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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ELITE PHARMACEUTICALS, INC.
(Name of small business issuer in its charter)
DELAWARE 2834 22-3542636
State or jurisdiction Primary Standard I.R.S. Employer
of incorporation or Industrial Identification Number
organization Classification Code
Number
230 West Passaic Street, Maywood, NJ 07606 (201)845-6611
(Address and telephone number of principal executive
offices and principal place of business)
Atul M. Mehta, President, Elite Pharmaceuticals,Inc.
230 West Passaic Street, Maywood, NJ 07606/(201)845-6611
(Name, address and telephone number of agent for service)
Copies to:
Pender R. McElroy, James, McElroy & Diehl, P.A.
600 South College Street, Charlotte, NC 28202
(704)372-9870
Approximate date of proposed sale to the public: As soon as
practicable after the effective date of this registration
statement.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act
registration number of the earlier effective registration
statement for the same offering.
[ ]____________
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box
and list the Securities Act registration number of the earlier
effective registration statement for the same offering.
[ ]____________
If delivery of the prospectus is expected to be made pursuant to
Rule 434, check the following box.
[ ] ____________
CALCULATION OF REGISTRATION FEE
Title of Proposed Proposed Amount of
Each Class of Amount Maximum Maximum Registn.
Securities to to be Offering Price Aggregate Fee
be Registered(1) Registered per Security(2) Offer Price
Common Stock, 4,400,000 $1.25 $5,500,000 $1,896.55
$.01 par value
Class A Redeemable Common
Stock Purchase Warrants
3,050,000 $.50 $1,525,000 $ 525.86
Common Stock, $.01 par
value Underlying Class A
Redeemable Common Stock
Purchase Warrants(3)
3,050,000 $1.25 $3,812,500 $1,314.66
(1) All Securities registered herein are held by Selling
Security Holders; Elite Pharmaceuticals is registering none
of its own securities.
(2) Estimated solely for the purposes of calculating the
registration fee pursuant to Rule 457 under the Securities Act of 1933,
as amended. Based upon the price for which the Common Stock and Warrants
were sold in a private placement conducted by the Registrant on
October 30, 1997, in which private placement units of 40,000 shares of
Common Stock and 20,000 Warrants were sold for $60,000. The allocation
of the offering price in the above described private placement between
the shares of Common Stock and Warrants
offered herein is purely arbitrary.
(3) Reserved for issuance upon exercise of the Class A.
Redeemable Common Stock Purchase Warrants.
ELITE PHARMACEUTICALS, INC.
CROSS REFERENCE PAGE
Registration Statement Item
Number and Heading Location in Prospectus
1. Front of Registration Statement and
Outside Front Cover Page of Prospectus...Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus......................Inside Front and
Outside Cover
3. Summary Information and Risk Factors.....Prospectus Summary;Risk Factors
4. Use of Proceeds..........................Use of Proceeds
5. Determination of Offering Price..........Cover Page; Risk Factors
6. Dilution.................................Dilution
7. Selling Security Holders.................Selling Security Holders
8. Plan of Distribution.....................Risk Factors
Selling Security Holders
9. Legal Proceedings........................Business-Legal Proceedings
10. Directors,Executive Officers,Promotors
and Control Persons......................Management
11. Security Ownership of Certain
Beneficial Owners and Management.........Principal Stockholders
12. Description of Securities................Description of Securities
13. Interests of Named Experts and Counsel...Experts and Counsel
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................Management
15. Organization Within Last Five Years......Business
16. Description of Business..................Business
17. Management's Discussion and Analysis
or Plan of Operation.....................Management's Discussion
and Analysis
18. Description of Property.................Business-Property
19. Certain Relationships
and Related Transactions................Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters.....................Cover Page; Principal
Stockholders;
Description of Securities;
Risk Factors
21. Executive Compensation..................Management
22. Financial Statements....................Financial Statements
23. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure....................Not applicable
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may not
be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer tosell or the solicitation of an offer
to buy nor shall there by any sale of these securities in any State
in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of such State.
ELITE PHARMACEUTICALS, INC.
7,450,000 VOTING COMMON SHARES
(including 3,050,000 Common Shares Underlying Class A
Redeemable Common Stock Purchase Warrants)
3,050,000 CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANTS
This Prospectus covers an aggregate of 7,450,000 shares of the common
stock of ("Common Stock"), $.01 par value, and 3,050,000 Class A Redeemable
Common Stock Purchase Warrants ("Warrants") of Elite Pharmaceuticals,
Inc. ("Elite Pharmaceuticals" or the "Company"), Delaware corporation,
on behalf of certain selling security holders of the Company
("Selling Security Holders"). Of the securities offered hereunder
(i) 4,000,000 shares of Common Stock and 2,000,000 Warrants were heretofore
issued in a private offering on October 31, 1997 ("Private Placement"),
(ii) 400,000 shares of Common Stock and 200,000 Warrants are issuable
pursuant to warrants issued to the placement agent of Private Placement
("Placement Agent Warrants"), (iii) 850,000 Warrants were issued in
connection with private transactions dated; and (iv) the 3,050,000
shares of Common Stock are issuable upon the exercise of the Warrants
referred to in items (i) through (iii) above. See "Selling Security
Holders". Each Warrant entitles the holder to purchase one
share of Common Stock at an exercise price of $3.00 during commencing
November 30, 1997 and continuing until November 29, 2002.
See "Description of Securities." The offering price will be
determined by the Selling Security Holders. See "Selling Security
Holders" "Plan of Distribution" and "Underwriting."
The Company will receive proceeds only upon the exercise of
the Warrants or the Placement Agent Warrants. See "Use of Proceeds".
Elite Pharmaceuticals has applied for quotation of the
Common Stock and Warrants on the American Stock Exchange and the
Nasdaq SmallCap Stock Market. There can be no assurance that these
securities will be approved for listing, or, if approved, that an
active trading market will develop. See "Risk Factors."
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A
HIGH DEGREE OF RISK. INVESTORS SHOULD NOT INVEST ANY FUNDS
IN THIS OFFERING UNLESS THEY CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The securities are being offered for cash as follows:
Underwriting Proceeds to issuer
Price to discounts and or other
public (1) commissions(1) persons(1)
Per Share of Common Stock unknown unknown unknown
Per Warrant unknown unknown unknown
Total unknown unknown unknown
(1) The securities offered hereunder will be offered by
the Selling Security Holders at market price; Elite Pharmaceuticals
is unaware of any arrangements entered into between such
Selling Security Holders and any broker or dealer, or underwriter.
It is anticipated that the securities will be offered through the
over the counter market.
The date of this Prospectus is January 29, 1998
Elite Pharmaceuticals intends to furnish its shareholders and
holders of Warrants with annual reports containing audited financial
statements, examined by an independent accounting firm, and
such interim reports as it may determine to furnish or as may be
required by law. Where any document is incorporated by reference in the
Prospectus but not delivered therewith, Elite Pharmaceuticals will
undertake to provide without charge to each person,
including any beneficial owner, to whom a prospectus is delivered, upon oral
or written request of such person, a copy of any and all of the information
incorporated by reference in the Prospectus (not including exhibits to
the information incorporated by reference unless the exhibits are
specifically incorporated by reference into the information that the
Prospectus contains). Requests should be addressed to Pender R. McElroy
at (704) 372-9870.
