10-Q 1 form10-q.htm
0001053369 false Q1 --03-31 2023 P3Y P40Y 2010-09-30 2025-08-31 0001053369 2022-04-01 2022-06-30 0001053369 2022-08-15 0001053369 2022-06-30 0001053369 2022-03-31 0001053369 2021-04-01 2021-06-30 0001053369 us-gaap:PreferredStockMember ELTP:SeriesJPreferredStockMember 2022-03-31 0001053369 us-gaap:CommonStockMember 2022-03-31 0001053369 us-gaap:AdditionalPaidInCapitalMember 2022-03-31 0001053369 us-gaap:TreasuryStockMember 2022-03-31 0001053369 us-gaap:RetainedEarningsMember 2022-03-31 0001053369 us-gaap:PreferredStockMember ELTP:SeriesJPreferredStockMember 2021-03-31 0001053369 us-gaap:CommonStockMember 2021-03-31 0001053369 us-gaap:AdditionalPaidInCapitalMember 2021-03-31 0001053369 us-gaap:TreasuryStockMember 2021-03-31 0001053369 us-gaap:RetainedEarningsMember 2021-03-31 0001053369 2021-03-31 0001053369 us-gaap:PreferredStockMember ELTP:SeriesJPreferredStockMember 2022-04-01 2022-06-30 0001053369 us-gaap:CommonStockMember 2022-04-01 2022-06-30 0001053369 us-gaap:AdditionalPaidInCapitalMember 2022-04-01 2022-06-30 0001053369 us-gaap:TreasuryStockMember 2022-04-01 2022-06-30 0001053369 us-gaap:RetainedEarningsMember 2022-04-01 2022-06-30 0001053369 us-gaap:PreferredStockMember ELTP:SeriesJPreferredStockMember 2021-04-01 2021-06-30 0001053369 us-gaap:CommonStockMember 2021-04-01 2021-06-30 0001053369 us-gaap:AdditionalPaidInCapitalMember 2021-04-01 2021-06-30 0001053369 us-gaap:TreasuryStockMember 2021-04-01 2021-06-30 0001053369 us-gaap:RetainedEarningsMember 2021-04-01 2021-06-30 0001053369 us-gaap:PreferredStockMember ELTP:SeriesJPreferredStockMember 2022-06-30 0001053369 us-gaap:CommonStockMember 2022-06-30 0001053369 us-gaap:AdditionalPaidInCapitalMember 2022-06-30 0001053369 us-gaap:TreasuryStockMember 2022-06-30 0001053369 us-gaap:RetainedEarningsMember 2022-06-30 0001053369 us-gaap:PreferredStockMember ELTP:SeriesJPreferredStockMember 2021-06-30 0001053369 us-gaap:CommonStockMember 2021-06-30 0001053369 us-gaap:AdditionalPaidInCapitalMember 2021-06-30 0001053369 us-gaap:TreasuryStockMember 2021-06-30 0001053369 us-gaap:RetainedEarningsMember 2021-06-30 0001053369 2021-06-30 0001053369 ELTP:NewDrugApplicationsMember 2022-04-01 2022-06-30 0001053369 ELTP:NewDrugApplicationsMember 2021-04-01 2021-06-30 0001053369 ELTP:AbbreviatedNewDrugApplicationsMember 2022-04-01 2022-06-30 0001053369 ELTP:AbbreviatedNewDrugApplicationsMember 2021-04-01 2021-06-30 0001053369 srt:MinimumMember 2022-04-01 2022-06-30 0001053369 srt:MaximumMember 2022-04-01 2022-06-30 0001053369 us-gaap:FairValueInputsLevel1Member 2022-03-31 0001053369 us-gaap:FairValueInputsLevel2Member 2022-03-31 0001053369 us-gaap:FairValueInputsLevel3Member 2022-03-31 0001053369 us-gaap:FairValueInputsLevel1Member 2022-04-01 2022-06-30 0001053369 us-gaap:FairValueInputsLevel2Member 2022-04-01 2022-06-30 0001053369 us-gaap:FairValueInputsLevel3Member 2022-04-01 2022-06-30 0001053369 us-gaap:FairValueInputsLevel1Member 2022-06-30 0001053369 us-gaap:FairValueInputsLevel2Member 2022-06-30 0001053369 us-gaap:FairValueInputsLevel3Member 2022-06-30 0001053369 us-gaap:LandBuildingsAndImprovementsMember 2022-06-30 0001053369 us-gaap:LandBuildingsAndImprovementsMember 2022-03-31 0001053369 ELTP:LaboratoryManufacturingWarehouseAndTransportationEquipmentMember 2022-06-30 0001053369 