cid:10)
change current practice. This Statement is effective for financial statements(cid:10)
issued for fiscal years beginning after November 15, 2007, and interim periods(cid:10)
within those fiscal years. Earlier application is encouraged, provided that the(cid:10)
reporting entity has not yet(cid:10)
32(cid:10)
(cid:10)
issued financial statements for that fiscal year, including financial statements(cid:10)
for an interim period within that fiscal year.(cid:10)
SFAS 159, "THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND FINANCIAL(cid:10)
LIABILITIES-INCLUDING AN AMENDMENT OF FASB STATEMENT NO. 115" - permits entities(cid:10)
to choose to measure many financial instruments and certain other items at fair(cid:10)
value. The objective is to improve financial reporting by providing entities(cid:10)
with the opportunity to mitigate volatility in reported earnings caused by(cid:10)
measuring related assets and liabilities differently without having to apply(cid:10)
complex hedge accounting provisions. This Statement is expected to expand the(cid:10)
use of fair value measurement, which is consistent with the Board's long-term(cid:10)
measurement objectives for accounting for financial instruments. This Statement(cid:10)
is effective as of the beginning of an entity's first fiscal year that begins(cid:10)
after November 15, 2007, and interim periods within those fiscal years. Early(cid:10)
adoption is permitted as of the beginning of a fiscal year that begins on or(cid:10)
before November 15,2007, provided the entity also elects to apply the provisions(cid:10)
of FASB Statement No. 157, "FAIR VALUE MEASUREMENTS".(cid:10)
EFFECTIVE FOR FISCAL YEARS AND INTERIM PERIODS BEGINNING AFTER NOVEMBER 15,(cid:10)
2008. EARLY APPLICATION IS ENCOURAGED.(cid:10)
FASB Statement No. 161, "DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND HEDGING(cid:10)
ACTIVITIES - AN AMENDMENT OF FASB STATEMENT 133" - enhances required disclosures(cid:10)
regarding derivatives and hedging activities, including enhanced disclosures(cid:10)
regarding how: (a) an entity uses derivative instruments; (b) derivative(cid:10)
instruments and related hedged items are accounted for under FASB Statement No.(cid:10)
133, Accounting for Derivative Instruments and Hedging Activities; and (c)(cid:10)
derivative instruments and related hedged items affect an entity's financial(cid:10)
position, financial performance, and cash flows. Specifically, Statement 16 1(cid:10)
requires:(cid:10)
o Disclosure of the objectives for using derivative instruments be(cid:10)
disclosed in terms of underlying risk and accounting designation;(cid:10)
o Disclosure of the fair values of derivative instruments and their gains(cid:10)
and losses in a tabular format;(cid:10)
o Disclosure of information about credit-risk-related contingent(cid:10)
features; and(cid:10)
o Cross-reference from the derivative footnote to other footnotes in(cid:10)
which derivative related information is disclosed.(cid:10)
SFAS 141 (R), "BUSINESS COMBINATIONS"- retains the fundamental requirements in(cid:10)
Statement 141 that the acquisition method of accounting (which Statement 141(cid:10)
called the purchase method) be used for all business combinations and for an(cid:10)
acquirer to be identified for each business combination. This Statement defines(cid:10)
the acquirer as the entity that obtains control of one or more businesses in the(cid:10)
business combination and establishes the acquisition date as the date that the(cid:10)
acquirer achieves control.(cid:10)
o replaces Statement 141's cost-allocation process and requires an(cid:10)
acquirer to recognize the assets acquired, the liabilities assumed, and(cid:10)
any noncontrolling interest in the acquiree at the acquisition date,(cid:10)
measured at their fair values as of that date,(cid:10)
33(cid:10)
(cid:10)
o requires the acquirer in a business combination achieved in stages(cid:10)
(sometimes referred to as a step acquisition) to recognize the(cid:10)
identifiable assets and liabilities, as well as the noncontrolling(cid:10)
interest in the acquiree, at the full amounts of their fair values,(cid:10)
o requires that an acquirer evaluate new information and measure a(cid:10)
liability at the higher of its acquisition-date fair value or the(cid:10)
amount that would be recognized if applying Statement 5, then measuring(cid:10)
an asset at the lower of its acquisition-date fair value or the best(cid:10)
estimate of its future settlement amount,(cid:10)
o requires the acquirer to recognize contingent consideration at the(cid:10)
acquisition date, measured at its fair value at that date,(cid:10)
EFFECTIVE FOR FISCAL YEARS BEGINNING AFTER NOVEMBER 15, 2007(cid:10)
SFAS 160, "NONCONTROLLING INTERESTS IN CONSOLIDATED FINANCIAL STATEMENTS" -(cid:10)
changes the way the consolidated income statement is presented. It requires(cid:10)
consolidated net income to be reported at amounts that include the amounts(cid:10)
attributable to both the parent and the noncontrolling interest. It also(cid:10)
requires disclosure, on the face of the consolidated statement of income, of the(cid:10)
amounts of consolidated net income attributable to the parent and to the(cid:10)
noncontrolling interest. Previously, net income attributable to the(cid:10)
noncontrolling interest generally was reported as an expense or other deduction(cid:10)
in arriving at consolidated net income. It also was often presented in(cid:10)
combination with other financial statement amounts. Effective for fiscal years(cid:10)
beginning after December 15, 2008.(cid:10)
FASB STAFF POSITIONS (FSP):(cid:10)
FSP APB 14-1, "ACCOUNTING FOR CONVERTIBLE DEBT INSTRUMENTS THAT MAY BE SETTLED(cid:10)
IN CASH UPON CONVERSION (INCLUDING PARTIAL CASH SETTLEMENT)" - clarifies that(cid:10)
convertible debt instruments that may be settled in cash upon conversion(cid:10)
(including partial cash settlement) are not addressed by paragraph 12 of APB(cid:10)
Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock(cid:10)
Purchase Warrants. Additionally, this FSP specifies that issuers of such(cid:10)
instruments should separately account for the liability and equity components in(cid:10)
a manner that will reflect the entity's nonconvertible debt borrowing rate when(cid:10)
interest cost is recognized in subsequent periods. This FSP is effective for(cid:10)
financial statements issued for fiscal years beginning after December 15, 2008,(cid:10)
and interim periods within those fiscal years.(cid:10)
FSP FAS 140-3, "ACCOUNTING FOR TRANSFERS OF FINANCIAL ASSETS AND REPURCHASE(cid:10)
FINANCING TRANSACTIONS" - amends FASB Statement 140 to state that a transferor(cid:10)
and transferee shall not separately account for a transfer of a financial asset(cid:10)
and a related repurchase financing unless (a) the two transactions have a valid(cid:10)
and distinct business or economic purpose for being entered into separately and(cid:10)
(b) the repurchase financing does not result in the initial transferor regaining(cid:10)
control over the financial asset. This FSP is effective for financial statements(cid:10)
issued for fiscal years beginning after November 15, 2008, and interim periods(cid:10)
within those fiscal years. Earlier application is not permitted.(cid:10)
FSP FAS 142-3, "DETERMINATION OF THE USEFUL LIFE OF INTANGIBLE ASSETS"- amends(cid:10)
the factors that should be considered in developing renewal or extension(cid:10)
assumptions used to determine the useful life of a recognized intangible asset(cid:10)
under FASB Statement No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. Paragraph 1(cid:10)
l(d) of Statement 142 precluded an entity from using its own assumptions about(cid:10)
renewal or extension of an arrangement where there is likely to be substantial(cid:10)
cost or material modifications. This FSP amends paragraph 1 l(d) of Statement(cid:10)
142 so that an entity will use its own assumptions about renewal or extension of(cid:10)
an arrangement, adjusted for the entity-specific factors in paragraph 11 of(cid:10)
34(cid:10)
(cid:10)
Statement 142, even when there is likely to be substantial cost or material(cid:10)
modifications. Therefore, in determining the useful life of the asset for(cid:10)
amortization purposes, an entity shall consider the period of expected cash(cid:10)
flows used to measure the fair value of the recognized intangible asset,(cid:10)
adjusted for the entity-specific factors including, but are not limited to, the(cid:10)
entity's expected use of the asset and the entity's historical experience in(cid:10)
renewing or extending similar arrangements. This FSP shall be effective for(cid:10)
financial statements issued for fiscal years beginning after December 15, 2008,(cid:10)
and interim periods within those fiscal years. Early adoption is prohibited.(cid:10)
FSP FAS 157-1, APPLICATION OF FASB STATEMENT NO. 157 TO FASB STATEMENT NO. 13(cid:10)
AND OTHER ACCOUNTING PRONOUNCEMENTS THAT ADDRESS FAIR VALUE MEASUREMENTS FOR(cid:10)
PURPOSES OF LEASE CLASSIFICATION OR MEASUREMENT UNDER STATEMENT 13" - amends(cid:10)
FASB Statement No. 157, Fair Value Measurements, to exclude FASB Statement No.(cid:10)
13, Accounting for Leases, and other accounting pronouncements that address fair(cid:10)
value measurements for purposes of lease classification or measurement under(cid:10)
Statement 13. However, this scope exception does not apply to assets acquired(cid:10)
and liabilities assumed in a business combination that are required to be(cid:10)
measured at fair value under FASB Statement No. 141, Business Combinations, or(cid:10)
No. 141 (revised 2007), Business Combinations, regardless of whether those(cid:10)
assets and liabilities are related to leases.(cid:10)
FSP FAS 157-2, "EFFECTIVE DATE OF FASB STATEMENT NO. 157" - delays the effective(cid:10)
date of FASB Statement No. 157, Fair Value Measurements, for nonfinancial assets(cid:10)
and nonfinancial liabilities, except for items that are recognized or disclosed(cid:10)
at fair value in the financial statements on a recurring basis (at least(cid:10)
annually). The delay is intended to allow the Board and constituents additional(cid:10)
time to consider the effect of various implementation issues that have arisen,(cid:10)
or that may arise, from the application of Statement 157. This FSP defers the(cid:10)
effective date of Statement 157 to fiscal years beginning after November 15,(cid:10)
2008, and interim periods within those fiscal years for items within the scope(cid:10)
of this FSP.(cid:10)
FSP SOP 07-1-1, - indefinitely delays the effective date of AICPA Statement of(cid:10)
Position 07-1, "CLARIFICATION of THE SCOPE OF THE AUDIT AND ACCOUNTING GUIDE(cid:10)
INVESTMENT COMPANIES AND ACCOUNTING BY PARENT COMPANIES AND EQUITY METHOD(cid:10)
INVESTORS FOR INVESTMENTS IN INVESTMENT COMPANIES."(cid:10)
EITF CONSENSUSES (EITF):(cid:10)
EITF Issue No. 07-1, "ACCOUNTING FOR COLLABORATIVE ARRANGEMENTS" - when entities(cid:10)
enter into arrangements to participate in a joint operating activity a(cid:10)
collaborative arrangement may provide that one participant has sole or primary(cid:10)
responsibility for certain activities or that two or more participants have(cid:10)
shared responsibility for certain activities. Participants should evaluate(cid:10)
whether an arrangement is a collaborative arrangement at the inception of the(cid:10)
arrangement based on the facts and circumstances present at that time. Revenue(cid:10)
generated and costs incurred by participants from transactions with parties(cid:10)
should be reported gross or net on the appropriate line item in each(cid:10)
participant's respective financial statements depending on the nature of the(cid:10)
participation. Disclosures should include information about the nature and(cid:10)
purpose of its collaborative arrangements, the entity's rights and obligations(cid:10)
under the collaborative arrangements, the accounting policy for collaborative(cid:10)
arrangements, and the income statement classification and amounts attributable(cid:10)
to transactions arising from the collaborative arrangement. Effective for(cid:10)
financial statements issued for fiscal years beginning after December 15, 2008,(cid:10)
and interim periods within those fiscal years.(cid:10)
35(cid:10)
(cid:10)
YEAR ENDED MARCH 31, 2008 VS. YEAR ENDED MARCH 31, 2007(cid:10)
Our revenues for the year ended March 31, 2008 were $1,413,119, an(cid:10)
increase of $269,278 or approximately 24%, over revenues for the prior year, and(cid:10)
consisted of $1,173,890 in manufacturing fees and $239,229 in royalty fees.(cid:10)
Revenues for the year ended March 31, 2007 consisted of $1,038,916 in(cid:10)
manufacturing fees and $104,925 in royalty fees. The increase in manufacturing(cid:10)
fees and royalties was primarily due to the launch of our second product,(cid:10)
Lodrane 24D(R) in the later part of the year ended March 31, 2007.(cid:10)
Research and development costs for the year ended March 31, 2008 were(cid:10)
$5,795,779, a negligible increase of $17,914 from $5,777,865 of such costs for(cid:10)
the prior year, primarily due to costs associated with increased spending on raw(cid:10)
materials which are primarily for scale up of the pain products. We expect our(cid:10)
research and development costs to continue to increase in future periods(cid:10)
primarily due to clinical costs for Phase III and other clinical trials for(cid:10)
ELI-216 and ELI-154.(cid:10)
General and administrative expenses ("G&A") for the year ended March(cid:10)
31, 2008 were $2,434,803, an increase of $238,649, or approximately 11% from(cid:10)
$2,196,154 of G&A for the prior year. The increase was attributable to increases(cid:10)
in salaries and fringe benefits as a result of the hiring of managerial level(cid:10)
employees and consulting fees associated with seeking potential strategic(cid:10)
transactions.(cid:10)
Depreciation and amortization for the year ended March 31, 2008(cid:10)
increased by $116,079 from $408,814 for the prior year to $524,893. The increase(cid:10)
in 2008 was due to acquired new machinery and equipment and continued upgrading(cid:10)
of the corporate and warehouse facilities.(cid:10)
Other income (expenses) for the year ended March 31, 2008 were(cid:10)
$(2,543,473), a decrease of $546,765, or approximately 18%, from $(3,090,238)(cid:10)
for the prior year due to (i) a decrease of $871,600 in charges related to the(cid:10)
issuances of stock options and warrants and (ii) an increase in interest income(cid:10)
of $69,671, due to higher compensating balances as a result of the private(cid:10)
placement offset by (x) a decrease of $377,259 in sale of New Jersey tax losses,(cid:10)
and (y) an increase of $17,247 in interest expense resulting from a loan(cid:10)
initially used to fund Novel and a loan to finance the purchase of a new truck.(cid:10)
Our prior year financial statements were restated as a result of the(cid:10)
Company's decision not to continue to fund Novel and therefore not include(cid:10)
Novel's expenses as part of the Company's operating activities for the year(cid:10)
ending March 31, 2008 and 2007. Consequently, losses from discontinued(cid:10)
operations of $2,979,600 and $642,032 respectively are reflected in the 2008 and(cid:10)
2007 financial statements.(cid:10)
As a result of the foregoing, our net loss for the year ended March 31,(cid:10)
2008 was $13,893,060 compared to $11,803,512 for the year ended March 31, 2007.(cid:10)
YEAR ENDED MARCH 31, 2007 VS. YEAR ENDED MARCH 31, 2006(cid:10)
Our revenues for the year ended March 31, 2007 were $1,143,841, an(cid:10)
increase of $593,144, or approximately 108%, over revenues for the comparable(cid:10)
prior year, and consisted of $1,038,916 in manufacturing fees and $104,925 in(cid:10)
royalty fees. Revenues for the year ended March 31, 2006 consisted $494,231 in(cid:10)
manufacturing fees and $56,466 in royalty fees. The increase in manufacturing(cid:10)
fees and royalties was primarily due to the launch of our second product,(cid:10)
Lodrane 24D(R).(cid:10)
Research and development costs for the year ended March 31, 2007 were(cid:10)
$5,777,865, an increase of $1,433,975, or approximately 33% from $4,343,890 of(cid:10)
such costs for the prior year,(cid:10)
36(cid:10)
(cid:10)
primarily the result of increased wages, raw materials, laboratory and(cid:10)
manufacturing supplies and consulting fees. As of March 31, 2007 Elite had 41(cid:10)
employees, an increase of 58% from 26 employees one year ago. The increase in(cid:10)
employees was primarily for the scale up work for the pain products and included(cid:10)
manufacturing, analytical and quality assurance people. Elite had also increased(cid:10)
its spending on raw materials, primarily API, by 100% from $300,000 to $600,000.(cid:10)
The raw materials were also primarily for scale up of the pain products.(cid:10)
Spending on biostudies increased to $1,000,000 from $100,000 a year ago due to(cid:10)
spending on the Phase II study for ELI-216. We expect our research and(cid:10)
development costs to continue to increase in future periods primarily due to(cid:10)
clinical costs for Phase III and other clinical trials for ELI-216 and ELI-154.(cid:10)
G&A for the year ended March 31, 2007 were $2,196,154, an increase of(cid:10)
$469,528, or approximately 27% from $1,726,626 of G&A for the prior year. The(cid:10)
increase was attributable to increases in salaries and fringe benefits as a(cid:10)
result of increases in staff and consulting fees associated with seeking(cid:10)
potential strategic transitions.(cid:10)
We are in the initial stages of breaking down the specific costs(cid:10)
associated with the research and development of each product on which we devoted(cid:10)
resources through the use of detailed time sheets and general ledger account(cid:10)
classifications. In the past, we have not historically allocated these expenses(cid:10)
to any particular product. We cannot estimate the additional costs and expenses(cid:10)
that may be incurred in order to potentially complete the development of any(cid:10)
product, nor can we estimate the amount of time that might be involved in such(cid:10)
development because of the uncertainties associated with the development of(cid:10)
controlled-release drug delivery products as described in this report.(cid:10)
Depreciation and amortization decreased by $77,873 from $486,687 for(cid:10)
the prior year to $408,814. The decrease was the result of our taking in 2006(cid:10)
the full write-off of financing costs associated with the redemption of tax(cid:10)
exempt NJEDA Bonds, partially offset by an increase in depreciation in 2007 due(cid:10)
to the acquisition of new machinery and equipment and upgrading of the corporate(cid:10)
and warehouse facilities.(cid:10)
Other income (expenses) for the year ended March 31, 2007 were(cid:10)
$(3,090,238), an increase of $2,213,830, or approximately 253%, of $(876,408)(cid:10)
for the prior year due to an increase of $2,576,143 in charges related to the(cid:10)
issuances of stock options and warrants, offset by (i) an increase of $158,138(cid:10)
in sale of New Jersey tax losses, (ii) additional interest income of $195,741,(cid:10)
due to higher compensating balances as a result of the private placement, and(cid:10)
(iii) a decrease of $8,433 in interest expense resulting from a decrease in(cid:10)
NJEDA Bonds outstanding.(cid:10)
Expenses associated with Novel were reclassed as a result of the(cid:10)
Company's decision not to fund this venture. As a result, a loss from(cid:10)
discontinued operations increased to $642,032 for the year ended March 31, 2007.(cid:10)
As a result of the foregoing, our net loss for the year ended March 31,(cid:10)
2007 was $11,803,512 compared to $6,883,914 for the year ended March 31, 2006.(cid:10)
MATERIAL CHANGES IN FINANCIAL CONDITION(cid:10)
Our working capital (total current assets less total current(cid:10)
liabilities), increased to $5,029,930 as of March 31, 2008 from $244,288 as of(cid:10)
March 31, 2007, primarily due to net proceeds received as a result of our(cid:10)
private placement of Series C 8% Convertible Preferred Stock, offset by net loss(cid:10)
from operations, exclusive of non-cash charges.(cid:10)
37(cid:10)
(cid:10)
We experienced negative cash flows from operations of $(9,834,277) for(cid:10)
the year ended March 31, 2008, primarily due to our net loss from operations of(cid:10)
$13,893,060, an increase in accrued interest receivable, prepaid expenses and(cid:10)
security deposits of $1,193,331, and reductions of $867,016 in accounts payable,(cid:10)
accrued expenses and other liabilities offset by reductions in accounts(cid:10)
receivable of $67,353 and by non-cash charges of $3,021,171 which included(cid:10)
$2,607,470 in connection with the issuance of stock options and warrants and(cid:10)
$413,701 in depreciation and amortization expenses.(cid:10)
On November 15, 2004 and on December 18, 2006, Elite's partner, ECR,(cid:10)
launched Lodrane 24(R) and Lodrane 24D(R), respectively. Under its agreement(cid:10)
with ECR, Elite is currently manufacturing commercial batches of Lodrane 24(R)(cid:10)
and Lodrane 24D(R) in exchange for manufacturing margins and royalties on(cid:10)
product revenues. Manufacturing revenues and royalty income earned for the year(cid:10)
ended March 31, 2008 was $1,173,890 and $239,229, respectively. We expect future(cid:10)
cash flows from manufacturing fees and royalties to provide additional cash to(cid:10)
help fund our operations. However, no assurance can be given that we will(cid:10)
generate any material revenues from the manufacturing fees and royalties earned(cid:10)
on the Lodrane products.(cid:10)
LIQUIDITY AND CAPITAL RESOURCES(cid:10)
As of March 31, 2008, we had approximately six months of cash available(cid:10)
based on our current operations. We are considering a number of different(cid:10)
financing alternatives and we intend to seek additional capital in 2008 through(cid:10)
private financing or collaborative agreements. However, no assurance can be(cid:10)
given that we will consummate a financing or that any material cash will be(cid:10)
generated to us therefrom. If adequate funds are not available to us as we need(cid:10)
them, we will be required to curtail significantly or delay or eliminate one or(cid:10)
more product development programs. These matters raise substantial doubt over(cid:10)
our ability to continue as a going concern. The accompanying financial(cid:10)
statements do not provide for any adjustments should this occur.(cid:10)
For the year ended March 31, 2008, we expended $9,834,277 in operating(cid:10)
activities which we funded through the $20,000,000 in gross proceeds raised(cid:10)
through our private placement of Series C Preferred Stock. Our working capital(cid:10)
at March 31, 2008 was $5.0 million compared with working capital of $.2 million(cid:10)
at March 31, 2007. Cash and cash equivalents at March 31, 2008 were $3.7(cid:10)
million, an increase of $2.9 million from the $.8 million at March 31, 2007.(cid:10)
We spent approximately $506,000 on improvements and machinery and(cid:10)
equipment during the year ended March 31, 2008.(cid:10)
On April 24, 2007, we sold in a private placement through Oppenheimer &(cid:10)
Company, Inc., the placement agent (the "PLACEMENT AGENT"), 15,000 shares of our(cid:10)
Series C Preferred Stock, at a price of $1,000 per share, each share convertible(cid:10)
(at $2.32 per share) into 431.0345 shares of Common Stock, or an aggregate of(cid:10)
6,465,517 shares of Common Stock. The investors also acquired warrants to(cid:10)
purchase shares of Common Stock, exercisable on or prior to April 24, 2012. The(cid:10)
warrants represent the right to purchase an aggregate of 1,939,655 shares of(cid:10)
Common Stock at an exercise price of $3.00 per share. The gross proceeds of the(cid:10)
sale were $15,000,000 before payment of $1,050,000 in commissions to the(cid:10)
Placement Agent and selected dealers. We also paid certain legal fees and(cid:10)
expenses of counsel to the Placement Agent. We issued to the Placement Agent and(cid:10)
its designees five year warrants to purchase 193,965 shares of Common Stock with(cid:10)
similar terms to the warrants issued to the Investors with an exercise price of(cid:10)
$3.00 per share.(cid:10)
38(cid:10)
(cid:10)
On July 17, 2007 we sold, in a private placement, the remaining 5,000(cid:10)
authorized shares of its Series C Preferred Stock at a price of $1,000 per(cid:10)
share, each share convertible (at $2.32 per share) into 431.0345 shares of(cid:10)
Common Stock, or an aggregate 2,155,172 shares of Common Stock. The investors(cid:10)
also acquired warrants to purchase shares of Common Stock, exercisable on or(cid:10)
prior to July 17, 2012. The warrants represent the right to purchase 646,554(cid:10)
shares of Common Stock, at an exercise price of $3.00 per share. The gross(cid:10)
proceeds of the sale were $5,000,000 before payment of 350,000 in commissions to(cid:10)
Placement Agent and selected dealers and $18,000 in expenses incurred by(cid:10)
Placement Agent and selected dealers. We issued to the Placement Agent and its(cid:10)
designees five year warrants to purchase 64,655 shares of Common Stock with(cid:10)
similar terms to the warrants issued to the Investors with exercise price of(cid:10)
$3.00 per share. The approximate $18,531,500 of net proceeds generated from(cid:10)
these private placements will contribute materially to our efforts to advance(cid:10)
our part of pain products through the clinic as well as accelerate the(cid:10)
development of our other controlled-release products, which utilize our(cid:10)
proprietary oral drug delivery systems and abuse resistant technology.(cid:10)
From time to time we will consider potential strategic transactions(cid:10)
including acquisitions, strategic alliances, joint ventures and licensing(cid:10)
arrangements with other pharmaceutical companies. We retained an(cid:10)
investment-banking firm to assist with our efforts. There can be no assurance(cid:10)
that any such transaction will be available or consummated in the future.(cid:10)
As of March 31, 2008 our principal source of liquidity was(cid:10)
approximately $3,703,000 of cash and cash equivalents. Additionally, we may have(cid:10)
access to funds through the exercise of outstanding stock options and warrants(cid:10)
in addition to funds that may be generated from the potential sale of New Jersey(cid:10)
tax losses. There can be no assurance that the sale of tax losses or by the(cid:10)
exercise of outstanding warrants or options will generate or provide sufficient(cid:10)
cash.(cid:10)
The Company had outstanding, as of March 31, 2008, bonds in the(cid:10)
aggregate principal amount of $3,795,000, consisting of $3,415,000 of 6.5% tax(cid:10)
exempt Bonds with an outside maturity of September 1, 2030 and $380,000 of 9.0%(cid:10)
Bonds with an outside maturity of September 1, 2012. The bonds are secured by a(cid:10)
first lien on the Company's facility in Northvale, New Jersey. Pursuant to the(cid:10)
terms of the bonds, several restricted cash accounts have been established for(cid:10)
the payment of bond principal and interest. Bond proceeds were utilized for the(cid:10)
redemption of previously issued tax exempt bonds issued by the Authority in(cid:10)
September 1999 and to refinance equipment financing, as well as provide(cid:10)
approximately $1,000,000 of capital for the purchase of additional equipment for(cid:10)
the manufacture and development at the Company's facility of pharmaceutical(cid:10)
products and the maintenance of a $415,500 debt service reserve. All of the(cid:10)
restricted cash, other than the debt service, was expended within the year ended(cid:10)
March 31, 2007. Pursuant to the terms of the related bond indenture agreement,(cid:10)
the Company is required to observe certain covenants, including covenants(cid:10)
relating to the incurrence of additional indebtedness, the granting of liens and(cid:10)
the maintenance of certain financial covenants. As of March 31, 2008, the(cid:10)
Company was in compliance with the bond covenants.(cid:10)
The following table depicts our obligations and commitments to make(cid:10)
future payments under existing contracts or contingent commitments.(cid:10)
(cid:10)
(cid:10)
PAYMENTS DUE BY PERIOD(cid:10)
----------------------(cid:10)
Less than 1 After 5(cid:10)
Contractual Obligations TOTAL YEAR 1-3 YEARS 4-5 YEARS YEARS(cid:10)
----- ---- --------- --------- -----(cid:10)
(cid:10)
NJEDA Bonds payable $3,795,000 $ 200,000 $ 680,000 $ 445,000 $2,470,000(cid:10)
Note Payable-Niagara Bank $ 52,252 $ 9,864 $ 22,587 $ 19,801 ---(cid:10)
(cid:10)
39(cid:10)
(cid:10)
OFF-BALANCE SHEET ARRANGEMENTS(cid:10)
None.(cid:10)
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK(cid:10)
We do not invest in or own any market risk sensitive instruments(cid:10)
entered into for trading purposes or for purposes other than trading. All loans(cid:10)
to us have been made at fixed interest rates and accordingly, the market risk to(cid:10)
us prior to maturity is minimal.(cid:10)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA(cid:10)
Attached hereto and filed as a part of this Annual Report on Form 10-K(cid:10)
are our Consolidated Financial Statements, beginning on page F-1.(cid:10)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND(cid:10)
FINANCIAL DISCLOSURE(cid:10)
None.(cid:10)
40(cid:10)
(cid:10)
ITEM 9AT. CONTROLS AND PROCEDURES(cid:10)
Within the 90 days prior to the date of this report, based on an(cid:10)
evaluation of our disclosure controls and procedures (as defined in Rules(cid:10)
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended(cid:10)
(the "EXCHANGE ACT")), our Chief Executive Officer and Chief Financial Officer(cid:10)
have concluded that our disclosure controls and procedures are effective for(cid:10)
ensuring that information required to be disclosed by us in our Exchange Act(cid:10)
reports is recorded, processed, summarized and reported within the applicable(cid:10)
time periods specified by the SEC's rules and forms. We also concluded that(cid:10)
information required to be disclosed in such reports is accumulated and(cid:10)
communicated to our management, including our principal executive officer and(cid:10)
principal financial officer, as appropriate to allow timely decisions regarding(cid:10)
required disclosure. There was no change in our internal controls over financial(cid:10)
reporting that occurred during the most recent fiscal quarter that materially(cid:10)
affected or is reasonably likely to materially affect our internal controls over(cid:10)
financial reporting. Our management has not yet completed, and is not yet(cid:10)
required to have completed, its assessment of internal controls over financial(cid:10)
reporting.(cid:10)
ITEM 9B. OTHER INFORMATION.(cid:10)
None.(cid:10)
PART III(cid:10)
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.(cid:10)
DIRECTORS AND EXECUTIVE OFFICERS(cid:10)
Our current directors, executive officers and key employees, and such persons'(cid:10)
biographical information are set forth below:(cid:10)
(cid:10)
(cid:10)
NAME AGE TITLE(cid:10)
---- --- -----(cid:10)
(cid:10)
Bernard Berk 59 Director, Chairman, Chief Executive Officer and President(cid:10)
Barry Dash, Ph. D 76 Director(cid:10)
Melvin M. Van Woert, M.D. 77 Director(cid:10)
Veerappan Subramanian, Ph. D. 58 Former Director*(cid:10)
Robert J. Levenson 67 Director(cid:10)
Mark I. Gittelman 48 Chief Financial Officer, Secretary and Treasurer(cid:10)
Stuart Apfel 48 Chief Scientific Officer and Chief Medical Officer(cid:10)
Chris Dick 53 Executive Vice President of Corporate Development(cid:10)
Charan Behl 56 Head of Technical Affairs(cid:10)
(cid:10)
* Dr. Veerappan Subramanian ceased being a Director on June 26, 2008.(cid:10)
