ITEM
1. FINANCIAL STATEMENTS
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
September
30,
2020
|
|
|
March
31,
2020
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,365,667
|
|
|
$
|
1,131,728
|
|
Accounts
receivable, net of allowance for doubtful accounts of $-0-, respectively
|
|
|
4,075,972
|
|
|
|
4,106,846
|
|
Inventory
|
|
|
4,462,563
|
|
|
|
4,142,472
|
|
Prepaid
expenses and other current assets
|
|
|
370,889
|
|
|
|
870,233
|
|
Total
current assets
|
|
|
13,275,091
|
|
|
|
10,251,279
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of $11,546,074 and $10,957,334, respectively
|
|
|
6,892,376
|
|
|
|
7,227,648
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets, net of accumulated depreciation of $-0-, respectively
|
|
|
6,634,035
|
|
|
|
6,634,035
|
|
|
|
|
|
|
|
|
|
|
Operating
lease - right-of-use asset
|
|
|
263,455
|
|
|
|
363,282
|
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
Restricted
cash - debt service for NJEDA bonds
|
|
|
404,994
|
|
|
|
404,802
|
|
Security
deposits
|
|
|
135,967
|
|
|
|
75,534
|
|
Total
other assets
|
|
|
540,961
|
|
|
|
480,336
|
|
Total
assets
|
|
$
|
27,605,918
|
|
|
$
|
24,956,580
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
589,428
|
|
|
$
|
1,577,860
|
|
Accrued
expenses
|
|
|
4,508,935
|
|
|
|
4,821,132
|
|
Deferred
revenue, current portion
|
|
|
13,333
|
|
|
|
180,000
|
|
Bonds
payable, current portion, net of bond issuance costs
|
|
|
95,822
|
|
|
|
90,822
|
|
Loans
payable, current portion
|
|
|
386,511
|
|
|
|
561,550
|
|
Lease
obligation - operating lease
|
|
|
216,774
|
|
|
|
208,184
|
|
Senior
secured promissory note - related party, current portion
|
|
|
1,200,000
|
|
|
|
1,200,000
|
|
Total
current liabilities
|
|
|
7,010,803
|
|
|
|
8,639,548
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
Deferred
revenue, net of current portion
|
|
|
55,558
|
|
|
|
58,891
|
|
Bonds
payable, net of current portion and bond issuance costs
|
|
|
1,233,580
|
|
|
|
1,336,489
|
|
Loans
payable, net of current portion
|
|
|
1,558,170
|
|
|
|
463,902
|
|
Lease
obligation - operating lease, net of current portion
|
|
|
56,538
|
|
|
|
167,109
|
|
Derivative
financial instruments - warrants
|
|
|
3,037,902
|
|
|
|
3,599,378
|
|
Other
long-term liabilities
|
|
|
36,519
|
|
|
|
35,442
|
|
Total
long-term liabilities
|
|
|
5,978,267
|
|
|
|
5,661,211
|
|
Total
liabilities
|
|
|
12,989,070
|
|
|
|
14,300,759
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
Series
J convertible preferred stock; par value of $0.01; 50 shares authorized; 0 issued and outstanding as of September 30, 2020
and 24.0344 issued and outstanding as of March 31, 2020
|
|
|
—
|
|
|
|
13,903,960
|
|
Common
Stock; par value $0.001; 1,445,000,000 shares authorized; 1,009,276,752 shares issued and 1,009,176,752 outstanding as of
September 30, 2020; 840,504,367 shares issued and 840,404,367 shares outstanding as of March 31, 2020
|
|
|
1,009,279
|
|
|
|
840,507
|
|
Additional
paid-in capital
|
|
|
164,401,909
|
|
|
|
150,264,605
|
|
Treasury
stock; 100,000 shares as of September 30, 2020 and March 31, 2020; at cost
|
|
|
(306,841
|
)
|
|
|
(306,841
|
)
|
Accumulated
deficit
|
|
|
(150,487,499
|
)
|
|
|
(154,046,410
|
)
|
Total
shareholders’ equity
|
|
|
14,616,848
|
|
|
|
10,655,821
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
27,605,918
|
|
|
$
|
24,956,580
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
For
the Three Months Ended
September 30,
|
|
|
For
the Six Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
fees
|
|
$
|
6,172,724
|
|
|
$
|
4,169,346
|
|
|
$
|
12,809,963
|
|
|
$
|
7,096,704
|
|
Licensing
fees
|
|
|
1,227,168
|
|
|
|
465,641
|
|
|
|
2,128,673
|
|
|
|
897,523
|
|
Total
revenue
|
|
|
7,399,892
|
|
|
|
4,634,987
|
|
|
|
14,938,636
|
|
|
|
7,994,227
|
|
Cost
of revenue
|
|
|
3,778,496
|
|
|
|
3,306,256
|
|
|
|
8,340,846
|
|
|
|
5,366,542
|
|
Gross
profit
|
|
|
3,621,396
|
|
|
|
1,328,731
|
|
|
|
6,597,790
|
|
|
|
2,627,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
1,147,739
|
|
|
|
637,489
|
|
|
|
2,091,618
|
|
|
|
2,045,525
|
|
General
and administrative
|
|
|
796,966
|
|
|
|
798,572
|
|
|
|
1,665,743
|
|
|
|
1,480,048
|
|
Non-cash
compensation through issuance of stock options
|
|
|
2,089
|
|
|
|
15,522
|
|
|
|
7,610
|
|
|
|
41,716
|
|
Depreciation
and amortization
|
|
|
334,345
|
|
|
|
331,680
|
|
|
|
661,962
|
|
|
|
662,633
|
|
Total
operating expenses
|
|
|
2,281,139
|
|
|
|
1,783,263
|
|
|
|
4,426,933
|
|
|
|
4,229,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations
|
|
|
1,340,257
|
|
|
|
(454,532
|
)
|
|
|
2,170,857
|
|
|
|
(1,602,237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense and amortization of debt issuance costs
|
|
|
(79,753
|
)
|
|
|
(91,465
|
)
|
|
|
(159,184
|
)
|
|
|
(189,135
|
)
|
Gain
on sale of fixed assets
|
|
|
3,400
|
|
|
|
—
|
|
|
|
41,490
|
|
|
|
—
|
|
Change
in fair value of derivative instruments
|
|
|
1,220,069
|
|
|
|
(1,053,031
|
)
|
|
|
561,476
|
|
|
|
469,000
|
|
Interest
income
|
|
|
89
|
|
|
|
5,287
|
|
|
|
365
|
|
|
|
8,333
|
|
Other
income (expense), net
|
|
|
1,143,805
|
|
|
|
(1,139,209
|
)
|
|
|
444,147
|
|
|
|
288,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations before income taxes
|
|
|
2,484,062
|
|
|
|
(1,593,741
|
)
|
|
|
2,615,004
|
|
|
|
(1,314,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
(2,500
|
)
|
|
|
(2,000
|
)
|
|
|
(2,500
|
)
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
benefit from the sale of state net operating loss credits
|
|
|
—
|
|
|
|
—
|
|
|
|
946,407
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
2,481,562
|
|
|
$
|
(1,595,741
|
)
|
|
$
|
3,558,911
|
|
|
$
|
(1,316,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income (loss)
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income (loss)
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average Common Stock outstanding
|
|
|
913,544,660
|
|
|
|
829,394,203
|
|
|
|
877,180,630
|
|
|
|
828,466,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average Common Stock outstanding
|
|
|
913,576,523
|
|
|
|
829,394,203
|
|
|
|
877,212,493
|
|
|
|
828,466,951
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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 March 31, 2020
|
|
|
24
|
|
|
$
|
13,903,960
|
|
|
|
840,504,367
|
|
|
$
|
840,507
|
|
|
$
|
150,264,605
|
|
|
|
100,000
|
|
|
$
|
(306,841
|
)
|
|
$
|
(154,046,410
|
)
|
|
$
|
10,655,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,077,349
|
|
|
|
1,077,349
|
|
Non-cash
compensation through the issuance of employee stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,521
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,521
|
|
Shares
issued in payment of salaries
|
|
|
—
|
|
|
|
—
|
|
|
|
574,597
|
|
|
|
574
|
|
|
|
49,426
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2020
|
|
|
24
|
|
|
$
|
13,903,960
|
|
|
|
841,078,964
|
|
|
$
|
841,081
|
|
|
$
|
150,319,552
|
|
|
|
100,000
|
|
|
$
|
(306,841
|
)
|
|
$
|
(152,969,061
|
)
|
|
$
|
11,788,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,481,562
|
|
|
|
2,481,562
|
|
Conversion
of Preferred Stock to Common Stock
|
|
|
(24
|
)
|
|
|
(13,903,960
|
)
|
|
|
158,017,321
|
|
|
|
158,017
|
|
|
|
13,745,943
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Initial
commitment shares issued pursuant to the 2020 Lincoln Park purchase agreement
|
|
|
—
|
|
|
|
—
|
|
|
|
5,975,857
|
|
|
|
5,976
|
|
|
|
463,129
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
469,105
|
|
Common
Stock sold pursuant to the 2020 Lincoln Park purchase agreement
|
|
|
—
|
|
|
|
—
|
|
|
|
640,543
|
|
|
|
641
|
|
|
|
41,582
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
42,223
|
|
Common
Stock issued as additional commitment shares pursuant to the 2020 Lincoln Park purchase agreement
|
|
|
—
|
|
|
|
—
|
|
|
|
10,094
|
|
|
|
10
|
|
|
|
722
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
732
|
|
Costs
associated with raising capital
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(469,837
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(469,837
|
)
|
Non-cash