ELTP:LaboratoryManufacturingWarehouseAndTransportationEquipmentMember 2022-03-31 0001053369 ELTP:OfficeEquipmentAndSoftwareMember 2022-06-30 0001053369 ELTP:OfficeEquipmentAndSoftwareMember 2022-03-31 0001053369 us-gaap:FurnitureAndFixturesMember 2022-06-30 0001053369 us-gaap:FurnitureAndFixturesMember 2022-03-31 0001053369 ELTP:PatentApplicationCostsMember 2022-04-01 2022-06-30 0001053369 ELTP:PatentApplicationCostsMember 2022-06-30 0001053369 ELTP:ANDAAcquisitionCostsMember 2022-04-01 2022-06-30 0001053369 ELTP:ANDAAcquisitionCostsMember 2022-06-30 0001053369 ELTP:PatentApplicationCostsMember 2021-04-01 2022-03-31 0001053369 ELTP:PatentApplicationCostsMember 2022-03-31 0001053369 ELTP:ANDAAcquisitionCostsMember 2021-04-01 2022-03-31 0001053369 ELTP:ANDAAcquisitionCostsMember 2022-03-31 0001053369 2021-04-01 2022-03-31 0001053369 ELTP:NjedaBondsSeriesANotesMember 2022-04-01 2022-06-30 0001053369 ELTP:NJEDABondsMember 2022-04-01 2022-06-30 0001053369 ELTP:NJEDABondsMember 2021-04-01 2021-06-30 0001053369 ELTP:NjedaBondsSeriesANotesMember 2022-06-30 0001053369 ELTP:NjedaBondsSeriesANotesMember 2022-03-31 0001053369 ELTP:NjedaBondsCurrentMember 2022-06-30 0001053369 ELTP:NjedaBondsCurrentMember 2022-03-31 0001053369 ELTP:NjedaBondsNoncurrentMember 2022-06-30 0001053369 ELTP:NjedaBondsNoncurrentMember 2022-03-31 0001053369 ELTP:LoanAndSecurityAgreementMember 2022-04-02 0001053369 ELTP:LoanAndSecurityAgreementMember us-gaap:RevolvingCreditFacilityMember 2022-04-02 0001053369 ELTP:LoanAndSecurityAgreementMember us-gaap:PrimeRateMember 2022-04-02 0001053369 ELTP:LoanAndSecurityAgreementMember us-gaap:PrimeRateMember 2022-04-01 2022-04-02 0001053369 ELTP:LoanAndSecurityAgreementMember us-gaap:RevolvingCreditFacilityMember 2022-04-01 2022-04-02 0001053369 ELTP:LoanAndSecurityAgreementMember us-gaap:RevolvingCreditFacilityMember us-gaap:PrimeRateMember 2022-04-01 2022-04-02 0001053369 ELTP:LoanAndSecurityAgreementMember 2022-06-30 0001053369 ELTP:LoanAndSecurityAgreementMember 2022-01-01 2022-06-30 0001053369 srt:MinimumMember 2022-06-30 0001053369 srt:MinimumMember 2022-03-31 0001053369 srt:MaximumMember 2022-06-30 0001053369 srt:MaximumMember 2022-03-31 0001053369 ELTP:TAGIPharmaMember 2022-06-30 0001053369 ELTP:TAGIPharmaMember 2022-04-01 2022-06-30 0001053369 2020-10-01 2020-10-31 0001053369 ELTP:PompanoOfficeLeaseMember us-gaap:PropertySubjectToOperatingLeaseMember 2020-10-31 0001053369 us-gaap:OtherNoncurrentLiabilitiesMember 2022-06-30 0001053369 us-gaap:OtherNoncurrentLiabilitiesMember 2022-03-31 0001053369 srt:ChiefExecutiveOfficerMember ELTP:SeriesJConvertiblePreferredStockMember 2017-04-01 2017-04-28 0001053369 ELTP:NasratHakimMember ELTP:SeriesJConvertiblePreferredStockMember 2017-04-28 0001053369 ELTP:NasratHakimMember ELTP:SeriesJConvertiblePreferredStockMember 2017-04-01 2017-04-28 0001053369 ELTP:SeriesJWarrantsMember 2020-04-01 2020-04-28 0001053369 ELTP:SeriesJWarrantsMember 2022-06-30 0001053369 us-gaap:MeasurementInputSharePriceMember 2022-06-30 0001053369 us-gaap:MeasurementInputSharePriceMember 2022-03-31 0001053369 us-gaap:MeasurementInputPriceVolatilityMember 2022-06-30 0001053369 us-gaap:MeasurementInputPriceVolatilityMember 2022-03-31 0001053369 us-gaap:MeasurementInputExercisePriceMember 2022-06-30 0001053369 us-gaap:MeasurementInputExercisePriceMember 2022-03-31 0001053369 