41(cid:10)
(cid:10)
The principal occupations and employment of each such person during the(cid:10)
past five years is set forth below. In each instance in which dates are not(cid:10)
provided in connection with a nominee's business experience, such nominee has(cid:10)
held the position indicated for at least the past five years.(cid:10)
MR. BERNARD BERK, President and Chief Executive Officer since June(cid:10)
2003, Director since February 2004 and Member of the Nominating Committee from(cid:10)
June 2004 to June 2008. From 1996 to 2003, Mr. Berk was the President and Chief(cid:10)
Executive Officer of Michael Andrews Corporation, a pharmaceutical management(cid:10)
consultant firm. Mr. Berk was, from 1994 until 1996, President and Chief(cid:10)
Executive Officer of Nale Pharmaceutical Corporation. From 1989 until 1994, he(cid:10)
was Senior Vice President of Sales, Marketing and Business Development of Par(cid:10)
Pharmaceuticals, Inc. Mr. Berk holds a B.S. from New York University.(cid:10)
DR. BARRY DASH, Director since April 2005, Member of the Audit(cid:10)
Committee since April 2005, Member of the Nominating Committee since April 2005(cid:10)
and Member of the Compensation Committee since June 2007. Dr. Dash has been,(cid:10)
since 1995, President and Managing Member of Dash Associates, L.L.C., an(cid:10)
independent consultant to the pharmaceutical and health industries. From 1983 to(cid:10)
1996 he was employed by American Home Products Corporation (now known as Wyeth)(cid:10)
its Whitehall-Robins Healthcare Division, initially as Vice President of(cid:10)
Scientific Affairs, then Senior Vice President of Scientific Affairs and then(cid:10)
Senior Vice President of Advanced Technologies during which time he personally(cid:10)
supervised six separate departments: Medical and Clinical Affairs, Regulatory(cid:10)
Affairs, Technical Affairs, Research and Development, Analytical R&D and Quality(cid:10)
Management/Q.C. Dr. Dash had been employed by the Whitehall Robins Healthcare(cid:10)
Division from 1960 to 1976, during which time he served as Director of Product(cid:10)
Development Research, Assistant Vice President of Product Development and Vice(cid:10)
President of Scientific Affairs. Dr. Dash had been employed by J.B. Williams(cid:10)
Company (Nabisco Brands, Inc.) from 1978 to 1982. From 1976 to 1978 he was Vice(cid:10)
President and Director of Laboratories of the Consumer Products Division of(cid:10)
American Can Company. He currently serves on the board of directors of(cid:10)
GeoPharma, Inc. (NASDQ: GORX). Dr. Dash holds a Ph.D. from the University of(cid:10)
Florida and M.S. and B.S. degrees from Columbia University where he was(cid:10)
Assistant Professor at the College of Pharmaceutical Sciences from 1956 to 1960.(cid:10)
He is a member of the American Pharmaceutical Association, the American(cid:10)
Association for the Advancement of Science and the Society of Cosmetic Chemist,(cid:10)
American Association of Pharmaceutical Scientists, Drug Information Association,(cid:10)
American Foundation for Pharmaceutical Education, and Diplomate American Board(cid:10)
of Forensic Examiners. He is the author of scientific publications and patents(cid:10)
in the pharmaceutical field.(cid:10)
ROBERT J. LEVENSON, Director since 2007, Member of the Audit Committee(cid:10)
since June 2007, Member of the Compensation Committee since June, 2007 and(cid:10)
Member of the Nominating Committee since June 2008. Since 2000, Mr. Levenson has(cid:10)
been a Managing Member of the Lenox Capital Group, L.L.C. Mr. Levenson was(cid:10)
previously an Executive Vice President of First Data Corporation from 1993 to(cid:10)
2000 and a member of its Board of Directors from 1992 to 2003. He was Senior(cid:10)
Executive Vice President, Chief Operating Officer, Member of the Office of the(cid:10)
President and Director of Medco Containment Services, Inc., a provider of(cid:10)
managed care prescription benefits, from October 1990 to December 1992. From(cid:10)
1985 until October 1990, Mr. Levenson was a Group President and Director of(cid:10)
Automatic Data Processing, Inc. (ADP-NYSE). Mr. Levenson was a Director of(cid:10)
Emisphere Technologies, Inc., a biopharmaceutical company, from 1998 to 2005,(cid:10)
and has been a director of several other companies, public and private.(cid:10)
DR. MELVIN VAN WOERT, Director since April 2005, Member of the Audit(cid:10)
Committee since April 2005, Member of the Nominating Committee since April 2005(cid:10)
and Member of the Compensation Committee since June 2007. Dr. Van Woert has been(cid:10)
since 1974 a member of the staff of Mount Sinai Medical(cid:10)
42(cid:10)
(cid:10)
Center and, since 1978 has also been a Professor in the Department of Neurology(cid:10)
and Pharmacology at Mount Sinai School of Medicine. Dr. Van Woert had been a(cid:10)
consultant for Neuropharmacological Drug Products to the FDA from 1974 to 1980;(cid:10)
Associate Editor for Journal of the Neurological Sciences; Member of the(cid:10)
Editorial Board of the Journal of Clinical Neurpharmacology; and Medical(cid:10)
Director of National Organization for Rare Disorders for which he received in(cid:10)
1993 the Humanitarian Award. Dr. Van Woert's other awards include the U.S.(cid:10)
Public Health Service Award for Exceptional Achievement in Orphan Products(cid:10)
Development and the National Myoclonus Foundation Award. He has authored and(cid:10)
co-authored more than 150 articles appearing in pharmacological, medical and(cid:10)
other professional journals or publications.(cid:10)
DR. VEERAPPAN SUBRAMANIAN, Director from December 2006 to June 2008 and(cid:10)
was acting Chief Scientific Officer from February 2007 to April 2008. Since(cid:10)
December 2006, Dr. Subramanian serves as Chief Executive Officer and Chairman of(cid:10)
the Board of Novel Laboratories, Inc. Dr. Subramanian has been a pharmaceutical(cid:10)
executive since 1981 and a pharmaceutical entrepreneur since 1997, when he(cid:10)
formed Kali Laboratories, Inc. ("KALI LABS"). Kali Labs was acquired by Par(cid:10)
Pharmaceuticals, Inc. ("PAR PHARMACEUTICALS") in 2004 and Dr. Subramanian(cid:10)
continued to work as an executive vice president at Par Pharmaceuticals after(cid:10)
the acquisition. Dr. Subramanian ended his relationship with Par Pharmaceuticals(cid:10)
in January 2006. Prior to organizing Kali Labs, Dr. Subramanian served for 6(cid:10)
years as vice president of scientific affairs for Zenith Laboratories, Inc.(cid:10)
Prior to working with Zenith Laboratories, Inc. he was (i) the Director of New(cid:10)
Product Development and Technical Services for Kali Pharma, Inc., (ii) a Senior(cid:10)
Scientist, Commercial Products with Vicks Research Center, (iii) a Research(cid:10)
Pharmacist, Dermatological with Johnson & Johnson and (iv) a Research Pharmacist(cid:10)
in Product Development with E.R. Squibb & Sons. Between 2001 and 2005, Dr.(cid:10)
Subramanian served on the board of Generic Pharmaceutical Industry Association.(cid:10)
Dr. Subramanian has a Ph.D. in Pharmacy (1981) from Rutgers University, a M.S.(cid:10)
in Phamaceutics (1973) from Birla Institute of Technology & Science, and a B.S.(cid:10)
in Pharmacy (1971) from Madurai Medical College.(cid:10)
DR. STUART APFEL, Chief Medical Officer since January 2008 and Chief(cid:10)
Scientific Officer since April 2008. Dr. Apfel is also the founder and current(cid:10)
president of Parallax Clinical Research, a New York-based consulting firm that(cid:10)
provides strategic and practical assistance with clinical trial protocol design,(cid:10)
planning, initiating and management to biotechnology and small pharmaceutical(cid:10)
companies with making the transition from the bench to a clinical development(cid:10)
program, and in this capacity he had served as a consultant to Elite from(cid:10)
January 2007 through December 2007. From 2004 to 2006, Dr. Apfel was employed at(cid:10)
DOV Pharmaceuticals, Inc. (OTC:DOVP), initially as a director of clinical(cid:10)
research and then as a senior director of clinical research. From 2000 to 2004,(cid:10)
Dr. Apfel was employed at Purdue Pharma L.P. Dr. Apfel initially worked as an(cid:10)
associate director of clinical research at Purdue Pharma L.P. and then was(cid:10)
promoted to a director of clinical research. Dr. Apfel is a board certified(cid:10)
neurologist, and is currently on faculty as Associate Professor of Neurology at(cid:10)
the Albert Einstein College of Medicine and at Downstate Medical School, where(cid:10)
he continues to teach. From 1990 to 2000, he was a full time faculty member in(cid:10)
the departments of Neurology and Neuroscience at Albert Einstein College of(cid:10)
Medicine, where his research focused on the application of neurotrophic factors(cid:10)
to neurologic disease.(cid:10)
MARK I. GITTELMAN, Chief Financial Officer, Secretary and Treasurer of(cid:10)
the Company, is the President of Gittelman & Co., P.C., an accounting firm in(cid:10)
Clifton, New Jersey. Prior to forming Gittelman & Co., P.C. in 1984, he worked(cid:10)
as a certified public accountant with the international accounting firm of KPMG(cid:10)
Peat Marwick, LLP. Mr. Gittelman holds a B.S. in accounting from New York(cid:10)
University and a Masters of Science in Taxation from Fairleigh Dickinson(cid:10)
University. He is a Certified Public Accountant licensed in New Jersey and New(cid:10)
York, and is a member of the American Institute of(cid:10)
43(cid:10)
(cid:10)
Certified Public Accountants ("AICPA"), and the New Jersey State and New York(cid:10)
State Societies of CPAs. Other than Elite Labs, no company with which Mr.(cid:10)
Gittelman was affiliated in the past was a parent, subsidiary or other affiliate(cid:10)
of the Company.(cid:10)
CHRIS DICK, Executive Vice President of Corporate Development since(cid:10)
March, 2006. Since November 2002, the Company has engaged Mr. Dick to direct its(cid:10)
licensing and business development activities. From 1999 to 2002, Mr. Dick(cid:10)
served as Director of Business Development for Elan Drug Delivery, Inc.(cid:10)
responsible for licensing and business development of Elan's portfolio of drug(cid:10)
delivery technologies. From 1997 to 1999, he was Manager of Business Development(cid:10)
and Marketing for EnTec, a drug delivery business unit within FMC Corporation's(cid:10)
Pharmaceutical Division. Prior thereto he held various other business and(cid:10)
technical positions at FMC Corporation, including Manager of Marketing for its(cid:10)
pharmaceutical functional coatings product line. Mr. Dick holds an M.B.A. from(cid:10)
the Stern School of Business, New York University, and a B.S. and M.S. in(cid:10)
Chemical Engineering from Cornell University.(cid:10)
DR. CHARAN BEHL, Head of Technical Affairs since February 2007 and(cid:10)
Executive Vice President and Chief Scientific Officer from March 2006 to(cid:10)
February 2007. Dr. Behl has provided the Company since June 2003 consulting(cid:10)
technological services as an independent contractor. He was from January 1995 to(cid:10)
July 1998 Vice President of R&D and from July 1988 to January 2001 Executive(cid:10)
Vice President of R&D of Nastech Pharmaceutical Corporation, Inc. ("NASTECH").(cid:10)
From April 1981 to November 1994, Dr. Behl was employed by Hoffman La Roche(cid:10)
("ROCHE"), where he held a number of positions, including research leader of its(cid:10)
Pharmaceutical R&D Department. During his tenure at Roche and Nastech, Dr. Behl(cid:10)
created intellectual property in the area of drug delivery. His patent portfolio(cid:10)
includes over 40 patents issued, pending and in preparation. Dr. Behl holds a(cid:10)
B.S. in Pharmaceutical Sciences from BITS, Pilani, India, an M.S. in(cid:10)
Pharmaceutics from Duquesne University, under the mentorship of Dr. Alvin M.(cid:10)
Galinsky, and a Ph.D. in Pharmaceutical Sciences from the University of(cid:10)
Michigan, under the mentorship of Dr. William I. Higuchi. Dr. Behl was an(cid:10)
Assistant Research Scientist from 1978 to 1981 at the University of Michigan.(cid:10)
Dr. Behl is internationally known for his scientific and professional(cid:10)
activities. He has coauthored over 200 publications, including research(cid:10)
articles, book chapters, and abstracts, and has made numerous presentations at(cid:10)
national and international conferences and workshops. In conjunction with(cid:10)
associates from academia and industry and representatives of the FDA, Dr. Behl(cid:10)
has co-organized several workshops and symposia. He was the founding chair of(cid:10)
Nasal Drug Delivery Focus Group formed in 1995 under the auspices of the(cid:10)
American Association of Pharmaceutical Scientists ("AAPS"), and served as its(cid:10)
Chairman from 1995 to 2001. Dr. Behl is a fellow of the AAPS.(cid:10)
There is no family relationship among our directors and executive(cid:10)
officers.(cid:10)
Each director holds office (subject to our By-Laws) until the next(cid:10)
annual meeting of stockholders and until such director's successor has been(cid:10)
elected and qualified. Except for Mr. Berk, Mr. Dick, Dr. Apfel and Dr. Behl,(cid:10)
each of whom is employed pursuant to an employment agreement, all of our(cid:10)
executive officers are serving until the next annual meeting of directors and(cid:10)
until their successors have been duly elected and qualified. There are no family(cid:10)
relationships between any of our directors and executive officers.(cid:10)
BOARD MEETINGS(cid:10)
During the fiscal year ended March 31, 2008, our Board of Directors(cid:10)
held eight meetings and acted via written consent on three occasions. No(cid:10)
incumbent director attended fewer than 75% of the meetings of the Board of(cid:10)
Directors during that year.(cid:10)
44(cid:10)
(cid:10)
We do not have a formal policy regarding attendance by members of the(cid:10)
Board of Directors at our annual meeting of stockholders, although it does(cid:10)
encourage attendance by the directors. Historically, more than a majority of the(cid:10)
directors have attended the annual meeting.(cid:10)
COMMITTEES OF THE BOARD(cid:10)
The Board of Directors has an Audit Committee, a Compensation Committee and a(cid:10)
Nominating Committee.(cid:10)
AUDIT COMMITTEE(cid:10)
During the fiscal year ended March 31, 2008, the members of the Audit(cid:10)
Committee were Barry Dash, Robert J. Levenson (Chairman of the Audit Committee)(cid:10)
and Melvin Van Woert. The Audit Committee held four meetings during the fiscal(cid:10)
year ended March 31, 2008. A copy of the Audit Committee's written charter(cid:10)
(adopted by the Board of Directors) can be found on our website at(cid:10)
www.elitepharma.com. The Audit Committee reviews with management and our(cid:10)
auditors our financial statements, the accounting principles applied in their(cid:10)
preparation, the scope of the audit, any comments made by the auditors on our(cid:10)
financial statements and our accounting controls and procedures, the(cid:10)
independence of our auditors, our internal controls, the other matters set forth(cid:10)
in its charter, as adopted by the Board of Directors, and such other matters as(cid:10)
the Audit Committee deems appropriate. The Audit Committee is directly(cid:10)
responsible for the appointment, compensation, retention and oversight of the(cid:10)
work of our independent auditors for the purpose of preparing or issuing an(cid:10)
audit report or performing other audit, review or attest services for us. We(cid:10)
deem the members of our Audit Committee to be independent and Mr. Levenson to be(cid:10)
qualified as an audit committee financial expert.(cid:10)
NOMINATING COMMITTEE(cid:10)
During the fiscal year ended March 31, 2008, the members of the(cid:10)
Nominating Committee were Melvin Van Woert (Chairman of the Nominating(cid:10)
Committee), Bernard Berk and Barry Dash. The Nominating Committee acted via(cid:10)
written consent on one occasion. This committee does not have a charter. The(cid:10)
Nominating Committee assists the Board of Directors in identifying and(cid:10)
recommending qualified Board candidates. The Nominating Committee identifies(cid:10)
Board candidates through numerous sources, including recommendations from(cid:10)
Directors, executive officers and our stockholders. The Nominating Committee(cid:10)
seeks to have available to it qualified candidates from a broad pool of(cid:10)
individuals with a range of talents, experience, backgrounds and perspectives.(cid:10)
The Nominating Committee seeks to identify those individuals most qualified to(cid:10)
serve as Board members and considers many factors with regard to each candidate,(cid:10)
including judgment, integrity, diversity, prior experience, the interplay of the(cid:10)
candidate's experience with the experience of other Board members, the extent to(cid:10)
which the candidate would be desirable as a member of any committees of the(cid:10)
Board of Directors, and the candidate's willingness to devote substantial time(cid:10)
and effort to Board responsibilities. The Nominating Committee makes(cid:10)
recommendations to the Board of Directors with respect to Director nominees.(cid:10)
COMPENSATION COMMITTEE(cid:10)
During the fiscal year ended March 31, 2008, the members of the(cid:10)
Compensation Committee were Barry Dash (Chairman of the Compensation Committee),(cid:10)
Robert J. Levenson and Melvin Van Woert. The Compensation Committee held six(cid:10)
meetings during the fiscal year ended March 31, 2008. The Compensation Committee(cid:10)
was formed June 26, 2007 and adopted a charter which was included as an appendix(cid:10)
to the proxy statement sent to stockholders in connection with the annual(cid:10)
meeting of the(cid:10)
45(cid:10)
(cid:10)
stockholders held on June 26, 2008. The Compensation Committee reviews our(cid:10)
compensation practices and policies, reviews and approves corporate goals and(cid:10)
objectives relevant to the chief executive officer and other executive officer(cid:10)
compensation, evaluates chief executive officer and executive officer(cid:10)
performance in light of those goals and objectives and, either as a committee or(cid:10)
together with other independent directors (as directed by the Board of(cid:10)
Directors), determines and approves chief executive officer and executive(cid:10)
officer compensation based on this evaluation, reviews and approves the terms of(cid:10)
the offer letters, employment agreements, severance agreements,(cid:10)
change-in-control agreements, indemnification agreements and other material(cid:10)
agreements between the Company and its Chief Executive Officer and executive(cid:10)
officers, annually reviews and approves perquisites for the chief executive(cid:10)
officer and executive officers, considers and approves the report of the(cid:10)
Compensation Committee for inclusion in the Company's proxy statement, makes(cid:10)
recommendations to the Board of Directors with respect to the Company's employee(cid:10)
benefit plans, administers incentive, deferred compensation and equity based(cid:10)
plans, and has the other responsibilities as set forth in its charter, as(cid:10)
adopted by the Board of Directors, and such other matters as the Compensation(cid:10)
Committee deems appropriate. For more information on the compensation of(cid:10)
directors and officers of the Company, see the "Compensation Discussion and(cid:10)
Analysis" and "Compensation" sections below.(cid:10)
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION(cid:10)
No members of the Compensation Committee were officers or employees of(cid:10)
the Company or any of its subsidiaries during the year ended March 31, 2008, or(cid:10)
had any relationship otherwise requiring disclosure.(cid:10)
CODE OF CONDUCT(cid:10)
At the first meeting of the Board of Directors following the annual(cid:10)
meeting of stockholders held on June 22, 2004, the Board of Directors adopted a(cid:10)
Code of Business Conduct and Ethics for its officers and employees which it(cid:10)
believes complies with the requirements for a company code of ethics for(cid:10)
financial officers that were promulgated by the SEC pursuant to the(cid:10)
Sarbanes-Oxley Act of 2002 (the "SARBANES-OXLEY ACT") as well as for the members(cid:10)
of our Board of Directors. The directors will be surveyed annually regarding(cid:10)
their compliance with the policies as set forth in the Code of Conduct for(cid:10)
Directors. A copy of the Code of Business Conduct and Ethics is available on our(cid:10)
website at www.elitepharma.com. To receive a copy of our Code of Business(cid:10)
Conduct and Ethics, at no cost, requests should be directed to the Secretary,(cid:10)
Elite Pharmaceuticals, Inc., 165 Ludlow Avenue, Northvale, New Jersey 07647. We(cid:10)
intend to disclose any amendment to, or waiver of, a provision of the Business(cid:10)
Conduct and Ethics for Directors in a report filed under the Exchange Act within(cid:10)
five business days of the amendment or waiver.(cid:10)
STOCKHOLDER COMMUNICATIONS(cid:10)
Stockholders and other interested parties may contact the Board of(cid:10)
Directors or the non-management directors as a group at the following address:(cid:10)
Board of Directors or Outside Directors, Elite Pharmaceuticals, Inc., 165 Ludlow(cid:10)
Avenue, Northvale, NJ 07647. All communications received at the above address(cid:10)
will be relayed to the Board of Directors or the non-management directors, as(cid:10)
the case may be. Communications regarding accounting, internal accounting(cid:10)
controls or auditing matters may also be reported to the Board of Directors(cid:10)
using the above address.(cid:10)
46(cid:10)
(cid:10)
Typically, we do not forward to our directors communications from our(cid:10)
stockholders or other communications which are of a personal nature or not(cid:10)
related to the duties and responsibilities of the Board, including:(cid:10)
o Junk mail and mass mailings(cid:10)
o New product suggestions(cid:10)
o Resumes and other forms of job inquiries(cid:10)
o Opinion surveys and polls(cid:10)
o Business solicitations or advertisements(cid:10)
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE(cid:10)
To our knowledge, there was no person who, at any time during the(cid:10)
fiscal year ended March 31, 2008, was a director, officer or beneficial owner of(cid:10)
more than 10% of any class of our equity securities registered pursuant to(cid:10)
Section 12 of the Exchange Act, who failed to file on a timely basis the reports(cid:10)
required by Section 16(a) of the Exchange Act. Dr. Barry Dash filed one late(cid:10)
Form 4 since the fiscal year ended March 31, 2008.(cid:10)
ITEM 11. EXECUTIVE COMPENSATION.(cid:10)
COMPENSATION DISCUSSION AND ANALYSIS(cid:10)
SUMMARY(cid:10)
Our approach to executive compensation, one of the most important and(cid:10)
complex aspects of corporate governance, is influenced by our belief in(cid:10)
rewarding people for consistently strong execution and performance. We believe(cid:10)
that the ability to attract and retain qualified executive officers and other(cid:10)
key employees is essential to our long-term success.(cid:10)
COMPENSATION LINKED TO ATTAINMENT OF PERFORMANCE GOALS(cid:10)
Our plan to obtain and retain highly skilled employees is to provide(cid:10)
significant incentive compensation opportunities and market competitive(cid:10)
salaries. The plan was intended to link individual employee objectives with(cid:10)
overall company strategies and results, and to reward executive officers and(cid:10)
significant employees for their individual contributions to those strategies and(cid:10)
results. We use compensation and performance data from comparable companies in(cid:10)
the pharmaceutical industry to establish market competitive compensation and(cid:10)
performance standards for our employees. Furthermore, we believe that equity(cid:10)
awards serve to align the interests of our executives with those of our(cid:10)
stockholders. As such, equity is a key component of our compensation program.(cid:10)
ROLE OF THE COMPENSATION COMMITTEE AND ITS ADVISORS(cid:10)
The Company formed the Compensation Committee in June 2007. Since the(cid:10)
formation of the Compensation Committee all elements of the executives'(cid:10)
compensation are determined by the Compensation Committee, which is comprised(cid:10)
solely of independent non-employee directors. However, the Compensation(cid:10)
Committee's decisions concerning the compensation of the Company's Chief(cid:10)
Executive Officer are subject to ratification by the independent directors of(cid:10)
the Board of Directors. As of March 31, 2008, the members of the Compensation(cid:10)
Committee were Barry Dash, Robert J. Levenson and Melvin Van Woert. The(cid:10)
Committee operates pursuant to a charter which was included as an appendix to(cid:10)
47(cid:10)
(cid:10)
the proxy statement sent to stockholders in connection with the annual meeting(cid:10)
of the stockholders held on June 26, 2008. Under the Compensation Committee(cid:10)
charter, the Compensation Committee has authority to retain compensation(cid:10)
consultants, outside counsel, and other advisors that the committee deems(cid:10)
appropriate, in its sole discretion, to assist it in discharging its duties, and(cid:10)
to approve the terms of retention and fees to be paid to such consultants. In(cid:10)
September, 2007, the Compensation Committee directly retained an independent(cid:10)
compensation consultant, Pearl Meyer & Partners ("PM&P"), to assist the(cid:10)
Committee in selecting a comparator group of companies for compensation purposes(cid:10)
as well as benchmarking the Chief Executive Officer's compensation.(cid:10)
The compensation consultant reported directly and exclusively to the(cid:10)
Compensation Committee and received no other fees from the Company outside its(cid:10)
role as advisor to the Compensation Committee. PM&P periodically interacted with(cid:10)
the Company's Compensation Committee, predominately with its Chairman, Dr. Barry(cid:10)
Dash, to gather and review information related to the executive compensation(cid:10)
program, but such work is done only at the direction of the Compensation(cid:10)
Committee. PM&P does not perform any services unrelated to executive and(cid:10)
director compensation for the Company. Accordingly, the Compensation Committee(cid:10)
considers PM&P to be independent from our management.(cid:10)
NAMED EXECUTIVE OFFICERS AND KEY EMPLOYEES(cid:10)
The named executive officers and key employees for fiscal year ending(cid:10)
March 31, 2008 are Bernard Berk, President and Chief Executive Officer; Mark I.(cid:10)
Gittelman, Chief Financial Officer; Christopher Dick, Executive Vice President(cid:10)
of Corporate Development; Charan Behl, Chief Scientific Officer until February
9, 2007, Head of Technical Affairs since February 9, 2007; Veerappan(cid:10)
Subramanian, acting Chief Scientific Officer from February 9, 2007 to April 24,(cid:10)
2008; and Stuart Apfel, Chief Medical Officer since January 1, 2008 and Chief(cid:10)
Scientific Officer since April 24, 2008. These individuals are referred to(cid:10)
collectively in this Annual Report on Form 10-K as the "Named Executive(cid:10)
Officers."(cid:10)
OUR EXECUTIVE COMPENSATION PROGRAM(cid:10)
OVERVIEW(cid:10)
The primary elements of our executive compensation program are base(cid:10)
salary, incentive cash and stock bonus opportunities and equity incentives(cid:10)
typically in the form of stock option grants. Although we provide other types of(cid:10)
compensation, these three elements are the principal means by which we provide(cid:10)
the Named Executive Officers with compensation opportunities.(cid:10)
The emphasis on the annual bonus opportunity and equity compensation(cid:10)
components of the executive compensation program reflect our belief that a large(cid:10)
portion of an executive's compensation should be performance-based. This(cid:10)
compensation is performance-based because payment is tied to the achievement of(cid:10)
corporate performance goals. To the extent that performance goals are not(cid:10)
achieved, executives will receive a lesser amount of total compensation. We have(cid:10)
entered into employment agreements with four of our Named Executive Officers.(cid:10)
Such employment agreements set forth base salaries, bonuses and stock option(cid:10)
grants. Such stock option grants are predicated on our achievement of corporate(cid:10)
performance goals as set forth in such agreements.(cid:10)
48(cid:10)
(cid:10)
ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM(cid:10)
BASE SALARY(cid:10)
We pay a base salary to certain of the Named Executive Officers. In(cid:10)
general, base salaries for the Named Executive Officers are determined by(cid:10)
evaluating the responsibilities of the executive's position, the executive's(cid:10)
experience and the competitive marketplace. Base salary adjustments are(cid:10)
considered and take into account changes in the executive's responsibilities,(cid:10)
the executive's performance and changes in the competitive marketplace. We(cid:10)
believe that the base salaries of the Named Executive Officers are appropriate(cid:10)
within the context of the compensation elements provided to the executives and(cid:10)
because they are at a level which remains competitive in the marketplace.(cid:10)
BONUSES(cid:10)
The Board of Directors may authorize us to give discretionary bonuses,(cid:10)
payable in cash or shares of Common Stock, to the Named Executive Officers and(cid:10)
other key employees. Such bonuses are designed to motivate the Named Executive(cid:10)
Officers and other employees to achieve specified corporate, business unit(cid:10)
and/or individual, strategic, operational and other performance objectives.(cid:10)
STOCK OPTIONS(cid:10)
Stock options constitute performance-based compensation because they(cid:10)
have value to the recipient only if the price of our Common Stock increases.(cid:10)
Stock options for each of the Named Executive Officers generally vest over time,(cid:10)
obtainment of a corporate goal or a combination.(cid:10)
The grant of stock options at Elite is the centerpiece of our(cid:10)
compensation program and is designed to motivate our Named Executive Officers to(cid:10)
achieve our short-term and long-term corporate goals.(cid:10)
As the pharmaceutical industry is characterized by a long product(cid:10)
development cycle, including a lengthy research and product-testing period and a(cid:10)
rigorous approval phase involving human testing and governmental regulatory(cid:10)
approval, many of the traditional benchmarking metrics for vesting, such as(cid:10)
product sales, revenues and profits are inappropriate for an early-stage(cid:10)
pharmaceutical company such as Elite. We consider when determining vesting(cid:10)
benchmarks the following which are aligned with our short-term and long-term(cid:10)
corporate goals:(cid:10)
o clinical trial progress;(cid:10)
o achievement of regulatory milestones; and(cid:10)
o establishment of key strategic relationships.(cid:10)
RETIREMENT AND DEFERRED COMPENSATION BENEFITS(cid:10)
We do not presently provide the Named Executive Officers with a defined(cid:10)
benefit pension plan or any supplemental executive retirement plans, nor do we(cid:10)
provide the Named Executive Officers with retiree health benefits. We have(cid:10)
adopted a deferred compensation plan under Section 401(k) of the Code. The plan(cid:10)
provides for employees to defer compensation on a pretax basis subject to(cid:10)
certain limits, however, Elite does not provide a matching contribution to its(cid:10)
participants.(cid:10)
49(cid:10)
(cid:10)
The retirement and deferred compensation benefits provided to the Named(cid:10)
Executive Officers are not material factors considered in making other(cid:10)