compensation through the issuance of employee stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,089
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,089
|
|
Shares
issued in payment of Director fees
|
|
|
—
|
|
|
|
—
|
|
|
|
1,550,343
|
|
|
|
1,551
|
|
|
|
133,449
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
135,000
|
|
Shares
issued in payment of salaries
|
|
|
—
|
|
|
|
—
|
|
|
|
71,739
|
|
|
|
71
|
|
|
|
6,179
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,250
|
|
Shares
issued in payment of consulting expenses
|
|
|
—
|
|
|
|
—
|
|
|
|
1,931,891
|
|
|
|
1,932
|
|
|
|
159,101
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
161,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2020
|
|
|
—
|
|
|
$
|
—
|
|
|
|
1,009,276,752
|
|
|
$
|
1,009,279
|
|
|
$
|
164,401,909
|
|
|
|
100,000
|
|
|
$
|
(306,841
|
)
|
|
$
|
(150,487,499
|
)
|
|
$
|
14,616,848
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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
|
|
|
Deficit
|
|
Balance
as of March 31, 2019
|
|
|
—
|
|
|
|
—
|
|
|
|
824,946,559
|
|
|
$
|
824,949
|
|
|
$
|
148,780,087
|
|
|
|
100,000
|
|
|
$
|
(306,841
|
)
|
|
$
|
(151,806,059
|
)
|
|
$
|
(2,507,864
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
279,702
|
|
|
|
279,702
|
|
Common
Stock sold pursuant to the Lincoln Park purchase agreement
|
|
|
—
|
|
|
|
—
|
|
|
|
4,000,000
|
|
|
|
4,000
|
|
|
|
336,300
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
340,300
|
|
Common
Stock issued as additional commitment shares pursuant to the LPC purchase agreement
|
|
|
—
|
|
|
|
—
|
|
|
|
47,136
|
|
|
|
47
|
|
|
|
4,153
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,200
|
|
Costs
associated with raising capital
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,200
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,200
|
)
|
Non-cash
compensation through the issuance of employee stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,194
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
|
828,993,695
|
|
|
$
|
828,996
|
|
|
$
|
149,142,534
|
|
|
|
100,000
|
|
|
$
|
(306,841
|
)
|
|
$
|
(151,526,357
|
)
|
|
$
|
(1,861,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,595,741
|
)
|
|
|
(1,595,741
|
)
|
Common
Stock sold pursuant to the Lincoln Park purchase agreement
|
|
|
—
|
|
|
|
—
|
|
|
|
3,895,233
|
|
|
|
3,895
|
|
|
|
379,692
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
383,587
|
|
Common
Stock issued as additional commitment shares pursuant to the LPC purchase agreement
|
|
|
—
|
|
|
|
—
|
|
|
|
53,132
|
|
|
|
53
|
|
|
|
5,915
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,968
|
|
Costs
associated with raising capital
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,968
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,968
|
)
|
Non-cash
compensation through the issuance of employee stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,522
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
|
832,942,060
|
|
|
$
|
832,944
|
|
|
$
|
149,537,695
|
|
|
|
100,000
|
|
|
$
|
(306,841
|
)
|
|
$
|
(153,122,098
|
)
|
|
$
|
(3,058,300
|
)
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
For
the Six Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
3,558,911
|
|
|
$
|
(1,316,039
|
)
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
661,961
|
|
|
|
662,637
|
|
Amortization
of operating leases - right-of-use assets
|
|
|
99,827
|
|
|
|
(93,974
|
)
|
Gain
on the disposal of property and equipment
|
|
|
(41,490
|
)
|
|
|
—
|
|
Change
in fair value of derivative financial instruments - warrants
|
|
|
(561,476
|
)
|
|
|
(469,000
|
)
|
Non-cash
compensation accrued
|
|
|
460,490
|
|
|
|
492,755
|
|
Non-cash
compensation through the issuance of employee stock options
|
|
|
7,610
|
|
|
|
41,716
|
|
Non-cash
rent expense and lease accretion
|
|
|
1,077
|
|
|
|
1,036
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
30,874
|
|
|
|
(708,250
|
)
|
Inventory
|
|
|
(320,091
|
)
|
|
|
783,501
|
|
Prepaid
expenses and other current assets
|
|
|
488,912
|
|
|
|
637,485
|
|
Accounts
payable, accrued expenses and other current liabilities
|
|
|
(1,408,835
|
)
|
|
|
199,714
|
|
Deferred
revenue and customer deposits
|
|
|
(170,000
|
)
|
|
|
(601,036
|
)
|
Lease
obligations - operating leases
|
|
|
(99,828
|
)
|
|
|
93,930
|
|
Net
cash provided by (used in) operating activities
|
|
|
2,707,942
|
|
|
|
(275,525
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(94,848
|
)
|
|
|
(3,148
|
)
|
Proceeds
from disposal of property and equipment
|
|
|
54,675
|
|
|
|
—
|
|
Net
cash used in investing activities
|
|
|
(40,173
|
)
|
|
|
(3,148
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of Common Stock
|
|
|
42,223
|
|
|
|
723,887
|
|
Other
loan proceeds
|
|
|
1,013,480
|
|
|
|
—
|
|
Payment
of bond principal
|
|
|
(105,000
|
)
|
|
|
(95,000
|
)
|
Other
loan payments
|
|
|
(384,341
|
)
|
|
|
(368,121
|
)
|
Net
cash provided by financing activities
|
|
|
566,362
|
|
|
|
260,766
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash and restricted cash
|
|
|
3,234,131
|
|
|
|
(17,907
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and restricted cash, beginning of period
|
|
|
1,536,530
|
|
|
|
2,675,768
|
|
|
|
|
|
|
|
|
|
|
Cash
and restricted cash, end of period
|
|
$
|
4,770,661
|
|
|
$
|
2,657,861
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash and non-cash transactions:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
160,266
|
|
|
$
|
129,649
|
|
Financing
of equipment purchases and insurance renewal
|
|
$
|
237,936
|
|
|
$
|
54,462
|
|
Stock issued in payment of Directors fees, salaries and consulting
expenses
|
|
$
|
352,283
|
|
|
$
|
—
|
|
Commitment
shares issued to Lincoln Park Capital
|
|
$
|
469,837
|
|
|
$
|
10,168
|
|
Conversion of preferred stock to Common Stock
|
|
$
|
13,903,960
|
|
|
$
|
—
|
|
The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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 products
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 products 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 Laboratories, Inc. 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 and six months ended September 30, 2020 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.
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.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
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 September 30, 2020.
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, in accordance with GAAP. On April 3, 2020, Elite and SunGen mutually agreed to discontinue any further joint
product development activities.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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
September 30,
|
|
|
For
the Six Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
NDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing
fees
|
|
$
|
—
|
|
|
$
|
250,000
|
|
|
$
|
166,167
|
|
|
$
|
500,000
|
|
Total
NDA revenue
|
|
|
—
|
|
|
|
250,000
|
|
|
|
166,167
|
|
|
|
500,000
|
|
ANDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
fees
|
|
$
|
6,172,724
|
|
|
$
|
4,169,346
|
|
|
$
|
12,809,963
|
|
|
$
|
7,096,704
|
|
Licensing
fees
|
|
|
1,227,168
|
|
|
|
215,641
|
|
|
|
1,962,506
|
|
|
|
397,523
|
|
Total
ANDA revenue
|
|
|
7,399,892
|
|
|
|
4,384,987
|
|
|
|
14,772,469
|
|
|
|
7,494,227
|
|
Total
revenue
|
|
$
|
7,399,892
|
|
|
$
|
4,634,987
|
|
|
$
|
14,938,636
|
|
|
$
|
7,994,227
|
|
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.
Restricted
Cash
As
of September 30, 2020, and March 31, 2020, the Company had $404,994 and $404,802, 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 market 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.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As
of September 30, 2020, 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.
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 September 30, 2020, 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, 2012 and forward. The Company did not record unrecognized tax positions for the three and six months ended September
30, 2020 and 2019.