UNTIL 90 DAYS AFTER THE LATER TO OCCUR OF (i) THE EFFECTIVE DATE OF
THE REGISTRATION STATEMENT OR (ii) THE DATE ON WHICH THE SECURITIES
REGISTERED HEREUNDER ARE BONA FIDE OFFERED TO THE PUBLIC, ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety
by the detailed information financial statements
appearing elsewhere in this Memorandum. Each prospective
investor is urged to read this Memorandum in its
entirety. All statements other than statements of
historical fact contained in this Memorandum are forward-
looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-
looking statements in this Memorandum generally are
accompanied by words such as "intend," "anticipate",
"believe", "estimate," "project," or "expect" or
similar statements. Although Elite Pharmaceuticals
believes that the expectations reflected in such forward-
looking statements are reasonable, no assurance can be
given that such expectations will prove correct.
Factors that could cause the Company's results to differ
materially from the results discussed in such forward-
looking statements include the risks described under
"Risk Factors." All forwardlooking statements in
this Memorandum are expressly qualified in their
entirety by the cautionary statements in this paragraph.
ELITE PHARMACEUTICALS, INC.
Elite Pharmaceuticals, Inc. was incorporated in the State of
Delaware on October 1, 1997, for the purpose of merging with, and
thus changing the name and state of incorporation of, Prologica
International, Inc. ("Prologica"). Prologica was incorporated in the
State of Pennsylvania on April 20, 1984. Since its incorporation
and completion of its initial public offering in August 1988, and
until the merger, Prologica had not engaged in any business other
than searching for suitable acquisitions had not identified any suitable
acquisitions. Prior to the merger with Elite Pharmaceuticals,
Inc., Prologica created a wholly owned subsidiary, HMF Enterprises, Inc.
("HMF") for the sole purpose of merging with Elite Laboratories.
The merger of Prologica with Elite Pharmaceuticals, Inc. and the merger
of Elite Laboratories, Inc. with HMF were made in connection with
a Private Placement of the common stock and warrants to purchase
common stock of Prologica (the "Private Placement"). The sole business
of Elite Pharmaceuticals, Inc., is to hold one hundred percent of
the stock of Elite Laboratories, Inc.
Elite Pharmaceuticals' principal offices are located
at 230 W. Passaic Street, Maywood, New Jersey 07607 its telephone
number is (201) 845-6611.
ELITE LABORATORIES, INC.
Elite Laboratories, Inc. ("Elite Labs") was
incorporated in the State of Delaware on August 23, 1990.
Elite Labs engages in the research, development, licensing,
manufacturing and marketing of both new and and generic,
controlled-release pharmaceutical products. Controlled drug
delivery involves releasing a drug into the bloodstream or
delivering it to a target site in the body over an extended
period of time, or at predetermined times. Since its inception
in 1990, Elite Labs has established a research and
development laboratory and has developed six oral controlled release
pharmaceutical products to varying stages of the development process.
There is no assurance that any of Elite Labs's products will be
approved by the United States Food and Drug Administration ("FDA"),
marketed, or be commercially viable products. Furthermore, there
are no agreements in effect requiring the payment of royalties
to Elite Labs, except under certain conditions, which may not be
fulfilled.
Elite Labs also has conducted several research and
development projects on behalf of large pharmaceutical companies.
These activities have generated only limited revenues to date.
THE OFFERING
Although this is the initial public offering of the stock
of Elite Pharmaceuticals, the Company itself is issuing no securities.
All of the securities registered in connection with this offering are
currently held by, and will be offered by, current Selling Security
Holders, or are subject to execution of Warrants currently held by
Selling Security Holders. (See "Terms of the Offering",
and "Description of Securities").
SECURITIES OUTSTANDING
There are 14,475,200 shares of common stock of
Elite Pharmaceuticals, Inc. ("Common Stock") issued and
outstanding. In addition, there are Warrants and
options outstanding to purchase an additional 5,900,000
shares of Common Stock.
USE OF PROCEEDS
The Company will not receive any proceeds from the
sale of shares of Common Stock by the Selling
Shareholders. See "Selling Shareholders". The Company
will receive proceeds only upon the exercise of the
Warrants or the Placement Agent Warrants by the holders
thereof. See "Use of Proceeds".
RISK FACTORS
The Securities offered hereby are highly
speculative and involve a high degree of risk and
should not be purchased by investors who cannot afford
the loss of their entire investment. Prospective
investors should carefully review and consider the
factors set forth under "Risk Factors" as well as
all other information contained herein, before
subscribing for any of the Securities.
NASDAQ LISTING
Elite Pharmaceuticals is applying to list the
Common Stock and Warrants on the American Stock Exchange
and/or the Nasdaq SmallCap Market. The Company will
attempt to obtain the ticker symbol ELIP. There can
be no assurance that the Company will be approved for
listing of these securities, or if approved, that it
will be able to continue to meet the requirements for
continued quotation or that a public trading factor will
develop or be sustained. See "Risk Factors".
RISK FACTORS
The securities offered hereby are highly speculative
in nature and investment therein involves a high degree of risk
and should not be purchased by investors who cannot afford the loss
of their entire investment. Therefore each prospective investor should
consider very carefully certain risks and speculative
factors inherent in and affecting the business of, and investment
in, Elite Pharmaceuticals prior to the purchase of any of the securities
offered hereby, as well as all of the other matters set forth elsewhere
in this Memorandum. Investors should be prepared to suffer a loss of
their entire investment. Hereinafter Elite Pharmaceuticals
and Elite Labs shall sometimes collectively be referred to as the
"Company." Certain of these risks and speculative factors are
as follows:
1. Limited Operating History - Anticipated Future Losses.
Since the inception in 1984 of Elite
Pharmaceutical's predecessor, neither Prologica nor Elite
Pharmaceuticals has carried on any business or generated
any revenues. Elite Pharmaceutical's sole source
of income is income received through its ownership
of Elite Labs. The Company expects to realize
significant losses in the next year of operation. Since
Elite Labs' inception in 1990, it has not generated
any significant revenues and had a retained earnings
deficit of $1,616,000 at its fiscal year ended March
31, 1997. Elite Labs' operations are subject to all of
the risks inherent in the establishment of a new
commercial enterprise and the likelihood of the success
of the Company must be considered in light of
various factors, including working capital deficits,
competition with established and well financed entities,
anticipated negative cash flow in the period following
completion of this offering, the absence of substantial
written commitments for purchase of Elite Labs'
services and the need for further development of
the its products. The Company expects to continue to
incur losses until it is able to generate sufficient
revenues to support its operations and offset operating
costs. There can be no assurance that such revenues and
become profitable.
2. Significant Capital Requirements; Need for Additional Financing.
The Company anticipates, based on its currently
proposed plans and assumptions relating to its
operations, that it currently has sufficient operating
capital to satisfy its contemplated cash requirements
until October 31, 1999. After such time, the completion
of the Company's development activities will require
significant funding than that otherwise currently
available to the Company. The Company has no current
arrangements with respect to sources of additional
financing other than with respect to the potential
exercise of the options and warrants currently
outstanding. There can be no assurance that any of
the warrants will be exercised or that other
additional financing will be available to the
Company on commercially reasonable terms, or at all. The
inability of the Company to obtain additional
financing, when needed, would have a material adverse
effect on the Company, including possibly requiring
the Company to curtail or cease its operations. To the
extent that any future financing involves the sale
of the Company's equity securities, the Company's then
existing stockholders, including investors in this
Offering, could be substantially diluted. On the other
hand, to the extent the Company recurs indebtedness
or otherwise issues debt securities, the Company will be
subject to risks associated with indebtedness,
including the risk that interest rates may fluctuate
and cash flow may be insufficient to pay principal and
interest on such indebtedness.
