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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2023

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM _______________ TO _______________

 

COMMISSION FILE NUMBER: 001-15697

 

ELITE PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)

 

nevada   22-3542636

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

165 LUDLOW AVENUE

NORTHVALE, new jersey

  07647
(Address of principal executive offices)   (Zip Code)

 

(201) 750-2646
(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol   Name of each exchange on which registered
Common Stock, par value $0.001 per share   ELTP   OTCQB

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date: 1,017,881,199 shares of Common Stock were issued, and 1,017,781,199 shares of Common Stock were outstanding as of February 14, 2024.

 

 

 

 
 

 

    PAGE
PART I FINANCIAL INFORMATION F-1
     
ITEM 1. Financial Statements F-1
  Condensed Consolidated Balance Sheets as of December 31, 2023 and March 31, 2023 (Unaudited) F-1
  Condensed Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 2023 and 2022 (Unaudited) F-2
  Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended December 31, 2023 and 2022 (Unaudited) F-3
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2023 and 2022 (Unaudited) F-5
  Notes to the Unaudited Condensed Consolidated Financial Statements F-6
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 1
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk 11
ITEM 4. Controls and Procedures 11
     
PART II OTHER INFORMATION 13
     
ITEM 1. Legal Proceedings 13
ITEM 1A. Risk Factors 13
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 13
ITEM 3. Defaults Upon Senior Securities 13
ITEM 4. Mine Safety Disclosures 13
ITEM 5. Other Information 13
ITEM 6. Exhibits 14
     
SIGNATURES 15

 

ii
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

   December 31, 2023   March 31, 2023 
ASSETS          
Current assets:          
Cash  $5,816,211   $7,832,247 
Accounts receivable, net of allowance for expected credit losses of $194,600 and $0 as of December 31, 2023 and March 31, 2023, respectively   16,009,614    3,094,549 
Inventory   14,325,041    9,550,716 
Prepaid expenses and other current assets   1,005,636    1,032,785 
Total current assets   37,156,502    21,510,297 
           
Property and equipment, net of accumulated depreciation of $15,578,471 and $14,586,335 respectively   10,095,029    10,426,158 
Intangible assets, net of accumulated amortization of $-0-   6,341,228    6,341,228 
Finance lease - right-of-use asset   408,428     
Operating lease - right-of-use asset   26,231    13,062 
Deferred income tax asset   20,233,603    2,171,821 
Other assets:          
Restricted cash - debt service for NJEDA bonds   427,999    412,434 
Security deposits   7,259    21,018 
Total other assets   435,258    433,452 
Total assets  $74,696,279   $40,896,018 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $2,890,717   $2,446,810 
Accrued expenses   11,884,645    5,047,726 
Deferred revenue, current portion   13,333    13,333 
Bonds payable, current portion, net of bond issuance costs   115,822    110,822 
Loans payable, current portion   190,607    200,032 
Related party loans payable (Note 7)   4,000,000     
Lease obligation - finance lease, current portion   37,444     
Lease obligation - operating lease, current portion   26,231    14,914 
Total current liabilities   19,158,799    7,833,637 
           
Long-term liabilities:          
Deferred revenue, net of current portion   8,889    18,890 
Bonds payable, net of current portion and bond issuance costs   909,654    1,029,018 
Loans payable, net of current portion and loan costs   2,407,077    2,532,502 
Lease obligation - finance lease, net of current portion   200,939     
Derivative financial instruments - warrants   5,597,200    521,711 
Total long-term liabilities   9,123,759    4,102,121 
Total liabilities   28,282,558    11,935,758 
Shareholders’ equity:          
Common Stock; par value $0.001; 1,445,000,000 shares authorized; 1,017,881,199 and 1,014,015,081 shares issued as of December 31, 2023 and March 31, 2023, respectively; 1,017,781,199 and 1,013,915,081 shares outstanding as of December 31, 2023 and March 31, 2023, respectively   1,017,885    1,014,019 
Additional paid-in capital   165,417,811    164,750,980 
Treasury stock; 100,000 shares as of December 31, 2023 and March 31, 2023, respectively, at cost   (306,841)   (306,841)
Accumulated deficit   (119,715,134)   (136,497,898)
Total shareholders’ equity   46,413,721    28,960,260 
Total liabilities and shareholders’ equity  $74,696,279   $40,896,018 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-1
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

                 
   For the Three Months Ended December 31,   For the Nine Months Ended December 31, 
   2023   2022   2023   2022 
Revenue:                    
Manufacturing fees  $14,791,110   $7,798,159   $36,208,217   $21,312,663 
Licensing fees   747,690    1,451,907    2,467,844    4,200,888 
Total revenue   15,538,800    9,250,066    38,676,061    25,513,551 
Cost of manufacturing   8,497,727    4,330,841    20,437,354    12,360,935 
Gross profit   7,041,073    4,919,225    18,238,707    13,152,616 
                     
Operating expenses:                    
Research and development   1,403,790    1,443,361    5,165,684    3,775,107 
General and administrative   1,711,275    1,186,049    4,906,187    4,356,752 
Non-cash compensation through issuance of stock options   49,815    13,030    107,592    24,325 
Depreciation and amortization   343,537    317,685    999,059    933,531 
Total operating expenses   3,508,417    2,960,125    11,178,522    9,089,715 
                     
Income from operations   3,532,656    1,959,100    7,060,185    4,062,901 
                     
Other income (expense):                    
Change in fair value of derivative financial instruments - warrants   (2,417,772)   372,894    (5,075,489)   561,070 
Change in fair value of stock-based liabilities   (2,854,556)       (4,921,376)    
Interest expense and amortization of debt issuance costs   (121,628)   (322,681)   (371,478)   (782,221)
Gain from settlement agreements   1,761,792        1,761,792     
Gain on sale of ANDA       1,000,000        1,000,000 
Interest income   5,249    15    16,085    187 
Other (expense) income, net   (3,626,915)   1,050,228    (8,590,466)   779,036 
                     
(Loss) income before income taxes   (94,259)   3,009,328    (1,530,281)   4,841,937 
                     
Income tax benefit (expense)   800,613    (39,250)   18,313,045    (50,837)
                     
Net income attributable to common shareholders  $706,354   $2,970,078   $16,782,764   $4,791,100 
                     
Basic net income per share attributable to common shareholders  $0.00   $0.00   $0.02   $0.00 
                     
Diluted net income per share attributable to common shareholders  $0.00   $0.00   $0.02   $0.01 
                     
Basic weighted average Common Stock outstanding   1,014,768,071    1,013,915,081    1,014,265,162    1,012,480,115 
                     
Diluted weighted average Common Stock outstanding   1,024,448,445    1,013,915,081    1,019,511,813    1,012,480,115 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-2
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(UNAUDITED)

 

                                     
   Series J Preferred Stock   Common Stock  

Additional

Paid-In

   Treasury Stock   Accumulated  

Total

Shareholders’

 
   Shares   Amount   Shares   Amount   Capital   Shares   Amount   Deficit   Equity 
Balance as of April 1, 2023      $    1,014,015,081   $1,014,019   $164,750,980    100,000   $(306,841)  $(136,497,898)  $28,960,260 
                                              
Net income                               1,141,809    1,141,809 
                                              
Non-cash compensation through the issuance of employee stock options                   15,000                15,000 
                                              
Balance at June 30, 2023      $    1,014,015,081   $1,014,019   $164,765,980    100,000   $(306,841)  $(135,356,089)  $30,117,069 
                                              
Net income                               14,934,601    14,934,601 
                                              
Non-cash compensation through the issuance of employee stock options                   42,777                42,777 
                                              
Balance at September 30, 2023      $    1,014,015,081   $1,014,019   $164,808,757    100,000   $(306,841)  $(120,421,488)  $45,094,447 
                                              
Shares issued in satisfaction of accrued director salaries           1,642,971    1,643    250,224                251,867 
                                              
Shares issued in satisfaction of accrued consultant fees           2,223,147    2,223    309,015                311,238 
                                              