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
(Loss) Per Share Attributable to Common Shareholders’
The
Company follows ASC 260, Earnings Per Share, which requires presentation of basic and diluted earnings (loss) 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 (loss) per share is computed by dividing net income (loss) by the weighted
average number of shares of Common Stock outstanding during the period. The computation of diluted net income (loss) per shares
does not include the conversion of securities that would have an antidilutive effect.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
following is the computation of earnings (loss) per share applicable to common shareholders for the periods indicated:
|
|
For the Three Months Ended
September 30,
|
|
|
For the Six Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) - basic
|
|
$
|
2,481,562
|
|
|
$
|
(1,595,741
|
)
|
|
$
|
3,558,911
|
|
|
$
|
(1,316,039
|
)
|
Effect of dilutive instrument on net income
|
|
|
(1,220,069
|
)
|
|
|
—
|
|
|
|
(561,476
|
)
|
|
|
—
|
|
Net income (loss) - diluted
|
|
$
|
1,261,493
|
|
|
$
|
(1,595,741
|
)
|
|
$
|
2,997,435
|
|
|
$
|
(1,316,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of Common Stock outstanding - basic
|
|
|
913,544,660
|
|
|
|
829,394,203
|
|
|
|
877,180,630
|
|
|
|
828,466,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options and convertible securities
|
|
|
31,863
|
|
|
|
—
|
|
|
|
31,863
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of Common Stock outstanding - diluted
|
|
|
913,576,523
|
|
|
|
829,394,203
|
|
|
|
877,212,493
|
|
|
|
828,466,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
Diluted
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
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.
|
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:
|
|
|
Amount
at
|
|
|
Fair
Value Measurement Using
|
|
September
30, 2020
|
|
|
Fair Value
|
|
|
|
Level
1
|
|
|
|
Level
2
|
|
|
|
Level
3
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments - warrants
|
|
$
|
3,037,902
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,037,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments - warrants
|
|
$
|
3,599,378
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,599,378
|
|
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
Adopted Accounting Pronouncements
In
November 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-18, Collaborative Arrangements (ASC 808),
Clarifying the Interaction between ASC 808 and ASC 606 (“ASU 2018-18”). The ASU clarifies when transactions between
collaborative participants are in the scope of ASC 606. The ASU also provides some guidance on presentation of transactions not
in the scope of ASC 606. ASU 2018-18 is effective for fiscal years, and interim periods within those years, beginning after December
15, 2019. Early adoption is permitted for fiscal years, and interim periods within those years. The Company is not materially
impacted by the implementation of this pronouncement.
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.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
2. INVENTORY
Inventory
consisted of the following:
|
|
September
30,
2020
|
|
|
March
31,
2020
|
|
Finished
goods
|
|
$
|
51,642
|
|
|
$
|
138,981
|
|
Work-in-progress
|
|
|
796,697
|
|
|
|
677,824
|
|
Raw
materials
|
|
|
3,614,224
|
|
|
|
3,325,667
|
|
|
|
|
4,462,563
|
|
|
|
4,142,472
|
|
Less:
Inventory reserve
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
4,462,563
|
|
|
$
|
4,142,472
|
|
NOTE
3. PROPERTY AND EQUIPMENT, NET
Property
and equipment consisted of the following:
|
|
September
30,
2020
|
|
|
March
31,
2020
|
|
Land,
building and improvements
|
|
$
|
5,273,023
|
|
|
$
|
5,260,524
|
|
Laboratory,
manufacturing, warehouse and transportation equipment
|
|
|
12,408,722
|
|
|
|
12,167,754
|
|
Office
equipment and software
|
|
|
373,601
|
|
|
|
373,601
|
|
Furniture
and fixtures
|
|
|
383,103
|
|
|
|
383,103
|
|
|
|
|
18,438,449
|
|
|
|
18,184,982
|
|
Less:
Accumulated depreciation
|
|
|
(11,546,073
|
)
|
|
|
(10,957,334
|
)
|
|
|
$
|
6,892,376
|
|
|
$
|
7,227,648
|
|
Depreciation
expense was $255,118 and $328,140 for the three months ended, and $654,871 and $655,548 for the six months ended September 30,
2020 and 2019, respectively.
NOTE
4. INTANGIBLE ASSETS
The
following table summarizes the Company’s intangible assets:
|
|
September
30, 2020
|
|
|
|
Estimated
Useful
Life
|
|
Gross
Carrying
Amount
|
|
|
Additions
|
|
|
Reductions
|
|
|
Accumulated
Amortization
|
|
|
Net
Book
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, 2020
|
|
|
|
Estimated
Useful
Life
|
|
Gross
Carrying
Amount
|
|
|
Additions
|
|
|
Reductions
|
|
|
Accumulated
Amortization
|
|
|
Net
Book
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).
|
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
5. NJEDA BONDS
During
August 2005, the Company refinanced a bond issue occurring in 1999 through the issuance of Series A and B Notes tax-exempt bonds
(the “NJEDA Bonds” and/or “Bonds”). During July 2014, the Company retired all outstanding Series B Notes,
at par, along with all accrued interest due and owed.
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 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:
|
|
September
30,
2020
|
|
|
March
31,
2020
|
|
Gross
bonds payable
|
|
|
|
|
|
|
|
|
NJEDA
Bonds - Series A Notes
|
|
$
|
1,470,001
|
|
|
$
|
1,575,000
|
|
Less:
Current portion of bonds payable (prior to deduction of bond offering costs)
|
|
|
(110,000
|
)
|
|
|
(105,000
|
)
|
Long-term
portion of bonds payable (prior to deduction of bond offering costs)
|
|
$
|
1,360,001
|
|
|
$
|
1,470,000
|
|
|
|
|
|
|
|
|
|
|
Bond
offering costs
|
|
$
|
354,454
|
|
|
$
|
354,454
|
|
Less:
Accumulated amortization
|
|
|
(213,855
|
)
|
|
|
(206,765
|
)
|
Bond
offering costs, net
|
|
$
|
140,599
|
|
|
$
|
147,689
|
|
|
|
|
|
|
|
|
|
|
Current
portion of bonds payable - net of bond offering costs
|
|
|
|
|
|
|
|
|
Current
portions of bonds payable
|
|
$
|
110,000
|
|
|
$
|
105,000
|
|
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
|
|
$
|
95,822
|
|
|
$
|
90,822
|
|
|
|
|
|
|
|
|
|
|
Long
term portion of bonds payable - net of bond offering costs
|
|
|
|
|
|
|
|
|
Long
term portion of bonds payable
|
|
|
1,360,000
|
|
|
$
|
1,470,000
|
|
Less:
Bond offering costs to be amortized subsequent to the next 12 months
|
|
|
(126,420
|
)
|
|
|
(133,511
|
)
|
Long
term portion of bonds payable, net of bond offering costs
|
|
$
|
1,233,580
|
|
|
$
|
1,336,489
|
|
Amortization
expense was $3,545 and $3,540 for the three months ended, and $7,090 and $7,085 for the six months ended September 30, 2020 and
2019, respectively.
NOTE
6. LOANS PAYABLE
Loans
payable consisted of the following:
|
|
September
30,
2020
|
|
|
March
31,
2020
|
|
Equipment
and insurance financing loans payable, between 3.5% and 12.73% interest and maturing between October 2020 and December 2023
|
|
$
|
931,201
|
|
|
$
|
1,025,452
|
|
Loan
received pursuant to the Payroll Protection Program Term Note
|
|
|
1,013,480
|
|
|
|
—
|
|
Less:
Current portion of loans payable
|
|
|
(386,511
|
)
|
|
|
(561,550
|
)
|
Long-term
portion of loans payable
|
|
$
|
1,558,170
|
|
|
$
|
463,902
|
|
The
interest expense associated with the loans payable was $20,760 and $20,792 for the three months ended, and $38,640 and $44,879
for the six months ended September 30, 2020 and 2019, respectively.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2020
Paycheck Protection Program Term Note
In
April 2020, the Company entered into a Paycheck Protection Program Term Note (the “PPP Note”) with TD Bank, NA in
the amount of $1,013,480. The PPP Note was issued to the Company pursuant to the Coronavirus, Aid, Relief, and Economic Security
Act’s (the “CARES Act”) (P.L. 116-136) Paycheck Protection Program (the “Program”). Under the Program,
all or a portion of the PPP Note may be forgiven in accordance with the Program requirements. The PPP Note carries a maturity
date of April 2022, at a 1% interest rate. No payments are required for six months from the date of issuance. The amount of the
forgiveness shall be calculated (and may be reduced) in accordance with the requirements of the Program, including the provisions
of the CARES Act. No more than 25% of the amount forgiven can be attributable to non-payroll costs, as defined in the Program.