3. Possible Earlier Need for Additional Financing.
In the event the Company's plans change, its
assumptions change or prove to be inaccurate, or its cash
flow proves to be insufficient to fund the Company's
operations (due to unanticipated expenses, delays,
problems, difficulties or otherwise), the Company
would be required to seek additional financing sooner
than anticipated. There can be no assurance that any
of such warrants will be exercised or that the Company
would be able to secure additional financing to
fund its operations.
4. No Assurance of Successful Product Development.
Elite Labs has not yet developed a product to the stage
of generating commercial sales. While Elite Labs'
President has successfully developed controlled release
products for his prior employers, Elite Labs' research
activities are characterized by the inherent risk that
the research will not yield results which will receive
FDA approval or otherwise be suitable for commercial
exploitation.
5. No Assurance of Successful Licensing and Marketing.
Initially, the Company plans to market its
products, once developed, either directly or through
agreements with third parties and by way of licensing
agreements with other pharmaceutical companies. There
can be no assurance that such third-party arrangements
can be successfully negotiated or that any such
arrangements, if available, will be on commercially
reasonable terms. Even if acceptable and timely
marketing arrangements are entered into, there can be
no assurance that products developed by the Company
will be competitive and profitable in the
marketplace. Because the Company's clients will in many
cases make all or many material marketing and other
commercialization decisions regarding such products, a
significant number of the variables that affect the
Company's royalties and fees, and, in turn,
profitability, are not exclusively within the
Company's control. Achieving market acceptance for the
Company's products and services requires additional
funding for which a portion of the proceeds of this
Offering have been allocated. The Company's business
strategy is to expand its client relations for various
new pharmaceutical products. However, to date, the
Company has had only a limited number of clients.
Implementation of the Company's growth will depend upon,
among other things, the Company's ability to hire and
retain skilled marketing personnel.
6. Government Regulation.
The design, development and marketing of
pharmaceutical compounds are reviewed, and
manufacturing facilities are inspected, by government
regulatory agencies, including the United States Food
and Drug Administration and comparable agencies in
other countries (collectively "Agency"). The Company is
unable to predict the effect that reviews by any Agency
will have on the development, clinical testing,
manufacturing, marketing or sale of its pharmaceutical
products. Failure to obtain Agency approvals in a timely
fashion or on the terms and with the scope or breadth
contemplated by the Company could adversely affect the
Company. In addition, in certain cases, the Company's
license agreements for new formulations of pharmaceutical
compounds may provide that the licensees, rather than
the Company, are responsible for obtaining the
Agency approval of new formulations. In such cases, the
timing of the submission of applications for Agency
approval and of any supplementary data requested by
an Agency is not within the Company's control. Any
delays in the submission of such applications and
supplementary data requested could adversely affect the
business of the Company. Continued growth in the
Company's revenues and profits will depend, in large part
if not exclusively, on successful introduction and
marketing of products subject to Agency approval. There
can be no assurance as to when or whether such approvals
from such regulatory authorities will be received. See
"Business-Governmental Regulation."
7. Competition.
In recent years, an increasing number of
pharmaceutical companies have become interested in
the development and commercialization of products
incorporating advanced or novel drug delivery systems.
The Company expects that competition in the field of
drug delivery will significantly increasesp; in the future
since smaller specialized research and development
companies are beginning to concentrate on this aspect
of the business. Some of the major
pharmaceutical companies have invested and are
continuing to invest significant resources in the
development of their own drug delivery systems and
technologies and some have invested funds in such
specialized drug delivery companies. Many of these
companies have greater financial and other resources as
well as more experience than the Company in
commercializing pharmaceutical products. Such companies
may develop new drug formulations and products or may
improve existing drug formulations and products more
efficiently than the Company. While the Company's
product development capabilities and patent protection
may help the Company to maintain its market
position in the field of advanced drug delivery, there
can be no assurance that others will not be able to
develop such capabilities or alternative technologies
outside the scope of the Company's patents if any, or
that even if patent protection is obtained, such
patents will not be successfully challenged in the
future.
8. Proprietary Technology: Unpredictability of Patent Protection.
The Company's success, competitive position and
amount of royalty income will depend in part on its
ability to obtain patent protection in various
jurisdictions related to the technologies, processes
and products it develops. The Company may file patent
applications seeking such protection. There can be no
assurance that these applications will result in the
issuance of patents(s), or if any patent(s) are
issued, that litigation will not be commenced seeking to
challenge such patent protection or that such challenges
will fail. In addition, there can be no assurance that
the scope and validity of the Company's patents will
prevent third parties from developing similar or
competing products. The expenses involved in litigation
regarding patent protection or a challenge thereto
can be significant and cannot be estimated by the
Company. Furthermore, there can be no assurance that
the Company's activities will not infringe on patents
owned by others. The Company could incur substantial
costs in defending itself in suits brought against it,
or in suits in which the Company may assert, against
others, claiming infringement of the Company's patents.
There can be no assurance that the Company would
possess sufficient funds to protect its patents from
infringement. Should the products be found to infringe
upon patents issued to third parties, the manufacture,
use and sale of such products could be enjoined and the
Company could be required to pay substantial damages.
In addition, the Company may be required to obtain
licenses to patents, or other proprietary rights of
third parties, in connection with the development and use
of the Company's products and technologies as they relate
to other persons' technologies. No assurance can be
given that any licenses required under any such patents
or proprietary rights would be available on acceptable
terms, if at all. The Company will also rely on trade
secrets and proprietary knowhow, which it will seek to
protect in part, by confidentiality agreements with
employees. There can be no assurance that such
employees, or others, will maintain the confidentiality
of such trade secrets or proprietary information or that
trade secrets or proprietary knowhow of the Company will
not otherwise become known or be independently developed
in such manner that the Company will have no practical
recourse. See "Business-Patents."
9. Key Research Personnel.
The Company is heavily dependent upon the
scientific expertise of Dr. Atul M. Mehta, President
and CEO of Elite Pharmaceuticals and Elite Labs.
Although Elite Labs now employs and will in the
future continue to employ other qualified scientists,
as of the date of this Offering, only Dr. Mehta has the
advanced knowledge, knowhow and track record of
having successfully developed controlled-release
products for other companies. The loss of Dr. Mehta's
services would have a material adverse effect on the
Company's business. Therefore, Elite Labs has entered
into a five-year employment contract with Dr. Mehta which
ends on December 31, 2000. Additionally, Elite Labs has
obtained insurance coverage with respect to Dr. Mehta's
life in an amount of $1,000,000.
10. Lack of Trading Market.
Purchasers of the securities offered hereby must be
aware of the long-term nature of their investment and be
able to bear the economic risks of their investment for
an indefinite period of time. No trading market exists
for the Common Stock or Warrants, although those shares
of Elite Pharmaceuticals' Common Stock held by the
former shareholders of Prologica are currency listed for
trading in the over-the-counter market in the National
Quotation Service Bureau "pink sheets". A limited
market for the securities offered hereunder may develop
on the over-thecounter bulletin board, although there
can be no assurance of such an occurrence. Even if
such a market developed, it would still be more
difficult for an investor to dispose of, or to
obtain quotations as to, the price of the Common Stock
than a security traded on a national securities exchange.