Net income                               706,354    706,354 
                                              
Non-cash compensation through the issuance of employee stock options                   49,815                49,815 
                                              
Balance at December 31, 2023      $    1,017,881,199   $1,017,885   $165,417,811    100,000   $(306,841)  $(119,715,134)  $46,413,721 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-3
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(UNAUDITED)

 

   Series J Preferred Stock   Common Stock   Additional Paid-In   Treasury Stock   Accumulated   Total Shareholders’ 
   Shares   Amount   Shares   Amount   Capital   Shares   Amount   Deficit   Equity 
Balance as of April 1, 2022           1,011,381,988   $1,011,385   $164,577,227    100,000   $(306,841)  $(140,059,744)  $25,222,027 
                                              
Net income                               305,883    305,883 
                                              
Non-cash compensation through the issuance of employee stock options                   5,322                5,322 
                                              
Balance at June 30, 2022      $    1,011,381,988   $1,011,385   $164,582,549    100,000   $(306,841)  $(139,753,861)  $25,533,232 
                                              
Net income                               1,515,139    1,515,139 
                                              
Non-cash compensation through the issuance of employee stock options                   5,974                5,974 
                                              
Shares issued in payment of director salaries           1,378,608    1,379    58,621                60,000 
                                              
Shares issued in payment of consultant fees           1,254,485    1,255    75,807                77,062 
                                              
Balance at September 30, 2022      $    1,014,015,081   $1,014,019   $164,722,951    100,000   $(306,841)  $(138,238,722)  $27,191,407 
                                              
Net income                               2,970,078    2,970,078 
                                              
Non-cash compensation through the issuance of employee stock options                   13,029                13,029 
                                              
Balance at December 31, 2022      $    1,014,015,081   $1,014,019   $164,735,980    100,000   $(306,841)  $(135,268,644)  $30,174,514 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-4
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

         
   For the Nine Months Ended December 31, 

 

 

  2023   2022 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income  $16,782,764   $4,791,100 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:          
Depreciation and amortization   992,136    933,531 
Bad debt expense   194,600     
Amortization of operating leases - right-of-use assets   18,153    61,621 
Non-cash compensation accrued   563,105    430,778 
Change in fair value of derivative financial instruments - warrants   5,075,489    (561,070)
Change in fair value of stock-based liabilities   4,921,376     
Gain on settlement of Common Stock to consultant   (1,761,792)    
Non-cash compensation through the issuance of employee stock options   107,592    24,325 
Non-cash rent expense and lease accretion       602 
Deferred revenue   (10,001)   (10,003)
Change in operating assets and liabilities:          
Accounts receivable   (13,109,665)   (2,487,930)
Inventory   (4,774,325)   (1,860,688)
Prepaid expenses and other current assets   40,908    (581,113)
Deferred income tax asset   (18,061,782)    
Accounts payable, accrued expenses and other current liabilities   3,702,825    (309,950)
Interest expense of finance lease liability   (2,915)    
Lease obligations - operating leases   (20,005)   (61,182)
Net cash (used in) provided by operating activities   (5,341,537)   370,021 
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   (406,007)   (5,200,407)
Net cash used in investing activities   (406,007)   (5,200,407)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Payment of bond principal   (125,000)   (115,000)
Proceeds from related party loans payable   4,000,000     
Proceeds from loans payable       14,550,001 
Amortization of finance leases - right-of-use assets   6,923     
Loan payments   (134,850)   (230,770)
Net cash provided by financing activities   3,747,073    14,204,231 
           
Net change in cash and restricted cash   (2,000,471)   9,373,845 
           
Cash and restricted cash, beginning of period   8,244,681    8,940,396 
           
Cash and restricted cash, end of period  $6,244,210   $18,314,241 
           
Supplemental disclosure of cash and non-cash transactions:          
Cash paid for interest  $119,412   $782,221 
Cash paid for income taxes  $292,000   $127,522 
Stock issued in satisfaction of accrued directors salaries and consultant fees  $563,105   $137,067 
Recognition of right of use asset and lease liabilities entered into  $272,620   $ 
           
Reconciliation of cash and restricted cash          
Cash  $5,816,211   $17,909,077 
Restricted cash - debt service for NJEDA bonds   427,999    405,164 
Total cash and restricted cash shown in statement of cash flows  $6,244,210   $18,314,241 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

F-5
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Overview

 

Elite Pharmaceuticals, Inc. (the “Company” or “Elite”) was incorporated on October 1, 1997 under the laws of the State of Delaware, and its wholly-owned subsidiary Elite Laboratories, Inc. (“Elite Labs”) was incorporated on August 23, 1990 under the laws of the State of Delaware. On January 5, 2012, Elite Pharmaceuticals was reincorporated under the laws of the State of Nevada. Elite Labs engages primarily in researching, developing, licensing, manufacturing, and sales of generic, oral dose pharmaceuticals. The Company is equipped to manufacture controlled-release products on a contract basis for third parties and itself, if and when the product candidates are approved. These products include drugs that cover therapeutic areas for allergy, bariatric, attention deficit and infection. Research and development activities are performed with an objective of developing product candidates that will secure marketing approvals from the United States Food and Drug Administration (“FDA”), and thereafter, commercially exploiting such products.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of the Company are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Elite Labs. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain information or footnote disclosures normally included in condensed financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Form 10-K as filed with the SEC on June 29, 2023. The interim results for the nine months ended December 31, 2023 are not necessarily indicative of the results to be expected for the fiscal year ending March 31, 2024 or for any future periods.

 

Segment Information

 

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 280 (“ASC 280”), Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.

 

The Company’s chief operating decision maker is the Chief Executive Officer, who reviews the financial performance and the results of operations of the segments prepared in accordance with GAAP when making decisions about allocating resources and assessing performance of the Company.

 

The Company has determined that its reportable segments are products whose marketing approvals were secured via an Abbreviated New Drug Application (“ANDA”) and products whose marketing approvals were secured via a New Drug Application (“NDA”). ANDA products are referred to as generic pharmaceuticals and NDA products are referred to as branded pharmaceuticals.

 

There are currently no intersegment revenues. Asset information by operating segment is not presented below since the chief operating decision maker does not review this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s condensed unaudited consolidated financial statements. Please see Note 15 for further details.

 

F-6
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Revenue Recognition

 

The Company generates revenue from manufacturing and licensing fees and sales of generic pharmaceuticals bearing the Elite label to pharmaceutical distributors for pharmacies and institutions. Manufacturing fees include the development of pain management products, manufacturing of a line of generic pharmaceutical products with approved ANDA, through the manufacture of formulations and the development of new products. Revenues earned from the sale of Elite label products are recorded at their net realizable value which consists of gross amounts invoiced reduced by contractual reductions, including, without limitation, chargebacks, discounts and program rebates, as applicable. Licensing fees include the commercialization of products either by license and the collection of royalties, or the expansion of licensing agreements with other pharmaceutical companies, including co-development projects, joint ventures and other collaborations.

 

Under ASC 606, Revenue from Contacts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenues following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue.

 

Nature of goods and services

 

The following is a description of the Company’s goods and services from which the Company generates revenue, as well as the nature, timing of satisfaction of performance obligations, and significant payment terms for each, as applicable:

 

a) Manufacturing Fees

 

The Company is equipped to manufacture controlled-release products on a contract basis for third parties, if, and when, the products are approved. These products include products using controlled-release drug technology. The Company also develops and markets (either on its own or by license to other companies) generic and proprietary controlled-release pharmaceutical products.

 

The Company recognizes revenue when the customer obtains control of the Company’s product based on the contractual shipping terms of the contract, at which time the performance obligation is deemed to be completed. The Company is primarily responsible for fulfilling the promise to provide the product, is responsible to ensure that the product is produced in accordance with the related supply agreement and bears risk of loss while the inventory is in-transit to the commercial partner. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to a customer.