compensation determinations with respect to Named Executive Officers.(cid:10)
PERQUISITES(cid:10)
As described in more detail below, the perquisites provided to certain(cid:10)
of the Named Executive Officers consist of car and parking allowances and life(cid:10)
insurance premiums. These perquisites represent a small fraction of the total(cid:10)
compensation of each such Named Executive Officer. The value of the perquisites(cid:10)
we provide are taxable to the Named Executive Officers and the incremental cost(cid:10)
to us of providing these perquisites is reflected in the Summary Compensation(cid:10)
Table. The Board of Directors believes that the perquisites provided are(cid:10)
reasonable and appropriate. For more information on perquisites provided to the(cid:10)
Named Executive Officers, please see the "All Other Compensation" column of the(cid:10)
Summary Compensation Table on page 60 of this Annual Report on Form 10-K and(cid:10)
"Agreements with Named Executive Officers" below.(cid:10)
POST-TERMINATION/ CHANGE OF CONTROL COMPENSATION(cid:10)
In addition to retirement and deferred compensation benefits described(cid:10)
above, we have arrangements with certain of the Named Executive Officers that(cid:10)
may provide them with compensation following termination of employment. These(cid:10)
arrangements are discussed below under "Agreements with Named Executive(cid:10)
Officers".(cid:10)
TAX IMPLICATIONS OF EXECUTIVE COMPENSATION(cid:10)
Our aggregate deductions for each Named Executive Officer compensation(cid:10)
are potentially limited by Section 162(m) of the Code to the extent the(cid:10)
aggregate amount paid to an executive officer exceeds $1.0 million, unless it is(cid:10)
paid under a predetermined objective performance plan meeting certain(cid:10)
requirements, or satisfies one of various other exceptions specified in the(cid:10)
Code. At our 2006 Named Executive Officer compensation levels, we did not(cid:10)
believe that Section 162(m) of the Code would be applicable, and accordingly, we(cid:10)
did not consider its impact in determining compensation levels for our Named(cid:10)
Executive Officers in 2007.(cid:10)
AGREEMENTS WITH NAMED EXECUTIVE OFFICERS AND KEY EMPLOYEES(cid:10)
BERNARD BERK(cid:10)
On November 13, 2006, we entered into the Second Amended and Restated(cid:10)
Employment Agreement with Mr. Berk, our president, chief executive officer and(cid:10)
chairman of the Board of Directors (the "BERK AGREEMENT")(cid:10)
The Berk Agreement provides for a base annual salary of $330,140 (his(cid:10)
current salary) which may at the discretion of the Board of Directors be(cid:10)
increased in light of factors including our existing financial condition and Mr.(cid:10)
Berk's success in implementing our business plan and achieving our strategic(cid:10)
alternatives. Mr. Berk is entitled to an automobile allowance of $800 per month.(cid:10)
The Berk Agreement provides for payment of a discretionary bonus following the(cid:10)
end of each fiscal year of up to 50% of Mr. Berk's then annual base salary. The(cid:10)
amount, if any, of the discretionary bonus will be determined by the(cid:10)
Compensation Committee. Mr. Berk's bonus is to be based on any commercialization(cid:10)
of products, merger or acquisition, business combination or collaborations,(cid:10)
growth in revenues and earnings,(cid:10)
50(cid:10)
(cid:10)
additional financings or other strategic business transactions that inure to the(cid:10)
benefit of our stockholders. The bonus, if any, may be paid in cash or shares of(cid:10)
Common Stock, valued at the closing price of the Common Stock on the immediately(cid:10)
preceding trading day. For the year ended March 31, 2008 Mr. Berk received a(cid:10)
$165,070 bonus.(cid:10)
The Berk Agreement provides for the grant of options to purchase up to(cid:10)
300,000 additional shares of Common Stock (the "OPIOID PRODUCT OPTIONS") at a(cid:10)
$3.00 exercise price per share, which are to vest in two 150,000 share tranches(cid:10)
upon the closing of an exclusive product license for the United States national(cid:10)
market, the entire European Union Market or the Japan market or a product sale(cid:10)
transaction of all our ownership rights in the United States (only once for each(cid:10)
product) for our first drug developed by us for which the FDA approval will be(cid:10)
sought under a NDA (including a 505(b) (2) application) for oxycodone,(cid:10)
hydrocodone, hydromorphone, oxymorphone, or morphine (each a "NON-GENERIC OPIOID(cid:10)
PRODUCT") as to the first tranche and as to our second Non-Generic Opioid(cid:10)
Product for the second tranche.(cid:10)
The Berk Agreement provides for the amendment of the vesting of options(cid:10)
as to 400,000 shares of Common Stock which had been granted on September 2, 2005(cid:10)
to Mr. Berk at an exercise price of $2.69 per share (the "BERK MILESTONE(cid:10)
OPTIONS") with the Berk Milestone Options to vest (A) as to not more than(cid:10)
125,000 shares and 75,000 shares, respectively, upon the commencement of the(cid:10)
first Phase III clinical trial relating to the first and then the second(cid:10)
Non-Generic Opioid Product developed by us; (B) 50,000 shares upon the closing(cid:10)
of each product license or product sale transaction (on a product by product(cid:10)
basis and only once for each product) other than Non-Generic Opioid Product for(cid:10)
which options were granted above; (C) 10,000 shares upon the filing by us (in(cid:10)
our name) with the FDA of either an ANDA or a NDA, for a product not covered by(cid:10)
a previous FDA application; (D) 40,000 shares upon the approval by the FDA of(cid:10)
any ANDA or NDA (filed in our name) for a product not previously approved by the(cid:10)
FDA; (E) 25,000 shares upon the filing of an application for a U.S. patent by us(cid:10)
(in our name); and (F) 25,000 shares upon the granting by the U.S. Patent and(cid:10)
Trademark Office (the "PTO") of a patent to us filed in our name or an approval(cid:10)
of an ANDA or NDA; provided, however the foregoing options terminate upon Mr.(cid:10)
Berk's termination of employment except that options under (D) and (F)(cid:10)
nevertheless vest if the filing was made during the initial term but prior to(cid:10)
termination of Mr. Berk's employment by us without cause and the approval was(cid:10)
made within 540 days of the filing of the ANDA, NDA or patent application.(cid:10)
We also agreed that in the event that, as to Mr. Berk, all of the(cid:10)
options to purchase the full 400,000 Berk Milestone Options have fully vested(cid:10)
during the initial term of the agreement, we will grant under the Stock Option(cid:10)
Plan to Mr. Berk at the end of the first current fiscal year in which the(cid:10)
following event occurs fully vested additional options to purchase the following(cid:10)
shares at the fair market value on the date of grant (the "ADDITIONAL BERK(cid:10)
MILESTONE OPTIONS"): (a) to the extent not previously vested with respect to his(cid:10)
comparable Berk Milestone Options: (i) up to 125,000 shares upon the(cid:10)
commencement of the first Phase III clinical trial relating to the first(cid:10)
Non-Generic Opioid Product developed by us; and (ii) up to an additional 125,000(cid:10)
shares as to such trial relating to the second Non-Generic Opioid Product(cid:10)
developed by us, (b) 50,000 shares upon the closing of each product license for(cid:10)
the United States national market or product sale transaction of all ownership(cid:10)
rights (on a product by product basis and only once for each product); (c)(cid:10)
10,000 shares upon the filing by us (in our name) with the FDA of either an ANDA(cid:10)
or NDA for a product not covered by a previous FDA application for each drug(cid:10)
product of ours, other than the Non-Generic Opioid Products for which any Opioid(cid:10)
Option was granted under the Berk Agreement; (d) 40,000 shares upon the approval(cid:10)
by the FDA of any ANDA, NDA or 505(b)(2) application filed in our name for a(cid:10)
product not previously approved by the FDA; (e) 25,000 shares in the event of(cid:10)
the filing of an application of an additional U.S. patent by us (filed in our(cid:10)
name); and (f) 25,000(cid:10)
51(cid:10)
(cid:10)
shares in the event of the granting by the PTO of the foregoing additional(cid:10)
patent applications to us (filed in our name).(cid:10)
The Berk Agreement acknowledges that Mr. Berk holds previously granted(cid:10)
incentive stock options to purchase 725,000 shares, of which 300,000 vested(cid:10)
options are exercisable at $2.01 per share, 225,000 vested options are(cid:10)
exercisable at $2.15 per share and 200,000 vested options are exercisable at(cid:10)
$2.69 per share.(cid:10)
The Berk Agreement allows us at our discretion to grant to Mr. Berk(cid:10)
additional options under the Stock Option Plan and provides Mr. Berk the right(cid:10)
to register at our expense for reoffering shares issued upon exercise of the(cid:10)
options under the Securities Act in certain registration statements filed by us(cid:10)
with respect to offerings of securities by us.(cid:10)
The Berk Agreement provides that if we terminate his employment due to(cid:10)
his permanent disability, without Cause (as defined in the Berk Agreement) or(cid:10)
Mr. Berk terminates his employment for Good Reason (as defined in the Berk(cid:10)
Agreement), Mr. Berk shall be entitled to the following severance: (i) any(cid:10)
earned but unpaid base salary plus any unpaid reimbursable expenses as of the(cid:10)
effective date of termination of his employment, (ii) the then-current base(cid:10)
salary and reimbursement of the cost to replace the life and disability(cid:10)
insurance coverages afforded to Mr. Berk under our benefit plans with(cid:10)
substantially similar coverages, following the effective date of termination of(cid:10)
his employment, for a period equal to the greater of (x) the remainder of the(cid:10)
then-current term, or (y) two years following the effective date of termination(cid:10)
and (iii) payment by us of premiums for health insurance for the period during(cid:10)
which Mr. Berk is entitled to continued health insurance coverage as specified(cid:10)
in the Comprehensive Omnibus Budget Reconciliation Act. In the event that we(cid:10)
terminate Mr. Berk's employment because of his permanent disability, Mr. Berk is(cid:10)
to be entitled to the severance specified above, less any amounts actually(cid:10)
received by him under any disability insurance coverage provided for and paid by(cid:10)
us. In the event that we terminate Mr. Berk's employment for Cause or Mr. Berk(cid:10)
terminates his employment with us without Good Reason, Mr. Berk shall be(cid:10)
entitled to any earned but unpaid base salary plus any unpaid reimbursable(cid:10)
expenses as of the effective date of termination of his employment.(cid:10)
The Berk Agreement provides that in the event of a change of control in(cid:10)
lieu of any severance that may otherwise be payable to Mr. Berk if he elects to(cid:10)
terminate his employment for any reason within 90 days thereof, or we elect to(cid:10)
terminate his employment within 180 days thereof, other than for Cause, Mr. Berk(cid:10)
will be entitled to the following: (i) any earned but unpaid base salary plus(cid:10)
any unpaid reimbursable expenses as of the effective date of termination of his(cid:10)
employment, (ii) $1,000,000, (iii) the then-current base salary for a period of(cid:10)
12 months following the effective date of termination, (iv) reimbursement of the(cid:10)
cost, for a period of 12 months following the effective date of termination, of(cid:10)
replacing the life and disability insurance coverage afforded to Mr. Berk under(cid:10)
our benefit plans with substantially similar coverage and (v) payment by us of(cid:10)
premiums for health insurance for the period during which Mr. Berk is entitled(cid:10)
to continued health insurance coverage as specified in the Comprehensive Omnibus(cid:10)
Budget Reconciliation Act.(cid:10)
The Berk Agreement contains his non-solicitation covenant for a period(cid:10)
of one year from termination.(cid:10)
Mr. Berk is to be reimbursed for expenses (including business, travel(cid:10)
and entertainment) reasonably incurred in the performance of his duties. Mr.(cid:10)
Berk is entitled to participate in such employee benefit and welfare plans and(cid:10)
programs which may be offered to our senior executives, including life(cid:10)
insurance, health and accident insurance, medical plans and programs and profit(cid:10)
sharing and retirement plans.(cid:10)
52(cid:10)
(cid:10)
The Berk Agreement is for an initial term ending November 13, 2009,(cid:10)
subject to automatic one-year renewals unless terminated by Mr. Berk or us upon(cid:10)
at least 60 days' notice prior to the end of the then scheduled expiration date.(cid:10)
We have the right to terminate Mr. Berk's employment in the event of his(cid:10)
inability to perform work due to physical or mental illness or injury for nine(cid:10)
full calendar months during any eight consecutive calendar months.(cid:10)
CHRIS DICK(cid:10)
On November 13, 2006, we entered into an employment agreement with Mr.(cid:10)
Dick as Executive Vice President of Corporate Development (the "DICK(cid:10)
AGREEMENT"). The Dick Agreement is for an initial term ending November 13, 2009,(cid:10)
subject to automatic one-year renewals unless terminated by the executive or us(cid:10)
upon at least 60 days notice prior to the end of the then scheduled expiration(cid:10)
date. We have the right to terminate Mr. Dick's employment due to disability as(cid:10)
defined in a long-term disability insurance policy reasonably satisfactory to(cid:10)
him or, in the absence of such policy, due to Mr. Dick's inability for 120 days(cid:10)
in any 12 month period to substantially perform his duties as a result of a(cid:10)
physical or mental illness.(cid:10)
The Dick Agreement provides for an initial base annual salary of(cid:10)
$200,000, a guaranteed bonus of $25,000 payable within 30 calendar days of the(cid:10)
end of each fiscal year during the term and a $700 per month automobile(cid:10)
allowance. The Dick Agreement provides for payment of a discretionary bonus(cid:10)
following the end of each fiscal year of up to 50% of Mr. Dick's then annual(cid:10)
base salary. The amount, if any, of the discretionary bonus will be determined(cid:10)
by the Board of Directors or the Compensation Committee. The discretionary(cid:10)
bonus, if paid to Mr. Dick will be based on the achievement of goals discussed(cid:10)
with the executive in good faith and within a reasonable time following the(cid:10)
commencement of each fiscal year and may be paid in cash or shares of our Common(cid:10)
Stock valued at the average of the closing price per share during the five(cid:10)
trading days immediately preceding the date of issuance of the shares. For the(cid:10)
year ended March 31, 2008 Mr. Dick is to receive a $25,000 bonus.(cid:10)
The Dick Agreement provides for the grant under the Stock Option Plan(cid:10)
of fully-vested options to purchase 250,000 shares of Common Stock at an(cid:10)
exercise price of $2.25 per share. The Dick Agreement also provides for the(cid:10)
grant of options to purchase up to 300,000 shares of Common Stock, at an(cid:10)
exercise price of $2.25 per share, which vest in two 150,000 share tranches upon(cid:10)
the closing of an exclusive product license for the United States national(cid:10)
market, the entire European Union Market or the Japan market or a product sale(cid:10)
transaction of all our ownership rights in the United States (only once for each(cid:10)
product) for our first drug developed by us for which FDA approval will be(cid:10)
sought under a NDA (including a 505(b) (2) application) for a Non-Generic Opiod(cid:10)
Product as to the first tranche and as to our second Non-Generic Opioid Product(cid:10)
for the second tranche.(cid:10)
The Dick Agreement also provides for the grant of options to purchase(cid:10)
up to 200,000 shares of Common Stock at an exercise price of $2.25 per share(cid:10)
(the "DICK MILESTONE OPTIONS") with the Dick Milestone Options to vest (A) as to(cid:10)
not more than 125,000 shares and 75,000 shares, respectively, upon the(cid:10)
commencement of the first Phase III clinical trial relating to the first and(cid:10)
then the second Non-Generic Opioid Product developed by us; (B) 50,000 shares(cid:10)
upon the closing of each product license or product sale transaction (on a(cid:10)
product by product basis and only once for each product) other than Non-Generic(cid:10)
Opioid Products for which options were granted above; (C) 10,000 shares upon the(cid:10)
filing by us (in our name) with the FDA of either an ANDA or an NDA, for a(cid:10)
product not covered by a previous FDA application; (D) 40,000 shares upon the(cid:10)
approval by the FDA of any ANDA or NDA (filed in our name) for a product not(cid:10)
previously approved by the FDA; (E) 25,000 shares upon the filing of an(cid:10)
application for a U.S. patent by us (in our name); and (F) 25,000 shares upon(cid:10)
the granting by the PTO of(cid:10)
53(cid:10)
(cid:10)
a patent to us filed in our name or an approval of an ANDA or NDA; provided,(cid:10)
however, that the foregoing options terminate upon the executive's termination(cid:10)
of employment except that options under (D) and (F) nevertheless vest if the(cid:10)
filing was made during the initial term but prior to termination of Mr. Dick's(cid:10)
employment by us without cause and the approval was made within 540 days of the(cid:10)
filing of the ANDA, NDA or patent application.(cid:10)
We also agreed that if all 200,000 Dick Milestone Options have fully(cid:10)
vested during the initial term of the Dick Agreement, we will grant under the(cid:10)
Stock Option Plan to Mr. Dick at the end of the first current fiscal year in(cid:10)
which the following event occurs fully vested additional options to purchase the(cid:10)
following shares at the fair market value on the date of grant (the "ADDITIONAL(cid:10)
DICK MILESTONE OPTIONS"): (a) to the extent not previously vested with respect(cid:10)
to his comparable Dick Milestone Options: (i) up to 125,000 shares upon the(cid:10)
commencement of the first Phase III clinical trial relating to the first(cid:10)
Non-Generic Opioid Product developed by us; and (ii) up to an additional 125,000(cid:10)
shares as to such trial relating to the second Non-Generic Opioid Product(cid:10)
developed by us, (b) 50,000 shares upon the closing of each product license for(cid:10)
the United States national market or product sale transaction of all ownership(cid:10)
rights (on a product by product basis and only once for each product); (c)(cid:10)
10,000 shares upon the filing by us (in our name) with the FDA of either an ANDA(cid:10)
or NDA for a product not covered by a previous FDA application for each drug(cid:10)
product of us, other than the Non-Generic Opioid Products for which any Opioid(cid:10)
Option was granted under the Dick Agreement; (d) 40,000 shares upon the approval(cid:10)
by the FDA of any ANDA, NDA or 505(b)(2) application filed in our name for a(cid:10)
product not previously approved by the FDA; (e) 25,000 shares in the event of(cid:10)
the filing of an application of an additional U.S. patent by us (filed in our(cid:10)
name); and (f) 25,000 shares in the event of the granting by the PTO of the(cid:10)
foregoing additional patent applications to us (filed in our name).(cid:10)
The Dick Agreement allows us at our discretion to grant to Mr. Dick(cid:10)
additional options under the Stock Option Plan and provides Mr. Dick the right(cid:10)
to register at our expense for reoffering shares issued upon exercise of the(cid:10)
options under the Securities Act in certain registration statements filed by us(cid:10)
with respect to offerings of securities by us.(cid:10)
The Dick Agreement provides that in the event we terminate Mr. Dick's(cid:10)
employment for Cause (as defined in the Dick Agreement) or Mr. Dick terminates(cid:10)
employment without Good Reason (as defined in the Dick Agreement), he is to(cid:10)
receive salary through date of termination, reimbursement for expenses incurred(cid:10)
prior to termination, all unvested options will terminate as of the date of(cid:10)
termination and vested options will be governed by the terms of the Stock Option(cid:10)
Plan and the related option agreement. In the event of a termination due to(cid:10)
death, disability or by us without cause or by Mr. Dick for Good Reason, we are(cid:10)
to pay him or his estate subject to his compliance with certain covenants,(cid:10)
including non-competition, non-solicitation, confidentiality and assignment of(cid:10)
intellectual property, his base salary for the longer of the balance of the(cid:10)
initial term or one year from date of termination, continue health insurance(cid:10)
coverage for 12 months from termination and his vested options are to be(cid:10)
exercisable for 90 days from date of termination.(cid:10)
In the event the employment of Mr. Dick is terminated by us following a(cid:10)
Change of Control (as defined below) of Elite, Mr. Dick will be entitled to the(cid:10)
amounts payable as a result of termination by us without cause plus a lump sum(cid:10)
payment of $500,000 and all unvested options shall immediately vest and along(cid:10)
with unexercised vested options be exercisable within 90 days from the date of(cid:10)
termination. "Change of Control" is defined as the acquisition of Elite pursuant(cid:10)
to a merger or consolidation which results in the reduction to less than 50% of(cid:10)
the shares outstanding upon consummation of the holders of its outstanding(cid:10)
shares immediately prior thereto or sale of substantially all our assets or(cid:10)
capital stock to another person, or the acquisition by a person or a related(cid:10)
group in a single transaction or a series of(cid:10)
54(cid:10)
(cid:10)
related transaction of more than 50% of the combined voting power of Elite's(cid:10)
outstanding voting securities.(cid:10)
Mr. Dick has agreed to a one-year non-competition covenant and a two(cid:10)
year non-solicitation covenant following termination of employment.(cid:10)
Mr. Dick is to be reimbursed for expenses (including business, travel(cid:10)
and entertainment) reasonably incurred in the performance of his duties,(cid:10)
provided, however that reimbursement of expenses in excess of $2,000 per month(cid:10)
are subject to the approval of our chief executive officer. Mr. Dick is entitled(cid:10)
to participate in such employee benefit and welfare plans and programs, which(cid:10)
may be offered to our senior executives including life insurance, health and(cid:10)
accident insurance, medical plans and programs and profit sharing and retirement(cid:10)
plans.(cid:10)
DR. STUART APFEL(cid:10)
On January 3, 2008, we entered into an employment agreement with Dr.(cid:10)
Stuart Apfel (the "APFEL Agreement") providing for Dr. Apfel to serve as our(cid:10)
Chief Medical Officer through January 3, 2009. The Apfel Agreement is(cid:10)
automatically renewable for one year periods thereafter unless terminated by Dr.(cid:10)
Apfel or us upon at least 60 days notice prior to the end of the then scheduled(cid:10)
expiration date.(cid:10)
The Apfel Agreement provides that Dr. Apfel shall be entitled to an(cid:10)
initial base annual salary of $220,000. Dr. Apfel shall be entitled to a(cid:10)
discretionary bonus following the end of each calendar year, commencing with the(cid:10)
calendar year beginning January 1, 2008, of up to 50% of Dr. Apfel's then annual(cid:10)
base salary. The amount, if any, of the discretionary bonus will be determined(cid:10)
by the Board of Directors or the Compensation Committee. The discretionary(cid:10)
bonus, if paid to Dr. Apfel shall be based on the achievement of goals discussed(cid:10)
with the executive in good faith and within a reasonable time following the(cid:10)
commencement of each calendar year and may be paid in cash or shares of the(cid:10)
Common Stock valued at the closing price of the Common Stock on the immediately(cid:10)
preceding trading day, for the relevant calendar year (pro-rated for periods of(cid:10)
less than a full calendar year).(cid:10)
Pursuant to the terms of the Apfel Agreement, we granted to Dr. Apfel(cid:10)
under the Stock Option Plan fully vested options to purchase 120,000 shares of(cid:10)
Common Stock at an exercise price of $1.75 per share.(cid:10)
Pursuant to the terms of the Apfel Agreement, we granted to Dr. Apfel(cid:10)
under the Stock Option Plan options to purchase up to 280,000 shares of Common(cid:10)
Stock at an exercise price of $1.75 per share, which will vest and become(cid:10)
exercisable as follows: (A) 80,000 shares upon the successful completion, as(cid:10)
determined by the Board of Directors, of a Company sponsored Phase III clinical(cid:10)
trial of our developmental drug product referred to as ELI-216; (B) 80,000(cid:10)
shares upon the successful completion, as determined by the Board of Directors,(cid:10)
of a Company sponsored Phase III clinical trial of our developmental drug(cid:10)
product referred to as ELI-154; (C) 80,000 shares upon the successful(cid:10)
completion, as determined by the Board of Directors, by us during the term of(cid:10)
the Apfel Agreement of a Company sponsored long-term safety study for ELI-216;(cid:10)
and (D) 40,000 shares upon the closing of an exclusive product license for the(cid:10)
United States national market, or product sale transaction of all of our(cid:10)
ownership rights, for either ELI-216 or ELI-154. Upon the earlier to occur of(cid:10)
(x) January 3, 2017 and (y) the termination of Dr. Apfel's employment under the(cid:10)
terms of the Apfel Agreement, all unvested options granted shall automatically(cid:10)
terminate and all vested but unexercised options shall terminate to the extent(cid:10)
unexercised within ninety (90) days of such date and in accordance with the(cid:10)
terms of the stock option agreement by and between Dr. Apfel and us with respect(cid:10)
to the options and the Stock Option Plan. The Apfel Agreement also allows us at(cid:10)
our discretion to grant to Dr. Apfel additional options under the Stock(cid:10)
55(cid:10)
(cid:10)
Option Plan. The shares of Common Stock issuable upon exercise of the options(cid:10)
are subject to an effective registration statement filed with the SEC.(cid:10)
Pursuant to the terms of the Apfel Agreement, Dr. Apfel is entitled to(cid:10)
a $420 per month automobile allowance, 15 business days of paid vacation per(cid:10)
calendar year, and reimbursement of expenses (including business, travel and(cid:10)
entertainment) reasonably incurred in the performance of his duties, provided(cid:10)
that reimbursement of expenses in excess of $500 per month are subject to the(cid:10)
approval of the chief executive officer. Dr. Apfel is entitled to participate in(cid:10)
such employee benefit and welfare plans and programs, which may be offered to(cid:10)
our senior executives including life insurance, health and accident insurance,(cid:10)
medical plans and programs and profit sharing and retirement plans. We will(cid:10)
obtain and maintain during the term of the Apfel Agreement a term life insurance(cid:10)
policy in the amount of $500,000 on the life of Dr. Apfel payable to the estate(cid:10)
of Dr. Apfel in the event of Dr. Apfel's death during the term of the Apfel(cid:10)
agreement.(cid:10)
We have the right to terminate Dr. Apfel's employment due to disability(cid:10)
as defined in a long-term disability insurance policy reasonably satisfactory to(cid:10)
him or, in the absence of such policy, due to his inability for 120 days in any(cid:10)
12 month period to substantially perform his duties as a result of a physical or(cid:10)
mental illness.(cid:10)
In the event we terminate Dr. Apfel's employment for Cause (as such(cid:10)
term is defined in the Apfel Agreement) or due to Dr. Apfel's death or(cid:10)
disability, or Dr. Apfel terminates his employment for any reason other than(cid:10)
Good Reason (as defined in the Apfel Agreement), Dr. Apfel or his estate is to(cid:10)
receive salary through date of termination, reimbursement for expenses incurred(cid:10)
prior to termination, all unvested options will terminate as of the date of(cid:10)
termination and vested options are to be exercisable for 90 days from the date(cid:10)
of termination.(cid:10)
In the event of Dr. Apfel's termination by us without Cause or by Dr.(cid:10)
Apfel for Good Reason, we are to pay Dr. Apfel, subject to his compliance with(cid:10)
certain covenants, including non-competition, non-solicitation, confidentiality(cid:10)
and assignment of intellectual property, his base salary for the balance of the(cid:10)
calendar year and any accrued but unused vacation, maintain his benefits during(cid:10)
the balance of the calendar year, and all unvested options will terminate as of(cid:10)
the date of termination and his vested options are to be exercisable for 90 days(cid:10)
from date of termination.(cid:10)
Pursuant to the Apfel Agreement, Dr. Apfel has agreed to covenants not(cid:10)
to disclose confidential information and assignment of intellectual property.(cid:10)
Additionally, Dr. Apfel has agreed to a two-year non-competition covenant and a(cid:10)
two year non-solicitation covenant following termination of employment.(cid:10)
Dr. Apfel holds an ownership interest in Parallax Clinical Research(cid:10)
("PARALLAX"), a New York-based consulting firm that provides strategic and(cid:10)
practical assistance with clinical trial protocol design, planning, initiating(cid:10)
and management to biotechnology and small pharmaceutical companies with making(cid:10)
the transition from the bench to a clinical development program and during the(cid:10)
term of the Apfel Agreement, Dr. Apfel shall continue to devote a portion of his(cid:10)
time to Parallax and provides services, on behalf of Parallax, to its clients,(cid:10)
provided that such time and services do not interfere with the effective(cid:10)
performance of his duties under the Apfel Agreement and such services do not(cid:10)
violate any provision of the Apfel Agreement or any of our policies.(cid:10)
On April 24, 2008, we appointed Dr. Apfel Chief Scientific Officer.(cid:10)
This appointment does not modify the Apfel Agreement in any way.(cid:10)
56(cid:10)
(cid:10)
DR. CHARAN BEHL(cid:10)
On November 13, 2006, we entered into an employment agreement with Dr.(cid:10)
Behl as Executive Vice President and Chief Scientific Officer. The employment(cid:10)
agreement with Dr. Behl was subsequently amended and restated on February 9,(cid:10)
2007 (as amended and restated, the "BEHL AGREEMENT"), under which Dr. Behl's(cid:10)
position was changed from Chief Scientific Officer to Head of Technical Affairs(cid:10)
and requiring him to report to our Chief Executive Officer, Chief Scientific(cid:10)
Officer and any additional executive officer designated by the Board of(cid:10)
Directors.(cid:10)
The Behl Agreement is for an initial term ending November 13, 2009,(cid:10)
subject to automatic one-year renewals unless terminated by Dr. Behl or us upon(cid:10)
at least 60 days notice prior to the end of the then scheduled expiration date.(cid:10)
We have the right to terminate Dr. Behl's employment due to disability as(cid:10)
defined in a long-term disability insurance policy reasonably satisfactory to(cid:10)
him or, in the absence of such policy, due to Dr. Behl's inability for 120 days(cid:10)
in any 12 month period to substantially perform his duties as a result of a(cid:10)
physical or mental illness.(cid:10)
The Behl Agreement provides for an initial base annual salary of(cid:10)
$250,000, a guaranteed bonus of $25,000 payable within 30 calendar days of the(cid:10)