NOTE
7. RELATED PARTY SECURED PROMISSORY NOTE WITH MIKAH PHARMA, LLC
For consideration of
the assets acquired on May 15, 2017, the Company issued a Secured Promissory Note (the “Note”) to Mikah Pharma, LLC
(“Mikah”) for the principal sum of $1,200,000. Mikah was founded in 2009 by Nasrat Hakim (“Hakim”), a related
party and the Company’s President, Chief Executive Officer and Chairman of the Board. The Note matures on December 31, 2020
at which time the Company shall pay the outstanding principal balance of the Note. Interest shall be computed on the unpaid principal
amount at the per annum rate of ten percent (10%); provided, upon the occurrence of an Event of Default as defined within the Note,
the principal balance shall bear interest from the date of such occurrence until the date of actual payment at the per annum rate
of fifteen percent (15%). All interest payable hereunder shall be computed on the basis of actual days elapsed and a year of 360
days. Installment payments of interest on the outstanding principal shall be paid as follows: quarterly commencing August 1, 2017
and on November 1, February 1, May 1 and August 1 of each year thereafter. No principal or interest payments have been made on
the Note since its issuance. All unpaid principal and accrued but unpaid interest shall be due and payable in full on the Maturity
Date. The interest expense associated with the Note was $30,000 for the three months ended and $60,000 for the six months ended
September 30, 2020 and 2019, respectively. Accrued interest due and owing on this note was $405,000 and $345,000 as of September 30,
2020 and March 31, 2020, respectively.
NOTE
8. DEFERRED REVENUE
Deferred
revenues in the aggregate amount of $68,891 as of September 30, 2020, were comprised of a current component of $13,333 and
a long-term component of $55,558. Deferred revenues in the aggregate amount of $238,891 as of March 31, 2020, were comprised
of a current component of $180,000 and a long-term component of $58,891. 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 and the $5,000,000 advance payment Epic Collaborative Agreement with a five-year term
beginning in June 2015 and ending in May 2020. 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 date and the long-term component is equal to the amount
of revenue to be earned thereafter.
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 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.
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”). The 135 Ludlow Ave. lease is for approximately 15,000 square feet of floor space and
began on July 1, 2010. During July 2014, the Company modified the 135 Ludlow Ave. lease in which the Company was permitted to
occupy the entire 35,000 square feet of floor space in the building (“135 Ludlow Ave. modified lease”).
The
135 Ludlow Ave. modified lease includes an initial term, which expired on December 31, 2016 with two tenant renewal options of
five years each, at the sole discretion of the Company. On June 22, 2016, the Company exercised the first of these renewal options,
with such option including a term that begins on January 1, 2017 and expires on December 31, 2021.
The
135 Ludlow Ave. 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.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 our 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.
Lease
assets and liabilities are classified as follows on the condensed consolidated balance sheet:
Lease
|
|
Classification
|
|
As
of
September 30,
2020
|
|
Assets
|
|
|
|
|
|
|
Operating
|
|
Operating
lease – right-of-use asset
|
|
$
|
263,455
|
|
Total
leased assets
|
|
|
|
$
|
263,455
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Operating
|
|
Lease
obligation – operating lease
|
|
$
|
216,774
|
|
|
|
|
|
|
|
|
Long-term
|
|
|
|
|
|
|
Operating
|
|
Lease
obligation – operating lease, net of current portion
|
|
|
56,538
|
|
Total
lease liabilities
|
|
|
|
$
|
273,312
|
|
Rent
expense is recorded on the straight-line basis. Rent expense under the 135 Ludlow Ave. modified lease for the three months ended
September 30, 2020 and 2019 was $55,986 and $54,888, respectively, and $111,972 and $109,776 for the six months ended September
30, 2020 and 2019, respectively. Rent expense is recorded in general and administrative expense in the unaudited condensed consolidated
statements of operations.
The
table below show the future minimum rental payments, exclusive of taxes, insurance and other costs, under the 135 Ludlow Ave.
modified lease:
Years
ending March 31,
|
|
Amount
|
|
2021
|
|
$
|
113,091
|
|
2022
|
|
|
171,315
|
|
Total
future minimum lease payments
|
|
|
284,406
|
|
Less:
interest
|
|
|
(11,094
|
)
|
Present
value of lease payments
|
|
$
|
273,312
|
|
The
weighted-average remaining lease term and the weighted-average discount rate of our lease was as follows:
Lease
Term and Discount Rate
|
|
September
30,
2020
|
|
Remaining
lease term (years)
|
|
|
|
|
Operating
leases
|
|
|
1.3
|
|
|
|
|
|
|
Discount
rate
|
|
|
|
|
Operating
leases
|
|
|
6
|
%
|
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 September 30, 2020, and March 31, 2020, the Company
had a liability of $36,518 and $35,442, respectively, recorded as a component of other long-term liabilities.
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 (“Series J COD”). 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 as of September 30,
2020.
On April 27, 2017,
a total of 24.0344 shares of Series J Preferred were issued pursuant to an exchange agreement (the “Exchange Agreement”)
with Hakim, a related party and the Company’s President, Chief Executive Officer and Chairman of the Board of Directors.
The Exchange Agreement provided for Hakim to exchange 158,017,321 shares of Common Stock for 24.0344 shares of Series J Preferred
and warrants to purchase 79,008,661 shares of Common Stock at $0.1521 per share. The aggregate stated value of the Series J Preferred
issued was equal to the aggregate value of the shares of Common Stock exchanged, with such value of each share of Common Stock
exchanged being equal to the closing price of the Common Stock on April 27, 2017. In connection with the Exchange Agreement, the
Company also issued warrants to purchase 79,008,661 shares of Common Stock at $0.1521 per share, and such warrants are classified
as liabilities on the accompanying unaudited condensed consolidated balance sheet as of September 30, 2020 (See Note 11).
An amendment to the
Company’s Articles of Incorporation to increase the number of shares of Common Stock the Company is authorized to issue from
995,000,000 shares to 1,445,000,000 shares was approved at the Company’s Annual Meeting of Shareholders held on December
4, 2019. Prior to the approval of the increase in the number of authorized shares, there were insufficient authorized shares if
the Series J Preferred Stock were converted. As a result, the shares were classified in mezzanine equity. After the approval of
the increase in the number of authorized shares, there are now sufficient authorized shares in the event of a full conversion of
Series J Preferred Stock. With the approval of the increase in the number of authorized shares, there is no longer the presumption
that a cash settlement will be required. Therefore, the Series J Preferred was reclassified from mezzanine equity to permanent
equity at its carrying amount of $13,903,960 on the consolidated balance sheet as of March 31, 2020.
On June 23, 2020, the
Company held a Special Meeting of Shareholders, with such including a proposal for shareholders to again vote on the above referenced
amendment to the Company’s Articles of Incorporation. This proposal was also passed by shareholder vote.
On
August 24, 2020, Hakim converted the 24.0344 shares of Series J Preferred into 158,017,321 shares of Common Stock at a conversion
price of $0.1521 per share.
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.
A
summary of warrant activity is as follows:
|
|
September
30,
2020
|
|
|
March
31,
2020
|
|
|
|
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 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.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 happening of certain customary events.
The
fair value of the Series J Warrants was calculated using a Black-Scholes model instead of a Monte Carlo Simulation because the
probability with the shareholder approval provisions was no longer a factor. The following assumptions were used in the Black-Scholes
model to calculate the fair value of the Series J Warrants:
|
|
September
30,
2020
|
|
|
March
31,
2020
|
|
Fair
value of the Company’s Common Stock
|
|
$
|
0.0680
|
|
|
$
|
0.0720
|
|
Volatility
|
|
|
79.77
|
%
|
|
|
83.81
|
%
|
Initial
exercise price
|
|
$
|
0.1521
|
|
|
$
|
0.1521
|
|
Warrant
term (in years)
|
|
|
6.6
|
|
|
|
7.1
|
|
Risk
free rate
|
|
|
0.47
|
%
|
|
|
0.55
|
%
|
The
changes in warrants (Level 3 financial instruments) measured at fair value on a recurring basis for the six months ended September
30, 2020 were as follows:
Balance
at March 31, 2020
|
|
$
|
3,599,378
|
|
Change
in fair value of derivative financial instruments - warrants
|
|
|
(561,476
|
)
|
Balance
at September 30, 2020
|
|
$
|
3,037,902
|
|
NOTE
12. SHAREHOLDERS’ EQUITY
Lincoln
Park Capital – May 1, 2017 Purchase Agreement
On
May 1, 2017, the Company entered into a purchase agreement (the “2017 LPC Purchase Agreement”), together with a registration
rights agreement (the “2017 LPC Registration Rights Agreement”), with Lincoln Park.
Under the terms and
subject to the conditions of the 2017 LPC Purchase Agreement, the Company had the right to sell to and Lincoln Park was obligated
to purchase up to $40 million in shares of Common Stock, subject to certain limitations, from time to time, over the 36-month period
that commenced on June 5, 2017.