 

b) License Fees

 

The Company enters into licensing and development agreements, which may include multiple revenue generating activities, including milestones payments, licensing fees, product sales and services. The Company analyzes each element of its licensing and development agreements in accordance with ASC 606 to determine appropriate revenue recognition. The terms of the license agreement may include payment to the Company of licensing fees, non-refundable upfront license fees, milestone payments if specified objectives are achieved, and/or royalties on product sales.

 

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

 

The Company recognizes revenue from non-refundable upfront payments at a point in time, typically upon fulfilling the delivery of the associated intellectual property to the customer. For those milestone payments which are contingent on the occurrence of particular future events (for example, payments due upon a product receiving FDA approval), the Company determined that these need to be considered for inclusion in the calculation of total consideration from the contract as a component of variable consideration using the most-likely amount method. As such, the Company assesses each milestone to determine the probability and substance behind achieving each milestone. Given the inherent uncertainty of the occurrence of future events, the Company will recognize revenue from the milestone when there is not a high probability of a reversal of revenue, which typically occurs near or upon achievement of the event.

 

F-7
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Significant management judgment is required to determine the level of effort required under an arrangement and the period over which the Company expects to complete its performance obligations under the arrangement. If the Company cannot reasonably estimate when its performance obligations either are completed or become inconsequential, then revenue recognition is deferred until the Company can reasonably make such estimates. Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method.

 

When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in ASC 606-10-32-18, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component as of December 31, 2023.

 

In accordance with ASC 606-10-55-65, royalties are recognized when the subsequent sale of the customer’s products occurs.

 

c) Sale of product under the Elite label

 

The Company began direct sales of products under the Company’s own label on April 1, 2023. License agreements will remain in place for select products. With this transition, however, a large portion of the manufacturing and license fees now reported will be replaced with revenues from sales of Elite labeled pharmaceutical products to distributors for pharmacies and institutions.

 

The Company recognizes revenue when the customer obtains control of the Company’s product based on the contractual shipping terms, at which time the performance obligation is deemed to be completed. The Company is primarily responsible for fulfilling the promise to deliver the product and bears risk of loss while the inventory is in-transit to the purchaser. Revenue is measured as the amount of consideration earned from the sale of Elite labeled pharmaceutical products are recorded at their net realizable value which consists of gross amounts invoiced reduced by contractual reductions, including, without limitation, chargebacks, discounts and program rebates, as applicable.

 

Disaggregation of revenue

 

In the following table, revenue is disaggregated by type of revenue generated by the Company. The Company recognizes revenue at a point in time for all performance obligations. The table also includes a reconciliation of the disaggregated revenue with the reportable segments:

 

   For the Three Months Ended December 31,   For the Nine Months Ended December 31, 
   2023   2022   2023   2022 
NDA:                    
Manufacturing fees  $-   $-   $-   $- 
Licensing fees  $   $   $   $ 
Total NDA revenue                
ANDA:                    
Manufacturing fees  $14,791,110   $7,798,159   $36,208,217   $21,312,663 
Licensing fees   747,690    1,451,907    2,467,844    4,200,888 
Total ANDA revenue   15,538,800    9,250,066    38,676,061    25,513,551 
Total revenue  $15,538,800   $9,250,066   $38,676,061   $25,513,551 

 

Selected information on reportable segments and reconciliation of operating income by segment to income from operations before income taxes are disclosed within Note 15.

 

F-8
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Cash

 

Cash consists of cash on deposit with banks and money market instruments. The Company places its cash with high-quality, U.S. financial institutions and, to date has not experienced losses on any of its balances.

 

Restricted Cash

 

As of December 31, 2023, and March 31, 2023, the Company had $427,999 and $412,434, of restricted cash, respectively, related to debt service reserve in regard to the New Jersey Economic Development Authority (“NJEDA”) bonds (see Note 5).

 

Accounts Receivable and Allowance for Expected Credit Losses

 

Accounts receivable are comprised of balances due from customers, net of estimated allowances for expected credit losses, and other contractual deductions, including, without limitation, chargebacks, discounts and program rebates. In determining collectability, historical trends are evaluated, and specific customer issues are reviewed on a periodic basis to arrive at appropriate allowances.

 

The allowance for expected credit losses is based on the probability of future collection under the current expected credited loss (“CECL”) impairment model under Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Assets, which was adopted by the Company on April 1, 2023, as discussed below within Recently Adopted Accounting Pronouncements. Under the CECL impairment model, the Company determines its allowance by applying a loss-rate method based on an aging schedule using the Company’s historical loss rate. The Company also considers reasonable and supportable current information in determining its estimated loss rates, such as external forecasts, macroeconomic trends or other factors including customers’ credit risk and historical loss experience. The adequacy of the allowance is evaluated on a regular basis. Account balances are written off after all means of collection are exhausted and the balance is deemed uncollectible. Subsequent recoveries are credited to the allowance. Changes in the allowance are recorded as adjustments to credit losses in the period incurred.

 

Prior to April 1, 2023, trade receivables were presented net of allowance for expected credit losses based on the credit risk of specific clients, past collection history, and management’s evaluation of other risks. Expected credit losses stemming from unbilled receivables expected to be billed between March 31, 2024 and March 31, 2028 include additional risk premiums estimated based on factors such as projected inflation, projected decreases in GDP, and projected unemployment.

 

Inventory

 

Inventory is recorded at the lower of cost or net realizable value on specific identification by lot number basis.

 

Long-Lived Assets

 

The Company periodically evaluates the fair value of long-lived assets, which include property and equipment and intangibles, whenever events or changes in circumstances indicate that its carrying amounts may not be recoverable.

 

Property and equipment are stated at cost. Depreciation is provided on the straight-line method based on the estimated useful lives of the respective assets which range from three to forty 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 recognized in income.

 

Intangible Assets

 

The Company capitalizes certain costs to acquire intangible assets; if such assets are determined to have a finite useful life they are amortized on a straight-line basis over the estimated useful life. Costs to acquire indefinite lived intangible assets, such as costs related to ANDAs are capitalized accordingly.

 

The Company tests its intangible assets for impairment at least annually (as of March 31st) and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others and without limitation: a significant decline in the Company’s expected future cash flows; a sustained, significant decline in the Company’s stock price and market capitalization; a significant adverse change in legal factors or in the business climate of the Company’s segments; unanticipated competition; and slower growth rates.

 

F-9
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

During the year ended March 31, 2023, the Company determined indicators of impairment occurred and recorded impairment expense of $292,807 on its ANDAs and patents. There were no such impairments recorded during the period ended December 31, 2023. The Company notes that none of its patents relate to any of the Company’s revenue producing activities.

 

The following table summarizes the Company’s intangible assets as of and for the periods ended December 31, 2023 and March 31, 2023:

 

   December 31, 2023
   Estimated Useful Life  Gross Carrying Amount   Impairment losses   Accumulated Amortization   Net Book Value 
Patent application costs  *  $289,039   $   $   $289,039 
ANDA acquisition costs  Indefinite   6,052,189            6,052,189 
      $6,341,228   $   $   $6,341,228 

 

   March 31, 2023
   Estimated Useful Life  Gross Carrying Amount   Impairment losses   Accumulated Amortization   Net Book Value 
Patent application costs  *  $465,684   $(176,645)  $   $289,039 
ANDA acquisition costs  Indefinite   6,168,351    (116,162)       6,052,189 
      $6,634,035   $(292,807)  $   $6,341,228 

 

Research and Development

 

Research and development expenditures are charged to expenses as incurred.

 

Contingencies

 

Occasionally, the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s condensed consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions.

 

On August 17, 2023, Elite filed a paragraph IV certification with its ANDA to generic Oxycontin and after Elite got acceptance of the ANDA by the FDA on September 19, 2023, Elite sent the patentee and NDA holder a Notice Letter as required under the Hatch-Waxman Act. On November 14, 2023, a patent infringement suit was filed in the District Court of New Jersey by Purdue Pharma. Elite obtained agreement with Purdue to stay the litigation for six months. Elite’s launch of a generic Oxycontin will depend on the approval by the FDA and the outcome of various litigations involving Purdue or the expiry of the patents listed on the Orange Book. As of December 31, 2023, the results of such proceedings cannot be predicted with certainty, but the Company does not anticipate that the final outcome, if any, arising out of any such matters will have a material adverse effect on its business, financial condition or results of operations.