us-gaap:MeasurementInputRiskFreeInterestRateMember 2022-06-30 0001053369 us-gaap:MeasurementInputRiskFreeInterestRateMember 2022-03-31 0001053369 us-gaap:FairValueInputsLevel3Member us-gaap:WarrantMember 2022-03-31 0001053369 us-gaap:FairValueInputsLevel3Member us-gaap:WarrantMember 2022-04-01 2022-06-30 0001053369 us-gaap:FairValueInputsLevel3Member us-gaap:WarrantMember 2022-06-30 0001053369 ELTP:LincolnParkMember 2020-07-01 2020-07-08 0001053369 ELTP:LincolnParkMember 2020-07-08 0001053369 ELTP:TwoThousandAndTwentyLPCPurchaseAgreementMember 2022-04-01 2022-06-30 0001053369 srt:DirectorMember 2022-04-01 2022-06-30 0001053369 us-gaap:EmployeeStockMember 2022-04-01 2022-06-30 0001053369 ELTP:PresidentAndChiefExecutiveOfficerAndOtherEmployeesMember us-gaap:CommonStockMember 2022-04-01 2022-06-30 0001053369 ELTP:PresidentAndChiefExecutiveOfficerAndOtherEmployeesMember 2022-06-30 0001053369 ELTP:OneCustomerMember us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember 2022-04-01 2022-06-30 0001053369 ELTP:OneCustomerMember us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember 2021-04-01 2021-06-30 0001053369 us-gaap:SalesRevenueNetMember 2022-04-01 2022-06-30 0001053369 ELTP:TwoCustomersMember us-gaap:AccountsReceivableMember us-gaap:CustomerConcentrationRiskMember 2022-04-01 2022-06-30 0001053369 ELTP:CustomerOneMember us-gaap:AccountsReceivableMember us-gaap:CustomerConcentrationRiskMember 2022-04-01 2022-06-30 0001053369 ELTP:CustomerTwoMember us-gaap:AccountsReceivableMember us-gaap:CustomerConcentrationRiskMember 2022-04-01 2022-06-30 0001053369 us-gaap:SalesRevenueNetMember 2021-04-01 2022-03-31 0001053369 ELTP:TwoCustomersMember us-gaap:AccountsReceivableMember us-gaap:CustomerConcentrationRiskMember 2021-04-01 2022-03-31 0001053369 ELTP:CustomerOneMember us-gaap:AccountsReceivableMember us-gaap:CustomerConcentrationRiskMember 2021-04-01 2022-03-31 0001053369 ELTP:CustomerTwoMember us-gaap:AccountsReceivableMember us-gaap:CustomerConcentrationRiskMember 2021-04-01 2022-03-31 0001053369 ELTP:PurchasesMember 2022-04-01 2022-06-30 0001053369 ELTP:PurchasesMember us-gaap:SupplierConcentrationRiskMember ELTP:TwoSuppliersMember 2022-04-01 2022-06-30 0001053369 ELTP:PurchasesMember us-gaap:SupplierConcentrationRiskMember ELTP:SupplierOneMember 2022-04-01 2022-06-30 0001053369 ELTP:PurchasesMember us-gaap:SupplierConcentrationRiskMember ELTP:SupplierTwoMember 2022-04-01 2022-06-30 0001053369 ELTP:PurchasesMember 2021-04-01 2021-06-30 0001053369 ELTP:PurchasesMember us-gaap:SupplierConcentrationRiskMember ELTP:TwoSuppliersMember 2021-04-01 2021-06-30 0001053369 ELTP:PurchasesMember us-gaap:SupplierConcentrationRiskMember ELTP:SupplierOneMember 2021-04-01 2021-06-30 0001053369 ELTP:PurchasesMember us-gaap:SupplierConcentrationRiskMember ELTP:SupplierTwoMember 2021-04-01 2021-06-30 0001053369 ELTP:BusinessSegmentMember 2022-04-01 2022-06-30 0001053369 ELTP:BusinessSegmentMember 2021-04-01 2021-06-30 0001053369 us-gaap:OperatingSegmentsMember 2022-04-01 2022-06-30 0001053369 us-gaap:OperatingSegmentsMember 2021-04-01 2021-06-30 0001053369 ELTP:MikhaPharmaLLCMember 2021-03-31 0001053369 2022-04-08 0001053369 ELTP:EastWestBankMember us-gaap:MortgagesMember us-gaap:SubsequentEventMember 2022-06-29 2022-07-01 iso4217:USD xbrli:shares iso4217:USD xbrli:shares utr:sqft ELTP:Integer xbrli:pure