While the Company intends to apply for a listing on
the Nasdaq SmallCap Market "Nasdaq" for the Common
Stock and Warrants, there can be no assurance that the
Company will obtain such listing. Nasdaq has recently
proposed amendments to its rules increasing listing
eligibility and maintenance criteria. Existing
eligibility criteria for inclusion on Nasdaq require,
among other things, that an issuer have total assets
of $4 million and total equity of $2 million, and that
the security to be listed has a minimum bid price of
$3.00 per share. The proposed amendment would require
among other things, that an issuer have net tangible
assets (i.e., total assets less total liabilities and
intangible assets) of $4 million (or alternatively, net
income in two of the most recent three fiscal years of
at least $750,000, or a market capitalization of $50
million) and that the security to be listed has a
minimum bid price of $4.00 per share. Adoption of the
proposed amendments, which are expected to become
effective in 1997 would further increase the risk of
not having Elite Pharmaceuticals' Common Stock listed on
Nasdaq. In the event only the Minimum Securities are
sold Elite Pharmaceuticals will likely not be eligible
for listing on Nasdaq.
11. Penny Stock Regulation.
The trading of the Company's Common Stock, if any, will
be subject to Rule 15g-9 promulgated under the Exchange
Act for nonNasdaq and non-exchange listed securities.
Under such rule, brokers-dealers who recommend such
securities to persons other than established customers
and accredited investors must make a special written
suitability determination for the purchaser and receive
the purchaser's written agreement to a transaction prior
to sale. Securities are exempt from this rule if the
market price is at least $5.00 per share. The Commission
has adopted regulations that generally define a "penny
stock" to be an equity security that has a market price
of less than $5.00 per share or an exercise price of
less than $5.00 per share subject to certain
exceptions. Such exceptions include equity securities
listed on Nasdaq and equity securities issued by an
issuer that has (i) net tangible assets of at least
$2,000,000, if such issuer has been in continuous
operation for more than three years, or (ii) net
tangible assets of at least $5,000,000, if such issuer
has been in continuous operation for less than three
years, or (iii) average revenue of at least $6,000,000
for the preceding three years. Unless an exception is
available, the regulations require the delivery, prior
to any transaction involving a penny stock, of a risk
of disclosure schedule explaining the penny stock
market and the risks associated therewith. Elite
Pharmaceuticals' Common Stock is currently a penny
stock as defined in the Exchange Act and as such, the
market liquidity for the Common Stock will be limited to
the ability of broker-dealers to sell the Common Stock
in compliance with the above-mentioned disclosure
requirements.
12. Outstanding Warrants and Options.
There are outstanding warrants and options to
purchase an aggregate of 5,900,000 shares of Common Stock
for prices ranging from $1.00 to $3.00. To the extent
that outstanding warrants or options are exercised,
dilution of the interests of Elite Pharmaceuticals'
stockholders will occur. Moreover, the terms upon
which the Company will be able to obtain additional
equity may be adversely affected since the holders of
the outstanding warrants can be expected to exercise
them at a time when the Company would, in all
likelihood, be able to obtain capital on terms more
favorable to the Company than those provided by such
securities.
ELITE LABORATORIES, INC.
BALANCE SHEETS
MARCH 31, 1997 AND 1996
ASSETS
1997 1996
_________ __________
Current Assets:
Cash and Cash Equivalents $ 90,762 $ 113,644
Contract Revenue Receivable 12,20 8,800
Prepaid Expenses and
Other Current Assets 2,155 8,106
Deferred Income Tax Benefit 5,550 700
------ ---------
Total Current Assets 110,675 131,250
Equipment, Net 34,620 69,260
Patent and Trademarks, Net 17,393 11,750
Security Deposit 9,000 9,000
Deferred Income Tax Benefit 9,250 27,000
------ ---------
Total Assets $180,938 $ 248,260
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and
Accrued Expenses $ 8,458 $ 11,041
Total Current Liabilities $ 8,458 $ 11,041
Note Payable to Related Party 100,000 100,000
Commitments and Contingencies
Stockholders' Equity:
Class A Voting Common Stock,
$.01 Par Value;
10,000,000 Shares Authorized,
4,767,600 and 4,645,314 Shares
Issued and Outstanding,
Respectively
Class B Non-voting Common
Stock, $.01 Par Value;
5,000,000 Shares Authorized,
No Shares Issued
and Outstanding 47,676 46,453
Additional Paid In Capital 1,632,972 1,438,823
Accumulated Deficit (1,608,168) (1,348,057)
---------- ----------
Total Stockholders' Equity 72,480 137,219
Total Liabilities and
Stockholders' Equity $ 180,938 $ 248,260
___________ ____________
The accompanying notes are an integral part of these
financial statements.
ELITE LABORATORIES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1997 AND 1996
1997 1996
_________ __________
Revenues:
Licensing Fees $ 160,000 $ --
Contract Research and
Development 153,000 134,165
Consulting and Test Fees 17,659 16,403
_________ __________
Total Revenues 330,659 150,568
_________ __________
Costs and Expenses:
Research and Development 377,637 318,533
General and Administrative 156,671 106,074
Depreciation and
Amortization 35,701 54,815
Interest (Income) Expense,
Net of Interest Expense
of $8,500 and $412,
Respectively 7,648 (2,814)
_________ __________
Total Expenses 577,657 476,608
_________ __________
Net (Loss) Before Income
Taxes (246,998) (326,040)
Income Tax Expense 13,113 200
_________ __________
Net (Loss) $(260,111) $ (326,240)
_________ __________
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF STOCKHOLDER EQUITY
YEARS ENDED MARCH 31, 1997 AND 1996
Class A (Voting)
Common Stock Additional Stock Stock-
--------------- Paid-In Accum. ------------ holders
Shares Amt. Capital Deficit Shares Amount Equity
Balance
3/31/95 5,211,314 $51,123 $1,663,810 $(1,021,817) 80,000 $(100,000)$563,116
Issuance
of Common
Stock 10,000 100 19,900
Retirement
of Common
Stock (45,000) (450) (89,550)
Retirement
of Treasury
Stock (80,000) (800 (99,200) (80,000) 100,000
Retirement of
Common Stock
Acquired in
Forbearance
Agreement (352,000) (3,520) (26,137)
Net(Loss)
for the Year (326,240)
-------- ------- --------- --------- -------- -------- -----
Balance
3/31/96 4,465,314 $46,453 $1,438,823 $(1,348,057) 0 0 $137,219
========= ======= ========== =========== ======= ======= ========
Issuance of
Common Stock
Warrants 122,286 1,223 194,149 195,372
Net(Loss)
for the Year (260,111)
------- ------- -------- --------- ------- -------- -------
Balance
3/31/97 4,767,600 $47,676 $1,432,972 $(1,608,168) 0 0 $72,480
========= ======= ========== =========== ======== ===== ========
The accompanying notes form an integral part
of these financial statements
ELITE LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1997 AND 1996
1997 1996
___________ _________
Cash Flows From Operating Activities:
Net (Loss) $ (260,111) $ (326,240)
Adjustments Necessary to
Reconcile Net (Loss) to Net Cash
Used in Operating Activities:
Depreciation and Amortization 35,701 54,815
Gain on Retirement of Common
Stock --- (29,657)
Changes in Assets and Liabilities:
Decrease in Prepaid and Other Assets 18,851
(Increase) in Contract Revenue Receivable (3,408) (6,800)
Increase (Decrease) in Accounts Payable
and Accrued Expenses (2,583) 4,310
_________ __________
Net Cash (Used in) Operating
Activities (211,550) (303,572)
_________ __________
Cash Flows From Investing Activities:
Purchase of Equipment -- (3,180)
Payments for Patent and Trademark Filing (6,704) (11,750)
Net Cash Used in Investing Activities (6,704) (14,930)
Cash Flows From Financing Activities:
Net Proceeds From Issuance of Common Stock 195,372 20,000
Payment of Principal on Capital Lease -- (4,052)
Proceeds from Related Party Note -- 100,000
Payment for Retirement of Common Stock -- (90,000)
________ _______
Net Cash Provided by Financing Activities 195,372 25,948
________ _______
Net (Decrease) in Cash and Cash
Equivalents (22,882) (298,095)
Cash and Cash Equivalents at Beginning
of Year 113,644 411,739
________ _______
Cash and Cash Equivalents at End
of Year $ 90,762 $ 113,644
========= ==========
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for:
Interest $ 8,594 $ 34
Income Taxes 213 37
The accompanying notes are an integral part of these financial statements.