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Where applicable, the Company records a valuation allowance to reduce any deferred tax assets that it determines will not be realizable in the future.

 

The Company recognizes the benefit of an uncertain tax position that it has taken or expects to take on income tax returns it files if such tax position is more likely than not to be sustained on examination by the taxing authorities, based on the technical merits of the position. These tax benefits are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

 

The Company operates in multiple tax jurisdictions within the United States of America. The Company remains subject to examination in all tax jurisdiction until the applicable statutes of limitation expire. As of December 31, 2023, a summary of the tax years that remain subject to examination in our major tax jurisdictions are: United States – Federal, 2016 and forward. The Company did not record unrecognized tax positions for the nine months ended December 31, 2023.

 

Warrants and Preferred Shares

 

The accounting treatment of warrants and preferred share series issued is determined pursuant to the guidance provided by ASC 470, Debt, ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging, as applicable. Each feature of a freestanding financial instrument including, without limitation, any rights relating to subsequent dilutive issuances, dividend issuances, equity sales, rights offerings, forced conversions, optional redemptions, automatic monthly conversions, dividends and exercise is assessed with determinations made regarding the proper classification in the Company’s financial statements.

 

F-10
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation. Under the fair value recognition provisions, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, based on the terms of the awards. The cost of the stock-based payments to nonemployees that are fully vested and non-forfeitable as at the grant date is measured and recognized at that date, unless there is a contractual term for services in which case such compensation would be amortized over the contractual term. The Company accounts for forfeitures as they occur.

 

In accordance with the Company’s Director compensation policy and certain employment contracts, director’s fees and a portion of employee’s salaries are to be paid via the issuance of shares of the Company’s Common Stock (“Common Stock”), in lieu of cash, with the valuation of such share being calculated on a quarterly basis and equal to the average closing price of the Company’s Common Stock. The Company records earned but unissued stock-based compensation in accrued expenses.

 

Sale of ANDA

 

During the quarter ended December 31, 2022, the Company entered into an agreement with Pyros Pharmaceuticals, Inc. (“Pyros”) pursuant to which the Company sold to Pyros its rights in and to the Company’s approved abbreviated new drug applications (ANDAs) for its generic Sabril drug (the “Sabril Product”). The Company sold its rights to Pyros for $1,000,000, which was recorded as gain on sale of ANDA during the year ended March 31, 2023. There is no further action required by the Company regarding the rights which would affect future periods.

 

In conjunction with the sale of its Sabril Product to Pyros, the Company executed a Manufacturing and Supply Agreement (the “Pyros Agreement”) with Pyros. Under the terms of the Pyros Agreement, the Company will receive an agreed-upon price per drug for the manufacturing and packaging of Sabril over a term of three years. Revenue per the Pyros Agreement will be recognized as control of the manufactured and supplied drugs is transferred to Pyros (at the time of delivery).

 

Earnings Per Share Attributable to Common Shareholders’

 

The Company follows ASC 260, Earnings Per Share, which requires presentation of basic and diluted earnings per share (“EPS”) on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying financial statements, basic earnings per share is computed by dividing net income by the weighted average number of shares of Common Stock outstanding during the period. The computation of diluted net income per share does not include the change in fair value of derivative instruments or the conversion of securities that would have an antidilutive effect.

 

As the average market price of Common Stock for the three and nine months ended December 31, 2023 and 2022 did not exceed the exercise price of the warrants, the potential dilution from the warrants converting into 79,008,661 shares of Common Stock for all periods have been excluded from the number of shares used in calculating diluted net income per share as their inclusion would have been antidilutive.

 

F-11
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The following is the computation of earnings per share applicable to common shareholders for the periods indicated:

 

                 
   For the Three Months Ended December 31,   For the Nine Months Ended December 31, 
   2023   2022   2023   2022 
Numerator                    
Net income - basic  $706,354   $2,970,078   $16,782,764   $4,791,100 
Effect of dilutive instrument on net income       372,894        561,070 
Net income - diluted  $706,354   $3,342,972   $16,782,764   $5,352,170 
                     
Denominator                    
Weighted average shares of Common Stock outstanding - basic   1,014,768,071    1,013,915,081    1,014,265,162    1,012,480,115 
                     
Dilutive effect of stock options and convertible securities   9,680,374        5,246,651     
                     
Weighted average shares of Common Stock outstanding - diluted   1,024,448,445    1,013,915,081    1,019,511,813    1,012,480,115 
                     
Net income per share                    
Basic  $0.00   $0.00   $0.02   $0.00 
Diluted  $0.00   $0.00   $0.02   $0.01 

 

Fair Value of Financial Instruments

 

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) provides a framework for measuring fair value in accordance with generally accepted accounting principles.

 

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).

 

The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820 are described as follows:

 

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 – Inputs that are unobservable for the asset or liability.

 

F-12
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Measured on a Recurring Basis

 

The following table presents information about our liabilities measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fell:

       Fair Value Measurement 
   Amount at Fair Value   Level 1   Level 2   Level 3 
Balance as of April 1, 2023  $521,711   $   $   $521,711 
Change in fair value of derivative financial instruments - warrants   5,075,489            5,075,489 
Balance as of December 31, 2023  $5,597,200   $   $   $5,597,200 

 

       Fair Value Measurement 
   Amount at Fair Value   Level 1   Level 2   Level 3 
Balance as of April 1, 2022  $936,837   $   $   $936,837 
Change in fair value of derivative financial instruments - warrants   (561,070)           (561,070)
Balance as of December 31, 2022  $375,767   $   $   $375,767 

 

See Note 11 for specific inputs used in determining fair value.

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses, approximate their fair values because of the short maturity of these instruments. Based upon current borrowing rates with similar maturities the carrying value of long-term debt approximates fair value.

 

Non-Financial Assets that are Measured at Fair Value on a Non-Recurring Basis

 

Non-financial assets such as intangible assets, and property and equipment are measured at fair value only when an impairment loss is recognized. The Company did not record an impairment charge related to these assets in the periods presented.

 

Financial Instruments — Credit Losses (ASU 2016-13)

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“CECL”). The amendments in this update introduce a new accounting model to measure credit losses for financial assets measured at amortized cost. The FASB has also issued additional ASUs to clarify the scope and provide additional guidance for ASU 2016-13. Credit losses for financial assets measured at amortized cost should be determined based on the total current expected credit losses over the life of the financial asset or group of financial assets. In effect, the financial asset or group of financial assets should be presented at the net amount expected to be collected. Credit losses will no longer be recorded under the current incurred loss model for financial assets measured at amortized cost. The amendments also modify the accounting for available-for-sale debt securities whereby credit losses will be recorded through an allowance for credit losses rather than a write-down to the security’s cost basis, which allows for reversals of credit losses when estimated credit losses decline. Credit losses for available-for-sale debt securities should be measured in a manner similar to current GAAP.

 

The amendments were effective on April 1, 2023 for the Company, and must be applied using a modified retrospective approach with a cumulative-effect adjustment through retained earnings as of the beginning of the fiscal year upon adoption as required. While the standard modifies the measurement of the allowance for credit losses, it does not alter the credit risk of our trade or unbilled receivables.

 

The impact of applying the CECL methodology upon adoption effective on April 1, 2023 was immaterial to the Company’s consolidated financial statements.

 

The Company’s quantitative allowance for credit loss estimates under CECL was determined using the loss rate method, which is impacted by certain forecasted economic factors. In addition to the Company’s quantitative allowance for credit losses, the Company also incorporates qualitative adjustments that may relate to unique risks, changes in current economic conditions that may not be reflected in quantitatively derived results, or other relevant factors to further inform the Company’s estimate of the allowance for credit losses.