 

 

 

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 JUNE 30, 2022

 

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: 1,011,381,988 shares of Common Stock were issued, and 1,011,281,988 shares of Common Stock were outstanding as of August 15, 2022.

 

 

 

 

 

 

    PAGE
PART I FINANCIAL INFORMATION F-1
     
ITEM 1. Financial Statements F-1
  Condensed Consolidated Balance Sheets as of June 30, 2022 (Unaudited) and March 31, 2022 F-1
  Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2022 and 2021 (Unaudited) F-2
  Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended June 30, 2022 and 2021 (Unaudited) F-3
  Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2022 and 2021 (Unaudited) F-4
  Notes to the Unaudited Condensed Consolidated Financial Statements F-5
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 1
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk 6
ITEM 4. Controls and Procedures 6
     
PART II OTHER INFORMATION 7
     
ITEM 1. Legal Proceedings 7
ITEM 1A. Risk Factors 7
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 7
ITEM 3. Defaults Upon Senior Securities 7
ITEM 4. Mine Safety Disclosures 7
ITEM 5. Other Information 7
ITEM 6. Exhibits 8
     
SIGNATURES 9

 

ii

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

   June 30, 2022   March 31, 2022 
   (Unaudited)     
ASSETS          
Current assets:          
Cash  $19,779,584   $8,535,357 
Accounts receivable   3,965,109    3,057,913 
Inventory   7,617,163    6,741,170 
Prepaid expenses and other current assets   507,923    526,949 
Total current assets   31,869,779    18,861,389 
           
Property and equipment, net of accumulated depreciation of $13,641,313 and $13,348,565, respectively   5,754,841    5,952,992 
           
Intangible assets, net of accumulated amortization of $-0-, respectively   6,634,035    6,634,035 
           
Operating lease - right-of-use asset   980,871    1,031,884 
           
Deferred income tax asset   2,171,821    2,171,821 
           
Other assets:          
Restricted cash - debt service for NJEDA bonds   405,163    405,039 
Security deposits   291,738    91,738 
Total other assets   696,901    496,777 
Total assets  $48,108,248   $35,148,898 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
           
Current liabilities:          
Accounts payable  $1,614,260   $1,430,985 
Accrued expenses   4,809,835    4,693,142 
Deferred revenue, current portion   13,333    13,333 
Bonds payable, current portion, net of bond issuance costs   100,822    100,822 
Loans payable, current portion   334,134    253,006 
Lease obligation - operating lease, current portion   207,373    202,953 
Total current liabilities   7,079,757    6,694,241 
           
Long-term liabilities:          
Deferred revenue, net of current portion   28,889    32,226 
Bonds payable, net of current portion and bond issuance costs   1,143,394    1,139,848 
Loans payable, net of current portion and loan costs   12,063,213    249,046 
Lease obligation - operating lease, net of current portion   782,232    835,893 
Derivative financial instruments - warrants   1,436,980    936,837 
Other long-term liabilities   40,551    38,780 
Total long-term liabilities   15,495,259    3,232,630 
Total liabilities   22,575,016    9,926,871 
        
Shareholders’ equity:          
Series J convertible preferred stock; par value of $0.01; 50 shares authorized; 0 issued and outstanding as of June 30, 2022 and March 31, 2022        
Common stock; par value $0.001; 1,445,000,000 shares authorized; 1,011,381,988 shares issued as of June 30, 2022 and March 31, 2022; 1,011,281,988 shares outstanding as of June 30, 2022 and March 31, 2022.   1,011,385    1,011,385 
Additional paid-in capital   164,582,549    164,577,227 
Treasury stock; 100,000 shares as of June 30, 2022 and March 31, 2022; at cost   (306,841)   (306,841)
Accumulated deficit   (139,753,861)   (140,059,744)
Total shareholders’ equity   25,533,232    25,222,027 
Total liabilities and shareholders’ equity  $48,108,248   $35,148,898 

 

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)

 

   2022   2021 
   For the Three Months Ended June 30, 
   2022   2021 
Revenue:          
Manufacturing fees  $6,327,141   $5,750,036 
Licensing fees   1,345,767    1,306,753 
Total revenue   7,672,908    7,056,789 
Cost of manufacturing   3,675,061    3,503,262 
Gross profit   3,997,847    3,553,527 
           
Operating expenses:          
Research and development   955,443    1,202,192 
General and administrative   1,718,104    1,070,664 
Non-cash compensation through issuance of stock options   5,322    2,811 
Depreciation and amortization   296,294    312,702 
Total operating expenses   2,975,163    2,588,369 
           
Income from operations   1,022,684    965,158 
           
Other income (expense):          
Change in fair value of derivative instruments   (500,143)   614,461 
Interest expense and amortization of debt issuance costs   (216,787)   (45,893)
Interest income   129    42 
Other (expense) income, net   (716,801)   568,610 
           