end of each fiscal year during the term and a $700 per month automobile(cid:10)
allowance. The Behl Agreements provides for payment of a discretionary bonus(cid:10)
following the end of each fiscal year of up to 50% of Dr. Behl's then annual(cid:10)
base salary. The amount, if any, of the discretionary bonus will be determined(cid:10)
by the Board of Directors or the Compensation Committee. The discretionary(cid:10)
bonus, if paid to Dr. Behl, is to be based on the achievement of goals discussed(cid:10)
with the executive in good faith and within a reasonable time following the(cid:10)
commencement of each fiscal year and may be paid in cash or shares of our Common(cid:10)
Stock valued at the average of the closing price per share during the five(cid:10)
trading days immediately preceding the date of issuance of the shares. For the(cid:10)
year ended March 31, 2008, Dr. Behl is to receive a $25,000 bonus.(cid:10)
The Behl Agreement provides for the grant under the Stock Option Plan(cid:10)
of fully-vested options to purchase 250,000 shares of Common Stock at an(cid:10)
exercise price of $2.25 per share. The Behl Agreement also provides for the(cid:10)
grant of options to purchase up to 300,000 shares of Common Stock at an exercise(cid:10)
price of $2.25 per share which vest in two 150,000 share tranches upon the(cid:10)
closing of an exclusive product license for the United States national market,(cid:10)
the entire European Union Market or the Japan market or a product sale(cid:10)
transaction of all our ownership rights in the United States (only once for each(cid:10)
product) for our first drug developed by us for which FDA approval will be(cid:10)
sought under a Non-Generic Opiod Product as to the first tranche and as to our(cid:10)
second Non-Generic Opioid Product for the second tranche.(cid:10)
The Behl Agreement also provides for the grant of options to purchase(cid:10)
up to 200,000 shares of Common Stock at an exercise price of $2.25 per share(cid:10)
(the "BEHL MILESTONE OPTIONS") with the Behl Milestone Options to vest (A) as to(cid:10)
not more than 125,000 shares and 75,000 shares, respectively, upon the(cid:10)
commencement of the first Phase III clinical trial relating to the first and(cid:10)
then the second Non-Generic Opioid Product developed by us; (B) 50,000 shares(cid:10)
upon the closing of each product license or product sale transaction (on a(cid:10)
product by product basis and only once for each product) other than Non-Generic(cid:10)
Opioid Products for which options were granted above; (C) 10,000 shares upon the(cid:10)
filing by us (in our name) with the FDA of either an ANDA or a NDA for a product(cid:10)
not covered by a previous FDA application; (D) 40,000 shares upon the approval(cid:10)
by the FDA of any ANDA or NDA (filed in our name) for a product not previously(cid:10)
approved by the FDA; (E) 25,000 shares upon the filing of an application for a(cid:10)
U.S. patent by us (in our name); and (F) 25,000 shares upon the granting by the(cid:10)
PTO of a patent to us filed in our name or an approval of an ANDA or NDA;(cid:10)
provided, however, that the foregoing options terminate upon Dr. Behl's(cid:10)
termination of employment except that options under (D) and (F) nevertheless(cid:10)
57(cid:10)
(cid:10)
vest if the filing was made during the initial term but prior to termination of(cid:10)
the executive's employment by us without cause and the approval was made within(cid:10)
540 days of the filing of the ANDA, NDA or patent application.(cid:10)
We also agreed that if all 200,000 Behl Milestone Options have fully(cid:10)
vested during the initial term of the Behl Agreement, we will grant under the(cid:10)
Stock Option Plan to Dr. Behl at the end of the first current fiscal year in(cid:10)
which the following event occurs fully vested additional options to purchase the(cid:10)
following shares at the fair market value on the date of grant (the "ADDITIONAL(cid:10)
BEHL MILESTONE OPTIONS"): (a) to the extent not previously vested with respect(cid:10)
to his comparable Behl Milestone Options: (i) up to 125,000 shares upon the(cid:10)
commencement of the first Phase III clinical trial relating to the first(cid:10)
Non-Generic Opioid Product developed by us; and (ii) up to an additional 125,000(cid:10)
shares as to such trial relating to the second Non-Generic Opioid Product(cid:10)
developed by us, (b) 50,000 shares upon the closing of each product license for(cid:10)
the United States national market or product sale transaction of all ownership(cid:10)
rights (on a product by product basis and only once for each product); (c)(cid:10)
10,000 shares upon the filing by us (in our name) with the FDA of either an ANDA(cid:10)
or NDA for a product not covered by a previous FDA application for each drug(cid:10)
product of us, other than the Non-Generic Opioid Products for which any Opioid(cid:10)
Option was granted under the Behl Agreement; (d) 40,000 shares upon the approval(cid:10)
by the FDA of any ANDA, NDA or 505(b)(2) application filed in our name for a(cid:10)
product not previously approved by the FDA; (e) 25,000 shares in the event of(cid:10)
the filing of an application of an additional U.S. patent by us (filed in our(cid:10)
name); and (f) 25,000 shares in the event of the granting by the PTO of the(cid:10)
foregoing additional patent applications to us (filed in our name).(cid:10)
The Behl Agreement allows us at our discretion to grant to Dr. Behl(cid:10)
additional options under the Stock Option Plan and provides Dr. Behl the right(cid:10)
to register at our expense for reoffering shares issued upon exercise of the(cid:10)
options under the Securities Act of 1933, as amended, in certain registration(cid:10)
statements filed by us with respect to offerings of securities by us.(cid:10)
The Behl Agreement provides that in the event we terminate his(cid:10)
employment for Cause (as defined in the Behl Agreement) or Dr. Behl terminates(cid:10)
his employment without Good Reason (as defined in the Behl Agreement), he is to(cid:10)
receive salary through date of termination, reimbursement for expenses incurred(cid:10)
prior to termination, all unvested options will terminate as of the date of(cid:10)
termination and vested options will be governed by the terms of the Stock Option(cid:10)
Plan and the related option agreement. In the event of a termination due to(cid:10)
death, disability or by us without Cause or by Dr. Behl for Good Reason, we are(cid:10)
to pay Dr. Behl or his estate subject to his compliance with certain covenants,(cid:10)
including non-competition, non-solicitation, confidentiality and assignment of(cid:10)
intellectual property, his base salary for the longer of the balance of the(cid:10)
initial term or one year from date of termination, continue health insurance(cid:10)
coverage for 12 months from termination and his vested options are to be(cid:10)
exercisable for 90 days from date of termination. The Behl Agreement provides(cid:10)
that the definition of "Cause" has been amended to include a determination by(cid:10)
the Board of Directors, in its sole discretion, that the employment of Dr. Behl(cid:10)
should terminate, provided that such termination will be effective on the 30th(cid:10)
day after the written notice to Dr. Behl of such determination.(cid:10)
In the event the employment of Dr. Behl is terminated by us following a(cid:10)
Change of Control of Elite, he will be entitled to the amounts payable as a(cid:10)
result of termination by us without cause plus a lump sum payment of $500,000(cid:10)
and all unvested options shall immediately vest and along with unexercised(cid:10)
vested options be exercisable within 90 days from the date of termination.(cid:10)
Dr. Behl has agreed to a one-year non-competition covenant and a two(cid:10)
year non-solicitation covenant following termination of employment.(cid:10)
58(cid:10)
(cid:10)
Dr. Behl is to be reimbursed for expenses (including business, travel(cid:10)
and entertainment) reasonably incurred in the performance of his duties,(cid:10)
provided that reimbursement of expenses in excess of $2,000 per month are(cid:10)
subject to the approval of our chief executive officer. Dr. Behl is entitled to(cid:10)
participate in such employee benefit and welfare plans and programs, which may(cid:10)
be offered to our senior executives including life insurance, health and(cid:10)
accident, medical plans and programs and profit sharing and retirement plans.(cid:10)
MR. GITTELMAN(cid:10)
On February 26, 1998, we entered into an agreement with Gittelman &(cid:10)
Co., P.C., whereby fees are paid to Gittelman & Co., P.C., a firm wholly-owned(cid:10)
by Mark I. Gittelman, our Chief Financial Officer, Secretary and Treasurer, in(cid:10)
consideration for services rendered by the firm as internal accountant and(cid:10)
financial and management consultant to us. The firm's services include the(cid:10)
services rendered by Mr. Gittelman in his capacity as Chief Financial Officer,(cid:10)
Secretary and Treasurer. For the fiscal years ended March 31, 2008, 2007 and(cid:10)
2006, the fees paid by us under the agreement were $176,206, $151,214 and(cid:10)
$154,704, respectively. The services rendered by the firm to us for the fiscal(cid:10)
years ended March 31, 2008, 2007 and 2006 averaged 105, 98 and 103 hours per(cid:10)
month, respectively, of which an average of 25 hours per month were services(cid:10)
rendered by Mr. Gittelman in his capacity as an officer of Elite.(cid:10)
DR. SUBRAMANIAN(cid:10)
Dr. Subramanian entered into an Advisory Services Agreement with us on(cid:10)
December 6, 2006, the terms of which are summarized under the caption "Certain(cid:10)
Related Person Transactions." On April 24, 2008, Dr. Subramanian resigned as our(cid:10)
acting Chief Scientific Officer upon the appointment of Stuart Apfel to the(cid:10)
office of Chief Scientific Officer.(cid:10)
HEDGING POLICY(cid:10)
We do not permit the Named Executive Officers to "hedge" ownership by(cid:10)
engaging in short sales or trading in any options contracts involving our(cid:10)
securities.(cid:10)
OPTION EXERCISES AND STOCK VESTED(cid:10)
No options have been exercised by our Named Executive Officers during(cid:10)
the fiscal year ended March 31, 2008.(cid:10)
PENSION BENEFITS(cid:10)
We do not provide pension benefits to the Named Executive Officers.(cid:10)
NONQUALIFIED DEFERRED COMPENSATION(cid:10)
We do not have any defined contribution or other plan that provides for(cid:10)
the deferral of compensation on a basis that is not tax-qualified.(cid:10)
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL(cid:10)
Please see the discussion under "Compensation Discussion and Analysis -(cid:10)
Agreements with Named Executive Officers."(cid:10)
59(cid:10)
(cid:10)
COMPENSATION OF EXECUTIVE OFFICERS AND KEY EMPLOYEES(cid:10)
SUMMARY COMPENSATION TABLE(cid:10)
The table below summarizes the compensation information in respect of(cid:10)
the Named Executive Officers for the fiscal years ended March 31, 2008, 2007 and(cid:10)
2006.(cid:10)
(cid:10)
CHANGE IN(cid:10)
PENSION VALUE(cid:10)
AND(cid:10)
NONQUALIFIED(cid:10)
DEFERRED(cid:10)
COMPENSATION ALL OTHER TOTAL(cid:10)
EARNINGS COMPENSATION(cid:10)
NAME AND(cid:10)
PRINCIPAL POSITION ($) ($) ($)(cid:10)
------------------- -------------- ------------- -----(cid:10)
(cid:10)
Bernard Berk -- 21,260(8) 516,470(cid:10)
President and(cid:10)
Chief -- 21,260(8) 988,885(cid:10)
Executive(cid:10)
Officer -- -- 873,734(cid:10)
Mark. Gittelman -- -- --(cid:10)
Chief Financial(cid:10)
Officer -- -- 83,293(cid:10)
-- -- 23,100(cid:10)
Christopher Dick -- 8,400(9) 233,400(cid:10)
Executive Vice(cid:10)
President of -- 3,150(10) 678,937(cid:10)
Corporate(cid:10)
Development -- 175,000(cid:10)
Charan Behl(5) -- -- 275,000(cid:10)
Head of(cid:10)
Technical Affairs -- -- 851,172(cid:10)
-- -- 450,000(cid:10)
Veerappan -- -- --(cid:10)
Subramanian(6)(cid:10)
Former Chief -- -- 1,114,445(cid:10)
Scientific(cid:10)
Officer -- -- --(cid:10)
Stuart Apfel(7) -- 1,260(11) 411,020(cid:10)
Chief(cid:10)
Medical -- -- --(cid:10)
Officer and(cid:10)
Chief -- -- --(cid:10)
Scientific(cid:10)
Officer(cid:10)
(cid:10)
(1) The information is provided for each fiscal year which begins on April 1(cid:10)
and ends on March 31.(cid:10)
(2) Bonuses paid to Mr. Berk represent discretionary bonuses and bonuses paid(cid:10)
to Mr. Dick and Dr. Behl represent guaranteed bonuses.(cid:10)
60(cid:10)
(cid:10)
(3) No stock awards were granted to the Named Executive Officers in the fiscal(cid:10)
years ended March 31, 2008, 2007 or 2006.(cid:10)
(4) The amounts reflect the compensation expense in accordance with FAS 123(R)(cid:10)
of these option awards. The assumptions used to determine the fair value of(cid:10)
the option awards for fiscal year ended March 31, 2008 are set forth as(cid:10)
follows: the per share weighted average of the above mentioned stock(cid:10)
options was 0.8869 using the Black-Scholes options pricing model with the(cid:10)
following weighted average assumptions: no dividend yield; expected(cid:10)
volatility of 33%; risk free interest rate of 4.00% and expected lives of(cid:10)
ten (10) years. The assumptions used to determine the fair value of the(cid:10)
option awards for fiscal year ended March 31, 2007 are set forth in Note 3(cid:10)
of our financial statements included in our Quarterly Report on Form 10-Q(cid:10)
for the quarter ended December 31, 2006. The assumptions used to determine(cid:10)
the fair value of the option awards for fiscal years ended March 31, 2006(cid:10)
are set forth in Note 9 of our audited Consolidated Financial Statements(cid:10)
included in our Form 10-K for the fiscal year ended March 31, 2006. Our(cid:10)
Named Executive Officers will not realize the value of these awards in cash(cid:10)
unless and until these awards are exercised and the underlying shares(cid:10)
subsequently sold.(cid:10)
(5) Dr. Behl was Executive Vice President and Chief Scientific Officer from(cid:10)
March 9, 2006 to February 9, 2007 and has been Head of Technical Affairs(cid:10)
since February 9, 2007.(cid:10)
(6) Dr. Subramanian was acting Chief Scientific Officer from February 9, 2007(cid:10)
to April 24, 2008.(cid:10)
(7) Dr. Apfel has been Chief Medical Officer since January 3, 2008 and Chief(cid:10)
Scientific Officer since April 24, 2008.(cid:10)
(8) Represents $16,345 for auto and parking allowance and $4,915 for life(cid:10)
insurance premiums.(cid:10)
(9) Represents $8,400 for auto and parking allowance.(cid:10)
(10) Represents $3,150 for auto and parking allowance.(cid:10)
(11) Represents $1,260 for auto and parking allowance.(cid:10)
GRANTS OF PLAN-BASED AWARDS(cid:10)
The following table sets forth information regarding grants of plan(cid:10)
based awards to the Named Executive Officers during the fiscal year ended March(cid:10)
31, 2008.(cid:10)
(cid:10)
(cid:10)
ESTIMATED FUTURE PAYOUTS(cid:10)
ESTIMATED POSSIBLE PAYOUTS UNDER(cid:10)
UNDER NON-EQUITY INCENTIVE EQUITY INCENTIVE PLAN(cid:10)
PLAN AWARDS AWARDS(cid:10)
------------------------------ -----------------------------------------------------(cid:10)
GRANT THRESHOLD TARGET MAXIMUM THRESHOLD TARGET MAXIMUM(cid:10)
NAME DATE ($) ($) ($) (#) (#) (#)(cid:10)
---- ----- ---------- ------ ------- --------- ----- -------(cid:10)
(cid:10)
Stuart Apfel 1/03/08(cid:10)
Chief(cid:10)
Medical 1/03/08(cid:10)
Officer and(cid:10)
Chief(cid:10)
Scientific(cid:10)
Officer(cid:10)
(cid:10)
GRANT(cid:10)
ALL OTHER DATE(cid:10)
STOCK ALL OTHER FAIR(cid:10)
AWARDS: OPTION EXERCISE VALUE OF(cid:10)
NUMBER AWARDS: OR STOCK(cid:10)
OF NUMBER OF BASE PRICE AND(cid:10)
SHARES OF SECURITIES OF OPTION OPTION(cid:10)
STOCK OR UNDERLYING AWARDS AWARDS(cid:10)
NAME UNITS (#) OPTIONS (#) ($/SH) (1)(cid:10)
---- ---------- ------------ ----------- -------(cid:10)
(cid:10)
Stuart Apfel $1.75 106,428(cid:10)
Chief 120,000(cid:10)
Medical $1.75 248,332(cid:10)
Officer and 280,000(cid:10)
Chief(cid:10)
Scientific(cid:10)
Officer(cid:10)
(cid:10)
(1) The amounts reflect the compensation expense in accordance with FAS 123(R)(cid:10)
of these option awards. The assumptions used to determine the fair value of(cid:10)
the option awards for fiscal year ended March 31, 2008 are set forth as(cid:10)
follows: the per share weighted average of the above mentioned stock(cid:10)
options was 0.8869 using the Black-Scholes options pricing model with the(cid:10)
following weighted average assumptions: no dividend yield; expected(cid:10)
volatility of 33%; risk free interest rate of 4.00% and expected lives of(cid:10)
ten (10) years. Our Named Executive Officers will not realize the value of(cid:10)
these awards in cash unless and until these awards are exercised and the(cid:10)
underlying shares subsequently sold.(cid:10)
61(cid:10)
(cid:10)
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END(cid:10)
The following table sets forth information concerning stock options and(cid:10)
stock awards held by the Named Executive Officers as of March 31, 2008.(cid:10)
OPTION AWARDS(cid:10)
-----------------------(cid:10)
(cid:10)
EQUITY(cid:10)
INCENTIVE EQUITY(cid:10)
PLAN INCENTIVE(cid:10)
AWARDS: PLAN AWARDS:(cid:10)
NUMBER OF MARKET OR(cid:10)
UNEARNED PAYOUT VALUE OF(cid:10)
MARKET VALUE SHARES, UNEARNED(cid:10)
OF SHARES OR UNITS SHARES, UNITS(cid:10)
UNITS OF OR OTHER OR(cid:10)
STOCK HELD RIGHTS THAT OTHER RIGHTS(cid:10)
THAT HAVE HAVE NOT THAT HAVE NOT(cid:10)
NOT VESTED VESTED VESTED(cid:10)
NAME ($) (#) ($)(cid:10)
---- ------------ ----------- ---------------(cid:10)
(cid:10)
Bernard Berk -- -- --(cid:10)
Berk -- -- --(cid:10)
President -- -- --(cid:10)
and Chief -- -- --(cid:10)
Executive(cid:10)
Officer -- -- --(cid:10)
-- -- --(cid:10)
-- -- --(cid:10)
-- -- --(cid:10)
-- -- --(cid:10)
-- -- --(cid:10)
-- -- --(cid:10)
Mark. -- -- --(cid:10)
Gittelman -- -- --(cid:10)
Chief -- -- --(cid:10)
Financial -- -- --(cid:10)
Officer -- -- --(cid:10)
-- -- --(cid:10)
-- -- --(cid:10)
Christopher -- -- --(cid:10)
Dick -- -- --(cid:10)
Executive -- -- --(cid:10)
Vice -- -- --(cid:10)
President -- -- --(cid:10)
of -- -- --(cid:10)
Corporate -- -- --(cid:10)
Development -- -- --(cid:10)
-- -- --(cid:10)
-- -- --(cid:10)
-- -- --(cid:10)
Charan Behl -- -- --(cid:10)
Head of -- -- --(cid:10)
Technical -- -- --(cid:10)
Affairs -- -- --(cid:10)
Veerappan -- -- --(cid:10)
Subramanian -- -- --(cid:10)
Former -- -- --(cid:10)
Chief -- -- --(cid:10)
Scientific(cid:10)
Officer(cid:10)
Stuart Apfel(cid:10)
Chief(cid:10)
Medical -- -- --(cid:10)
Officer(cid:10)
and(cid:10)
Chief(cid:10)
Scientific(cid:10)
Officer(cid:10)
(cid:10)
62(cid:10)
(cid:10)
(1) These options vested as of June 3, 2003.(cid:10)
(2) These options vested as of September 2, 2005.(cid:10)
(3) These options vested on June 22, 2004.(cid:10)
(4) These options vest in annual increments over a three year period on August(cid:10)
30, 2006, August 30, 2007 and August 30, 2008, respectively.(cid:10)
(5) These options vested in annual increments over a two year period on(cid:10)
September 2, 2006 and September 2, 2007, respectively.(cid:10)
(6) These options vest as follows: (i) upon the commencement of the first Phase(cid:10)
III clinical trial relating to the first "Non-Generic Opioid Product"(cid:10)
developed by us as to 125,000 options and relating to the second(cid:10)
"Non-Generic Opioid Product" developed by the company as to 75,000 options;(cid:10)
(ii) 50,000 shares of Common Stock shall vest and become immediately(cid:10)
exercisable in full only upon the closing of an exclusive product license(cid:10)
for the United States national market or product sale transaction of all of(cid:10)
our ownership rights (on a product by product basis and only once for each(cid:10)
individual product) for each Company drug product, other than the(cid:10)
"Non-Generic Opioid Products" for which the "Non-Generic Opioid Product"(cid:10)
options were granted; (iii) 10,000 options upon the filing by us (in our(cid:10)
name) with FDA of either an ANDA or a NDA (including a NDA filed with the(cid:10)
FDA, for a product not covered by a previous FDA application); (iv) 40,000(cid:10)
options upon the approval by the FDA of any ANDA or NDA (filed in our name)(cid:10)
for a product not previously approved by the FDA; (v) 25,000 options upon(cid:10)
filing of an application for U.S. patent by us (filed in our name); and(cid:10)
(vi) 25,000 options upon the granting by PTO of a patent to us (filed in(cid:10)
our name).(cid:10)
(7) These options vest upon the closing of an exclusive product license for the(cid:10)
first of the United States national market, the entire European Union(cid:10)
market or the Japan market or product sale transaction of all of our(cid:10)
ownership rights in the United States (only once for each individual(cid:10)
product) for our first Non-Generic Opioid Product.(cid:10)
(8) These options vest upon the closing of an exclusive product license for the(cid:10)
United States national market, the entire European Union market or the(cid:10)
Japan market or product sale transaction of all of our ownership rights in(cid:10)
the United States (only once for each individual product) for our second(cid:10)
Non-Generic Opioid Product.(cid:10)
(9) These options vested on June 22, 2004.(cid:10)
(10) These options vest in annual increments over a three year period on July(cid:10)
14, 2006, July 14, 2007 and July 14, 2008, respectively.(cid:10)
(11) These options vest in annual increments over a three year period on May 3,(cid:10)
2007, May 3, 2008 and May 3, 2009, respectively.(cid:10)
(12) These options vested on November 1, 2003, 2004 and 2005, respectively.(cid:10)
(13) These options vested on June 13, 2004, 2005 and 2006, respectively.(cid:10)
(14) These options vested on July 14, 2005.(cid:10)
63(cid:10)
(cid:10)
(15) These options vested on November 13, 2006.(cid:10)
(16) These options vested as follows: (i) 250,000 on December 6, 2006, (ii)(cid:10)
250,000 on May 6, 2007, (iii) 250,000 on December 6, 2007 and (iv) 250,000(cid:10)
on our acceptance of the initial business plan of Novel.(cid:10)
(17) These options vested on January 3, 2008.(cid:10)
(18) These options vest as follows: (i) 80,000 shares upon the successful(cid:10)
completion, as determined by the Board, of a Company sponsored Phase III(cid:10)
clinical trial of the Company's developmental drug product referred to as(cid:10)
ELI-216; (ii) 80,000 shares upon the successful completion, as determined(cid:10)
by the Board, of a Company sponsored Phase III clinical trial of the(cid:10)
Company's developmental drug product referred to as ELI-154; (iii) 80,000(cid:10)
shares upon the successful completion, as determined by the Board, by the(cid:10)
Company during the term of the Apfel Agreement of a Company sponsored(cid:10)
long-term safety study for the Company's developmental drug product(cid:10)
referred to as ELI-216; and (iv) 40,000 shares upon the closing of an(cid:10)
exclusive product license for the United States national market, or product(cid:10)
sale transaction of all of the Company's ownership rights, for either(cid:10)
ELI-216 or ELI-154.(cid:10)
DIRECTOR COMPENSATION(cid:10)
The following table sets forth director compensation for the year ended(cid:10)
March 31, 2008:(cid:10)
(cid:10)
(cid:10)
CHANGE IN PENSION VALUE(cid:10)
FEES PAID OR AND NONQUALIFIED(cid:10)
EARNED IN STOCK OPTION NON EQUITY INCENTIVE DEFERRED COMPENSATION(cid:10)
CASH AWARDS AWARDS PLAN COMPENSATION EARNINGS(cid:10)
NAME ($) ($) ($) ($) ($)(cid:10)
---- ------------------------------------------------------------------------------------------------(cid:10)
(cid:10)
Bernard Berk 6,000 --- --- --- ---(cid:10)
Barry Dash 12,000 --- 50,616(1) --- ---(cid:10)
Robert J. Levenson 12,000 --- 50,616(1) --- ---(cid:10)
Melvin Van Woert 12,000 --- 50,616(1) --- ---(cid:10)
Veerappan Subramanian 2,000 --- --- --- ---(cid:10)
(cid:10)
ALL OTHER(cid:10)
COMPENSATION TOTAL(cid:10)
NAME ($) ($)(cid:10)
---- -------------------------------(cid:10)
(cid:10)
Bernard Berk --- 6,000(cid:10)
Barry Dash --- 62,616(cid:10)
Robert J. Levenson --- 62,616(cid:10)
Melvin Van Woert --- 62,616(cid:10)
Veerappan Subramanian --- 2,000(cid:10)
(cid:10)
----------------------------(cid:10)
(1) Represents 90,000 options of which 30,000 vest during the period commencing(cid:10)
on January 24, 2008 and ending June 26, 2008; 30,000 vest during the period(cid:10)
commencing on June 27, 2008 and ending on June 26, 2009 and 30,000 vest during(cid:10)
the period commencing on June 27, 2009 and ending on June 26, 2010; provided,(cid:10)
however that the options shall fully vest upon the director's death, disability,(cid:10)
retirement as a director or removal as a director without cause at the request(cid:10)
of the Board of Directors.(cid:10)
FEE COMPENSATION(cid:10)
Prior to January 1, 2008, each Director received $2,000 per each(cid:10)
meeting such Director attends. As of January 1, 2008, the Company's policy(cid:10)
regarding director fees has been revised as follows: (i) Directors who are(cid:10)
employees or consultants of the Company (and/or any of its subsidiaries) receive(cid:10)
no additional remuneration for serving as directors or members of committees of(cid:10)
the Board; (ii) all Directors are entitled to reimbursement for out-of-pocket(cid:10)
expenses incurred by them in connection with their attendance at the Board or(cid:10)
committee meetings; (iii) Directors who are not employees or consultants of the(cid:10)
Company (and/or any of its subsidiaries) receive $15,000 annual retainer fee for(cid:10)
their service on the Board and all committees; (iv) Directors who are not(cid:10)
employees or consultants of the Company (and/or any of its subsidiaries) receive(cid:10)
a per board meeting fee of $1,000 for each board meeting and a per committee(cid:10)
meeting fee of $1,000 for each committee meeting attended by such Director;(cid:10)
provided that the chairperson of the committee conducting such meeting shall (in(cid:10)
place of the $1,000 meeting fee) receive a per committee meeting fee of $1,500(cid:10)
for each committee meeting attended; and (v) for(cid:10)
64(cid:10)
(cid:10)
purposes of the compensation schedule set forth above, (x) a meeting shall only(cid:10)
constitute a meeting of the Board or a committee entitling a participant to a(cid:10)
meeting fee if such meeting extends to at least sixty (60) minutes (including(cid:10)
the time of any reconvened portion of a meeting after an adjournment), (y) a(cid:10)
meeting shall include all meetings attended in-person (whether at the Company's(cid:10)
offices or at any other location) or via telephone conference, and (z) only one(cid:10)
fee may be payable to Director and/or committee member per calendar day. Except(cid:10)
as described in this section, non-employee Directors do not receive any(cid:10)
additional compensation for their services on the Board of Directors.(cid:10)
EQUITY COMPENSATION(cid:10)
Members of the Board of Directors during the fiscal years ended March(cid:10)
31, 2007 and 2008 did not receive any options or equity compensation for serving(cid:10)
as directors other than the grant of 90,000 options to each of the independent(cid:10)
directors in January, 2008.(cid:10)
OTHER(cid:10)
The Company has entered into indemnification agreements with each of(cid:10)
its directors to indemnify them to the fullest extent permitted under Delaware(cid:10)
General Corporation Law.(cid:10)
65(cid:10)
(cid:10)
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND(cid:10)
RELATED STOCKHOLDER MATTERS(cid:10)
The following table sets forth certain information regarding beneficial(cid:10)
ownership of our Common Stock as of June 18, 2008 by (i) each person who is(cid:10)
known by us to own beneficially more than 5% of the Common Stock, (ii) each of(cid:10)
our directors and nominees for director, (iii) each of the Named Executive(cid:10)
Officers (as defined below) and (iv) all our directors and executive officers as(cid:10)
a group. On such date, we had 23,232,207 shares of Common Stock outstanding(cid:10)
(exclusive of 100,000 treasury shares). (The 8,410 shares of Series B Preferred(cid:10)
Stock outstanding and the 18,981 shares of Series C Preferred Stock outstanding(cid:10)
are nonvoting and none of the individuals listed below beneficially owns any(cid:10)
shares of Series B Preferred Stock or Series C Preferred Stock other than Barry(cid:10)
Dash who owns 20 shares of Series C Preferred Stock. There are currently no(cid:10)
shares of Series A Preferred Stock outstanding).(cid:10)
As used in the table below and elsewhere in this Annual Report on Form(cid:10)
10-K, the term beneficial ownership with respect to a security consists of sole(cid:10)
or shared voting power, including the power to vote or direct the vote, and/or(cid:10)
sole or shared investment power, including the power to dispose or direct the(cid:10)
disposition, with respect to the security through any contract, arrangement,(cid:10)
understanding, relationship, or otherwise, including a right to acquire such(cid:10)
power(s) during the 60 days immediately following June 18, 2008. Except as(cid:10)
otherwise indicated, the stockholders listed in the table have sole voting and(cid:10)
investment powers with respect to the shares indicated.(cid:10)
(cid:10)
(cid:10)
NAME AND ADDRESS COMMON STOCK(cid:10)
---------------- ------------(cid:10)
AMOUNT %(cid:10)
------ -(cid:10)
(cid:10)
Bernard Berk, Director, President and Chief Executive Officer* 1,734,800(1) 7.02(cid:10)
Barry Dash, Director* 138,207(2) **(cid:10)
Robert J. Levenson, Director* 90,000(3) **(cid:10)
Melvin Van Woert, Director* 120,000(4) **(cid:10)
Veerappan Subramanian(5)* 2,436,094(6) 9.86(cid:10)
c/o Novel Laboratories, Inc.(cid:10)
400 Campus Drive(cid:10)
Somerset, NJ 08873(cid:10)
Stuart Apfel, Chief Scientific Officer and Chief Medical Officer* 400,000(7) 1.69(cid:10)
Chris Dick, Executive Vice President of Corporate Development* 885,287(8) 3.67(cid:10)
Mark I. Gittelman, Chief Financial Officer* 39,999(9) **(cid:10)
Dr. Charan Behl(10)* 1,375,000(11) 5.70(cid:10)
Trellus Management Company 3,450,795(12) 13.43(cid:10)
Adam Usdan(cid:10)
350 Madison Avenue, 9th Floor(cid:10)
New York, New York 10017(cid:10)
(cid:10)
66(cid:10)
(cid:10)
(cid:10)
(cid:10)
NAME AND ADDRESS COMMON STOCK(cid:10)
---------------- ------------(cid:10)
AMOUNT %(cid:10)
------ -(cid:10)
(cid:10)
Mark Fain 1,094,164(13) 4.67(cid:10)
237 Park Avenue, Suite 900(cid:10)
New York, NY 10017(cid:10)
Chad Comiteau 1,114,096(14) 4.76(cid:10)
237 Park Avenue, Suite 900(cid:10)
New York, NY 10017(cid:10)
Davidson Kempner Healthcare International Ltd. 4,528,328(15) 16.35(cid:10)
65 East 55th Street, 19th Floor(cid:10)
New York, NY 10022(cid:10)
All Directors and Officers as a group*** 5,844,387(16) 20.83(cid:10)
(cid:10)
------------------------(cid:10)
* The address is c/o Elite Pharmaceuticals Inc., 165 Ludlow Avenue,(cid:10)
Northvale, NJ 07647.(cid:10)
** Less than 1%(cid:10)
*** As of June 18, 2008(cid:10)
(1) Includes options to purchase 1,485,000 shares of Common Stock. See "Named(cid:10)
Executive Officers."(cid:10)
(2) Includes options to purchase 120,000 shares of Common Stock, 20 shares of(cid:10)
Series C Preferred Stock convertible into 8,621 shares of Common Stock and(cid:10)
warrants to purchase 2,586 shares of Common Stock.(cid:10)
(3) Represents options to purchase shares of Common Stock.(cid:10)
(4) Represents options to purchase shares of Common Stock.(cid:10)
(5) Dr. Subramanian was acting Chief Scientific Officer from February 9, 2007 to(cid:10)
April 25, 2007 and ceased being a director on June 26, 2007. See "Named(cid:10)
Executive Officers."(cid:10)
(6) Includes options to purchase 1,000,000 shares of Common Stock which are(cid:10)
owned by Dr. Subramanian and 957,396 shares of Common Stock and warrants to(cid:10)