 

F-13
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Additionally, due to the expansion of the time horizon over which the Company is required to estimate future credit losses, the Company may experience increased volatility in its future provisions for credit losses. Factors that could contribute to such volatility include, but are not limited to, changes in the composition and credit quality of customer base, economic conditions and forecasts, the allowance for credit loss models that are used, the data that is included in the models, the associated qualitative allowance framework, and the Company’s estimation techniques.

 

The Company has had no recordable write offs for bad debts or uncollectible invoiced amounts during the for the nine months ended December 31, 2023 or the prior twelve months ended March 31, 2023. In applying the CECL methodology, the Company recorded an estimated allowance of $194,600 for current estimated credit losses.

 

Treasury Stock

 

The Company records treasury stock at the cost to acquire it and includes treasury stock as a component of shareholders’ equity.

 

Recently Issued Accounting Pronouncements

 

Management has evaluated recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures.

 

NOTE 2. INVENTORY

 

Inventory consisted of the following:

   December 31, 2023   March 31, 2023 
Finished goods  $5,544,848   $2,352,330 
Work-in-progress   1,247,307    1,791,311 
Raw materials   7,532,886    5,407,075 
Inventory  $14,325,041   $9,550,716 

 

NOTE 3. PROPERTY AND EQUIPMENT, NET

 

Property and equipment consisted of the following:

   December 31, 2023   March 31, 2023 
Land, building and improvements  $10,269,297   $10,768,181 
Laboratory, manufacturing, warehouse and transportation equipment   14,518,570    13,364,512 
Office equipment and software   373,601    395,563 
Furniture and fixtures   512,032    484,237 
Property and equipment, gross   25,673,500    25,012,493 
Less: Accumulated depreciation   (15,578,471)   (14,586,335)
Property and equipment, net  $10,095,029   $10,426,158 

 

Depreciation expense was $336,614 and $314,610 for the three months ended December 31, 2023 and 2022, respectively, and $992,136 and $923,365 for the nine months ended December 31, 2023 and 2022, respectively.

 

F-14
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 4. ACCRUED EXPENSES

 

As of December 31, 2023 and March 31, 2023, the Company’s accrued expenses consisted of the following:

 

   December 31, 2023   March 31, 2023 
Salaries and fees payable in Common Stock inclusive of the change in fair value of Common stock underlying such liabilities  $

6,934,812

   $4,125,000 
Income tax       414,989 
Co-development profit split   3,389,949    

 
Consultant contract fees   10,000    193,333 
Audit fees   125,000    125,000 
Director dues   22,500    70,000 
Legal and professional expense   75,000     
Employee bonuses   712,384     
Other accrued expenses   615,000    119,404 
Total accrued expenses  $11,884,645   $5,047,726 

 

NOTE 5. NJEDA BONDS

 

In relation to the Series A Notes, the Company is required to maintain a debt service reserve. The debt service reserve is classified as restricted cash on the accompanying unaudited consolidated balance sheets. The NJEDA Bonds require the Company to make an annual principal payment on September 1st based on the amount specified in the loan documents and semi-annual interest payments on March 1st and September 1st, equal to interest due on the outstanding principal. The annual interest rate on the Series A Note is 6.5%. The NJEDA Bonds are collateralized by a first lien on the Company’s facility and equipment acquired with the proceeds of the original and refinanced bonds.

 

The following tables summarize the Company’s bonds payable liability:

 

   December 31, 2023   March 31, 2023 
Gross bonds payable          
NJEDA Bonds - Series A Notes  $1,120,000   $1,245,000 
Less: Current portion of bonds payable (prior to deduction of bond offering costs)   (130,000)   (125,000)
Long-term portion of bonds payable (prior to deduction of bond offering costs)  $990,000   $1,120,000 
           
Bond offering costs  $354,454   $354,454 
Less: Accumulated amortization   (259,930)   (249,294)
Bond offering costs, net  $94,524   $105,160 
           
Current portion of bonds payable - net of bond offering costs          
Current portions of bonds payable  $130,000   $125,000 
Less: Bonds offering costs to be amortized in the next 12 months   (14,178)   (14,178)
Current portion of bonds payable, net of bond offering costs  $115,822   $110,822 
           
Long term portion of bonds payable - net of bond offering costs          
Long term portion of bonds payable  $990,000   $1,120,000 
Less: Bond offering costs to be amortized subsequent to the next 12 months   (80,346)   (90,982)
Long term portion of bonds payable, net of bond offering costs  $909,654   $1,029,018 

 

Amortization expense was $3,540 and $3,544 for the three months ended December 31, 2023 and 2022, $10,636 and $10,629 for the nine months ended December 31, 2023 and 2022, respectively. Interest payable was $24,267 and $6,744 as of December 31, 2023 and March 31, 2023, respectively. Interest expense was $18,200 and $20,231 for the three months ended December 31, 2023 and 2022, respectively, and $57,985 and $63,808 for the nine months ended December 31, 2023 and 2022, respectively.

 

F-15
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Maturities of bonds for the next five years, exclusive of the nine months ended December 31, 2023 are as follows:

 

Years ending March 31,  Amount 
2024  $ 
2025   130,000 
2026   140,000 
2027   150,000 
2028   160,000 
Thereafter   540,000 
Total  $1,120,000 

 

NOTE 6. LOANS PAYABLE

 

On April 2, 2022, the Company and Elite Labs entered into a Loan and Security Agreement (the “EWB Loan Agreement”) with East West Bank (“EWB”). Pursuant to the EWB Loan Agreement, the Company and Elite Labs received one term loan for a principal amount of $12,000,000 (the “EWB Term Loan”) and a revolving line of credit up to $2,000,000 (the “EWB Revolver,” together with the “EWB Term Loan,” the “EWB Loans”), each of which shall be used for working capital. The EWB Term Loan bears interest at a rate of 9.73% (1.73% plus the prime rate (“Prime”)) and is repayable over five years, maturing on May 1, 2027. The EWB Revolver bears interest at a rate of (8.87% (0.87% plus Prime)) and matures on May 1, 2027. The total transaction costs associated with the EWB Term Loan incurred as of March 31, 2023, were $40,120, which are being amortized on a monthly basis over five years, beginning in April 2022. The EWB Loans are secured by a security interest in the personal property of the Company and Elite Labs. The EWB Loan Agreement contains customary representations, warranties and covenants. These covenants include, but are not limited to, maintaining maximum leverage ratios of 3.50 to 1.00, minimum liquidity of $5,000,000, minimum cash of $1,000,000, a fixed charge coverage ratio of 1.25 to 1.00 and restrictions on mergers or sales of assets and debt borrowings. As of March 31, 2023, the principal and interest on the EWB Term Loan has been paid in full by the Company and the EWB Loan Agreement is terminated.

 

In place of the EWB Term Loan, the Company has entered into a collateralized promissory note with individual lenders with rates comparable to the EWB Term Loan but with less restrictive covenants (a “Promissory Note”). As of June 2, 2023, a Promissory Note was placed with Nasrat Hakim, CEO and Chairman of the Board of Directors, for $3,000,000. The Promissory Note has an interest rate of 9% for the first year and 10% for an optional second year and the proceeds will be used for working capital and other business purposes.

 

Loans payable consisted of the following:

 

   December 31, 2023   March 31, 2023 
Mortgage loan payable 4.75% interest and maturing June 2032  $2,438,958   $2,472,923 
Equipment and insurance financing loans payable, between 7.10% and 12.02% interest and maturing between January 2024 and October 2025   158,726    259,611 
Less: Current portion of loans payable   (190,607)   (200,032)
Long-term portion of loans payable  $2,407,077   $2,532,502 

 

The interest expense associated with the loans payable was $30,384 and $317,844 for the three months ended December 31, 2023 and 2022, and $101,478 and $579,109 for the nine months ended December 31, 2023 and 2022, respectively.