Income from operations before income taxes   305,883    1,533,768 
           
Net benefit for sale of state net operating losses and credits       855,350 
           
Net income attributable to common shareholders  $305,883   $2,389,118 
           
Basic net income per share attributable to common shareholders  $0.00   $0.00 
           
Diluted net income per share attributable to common shareholders  $0.00   $0.00 
           
Basic weighted average Common Stock outstanding   1,011,381,988    1,009,199,886 
           
Diluted weighted average Common Stock outstanding   1,011,381,988    1,009,199,886 

 

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)

 

   Shares   Amount   Shares   Amount  

Capital

   Shares   Amount  

Deficit

  

Equity

 
   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 March 31, 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 

 

   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 March 31, 2021           1,009,276,752   $1,009,279   $164,407,480    100,000   $(306,841)  $(148,957,989)  $16,151,929 
                                              
Net income                               2,389,118    2,389,118 
                                              
Non-cash compensation through the issuance of employee stock options                   2,811                2,811 
                                              
Shares issued in payment of salaries      $    2,105,236   $2,106   $155,394       $   $    157,500 
                                              
Balance at June 30, 2021      $    1,011,381,988   $1,011,385   $164,565,685    100,000   $(306,841)  $(146,568,871)  $18,701,358 

 

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 CASH FLOWS

(UNAUDITED)

 

   2022   2021 
   For the Three Months Ended June 30, 
   2022   2021 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income  $305,883   $2,389,118 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   296,294    312,702 
Amortization of operating leases - right-of-use assets   51,013    57,530 
Change in fair value of derivative financial instruments - warrants   500,143    (614,461)
Non-cash compensation accrued   143,870    218,808 
Non-cash compensation through the issuance of employee stock options   5,322    2,811 
Non-cash rent expense and lease accretion   602    567 
Change in operating assets and liabilities:          
Accounts receivable   (907,196)   118,641 
Inventory   (875,993)   (1,690,615)
Prepaid expenses and other current assets   (180,974)   251,896 
Accounts payable, accrued expenses and other current liabilities   156,098    731,566 
Deferred revenue   (3,337)   (3,333)
Lease obligations - operating leases   (49,241)   (59,771)
Net cash (used in) provided by operating activities   (557,516)   1,715,459 
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of property and equipment   (94,597)   (4,950)
Net cash used in investing activities   (94,597)   (4,950)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from loans payable   12,000,000     
Other loan payments   (103,536)   (152,549)
Net cash provided by (used in) financing activities   11,896,464    (152,549)
           
Net change in cash and restricted cash   11,244,351    1,557,960 
           
Cash and restricted cash, beginning of period   8,940,396    3,597,781 
           
Cash and restricted cash, end of period  $20,184,747   $5,155,741 
           
Supplemental disclosure of cash and non-cash transactions:          
Cash paid for interest  $216,787   $14,043 
Financing of equipment purchases and insurance renewal  $   $244,124 
Stock issued in payment of Directors fees, salaries and consulting expenses  $   $157,500 
Supplemental non-cash amounts of lease liabilities arising from obtaining right of use assets  $   $1,042,799 

 

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

 

F-4
 

 

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 and manufacture 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.

 

Principles of Consolidation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). 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. The unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring items, which are, in the opinion of management, necessary for a fair presentation of such statements. The results of operations for the three months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the entire year.

 

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 Applications (“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.

 

Revenue Recognition

 

The Company generates revenue primarily from manufacturing and licensing fees. 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. 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.

 

F-5
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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. 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-6
 

 

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 June 30, 2022.

 

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

 

The Company entered into a sales and distribution licensing agreement with Epic Pharma LLC, (“Epic”) dated June 4, 2015 (the “2015 Epic License Agreement”), which has been determined to satisfy the criteria for consideration as a collaborative agreement, and is accounted for accordingly. The 2015 Epic License Agreement expired on June 4, 2020 without renewal.

 

The Company entered into a Master Development and License Agreement with SunGen Pharma LLC dated August 24, 2016 (the “SunGen Agreement”), which has been determined to satisfy the criteria for consideration as a collaborative agreement, and is accounted for accordingly. On April 3, 2020, Elite and SunGen mutually agreed to discontinue any further joint product development activities.

 

Disaggregation of revenue

 

In the following table, revenue is disaggregated by type of revenue generated by the Company. The table also includes a reconciliation of the disaggregated revenue with the reportable segments:

 

   For the Three Months Ended June 30, 
   2022   2021 
NDA:          
Licensing fees  $   $ 
Manufacturing fees  $6,327,141   $5,750,036 
Total NDA revenue        
ANDA:          
Manufacturing fees  $6,327,141   $5,750,036 
Licensing fees   1,345,767    1,306,753 
Total ANDA revenue   7,672,908    7,056,789 
Total revenue  $7,672,908   $7,056,789 

 

Cash

 

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks and money market instruments. The Company places its cash and cash equivalents with high-quality, U.S. financial institutions and, to date has not experienced losses on any of its balances.