The
2017 LPC Agreement expired on July 1, 2020.
During
the six months ended September 30, 2020, there were no shares sold to Lincoln Park pursuant to the 2017 LPC Agreement. In addition,
there were no shares issued to Lincoln Park as additional commitment shares, pursuant to the 2017 LPC Agreement. During the six
months ended September 30, 2019, a total of 7,895,233 shares were sold to Lincoln Park pursuant to the 2017 LPC Agreement for
net proceeds totaling $723,887. In addition, 100,268 shares were issued to Lincoln Park as additional commitment shares, pursuant
to the 2017 LPC Agreement.
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.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
During the six months
ended September 30, 2020 the Company issued an aggregate of 5,975,857 shares of Common Stock in the amount of $469,105 to Lincoln
Park as initial commitment shares. The Company sold 640,543 shares of its Common Stock pursuant to the 2020 LPC Purchase Agreement
during the six months ended September 30, 2020 for net proceeds totaling $42,223. In addition, 10,094 shares were issued to Lincoln
Park as additional commitment shares, pursuant to the 2020 LPC Agreement. The Company did not issue any shares of its Common Stock
pursuant to the 2020 LPC Purchase Agreement during the six months ended September 30, 2019. In addition, there were no shares issued
to Lincoln Park as additional commitment shares, pursuant to the 2020 LPC Agreement.
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 six months ended September 30, 2020, the Company issued 1,550,343 shares of Common Stock to its Directors in payment of director’s
fees totaling an aggregate of $135,000 and with such aggregate director’s fees being earned and accrued over the twenty-seven
month period beginning on January 1, 2018 and ending on March 31, 2020. In addition, the Company made cash payments totaling an
aggregate of $67,500 in payment of director’s fees earned over the same twenty-seven month period.
During
the six months ended September 30, 2020, the Company accrued director’s fees totaling $45,000, which will be paid via cash
payments totaling $15,000 and the issuance of 391,574 shares of Common Stock.
As
of September 30, 2020, the Company owed its Directors a total of $15,000 in cash payments and 391,574 shares of Common Stock in
payment of director fees totaling $45,000 due and owing. 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, Chief Financial 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 six months ended September 30, 2020, the Company issued 646,336 shares of Common Stock in payment of salaries totaling $56,250
pursuant to the employment contract of the Company’s Executive Vice President of Operations and with such salaries being
earned and accrued over the thirty month period beginning on January 1, 2018 and ending on June 30, 2020.
During
the six months ended September 30, 2020, the Company accrued salaries totaling $396,250 owed to the Company’s President
and Chief Executive Officer, Chief Financial Officer and certain other employees which will be paid via the issuance of 5,182,380
shares of Common Stock.
As
of September 30, 2020, the Company owed its President and Chief Executive Officer, Chief Financial Officer and certain other employees’
salaries totaling $2,657,500 which will be paid via the issuance of 29,442,712 shares of Common Stock.
During
the six months ended September 30, 2020, the Company issued 1,931,891 shares of Common Stock in payment of consulting fees totaling
$161,033, pursuant to engagement contracts with a certain consultant, and with such consulting expenses being earned and accrued
over the twenty seven month period beginning on January 1, 2018 and ending March 31, 2020.
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 six months ended September 30, 2020 is as follows:
|
|
Shares
Underlying
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at April 1, 2020
|
|
|
5,375,000
|
|
|
$
|
0.14
|
|
|
|
4.1
|
|
|
$
|
6,000
|
|
Forfeited
and expired
|
|
|
(60,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2020
|
|
|
5,315,000
|
|
|
$
|
0.14
|
|
|
|
3.8
|
|
|
$
|
6,000
|
|
Exercisable
at September 30, 2020
|
|
|
5,220,001
|
|
|
$
|
0.14
|
|
|
|
3.8
|
|
|
$
|
6,000
|
|
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 September 30, 2020 and March 31, 2020 of $0.06 and $0.07,
respectively.
NOTE
14. CONCENTRATIONS AND CREDIT RISK
Revenues
Two
customers accounted for approximately 93% of the Company’s revenues for the six months ended September 30, 2020. These two
customers accounted for approximately 78% and 15% of revenues each, respectively. The same two customers accounted for 83% and
11% of revenues each, respectively, for the three months ended September 30, 2020.
Three
customers accounted for approximately 87% of the Company’s revenues for the six months ended September 30, 2019. These three
customers accounted for approximately 44%, 30%, and 13% of revenues each, respectively. The same three customers accounted for
approximately 55%, 23% and 11% of revenues each for three months ended September 30, 2019.
Accounts
Receivable
Two
customers accounted for approximately 95% of the Company’s accounts receivable as of September 30, 2020. These two customers
accounted for approximately 84% and 11% of accounts receivable each, respectively.
Four
customers accounted for substantially all the Company’s accounts receivable as of March 31, 2020. These four customers accounted
for approximately 73%, 13%, 8%, and 5% of accounts receivable each, respectively.
Purchasing
Four
suppliers accounted for more than 83% of the Company’s purchases of raw materials for the six months ended September 30,
2020. These four suppliers accounted for approximately 63%, 11%, 5% and 4% of purchases each, respectively.
Seven
suppliers accounted for more than 85% of the Company’s purchases of raw materials for the six months ended September 30,
2019. Included in these seven suppliers were three suppliers accounting for approximately 35%, 18%, and 15% of purchases each,
respectively.
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.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
following represents selected information for the Company’s reportable segments:
|
|
For
the Three Months Ended
September 30,
|
|
|
For
the Six Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Operating
Income by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ANDA
|
|
$
|
2,180,670
|
|
|
$
|
759,049
|
|
|
$
|
4,050,161
|
|
|
$
|
106,654
|
|
NDA
|
|
|
—
|
|
|
|
64,041
|
|
|
|
153,784
|
|
|
|
271,745
|
|
|
|
$
|
2,180,670
|
|
|
$
|
823,090
|
|
|
$
|
4,203,945
|
|
|
$
|
378,399
|
|
The
table below reconciles the Company’s operating income by segment to income (loss) from operations before provision for income
taxes as reported in the Company’s unaudited condensed consolidated statements of operations.
|
|
For
the Three Months Ended
September 30,
|
|
|
For
the Six Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Operating
income by segment
|
|
$
|
2,180,670
|
|
|
$
|
823,090
|
|
|
$
|
4,203,945
|
|
|
$
|
378,399
|
|
Corporate
unallocated costs
|
|
|
(276,504
|
)
|
|
|
(793,672
|
)
|
|
|
(861,536
|
)
|
|
|
(1,000,789
|
)
|
Interest
income
|
|
|
89
|
|
|
|
5,287
|
|
|
|
365
|
|
|
|
8,333
|
|
Interest
expense and amortization of debt issuance costs
|
|
|
(79,753
|
)
|
|
|
(91,464
|
)
|
|
|
(159,184
|
)
|
|
|
(189,134
|
)
|
Depreciation
and amortization expense
|
|
|
(334,345
|
)
|
|
|
(331,680
|
)
|
|
|
(661,962
|
)
|
|
|
(662,633
|
)
|
Significant
non-cash items
|
|
|
(226,164
|
)
|
|
|
(154,271
|
)
|
|
|
(468,100
|
)
|
|
|
(319,215
|
)
|
Change
in fair value of derivative instruments
|
|
|
1,220,069
|
|
|
|
(1,053,031
|
)
|
|
|
561,476
|
|
|
|
469,000
|
|
Income
(loss) from operations
|
|
$
|
2,484,062
|
|
|
$
|
(1,595,741
|
)
|
|
$
|
2,615,004
|
|
|
$
|
(1,316,039
|
)
|
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
16. RELATED PARTY AGREEMENTS WITH MIKAH PHARMA, LLC
On
December 3, 2018, the Company executed a development agreement with Mikah pursuant to which Mikah and the Company will collaborate
to develop and commercialize generic products including formulation development, analytical method development, bioequivalence
studies and manufacture of development batches of generic products. As of the date of this report, the Company has incurred costs
which are $229,451 in excess of advanced payments received to date from Mikah. This balance due from Mikah is included in the
financial statement line of prepaid expenses and other current assets on the accompanying consolidated balance sheet.
NOTE
17. INCOME TAXES
Sale
of New Jersey Net Operating Loss
In
April 2020, Elite Laboratories Inc., a wholly owned subsidiary of Elite Pharmaceuticals Inc., received final approval from the
New Jersey Economic Development Authority for the sale of net tax benefits of $607,635 relating to New Jersey net operating losses
and net tax benefits of $338,772, relating to R&D tax credits. The Company sold the net tax benefits approved for sale for
total proceeds of $946,407.