ELITE LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Business
-------------------
Elite Laboratories, Inc. (the "Company") was incorporated on
August 23, 1990 under the Laws of the State of Delaware, in
order to engage in research and development activities for the
purpose of obtaining Food and Drug Administration approval, and,
thereafter, commercially exploiting generic and new controlled-release
pharmaceutical products. The Company also engages in contract research
and development on behalf of other pharmaceutical companies.
Cash and Cash Equivalents
-------------------------
The Company considers highly liquid short-term investments purchased
with initial maturities of three months or less to be cash equivalents.
Equipment
-------------------
Equipment is stated at cost. Depreciation is provided on the
straight-line method based on the estimated useful lives of the
respective assets which range from five to seven years. Major repairs
or improvements are capitalized. Minor replacements and maintenance
and repairs which do not improve or extend asset lives are expensed
currently.
Upon retirement or other disposition of assets, the cost and
related accumulated depreciation are removed from the accounts
and the resulting gain or loss, if any, is recorded.
Research and Development
------------------------
Research and development expenditures are charged to expense
as incurred.
Patents and Trademarks
-----------------------
Costs incurred for the application of patents and trademarks are
capitalized and amortized on the straightline method, based on an
estimated useful life of fifteen years, upon approval of the patent
and trademarks. These costs are charged to expense if the patent or
trademark is unsuccessful.
Concentration of Credit Risk
----------------------------
The Company derives substantially all of its revenues from contracts
with other pharmaceutical companies.
ELITE LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. Summary of Significant Accounting Policies (Continued)
Use of Estimates
-----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income Taxes
-------------
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently
due plus deferred taxes. Deferred taxes are recognized for differences
between the basis of assets and liabilities for financial statement
and income tax purposes. The differences relate primarily to
depreciable assets (use of different depreciation methods and lives
for financial statement and income tax purposes), allowance for
doubtful receivables (deductible for financial statement purposes but not
for income tax purposes), and profit on installment
sales (deferred for income tax purposes but recognized for
financial statement purposes). The deferred tax assets and
liabilities represent the future tax return consequences of those
differences which will either be taxable or deductible when the
assets and liabilities are recovered or settled. Deferred taxes
also are recognized for operating losses and tax credits that
are available to offset future taxable income.
2. Equipment
Equipment at March 31, 1997 and 1996 consists of the following:
1997 1996
_____ ______
Furniture, Fixtures and
Laboratory Equipment $ 203,910 $ 203,910
Equipment Under Capital Lease 73,465 73,465
277,375 277,375
Less: Accumulated Depreciation
and Amortization 242,755 208,115
_________ __________
$ 34,620; $ 69,260
_________ __________
Depreciation and amortization expense as of March 31, 1997 and 1996
was $34,640 and $54,815, respectively.
ELITE LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. Income Taxes
The provision for income taxes consists of the following components:
sp; 1997 1996
_________ _________
Federal:
Current $ -- $ --
Deferred 9,800 92,400
Tax Benefit of Net
Operating --
Loss Carryforward -- (92,400)
_________ _________
9,800 0
State:
Current 213 200
Deferred 3,100 29,100
Tax Benefit of Net
Operating -- (29,100)
Loss Carryforward 3,313 200
_________ _________
Total Tax Expense $ 13,113 $ 200
_________ _________
The Company's total deferred tax assets and deferred tax asset
valuation allowances at March 31, are as follows:
1997 1996
_________ _________
Total Deferred
Tax Assets $ 587,000 $ 488,400
Less: Valuation
Allowance 572,200 460,700
_________ _________
Net Deferred Tax Asset $ 14,800 $ 27,700
======== =========
ELITE LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. Income Taxes (Continued)
The Company has a loss carryforward of $1,630,600 for Federal and
$1,448,900 for State tax purposes that may be offset against future
taxable income. The amounts and expiration dates are as follows:
Expiration
Amount Year
____ ______ _____
Federal: $ 543,000 2007
437,300 2008
60,100 2010
347,200 2011
243,000 2012
__________ ____
Total $ 1,630,600
___________
State: $ 367,900 1999
437,300 2000
53,600 2002
347,100 2003
243,000 2004
___________
Total $ 1,448,900
___________
The income tax provision differs from the expense that would
result from applying statutory rates to income before taxes
because deferred income taxes are based on average tax rates,
because certain expenses are not deductible for tax purposes
and because a valuation allowance had been provided to reduce
deferred tax assets to the amount that is more likely than not
to be realized.
4. Capital Stock
As per the Private Placement Memorandum ("PPM") dated August
15, 1991, the Company sold a total of 214,000 units priced at
$2.50 which consists of two (2) shares of common stock, $.01 par
value and one (1) class A warrant to purchase one (1) share of
common stock at an exercise price of $2.00 per share. Total
proceeds from the PPM amounted to $535,000. As of March 31, 1992,
the Company had subscriptions receivable of $35,750 for a total
of 14,300 units. In addition, prior to the PPM, the Company raised
approximately $402,000 through the issuance of 1,435,714 shares
of common stock.
As of March 31, 1992, the Company had Class A warrants outstanding
to purchase 199,700 common shares. The warrants were exercisable
at $2.00 per share commencing August 28, 1992 and expiring on or
before March 1, 1993. The Class A warrants could have been redeemed
by the Company at any time upon providing thirty days written
notice and for payment at the rate of $.05 per warrant.
ELITE LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. Capital Stock (Continued)
As of March 31, 1993, the Company collected the subscriptions
receivable as of March 31, 1992 in the amount of $35,750 and
issued the related 14,300 units. The Company also raised
$49,200 through the exercise of warrants to purchase 24,600
shares of common stock, $.01 par value, at an exercise price
of $2 per share.
As of March 31, 1993, after the PPM, the Company raised $70,000
through the issuance of 35,000 shares of common stock. The
Company also received $30,000 during March 1993 for the issuance
of 15,000 shares of common stock, issued during April 1993,
through the exercise of warrants.
As of March 31,1995, the Company raised $300,000 through the
issuance of 150,000 shares of common stock and issued an option
to purchase an additional 280,000 shares at $2.50 per share,
such option expiring on April 25, 1995 without exercise.
On October, 26, 1995, the Company amended its certificate of
incorporation to authorize 5,000,000 shares of $.01 par value
Class B non-voting common stock. The original 10,000,000 shares
of the Company shall be classified as $.01 par value Class A
voting common stock.
As of March 31, 1996, the Company raised $20,000 through the
issuance of 10,000 shares of Class A voting common stock. The
Company also purchased 45,000 shares of its Class A voting
common stock from shareholders at a cost of $90,000 and retired
these shares. The 80,000 shares of Class A common stock being
held in Treasury at a cost of $100,000 were also retired.