 

F-7
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Restricted Cash

 

As of June 30, 2022, and March 31, 2022, the Company had $405,163 and $405,039, 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

 

Accounts receivable are comprised of balances due from customers, net of estimated allowances for uncollectible accounts. In determining collectability, historical trends are evaluated, and specific customer issues are reviewed on a periodic basis to arrive at appropriate allowances.

 

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.

 

As of June 30, 2022, the Company did not identify any indicators of impairment.

 

Please also see Note 4 for further details on intangible assets.

 

Research and Development

 

Research and development expenditures are charged to expense as incurred.

 

F-8
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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.

 

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 June 30, 2022, a summary of the tax years that remain subject to examination in our major tax jurisdictions are: United States – Federal, 2016 and forward, and State, 2013 and forward. The Company did not record unrecognized tax positions for the three months ended June 30, 2022 and June 30, 2021.

 

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.

 

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.

 

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.

 

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 conversion of securities that would have an antidilutive effect.

 

F-9
 

 

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:

 

   2022   2021 
   For the Three Months Ended June 30, 
   2022   2021 
Numerator          
Net income - basic  $305,883   $2,389,118 
Effect of dilutive instrument on net income       (614,461)
Net income - diluted  $305,883   $1,774,657 
           
Denominator          
Weighted average shares of Common Stock outstanding - basic   1,011,381,988    1,009,199,886 
           
Dilutive effect of stock options and convertible securities        
           
Weighted average shares of Common Stock outstanding - diluted   1,011,381,988    1,009,199,886 
           
Net income per share          
Basic  $0.00   $0.00 
Diluted  $0.00   $0.00 

 

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-10
 

 

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 Using 
   Amount at Fair Value   Level 1   Level 2   Level 3 
Balance as of March 31, 2022  $936,837    -     -    $936,837 
Change in fair value of derivative instruments   500,143    -     -     500,143 
Balance as of June 30, 2022  $1,436,980   $   $   $1,436,980 

 

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.

 

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

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This update requires immediate recognition of management’s estimates of current expected credit losses (“CECL”). Under the prior model, losses were recognized only as they were incurred. The new model is applicable to all financial instruments that are not accounted for at fair value through net income. The standard is effective for fiscal years beginning after December 15, 2022 for public entities qualifying as smaller reporting companies. Early adoption is permitted. The Company is currently assessing the impact of this update on the consolidated financial statements and does not expect a material impact on the consolidated financial statements.

 

Management has evaluated other 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:

 

   June 30, 2022   March 31, 2022 
Finished goods  $397,061   $159,808 
Work-in-progress   23,737    1,203,204 
Raw materials   7,196,365    5,378,158 
Inventory, net  $7,617,163   $6,741,170 

 

F-11
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 3. PROPERTY AND EQUIPMENT, NET

 

Property and equipment consisted of the following:

 

   June 30, 2022   March 31, 2022 
Land, building and improvements  $5,456,524   $5,456,524 
Laboratory, manufacturing, warehouse and transportation equipment   13,112,328    13,017,731 
Office equipment and software   373,601    373,601 
Furniture and fixtures   453,701    453,701 
Property plant and equipment, gross   19,396,154    19,301,557 
Less: Accumulated depreciation   (13,641,313)   (13,348,565)
Property plant and equipment, net  $5,754,841   $5,952,992 

 

Depreciation expense was $292,748 and $309,157 for the three months ended June 30, 2022 and June 30, 2021, respectively.

 

NOTE 4. INTANGIBLE ASSETS

 

The following table summarizes the Company’s intangible assets:

 

   June 30, 2022 
   Estimated   Gross                 
   Useful   Carrying           Accumulated   Net Book 
   Life   Amount   Additions   Reductions   Amortization   Value 
Patent application costs   *   $465,684   $   $   $   $465,684 
ANDA acquisition costs   Indefinite    6,168,351                6,168,351 
        $6,634,035   $   $   $   $6,634,035 

 

   March 31, 2022 
   Estimated   Gross                 
   Useful   Carrying           Accumulated   Net Book 
   Life   Amount   Additions   Reductions   Amortization   Value 
Patent application costs   *   $465,684   $   $   $   $465,684 
ANDA acquisition costs   Indefinite    6,168,351                6,168,351 
        $6,634,035   $   $   $   $6,634,035 

 

  * Patent application costs were incurred in relation to the Company’s abuse deterrent opioid technology. Amortization of the patent costs will begin upon the issuance of marketing authorization by the FDA. Amortization will then be calculated on a straight-line basis through the expiry of the related patent(s).