 

F-16
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Loan principal payments for the next five years are as follows:

 

     
Future principal balances    
Years ending March 31,   Amount 
2024 (excluding the nine months ended December 31, 2023)  $44,535 
2025   186,657 
2026   120,748 
2027   92,773 
2028   94,433 
2029 and thereafter   2,058,538 
Total remaining principal balance  $2,597,684 

 

NOTE 7. RELATED PARTY LOANS

 

The Company has entered into a collateralized promissory note with individual lenders with rates comparable to the EWB Term Loan but with fewer covenants (the “Hakim Promissory Note”). These covenants include filing timely tax returns and financial statements, and an agreement not to sell, lease, or transfer a substantial portion of the Company’s assets during the term of the Hakim Promissory Note. On June 2, 2023, the Company entered into a Promissory Note with Nasrat Hakim, CEO and Chairman of the Board of Directors, pursuant to which the Company borrowed funds in the aggregate principal amount of $3,000,000. The Hakim Promissory Note has an interest rate of 9% for the first year and 10% for an optional second year and the proceeds will be used for working capital and other business purposes. The original maturity date of the Hakim Promissory Note is June 2, 2024, with an optional second year extension. The second year extension must be exercised by both parties 60 days prior to the original maturity date. As of the date of this filing, the Company does not expect to exercise the second year extension. For the three and nine months ended December 31, 2023, interest expense on the Hakim Promissory Note totaled $67,500 and $202,500 respectively, recorded on the Condensed Consolidated Balance Sheets in accrued expenses and on the Condensed Consolidated Statements of Operations in interest expense and amortization of debt issuance costs.

 

On July 1, 2022, the EWB provided a mortgage loan (“EWB Mortgage Loan”) in the amount of $2.55 million for the purchase of the property at 135-137 Ludlow Avenue, which was formerly a lease held by the Company. The EWB Mortgage Loan matures in 10 years and bears interest at a rate of 4.75% fixed for 5 years then adjustable at the Wall Street Journal Prime Rate (“WSJP”) plus 0.5% with floor rate of 4.5%. The total transaction costs associated with the EWB Mortgage Loan incurred as of December 31, 2023, were $13,251, which are being amortized on a monthly basis over ten years, beginning in July 2022. The EWB Mortgage Loan contains customary representations, warranties and covenants. These covenants include maintaining a minimum debt coverage ratio of 1.50 to 1.00 tested annually and a minimum trailing 12-month debt coverage ratio of 1.50 to 1.00. As of the date of this filing, the Company was in compliance with each financial covenant.

 

On June 30, 2023, the Company entered into a collateralized promissory note with Davis Caskey (the “Caskey Promissory Note”). The Caskey Promissory Note has a principal balance of $1,000,000 and an interest rate of 9% for the first year and 10% for an optional second year. The Caskey Promissory Note is subject to the same covenants as are contained in the Hakim Promissory Note. The proceeds will be used for working capital and other business purposes. The original maturity date of the Caskey Promissory Note is June 30, 2024, with an optional second year extension. The second year extension must be exercised by both parties 60 days prior to the original maturity date. As of the date of this filing, the Company does not expect to exercise the second year extension. For the three and nine months ended December 31, 2023, interest expense on the Caskey Promissory Note totaled $22,500 and $67,500 respectively, recorded on the Condensed Consolidated Balance Sheets in accrued expenses and on the Condensed Consolidated Statements of Operations in interest expense and amortization of debt issuance costs.

 

NOTE 8. DEFERRED REVENUE

 

Deferred revenues in the aggregate amount of $22,222 as of December 31, 2023, were comprised of a current component of $13,333 and a long-term component of $8,889. Deferred revenues in the aggregate amount of $32,223 as of March 31, 2023, were comprised of a current component of $13,333 and a long-term component of $18,890. These amounts represent the unamortized balance of a $200,000 advance payment received for a TAGI Pharma licensing agreement with a fifteen-year term beginning in September 2010 and ending in August 2025. These advance payments were recorded as deferred revenue when received and are earned, on a straight-line basis over the life of the licenses. The current component is equal to the amount of revenue to be earned during the 12-month period immediately subsequent to the balance sheet date and the long-term component is equal to the amount of revenue to be earned thereafter.

 

F-17
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 9. COMMITMENTS AND CONTINGENCIES

 

Occasionally, the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s condensed consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions.

 

On August 17, 2023, Elite filed a paragraph IV certification with its ANDA to generic Oxycontin and after Elite got acceptance of the ANDA by the FDA on September 19, 2023, Elite sent the patentee and NDA holder a Notice Letter as required under the Hatch-Waxman Act. On November 14, 2023, a patent infringement suit was filed in the District Court of New Jersey by Purdue Pharma. Elite obtained agreement with Purdue to stay the litigation for six months. Elite’s launch of a generic Oxycontin will depend on the approval by the FDA and the outcome of various litigations involving Purdue or the expiry of the patents listed on the Orange Book. As of December 31, 2023, the results of such proceedings cannot be predicted with certainty, but the Company does not anticipate that the final outcome, if any, arising out of any such matters will have a material adverse effect on its business, financial condition or results of operations.

 

Operating Leases

 

The Company entered into an operating lease for a portion of a one-story warehouse, located at 135 Ludlow Avenue, Northvale, New Jersey (the “Ludlow Ave. lease”) which began in 2010. On June 30, 2021, the Company exercised a renewal option, with such option including a term that begins on January 1, 2022 and expires on December 31, 2026. The Ludlow Ave. lease was terminated on July 1, 2022, when the Company purchased the underlying property.

 

In October 2020, the Company entered into an operating lease for office space in Pompano Beach, Florida (the “Pompano Office Lease”). The Pompano Office Lease is for approximately 1,275 square feet of office space, with Elite taking occupancy on November 1, 2020. The Pompano Office Lease had a term of three years, ending on October 31, 2023. The Pompano Office Lease was extended for one additional year to October 31, 2024.

 

The Company assesses whether an arrangement is a lease or contains a lease at inception. For arrangements considered leases or that contain a lease that is accounted for separately, the Company determines the classification and initial measurement of the right-of-use asset and lease liability at the lease commencement date, which is the date that the underlying asset becomes available for use. The Company has elected to account for non-lease components associated with its leases and lease components as a single lease component.

 

The Company recognizes a right-of-use asset, which represents the Company’s right to use the underlying asset for the lease term, and a lease liability, which represents the present value of the Company’s obligation to make payments arising over the lease term. The present value of the lease payments is calculated using either the implicit interest rate in the lease or an incremental borrowing rate.

 

Finance Leases

 

In November 2023, the Company entered into an finance lease for equipment (the “Waters Equipment Lease”). The Waters Equipment Lease is related to lab equipment with an acquisition cost of $499,775, with Elite taking ownership of the asset on December 1, 2023. The Waters equipment lease has a term of five years, ending on November 29, 2028. The Company also has the option to purchase the asset at the end of the lease term for the amount of $1, which is probable to be exercised.

 

A lease is classified as a finance lease if any of the following criteria are met: (i) ownership of the underlying asset transfers to the Company by the end of the lease term; (ii) the lease contains an option to purchase the underlying asset that the Company is reasonably expected to exercise; (iii) the lease term is for a major part of the remaining economic life of the underlying asset; (iv) the present value of the sum of lease payments and any residual value guaranteed by the Company equals or exceeds substantially all of the fair value of the underlying asset; or (v) the underlying asset is of a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease that does not meet any of the criteria to be classified as a finance lease is classified as an operating lease. As the Company expects to exercise the option to purchase the asset at the end of the lease term, the Waters equipment lease was determined to be a finance lease. The finance lease is included on the balance sheets as Finance lease - right-of-use asset and Lease obligation - finance lease. The finance lease costs are split between Depreciation and amortization expense related to the asset and Interest expense and amortization of debt issuance costs on the lease liability, using the effective rate charged by the lessor. The Company has elected to account for lease and non-lease components separately.