NOTE
18. COVID-19 UPDATE
In
December 2019, the Novel Corona Virus, COVID-19 was reported to have emerged in Wuhan, China. In March 2020, the World Health
Organization (“WHO”) declared the COVID-19 outbreak a global pandemic. Governments at the national, state and local
level in the United States, and globally, have implemented aggressive actions to reduce the spread of the virus, with such actions
including, without limitation, lockdown and shelter in place orders, limitations on non-essential gatherings of people, suspension
of all non-essential travel, and ordering certain businesses and governmental agencies to cease non-essential operations at physical
locations. The Company’s business is deemed essential and it has continued to operate in all aspects of its pharmaceutical
manufacturing, distribution, product development, regulatory compliance and other activities. The Company’s management has
developed and implemented a range of measures to address the risks, uncertainties, and operational challenges associated with
operating in a COVID-19 environment. The Company is closely monitoring the rapidly evolving and changing situation and are implementing
plans intended to limit the impact of COVID-19 on our business so that the Company can continue to manufacture those medicines
used by end user patients. Actions the Company has taken to date are, without limitation, further described below.
Workforce
The
Company has taken and will continue to take, proactive measures to provide for the well-being of its workforce while continuing
to safely produce pharmaceutical products. The Company has implemented alternative working practices, which include, without limitation,
modified schedules, shift rotation and work at home abilities for appropriate employees to best ensure adequate social distancing.
In addition, the Company increased its already thorough cleaning protocols throughout its facilities and has prohibited visits
from non-essential visitors. Certain of these measures have resulted in increased costs.
Manufacturing
and Supply Chain
During
the three and six months ended September 30, 2020, and as of the date of this Quarterly Report on Form 10-Q, the Company has not
experienced material, detrimental issues related to COVID-19 in its manufacturing, supply chain, quality assurance and regulatory
compliance activities, and has been able to operate without interruption. The Company has taken, and plans to continue to take,
commercially practical measures to keep its facilities open. Company supply chains remain intact and operational, and the Company
is in regular communications with its suppliers and third-party partners. A prolonging of the current situation relating to COVID-19
may result in an increased risk of interruption in the Company supply chain in the future, with no assurances given as the materiality
of such future interruption on the Company’s business, financial condition, results of operations and cash flows.
NOTE
19. SUBSEQUENT EVENTS
The
Company has evaluated subsequent events from the condensed consolidated balance sheet date through November 16, 2020 and
determined that there were no material subsequent events.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion of our financial condition and results of operations for the three and six months ended September 30, 2020
and 2019 should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those statements
that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations
that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing
of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors,
including those set forth under Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended March 31,
2020. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,”
“ongoing,” “expect,” “believe,” “intend,” “may,” “will,”
“should,” “could,” and similar expressions to identify forward-looking statements.
Unless
expressly indicated or the context requires otherwise, the terms “Elite”, the “Company”, “we”,
“us”, and “our” refer to Elite Pharmaceuticals, Inc. and subsidiary.
Background
Elite
Pharmaceuticals, Inc., a Nevada corporation (the “Company”, “Elite”, “Elite Pharmaceuticals”,
the “registrant”, “we”, “us” or “our”) 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.
We are a specialty
pharmaceutical company principally engaged in the development and manufacture of oral, controlled-release products, using proprietary
know-how and technology for the manufacture of generic pharmaceuticals. Our strategy includes developing generic versions of controlled-release
drug products with high barriers to entry.
We
occupy manufacturing, warehouse, laboratory and office space at 165 Ludlow Avenue and 135 Ludlow Avenue in Northvale, NJ (the
“Northvale Facility”). The Northvale Facility operates under Current Good Manufacturing Practice (“cGMP”)
and is a United States Drug Enforcement Agency (“DEA”) registered facility for research, development and manufacturing.
Strategy
We
focus our efforts on the following areas: (i) manufacturing of a line of generic pharmaceutical products with approved Abbreviated
New Drug Applications (“ANDAs”); (ii) development of additional generic pharmaceutical products; (iii) development
of the other products in our pipeline including the products with our partners; (iv) commercial exploitation of our products either
by license and the collection of royalties, or through the manufacture of our formulations; and (v) development of new products
and the expansion of our licensing agreements with other pharmaceutical companies, including co-development projects, joint ventures
and other collaborations.
Our
focus is on the development of various types of drug products, including branded drug products which require New Drug Applications
(“NDAs”) under Section 505(b)(1) or 505(b)(2) of the Drug Price Competition and Patent Term Restoration Act of 1984
(the “Drug Price Competition Act”) as well as generic drug products which require ANDAs.
We
believe that our business strategy enables us to reduce its risk by having a diverse product portfolio that includes both branded
and generic products in various therapeutic categories and to build collaborations and establish licensing agreements with companies
with greater resources thereby allowing us to share costs of development and improve cash-flow.
Commercial
Products
We
own, license, contract manufacture or have contractual rights to receive royalties from the following products currently approved
for commercial sale:
Product
|
|
Branded
Product
Equivalent
|
|
Therapeutic
Category
|
|
Launch
Date
|
Phentermine HCl 37.5mg tablets
(“Phentermine 37.5mg”)
|
|
Adipex-P®
|
|
Bariatric
|
|
April
2011
|
Phendimetrazine Tartrate 35mg tablets
(“Phendimetrazine 35mg”)
|
|
Bontril®
|
|
Bariatric
|
|
November
2012
|
Phentermine HCl 15mg and 30mg capsules
(“Phentermine 15mg” and “Phentermine 30mg”)
|
|
Adipex-P®
|
|
Bariatric
|
|
April
2013
|
Naltrexone HCl 50mg tablets
(“Naltrexone 50mg”)
|
|
Revia®
|
|
Addiction Treatment
|
|
September
2013
|
Isradipine 2.5mg and 5mg capsules
(“Isradipine 2.5mg” and “Isradipine 5mg”)
|
|
n/a
|
|
Cardiovascular
|
|
January
2015
|
Oxycodone HCl Immediate Release 5mg, 10mg, 15mg,
20mg and 30mg tablets (“OXY IR 5mg”, “Oxy IR 10mg”, “Oxy IR 15mg”, “OXY IR 20mg”
and “Oxy IR 30mg”)
|
|
Roxycodone®
|
|
Pain
|
|
March
2016
|
Trimipramine Maleate Immediate Release 25mg,
50mg and 100mg capsules (“Trimipramine 25mg”, “Trimipramine 50mg”, “Trimipramine 100mg”)
|
|
Surmontil®
|
|
Antidepressant
|
|
May
2017
|
Dextroamphetamine Saccharate, Amphetamine Aspartate,
Dextroamphetamine Sulfate, Amphetamine Sulfate Immediate Release 5mg, 7.5mg, 10mg, 12.5mg, 15mg, 20mg and 30mg tablets (“Amphetamine
IR 5mg”, “Amphetamine IR 7.5mg”, “Amphetamine IR 10mg”, “Amphetamine IR 12.5mg”,
“Amphetamine IR 15mg”, “Amphetamine IR 20mg” and “Amphetamine IR 30mg”)
|
|
Adderall®
|
|
Central
Nervous System (“CNS”) Stimulant
|
|
April
2019
|
Dantrolene Sodium Capsules 25mg, 50mg and 100mg
(“Dantrolene 25mg”, “Dantrolene 50mg”, “Dantrolene 100mg”)
|
|
Dantrium®
|
|
Muscle
Relaxant
|
|
June
2019
|
Dextroamphetamine Saccharate, Amphetamine Aspartate,
Dextroamphetamine Sulfate, Amphetamine Sulfate Extended Release 5mg, 10mg, 15mg, 20mg, 25mg, and 30mg capsules (“Amphetamine
ER 5mg”, “Amphetamine ER 10mg”, “Amphetamine ER 15mg”, “Amphetamine ER 20mg”, “Amphetamine
ER 25mg”, and “Amphetamine ER 30mg”)
|
|
Adderall
XR®
|
|
Central
Nervous System (“CNS”) Stimulant
|
|
March
2020
|
Products Not Yet Commercialized
SequestOx™
SequestOx™ is
our abuse-deterrent candidate for the management of moderate to severe pain where the use of an opioid analgesic is appropriate.
In January 2016,
the Company submitted an NDA for SequestOx™ and on July 15, 2016, the US Food and Drug Administration
(“FDA”) issued a Complete Response Letter, (“CRL”), regarding the NDA. The CRL stated that the review
cycle for the SequestOx™ NDA is complete and the application was not ready for approval in its present form.
On July 7, 2017, the
Company reported topline results from a pivotal bioequivalence fed study for or SequestOx™. The mean Tmax (the amount of
time that a drug is present at the maximum concentration in serum) of SequestOx™ was 4.6 hr. with a range of 0.5 hr.
to 12 hr. and the mean Tmax of the comparator, Roxicodone®, was 3.4 hr. with a range of 0.5 hr. to 12 hr. A key objective
for the study was to determine if the reformulated SequestOx™ had a similar Tmax to the comparator when taken with
a high fat meal. Based on these results, the Company paused clinical trials for this formulation of SequestOx™. On January
30, 2018, the Company reported positive topline results from a pilot study conducted for a modified SequestOx™ wherein,
based on the results of this pilot study, the modified SequestOx™ formulation is expected to achieve bioequivalence with
a Tmax range equivalent to the reference product when conducted in a pivotal trial under fed conditions. The Company has provided
the pilot data to the FDA, requesting clarification as to the requirements for resubmission of the NDA. The FDA has provided guidance
for repeated bio-equivalence studies in order to bridge the new formulation to the original SequestOx™ studies and also
extended our filing fee waiver until July 2020. Due to the prohibitive cost of such repeated bio-equivalence studies and further
development of SequestOx, the Company has paused development of this product and, in light of the current market and litigation
around opioid products, the Company is evaluating the feasibility of continuing development or the pursuit of any opioid containing
products.