purchase 478,698 shares of Common Stock which are owned by VGS Pharma, LLC(cid:10)
("VGS"), a wholly-owned subsidiary of Kali Capital, L.P., which is controlled by(cid:10)
Kali Management, LLC ("KALI"), its general partner, and Kali is controlled by(cid:10)
the daughter of Dr. Subramanian, its managing member. Dr. Subramanian disclaims(cid:10)
beneficial ownership of these shares of Common Stock, except to the extent of(cid:10)
his pecuniary interest therein, if any.(cid:10)
(7) Represents options to purchase shares of Common Stock.(cid:10)
(8) Includes options to purchase 850,000 shares of Common Stock and warrants(cid:10)
held by Mr. Dick and Hedy Rogers as joint tenants to purchase 10,479 shares of(cid:10)
Common Stock.(cid:10)
(9) Represents options to purchase shares of Common Stock.(cid:10)
(10) Behl was Executive Vice President and Chief Scientific Officer from March(cid:10)
9, 2006 to February 9, 2007 and has been Head of Technical Affairs since(cid:10)
February 9, 2007. See "Named Executive Officers."(cid:10)
(11) Includes warrants to purchase 130,000 shares of Common Stock and options to(cid:10)
purchase 750,000 shares of Common Stock. See "Named Executive Officers."(cid:10)
(12) Based on information provided by Trellus Management Company, LLC ("TMC")(cid:10)
and Adam Usdan in the Schedule 13G filed February 13, 2007 and also based on(cid:10)
information set forth in Form S-3 filed on May 24, 2007 and information provided(cid:10)
to us by TMC. Includes 862,068 shares of Common Stock issuable upon conversion(cid:10)
of Series C Preferred Stock held in the aggregate by Trellus Partners L.P(cid:10)
("TP"), Trellus Partners II L.P. ("TPI") and Trellus Offshore Fund Limited(cid:10)
("TPOF"), 888,889 shares of Common Stock issuable upon conversion of shares of(cid:10)
Series B Preferred Stock held by TP and 703,063 shares of Common Stock issuable(cid:10)
upon exercise of warrants held in the aggregate by TP, TPI and TPOF. Adam Usdan(cid:10)
is the President of TMC. Adam Usdan and TMC share voting power and dispositive(cid:10)
power over the shares. Notwithstanding the inclusion of the aforementioned(cid:10)
beneficial ownership calculation, pursuant to our Certificate of Designation of(cid:10)
Preferences, Rights and Limitations of Series C 8% Preferred Stock, the Amended(cid:10)
Certificate of Designations of the Series B 8% Convertible Preferred Stock and(cid:10)
the Common Stock Purchase Warrant for the aforementioned warrants, the number of(cid:10)
shares of Common Stock into which the Series C 8% Preferred Stock and Series B(cid:10)
8% Preferred Stock are convertible and the warrants are exercisable is limited(cid:10)
to that number of shares of Common Stock which would result in the Adam Usdan(cid:10)
and TMC affiliated entities having aggregate beneficial ownership of not more(cid:10)
than 9.99% of the total issued and outstanding shares of Common Stock.(cid:10)
67(cid:10)
(cid:10)
(13) Based on information provided by Mark Fain and Chad Comiteau in their(cid:10)
Schedule 13G/A filed February 14, 2008. Mark Fain beneficially owned 1,094,164(cid:10)
shares of Common Stock, which amount includes (i) 168,000 shares beneficially(cid:10)
owned by Mr. Fain over which he has sole voting power and sole dispositive(cid:10)
power; (ii) 33,333 convertible shares beneficially owned by Mr. Fain over which(cid:10)
he has sole voting power and sole dispositive power; (iii) 33,000 shares(cid:10)
beneficially owned by Stratford Management Money Purchase Pension Plan over(cid:10)
which Mr. Fain has shared voting power and shared dispositive power; (iv)(cid:10)
709,8631 shares beneficially owned by Stratford Partners, L.P. of which Mr. Fain(cid:10)
is a Managing Member, and over which Mr. Fain has shared voting power and shared(cid:10)
dispositive power; and (v) 150,000 convertible shares beneficially owned by(cid:10)
Stratford Partners, L.P. over which Mr. Fain has shared voting power and shared(cid:10)
dispositive power.(cid:10)
(14) Based on information provided by Mark Fain and Chad Comiteau in their(cid:10)
Schedule 13G/A filed February 14, 2008. Chad Comiteau beneficially owned(cid:10)
1,114,096 shares of Common Stock which amount includes (i) 188,600 shares(cid:10)
beneficially owned by Mr. Comiteau over which he has sole voting power and sole(cid:10)
dispositive power; (ii) 32,665 convertible shares beneficially owned by Mr.(cid:10)
Comiteau over which he has sole voting power and sole dispositive power; (iii)(cid:10)
33,000 shares beneficially owned by Stratford Management Money Purchase Pension(cid:10)
Plan over which he has shared voting power and shared dispositive power; (iv)(cid:10)
709,831 shares beneficially owned by Stratford Partners, L.P. of which Mr.(cid:10)
Comiteau is a Managing Member, and over which Mr. Comiteau has shared voting(cid:10)
power and shared dispositive power; and (v) 150,000 convertible shares(cid:10)
beneficially owned by Stratford Partners, L.P. over which Mr. Comiteau has(cid:10)
shared voting power and shared dispositive power.(cid:10)
(15) Davidson Kempner Healthcare International Ltd. ("DKHI") and its affiliates,(cid:10)
Davidson Kempner Partners ("DKP"), Davidson Kempner Institutional Partners, L.P.(cid:10)
("DKIP"), M.H. Davidson & Co. ("CO"), Davidson Kempner International, Ltd.(cid:10)
("DKIL"), Serena Limited ("Serena"), Davidson Kempner Healthcare Fund LP(cid:10)
("DKHF"), MHD Management Co., Davidson Kempner Advisors Inc., Davidson Kempner(cid:10)
International Advisors, L.L.C., DK Group LLC, DK Management Partners LP, DK(cid:10)
Stillwater GP LLC, Thomas L. Kempner, Jr., Marvin H. Davidson, Stephen M.(cid:10)
Dowicz, Scott E. Davidson, Michael J. Leffell, Timothy I. Levart, Robert J.(cid:10)
Brivio, Jr., Anthony A. Yoseloff, Eric P. Epstein and Avram Z. Friedman jointly(cid:10)
filed a Schedule 13GA on February 14, 2008, reflecting the beneficial ownership,(cid:10)
subject to an ownership limitation, of an aggregate of 7,967 Series C Preferred(cid:10)
Stock convertible into 3,434,052 shares of common stock, 1,030,208 warrants(cid:10)
exercisable into 1,030,208 shares of Common Stock and 64,068 shares of Common(cid:10)
Stock as a result of their voting and dispositive power over 7,967 Series C(cid:10)
Preferred Stock convertible into 3,434,052 shares of Common Stock, 1,030,208(cid:10)
warrants exercisable into 1,030,208 shares of Common Stock and 64,068 shares of(cid:10)
Common stock beneficially owned by DKP, DKIP, DKIL, Serena, CO, DKHF and DKHI.(cid:10)
Notwithstanding the inclusion of the aforementioned beneficial ownership(cid:10)
calculation, pursuant to our Certificate of Designation of Preferences, Rights(cid:10)
and Limitations of Series C Preferred Stock and the Common Stock Purchase(cid:10)
Warrant for the aforementioned warrants, the number of shares of Common Stock(cid:10)
into which the Series C Preferred Stock are convertible and the warrants are(cid:10)
exercisable is limited to that number of shares of Common Stock which would(cid:10)
result in the Davidson Kempner affiliated entities having aggregate beneficial(cid:10)
ownership of not more than 9.99% of the total issued and outstanding shares of(cid:10)
Common Stock. The above information was obtained from such Schedule 13G/A.(cid:10)
(16) Includes 20 shares of Series C Preferred Stock convertible into 8,621(cid:10)
shares of Common Stock and options and warrants to purchase an aggregate of(cid:10)
5,306,763 shares of Common Stock.(cid:10)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR(cid:10)
INDEPENDENCE.(cid:10)
All related person transactions are reviewed and, as appropriate, may(cid:10)
be approved or ratified by the Board of Directors. If a Director is involved in(cid:10)
the transaction, he or she may not participate in any review, approval or(cid:10)
ratification of such transaction. Related person transactions are approved by(cid:10)
the Board of Directors only if, based on all of the facts and circumstances,(cid:10)
they are in, or not inconsistent with, our best interests and the best interests(cid:10)
of our stockholders, as the Board of Directors determines in good faith. The(cid:10)
Board of Directors takes into account, among other factors it deems appropriate,(cid:10)
whether the transaction is on terms generally available to an unaffiliated(cid:10)
third-party under the same or similar circumstances and the extent of the(cid:10)
related person's interest in the transaction. The Board of Directors may also(cid:10)
impose such conditions as it deems necessary and appropriate on us or the(cid:10)
related person in connection with the transaction.(cid:10)
68(cid:10)
(cid:10)
In the case of a transaction presented to the Board of Directors for(cid:10)
ratification, the Board of Directors may ratify the transaction or determine(cid:10)
whether rescission of the transaction is appropriate.(cid:10)
CERTAIN RELATED PERSON TRANSACTIONS(cid:10)
TRANSACTIONS WITH DR. SUBRAMANIAN AND VGS PHARMA LLC(cid:10)
On December 6, 2006, we entered into a Strategic Alliance Agreement(cid:10)
with Dr. Subramanian and VGS,under which (i) Dr. Subramanian was appointed to(cid:10)
our Board of Directors, (ii) VGS made a $2,000,000 equity investment in Elite,(cid:10)
(iii) we engaged Dr. Subramanian to serve as our strategic advisor on the(cid:10)
research, development and commercialization of our existing pipeline and (iv)(cid:10)
we, together with VGS formed Novel,, as a separate specialty pharmaceutical(cid:10)
company for the research, development, manufacturing, licensing and acquisition(cid:10)
of specialty generic pharmaceuticals. VGS is wholly-owned subsidiary of Kali(cid:10)
Capital, L.P., which is controlled by Kali Management, LLC ("KALI"), its general(cid:10)
partner, and Kali is controlled by Anu Subramanian, its managing member and(cid:10)
daughter of Dr. Subramanian.(cid:10)
The specialty pharmaceutical product initiative of the strategic(cid:10)
alliance between Elite and Dr. Subramanian is to be conducted by Novel, of which(cid:10)
we acquired 49% and VGS acquired 51% of its Class A Voting Common Stock for(cid:10)
$9,800 and $10,200 respectively. Pursuant to the Alliance Agreement, VGS(cid:10)
acquired for $2,000,000: (i) 957,396 shares of our Common Stock at approximately(cid:10)
$2.089 per share and (ii) a five year Warrant to purchase 478,698 shares of our(cid:10)
Common Stock, for cash, at an exercise price of $3.00 per share, subject to(cid:10)
adjustment upon the occurrence of certain events.(cid:10)
We contributed $5,000,000 to Novel. During the three months ended(cid:10)
December 31, 2007, we elected not to fund our remaining contributions to Novel(cid:10)
upon the terms set forth in the Alliance Agreement because we had reached(cid:10)
agreement with the FDA under a SPA on the Phase III clinical trial of ELI-216,(cid:10)
Elite's abuse deterrent oxycodone product and determined that our funds would be(cid:10)
better used to support the clinical trials for ELI-216.(cid:10)
We and VGS negotiated alternative structures that would permit(cid:10)
investments by us at valuations which differed from those set forth in the(cid:10)
Alliance Agreement, however we were unable to agree upon an alternative(cid:10)
acceptable to both parties. Accordingly, upon our determination not to fund our(cid:10)
remaining contributions to Novel at the valuation set forth in the Alliance(cid:10)
Agreement, VGS exercised its rights under the Stockholders Agreement to purchase(cid:10)
from us shares of Class A Voting Common Stock of Novel proportionate to the(cid:10)
amount of remaining contributions which were not funded by us. As a result, our(cid:10)
remaining ownership interest in Class A Voting Common Stock of Novel is(cid:10)
approximately 10% of the outstanding shares of Class A Voting Common Stock of(cid:10)
Novel.(cid:10)
Pursuant to an advisory agreement, Dr. Subramanian had agreed to(cid:10)
provide advisory services to us, including but not limited to, assisting in the(cid:10)
implementation of current and new drug product development projects of Elite and(cid:10)
assisting in the recruitment of additional R&D staff members. As an inducement(cid:10)
to enter into the agreement, we granted Dr. Subramanian a non-qualified stock(cid:10)
option to purchase up to 1,750,000 shares of Common Stock, at a price of $2.13(cid:10)
per share, of which 1,000,000 options have vested and 750,000 unvested options(cid:10)
have terminated.(cid:10)
69(cid:10)
(cid:10)
TRANSACTIONS WITH MARK GITTELMAN AND GITTELMAN & CO. P.C.(cid:10)
For a description of the agreement between Elite and Gittelman & Co.,(cid:10)
P.C., please see "Compensation Discussion Analysis - Agreements with Named(cid:10)
Executive Officers and Key Employees". Mark Gittelman, our chief financial(cid:10)
officer is the principal of Gittelman & Co., P.C.(cid:10)
TRANSACTIONS WITH DR. APFEL(cid:10)
From January 8, 2007 to December 31, 2007, Dr. Apfel provided(cid:10)
consulting services to us through Parallex Clinical Research, which included,(cid:10)
without limitation, assistance in development and execution of our regulatory(cid:10)
and clinical program with respect to our abuse resistance opioid products.(cid:10)
Parallex Clinical Research received $52,843 as consulting fees for his services.(cid:10)
SERIES C PREFERRED STOCK FINANCING(cid:10)
The following related persons participated in our Series C Preferred(cid:10)
Stock private placement that closed on April 24, 2007 according to which we sold(cid:10)
15,000 shares of our Series C Preferred Stock, and 1,939,655 warrants for gross(cid:10)
proceeds of $15,000,000.(cid:10)
o Barry Dash, one of our directors, purchased 20 shares of Series C(cid:10)
Preferred Stock and warrants to purchase 2,586 shares of Common(cid:10)
Stock for a purchase price of $20,000.(cid:10)
o Affiliates of Adam Usdan, one of our stockholders which(cid:10)
beneficially owns more than 5% of our outstanding Common Stock,(cid:10)
purchased an aggregate of 2,000 shares of Series C Preferred Stock(cid:10)
and warrants to purchase 258,619 shares of Common Stock for an(cid:10)
aggregate purchase price of $2,000,000.(cid:10)
o Indigo Securities LLC of whom Edward Neugeboren, a director until(cid:10)
June 26, 2007, is a consultant, acted as a selected dealer in the(cid:10)
private placement of the Series C Preferred Financing and received(cid:10)
a $194,547 cash commission and warrants to purchase 36,045 shares(cid:10)
of Common Stock for its services.(cid:10)
The following related persons participated in our Series C Preferred Stock(cid:10)
private placement that closed on July 17, 2007 according to which we sold the(cid:10)
remaining 5,000 shares of our Series C Preferred Stock, and 646,544 warrants for(cid:10)
gross proceeds of $5,000,000.(cid:10)
o Midsummer Investment Ltd., one of our stockholders that(cid:10)
beneficially owns more than 5% of our outstanding Common Stock,(cid:10)
purchased an aggregate of 1,000 shares of Series C Preferred Stock(cid:10)
and warrants to purchase 129,310 shares of Common Stock for an(cid:10)
aggregate purchase price of $1,000,000.(cid:10)
See "Item 10 - Directors and Executive Officers of Registrant" for(cid:10)
information as to employment or engagement agreements with Bernard Berk, Chris(cid:10)
Dick, Charan Behl, Stuart Apfel and Gittelman & Co. PC, an affiliate of Mark I.(cid:10)
Gittelman.(cid:10)
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.(cid:10)
The following table presents fees, including reimbursements for(cid:10)
expenses, for professional audit services rendered by Miller Ellin & Company,(cid:10)
LP. ("MILLER ELLIN") for the audits of our annual financial(cid:10)
70(cid:10)
(cid:10)
statements and interim reviews of our quarterly financial statements for the(cid:10)
years ended March 31, 2008 and March 31, 2007 and fees billed for other services(cid:10)
rendered by Miller Ellin during those periods.(cid:10)
2008 2007(cid:10)
---- ----(cid:10)
Audit Fees(1) $52,847 $58,360(cid:10)
Audit-Related Fees -- --(cid:10)
Tax Fees -- --(cid:10)
All Other Fees -- --(cid:10)
(1) Audit Fees relate to the audit of our financial statements and reviews of(cid:10)
financial statements included in our quarterly reports on Form 10-Q.(cid:10)
PART IV(cid:10)
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES.(cid:10)
(a) Documents filed as part of this Annual Report on Form 10-K(cid:10)
(1) The financial statements listed in the Index to Consolidated(cid:10)
Financial Statements are filed as part of this Annual Report on Form 10-K(cid:10)
(2) The financial statements listed in the Index are filed a part of(cid:10)
this Annual Report on Form 10-K.(cid:10)
(3) List of Exhibits(cid:10)
See Index to Exhibits in paragraph (b) below.(cid:10)
The Exhibits are filed with or incorporated by reference in this Annual(cid:10)
Report on Form 10-K.(cid:10)
(b) Financial Statement Schedules(cid:10)
None.(cid:10)
(c) Exhibits required by Item 601 of Regulation S-K.(cid:10)
EXHIBIT(cid:10)
NO. DESCRIPTION(cid:10)
3.1(a) Certificate of Incorporation of the Company, together with all(cid:10)
other amendments thereto, as filed with the Secretary of State of(cid:10)
the State of Delaware, incorporated by reference to (a) Exhibit(cid:10)
4.1 to the Registration Statement on Form S-4 (Reg. No.(cid:10)
333-101686), filed with the SEC on December 6, 2002 (the "Form(cid:10)
S-4") and (b) Exhibit 4.1 to the Company's Current Report on Form(cid:10)
8-K dated July 28, 2004.(cid:10)
3.1(b) Certificate of Designations, Preferences and Rights of Series A(cid:10)
Preferred Stock, as filed with the Secretary of the State of(cid:10)
Delaware, incorporated by reference to Exhibit 4.5 to the Current(cid:10)
Report on Form 8-K dated October 6, 2004, and filed with the SEC(cid:10)
on October 12, 2004.(cid:10)
71(cid:10)
(cid:10)
3.1(c) Certificate of Retirement with the Secretary of the State of the(cid:10)
Delaware to retire 516,558 shares of the Series A Preferred Stock,(cid:10)
as filed with the Secretary of State of Delaware, incorporated by(cid:10)
reference to Exhibit 3.1 to the Current Report on Form 8-K dated(cid:10)
March 10, 2006, and filed with the SEC on March 14, 2006.(cid:10)
3.1(d) Certificate of Designations, Preferences and Rights of Series B 8%(cid:10)
Convertible Preferred Stock, as filed with the Secretary of the(cid:10)
State of Delaware, incorporated by reference to Exhibit 3.1 to the(cid:10)
Current Report on Form 8-K dated March 15, 2006, and filed with(cid:10)
the SEC on March 16, 2006.(cid:10)
3.1(e) Amended Certificate of Designations of Preferences, Rights and(cid:10)
Limitations of Series B 8% Convertible Preferred Stock, as filed(cid:10)
with the Secretary of State of the State of Delaware, incorporated(cid:10)
by reference to Exhibit 3.1 to the Current Report on Form 8-K(cid:10)
dated April 24, 2007, and filed with the SEC on April 25, 2007.(cid:10)
3.1(f) Certificate of Designations, Preferences and Rights of Series C 8%(cid:10)
Convertible Preferred Stock, as filed with the Secretary of the(cid:10)
State of Delaware, incorporated by reference to Exhibit 3.2 to the(cid:10)
Current Report on Form 8-K dated April 24, 2007, and filed with(cid:10)
the SEC on April 25, 2007.(cid:10)
3.1(g) Amended Certificate of Designations, Preferences and Rights of(cid:10)
Series C 8% Convertible Preferred Stock, as filed with the(cid:10)
Secretary of the State of Delaware, incorporated by reference to(cid:10)
Exhibit 3.1 to the Current Report on Form 8-K dated April 24,(cid:10)
2007, and filed with the SEC on April 25, 2007(cid:10)
3.2 By-Laws of the Company, as amended, incorporated by reference to(cid:10)
Exhibit 3.2 to the Company's Registration Statement on Form SB-2(cid:10)
(Reg. No. 333-90633) made effective on February 28, 2000 (the(cid:10)
"Form SB-2").(cid:10)
4.1 Form of specimen certificate for Common Stock of the Company,(cid:10)
incorporated by reference to Exhibit 4.1 to the Form SB-2.(cid:10)
4.2 Form of specimen certificate for Series A 8% Convertible Preferred(cid:10)
Stock of the Company, incorporated by reference to Exhibit 4.5 to(cid:10)
the Current Report on Form 8-K, dated October 6, 2004, and filed(cid:10)
with the SEC on October 12, 2004.(cid:10)
4.3 Form of specimen certificate for Series B 8% Convertible Preferred(cid:10)
Stock of the Company, incorporated by reference to Exhibit 4.1 to(cid:10)
the Current Report on Form 8-K, dated March 15, 2006 and filed(cid:10)
with the SEC on March 16, 2006.(cid:10)
4.4 Form of specimen certificate for Series C 8% Convertible Preferred(cid:10)
Stock of the Company, incorporated by reference to Exhibit 4.1 to(cid:10)
the Current Report on Form 8-K, dated April 24, 2007 and filed(cid:10)
with the SEC on April 25, 2007.(cid:10)
4.5 Warrant to purchase 100,000 shares of Common Stock issued to DH(cid:10)
Blair Investment Banking Corp., incorporated by reference to(cid:10)
Exhibit 10.2 to the Quarterly Report on Form 10-Q for the period(cid:10)
ended September 30, 2004.(cid:10)
72(cid:10)
(cid:10)
4.6 Warrant to purchase 50,000 shares of Common Stock issued to Jason(cid:10)
Lyons incorporated by reference to Exhibit 10.3 to the Quarterly(cid:10)
Report on Form 10-Q for the period ended June 30, 2004.(cid:10)
4.7 Form of Warrant to purchase shares of Common Stock issued to(cid:10)
designees of lender with respect to financing of an equipment loan(cid:10)
incorporated by reference to Exhibit 10.2 to the Quarterly Report(cid:10)
on Form 10-Q for the period ended June 30, 2004.(cid:10)
4.8 Form of Short Term Warrant to purchase shares of Common Stock(cid:10)
issued to purchasers in the private placement which initially(cid:10)
closed on October 6, 2004 (the "Series A Financing"), incorporated(cid:10)
by reference to Exhibit 4.6 to the Current Report on Form 8-K,(cid:10)
dated October 6, 2004, and filed with the SEC on October 12, 2004.(cid:10)
4.9 Form of Long Term Warrant to purchase shares of Common Stock(cid:10)
issued to purchasers in the Series A Financing, incorporated by(cid:10)
reference to Exhibit 4.7 to the Current Report on Form 8-K, dated(cid:10)
October 6, 2004, and filed with the SEC on October 12, 2004.(cid:10)
4.10 Form of Warrant to purchase shares of Common Stock issued to the(cid:10)
Placement Agent, in connection with the Series A Financing,(cid:10)
incorporated by reference to Exhibit 4.8 to the Current Report on(cid:10)
Form 8-K, dated October 6, 2004, and filed with the SEC on October(cid:10)
12, 2004.(cid:10)
4.11 Form of Replacement Warrant to purchase shares of Common Stock in(cid:10)
connection with the offer to holders of Warrants in the Series A(cid:10)
Financing (the "Warrant Exchange"), incorporated by reference as(cid:10)
Exhibit 4.1 to the Current Report on Form 8-K, dated December 14,(cid:10)
2005, and filed with the SEC on December 20, 2005.(cid:10)
4.12 Form of Warrant to purchase shares of Common Stock to the(cid:10)
Placement Agent, in connection with the Warrant Exchange,(cid:10)
incorporated by reference as Exhibit 4.2 to the Current Report on(cid:10)
Form 8-K, dated December 14, 2005, and filed with the SEC on(cid:10)
December 20, 2005.(cid:10)
4.13 Form of Warrant to purchase shares of Common Stock issued to(cid:10)
purchasers in the private placement which closed on March 15, 2006(cid:10)
(the "Series B Financing"), incorporated by reference to Exhibit(cid:10)
4.2 to the Current Report on Form 8-K, dated March 15, 2006 and(cid:10)
filed with the SEC on March 16, 2006.(cid:10)
4.14 Form of Warrant to purchase shares of Common Stock issued to(cid:10)
purchasers in the Series B Financing, incorporated by reference to(cid:10)
Exhibit 4.3 to the Current Report on Form 8-K, dated March 15,(cid:10)
2006 and filed with the SEC on March 16, 2006.(cid:10)
4.15 Form of Warrant to purchase shares of Common Stock issued to the(cid:10)
Placement Agent, in connection with the Series B Financing,(cid:10)
incorporated by reference to Exhibit 4.4 to the Current Report on(cid:10)
Form 8-K, dated March 15, 2006 and filed with the SEC on March 16,(cid:10)
2006.(cid:10)
4.16 Form of Warrant to purchase 600,000 shares of Common Stock issued(cid:10)
to Indigo Ventures, LLC, incorporated by reference to Exhibit 4.1(cid:10)
to the Current Report on Form 8-K, dated July 12, 2006 and filed(cid:10)
with the SEC on July 18, 2006.(cid:10)
73(cid:10)
(cid:10)
4.17 Form of Warrant to purchase up to 478,698 shares of Common Stock(cid:10)
issued to VGS PHARMA, LLC, incorporated by reference as Exhibit(cid:10)
3(a) to the Current Report on Form 8-K, dated December 6, 2006 and(cid:10)
filed with the SEC on December 12, 2006.(cid:10)
4.18 Form on Non-Qualified Stock Option Agreement for 1,750,000 shares(cid:10)
of Common Stock granted to Veerappan Subramanian, incorporated by(cid:10)
reference as Exhibit 3(b) to the Current Report on Form 8-K, dated(cid:10)
December 6, 2006 and filed with the SEC on December 12, 2006.(cid:10)
4.19 Form of Warrant to purchase shares of Common Stock issued to(cid:10)
purchasers in the private placement which closed on April 24, 2007(cid:10)
(the "Series C Financing"), incorporated by reference to Exhibit(cid:10)
4.2 to the Current Report on Form 8-K, dated April 24, 2007 and(cid:10)
filed with the SEC on April 25, 2007.(cid:10)
4.20 Form of Warrant to purchase shares of Common Stock issued to the(cid:10)
placement agent in the Series C Financing, incorporated by(cid:10)
reference to Exhibit 4.3 to the Current Report on Form 8-K, dated(cid:10)
April 24, 2007 and filed with the SEC on April 25, 2007.(cid:10)
10.1 2004 Employee Stock Option Plan approved by stockholders on June(cid:10)
22, 2004, incorporated by reference to Exhibit A to the Proxy(cid:10)
Statement filed on Schedule 14A with respect to the Annual Meeting(cid:10)
of Stockholders held on June 22, 2004.(cid:10)
10.2 Form of Confidentiality Agreement (corporate), incorporated by(cid:10)
reference to Exhibit 10.7 to the Form SB-2.(cid:10)
10.3 Form of Confidentiality Agreement (employee), incorporated by(cid:10)
reference to Exhibit 10.8 to the Form SB-2.(cid:10)
10.4 Amended and Restated Employment Agreement dated as of September 2,(cid:10)
2005 between Bernard Berk and the Company, incorporated by(cid:10)
reference to Exhibit 10.1 to Current Report on Form 8-K, dated(cid:10)
September 2, 2005, and filed with the SEC on September 9, 2005.(cid:10)
10.5 Option Agreement between Bernard Berk and the Company dated as of(cid:10)
July 23, 2003 incorporated by reference to Exhibit 10.7 to the(cid:10)
Quarterly Report on Form 10-Q for three months ended June 30, 2003(cid:10)
(the "June 30, 2003 10Q Report").(cid:10)
10.6 Option Agreement between Bernard Berk and the Company dated as of(cid:10)
July 23, 2003, incorporated by reference to Exhibit 10.8 to the(cid:10)
June 30, 2003 10Q Report.(cid:10)
10.7 Amendment, dated as of September 2, 2005, by and between, the(cid:10)
Company and Bernard Berk, to the Stock Option Agreement, dated as(cid:10)
of July 23, 2003, incorporated by reference to Exhibit 10.2 to(cid:10)
Current Report on Form 8-K, dated September 2, 2005, and filed(cid:10)
with the SEC on September 9, 2005.(cid:10)
10.8 Stock Option Agreement, dated as of September 2, 2005, by and(cid:10)
between the Company and Bernard Berk, incorporated by reference to(cid:10)
Exhibit 10.3 to Current Report on Form 8-K, dated September 2,(cid:10)
2005, and filed with the SEC on September 9, 2005.(cid:10)
74(cid:10)
(cid:10)
10.9 Stock Option Agreement, dated as of September 2, 2005, by and(cid:10)
between the Company and Bernard Berk, incorporated by reference to(cid:10)
Exhibit 10.4 to Current Report on Form 8-K, dated September 2,(cid:10)
2005, and filed with the SEC on September 9, 2005.(cid:10)
10.10 Engagement letter dated February 26, 1998, between Gittelman & Co.(cid:10)
P.C. and the Company incorporated by reference to Exhibit 10.10 to(cid:10)
the Form 10-K for the period ended March 31, 2004 filed with the(cid:10)
SEC on June 29, 2004.(cid:10)
10.11 Product Development Manufacturing and Distribution Agreement,(cid:10)
dated as of March 30, 2005, by and among Elite Laboratories, Inc.,(cid:10)
a Delaware corporation and wholly-owned subsidiary of the Company(cid:10)
("Elite Labs"), Harris Pharmaceuticals, Inc. and Tish Technologies(cid:10)
LLC, incorporated by reference as Exhibit 10.1 to the Current(cid:10)
Report on Form 8-K, dated March 30, 2005, originally filed with(cid:10)
the SEC on April 5, 2005, as amended on the Current Report on Form(cid:10)
8-K/A filed May 10, 2005, as further amended by the Current Report(cid:10)
on Form 8-K/A filed June 13, 2005, as further amended by the(cid:10)
Current Report on Form 8-K/A filed July 20, 2005, as further(cid:10)
amended by the Current Report on Form 8-K/A filed August 23, 2005,(cid:10)
as further amended by the Current Report on Form 8-K/A filed(cid:10)
September 27, 2005, as further amended by the Current Report on(cid:10)
Form 8-K/A filed December 7, 2005 (Confidential Treatment granted(cid:10)
with respect to portions of the Agreement).(cid:10)
10.12 Product Development and Commercialization Agreement, dated as of(cid:10)
June 21, 2005, between the Company and IntelliPharmaceutics,(cid:10)
Corp., incorporated by reference as Exhibit 10.1 to the Current(cid:10)
Report on Form 8-K, dated June 21, 2005 and originally filed with(cid:10)
the SEC on June 27, 2005, as amended on the Current Report on Form(cid:10)
8-K/A filed September 7, 2005, as further amended by the Current(cid:10)
Report on Form 8-K/A filed December 7, 2005 (Confidential(cid:10)
Treatment granted with respect to portions of the Agreement).(cid:10)
10.13 Product Development and License Agreement, dated as of June 22,(cid:10)
2005, between the Company and Pliva, Inc., incorporated by(cid:10)
reference as Exhibit 10.1 to the Current Report on Form 8-K, dated(cid:10)
June 22, 2005 and originally filed with the SEC on June 28, 2005,(cid:10)
as amended on the Current Report on Form 8-K/A filed September 6,(cid:10)
2005, as further amended by the Current Report on Form 8-K/A filed(cid:10)
December 7, 2005 (Confidential Treatment granted with respect to(cid:10)
portions of the Agreement).(cid:10)
10.14 Agreement, dated December 12, 2005, by and among the Company,(cid:10)
Elite Labs, and IntelliPharmaCeutics Corp., incorporated by(cid:10)
reference as Exhibit 10.1 to the Current Report on Form 8-K, dated(cid:10)
December 12, 2005, and originally filed with the SEC on December(cid:10)
16, 2005, as amended by the Current Report on Form 8-K/A filed(cid:10)
March 7, 2006 (Confidential Treatment granted with respect to(cid:10)
portions of the Agreement).(cid:10)
10.15 Product Development and Commercialization Agreement, dated January(cid:10)
10, 2006, by and among the Company, Elite Laboratories, Inc., its(cid:10)
wholly-owned subsidiary and Orit Laboratories LLC, incorporated by(cid:10)
reference as Exhibit 10.1 to the Current Report on Form 8-K, dated(cid:10)
January 10, 2006, and filed with the SEC on January 17, 2006.(cid:10)
(Confidential Treatment granted with respect to portions of the(cid:10)
Agreement).(cid:10)
10.16 Loan Agreement, dated as of August 15, 2005, between New Jersey(cid:10)
Economic Development Authority ("NJEDA") and the Company,(cid:10)
incorporated by reference to Exhibit 10.1 to the(cid:10)
75(cid:10)
(cid:10)
Current Report on Form 8-K, dated August 31, 2005 and filed with(cid:10)
the SEC on September 6, 2005.(cid:10)
10.17 Series A Note in the aggregate principal amount of $3,660,000.00(cid:10)
payable to the order of the NJEDA, incorporated by reference to(cid:10)
Exhibit 10.2 to the Current Report on Form 8-K, dated August 31,(cid:10)
2005 and filed with the SEC on September 6, 2005.(cid:10)
10.18 Series B Note in the aggregate principal amount of $495,000.00(cid:10)
payable to the order of the NJEDA, incorporated by reference to(cid:10)
Exhibit 10.3 to the Current Report on Form 8-K, dated August 31,(cid:10)
2005 and filed with the SEC on September 6, 2005.(cid:10)