In accordance with the Company's forbearance agreement
(see note 5) with a former employee executed on June 15, 1996,
the Company redeemed and retired 352,000 shares of its Class A
common stock originally issued to the former employee as
consideration for his acceptance to continue his employment
with the Company. These shares have been valued at $.08425
per share, which approximates the book value of these shares
currently and as originally issued, resulting in a gain of $29,657.
As of March 31, 1997, the Company raised $195,372 through the
issuance of 122,286 shares of Class A voting common stock and
122,286 Class A voting stock purchases warrants, exercisable at
$2 per share, expiring between July 24, 2001 and March 19, 2002.
5. Commitments and Contingencies
Employment Agreement:
On December 28, 1995 the Company renewed its employment agreement
(the "Agreement") with its President, dated May 23, 1991, for
a term of five (5) years with annual compensation of $165,000
in the first year of his employment, increasing to $200,000 per
annum during the next five years.
ELITE LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. Commitments and Contingencies (Continued)
In addition to certain standard employee benefits, the
agreement provides for the following:
a) Additional incentive commissions equal to five percent
(5 %) of net profit for each fiscal year.
b) Options to purchase 500,000 shares of Class A common
voting stock of the Company, granted on January 1, 1996,
and vesting on each of the four succeeding years, at the
rate of 100,000 shares per year. The option price of these
shares begins at $1 per share and increases to $3 per share
over the next four years (see note 8).
In the event of the termination of this Agreement by the
Company, future minimum payments will consist of the present
value (based on the prime rate at the date of termination)
of the unpaid portion of the benefits.
Leases:
The Company leases its laboratory and office space in
Maywood, New Jersey under an operating lease which expires
on October 31, 1998. The leases provide for the landlord to
pay all utility costs and for increases in rent based on cost
of living formulas. Future minimum payments under these leases
at March 31, 1997 are as follows:
Fiscal Year Ending March 31,
1998 $ 63,512
1999 37,100
Total rent expense for the years ended March 31, 1997 and
1996 was $62,083 and $60,645, respectively.
Forbearance Agreement:
The Company has entered into an agreement dated June 15, 1995
with a former employee of the Company. The employee was employed
by the Company under an agreement dated September 4, 1991 which
prohibits him from disclosing certain Company confidential
information and restricts his employment involving competition
with the Company's business.
The employee resigned on November 16, 1994 and commenced
employment with a competitor of the Company.
ELITE LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. Commitments and Contingencies (Continued)
Although the former employee is not actually performing any
research which involves the utilization of the Company's
confidential information, the forbearance agreement permits
the employee to work for the competitor in consideration for
his representations and assurances that he will not assist
his new employer in the development of any products on which
he performed development work for the Company for a period
of two years commencing November 16, 1994, and that he
will continue not to disclose any confidential information.
As additional consideration for the above, the former employee
tendered 352,000 shares of the Company's Class A common shares
to the Company at no cost (see note 4).
6. Contractual Agreements
On August 20 and November 22, 1993, the Company entered into
two separate and distinct product development agreements with
two multi-national pharmaceutical companies. The agreements
provide for the Company to develop various drug products in
return for various financial considerations.
On September 21, 1993, the Company also entered into a licensing
agreement with a pharmaceutical company. The terms of the
agreement provide the right to acquire the license to sell,
manufacture and distribute the licensed product, subject to
licensing fees and royalties.
During the year ended March 31, 1994, the Company recognized
revenues of approximately $645,000 from these agreements, with
an additional $500,000 plus royalties due if certain milestones
are achieved in the future.
On December 15, 1994, the Company entered into a product
research and development agreement with a multinational
pharmaceutical company. The agreement provides for the
Company to perform product development for three drugs
subject to financial considerations.
During the year ended March 31, 1995, the Company recognized
revenues of approximately $438,000 from these agreements.
On November 30, 1995, the Company entered into a product
research and development agreement with a multinational
pharmaceutical company which provides for the Company to
perform product development for two drugs.
During the year ended March 31, 1996, the Company recognized
revenues of $115,000 from this agreement.
On May 2, 1996, the Company entered into a research and
development agreement with a pharmaceutical company to
undertake formulation of a new oral medication.
ELITE LABORATORIES, INC.
NOTES TO FINANCIAI, STATEMENTS
(Continued)
6. Contractual Agreements (continued)
In accordance with the agreement, for the year ended March 31,
1997, the Company received revenues totaling $150,000, with an
option to perform supplemental development for additional
revenues of $25,000, and $150,000, respectively, upon the
pharmaceutical company's election to proceed with commercial
sale of the product.
On November 26, 1996, the Company entered into a formulation
development agreement with yet another multinational
pharmaceutical company. The terms of the agreement provide
the right to acquire the license to sell, manufacture and
distribute the product worldwide, subject to licensing fees
and royalties.
For the year ended March 31, 1997, the Company recognized
revenue of $160,000 from this agreement with $40,000 to be
received upon completion of the formulation development.
If the pharmaceutical company exercises its option to
license the Company's product, Elite shall receive milestone
payments of up to $600,000, plus royalties, upon
commercialization of the product.
7. Stock Options:
The Company has entered into compensatory stock option
agreements with its President (see note 5), under an
employment agreement, and with certain individuals who
serve on its Board of Directors and on its advisory board.
The agreements were entered into on December 21, 1995,
January 2, 1996, April 4, 1996 and May 6, 1997 (dates of
grants) and provide the President of the Company an option
to purchase 500,000 shares of Class A voting common stock
over five years (vesting period), at exercise prices between
$1 per share and $3 per share, and also provide certain
individuals who serve on the Company's Board of Directors
and on its advisory board an option to purchase an additional
250,000 shares of Class B non-voting common shares over four
years (vesting period) at an exercise price of $1 per share.
The options expire ten years from the dates of grant or
earlier upon death or changes in appointment.
The following summarizes the stock options outstanding as of
March 31, 1997:
Option Option
Dates of Class A Price Class B Price
Vesting Shares Per Share Shares Per Share
March 31, 1996 100,000 $1.00 50,000 $1.00
March 31, 1997 100,000 $1.50 55,000 $1.00
March 31, 1998 100,000 $2.00 60,000 $1.00
March 31, 1999 100,000 $2.50 65,000 $1.00
March 31, 2000 100,000 $3.00 15,000 $1.00
March 31, 2001 -- -- 5,000 $1.00
_______ ______ ______ _____
500,000 250,000
ELITE LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. Stock Options (Continued):
There were no options exercised as of March 31, 1997 and
1996 and the Company's stock price was valued to be lower
than the exercise price at the date of each grant.
As disclosed in notes 4 and 9, the Company has issued
292,286 Class A common stock purchase warrants, exercisable
at $2 and $3 per share. When considering all options and
warrants, the Company may be obligated to issue a total
of 792,286 Class A voting common shares and 250,000 Class B
nonvoting shares.
8. Related Party Note Payable:
On March 15, 1996, the Company borrowed $100,000 from a
Company stockholder subject to a loan agreement. Under the
terms of the agreement, the note bears interest only,
payable quarterly, at the rate of 8.50% per annum, and is
due and payable on March 15, 1998. The note is secured by a
guarantee from the Company and cannot be subordinated to
subsequent loans without consent of the lender.
Furthermore, if the Company raises $500,000 through the
issuance of its common stock at any time during the term
of the agreement, the lender may require the immediate
repayment of the principal.
If the principal remains unpaid on March 15, 1998
(the due date), then the lender shall have the option
to either receive payment of principal in full or convert
the amount, together with any unpaid interest, to Class A
common stock at $2 per share or a lower price, based on
sales of shares sold from March 15, 1996 through the due date.