 

F-18
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Lease assets and liabilities are classified as follows on the condensed consolidated balance sheet:

 

Lease  Classification  December 31, 2023 
Assets        
Finance  Finance lease – right-of-use asset  $408,428 
Operating  Operating lease – right-of-use asset   26,231 
Total leased assets     $434,659 
         
Liabilities        
Current        
Finance  Lease obligation – finance lease  $37,444 
Operating  Lease obligation – operating lease   26,231 
         
Long-term        
Finance  Lease obligation – finance lease, net of current portion   200,939 
Operating  Lease obligation – operating lease, net of current portion    
Total lease liabilities     $264,614 

 

Rent expense is recorded on the straight-line basis. Rent expense under the 135 Ludlow Ave. modified lease was $0 for the three months ended December 31, 2023 and 2022, respectively, and $0 and $58,248 for the nine months ended December 31, 2023 and 2022, respectively. Rent expense under the Pompano Office Lease for the three months ended December 31, 2023 and 2022 was $7,565 and $6,456, respectively, and $20,603 and $19,116 for the nine months ended December 31, 2023 and 2022, respectively. Rent expense is recorded in general and administrative expense in the unaudited condensed consolidated statements of operations.

 

The table below shows the future minimum rental payments, exclusive of taxes, insurance and other costs, under the Pompano Office Lease and Waters Equipment Lease:

 

Years ending March 31,  Operating Lease Amount   Financing Lease Amount   Total 
2024 (excluding the nine months ended December 31, 2023)  $8,087   $16,286   $24,373 
2025   18,870    65,145    84,015 
2026       65,145    65,145 
2027       65,145    65,145 
2028       65,145    65,145 
Thereafter       43,429    43,429 
Less: interest   (727)   (81,911)   (82,638)
Present value of lease payments  $26,230   $238,384   $264,614 

 

The weighted-average remaining lease term and the weighted-average discount rate of our leases were as follows:

 

Lease Term and Discount Rate  December 31, 2023 
Remaining lease term (years)     
Operating leases   0.8 
Finance leases   4.9 
Discount rate     
Operating leases   6.0%
Finance leases   12.5%

 

F-19
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 10. PREFERRED STOCK

 

Series J convertible preferred stock

 

On April 28, 2017, the Company created the Series J Convertible Preferred Stock (“Series J Preferred”) in conjunction with the Certificate of Designations. A total of 50 shares of Series J Preferred were authorized, zero shares are issued and outstanding, with a stated value of $1,000,000 per share and a par value of $0.01.

 

NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS – WARRANTS

 

The Company evaluates and accounts for its freestanding instruments in accordance with ASC 815, Accounting for Derivative Instruments and Hedging Activities.

 

The Company issued warrants, with a term of ten years, to affiliates in connection with an exchange agreement dated April 28, 2017, as further described in this note below.

 

The Company has 79,008,661 total warrants to purchase shares of Common Stock outstanding with a weighted average exercise price of $0.1521 as of December 31, 2023 and March 31, 2023.

 

On April 28, 2017, the Company entered into an Exchange Agreement with Hakim, the Chairman of the Board, President, and Chief Executive Officer of the Company, pursuant to which the Company issued to Hakim 24.0344 shares of its Series J Preferred and warrants to purchase an aggregate of 79,008,661 shares of its Common Stock (the “Series J Warrants” and, along with the Series J Preferred issued to Hakim, the “Securities”) in exchange for 158,017,321 shares of Common Stock owned by Hakim. The fair value of the Series J Warrants was determined to be $6,474,674 upon issuance at April 28, 2017.

 

The Series J Warrants are exercisable for a period of 10 years from the date of issuance, commencing April 28, 2020. The initial exercise price is $0.1521 per share and the Series J Warrants can be exercised for cash or on a cashless basis, including a provision within that provides the holder a choice of net cash settlement or settlement in shares upon a cashless exercise. The net cash settlement amount is the cash value obtained by subtracting the then exercise price from the closing price of the Company’s Common Stock (provided such closing price is higher than the exercise price) and multiplying the difference by the number of shares exercised. As this event is at the holder’s option, it is considered outside of the Company’s control. As a result of the net cash settlement at the option of the holder, such warrants are classified as liabilities and measured initially and subsequently at fair value.

 

The exercise price is subject to adjustment for any issuances or deemed issuances of Common Stock or Common Stock equivalents at an effective price below the then exercise price. The Series J Warrants also provide for other standard adjustments upon the happening of certain customary events.

 

The fair value of the Series J Warrants was calculated using a Black-Scholes model. The following assumptions were used in the Black-Scholes model to calculate the fair value of the Series J Warrants:

 

   December 31, 2023   March 31, 2023 
Fair value of the Company’s Common Stock  $0.1393   $0.0290 
Volatility   73.50%   74.37%
Initial exercise price  $0.1521   $0.1521 
Warrant term (in years)   3.3    4.1 
Risk free rate   4.01%   3.55%

 

The changes in warrants (Level 3 financial instruments) measured at fair value on a recurring basis for the nine months ended December 31, 2023 were as follows:

 

Balance at March 31, 2023  $521,711 
Change in fair value of derivative financial instruments - warrants   5,075,489 
Balance at December 31, 2023  $5,597,200 

 

F-20
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 12. SHAREHOLDERS’ EQUITY

 

Lincoln Park Capital Transaction - July 8, 2020 Purchase Agreement

 

On July 8, 2020, the Company entered into a purchase agreement (the “2020 LPC Purchase Agreement”), and a registration rights agreement, with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park has committed to purchase up to $25.0 million of the Company’s Common Stock, $0.001 par value per share, from time to time over the term of the 2020 LPC Purchase Agreement, at the Company’s direction.

 

The Company did not issue any shares of its Common Stock pursuant to the 2020 LPC Purchase Agreement during the three and nine months ended December 31, 2023 and 2022. In addition, there were no shares issued to Lincoln Park as additional commitment shares, pursuant to the 2020 LPC Purchase Agreement. The 2020 LPC Purchase Agreement expired on August 1, 2023.

 

Summary of Common Stock Activity

 

On November 22, 2023, the Company issued 1,642,971 shares of Common Stock in payment of director fees to be paid via the issuance of common stock, with such shares having an aggregate value on the date of original accrual of $60,000 and which were owed for periods prior to the current fiscal year and accrued as of the date of share issuance. The price of the Company’s Common Stock on November 22, 2023, was $0.1533 per share. The aggregate value of the shares on the date of their issuance was $251,867.

 

On December 29, 2023, the Company issued 2,223,147 shares of Common Stock in payment of consultant fees to be paid via the issuance of common stock, with such shares having an aggregate value on the date of original accrual of $153,333 and which were owed for periods prior to the current fiscal year and accrued as of the date of share issuance. The price of the Company’s Common Stock on December 29, 2023, was $0.14 per share. The aggregate value of the shares on the date of their issuance was $311,238.

 

As of December 31, 2023, there were 1,017,881,199 shares of Common Stock issued and 1,017,781,199 shares of Common Stock outstanding.

 

NOTE 13. STOCK-BASED COMPENSATION

 

Part of the compensation paid by the Company to its Directors and employees consists of the issuance of Common Stock or via the granting of options to purchase Common Stock.

 

Stock-based Director Compensation

 

The Company’s Director compensation policy, instituted in October 2009 and further revised in January 2016, includes provisions that a portion of director’s fees are to be paid via the issuance of shares of the Company’s Common Stock, in lieu of cash, with the valuation of such shares being calculated on quarterly basis and equal to the average closing price of the Company’s Common Stock.

 

During the nine months ended December 31, 2023, the Company accrued director’s fees totaling $22,500, which will be paid via cash payments totaling $22,500. All of the accrued shares of common stock related to the Director’s compensation policy were paid out on December 29, 2023.