10.19 Mortgage from the Company to the NJEDA, incorporated by reference(cid:10)
to Exhibit 10.4 to the Current Report on Form 8-K, dated August(cid:10)
31, 2005 and filed with the SEC on September 6, 2005.(cid:10)
10.20 Indenture between NJEDA and the Bank of New York as Trustee, dated(cid:10)
as of August 15, 2005, incorporated by reference to Exhibit 10.5(cid:10)
to the Current Report on Form 8-K, dated August 31, 2005 and filed(cid:10)
with the SEC on September 6, 2005.(cid:10)
10.21 Form of Warrant Exercise Agreement, between the Registrant and the(cid:10)
signatories thereto, incorporated by reference to Exhibit 10.1 to(cid:10)
the Current Report on Form 8-K, dated December 14, 2005 and filed(cid:10)
with the SEC on December 20, 2005.(cid:10)
10.22 Form of Registration Rights Agreement, between the Registrant and(cid:10)
signatories thereto, incorporated by reference to Exhibit 10.2 to(cid:10)
the Current Report on Form 8-K, dated December 14, 2005 and filed(cid:10)
with the SEC on December 20, 2005.(cid:10)
10.23 Form of Securities Purchase Agreement, between the Registrant and(cid:10)
the signatories thereto, incorporated by reference to Exhibit 10.1(cid:10)
to the Current Report on Form 8-K, dated March 15, 2006 and filed(cid:10)
with the SEC on March 16, 2006.(cid:10)
10.24 Form of Registration Rights Agreement, between the Registrant and(cid:10)
the signatories thereto, incorporated by reference to Exhibit 10.2(cid:10)
to the Current Report on Form 8-K, dated March 15, 2006 and filed(cid:10)
with the SEC on March 16, 2006.(cid:10)
10.21 Form of Placement Agent Agreement, between the Registrant and(cid:10)
Indigo Securities, LLC, incorporated by reference as Exhibit 10.3(cid:10)
to the Current Report on Form 8-K, dated March 15, 2006, and filed(cid:10)
with the SEC on March 16, 2006.(cid:10)
10.22 Financial Advisory Agreement between the Registrant and Indigo(cid:10)
Ventures LLC, incorporated by reference as Exhibit 10.1 to the(cid:10)
Current Report on Form 8-K dated July 12, 2006 and filed with the(cid:10)
SEC on July 18, 2006.(cid:10)
10.23 Seconded Amended and Restated Employment Agreement between the(cid:10)
Registrant and Bernard Berk, incorporated by reference as Exhibit(cid:10)
10.1 to the Quarterly Report on Form 10-Q for the quarter ended(cid:10)
September 30, 2006 and filed with the SEC on November 14, 2006.(cid:10)
76(cid:10)
(cid:10)
10.24 Employment Agreement between the Registrant and Charan Behl,(cid:10)
incorporated by reference as Exhibit 10.2 to the Quarterly Report(cid:10)
on Form 10-Q for the quarter ended September 30, 2006 and filed(cid:10)
with the SEC on November 14, 2006.(cid:10)
10.25 Employment Agreement between the Registrant and Chris Dick,(cid:10)
incorporated by reference as Exhibit 10.3 to the Quarterly Report(cid:10)
on Form 10-Q for the quarter ended September 30, 2006 and filed(cid:10)
with the SEC on November 14, 2006.(cid:10)
10.26 Product Collaboration Agreement between the Registrant and(cid:10)
ThePharmaNetwork LLC, incorporated by reference as Exhibit 10.1 to(cid:10)
the Current Report on Form 8-K, dated November 10, 2006 and filed(cid:10)
with the SEC on November 15, 2006. (Confidential Treatment granted(cid:10)
with respect to portions of the Agreement).(cid:10)
10.27 Strategic Alliance Agreement among the Registrant, VGS Pharma(cid:10)
("VGS") and Veerappan S. Subramanian ("VS"), incorporated by(cid:10)
reference as Exhibit 10(a) to the Current Report on Form 8-K,(cid:10)
dated December 6, 2006 and filed with the SEC on December 12,(cid:10)
2006.(cid:10)
10.28 Advisory Agreement, between the Registrant and VS, incorporated by(cid:10)
reference as Exhibit 10(b) to the Current Report on Form 8-K,(cid:10)
dated December 6, 2006 and filed with the SEC on December 12,(cid:10)
2006.(cid:10)
10.29 Registration Rights Agreement between the Registrant, VGS and VS,(cid:10)
incorporated by reference as Exhibit 10(c) to the Current Report(cid:10)
on Form 8-K, dated December 6, 2006 and filed with the SEC on(cid:10)
December 12, 2006.(cid:10)
10.30 Employment Agreement between Novel Laboratories Inc. ("Novel") and(cid:10)
VS, incorporated by reference as Exhibit 10(d) to the Current(cid:10)
Report on Form 8-K, dated December 6, 2006 and filed with the SEC(cid:10)
on December 12, 2006.(cid:10)
10.31 Stockholders' Agreement between Registrant, VGS, VS and Novel,(cid:10)
incorporated by reference as Exhibit 10(e) to the Current Report(cid:10)
on Form 8-K, dated December 6, 2006 and filed with the SEC on(cid:10)
December 12, 2006.(cid:10)
10.32 Amended and Restated Employment Agreement, between the Registrant(cid:10)
and Charan Behl, incorporated by reference as Exhibit 10.1 to the(cid:10)
Current Report on Form 8-K, dated February 9, 2007 and filed with(cid:10)
the SEC on February 14, 2007.(cid:10)
10.33 Form of Securities Purchase Agreement, between the Registrant and(cid:10)
the signatories thereto, incorporated by reference to Exhibit 10.1(cid:10)
to the Current Report on Form 8-K, dated April 24, 2007 and filed(cid:10)
with the SEC on April 25, 2007.(cid:10)
10.34 Form of Registration Rights Agreement, between the Registrant and(cid:10)
the signatories thereto, incorporated by reference to Exhibit 10.2(cid:10)
to the Current Report on Form 8-K, dated April 24, 2007 and filed(cid:10)
with the SEC on April 25, 2007.(cid:10)
10.35 Form of Placement Agent Agreement, the Company and Oppenheimer &(cid:10)
Company, Inc., incorporated by reference as Exhibit 10.3 to the(cid:10)
Current Report on Form 8-K, dated April 24,(cid:10)
77(cid:10)
(cid:10)
2007 and filed with the SEC on April 25, 2007.(cid:10)
10.36 Form of Securities Purchase Agreement, between the Registrant and(cid:10)
the signatories thereto, incorporated by reference to Exhibit 10.1(cid:10)
to the Current Report on Form 8-K, dated July 17, 2007 and filed(cid:10)
with the SEC on July 23, 2007.(cid:10)
10.37 Form of Registration Rights Agreement, between the Registrant and(cid:10)
the signatories thereto, incorporated by reference as Exhibit 10.2(cid:10)
to the Current Report on Form 8-K, dated July 17, 2007 and filed(cid:10)
with the SEC on July 23, 2007.(cid:10)
10.38 Consulting Agreement, dated as of July 27, 2007, between the(cid:10)
Registrant and Wilstar Consultants, Inc., incorporated by(cid:10)
reference as Exhibit 10.1 to the Quarterly Report on Form 10-Q for(cid:10)
the period ending September 30, 2007 and filed with the SEC on(cid:10)
November 14, 2007.(cid:10)
10.39 Consulting Agreement, dated as of September 4, 2007, between the(cid:10)
Registrant, Bridge Ventures, Inc. and Saggi Capital, Inc.,(cid:10)
incorporated by reference as Exhibit 10.2 to the Quarterly Report(cid:10)
on Form 10-Q for the period ending September 30, 2007 and filed(cid:10)
with the SEC on November 14, 2007.(cid:10)
10.40 Employment Agreement, dated as of January 3, 2008, by and between(cid:10)
the Registrant and Dr. Stuart Apfel, incorporated by reference as(cid:10)
Exhibit 10.1 to the Current Report on Form 8-K dated January 3,(cid:10)
2008 and filed with the SEC on January 9, 2008.(cid:10)
21 Subsidiaries of the Company.*(cid:10)
31.1* Certification of Chief Executive Officer pursuant to Section 302(cid:10)
of the Sarbanes-Oxley Act of 2002*(cid:10)
31.2* Certification of Chief Financial Officer pursuant to Section 302(cid:10)
of the Sarbanes-Oxley Act of 2002*(cid:10)
32.1** Certification of Chief Executive Officer pursuant to Section 906(cid:10)
of the Sarbanes-Oxley Act of 2002.*(cid:10)
32.2** Certification of Chief Financial Officer pursuant to Section 906(cid:10)
of the Sarbanes-Oxley Act of 2002.*(cid:10)
---------------------(cid:10)
* Filed herewith.(cid:10)
** As contemplated by SEC Release No. 33-8212, these exhibits are furnished with(cid:10)
this Annual Report on Form 10-K and are not deemed filed with the Securities and(cid:10)
Exchange Commission and are not incorporated by reference in any filing of Elite(cid:10)
Pharmaceuticals, Inc. under the Securities Act of 1933 or the Securities(cid:10)
Exchange Act of 1934, whether made before or after the date hereof and(cid:10)
irrespective of any general incorporation language in any such filings.(cid:10)
78(cid:10)
(cid:10)
SIGNATURES(cid:10)
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange(cid:10)
Act of 1934, the registrant has duly caused this report to be signed on its(cid:10)
behalf by the undersigned, thereunto duly authorized.(cid:10)
ELITE PHARMACEUTICALS, INC.(cid:10)
By: /s/ Bernard Berk(cid:10)
-------------------------------(cid:10)
Bernard Berk(cid:10)
Chief Executive Officer(cid:10)
Dated: June 27, 2008(cid:10)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report(cid:10)
has been signed by the following persons on behalf of the registrant and in the(cid:10)
capacities and on the dates indicated.(cid:10)
(cid:10)
(cid:10)
SIGNATURE TITLE DATE(cid:10)
--------- ----- ----(cid:10)
(cid:10)
/s/ Bernard Berk Chief Executive Officer June 27, 2008(cid:10)
-------------------------- (Principal Executive(cid:10)
Bernard Berk Officer)(cid:10)
/s/ Mark Gittelman Chief Financial Officer June 27, 2008(cid:10)
-------------------------- and Treasurer (Principal(cid:10)
Mark I. Gittelman Financial and Accounting(cid:10)
Officer)(cid:10)
Director(cid:10)
--------------------------(cid:10)
Barry Dash(cid:10)
/s/ Robert J. Levenson Director June 27, 2008(cid:10)
--------------------------(cid:10)
Robert J. Levenson(cid:10)
/s/ Melvin Van Woert Director June 27, 2008(cid:10)
--------------------------(cid:10)
Melvin Van Woert(cid:10)
(cid:10)
79(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
CONSOLIDATED FINANCIAL STATEMENTS(cid:10)
FOR THE YEARS ENDED MARCH 31, 2008, 2007 AND 2006(cid:10)
CONTENTS(cid:10)
PAGE(cid:10)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F - 1(cid:10)
CONSOLIDATED BALANCE SHEETS F - 2(cid:10)
CONSOLIDATED STATEMENTS OF OPERATIONS F - 4(cid:10)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F - 5(cid:10)
CONSOLIDATED STATEMENTS OF CASH FLOWS F - 8(cid:10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F - 9 TO F - 27(cid:10)
(cid:10)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM(cid:10)
To Elite Pharmaceuticals, Inc.(cid:10)
We have audited the accompanying consolidated balance sheets of Elite(cid:10)
Pharmaceuticals, Inc. and Subsidiaries (the "Company") as of March 31, 2008 and(cid:10)
2007, and the related consolidated statements of operations, stockholders'(cid:10)
equity and cash flows for the years ended March 31, 2008, 2007 and 2006. These(cid:10)
financial statements are the responsibility of the Company's management. Our(cid:10)
responsibility is to express an opinion on these financial statements based on(cid:10)
our audits.(cid:10)
We conducted our audits in accordance with standards of the Public Company(cid:10)
Accounting Oversight Board (United States). Those standards require that we plan(cid:10)
and perform the audit to obtain reasonable assurance about whether the financial(cid:10)
statements are free of material misstatement. An audit includes examining, on a(cid:10)
test basis, evidence supporting the amounts and disclosures in the financial(cid:10)
statements. An audit also includes assessing the accounting principles used and(cid:10)
significant estimates made by management, as well as evaluating the overall(cid:10)
financial statement presentation. We believe that our audits provide a(cid:10)
reasonable basis for our opinion.(cid:10)
In our opinion, the Consolidated Financial Statements referred to above present(cid:10)
fairly, in all material respects, the financial position of Elite(cid:10)
Pharmaceuticals, Inc. and Subsidiaries as of March 31, 2008 and 2007, and the(cid:10)
results of their operations and their cash flows for each of the three years(cid:10)
ended March 31, 2008, 2007 and 2006 in conformity with accounting principles(cid:10)
generally accepted in the United States of America.(cid:10)
The accompanying financial statements have been prepared assuming that he(cid:10)
Company will continue as a going concern. As shown in the financial statements,(cid:10)
the Company has experiences significant losses and negative cash flows,(cid:10)
resulting in decreased capital and accumulated deficits. These conditions raise(cid:10)
substantial doubt about its ability to continue as a going concern. Management's(cid:10)
plans regarding those matters are described in Note 2.(cid:10)
/s/ MILLER, ELLIN & COMPANY, LLP(cid:10)
CERTIFIED PUBLIC ACCOUNTANTS(cid:10)
New York, New York(cid:10)
June 27, 2008(cid:10)
F-1(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
CONSOLIDATED BALANCE SHEETS(cid:10)
MARCH 31, 2008 AND 2007(cid:10)
ASSETS(cid:10)
(cid:10)
(cid:10)
2008 2007(cid:10)
---- ----(cid:10)
(cid:10)
CURRENT ASSETS:(cid:10)
Cash and cash equivalents $ 3,702,615 $ 811,545(cid:10)
Accounts receivable 148,484 215,837(cid:10)
Inventories 2,124,420 812,969(cid:10)
Prepaid expenses and other current assets 177,972 306,395(cid:10)
----------- -----------(cid:10)
Total current assets 6,153,491 2,146,746(cid:10)
----------- -----------(cid:10)
PROPERTY AND EQUIPMENT- net of accumulated(cid:10)
depreciation and amortization 5,008,701 4,861,601(cid:10)
----------- -----------(cid:10)
INTANGIBLE ASSETS - net of accumulated amortization 35,276 42,809(cid:10)
----------- -----------(cid:10)
OTHER ASSETS:(cid:10)
Accrued interest receivable 4,744 949(cid:10)
Deposit on equipment 14,073 32,880(cid:10)
Investment in Novel Laboratories Inc. 3,329,322 1,367,768(cid:10)
Security deposit 13,488 6,980(cid:10)
Restricted cash - debt service 432,079 414,999(cid:10)
EDA bond offering costs, net of accumulated(cid:10)
amortization of $35,356 and $21,178, respectively 319,096 333,274(cid:10)
----------- -----------(cid:10)
Total other assets 4,112,802 2,156,850(cid:10)
----------- -----------(cid:10)
TOTAL ASSETS $15,310,270 $ 9,208,006(cid:10)
=========== ===========(cid:10)
(cid:10)
The accompanying notes are an integral part of the Consolidated(cid:10)
Financial Statements.(cid:10)
F-2(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
CONSOLIDATED BALANCE SHEETS(cid:10)
MARCH 31, 2008 AND 2007(cid:10)
(CONTINUED)(cid:10)
LIABILITIES AND STOCKHOLDERS' EQUITY(cid:10)
(cid:10)
(cid:10)
2008 2007(cid:10)
---- ----(cid:10)
(cid:10)
CURRENT LIABILITIES:(cid:10)
Current portion of EDA bonds $ 200,000 $ 185,000(cid:10)
Current portion of long-term debt 9,864 --(cid:10)
Accounts payable and accrued expenses 850,442 1,717,458(cid:10)
Dividends payable 63,255 --(cid:10)
------------ ------------(cid:10)
Total current liabilities 1,123,561 1,902,458(cid:10)
------------ ------------(cid:10)
LONG TERM DEBT:(cid:10)
EDA bonds - net of current portion 3,595,000 3,795,000(cid:10)
Long-term debt, less current portion 42,388 --(cid:10)
------------ ------------(cid:10)
Total long-term liabilities 3,637,388 3,795,000(cid:10)
------------ ------------(cid:10)
Total liabilities 4,760,949 5,697,458(cid:10)
------------ ------------(cid:10)
COMMITMENTS AND CONTINGENCIES:(cid:10)
STOCKHOLDERS' EQUITY:(cid:10)
Preferred stock - $.01 par value;(cid:10)
Authorized - 4,483,442 (originally 5,000,000 shares of which 516,558 shares of(cid:10)
Series A Convertible Preferred Stock were retired) and 0 shares(cid:10)
Outstanding as of March 31, 2008 and 2007, respectively -- --(cid:10)
Authorized - 10,000 Convertible Series B Preferred Stock - issued and(cid:10)
outstanding - 8,410 shares and 9,695 shares, respectively 84 97(cid:10)
Authorized 20,000 Series C Convertible Preferred stock issued and(cid:10)
Outstanding - 19,155 and 0 shares, respectively 192 --(cid:10)
Common Stock - $.01 par value;(cid:10)
Authorized - 65,000,000(cid:10)
Issued and outstanding - 23,131,035 and 20,799,102(cid:10)
shares in 2008 and 2007, respectively 231,310 207,991(cid:10)
Subscription receivable (75,000) (75,000)(cid:10)
Additional paid-in capital 91,889,978 66,495,618(cid:10)
Accumulated deficit (81,190,402) (62,811,317)(cid:10)
------------ ------------(cid:10)
10,856,162 3,817,389(cid:10)
Treasury stock, at cost (100,000 shares) (306,841) (306,841)(cid:10)
------------ ------------(cid:10)
Total stockholders' equity 10,549,321 3,510,548(cid:10)
------------ ------------(cid:10)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,310,270 $ 9,208,006(cid:10)
============ ============(cid:10)
(cid:10)
The accompanying notes are an integral part of the Consolidated(cid:10)
Financial Statements.(cid:10)
F-3(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
CONSOLIDATED STATEMENTS OF OPERATIONS(cid:10)
(cid:10)
(cid:10)
YEARS ENDED(cid:10)
MARCH 31,(cid:10)
-----------(cid:10)
2008 2007 2006(cid:10)
---- ---- ----(cid:10)
(cid:10)
REVENUES:(cid:10)
Manufacturing fees $ 1,173,890 $ 1,038,916 $ 494,231(cid:10)
Royalties 239,229 104,925 56,466(cid:10)
------------ ------------ ------------(cid:10)
Total revenues 1,413,119 1,143,841 550,697(cid:10)
Cost of Revenues 1,024,511 831,250 --(cid:10)
------------ ------------ ------------(cid:10)
Gross Profit 388,608 312,591 550,697(cid:10)
OPERATING EXPENSES:(cid:10)
Research and development 5,795,779 5,777,865 4,343,890(cid:10)
General and administrative 2,434,803 2,196,154 1,726,626(cid:10)
Depreciation and amortization 524,893 408,814 486,687(cid:10)
------------ ------------ ------------(cid:10)
8,755,475 8,382,833 6,557,203(cid:10)
------------ ------------ ------------(cid:10)
LOSS FROM OPERATIONS (8,366,867) (8,070,242) (6,006,506)(cid:10)
------------ ------------ ------------(cid:10)
OTHER INCOME (EXPENSES):(cid:10)
Interest income 356,274 286,603 90,862(cid:10)
Sale of New Jersey tax losses -- 377,259 219,121(cid:10)
Interest expense (292,277) (275,030) (283,464)(cid:10)
Non-cash compensation satisfied by issuance of(cid:10)
stock options and warrants (2,607,470) (3,479,070) (902,927)(cid:10)
------------ ------------ ------------(cid:10)
(2,543,473) (3,090,238) (876,408)(cid:10)
------------ ------------ ------------(cid:10)
LOSS BEFORE PROVISION FOR INCOME(cid:10)
TAXES (10,910,340) (11,160,480) (6,882,914)(cid:10)
Provision For Income Taxes (3,120) (1,000) (1,000)(cid:10)
------------ ------------ ------------(cid:10)
Loss from continuing operations (10,913,460) (11,161,480) (6,883,914)(cid:10)
Loss from discontinued operations (2,979,600) (642,032) --(cid:10)
------------ ------------ ------------(cid:10)
NET LOSS (13,893,060) (11,803,512) (6,883,914)(cid:10)
Preferred Stock Dividends (2,104,797) (791,181) (2,155,250)(cid:10)
------------ ------------ ------------(cid:10)
NET LOSS ATTRIBUTABLE TO COMMON(cid:10)
SHAREHOLDERS $(15,997,857) $(12,594,693) $ (9,039,164)(cid:10)
============ ============ ============(cid:10)
BASIC AND DILUTED LOSS PER COMMON(cid:10)
SHARE $ (.73) $ (.64) $ (.49)(cid:10)
============ ============ ============(cid:10)
WEIGHTED AVERAGE NUMBER OF(cid:10)
COMMON SHARES OUTSTANDING 21,801,042 19,815,780 18,463,514(cid:10)
============ ============ ============(cid:10)
(cid:10)
The accompanying notes are an integral part of the Consolidated(cid:10)
Financial Statements.(cid:10)
F-4(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(cid:10)
(cid:10)
(cid:10)
PREFERRED STOCK COMMON STOCK ADDITIONAL TREASURY STOCK(cid:10)
PAID-IN(cid:10)
SHARES AMOUNT SHARES AMOUNT CAPITAL SHARES AMOUNT(cid:10)
------ ------ ------ ------ ------- ------ ------(cid:10)
(cid:10)
BALANCES AT APRIL 1, 2005 -- $ -- 18,022,183 $180,222 $ 47,006,379 (100,000) $(306,841)(cid:10)
Net proceeds from issuance(cid:10)
of Series B(cid:10)
8% Convertible Preferred(cid:10)
Stock and warrants 10,000 $ 100 -- -- 8,792,569 -- --(cid:10)
Non-cash compensation(cid:10)
satisfied by the(cid:10)
issuance of stock, options(cid:10)
and warrants -- -- -- -- 902,927(cid:10)
Exercise of stock options -- -- 20,000 200 39,800 -- --(cid:10)
Exercise of stock warrants -- -- 1,147,976 11,480 1,241,515 -- --(cid:10)
Net loss -- -- -- -- -- -- --(cid:10)
Dividends -- -- -- -- 2,121,917 -- --(cid:10)
------ ----- ---------- -------- ------------ -------- ---------(cid:10)
BALANCES AT MARCH 31, 2006 10,000 $ 100 19,190,159 $191,902 $ 60,105,107 (100,000) $(306,841)(cid:10)
====== ===== ========== ======== ============ ======== =========(cid:10)
(cid:10)
ACCUMULATED STOCKHOLDERS'(cid:10)
DEFICIT EQUITY(cid:10)
------- ------(cid:10)
(cid:10)
BALANCES AT APRIL 1, 2005 $(41,177,459) $ 5,702,301(cid:10)
Net proceeds from issuance(cid:10)
of Series B(cid:10)
8% Convertible Preferred(cid:10)
Stock and warrants -- 8,792,669(cid:10)
Non-cash compensation(cid:10)
satisfied by the(cid:10)
issuance of stock, options(cid:10)
and warrants 902,927(cid:10)
Exercise of stock options -- 40,000(cid:10)
Exercise of stock warrants -- 1,252,995(cid:10)
Net loss (6,883,914) (6,883,914)(cid:10)
Dividends (2,155,250) (33,333)(cid:10)
------------ ------------(cid:10)
BALANCES AT MARCH 31, 2006 $(50,216,623) $ 9,773,645(cid:10)
============ ============(cid:10)
(cid:10)
The accompanying notes are an integral part of the Consolidated(cid:10)
Financial Statements.(cid:10)
F-5(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(cid:10)
(cid:10)
(cid:10)
ADDITIONAL(cid:10)
PREFERRED STOCK COMMON STOCK SUBSCRIPTION PAID-IN(cid:10)
SHARES AMOUNT SHARES AMOUNT RECEIVABLE CAPITAL(cid:10)
------ ------ ------ ------ ---------- -----------(cid:10)
(cid:10)
BALANCES AT APRIL 1, 2006 10,000 $ 100 19,190,159 $ 191,902 -- $ 60,105,107(cid:10)
Equity Investment in Company -- -- 957,396 9,574 -- 1,990,426(cid:10)
Conversion of Preferred to Common (305) (3) 135,555 1,356 -- (1,353)(cid:10)
Conversion of Warrants to Common -- -- 84,430 844 -- (844)(cid:10)
Exercise of Stock Options -- -- 59,000 590 -- 87,910(cid:10)
Non-cash compensation through(cid:10)
issuance of stock options(cid:10)
and warrants -- -- -- -- -- 3,479,070(cid:10)
Sale of Warrants -- -- -- -- (75,000) 75,000(cid:10)
Costs associated with Raising(cid:10)
Capital -- -- -- -- -- (26,347)(cid:10)
Net loss -- -- -- -- -- --(cid:10)
Dividends -- -- 372,562 3,725 -- 786,649(cid:10)
------- ------------ ------------ ------------ ------------(cid:10)
BALANCES AT MARCH 31, 2007 9,695 $ 97 20,799,102 $ 207,991 (75,000) $ 66,495,618(cid:10)
====== ======= ============ ============ ============ ============(cid:10)
(cid:10)
TREASURY STOCK ACCUMULATED STOCKHOLDERS'(cid:10)
SHARES AMOUNT DEFICIT EQUITY(cid:10)
------ ------ ------- ------(cid:10)
(cid:10)
BALANCES AT APRIL 1, 2006 (100,000) $ (306,841) $(50,216,623) $ 9,773,645(cid:10)
Equity Investment in Company -- -- -- 2,000,000(cid:10)
Conversion of Preferred to Common -- -- -- --(cid:10)
Conversion of Warrants to Common -- -- -- --(cid:10)
Exercise of Stock Options -- -- -- 88,500(cid:10)
Non-cash compensation through(cid:10)
issuance of stock options(cid:10)
and warrants -- -- -- 3,479,070(cid:10)
Sale of Warrants -- -- -- --(cid:10)
Costs associated with Raising(cid:10)
Capital -- -- -- (26,347)(cid:10)
Net loss -- -- (11,803,512) (11,803,51)(cid:10)
Dividends -- -- (791,182) (808)(cid:10)
------------ ------------ ------------ ------------(cid:10)
BALANCES AT MARCH 31, 2007 (100,000) $ (306,841) $(62,811,317) $ (3,510,548)(cid:10)
============ ============ ============ ============(cid:10)
(cid:10)
The accompanying notes are an integral part of the Consolidated(cid:10)
Financial Statements.(cid:10)
F-6(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(cid:10)
(cid:10)
(cid:10)
SERIES B SERIES C(cid:10)
PREFERRED STOCK PREFERRED STOCK COMMON STOCK(cid:10)
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT(cid:10)
------ ------ ------ ------ ------ ------(cid:10)
(cid:10)
BALANCE AT MARCH 31, 2007 9,695 $ 97 -- $ -- 20,799,102 $ 207,991(cid:10)
Sale of Series C Preferred Stock and -- -- 20,000 200 -- --(cid:10)
Warrants(cid:10)
Conversion of Preferred to Common (1,285) (13) (845) (8) 937,992 9,380(cid:10)
Exercise of Stock Options and(cid:10)
Warrants -- -- -- -- 280,424 2,804(cid:10)
Non-cash compensation through(cid:10)
Issuance of stock options and(cid:10)
warrants -- -- -- -- -- --(cid:10)
Beneficial Conversion -- -- -- -- -- --(cid:10)
Costs associated with Raising Capital -- -- -- -- -- --(cid:10)
Net loss -- -- -- -- -- --(cid:10)
Dividends -- -- -- -- 1,113,517 11,135(cid:10)
------------ ------------ ------------ ------------ ------------ ------------(cid:10)
BALANCE AT MARCH 31, 2008 8,410 $ 84 19,155 $ 192 23,131,035 $ 231,310(cid:10)
============ ============ ============ ============ ============ ============(cid:10)
(cid:10)
ADDITIONAL(cid:10)
SUBSCRIPTION PAID-IN TREASURY STOCK ACCUMULATED STOCKHOLDERS'(cid:10)
RECEIVABLE CAPITAL SHARES AMOUNT DEFICIT EQUITY(cid:10)
---------- ------- ------ ------- ------- ------(cid:10)
(cid:10)
BALANCE AT MARCH 31, 2007 $ (75,000) $ 66,495,618 (100,000) $ (306,841) $(62,811,317) $ 3,510,548(cid:10)
Sale of Series C Preferred Stock and -- 19,999,800 -- -- -- 20,000,000(cid:10)
Warrants(cid:10)
Conversion of Preferred to Common -- (9,359) -- -- -- --(cid:10)
Exercise of Stock Options and(cid:10)
Warrants -- 371,701 -- -- -- 374,505(cid:10)
Non-cash compensation through(cid:10)
Issuance of stock options and(cid:10)
warrants -- 2,607,470 -- -- -- 2,607,470(cid:10)
Beneficial Conversion -- 2,384,609 -- -- (2,384,609) --(cid:10)
Costs associated with Raising Capital -- (1,576,055) -- -- -- (1,576,055)(cid:10)
Net loss -- -- -- -- (13,893,060) (13,893,060)(cid:10)
Dividends -- 1,616,194 -- -- (2,101,416) (474,087)(cid:10)
------------ ------------ ------------ ------------ ------------ ------------(cid:10)
BALANCE AT MARCH 31, 2008 $ (75,000) $ 91,889,978 (100,000) $ (306,841) $(81,190,402) $(10,549,321)(cid:10)
============ ============ ============ ============ ============ ============(cid:10)
(cid:10)
The accompanying notes are an integral part of the Consolidated(cid:10)
Financial Statements.(cid:10)
F-7(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
CONSOLIDATED STATEMENTS OF CASH FLOWS(cid:10)
(cid:10)
(cid:10)
YEARS ENDED(cid:10)
MARCH 31,(cid:10)
---------------------(cid:10)
2008 2007 2006(cid:10)
---- ---- ----(cid:10)
(cid:10)
CASH FLOWS FROM OPERATING ACTIVITIES:(cid:10)
Loss from Continuing Operations $(10,913,460) $(11,161,480) $ (6,883,914)(cid:10)
Adjustments to reconcile net loss to cash used in operating activities:(cid:10)
Depreciation and amortization 413,701 408,814 486,687(cid:10)
Non-cash compensation satisfied by issuance of stock,(cid:10)
options and warrants 2,607,470 3,479,070 902,927(cid:10)
Changes in assets and liabilities:(cid:10)
Accounts receivable 67,353 (215,837) 142,113(cid:10)
Accrued interest receivable (3,795) (949) --(cid:10)
Inventories (1,311,451) (485,964) (124,380)(cid:10)
Prepaid expenses and other current assets 128,423 (162,767) 652(cid:10)
Security Deposit (6,508) -- (6,980)(cid:10)
Accounts payable, accrued expenses and other current liabilities (867,016) (22,805) 857,346(cid:10)
------------ ------------ ------------(cid:10)
NET CASH USED IN CONTINUING OPERATING ACTIVITIES (9,885,283) (8,161,918) (4,625,549)(cid:10)
------------ ------------ ------------(cid:10)
Discontinued Operations(cid:10)
Loss from Discontinued Operations (2,979,600) (642,032) --(cid:10)
Equity in loss of discontinued operations 3,030,606 642,032 --(cid:10)
------------ ------------ ------------(cid:10)
NET CASH PROVIDED BY DISCONTINUED OPERATIONS 51,006 -- --(cid:10)
------------ ------------ ------------(cid:10)
NET CASH USED IN OPERATING ACTIVITIES (9,834,277) (8,161,918) (4,625,549)(cid:10)
------------ ------------ ------------(cid:10)
CASH FLOWS FROM INVESTING ACTIVITIES:(cid:10)
Increase in intangible assets due to patent costs -- (5,470) --(cid:10)
Deposits to restricted cash (17,080) -- (1,175,971)(cid:10)
Release of restricted cash -- 1,174,397 --(cid:10)
Payment of deposit for manufacturing equipment (14,703) (32,880) --(cid:10)
Purchases of property and equipment (505,580) (925,150) (448,280)(cid:10)
Investment in Novel Laboratories, Inc. (4,992,160) (2,009,800) --(cid:10)
------------ ------------ ------------(cid:10)
NET CASH USED IN INVESTING ACTIVITIES (5,529,523) (1,798,903) (1,624,251)(cid:10)
------------ ------------ ------------(cid:10)
CASH FLOWS FROM FINANCING ACTIVITIES:(cid:10)
Repayments of bank loans (5,752) -- --(cid:10)
Dividends paid (410,832) (34,141) --(cid:10)
Proceeds from issuance of Common Stock and warrants -- 2,000,000 --(cid:10)
Principal repayments of NJEDA bonds (185,000) (175,000) (2,345,000)(cid:10)
Proceeds from issuance of Series C 8% Convertible Preferred(cid:10)
Stock and Warrants 20,000,000 -- --(cid:10)
Costs associated with raising capital (1,576,055) (26,347) --(cid:10)
Proceeds from bank loan 58,004 -- --(cid:10)
Proceeds - NJEDA Tax Exempt Bonds -- -- 4,155,000(cid:10)
Payment - NJEDA Bond Offering Costs -- -- (354,452)(cid:10)
Proceeds from issuance of Series B 8% Convertible Preferred(cid:10)
Stock and warrants -- -- 8,792,669(cid:10)
Repayments of equipment note -- -- (315,074)(cid:10)
Prepaid interest -- -- 41,013(cid:10)
Proceeds from exercise of stock options 61,500 88,500 40,000(cid:10)
Proceeds from exercise of stock warrants 313,005 -- 1,252,995(cid:10)
------------ ------------ ------------(cid:10)
NET CASH PROVIDED BY FINANCING ACTIVITIES 18,254,870 1,853,012 11,267,151(cid:10)
------------ ------------ ------------(cid:10)
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,891,070 (8,107,809) 5,017,351(cid:10)
CASH AND CASH EQUIVALENTS - beginning of period 811,545 8,919,354 3,902,003(cid:10)
------------ ------------ ------------(cid:10)
CASH AND CASH EQUIVALENTS - end of period $ 3,702,615 $ 811,545 $ 8,919,354(cid:10)
============ ============ ============(cid:10)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:(cid:10)
Cash paid for interest $ 293,404 $ 275,554 $ 275,071(cid:10)
Cash paid (received) for income taxes 3,120 (376,259) (218,121)(cid:10)
SCHEDULES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:(cid:10)
Preferred Stock dividends of $1,627,328, $791,182 and $120,675 paid by(cid:10)
issuance of 1,113,517, 372,562 and 64,033 shares of Common Stock $ -- $ -- $ --(cid:10)
Utilization of equipment deposit towards purchase of equipment 32,880 -- --(cid:10)
Dividends accrued on preferred stock -- -- 33,333(cid:10)
Beneficial Conversion Dividend 2,384,609 -- 2,121,917(cid:10)
(cid:10)
The accompanying notes are an integral part of the Consolidated(cid:10)
Financial Statements.(cid:10)
F-8(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:10)
MARCH 31, 2008, 2007 AND 2006(cid:10)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(cid:10)
PRINCIPLES OF CONSOLIDATION(cid:10)
The consolidated financial statements include the accounts of Elite(cid:10)
Pharmaceuticals, Inc. and its consolidated subsidiaries, (collectively the(cid:10)
"Company") including its wholly-owned subsidiaries, Elite Laboratories, Inc.(cid:10)
("Elite Labs") and Elite Research, Inc. ("ERI") for the years ended March 31,(cid:10)
2008, 2007 and 2006 and its variable interest entity, Novel Laboratories, Inc.(cid:10)
("Novel"). During the quarter ended December 31, 2007, Novel ceased to be a(cid:10)
variable interest entity of Elite. Accordingly, the information in this 10K has(cid:10)
been prepared as if Elite divested of Novel as a wholly owned subsidiary on(cid:10)
October 1, 2007 and the operations are being reflected as a discontinued(cid:10)
operation. Our Company consolidates all entities that we control by ownership of(cid:10)
a majority voting interest. As of March 31, 2008, the financial statements of(cid:10)
all wholly-owned entities are consolidated and all significant intercompany(cid:10)
accounts are eliminated upon consolidation.(cid:10)
NATURE OF BUSINESS(cid:10)
Elite Pharmaceuticals, Inc. was incorporated on October 1, 1997 under the laws(cid:10)
of the State of Delaware, and its wholly-owned subsidiary Elite Laboratories,(cid:10)
Inc. was incorporated on August 23, 1990 under the laws of the State of(cid:10)
Delaware. Elite Labs engages primarily in researching, developing and licensing(cid:10)