Oxycodone
Hydrochloride extended release (generic version of OxyContin®)
On September 20, 2017,
the Company filed an ANDA with the FDA for generic version of OxyContin® (extended release Oxycodone Hydrochloride). OxyContin®
is approved for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which
alternative treatment options are inadequate. The FDA requested additional information relating to this filing. Providing such
additional information would require significant resources. Development of this product is currently paused and, in light of the
current market and litigation around opioid products,, the Company is evaluating the feasibility of continuing development or
the pursuit of any opioid containing products.
Generic
version of an antibiotic product
On January 3, 2019,
the Company filed an ANDA with the FDA for a generic version of an antibiotic product. The product is jointly owned by Elite and
SunGen Pharma LLC. Upon approval by the FDA of this ANDA, Elite will manufacture and package the product on a cost-plus basis.
The ANDA is currently under review by the FDA.
Loxapine
(“Loxapine Capsules”)
The FDA approved a
transfer for manufacturing of Loxapine Capsules at the Northvale Facility. The approved ANDAs for Loxapine Capsules were acquired
from Mikah Pharma. The Company is currently evaluating the timeline for the launch of this product.
Acetaminophen
and Codeine Phosphate
The Company received
approval from the FDA of an ANDA for a generic version of Tylenol® with Codeine (acetaminophen and codeine phosphate). Acetaminophen
with codeine is a combination medication indicated for the management of mild to moderate pain, where treatment with an opioid
is appropriate and for which alternative treatments are inadequate. The Company is not pursuing licensing deals for any opioids
at this time and, in light of the current market and litigation around opioid products, the Company is evaluation the feasibility
of continuing development or the pursuit of any opioid products.
Critical
Accounting Policies and Estimates
The preparation of
the unaudited condensed consolidated financial statements and related disclosures in conformity with GAAP, and our discussion
and analysis of its financial condition and operating results require our management to make judgments, assumptions and estimates
that affect the amounts reported in its unaudited condensed consolidated financial statements and accompanying notes. Management
bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may
differ from these estimates and such differences may be material.
There were no significant changes during the six months ended
September 30, 2020 to the items that we disclosed as our significant accounting policies and estimates described in “Note
1, Summary of Significant Accounting Policies” to the Company’s financial statements as contained in the Company’s
Annual Report on Form 10-K for the fiscal year ended March 31, 2020.
Results
of Operations
The
following set forth our results of operations for the periods presented. The period-to-period comparison of financial results
is not necessarily indicative of future results.
Three
months ended September 30, 2020 compared to September 30, 2019
Revenue,
Cost of revenue and Gross profit:
|
|
For
the Three Months Ended
September 30,
|
|
|
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
Dollars
|
|
|
Percentage
|
|
Manufacturing
fees
|
|
$
|
6,172,724
|
|
|
$
|
4,169,346
|
|
|
$
|
2,003,378
|
|
|
|
48
|
%
|
Licensing
fees
|
|
|
1,227,168
|
|
|
|
465,641
|
|
|
|
761,527
|
|
|
|
164
|
%
|
Total
revenue
|
|
|
7,399,892
|
|
|
|
4,634,987
|
|
|
|
2,764,905
|
|
|
|
60
|
%
|
Cost
of revenue
|
|
|
3,778,496
|
|
|
|
3,306,256
|
|
|
|
472,240
|
|
|
|
14
|
%
|
Gross
profit
|
|
$
|
3,621,396
|
|
|
$
|
1,328,731
|
|
|
$
|
2,292,665
|
|
|
|
173
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit - percentage
|
|
|
49
|
%
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
Total
revenues for three months ended September 30, 2020 increased by $2.8 million or 60%, to $7.4 million, as compared to $4.6 million
for the corresponding period in 2019, primarily due to revenues earned from Amphetamine ER Capsules, which were launched during
the current fiscal year, and increased sales of Amphetamine IR Tablets during the three months ended September 30, 2020 as compared
to the three months ended September 30, 2019.
Manufacturing
fees increased by $2.0 million, or 48%, primarily due to revenues earned from Amphetamine ER Capsules, which were launched during
the current fiscal year, and increased sales of Amphetamine IR Tablets during the three months ended September 30, 2020 as compared
to the three months ended September 30, 2019.
Licensing
fees increased by $0.8 million, or 164%. This increase is primarily due to licensing fees earned from Amphetamine ER Capsules
which were launched during the current fiscal year, and increased licensing fees earned from the sale of Amphetamine IR Tablets,
Naltrexone and Phentermine during the three months ended September 30, 2020 as compared to the comparable period of the prior
fiscal year.
Costs
of revenue consists of manufacturing and assembly costs. Our costs of revenue increased by $0.5 million or 14%, to $3.8 million
as compared to $3.3 million for the corresponding period in 2019. This increase was due in large part to the increased manufacturing
activities and related manufacturing revenues during the three months ended September 30, 2020, as compared to the comparable
period of the prior fiscal year, and also due to there being a strong positive correlation of costs of revenue to manufacturing
revenues.
Our
gross profit margin was 49% during the three months ended September 30, 2020 as compared to 29% during the three months ended
September 30, 2019. The increase in gross margin is due to increased manufacturing efficiencies of scale being achieved in relation
to increased manufacturing volumes resulting in decreased unit overhead absorption rates, as compared to the comparable period
of the prior year, combined with timing of in market sales by our marketing partner of the Amphetamine IR and Dantrolene products
resulting in a higher level of related licensing fees during the three months ended September 30, 2020, as compared to the comparable
period of the prior fiscal year. Please note that there is a strong positive correlation of licensing fees to in market sales
of our products by our marketing partners.
Operating
expenses:
|
|
For
the Three Months Ended
September 30,
|
|
|
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
Dollars
|
|
|
Percentage
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
1,147,739
|
|
|
$
|
637,489
|
|
|
$
|
510,250
|
|
|
|
80
|
%
|
General
and administrative
|
|
|
796,966
|
|
|
|
798,572
|
|
|
|
(1,606
|
)
|
|
|
-0.2
|
%
|
Non-cash
compensation
|
|
|
2,089
|
|
|
|
15,522
|
|
|
|
(13,433
|
)
|
|
|
-87
|
%
|
Depreciation
and amortization
|
|
|
334,345
|
|
|
|
331,680
|
|
|
|
2,665
|
|
|
|
1
|
%
|
Total
operating expenses
|
|
$
|
2,281,139
|
|
|
$
|
1,783,263
|
|
|
$
|
497,876
|
|
|
|
28
|
%
|
Operating
expenses consist of research and development costs, general and administrative, non-cash compensation and depreciation and amortization
expenses. Operating expenses for the three months ended September 30, 2020 increased by $0.5 million or 28% to $2.3 million, as
compared to $1.8 million for the corresponding period in 2019.
Research
and development costs for the three months ended September 30, 2020 were $1.1 million, an increase of $0.5 million, or 80%, from
$0.6 million of such costs for the comparable period of the prior year. The increase was a result of the timing and nature of
product development activities during the three months ended September 30, 2020 as compared to the comparable period of the prior
year.
General
and administrative expenses for the three months ended September 30, 2020 were $0.80 million, and remained relatively unchanged
from $0.80 million of such costs for the comparable period of the prior year due in large part to increased utilization rates
of our manufacturing facility as compared with the comparable period of the prior year, and ongoing cost reduction and control
initiatives.
Non-cash
compensation expense for the three months ended September 30, 2020 and 2019 was less than $0.1 million.
Depreciation
and amortization expenses for the three months ended September 30, 2020 were $0.3 million, and remained relatively unchanged from
$0.3 million of such costs for the comparable period of the prior year.
