ELTP closed the last trading session at $0.091 and only with a 1.11% increase in the share price. The real surge happened the day before that and the stock reached a new yearly high at $0.11 and a record for the past year trading volume of 15 million shares. It looks like the news that triggered the action was that Elite Pharmaceuticals has completed the Third Closing of its Strategic Alliance Agreement with Epic Pharma, LLC and its wholly-owned subsidiary Epic Investments, LLC.
Under that agreement, ELTP partner has invested in the company and the two companies have agreed to work together on the development of at least eight generic drug products. The third part of the agreement was supposed to happen by December 31, 2010 and along with the delay, now the terms have also been amended. In addition to the 1,000 shares of Series E Preferred Stock, convertible into 32,784,623 ELTP shares of common stock, the company delivered to its partner and investor also a warrant. Epic can thus purchase up to 40 million ELTP common shares at a price of $0.0625 per share, while the cash received by ELTP remains $1 million.
Although Elite should now use the funds to keep working on its products, but the latest 10-Q says that the company is unlikely to get profitable over the next two years and that it has a huge liquidity problem that even puts its further existence under question. ELTP has an outstanding bond, for which it could not pay the principal amount that was due in September last year. Thus, a notice of default has been received and the total amount of $3.4 million owed to the holders of the bond has been recorded as current liability.
Together with its other current liabilities, the company had at the end of last year working capital deficit of $2.6 million. The bonds are collateralized by ELTP facilities and equipment, and the management believes that the resolution of that issue will have a significant impact on the company’s ability to operate in the future.