 

Balance of common stock owed at April 1, 2023  $60,000 
Awarded shares    
Change in fair value of stock-based liabilities   191,867 
Issuance of common stock on November 22, 2023   (251,867)
Balance of common stock owed at December 31, 2023  $ 

 

Stock-based Employee/Consultant Compensation

 

Employment contracts with the Company’s President and Chief Executive Officer and certain other employees and engagement contracts with certain consultants include provisions for a portion of each employee’s salaries or consultant’s fees to be paid via the issuance of shares of the Company’s Common Stock, in lieu of cash, with the valuation of such shares being calculated on a quarterly basis and equal to the average closing price of the Company’s Common Stock.

 

Balance of common stock owed at April 1, 2023  $4,278,333 
Awarded shares    
Change in fair value of stock-based liabilities   4,729,509 
Common stock issued   (311,238)
Settlement of non-cash liability   (1,761,792)
Balance of common stock owed at December 31, 2023  $6,934,812 

 

During the nine months ended December 31, 2023, the Company accrued no additional salaries owed to the Company’s President, Chief Executive Officer and certain other employees which will be paid via the issuance of shares of Common Stock. As of December 31, 2023, the total obligation of $6,934,812 is outstanding which is recorded at fair value and is included in Accrued Expenses on the Condensed Consolidated Balance Sheets.

 

F-21
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

On November 6, 2023, the Company entered into a Settlement Agreement with a former executive who was terminated on February 7, 2022. The employment agreement with the former executive included annual compensation of $250,000 which was to be paid via the issuance of shares of Common Stock. At the date of the former executive’s termination an aggregate of 14,892,580 shares of Common Stock (the “Deferred Shares”) were due to the former executive, with such number of shares representing an aggregate of $1,000,000 in compensation earned pursuant to the relevant employment agreement at an annual rate of $250,000. Pursuant to the Settlement Agreement, the former executive irrevocably elected to relinquish all rights and claims to the Deferred Shares. The Company is released of any obligation to issue the Deferred Shares and further acknowledges that no Deferred Shares will be issued to or received by the former employee. The price of the Company’s Common Stock on November 6, 2023 was $0.1183 per share and the value of the Deferred Shares on this date was $1,761,792. The Company recorded other income from gain on settlement agreement for this amount on the unaudited Condensed Consolidated Statements of Operations.

 

On December 29, 2023, the Company issued 2,223,147 shares of Common Stock in satisfaction of accrued consultant fees.

 

Options

 

Under its 2014 Stock Option Plan and prior options plans, the Company may grant stock options to officers, selected employees, as well as members of the Board of Directors and advisory board members. All options have generally been granted at a price equal to or greater than the fair market value of the Company’s Common Stock at the date of the grant. Generally, options are granted with a vesting period of up to three years and expire ten years from the date of grant.

 

The fair value of option awards is estimated on the date of grant using the Black-Scholes option-pricing model. The exercise price of each award is generally not less than the per share fair value in effect as of that award date. The determination of fair value using the Black-Scholes model is affected by the Company’s share fair value as well as assumptions regarding a number of complex and subjective variables, including expected price volatility, risk-free interest rate and projected employee share option exercise behaviors. The Company estimates its expected volatility by using a combination of historical share price volatilities of similar companies within our industry. The expected term of the Company’s stock options for employees has been determined utilizing the “simplified” method for awards, since the Company does not have sufficient exercise history to estimate term of its historical option awards. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

 

The grant date fair value of option awards is determined using the Black Scholes option-pricing model. The following assumptions were used for the nine months ended December 31, 2023 and year ended March 31, 2023:

 

   December 31, 2023   March 31, 2023 
Term (in years)   10    10 
Exercise Price   $0.08-$0.09    $0.03-$0.04 
Dividend Yield        
Expected Volatility   80%-81%   79%-80%
Risk Free Rate   4.27%-4.69%   2.99%-4.01%

 

A summary of the activity of Company’s 2014 Stock Option Plan for the nine months ended December 31, 2023 is as follows:

 

   Shares  

 

Weighted

  

Weighted Average

Remaining Contractual

   Aggregate  
   Underlying Options  

Average

Exercise Price

   Term (in years)  

Intrinsic

Value

 
Outstanding at March 31, 2023   15,370,000   $0.07    7.4   $ 
Granted   4,100,000   $0.09    10.0   $ 
Expired and Forfeited   (3,840,000)  $0.07    1.8   $ 
Outstanding at December 31, 2023   15,630,000   $0.05    9.0   $1,429,822 
Exercisable at December 31, 2023   343,334   $0.19    4.6   $6,850 

 

The aggregate intrinsic value for outstanding options is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s Common Stock as of December 31, 2023 of $0.14 for those awards with strike prices lower than the quoted price of the Company’s Common Stock as of December 31, 2023. As of December 31, 2023, there was $450,470 in unrecognized stock based compensation expense that will be recognized over a weighted average 2.37 year period.

 

On September 5, 2023, options were granted to the Chief Financial Officer pursuant to the 2014 Plan to purchase an aggregate of 3,000,000 shares of Common Stock. The options have an exercise price of $0.0898 per share, the fair market value of the Common Stock on the date of grant. The options granted will vest one third for each of the next three years upon the anniversary date of the grant and have a ten-year expiration date.

 

F-22
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

On September 19, 2023, options were granted to one employee pursuant to the 2014 Plan to purchase an aggregate of 1,000,000 shares of Common Stock. The options have an exercise price of $0.0819 per share, the fair market value of the Common Stock on the date of grant. The options granted will vest one third for each of the next three years upon the anniversary date of the grant and have a ten-year expiration date.

 

On October 2, 2023, options were granted to one employee pursuant to the 2014 Plan to purchase an aggregate of 100,000 shares of Common Stock. The options have an exercise price of $0.0938 per share, the fair market value of the Common Stock on the date of grant. The options granted will vest one third for each of the next three years upon the anniversary date of the grant and have a ten-year expiration date.

 

The weighted-average grant-date fair value of stock options granted during the nine months ended December 31, 2023 under the 2014 Plan was $0.0754.

 

NOTE 14. CONCENTRATIONS AND CREDIT RISK

 

Revenues

 

Two customers accounted for approximately 57% of the Company’s revenues for the nine months ended December 31, 2023. These three customers accounted for approximately 30%, and 27%, of revenues each, respectively.

 

Two customers accounted for approximately 96% of the Company’s revenues for the nine months ended December 31, 2022. These two customers accounted for approximately 85% and 11% of revenue each, respectively.

 

Accounts Receivable

 

Two customers accounted for approximately 77% of the Company’s accounts receivable as of December 31, 2023. These two customers accounted for approximately 45% and 32% of accounts receivable each, respectively.

 

One customer accounted for approximately 89% of the Company’s accounts receivable as of December 31, 2022.

 

Purchasing

 

Two suppliers accounted for approximately 43% of the Company’s purchases of raw materials for the nine months ended December 31, 2023. These two customers accounted for approximately 30%, and 13%, of purchasing each, respectively.

 

One supplier accounted for approximately 62% of the Company’s purchases of raw materials for the nine months ended December 31, 2022.

 

NOTE 15. SEGMENT RESULTS

 

FASB ASC 280-10-50 requires use of the “management approach” model for segment reporting. The management approach is based on the way a company’s management organized segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

 

The Company has determined that its reportable segments are ANDAs for generic products and NDAs for branded products. The Company identified its reporting segments based on the marketing authorization relating to each and the financial information used by its chief operating decision maker to make decisions regarding the allocation of resources to and the financial performance of the reporting segments.

 

Asset information by operating segment is not presented below since the chief operating decision maker does not review this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s unaudited condensed consolidated financial statements.

 

F-23
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The following represents selected information for the Company’s reportable segments:

 

   2023   2022   2023   2022 
   For the Three Months Ended December 31,   For the Nine Months Ended December 31, 
   2023   2022   2023   2022 
Operating Income by Segment                    
ANDA  $5,637,283   $3,828,493   $13,073,023   $7,947,118 
Operating income by Segment  $5,637,283   $3,828,493   $13,073,023   $