proprietary controlled-release drug delivery systems and products. The Company(cid:10)
is also equipped to manufacture controlled-release products on a contract basis(cid:10)
for third parties and itself if and when the products are approved; however the(cid:10)
Company has concentrated on developing orally administered controlled-release(cid:10)
products. These products include drugs that cover therapeutic areas for pain,(cid:10)
allergy and infection. The Company also engages in research and development(cid:10)
activities for the purpose of obtaining Food and Drug Administration approval,(cid:10)
and, thereafter, commercially exploiting generic and new controlled-release(cid:10)
pharmaceutical products. The Company also engages in contract research and(cid:10)
development on behalf of other pharmaceutical companies.(cid:10)
CASH AND CASH EQUIVALENTS(cid:10)
The Company considers all highly liquid investments with an original maturity of(cid:10)
three months or less to be cash equivalents. Cash and cash equivalents consist(cid:10)
of cash on deposit with banks and money market instruments. The Company places(cid:10)
its cash and cash equivalents with high-quality, U.S. financial institutions(cid:10)
and, to date, has not experienced losses on any of its balances.(cid:10)
INVENTORIES(cid:10)
Inventories are stated at the lower of cost (first-in, first-out basis) or(cid:10)
market (net realizable value).(cid:10)
LONG-LIVED ASSETS(cid:10)
The Company periodically evaluates the fair value of long-lived assets, which(cid:10)
include property and equipment and intangibles, whenever events or changes in(cid:10)
circumstances indicate that its carrying amounts may not be recoverable. Such(cid:10)
conditions may include an economic downturn or a change in the assessment of(cid:10)
future operations. A charge for impairment is recognized whenever the carrying(cid:10)
amount of a long-lived asset exceeds its fair value. Management has determined(cid:10)
that no impairment of long-lived assets has occurred.(cid:10)
Property and equipment are stated at cost. Depreciation is provided on the(cid:10)
straight-line method based on the estimated useful lives of the respective(cid:10)
assets which range from five to forty years. Major repairs or improvements are(cid:10)
capitalized. Minor replacements and maintenance and repairs which do not improve(cid:10)
or extend asset lives are expensed currently.(cid:10)
Upon retirement or other disposition of assets, the cost and related accumulated(cid:10)
depreciation are removed from the accounts and the resulting gain or loss, if(cid:10)
any, is recognized in income.(cid:10)
Costs incurred to acquire intangible assets such as for the application of(cid:10)
patents and trademarks are capitalized and amortized on the straight-line(cid:10)
method, based on their estimated useful lives ranging from five to fifteen(cid:10)
years, commencing upon approval of the patent and trademarks. Such costs are(cid:10)
charged to expense if the patent or trademark is unsuccessful.(cid:10)
F-9(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:10)
MARCH 31, 2008, 2007 AND 2006(cid:10)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)(cid:10)
RESEARCH AND DEVELOPMENT(cid:10)
Research and development expenditures are charged to expense as incurred.(cid:10)
CONCENTRATION OF CREDIT RISK(cid:10)
The Company maintains cash balances, which, at times, may exceed the amounts(cid:10)
insured by the Federal Deposit Insurance Corp. Management does not believe that(cid:10)
there is any significant risk of losses.(cid:10)
The Company in the normal course of business extends credit to its customers(cid:10)
based on contract terms and performs ongoing credit evaluations. An allowance(cid:10)
for doubtful accounts due to uncertainty of collectability is established based(cid:10)
on historical collection experience. Amounts are written off when payment is not(cid:10)
received after exhaustive collection efforts.(cid:10)
USE OF ESTIMATES(cid:10)
The preparation of financial statements in conformity with generally accepted(cid:10)
accounting principles requires management to make estimates and assumptions that(cid:10)
affect the reported amounts of assets and liabilities and disclosure of(cid:10)
contingent assets and liabilities at the date of the financial statements and(cid:10)
the reported amounts of revenues and expenses during the reporting period.(cid:10)
Actual results could differ from those estimates. Significant estimates made by(cid:10)
management include, but are not limited to, the recognition of revenue, the(cid:10)
amount of the allowance for doubtful accounts receivable and the fair value of(cid:10)
intangible assets and stock-based awards.(cid:10)
INCOME TAXES(cid:10)
The Company uses the liability method for reporting income taxes, under which(cid:10)
current and deferred tax liabilities and assets are recorded in accordance with(cid:10)
enacted tax laws and rates. Deferred income taxes reflect the net tax effects of(cid:10)
temporary differences between the carrying amounts of assets and liabilities for(cid:10)
financial reporting purposes and the amounts used for income tax purposes. Under(cid:10)
the liability method, the amounts of deferred tax liabilities and assets at the(cid:10)
end of each period are determined using the tax rate expected to be in effect(cid:10)
when taxes are actually paid or recovered. Further tax benefits are recognized(cid:10)
when it is more likely than not that such benefits will be realized. Valuation(cid:10)
allowances are provided to reduce deferred tax assets to the amount considered(cid:10)
likely to be realized.(cid:10)
Effective April 1, 2007, the Company adopted the provisions of FASB's(cid:10)
Interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxes - an(cid:10)
interpretation of FASB No. 109." Fin 48 prescribes a recognition threshold and(cid:10)
measurement attribute for how a company should recognize, measure, present, and(cid:10)
disclose in its financial statements uncertain tax positions that the company(cid:10)
has taken or expects to take on a tax return. FIN 48 requires that the financial(cid:10)
statements reflect expected future tax consequences of such positions presuming(cid:10)
the taxing authorities' full knowledge of the position and all relevant facts,(cid:10)
but without considering time values. No such amounts were accrued for April 1,(cid:10)
2007. Additionally, no adjustments related to uncertain tax positions were(cid:10)
recognized during the year ended March 31, 2008.(cid:10)
The Company recognizes interest and penalties related to uncertain tax positions(cid:10)
as a reduction of the income tax benefit. No interest and penalties related to(cid:10)
uncertain tax positions were accrued as of March 31, 2008.(cid:10)
The Company operates in multiple tax jurisdictions within the United States of(cid:10)
America. Although we do not believe that we are currently under examination in(cid:10)
any of our major tax jurisdictions, we remain subject to examination in all of(cid:10)
our tax jurisdiction until the applicable statues of limitation expire. As of(cid:10)
March 31, 2008, a summary of the tax years that remain subject to examination in(cid:10)
our major tax jurisdictions are: United States - Federal and State - 2004 and(cid:10)
forward. The Company does not expect to have a material change to unrecognized(cid:10)
tax positions within the next twelve months.(cid:10)
F-10(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:10)
MARCH 31, 2008, 2007 AND 2006(cid:10)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)(cid:10)
EARNINGS PER COMMON SHARE(cid:10)
Basic earnings per common share is calculated by dividing net earnings by the(cid:10)
weighted average number of shares outstanding during each period presented.(cid:10)
Diluted earnings per share is calculated by dividing earnings by the weighted(cid:10)
average number of shares and common stock equivalents. The Company's common(cid:10)
stock equivalents, consist of options, warrants and convertible securities.(cid:10)
REVENUE RECOGNITION(cid:10)
Revenues derived from providing research and development services under(cid:10)
contracts with other pharmaceutical companies are recognized when earned. These(cid:10)
contracts provide for non-refundable upfront and milestone payments. Because no(cid:10)
discrete earnings event has occurred when the upfront payment is received, that(cid:10)
amount is deferred until the achievement of a defined milestone. Each(cid:10)
nonrefundable milestone payment is recognized as revenue when the performance(cid:10)
criteria for that milestone have been met. Under each contract, the milestones(cid:10)
are defined, substantive effort is required to achieve the milestone, the amount(cid:10)
of the non-refundable milestone payment is reasonable, commensurate with the(cid:10)
effort expended, and achievement of the milestone is reasonably assured.(cid:10)
Revenues earned by licensing certain pharmaceutical products developed by the(cid:10)
Company are recognized at the beginning of a license term when the Company's(cid:10)
customer has legal right to the use of the product. To date, no revenues have(cid:10)
been earned by licensing products and there are no continuing obligations under(cid:10)
any licensing agreements.(cid:10)
Revenues derived from royalties to the extent that they cannot be reasonably(cid:10)
estimated are recognized when the payment is received. Revenues earned under(cid:10)
manufacturing agreements with other pharmaceutical companies are recognized when(cid:10)
product is shipped.(cid:10)
TREASURY STOCK(cid:10)
The Company records common shares purchased and held in treasury at cost.(cid:10)
FAIR VALUE OF FINANCIAL INSTRUMENTS(cid:10)
The carrying amounts of current assets and liabilities approximate fair value(cid:10)
due to the short-term nature of these instruments. The carrying amounts of(cid:10)
noncurrent assets are reasonable estimates of their fair values based on(cid:10)
management's evaluation of future cash flows. The long-term liabilities are(cid:10)
carried at amounts that approximate fair value based on borrowing rates(cid:10)
available to the Company for obligations with similar terms, degrees of risk and(cid:10)
remaining maturities.(cid:10)
STOCK-BASED COMPENSATION(cid:10)
The Company accounts for stock-based compensation in accordance with the(cid:10)
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," which(cid:10)
provided guidance for the recognition of compensation expense as it related to(cid:10)
the issuance of stock options and warrants. In addition, the Company adopted the(cid:10)
provisions of SFAS No. 148, "Accounting for Stock-Based Compensation -Transition(cid:10)
and Disclosure - an amendment of SFAS No. 123." SFAS No. 148 amended SFAS No.(cid:10)
123 to provide alternative methods of transition for a voluntary change to the(cid:10)
fair value based method of accounting for stock-based employee compensation(cid:10)
provided by SFAS No. 123. As permitted by SFAS No. 148, the Company has adopted(cid:10)
the fair value method recommended by SFAS No. 123 to effect a change in(cid:10)
accounting for stock-based employee compensation. In addition, the Company(cid:10)
adopted the provisions of SFAS No. 123R, "Share-Based Payment," which revised(cid:10)
SFAS No. 123 to require all share-based payments to employees, including grants(cid:10)
of employee stock options, to be recognized based on their fair values.(cid:10)
The compensation expense recognized for the years ended March 31, 2008, 2007 and(cid:10)
2006 was $2,607,470, $3,479,070 and $902,927, respectively.(cid:10)
F-11(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:10)
MARCH 31, 2008, 2007 AND 2006(cid:10)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)(cid:10)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS(cid:10)
There are a number of recently issued, but not yet effective statements of(cid:10)
Financial Accounting Standards, FASB Staff Positions, Consensus of the Emerging(cid:10)
Issues Task Force, and an AICPA Statement of Position. The Company does not(cid:10)
believe that adoption of any of those pronouncements will have a material effect(cid:10)
on its Consolidated Financial Statements.(cid:10)
RECLASSIFICATIONS(cid:10)
Certain accounts and amounts in the 2006 and 2007 financial statements have been(cid:10)
reclassified in order to conform with the 2008 presentation. These(cid:10)
reclassifications have no effect on net income.(cid:10)
NOTE 2 - MANAGEMENT'S LIQUIDITY PLANS(cid:10)
The Company reported net losses of $13,893,060, $11,803,512 and $6,883,914 for(cid:10)
the fiscal years ended March 31, 2008, 2007 and 2006, respectively. At March 31,(cid:10)
2008, the Company had an accumulated deficit of approximately $81.2 million,(cid:10)
consolidated assets of approximately $15.3 million, stockholders' equity of(cid:10)
approximately $10.5 million, and working capital of approximately $5 million.(cid:10)
The Company has not generated any significant revenue to date. During the fiscal(cid:10)
year ended March 31, 2008, the Company raised $18,423,945 of net proceeds from(cid:10)
the sale of Series C Preferred Stock.(cid:10)
The Company's strategy is to continue to be engaged in the development and(cid:10)
manufacturing of oral controlled-release products. It will continue to develop(cid:10)
generic versions of controlled-release drug products with high barriers to entry(cid:10)
and assist partner companies in the life cycle management of products to improve(cid:10)
off-patent drug products. The Company has two products currently being sold(cid:10)
commercially and a pipeline of five products under development. Of the products(cid:10)
under development, ELI-216, an abuse deterrent oxycodone product, and ELI-154, a(cid:10)
once daily oxycodone product, are in clinical trials and we have completed pilot(cid:10)
studies on two of our generic product candidates.(cid:10)
As of March 31, 2008, the Company's principal source of liquidity was(cid:10)
approximately $3,703,000 of cash and cash equivalents. As of March 31, 2008, the(cid:10)
Company had approximately six months of cash available based on its current(cid:10)
operations. The Company may also receive funds through the exercise of(cid:10)
outstanding stock options and warrants in addition to funds that may be(cid:10)
generated from the potential sale of New Jersey tax losses. There can be no(cid:10)
assurance that proceeds from the sale of the tax losses and from the exercise,(cid:10)
if any, of outstanding warrants or options will be material.(cid:10)
The Company retained an investment banking firm in 2008 to assist the Company in(cid:10)
connection with potential acquisitions, strategic alliances with other(cid:10)
pharmaceutical companies, advice to future financings and introductions to key(cid:10)
parties in capital markets. In addition the Company entered into an engagement(cid:10)
agreement with Placement Agents to act as co-leads for a private financing(cid:10)
between $10-15 million.(cid:10)
There is no assurance that the Company's business strategy will be successfully(cid:10)
implemented, however with the Company's existing working capital levels, it will(cid:10)
be able to continue operations at least through the end of fiscal 2009.(cid:10)
F-12(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:10)
MARCH 31, 2008, 2007 AND 2006(cid:10)
NOTE 3- PROPERTY AND EQUIPMENT(cid:10)
Property and equipment at March 31, 2008 and 2007 consists of the following:(cid:10)
(cid:10)
(cid:10)
2008 2007(cid:10)
---- ----(cid:10)
(cid:10)
Laboratory manufacturing, and warehouse equipment $ 5,075,215 $ 4,648,083(cid:10)
Office equipment 53,607 32,981(cid:10)
Furniture and fixtures 62,406 51,781(cid:10)
Transportation equipment 66,855 4,500(cid:10)
Land, building and improvements 2,463,939 2,385,401(cid:10)
Equipment under capital lease 168,179
----------- -----------(cid:10)
7,890,201 7,290,925(cid:10)
Less: Accumulated depreciation and amortization (2,881,500) (2,429,324)(cid:10)
----------- -----------(cid:10)
$ 5,008,701 $ 4,861,601(cid:10)
=========== ===========(cid:10)
(cid:10)
Depreciation and amortization expense amounted to $413,701, $403,698 and(cid:10)
$333,748 for the years ended March 31, 2008, 2007 and 2006, respectively.(cid:10)
NOTE 4 - INTANGIBLE ASSETS(cid:10)
Intangible assets at March 31, 2008 and 2007, consist of the following:(cid:10)
(cid:10)
Amortization of intangible assets amounted to $21,711, $22,118 and $21,727 for(cid:10)
the years ended March 31, 2008, 2007 and 2006, respectively.(cid:10)
F-13(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:10)
MARCH 31, 2008, 2007 AND 2006(cid:10)
NOTE 5 - LONG TERM DEBT(cid:10)
On September 2, 1999, the Company completed the issuance of tax exempt bonds by(cid:10)
the New Jersey Economic Development Authority ("NJEDA" or the "Authority"). The(cid:10)
aggregate proceeds from the issuance of the fifteen year term bonds was(cid:10)
$3,000,000. Interest on the bonds accrues at 7.75% per annum. A portion of the(cid:10)
proceeds were used by the Company to refinance its land and building, and the(cid:10)
remaining proceeds were intended to be used for the purchase of manufacturing(cid:10)
equipment and building improvements.(cid:10)
On August 31, 2005, the Company successfully completed a refinancing of the 1999(cid:10)
bond issue through the issuance of new tax-exempt bonds (the "Bonds"). The(cid:10)
refinancing involved borrowing $4,155,000, evidenced by a 6.5% Series A Note in(cid:10)
the principal amount of $3,660,000 maturing on September 1, 2030 and a 9% Series(cid:10)
B Note in the principal amount of $495,000 maturing on September 1, 2012. The(cid:10)
net proceeds, after payment of issuance costs, were used (i) to redeem the(cid:10)
outstanding tax-exempt Bonds originally issued by the Authority on September 2,(cid:10)
1999, (ii) refinance other equipment financing and (iii) for the purchase of(cid:10)
certain equipment to be used in the manufacture of pharmaceutical products.(cid:10)
Interest is payable semiannually on March 1 and September 1 of each year. The(cid:10)
Bonds are collateralized by a first lien on the Company's facility and equipment(cid:10)
acquired with the proceeds of the original and refinanced Bonds. The related(cid:10)
Indenture requires the maintenance of a $415,500 Debt Service Reserve Fund(cid:10)
consisting of $366,000 from the Series A Notes proceeds and $49,500 from the(cid:10)
Series B Notes proceeds. The Debt Service Reserve is maintained in restricted(cid:10)
cash accounts that are classified in Other Assets. $1,274,311 of the proceeds(cid:10)
had been deposited in a short-term restricted cash account to fund the purchase(cid:10)
of manufacturing equipment and development of the Company's facility. As of(cid:10)
March 31, 2008, all of these proceeds were utilized to upgrade the Company's(cid:10)
manufacturing facilities and for the purchase of manufacturing and laboratory(cid:10)
equipment.(cid:10)
Bond issue costs of $354,000 were paid from the bond proceeds and are being(cid:10)
amortized over the life of the bonds. Amortization of bond financing costs(cid:10)
amounted to $14,178, $14,178 and $7,000 for the years ended March 31, 2008, 2007(cid:10)
and 2006, respectively.(cid:10)
Bond issue costs of the 1999 bonds were being amortized over the term of those(cid:10)
bonds. Such amortization amounted to $5,500 in the year ended March 31, 2006.(cid:10)
Upon the refinancing the remaining unamortized issue costs of $118,712 were(cid:10)
charged to expenses.(cid:10)
As of March 31, 2008, $1,274,311 has been requisitioned and deposited into(cid:10)
operating accounts to fund the purchase of equipment and to upgrade our(cid:10)
manufacturing facility.(cid:10)
F-14(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:10)
MARCH 31, 2008, 2007 AND 2006(cid:10)
NOTE 5 - LONG TERM DEBT (CONTINUED)(cid:10)
Bond financings consisted of the following at March 31:(cid:10)
(cid:10)
(cid:10)
2008 2007(cid:10)
----------- -----------(cid:10)
(cid:10)
Refinanced NJEDA Bonds $ 3,795,000 $ 3,980,000(cid:10)
----------- -----------(cid:10)
3,795,000 3,980,000(cid:10)
Current portion (200,000) (185,000)(cid:10)
----------- -----------(cid:10)
Long term portion, net of current maturities $ 3,595,000 $ 3,795,000(cid:10)
=========== ===========(cid:10)
(cid:10)
Maturities of Bonds for the next five years follow:(cid:10)
YEAR ENDING MARCH 31, AMOUNT(cid:10)
--------------------- ------(cid:10)
2009 $ 200,000(cid:10)
2010 210,000(cid:10)
2011 225,000(cid:10)
2012 245,000(cid:10)
2013 260,000(cid:10)
Thereafter 2,655,000(cid:10)
-----------(cid:10)
$ 3,795,000(cid:10)
===========(cid:10)
In 2004, the Company entered into a loan and financing agreement to purchase(cid:10)
machinery and equipment. The $400,000 loan was payable in 36 monthly(cid:10)
installments of $13,671, each, including principal and interest at 14% annum. As(cid:10)
part of the agreement, the Company issued to the lender's designees warrants to(cid:10)
purchase 50,000 shares of the Company's Common Stock at $4.20 per share. The(cid:10)
warrants vested immediately and their cost of $41,252 was charged to expense in(cid:10)
the year ended March 31, 2005. Proceeds from the refinancing of the Company's(cid:10)
EDA Bonds were used to pay off the unpaid portion of the loan.(cid:10)
F-15(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:10)
MARCH 31, 2008, 2007 AND 2006(cid:10)
NOTE 5 - LONG TERM DEBT (CONTINUED)(cid:10)
Long-term debt consists of the following at March 31:(cid:10)
(cid:10)
(cid:10)
2008 2007(cid:10)
----------- -----------(cid:10)
(cid:10)
Note payable to First Niagara Bank in 60 monthly installments of $1,180(cid:10)
including interest at 9.00%; final payment September, 2012; secured by(cid:10)
vehicle purchased. $ 52,252 $ --(cid:10)
----------- -----------(cid:10)
52,252 --(cid:10)
Less Current Portion (9,864) --(cid:10)
----------- -----------(cid:10)
LONG-TERM DEBT, LESS CURRENT PORTION $ 42,388 $ --(cid:10)
=========== ===========(cid:10)
(cid:10)
Maturities of long-term debt in each of the next five years are as follows:(cid:10)
YEAR ENDED MARCH 31, AMOUNT(cid:10)
-------------------- ------(cid:10)
2009 $ 9,864(cid:10)
2010 10,788(cid:10)
2011 11,798(cid:10)
2012 12,904(cid:10)
2013 6,898(cid:10)
------------(cid:10)
$ 52,252(cid:10)
============(cid:10)
NOTE 6 - INCOME TAXES(cid:10)
The components of the provision for income taxes are as follows:(cid:10)
YEAR ENDED MARCH 31,(cid:10)
2008 2007 2006(cid:10)
------ ------ ------(cid:10)
Federal:(cid:10)
Current $ -- $ -- $ --(cid:10)
Deferred -- -- --(cid:10)
------ ------ ------(cid:10)
-- -- --(cid:10)
------ ------ ------(cid:10)
State:(cid:10)
Current 3,120 1,770 1,000(cid:10)
Deferred -- -- --(cid:10)
------ ------ ------(cid:10)
3,120 1,770 1,000(cid:10)
------ ------ ------(cid:10)
$3,120 $1,770 $1,000(cid:10)
====== ====== ======(cid:10)
During the years ended March 31, 2007 and 2006 the Company received approval for(cid:10)
the sale of an additional $4,818,122 and $2,798,478 of New Jersey net-operating(cid:10)
losses under the Technology Tax Certificate Transfer Program sponsored by the(cid:10)
New Jersey Economic Development Authority (NJEDA). The total tax benefits(cid:10)
received during the years ended March 31, 2007 and 2006 were $377,259 and(cid:10)
$219,121, respectively and are recorded as other income in the statements of(cid:10)
operations.(cid:10)
F-16(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:10)
MARCH 31, 2008, 2007 AND 2006(cid:10)
NOTE 6 - INCOME TAXES (CONTINUED)(cid:10)
The major components of deferred tax assets at March 31, 2008 and 2007 are as(cid:10)
follows:(cid:10)
2008 2007(cid:10)
------------ ------------(cid:10)
Net operating loss carry forwards $ 15,128,722 $ 11,733,884(cid:10)
Valuation allowance (15,128,722) (11,733,884)(cid:10)
------------ ------------(cid:10)
$ -- $ --(cid:10)
============ ============(cid:10)
At March 31, 2008 and 2007, a 100% valuation allowance is provided, as it is(cid:10)
uncertain if the deferred tax assets will provide any future benefits because of(cid:10)
the uncertainty about the Company's ability to generate the future taxable(cid:10)
income necessary to use the net operating loss carryforwards. The valuation(cid:10)
allowance increased during 2008, 2007 and 2006 by $3,394,838, $948,084 and(cid:10)
$2,363,575, respectively.(cid:10)
At March 31, 2008, for federal income tax purposes, the Company has unused net(cid:10)
operating loss carryforwards of approximately $44,496,241 expiring in fiscal(cid:10)
years ending in 2009 through 2023. For state tax purposes, the Company has(cid:10)
$23,665,140 of unused net operating losses, which are net of the $19,784,360 of(cid:10)
the New Jersey net-operating losses sold, as discussed above.(cid:10)
NOTE 7 - COMMITMENTS AND CONTINGENCIES(cid:10)
EMPLOYMENT AGREEMENTS(cid:10)
On January 3, 2008, the Company entered into an employment agreement with Dr.(cid:10)
Stuart Apfel (the "Employment Agreement") providing for Dr. Apfel to serve as(cid:10)
the Company's Chief Medical Officer through January 3, 2009 and automatically(cid:10)
renewable for one year periods thereafter unless terminated by Dr. Apfel or the(cid:10)
Company upon at least 60 days notice prior to the end of the then scheduled(cid:10)
expiration date.(cid:10)
Dr. Apfel has an annual base salary of $220,000 and will be entitled to a(cid:10)
discretionary bonus following the end of each calendar year of up to 50% of Dr.(cid:10)
Apfel's then annual base salary.(cid:10)
Additionally, the Company has granted to Dr. Apfel under the 2004 Plan fully(cid:10)
vested options to purchase 120,000 shares of Common Stock at an exercise price(cid:10)
of $1.75 per share.(cid:10)
The Company has granted to Dr. Apfel under the 2004 Plan options to purchase up(cid:10)
to an additional 280,000 shares of Common Stock ("Milestone Options") at an(cid:10)
exercise price of $1.75 per share. Such Milestone Options vest and become(cid:10)
exercisable as follows: (A) 80,000 shares upon the successful completion, as(cid:10)
determined by the Board, of a Company sponsored Phase III clinical trial of the(cid:10)
Company's developmental drug product referred to as ELI-216; (B) 80,000 shares(cid:10)
upon the successful completion, as determined by the Board, of a Company(cid:10)
sponsored Phase III clinical trial of the Company's developmental drug product(cid:10)
referred to as ELI-154; (C) 80,000 shares upon the successful completion, as(cid:10)
determined by the Board, by the Company during the term of the Employment(cid:10)
Agreement of a Company sponsored long-term safety study for the(cid:10)
Company'sdevelopmental drug product referred to as ELI-216; and (D) 40,000(cid:10)
shares upon the closing of an exclusive product license for the United States(cid:10)
national market, or product sale transaction of all of the Company's ownership(cid:10)
rights, for either ELI-216 or ELI-154. Upon the earlier to occur of (x) January(cid:10)
3, 2017 and (y) the termination of Dr. Apfel's employment hereunder, all(cid:10)
unvested Milestone Options granted shall automatically terminate and all vested(cid:10)
but unexercised Milestone Options shall terminate to the extent unexercised(cid:10)
within ninety (90) days of such date and in accordance with the terms of the(cid:10)
stock option agreement by and between Dr. Apfel and the Company with respect to(cid:10)
the Milestone Options and the 2004 Plan. The shares of Common Stock issuable(cid:10)
upon exercise of the Milestone Options are subject to an effective registration(cid:10)
statement filed with the Securities and Exchange Commission.(cid:10)
F-17(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:10)
MARCH 31, 2008, 2007 AND 2006(cid:10)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)(cid:10)
CHIEF SCIENTIFIC OFFICER(cid:10)
On April 24, 2008, Dr. Subramanian resigned as the Acting Chief Scientific(cid:10)
Officer of the Company and Dr. Apfel was appointed the Chief Scientific Officer(cid:10)
of the Company. The appointment of Dr. Apfel did not modify his employment(cid:10)
agreement in any way.(cid:10)
ALLIANCE AGREEMENT(cid:10)
On December 6, 2006, the Company entered into a Strategic Alliance Agreement(cid:10)
(the "ALLIANCE AGREEMENT") with Dr. Veerappan S. Subramanian ("VS") and VGS(cid:10)
Pharma, LLC, a Delaware limited liability company ("VGS"), under which (i) VS(cid:10)
was appointed to the Company's Board of Directors, (ii) VGS made a $2,000,000(cid:10)
equity investment in the Company, (iii) VS was engaged to serve as strategic(cid:10)
advisor on the research, development and commercialization of the Company's(cid:10)
existing pipeline and (iv) the Company and VGS formed Novel Laboratories Inc., a(cid:10)
Delaware corporation ("Novel"), as a separate specialty pharmaceutical company(cid:10)
for the research, development, manufacturing, licensing, acquisition and(cid:10)
marketing of specialty generic pharmaceuticals.(cid:10)
Pursuant to the Alliance Agreement, Novel entered into an employment agreement(cid:10)
with VS and the Company entered into (i) an Advisory Agreement with VS, (ii) a(cid:10)
Registration Rights Agreement with VGS and VS, and (iii) a Stockholders(cid:10)
Agreement with VS, VGS and Novel.(cid:10)
The specialty pharmaceutical product initiative of the strategic alliance(cid:10)
between the Company and VS is to be conducted by Novel, of which the Company(cid:10)
acquired 49% and VGS acquired 51% of its Class A Voting Common Stock for $9,800(cid:10)
and $10,200 respectively. Pursuant to the Alliance Agreement, VGS acquired for(cid:10)
$2,000,000: (i) 957,396 shares of the Company's Common Stock at approximately(cid:10)
$2.089 per share and (ii) a five year Warrant to purchase 478,698 shares of the(cid:10)
Company's Common Stock, for cash, at an exercise price of $3.00 per share,(cid:10)
subject to adjustment upon the occurrence of certain events.(cid:10)
The Company contributed $5,000,000 to Novel. During the three months ended(cid:10)
December 31, 2007, the Company elected not to fund its remaining contributions(cid:10)
to Novel upon the terms set forth in the Alliance Agreement because the Company(cid:10)
had reached agreement with the FDA under a Special Protocol Assessment on the(cid:10)
Phase III clinical trial of ELI-216, the Company's Abuse Deterrent Oxycodone(cid:10)
product and determined that its funds would be better used to support the(cid:10)
clinical trials for ELI-216.(cid:10)
The Company and VGS negotiated alternative structures that would permit(cid:10)
investments by the Company at valuations which differed from those set forth in(cid:10)
the Alliance Agreement, however VGS and the Company were unable to agree upon an(cid:10)
alternative acceptable to both parties. Accordingly, upon the Company's(cid:10)
determination not to fund its remaining contributions to Novel at the valuation(cid:10)
set forth in the Alliance Agreement, VGS exercised its rights pursuant to the(cid:10)
Stockholders Agreement to purchase from the Company, its shares of Class A(cid:10)
Voting Common Stock of Novel proportionate to the amount of remaining(cid:10)
contributions which were not funded by the Company. As a result, the Company's(cid:10)
remaining ownership interest in Class A Voting Common Stock of Novel is(cid:10)
approximately 10% of the outstanding shares of Class A Voting Common Stock of(cid:10)
Novel.(cid:10)
F-18(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:10)
MARCH 31, 2008, 2007 AND 2006(cid:10)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)(cid:10)
ADVISORY AGREEMENT(cid:10)
The Advisory Agreement obligated VS to provide advisory services to the Company,(cid:10)
including but not limited, to assist in the implementation of current and new(cid:10)
drug product development projects of the Company and assisting in the Company's(cid:10)