As
a result of the foregoing, our income from operations for the three months ended September 30, 2020 was $1.3 million, compared
to a loss from operations of $0.1 million for the three months ended September 30, 2019
Other
income (expense):
|
|
For
the Three Months Ended
September 30,
|
|
|
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
Dollars
|
|
|
Percentage
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense and amortization of debt issuance costs
|
|
$
|
(79,753
|
)
|
|
$
|
(91,465
|
)
|
|
$
|
11,712
|
|
|
|
-13
|
%
|
Gain
on sale of fixed assets
|
|
|
3,400
|
|
|
|
—
|
|
|
|
3,400
|
|
|
|
n/a
|
|
Change
in fair value of derivative instruments
|
|
|
1,220,069
|
|
|
|
(1,053,031
|
)
|
|
|
2,273,100
|
|
|
|
-216
|
%
|
Interest
income
|
|
|
89
|
|
|
|
5,287
|
|
|
|
(5,198
|
)
|
|
|
-98
|
%
|
Other
income (expense), net
|
|
$
|
1,143,805
|
|
|
$
|
(1,139,209
|
)
|
|
$
|
2,283,014
|
|
|
|
-200
|
%
|
Other
income, net for the three months ended September 30, 2020 was $1.1 million, an increase in other income, net of $2.3 million from
other expense, net of $1.1 million for the comparable period of the prior year. The increase in other income (expense), net was
due to income relating to changes in the fair value of our outstanding derivative warrants during the three months ended September
30, 2020. Please note that the change in the fair value of derivative instruments is determined in large part by the change in
the closing price of the Company’s Common Stock as of the end of the period, as compared to the closing price at the beginning
of the period, with a strong inverse relationship between the fair value of our derivatives instruments and decreases in the closing
price of the Company’s Common Stock.
As
a result of the foregoing, our net income for the three months ended September 30, 2020 was $2.5 million, compared to a net loss
of $1.6 million for the comparable period of the prior year.
Six
months ended September 30, 2020 compared to September 30, 2019
Revenue,
Cost of revenue and Gross profit:
|
|
For
the Six Months Ended
September 30,
|
|
|
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
Dollars
|
|
|
Percentage
|
|
Manufacturing
fees
|
|
$
|
12,809,963
|
|
|
$
|
7,096,704
|
|
|
$
|
5,713,259
|
|
|
|
81
|
%
|
Licensing
fees
|
|
|
2,128,673
|
|
|
|
897,523
|
|
|
|
1,231,150
|
|
|
|
137
|
%
|
Total
revenue
|
|
|
14,938,636
|
|
|
|
7,994,227
|
|
|
|
6,944,409
|
|
|
|
87
|
%
|
Cost
of revenue
|
|
|
8,340,846
|
|
|
|
5,366,542
|
|
|
|
2,974,304
|
|
|
|
55
|
%
|
Gross
profit
|
|
$
|
6,597,790
|
|
|
$
|
2,627,685
|
|
|
$
|
3,970,105
|
|
|
|
151
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit - percentage
|
|
|
44
|
%
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
Total
revenues for the six-month period ended September 30, 2020 increased by $6.9 million or 87%, to $14.9 million, as compared
to $8.0 million, for the corresponding period in 2019 primarily due to revenues earned from Amphetamine ER Capsules, which were
launched during the current fiscal year, and increased sales of Amphetamine IR Tablets during the six month period ended September
30, 2020 as compared to the comparable period of the prior fiscal year.
Manufacturing
fees increased by $5.7 million, or 81%, primarily due to revenues earned from Amphetamine ER Capsules, which were launched during
the current fiscal year, and increased sales of Amphetamine IR Tablets during the six month period ended September 30, 2020 as
compared to the comparable period of the prior fiscal year.
Licensing
fees increased by $1.2 million, or 137%. This increase is primarily due to licensing fees earned from Amphetamine ER Capsules
which were launched during the current fiscal year, and increased licensing fees earned from the sale of Amphetamine IR Tablets,
Naltrexone and Phentermine during the six months ended September 30, 2020 as compared to the comparable period of the prior fiscal
year.
Costs
of revenue consists of manufacturing and assembly costs. Our costs of revenue increased by $3.0 million or 55%, to $8.3 million
as compared to $5.4 million for the corresponding period in the prior fiscal year. This increase was due in large part in large
part to the increased manufacturing activities and related manufacturing revenues during the six months ended September 30, 2020,
as compared to the comparable period of the prior fiscal year, and also due to there being a strong positive correlation of costs
of revenue to manufacturing revenues.
Our
gross profit margin was 44% during the six months ended September 30, 2020 as compared to 33% during the comparable period of
the prior fiscal year.
Operating
expenses:
|
|
For
the Six Months Ended
September 30,
|
|
|
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
Dollars
|
|
|
Percentage
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
2,091,618
|
|
|
$
|
2,045,525
|
|
|
$
|
46,093
|
|
|
|
2
|
%
|
General
and administrative
|
|
|
1,665,743
|
|
|
|
1,480,048
|
|
|
|
185,695
|
|
|
|
13
|
%
|
Non-cash
compensation
|
|
|
7,610
|
|
|
|
41,716
|
|
|
|
(34,106
|
)
|
|
|
-82
|
%
|
Depreciation
and amortization
|
|
|
661,962
|
|
|
|
662,633
|
|
|
|
(671
|
)
|
|
|
0
|
%
|
Total
operating expenses
|
|
$
|
4,426,933
|
|
|
$
|
4,229,922
|
|
|
$
|
197,011
|
|
|
|
5
|
%
|
Operating
expenses consist of research and development costs, general and administrative, non-cash compensation and depreciation and amortization
expenses. Operating expenses for the six months ended September 30, 2020 increased by $0.2 million, or 5%, to $4.4 million as
compared to $4.2 million for the corresponding period in the prior fiscal year.
Research
and development costs for the six months ended September 30, 2020 were $2.1 million, an increase of $0.1 million, or 2%, from
approximately $2.0 million of such costs for the comparable period of the prior year. The increase was a result of the timing
and nature of product development activities during the six month period ended September 30, 2020 as compared to the comparable
period of the prior fiscal year.
General
and administrative expenses for the six months ended September 30, 2020 were $1.7 million, an increase of $0.2 million, or 13%
from $1.5 million of such costs for the comparable period of the prior year with such increase being attributed in large part
to increased costs and headcounts relating to regulatory compliance and laboratory activities, offset by increased facility utilization
rates and ongoing cost reduction initiatives.
Non-cash
compensation expense for the six months ended September 30, 2020 and 2019 was less than $0.1 million.
Depreciation
and amortization expenses for the six months ended September 30, 2020 were $0.7 million, which was virtually unchanged from $0.7
million in such costs for the comparable period of the prior fiscal year.
As
a result of the foregoing, our income from operations for the six months ended September 30, 2020 was $2.2 million, compared
to a loss from operations of $1.6 million for the comparable period of the prior fiscal year.
Other
income (expense):
|
|
For
the Six Months Ended
September 30,
|
|
|
Change
|
|
|
|
2020
|
|
|
2019
|
|
|
Dollars
|
|
|
Percentage
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense and amortization of debt issuance costs
|
|
$
|
(159,184
|
)
|
|
$
|
(189,135
|
)
|
|
$
|
29,951
|
|
|
|
-16
|
%
|
Gain
on sale of fixed assets
|
|
|
41,490
|
|
|
|
—
|
|
|
|
41,490
|
|
|
|
n/a
|
|
Change
in fair value of derivative instruments
|
|
|
561,476
|
|
|
|
469,000
|
|
|
|
92,476
|
|
|
|
20
|
%
|
Interest
income
|
|
|
365
|
|
|
|
8,333
|
|
|
|
(7,968
|
)
|
|
|
-96
|
%
|
Other
income, net
|
|
$
|
444,147
|
|
|
$
|
288,198
|
|
|
$
|
155,949
|
|
|
|
54
|
%
|
Other
income, net for the six months ended September 30, 2020 was $0.4 million, an increase of $0.2 million from the other income, net
of $0.3 million for the comparable period of the prior fiscal year. The increase in other income (expense) was due to income relating
to changes in the fair value of our outstanding derivative warrants during the six months ended September 30, 2020. Please note
that the change in the fair value of derivative instruments is determined in large part by the change in the closing price of
the Company’s Common Stock as of the end of the period, as compared to the closing price at the beginning of the period,
with a strong inverse relationship between the fair value of our derivatives instruments and decreases in the closing price of
the Company’s Common Stock. Please see Note 10 to the Unaudited Condensed Consolidated Financial Statements above.
As
a result of the foregoing, our net income before the net benefit from sale of net operating loss credits for the six months ended
September 30, 2020 was $3.6 million, compared to net loss $1.3 million for the comparable period of the prior fiscal year.
Liquidity
and Capital Resources
Capital
Resources
|
|
September
30,
2020
|
|
|
March
31,
2020
|
|
|
Change
|
|
Current
assets
|
|
$
|
13,275,091
|
|
|
$
|
10,251,279
|
|
|
$
|
3,023,812
|
|
Current
liabilities
|
|
$
|
7,010,803
|
|
|
$
|
8,639,548
|
|
|
$
|
(1,628,745
|
)
|
Working
capital
|
|
$
|
6,264,288
|
|
|
$
|
1,611,731
|
|
|
$
|
4,652,557
|
|
Our
working capital (total current assets less total current liabilities) increased by $4.7 million from $1.6 million as of March 31,
2020 to $6.3 million as of September 30, 2020, with such increase being primarily related to the net income of $3.6 million
and a net positive cash flow of $3.2 million achieved during the six months ended September 30, 2020.