 

F-12
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 5. ACCRUED EXPENSES

 

As of June 30, 2022 and March 31, 2022, the Company’s accrued expenses consisted of the following:

 

   June 30, 2022   March 31, 2022 
Salaries and fees payable in common stock   3,750,000    3,625,000 
Income tax   414,985    414,989 
Consultant contract fees   153,333    153,333 
Audit fees   140,000    140,000 
Director dues   112,500    90,000 
EWB loan interest   61,300     
Employee bonuses   56,250    143,000 
Other accrued expenses   121,467    126,820 
Total accrued expenses  $4,809,835   $4,693,142 

 

NOTE 6. NJEDA BONDS

 

In August, 2005, the Company issued NJEDA tax exempt Bonds with Series A Notes outstanding. The Company is required to maintain a debt service reserve. The debt service reserve is classified as restricted cash on the accompanying unaudited condensed 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:

 

   June 30, 2022   March 31, 2022 
Gross bonds payable          
NJEDA Bonds - Series A Notes  $1,360,000   $1,360,000 
Less: Current portion of bonds payable (prior to deduction of bond offering costs)   (115,000)   (115,000)
Long-term portion of bonds payable (prior to deduction of bond offering costs)  $1,245,000   $1,245,000 
           
Bond offering costs  $354,454   $354,454 
Less: Accumulated amortization   (238,670)   (235,124)
Bond offering costs, net  $115,784   $119,330 
           
Current portion of bonds payable - net of bond offering costs          
Current portions of bonds payable  $115,000   $115,000 
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  $100,822   $100,822 
           
Long term portion of bonds payable - net of bond offering costs          
Long term portion of bonds payable   1,245,000   $1,245,000 
Less: Bond offering costs to be amortized subsequent to the next 12 months   (101,606)   (105,152)
Long term portion of bonds payable, net of bond offering costs  $1,143,394   $1,139,848 

 

Amortization expense was $3,546 and $3,545 for the three months ended June 30, 2022 and June 30, 2021, respectively. As of June 30, 2022 and March 31, 2022, interest payable was $29,467 and $7,367, respectively.

 

F-13
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 7. 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 6.48% (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 [5.65% (0.87% plus Prime)] and matures on May 1, 2027. The total transaction costs associated with the EWB Loans incurred as of June 30, 2022, 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 June 30, 2022, the Company is in compliance with each financial covenant and the Company has not used any of the Revolving line of credit.

 

Loans payable consisted of the following:

 

   June 30, 2022   March 31, 2022 
Equipment and insurance financing loans payable, between 3.30% and 12.02% interest and maturing between October 2022 and April 2027  $12,397,347   $502,052 
Less: Current portion of loans payable   (334,134)   (253,006)
Long-term portion of loans payable  $12,063,213   $249,046 

 

The interest expense associated with the loans payable was $177,579 and $6,109 for the three months ended June 30, 2022 and June 30, 2021, respectively.

 

NOTE 8. DEFERRED REVENUE

 

Deferred revenues in the aggregate amount of $42,222 as of June 30, 2022, were comprised of a current component of $13,333 and a long-term component of $28,889. Deferred revenues in the aggregate amount of $45,559 as of March 31, 2022, were comprised of a current component of $13,333 and a long-term component of $32,226. These line items represent the unamortized amounts of a $200,000 advance payment received for a TAGI Pharma (“TAGI”) 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.

 

NOTE 9. COMMITMENTS AND CONTINGENCIES

 

Operating Leases – 135 Ludlow Ave.

 

The Company entered into an operating lease for a portion of a one-story warehouse, located at 135 Ludlow Avenue, Northvale, New Jersey (the “135 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 135 Ludlow Ave. modified lease property required significant leasehold improvements and qualifications, as a prerequisite, for its intended future use. Manufacturing, packaging, warehousing and regulatory activities are currently conducted at this location. Additional renovations and construction to further expand the Company’s manufacturing resources are in progress.

 

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 has a term of three years, ending on October 31, 2023.

 

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.

 

F-14
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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.

 

Rent expense is recorded on the straight-line basis. Rent expense under the leases for the three months ended June 30, 2022 and June 30, 2021 was $64,578 and $62,877, 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 135 Ludlow Ave. modified lease and the Pompano Office Lease:

 

Years ending March 31,  Amount 
2023 (excluding the three months ended June 30, 2022)   195,216 
2024   254,050 
2025   243,612 
2026   248,484 
Thereafter   189,144 
Total future minimum lease payments   1,130,506 
Less: interest   (140,901)
Present value of lease payments  $989,605 

 

The Company has an obligation for the restoration of its leased facility and the removal or dismantlement of certain property and equipment as a result of its business operation in accordance with ASC 410, Asset Retirement and Environmental Obligations – Asset Retirement Obligations . The Company records the fair value of the asset retirement obligation in the period in which it is incurred. The Company increases, annually, the liability related to this obligation. The liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the Company records either a gain or loss. As of June 30, 2022, and March 31, 2022, the Company had a liability of $40,551 and $38,780, respectively, recorded as other long-term liabilities.