recruitment of additional R&D staff members. As an inducement to enter into the(cid:10)
agreement, the Company granted VS a non-qualified stock option to purchase up to(cid:10)
1,750,000 shares of Common Stock (the "Option Shares") at a price of $2.13 per(cid:10)
share. The option vests in 250,000 share installments, the first immediately,(cid:10)
the second on May 6, 2007, the third on December 6, 2007, the fourth upon the(cid:10)
Company's acceptance of the Initial Business Plan of Novel, and the other(cid:10)
installments vesting on the accomplishment of certain milestones with respect to(cid:10)
the first or second drug product developed by the Company (excluding drug(cid:10)
products of Novel) on or after February 4, 2007, under the advisory services(cid:10)
provided to the Company. As of December 31, 2007, 1,000,000 of the options have(cid:10)
vested and the remaining 750,000 unvested options terminated as a result of the(cid:10)
Company owning in the aggregate less than 20% of the outstanding capital stock(cid:10)
of Novel.(cid:10)
The option terminates on December 6, 2016, or 90 days following a termination of(cid:10)
his advisory services to the Company or his employment by Novel other than a(cid:10)
termination without Cause or by VS for Good Reason or 48 months after the(cid:10)
termination of his advisory services under the Advisory Agreement or his(cid:10)
employment under the employment agreement as a result of: (i) a termination by(cid:10)
the Company of the Advisory Agreement or by Novel of the employment agreement(cid:10)
without Cause or by VS without Good Reason or (ii) the post-December 6, 2007,(cid:10)
termination of the term of the Advisory Agreement or of the Novel employment(cid:10)
agreement.(cid:10)
Effective July 10, 2007, the Acquired Company Shares, the Option Shares and(cid:10)
Warrant Shares were registered for reoffering under the Securities Act of 1933,(cid:10)
as amended (the "Act").(cid:10)
CONSULTING AGREEMENTS(cid:10)
On July 27, 2007, the Company entered into a consulting agreement with Willstar(cid:10)
Consultants, Inc. ("Willstar") for advice pertaining to overall strategic(cid:10)
planning, business opportunities, acquisition policy investment and banking(cid:10)
relationships and stockholder matters. The term of the agreement is for 120 days(cid:10)
at a fee of $50,000. In addition Willstar received 90,000 non-qualified stock(cid:10)
options, which vest over a three year period from the time of grant. These(cid:10)
options are exercisable at $2.50 per option. Expenses incurred under this(cid:10)
agreement amounted to $50,000 for the year ended March 31, 2008.(cid:10)
On September 4, 2007, the Company entered into a consulting agreement with(cid:10)
Bridge Ventures, Inc. ("BVI"), and Saggi Capital, Inc. ("SCI") relating to the(cid:10)
introduction of potential contacts and investors, the attraction of investment(cid:10)
capital and providing investor relations services and to generate investor(cid:10)
interest in the Company. The term of the agreement is for a period of 180 days(cid:10)
for a fee of $10,000 per month. In addition, each of BVI and SCI received(cid:10)
five-year warrants to purchase 75,000 shares of Common Stock at $3.25 exercise(cid:10)
price. Expenses incurred under this agreement amounted to $60,000 for the year(cid:10)
ended March 31, 2008.(cid:10)
COLLABORATIVE AGREEMENTS(cid:10)
The Company is a party to two separate and distinct development and license(cid:10)
agreements with ECR Pharmaceuticals ("ECR"). Pursuant to the agreements, the(cid:10)
Company agreed to commercially develop two products, Lodrane 24(R) and Lodrane(cid:10)
24D(R) in exchange for development fees, certain payments, royalties and(cid:10)
manufacturing rights. The products are currently being marketed by ECR which(cid:10)
also has the responsibility for regulatory matters. In addition to receiving(cid:10)
revenues for manufacture of these products, the Company also receives a royalty(cid:10)
on in-market sales.(cid:10)
F-19(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:10)
MARCH 31, 2008, 2007 AND 2006(cid:10)
NOTE 8 - STOCKHOLDERS' EQUITY(cid:10)
During 2005, the Certificate of Incorporation was amended to increase the number(cid:10)
of authorized shares of capital stock from 25,000,000 shares of Common Stock to(cid:10)
65,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock, each(cid:10)
with a par value of $.01 per share.(cid:10)
LOSS PER COMMON SHARE(cid:10)
Basic net loss per common share has been calculated by dividing the net loss by(cid:10)
the weighted average number of shares outstanding during the periods presented.(cid:10)
Diluted earnings per share is not presented because the effect of the Company's(cid:10)
common stock equivalents is antidilutive. For the three years ended March 31,(cid:10)
the following potentially dilutive securities were not included in the(cid:10)
computation of diluted loss per share:(cid:10)
(cid:10)
F-20(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:10)
MARCH 31, 2008, 2007 AND 2006(cid:10)
NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)(cid:10)
SERIES B 8% CONVERTIBLE PREFERRED STOCK(cid:10)
On March 15, 2006, the Company sold in a private placement 10,000 shares of(cid:10)
Series B 8% Convertible Preferred Stock (the "Series B Preferred Stock"), for(cid:10)
gross proceeds of $10,000,000. The Series B Preferred Stock is convertible at(cid:10)
$2.25 per share, into 4,444,444 shares of Common Stock. In connection with the(cid:10)
issuance of the Series B Preferred Stock, the Company also issued two classes of(cid:10)
warrants which are exercisable for a period of five years and represent the(cid:10)
right to purchase an aggregate of 1,111,111 shares of Common Stock at an(cid:10)
exercise price of $2.75 per share and the second class of warrants are(cid:10)
exercisable for a period of five years and represent the right to purchase an(cid:10)
aggregate of 1,111,111 shares of Common Stock at an exercise price of $3.25 per(cid:10)
share. Based on the relative fair values, the Company has attributed $2,033,029(cid:10)
of the total proceeds to the warrants and has recorded the warrants as(cid:10)
additional paid-in capital. The remaining portion of the proceeds of $7,966,971(cid:10)
was used to determine the value of the 4,444,444 shares of the Company Common(cid:10)
Stock underlying the Series B Preferred Stock, or $1.7925 per share. Since the(cid:10)
value was $0.4774 lower than the fair market value of the Company's Common Stock(cid:10)
on March 15, 2006, the $2,121,917 fair value of the conversion option resulted(cid:10)
in the recognition of a preferred stock dividend and an increase to additional(cid:10)
paid-in capital.(cid:10)
SERIES C 8% CONVERTIBLE PREFERRED STOCK(cid:10)
On April 24, 2007, the Company sold 15,000 shares of its Series C 8% Convertible(cid:10)
Preferred Stock, par value $0.01 (the "Series C Preferred Stock"), and 1,939,655(cid:10)
warrants for gross proceeds of $15,000,000. The 15,000 shares of Series C(cid:10)
Preferred Stock are convertible into 6,465,517 shares of Common Stock. The(cid:10)
warrants are exercisable at $3.00 per share and are exercisable through April(cid:10)
27, 2012. The Company paid $1,050,000 in commissions to the placement agent and(cid:10)
others in connection with the sale of the Series C Preferred Stock. In addition,(cid:10)
the Company granted the placement agent 193,965 warrants exercisable at $3.00(cid:10)
per share which were valued at $129,627. The gross proceeds of the private(cid:10)
placement were $15,000,000 before payment of $1,050,000 in commissions to the(cid:10)
placement agent and selected dealers. In addition, the Company agreed to(cid:10)
reimburse the placement agent for all documented out-of-pocket expenses incurred(cid:10)
by the placement agent in connection with the private placement, including(cid:10)
reasonable fees and expenses of its counsel, which the Company and placement(cid:10)
agent agreed to be limited to $25,000. Based on the relative fair values, the(cid:10)
Company has attributed $1,182,101 of the total proceeds to the warrants and has(cid:10)
recorded the warrants as additional paid-in capital. The remaining portion of(cid:10)
the proceeds of $13,817,899 was used to determine the value of the 6,465,517(cid:10)
shares of the Company Common Stock underlying the Series C Preferred Stock, or(cid:10)
$2.1372 per share. Since the value was $0.1628 lower than the fair market value(cid:10)
of the Company's Common Stock on April 24, 2007, the $1,052,790 fair value of(cid:10)
the conversion option resulted in the recognition of a preferred stock dividend(cid:10)
and an increase to additional paid-in capital.(cid:10)
On July 17, 2007, the Company sold the remaining 5,000 authorized shares of its(cid:10)
Series C Preferred Stock. Each share of Series C Preferred Stock was sold at a(cid:10)
price of $1,000 per share and is initially convertible at $2.32 into 431.0345(cid:10)
shares of the Company's Common Stock, or an aggregate of 2,155,172 shares of(cid:10)
Common Stock. Each purchaser of Series C Preferred Stock also received a warrant(cid:10)
to purchase shares of the Company's Common Stock in an amount equal to 30% of(cid:10)
the aggregate number of shares of Common Stock into which the shares of Series C(cid:10)
Preferred Stock purchased by such purchaser may be converted. The warrants are(cid:10)
exercisable on or before July 17, 2012 and represent the right to purchase an(cid:10)
aggregate of 646,554 shares of Common Stock, at an exercise price of $3.00 per(cid:10)
share. The lead placement agent for the offering was Oppenheimer & Company, Inc.(cid:10)
The gross proceeds of the private placement were $5,000,000 before payment of(cid:10)
$350,000 in commissions to the placement agent and its selected dealers and(cid:10)
$18,000 in expenses incurred by the placement agent and its selected dealers.(cid:10)
Pursuant to the placement agent agreement, the Company issued to the placement(cid:10)
agent and its designees warrants (the "Placement Warrants") to purchase 64,655(cid:10)
shares of Common Stock. Such Placement Warrants are at an exercise price of(cid:10)
$3.00 per share, exercisable on or prior to July 17, 2012. The Company received(cid:10)
net proceeds from the sale of the Series C 8% Preferred Stock of $4,631,500.(cid:10)
Based on the relative fair values, the Company has attributed $534,407 of the(cid:10)
total proceeds to the warrants and has recorded the warrants as additional(cid:10)
paid-in capital. The remaining portion of the proceeds of $4,465,593 was used to(cid:10)
determine the value of the 2,155,172 shares of the Company Common Stock(cid:10)
underlying the Series C Preferred Stock, or $2.0720 per share. Since the value(cid:10)
was $0.6180 lower than the fair market value of the Company's Common Stock on(cid:10)
July 17, 2007, the $1,331,819 fair value of the conversion option resulted in(cid:10)
the recognition of a preferred stock dividend and an increase to additional(cid:10)
paid-in capital.(cid:10)
F-21(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:10)
MARCH 31, 2008, 2007 AND 2006(cid:10)
NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)(cid:10)
SERIES C 8% CONVERTIBLE PREFERRED STOCK (CONTINUED)(cid:10)
The Company sought and obtained the consent of 70% of the holders of its Series(cid:10)
B Preferred Stock (the "SERIES B CONSENT"), as a condition to the sale of the(cid:10)
Series C Preferred Stock, to modify to the Series B Certificate and to the(cid:10)
creation of the Series C Preferred Stock.(cid:10)
The holders of the Series B Preferred Stock consented to (i) the filing of the(cid:10)
Amended Certificate of Designations of Preferences, Rights and Limitations of(cid:10)
the Series B Preferred Stock (the "Amended Series B Preferred Certificate") with(cid:10)
the Secretary of State of the State of Delaware, which, INTER ALIA, (a) provides(cid:10)
for group voting by and among the holders of the Series B Preferred Stock and(cid:10)
the holders of the Series C Preferred Stock, and (b) extends the date on which(cid:10)
the cumulative dividend rate increases from 8% to 15% from March 16, 2008 to(cid:10)
April 24, 2009; and (ii) the authorization, creation, offering and issuance of(cid:10)
the Series C Preferred Stock. On April 24, 2007, pursuant to the authority of(cid:10)
its Board of Directors, Company filed with the Secretary of State of Delaware(cid:10)
the Amended Series B Preferred Certificate.(cid:10)
In consideration for the Series B Consent, (i) the Company agreed to extend the(cid:10)
expiration date of certain warrants issued to each holder of Series B Preferred(cid:10)
Stock at the time of the original issuance of the Series B Preferred Stock from(cid:10)
March 16, 2011 to March 16, 2012; and (ii) each of Midsummer Investment, Ltd.(cid:10)
and Bushido Capital Master Fund, LP (each, a "Principal Holder"), as the holders(cid:10)
of the largest number of the currently outstanding shares of Series B Preferred(cid:10)
Stock, were granted a covenant by the Company pursuant to which, so long as each(cid:10)
Principal Holder continues to hold at least 20% of the then outstanding Series B(cid:10)
Preferred Stock, the Company will not take any action which requires the consent(cid:10)
of at least 70% of the holders of the Preferred Stock, unless each Principal(cid:10)
Holder consents to such action.(cid:10)
COMMON STOCK TRANSATIONS(cid:10)
The following grants were made under the Company's 2004 Stock Option Plan in the(cid:10)
year ended March 31, 2008:(cid:10)
On July 27, 2007, the Company entered into a consulting agreement with Willstar(cid:10)
Consultants, Inc. ("Willstar") whereby Willstar is to provide advice pertaining(cid:10)
to overall strategic planning, business opportunities, acquisition policy,(cid:10)
investment and banking relationships and stockholders matters in consideration(cid:10)
of the grant of options to purchase 90,000 shares of Common Stock, at a price of(cid:10)
$2.50 per share. One third of options vest on each of July 27, 2008, July 27,(cid:10)
2009 and July 27, 2010.(cid:10)
On January 24, 2008, the Company granted options to 29 employees to purchase an(cid:10)
aggregate of 148,800 shares of Common Stock with an exercise price of $1.08 to(cid:10)
vest over a period of three years from grant date.(cid:10)
Additionally under an employment agreement dated January 3, 2008 with Dr. Stuart(cid:10)
Apfel, the Company granted options to purchase 400,000 shares of Company Stock(cid:10)
with an exercise price of $1.75 per share. 120,000 options vested immediately(cid:10)
and 280,000 will vest upon successful completion of Company sponsored Phase III(cid:10)
clinical trials of Company's developmental drug products and strategic events or(cid:10)
milestones.(cid:10)
F-22(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:10)
MARCH 31, 2008, 2007 AND 2006(cid:10)
NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)(cid:10)
COMMON STOCK TRANSATIONS (CONTINUED)(cid:10)
On January 24, 2008, the Board granted 90,000 options to each of its three(cid:10)
non-executive independent Board members under the Company's option plan. The(cid:10)
options vest in equal thirds on June 26, 2008, 2009 and 2010, assuming each(cid:10)
Director continues to serve on the Company's Board; provided, however that, the(cid:10)
options shall fully vest upon such Director's death, disability, retirement as a(cid:10)
director on the Board or such Director's removal as a director, without cause,(cid:10)
at the request of the Board. The options are exercisable at $1.08 per option.(cid:10)
The options are subject to the Company's customary stock option agreements and(cid:10)
the Company's Stock Option Plan(cid:10)
On March 7, 2008, the Company granted The Investor Relations Group, Inc. an(cid:10)
option to purchase up to 75,000 shares of the Company's Common Stock at $1.12(cid:10)
pursuant to Stipulation of Settlement dated March 7, 2008. The option vested(cid:10)
immediately.(cid:10)
During the year ended March 31, 2008, there were cashless exercises of 100,633(cid:10)
warrants issued in our October, 2004 Private Placement, which resulted in the(cid:10)
issuance of 36,174 shares of Common Stock.(cid:10)
During the year ended March 31, 2008, $313,005 was received and 203,250 shares(cid:10)
of Common Stock were issued upon the exercise of 203,250 Long-Term Warrants(cid:10)
granted at an exercise price of $1.54, as part of the Company's private(cid:10)
placement in October, 2004.(cid:10)
During the year ended March 31, 2008, 1,285 shares of Series B 8% preferred(cid:10)
Stock were converted into 571,112 shares of Common Stock.(cid:10)
Dividends accrued on Series B Stock through conversion date and March 31, 2008(cid:10)
were satisfied by the issuance of 1,631 and 454,923 shares of Common Stock,(cid:10)
respectively.(cid:10)
On April 20, $61,500 was received from the exercise of stock options previously(cid:10)
granted to purchase 41,000 shares of Common Stock at $1.50 per share. During the(cid:10)
year ended March 31, 2008, 470,000 options expired and 1,552,000 were forfeited.(cid:10)
On April 24, 2007, the Company sold 15,000 shares of its Series C 8% Convertible(cid:10)
Preferred Stock, par value $0.01, and 1,939,655 warrants for gross proceeds of(cid:10)
$15,000,000. The 15,000 Preferred Series C shares are convertible into 6,465,517(cid:10)
shares of common stock. The warrants are exercisable at $3.00 per share and are(cid:10)
exercisable through April 27, 2012. The Company paid $1,050,000 in commissions(cid:10)
to the placement agent and others in connection with the sale of the Series C(cid:10)
Preferred. In addition, the Company granted the placement agent 193,965 warrants(cid:10)
exercisable at $3.00 per share which were valued at $129,627. The Series C 8%(cid:10)
Convertible Preferred will pay a quarterly dividend at 8% per annum on its(cid:10)
purchase price of $1,000 per share. The dividend will be payable in other shares(cid:10)
or cash. The gross proceeds of the private placement were $15,000,000 before(cid:10)
payment of $1,050,000 in commissions to the Placement Agent and selected(cid:10)
dealers. In addition, the Company agreed to reimburse the Placement Agent for(cid:10)
all documented out-of-pocket expenses incurred by the Placement Agent in(cid:10)
connection with the private placement, including reasonable fees and expenses of(cid:10)
its counsel, which the Company and Placement Agent agreed to be limited to(cid:10)
$25,000. Pursuant to the placement agent agreement, the Company issued to the(cid:10)
Placement Agent and its designees warrants to purchase 193,965 shares of Common(cid:10)
Stock. Such warrants are at an exercise price of $3.00 per share, exercisable on(cid:10)
or prior to April 24, 2012.(cid:10)
On April 24, 2007, pursuant to the authority of its Board of Directors, Company(cid:10)
filed with the Secretary of State of Delaware the Certificate of Designations,(cid:10)
Preferences and Rights of Series C Preferred Stock.(cid:10)
During the year ended March 31, 2008, 845 shares of Series C Preferred Stock(cid:10)
were converted into 364,224 shares of Common Stock.(cid:10)
Dividends accrued on Series C Stock through conversion date and March 31, 2008(cid:10)
were satisfied by the issuance of 1,025 and 658,594 shares of Common Stock,(cid:10)
respectively.(cid:10)
F-23(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:10)
MARCH 31, 2008, 2007 AND 2006(cid:10)
NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)(cid:10)
COMMON STOCK TRANSATIONS (CONTINUED)(cid:10)
The following grants were made under the Company's 2004 Stock Option Plan in the(cid:10)
year ended March 31, 2007:(cid:10)
On November 21, 2006, the Company granted options to sixteen employees to(cid:10)
purchase an aggregate of 66,500 shares of Common Stock with an exercise price of(cid:10)
$2.26 to vest over a period of three years from grant date.(cid:10)
On November 13, 2006, the Company granted to Bernard Berk, the Company's Chief(cid:10)
Executive Officer, according to terms of the Second Amended and Restated(cid:10)
Employment Agreement additional stock options to purchase up to 300,000 shares(cid:10)
of the Company's Common Stock at $3.00 a share.(cid:10)
Additionally, under employment agreements with each of Dr. Charan Behl,(cid:10)
Executive Vice President and Chief Scientific Officer, and Chris Dick, Executive(cid:10)
Vice President of Corporate Development, the Company granted to each, options to(cid:10)
purchase up to 750,000 shares of Common Stock at $2.25 a share.(cid:10)
On June 1, 2006, the Company entered into a one year consulting agreement with(cid:10)
David Filer, whereby Dr. Filer is to provide financial advisory services to the(cid:10)
Company, in consideration of the grant of three year options to purchase 10,000(cid:10)
shares of Common Stock, at a price of $3.00 per share.(cid:10)
On May 3, 2006, the Company granted options to purchase 70,000 shares of Common(cid:10)
Stock at a price of $2.26 per share to Mark Gittelman, its Chief Financial(cid:10)
Officer. One-third of the options vest on each of May 3, 2007, May 3, 2008 and(cid:10)
May 3, 2009.(cid:10)
Between February and October 2006, the Company granted ten year options to(cid:10)
twelve employees to purchase an aggregate of 83,000 shares of Common Stock with(cid:10)
exercise prices ranging from $2.25 to $2.30 per share, which vest over a period(cid:10)
of three years from grant date.(cid:10)
During the year ended March 31, 2007, there were cashless exercises of 217,452(cid:10)
warrants issued in our October, 2004 Private Placement, which resulted in the(cid:10)
issuance of 84,430 shares of Common Stock.(cid:10)
During the year ended March 31, 2007, 305 shares of Series B Preferred Stock(cid:10)
were converted into 135,555 shares of Common Stock.(cid:10)
Dividends accrued on Series B Stock through conversion date and March 31, 2007(cid:10)
were satisfied by the issuance of 1,318 and 371,244 shares of Common Stock,(cid:10)
respectively.(cid:10)
During the year ended March 31, 2007, 3,750 options expired, 65,500 were(cid:10)
forfeited and 59,000 options were exercised for gross proceeds of $88,500.(cid:10)
On December 6, 2006, the Company issued to VGS Pharma, LLC ("VGS") a five year(cid:10)
warrant to purchase 478,698 shares of Common Stock for cash at a price of $3.00(cid:10)
per share, subject to adjustment upon the occurrence of certain events. The per(cid:10)
share weighted value of the warrant to purchase 478,698 shares of Common Stock(cid:10)
at $3.00 per share is $0.77. The warrant was valued using the Black-Scholes(cid:10)
option pricing model with the following weighted average assumptions: no(cid:10)
dividend yield; expected volatility of 46.12%; risk free interest rate of 5%;(cid:10)
and expected life of 5 years. As a result, a charge of $366,396 is reflected in(cid:10)
the consolidated statement of operations. VGS is a wholly owned subsidiary of(cid:10)
Kali Capital, L.P., which is controlled by Kali Management, LLC ("KALI"), its(cid:10)
general partner, and Kali is controlled by Anu Subramanian, its managing member(cid:10)
and daughter of VS.(cid:10)
In addition, on December 6, 2006, the Company granted to Veerappan Subramanian(cid:10)
("VS") an option to purchase up to 1,750,000 shares of the Common Stock at $2.13(cid:10)
a share. The option vests as to 250,000 shares immediately and in subsequent(cid:10)
250,000 share installments, with one vesting on May 6, 2007, another on December(cid:10)
6, 2007, a third upon acceptance of the initial business plan of Novel, and the(cid:10)
other installments vesting on the accomplishment of certain milestones with(cid:10)
respect to the first or second drug product developed by the Company (excluding(cid:10)
drug products of Novel) on or after the 60th day after December 6, 2006, under(cid:10)
the advisory services provided to the Company. The per share weighted-average(cid:10)
fair value of the option to purchase up to 1,750,000 shares of Common Stock(cid:10)
granted to VS is $1.36 a share for an actual charge of $2,380,000 which will be(cid:10)
recognized over the vesting period of the instrument. The option was valued(cid:10)
using the Black-Scholes option pricing model with the following weighted average(cid:10)
assumptions: no dividend yield; expected volatility of 46.12%; risk free(cid:10)
interest rate of 5%; and expected life of 10 years. As of December 31, 2007,(cid:10)
1,000,000 of the options have vested and the remaining 750,000 unvested options(cid:10)
terminated as a result of the Company owning in the aggregate less than 20% of(cid:10)
the outstanding capital stock of Novel.(cid:10)
F-24(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:10)
MARCH 31, 2008, 2007 AND 2006(cid:10)
NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)(cid:10)
COMMON STOCK TRANSATIONS (CONTINUED)(cid:10)
On July 12, 2006, the Company sold to Indigo Ventures, LLC ("Indigo") for(cid:10)
$150,000 a warrant to purchase up to 600,000 shares of Common Stock at $3.00 per(cid:10)
share pursuant to the Financial Advisory Agreement with Indigo (the "Advisory(cid:10)
Agreement"), of which 100,000 shares of Common Stock have vested. The Advisory(cid:10)
Agreement has been amended and the warrant reduced from 600,000 to 300,000(cid:10)
shares of common stock.(cid:10)
WARRANTS(cid:10)
To date, the Company has authorized the issuance of Common Stock Purchase(cid:10)
Warrants, with terms of five to six years, to various corporations and(cid:10)
individuals, in connection with the sale of securities, loan agreements and(cid:10)
consulting agreements. Exercise prices range from $2.00 to $3.74 per warrant.(cid:10)
The warrants expire at various times through March 15, 2011.(cid:10)
A summary of warrant activity for the fiscal years indicated below were as(cid:10)
follows:(cid:10)
(cid:10)
CLASS B WARRANTS(cid:10)
The Company's Class B Warrants originally issued in a private placement in(cid:10)
September 1998 expired on November 30, 2005, their amended expiration date.(cid:10)
F-25(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:10)
MARCH 31, 2008, 2007 AND 2006(cid:10)
NOTE 9 - STOCK OPTION PLANS(cid:10)
STOCK-BASED COMPENSATION(cid:10)
During the years ended March 31, 2006, 2007 and 2008 the Company issued 969,200,(cid:10)
3,779,500 and 983,800, respectively options to purchase Common Stock to(cid:10)
employees, consultants, financial advisors and to members of the board of(cid:10)
directors. The options have an exercise price ranging from $1.08 to $3.00 per(cid:10)
share and all vest over three years except 75,000 issued for the year ending(cid:10)
March 31, 2006 which vested pro-rata over a 6 month period and 750,000 issued(cid:10)
for year ending March 31, 2007 which vested upon grant date, and 250,000 which(cid:10)
vested in 6 months and 1,025,000 which vest based upon strategic events or(cid:10)
accomplishments of certain milestones. For the year ending March 31, 2008,(cid:10)
195,000 options vested upon grant date and 280,000 vest based upon strategic(cid:10)
events or accomplishments of certain milestones. The options expire between five(cid:10)
and ten years from the date of grant. The Company has recorded compensation(cid:10)
expense of $902,927, $3,479,070 and $2,607,470 for the years ended March 31,(cid:10)
2006, 2007 and 2008, respectively, which represents the fair value of the(cid:10)
options vested computed using the Black-Scholes options pricing model on each(cid:10)
grant date.(cid:10)
Under its 2004 Stock Option Plan and prior option plans, the Company may grant(cid:10)
stock options to officers, selected employees, as well as members of the board(cid:10)
of directors and advisory board members. All options have generally been granted(cid:10)
at a price equal to or greater than the fair market value of the Company's(cid:10)
Common Stock at the date of grant. Generally, options are granted with a vesting(cid:10)
period of up to three years and expire ten years from the date of grant.(cid:10)
Transactions under the plans for the years indicated were as follows:(cid:10)
(cid:10)
F-26(cid:10)
(cid:10)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES(cid:10)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(cid:10)
MARCH 31, 2008, 2007 AND 2006(cid:10)
NOTE 9 - STOCK OPTION PLANS (CONTINUED)(cid:10)
STOCK-BASED COMPENSATION (CONTINUED)(cid:10)
The per share weighted-average fair value of each option granted during fiscal(cid:10)
2008, 2007 and 2006, ranged from $.56 to $1.20 during fiscal 2008, $1.36 to(cid:10)
$1.39 during fiscal 2007 and $1.48 to $1.70 during fiscal 2006 on the date of(cid:10)
grant using the Black-Scholes options pricing model with the following(cid:10)
weighted-average assumptions; no dividend yield; expected volatility of 33.0%(cid:10)
for fiscal 2008, ranging from 46.12% to 57.95% for fiscal 2007 and expected(cid:10)
volatility of 97.84% for fiscal year 2006; risk-free interest rates of 4.00% in(cid:10)
2008, 5.00% in 2007 and 4.18% in 2006 and expected lives ranging from five to(cid:10)
ten years.(cid:10)
There are 2,531,700 options available for future grant under our Stock Option(cid:10)
Plan.(cid:10)
NOTE 10 - MAJOR CUSTOMERS(cid:10)
For the years ended March 31, revenues from its major customers are as follows:(cid:10)
2008 2007 2006(cid:10)
------ ------ ------(cid:10)
Customer A - 100% 100% 100%(cid:10)
NOTE 11 - SUBSEQUENT EVENTS(cid:10)
On April 14, 2008, the Company entered into a consulting agreement with New(cid:10)
Castle Consulting, LLC ("New Castle") whereby New Castle is to provide(cid:10)
consulting services to the Company for a six month term. Services include, but(cid:10)
will not necessarily be limited to analyzing, the Company's needs with respect(cid:10)
to investor relations, consulting, assisting and advising the Company with(cid:10)
respect to its needs for investor relations, oversee and facilitate investor(cid:10)
relations, assist the Company in developing and implementing appropriate means(cid:10)
for presenting the Company and its business plans, strategy and personnel to(cid:10)
financial community and advising the Company with respect to its relations with(cid:10)
brokers, dealers, analysts and other investment professionals. For its services(cid:10)
New Castle will receive $8,000 per month in addition to 125,000 shares of the(cid:10)
Company's restricted Common Stock.(cid:10)
On April 24, 2008, the Board of Directors of the Company appointed Dr. Stuart(cid:10)
Apfel to be the Company's Chief Scientific Officer, effective immediately, and(cid:10)
accepted the resignation of Dr. Veerappan Subramanian as the Company's acting(cid:10)
Chief Scientific Officer. Dr. Apfel will continue his duties as the Company's(cid:10)
Chief Medical Officer. The existing employment agreement between Dr. Apfel and(cid:10)
the Company shall continue and not be modified in any was as a result of this(cid:10)
new appointment.(cid:10)
On April 14, 2008, a holder of 872 shares of Series C 8% Preferred Stock(cid:10)
converted 87 shares into 37,745 shares of common stock. The same holder(cid:10)
converted an additional 87 shares into 38,427 shares of Common Stock on May 4,(cid:10)
2008. All accrued dividends were paid through dates of conversion.(cid:10)
On June 26, 2008, at the annual meeting of the stockholders of the Company, the(cid:10)
stockholders approved (i) an amendment to the Company's Certificate of(cid:10)
Incorporation to increase the number of authorized shares of Common Stock from(cid:10)
65,000,000 shares to 150,000,000 shares and (ii) an amendment to the Company's(cid:10)
Stock Option Plan to increase the number of shares of Common Stock reserved for(cid:10)
issuance under the Stock Option Plan from 7,000,000 shares to 10,000,000 shares.(cid:10)
F-27(cid:10)
(cid:10)
(cid:10)
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