The Company incurred interest expense of $8,500 and $378,
respectively for the years ended March 31, 1997 and 1996.
9. Subsequent Events:
a.) On May 20, 1997, the Company raised $28,000 through
the issuance of 20,000 shares of Class A voting common stock
and 20,000 Class A voting common stock purchase warrants,
exercisable at $2 per share, expiring on May 19, 2002.
b.) On May 23, 1997, the Company amended its formulation
development agreement dated November 26, 1996 extending
the option period for product licensing.
c.) One June 5, 1997, the Company borrowed $150,000 from
an individual lender subject to a promissory note. The
terms of the note include:
1. Payment in full on the earlier of June 5, 1998 or
the receipt by the Company of gross proceeds pursuant
to a private placement of its securities in the amount
of $2,400,000.
ELITE LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. Subsequent Events:(Continued)
2. The Company agrees to sell the lender 150,000 common
stock purchase warrants, after giving effect to the Company's
proposed stock split of its common stock, exercisable during
the five year period commencing June 5, 1997, at $3 per
share. The total purchase price for the warrants will be $150.
3. Should the Company default on the note, the lender shall
have the right to convert the note into shares of the
Company's Class A common stock at a rate of $1 per share.
4. The note shall bear simple interest at the rate of six
percent (6%) with interest payable in full on June 5, 1998.
d.) On June 5, 1997 the Company signed a letter of intent
to merge with a newly formed subsidiary of a Company
registered for sale in accordance with the Securities Act of
1933. The Company will exchange its shares with the new
subsidiary on a one-for-one basis as a tax free
reorganization under Section 368 of the Internal Revenue
code. Subsequent to this proposed merger, the subsidiary
will disappear, leaving Elite as the survivor of the
merger. Elite shareholders will own approximately 90% of
the new entity.
The merger is subject to a merger agreement and related
documents. The merger agreement shall provide for the
following:
1. A private placement of a minimum of $2,400,000 and a
maximum of $6,000,000 of the Company's securities, before
the merger, consisting of 100 units at $60,000 per unit,
each unit consisting of 40,000 shares of common stock and
20,000 common stock purchase warrants. The warrants will
be exercisable during the five year period commencing at
the close of the private placement at $3 per share.
2. Within 90 days of the closing of the private placement,
the Company agrees to file a registration statement
registering the common stock and the common stock
underlying the warrants issued pursuant to the proposed
private placement.
3. The execution of a three year consulting agreement between
the Company and an investor relations consulting services
firm. The agreement shall provide for payments of up to
$15,000 per month and the issuance of up to 700,000 five
year common stock purchase warrants, after giving effect
to a Company stock split, exercisable at $3 per share.
4. It is intended that the merger will consummate no later
than July 15, 1997
ELITE LABORATORIES, INC.
FINANCIAL STATEMENTS WITH
INDEPENDENT AUDITOR'S REPORT
MARCH 31, 1996 AND 1995
INDEPENDENT AUDITOR'S REPORT
BOARD OF DIRECTORS - ELITE LABORATORIES, INC.
We have audited the accompanying balance sheets of
Elite Laboratories, Inc. (the "Company") as of
March 31, 1996 and 1995, and the related statements of
operations, changes in stockholders' equity and cash
flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and
disclosures in the financial statement. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
financial position of Elite Laboratories, Inc., at
March 31, 1996 and 1995, and the results of its
operation and its cash flows for the years then
ended in conformity with generally accepted
accounting principles.
/S/Mark I. Gittelman
CERTIFIED PUBLIC ACCOUNTANT GOLDMAN & GITTELMAN, P.C.
Clifton, New Jersey
June 10, 1996
ELITE LABORATORIES, INC.
BALANCE SHEETS
MARCH 31, 1996 AND 1995
ASSETS
1996 1995
-------- -------
Current Assets:
Cash and Cash Equivalents $ 113,644 $ 411,739
Contract Revenue Receivable 8,800 2,000
Prepaid Expenses and Other
Current Assets 8,106 2,565
Deferred Income Tax Benefit 700 700
________ _________
Total Current Assets 131,250 417,004
Equipment (Net) 69,260 120,895
Patent 11,750 --
Security Deposit 9,000 9,000
Deferred Income Tax Benefit 27,000 27,000
________ _________
Total Assets $ 248,260 $ 573,899
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued
Expenses $ 11,041 $ 6,731
Current Portion of Capital
Lease Obligations -- 4,052
________ _________
Total Current Liabilities 11,041 10,783
_________ _________
Note Payable to Related Party 100,000 ---
_________ _________
Commitments and Contingencies
Stockholders' Equity:
Class A Voting Common Stock,
$.01 Par Value;
10,000,000 Shares Authorized,
4,645,314 and 5,112,314 Shares
Issued and Outstanding, Respectively
Class B Non-voting Common Stock,
$.01 Par Value;
5,000,000 Shares Authorized,
No Shares Issued
and Outstanding $ 46,453 $ 51,123
Additional Paid In Capital 1,438,823 1,633,810
Accumulated Deficit (1,348,057)(1,021,817)
Less: 80,000 Common
Shares Held In Treasury
At Cost --- (100,000)
__________ _________
Total Stockholders' Equity 137,219 563,116
__________ _________
Total Liabilities and
Stockholders' Equity $ 248,260 $ 573,899
========= ==========
The accompanying notes are an integral part of these
financial statements.
ELITE LABORATORIES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1996 AND 1995
1996 1995
________ _________
Revenues:
Licensing Fees; $ - $ 170,000
Contract Research and
Development 134,165 262,000
Consulting and Test Fees 16,403 8,538
; ________ _________
Total Revenues 150,568 440,538
________ _________
Costs and Expenses:
Research and Development 318,533 345,147
General and Administrative 106,074 100,238
Depreciation and Amortization 54,815 49,434
Interest Income, Net of
Interest Expense PF $412
and $3,763, Respectively (2,814) (1,931)
________ _________
Total Expenses 476,608 492,888
Net (Loss) Before Income
Taxes (326,040 (52,350)
Income Tax Expense 200 28,200
__________ __________
Net (Loss) $(326,240) $ (80,550)
========== =========
The accompanying notes are an integral part of these
financial statements.