 

NOTE 10. 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.

 

F-15
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

A summary of warrant activity is as follows:

 

   June 30, 2022   March 31, 2022 
   Warrant Shares   Weighted Average Exercise Price   Warrant Shares   Weighted Average Exercise Price 
Balance at beginning of period   79,008,661   $0.1521    79,008,661   $0.1521 
                     
Warrants granted pursuant to the issuance of Series J convertible preferred shares                
                     
Warrants exercised, forfeited and/or expired, net                
                     
Balance at end of period   79,008,661   $0.1521    79,008,661   $0.1521 

 

On April 28, 2017, the Company entered into an Exchange Agreement with Nasrat Hakim (“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. 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. Such exercise price adjustment feature prohibits the Company from being able to conclude the warrants are indexed to its own stock and thus such warrants are classified as liabilities and measured initially and subsequently at fair value. The Series J Warrants also provide for other standard adjustments upon the occurrence 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:

   June 30, 2022   March 31, 2022 
Fair value of the Company’s Common Stock  $0.0500   $0.0350 
Volatility   72.42%   76.55%
Initial exercise price  $0.1521   $0.1521 
Warrant term (in years)   4.8    5.1 
Risk free rate   3.04%   2.40%

 

The changes in warrants (Level 3 financial instruments) measured at fair value on a recurring basis for the three months ended June 30, 2022 were as follows:

 

Balance at March 31, 2022  $936,837 
Change in fair value of derivative financial instruments - warrants   500,143 
Balance at June 30, 2022  $1,436,980 

 

F-16
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 11. 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 (the “2020 LPC 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 months ended June 30, 2022. In addition, there were no shares issued to Lincoln Park as additional commitment shares, pursuant to the 2020 LPC Agreement.

 

As of June 30, 2022, the Company has issued an aggregate of 5,975,857 shares of Common Stock for net proceeds of $469,105 to Lincoln Park as initial commitment shares.

 

NOTE 12. 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.

 

As of June 30, 2022, the Company accrued director’s fees totaling $112,500, which will be paid via cash payments totaling $37,500 and the issuance of 1,744,608 shares of Common Stock. The Company anticipates that these shares of Common Stock will be issued prior to the end of the current fiscal year.

 

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.

 

During the three months ended June 30, 2022, the Company accrued salaries totaling $193,750 owed to the Company’s President and Chief Executive Officer and certain other employees which will be paid via the issuance of 2,274,102 shares of Common Stock.

 

As of June 30, 2022, the Company owed its President and Chief Executive Officer and certain other employees’ salaries totaling $3,750,000 which will be paid via the issuance of 53,107,446 shares of Common Stock.

 

F-17
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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. A summary of the activity of Company’s 2014 Stock Option Plan for the three months ended June 30, 2022 is as follows:

 

   Shares
Underlying
Options
   Weighted
Average
Exercise Price
   Weighted Average Remaining Contractual
Term
(in years)
   Aggregate Intrinsic Value 
Outstanding at March 31, 2022   5,650,000   $0.14    2.8   $ 
Granted   1,100,000   $0.04    10.0   $13,970 
Outstanding at June 30, 2022   6,750,000   $0.14    2.8   $ 
Exercisable at June 30, 2022   4,530,001   $0.16    2.3   $ 

 

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 June 30, 2022 and March 31, 2022 of $0.09 and $0.10, respectively.

 

As of June 30, 2022, there was $44,330 in unrecognized stock based compensation expense that will be recognized over 2.8 years.

 

NOTE 13. CONCENTRATIONS AND CREDIT RISK

 

Revenues

 

One customer accounted for approximately 85% of the Company’s revenues for the three months ended June 30, 2022.

 

One customer accounted for approximately 83% of the Company’s revenues for the three months ended June 30, 2021.

 

Accounts Receivable

 

Two customers accounted for approximately 90% of the Company’s accounts receivable as of June 30, 2022. These two customers accounted for approximately 80% and 10% of accounts receivable each, respectively.

 

Two customers accounted for approximately 91% the Company’s accounts receivable as of March 31, 2022. These two customers accounted for approximately 78% and 13% of accounts receivable each, respectively.

 

Purchasing

 

Two suppliers accounted for approximately 66% of the Company’s purchases of raw materials for the three months ended June 30, 2022. These two suppliers accounted for approximately 56% and 10% of purchases each, respectively.

 

Two suppliers accounted for approximately 52% of the Company’s purchases of raw materials for the three months ended June 30, 2021. These two suppliers accounted for approximately 38% and 14% of purchases each, respectively.

 

NOTE 14. 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.

 

F-18
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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.

 

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

 

   2022   2021