STATEMENTS OF STOCKHOLDER EQUITY
YEARS ENDED MARCH 31, 1997 AND 1996
Class A (Voting)
Common Stock Additional Stock Stock-
--------------- Paid-In Accum. ------------- holders
Shares Amount Capital Deficit Shares Amount Equity
Balance
3/31/94 4,962,314 $49,623 $1,335,310 $(941,267) 80,000 $(100,000) $343,666
Issuance
of Common
Stock 150,000 1,500 298,500
Net (Loss)
For The Year (80,550)
Balance,
3/31/95 5,112,314 $51,123 $1,633,810 $(1,021,817) 80,000 $(100,000) $563,116
Issuance of
Common
Stock 10,000 100 19,900
Retirement
of Common
Stock (45,000) (450) (89,550)
Retirement
of Treasury
Stock (80,000) (800) (99,200) (80,000) 100,000
Retirement of
Common Stock
Acquired in
Forbearance
Agreement (352,000) (3,520) (26,137)
Net(Loss)
for the Year (326,240)
-------- ------- -------- --------- ------- ------- -------
Balance
3/31/96 4,465,314 $46,453 $1,438,823 $(1,348,057) 0 0 $137,219
========= ======= ========== =========== ======= ======= =======
ELITE LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
1996 1995
________ _________
Cash Flows From Operating
Activities:
Net (Loss) $ (326,240) $ (80,550)
Adjustments Necessary to Reconcile
Net Income (Loss) to Net Cash Used
in Operating Activities:
Depreciation and Amortization 54,815 49,434
Deferred Income Tax --- 28,200
Gain on Retirement of Common Stock (29,657) --
Changes in Assets and Liabilities:
(Increase) in Prepaid and Other
Current Assets (5,541) (282)
(Increase) Decrease in Contract
Revenue Receivable (6,800) 18,600
Increase (Decrease) in Accounts Payable
and Accrued Expenses 4,310 (16,834)
__________ ________
Net Cash (Used in) Operating
Activities (309,113) (1,432)
Cash Flows From Investing Activities:
Purchase of Equipment (3,180) (51,535)
Payments for Patent Filing (11,750) --
__________ ________
Net Cash Used in Investing
Activities (14,930) (51,535)
Cash Flows From Financing Activities:
Net Proceeds From Issuance of
Common Stock 20,000 300,000
Payment of Note Payable --- (1,025)
Payment of Principal on Capital Lease (4,052) (9,086)
Proceeds from Related Party Note 100,000 --
Payment for Retirement of Common Stock (90,000) --
__________ ________
Net Cash Provided by Financing
Activities 25,948 289,889
Net Increase (Decrease) in Cash
and Cash Equivalents (298,095) 236,922
Cash and Cash Equivalents at Beginning
of Yea 411,739 174,817
__________ ________
Cash and Cash Equivalents at End
of Year $ 113,644 $ 411,739
========= ==========
Supplemental Disclosures of Cash Flow information:
Cash Paid During the Year For:
Interest $ 34 $ 3,763
Income Taxes 37 25
Non-Cash Investing Activities:
Acquisition of Equipment -- 33,465
Cash Payment -- --
_________ ________
Note Payable Assumed $ --- $ 33,465
=========== =========
The accompanying notes are an integral part of these
financial statements.
ELITE LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Business
-------------------
Elite Laboratories, Inc. (the "Company") was incorporated
on August 23, 1990 under the Laws of the State of Delaware,
in order to engage in research and development activities
for the purpose of obtaining Food and Drug Administration
approval, and, thereafter, commercially exploiting generic
and new controlled-release pharmaceutical products. The
Company also engages in contract research and development
on behalf of other pharmaceutical companies.
Cash and Cash Equivalents
----------------------------
The Company considers highly liquid short-term investments
purchased with initial maturities of three months or less to
be cash equivalents.
Equipment
---------
Equipment is stated at cost. Depreciation is provided on
the straight-line method based on the estimated useful
lives of the respective assets which range from five to
seven years. Major repairs or improvements are capitalized.
Minor replacements and maintenance and repairs which do not
improve or extend asset lives are expensed currently.
Upon retirement or other disposition of assets, the cost and
related accumulated depreciation are removed from the accounts
and the resulting gain or loss, if any, is recorded.
Research and Development
-------------------------
Research and development expenditures are charged to expense
as incurred.
Patents
--------
Costs incurred for the application of patents are capitalized
and amortized on the straight-line method, based on an
estimated useful life of seventeen years, upon approval
of the patent. These costs are charged to expense if the
patent is unsuccessful.
Concentration of Credit Risk
------------------------------
The Company derives substantially all of its revenues from
contracts with other pharmaceutical companies.
The Company also maintains cash accounts in various banks.
The amount on deposit in one bank exceeds the $100,000
federally insured limit.
ELITE LABORATORIES INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. Summary of Significant Accounting Policies (Continued)
Income Taxes
-------------
Income taxes are provided for the tax effects of
transactions reported in the financial statements and
consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the
basis of assets and liabilities for financial statement
and income tax purposes. The differences relate primarily
to depreciable assets (use of different depreciation
methods and lives for financial statement and income tax
purposes) allowance for doubtful receivables (deductible
for financial statement purposes but not for income tax
purposes) and profit on installment sales (deferred for
income tax purposes but recognized for financial statement
purposes). The deferred tax assets and liabilities represent
the future tax return consequences of those differences
which will either be taxable or deductible when the assets
and liabilities are recovered or settled. Deferred taxes
also are recognized for operating losses and tax credits
that are available to offset future taxable income.
2. Equipment
Equipment at March 31, 1996 and 1995 consists of the following:
1996 1995
__________ ________
Furniture Fixtures and Laboratory
Equipment $ 203,910 $ 200,730
Equipment Under Capital Lease 73,465 73,465
_________ _________
277,375 274,195
Less: Accumulated Depreciation
and Amortization 208,115 153,300
_________ _________
$ 69,260 $ 120,895
Depreciation and amortization expense as of
March 31,1996 and 1995 consisted of $54,815 and
$49,434, respectively.
ELITE LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. Income Taxes
The provision for income taxes consists of the following
components:
1996 1995
____ _____
Federal:
Current $ -- $ --
Deferred 92,400 37,700
Tax Benefit of Net Operating
Loss Carryforward (92,400)(16,800)
_______ ________
__ 20,900
_______ ________
State:
Current 200 --
Deferred 29,100 8,700
Tax Benefit of Net Operating
Loss Carryforward (29,100) (1,400)
_______ ________
200 7,300
_______ ________
Total Tax Expense $ 200 $ 28,200
=========== =========
The Company's total deferred tax assets and deferred tax
asset valuation allowances at March 31, are as follows:
1996 1995
_______ ________
Total Deferred Tax Assets $ 488,400 $ 366,900
Less: Valuation Allowance 460,700 339,200
________ ________
Net Deferred Tax Asset $ 27,700 $ 27,700
======== ========
ELITE LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. Income Taxes (Continued)
The Company has a loss carryforward of $1,364,400 for
Federal and $1,182,800 for State tax purposes that may
be offset against future taxable income. The amounts and
expiration dates are as follows:
Expiration
Amount Year
______ ___________
Federal: $ 543,000 2007
437,300 2008
60,100 2010
324,000 2011
__________
Total $ 1,364,400
___________
State: $ 367,900 1999
437,300 2000
53,600 2002
324,000 2003
___________
Total $ 1,182,800
___________
The income tax provision differs from the expense that
would result from applying statutory rates to income
before taxes because deferred income taxes are based on
average tax rates, because certain expenses are not
deductible for tax purposes and because a validation
allowance had been provided to reduce deferred tax assets
to the amount that is more likely than not to be realized.
4. Capital Stock
As per the Private Placement Memorandum ("PPM") dated
August 15, 1991, the Company sold a total of 214,000
units priced at $2.50 which consists of two (2) shares
of common stock, $.01 par value and one (1) class A
warrant to purchase one (1) share of common stock at
an exercise price of $2.00 per share. Total proceeds from
the PPM amounted to $535,000. As of March 31, 1992, the
Company had subscriptions receivable of $35,750 for a
total of 14,300 units. In addition, prior to the PPM,
the Company raised approximately $402,000 through the
issuance of 1,435,714 shares of common stock.
As of March 31, 1992, the Company had Class A warrants
outstanding to purchase 199,700 common shares. The
warrants were exercisable at $2.00 per share commencing
August 28, 1992 and expiring on or before March 1, 1993.
The Class A warrants could have been redeemed by the
Company at any time upon providing thirty days written
notice and for payment at the rate of $.05 per warrant.
As of March 31, 1993, the Company collected the
subscriptions receivable as of March 31, 1992 in the
amount of $35,750 and issued the related 14,300 units.
The Company also raised $49,200 through the exercise
of warrants to purchase 24,600 shares of common stock,
$.01 par value, at an exercise price of $2.00 per share.