UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2020

 

OR

 

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

 

FOR THE TRANSITION PERIOD FROM _______________ TO _______________

 

COMMISSION FILE NUMBER: 001-15697

 

ELITE PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

NEVADA

  22-3542636
(State or other jurisdiction of
incorporation or organization) 		  (I.R.S. Employer
Identification No.)

 

165 LUDLOW AVENUE
NORTHVALE, NEW JERSEY

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

 

(201) 750-2646

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

Large accelerated filer

☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
    Emerging growth company ☐

 

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

 

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

 

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

 

Title of each class

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date: 1,009,276,752 shares of Common Stock were issued, and 1,009,176,752 shares of Common Stock were outstanding as of February 11, 2021.

 

 

 

 

 

 

   

PAGE

PART I FINANCIAL INFORMATION F-1
     
ITEM 1. Financial Statements F-1
  Condensed Consolidated Balance Sheets as of December 31, 2020 (Unaudited) and March 31, 2020 (Audited) F-1
  Condensed Consolidated Statement of Operations for the Three and Nine Months Ended December 31, 2020 and 2019 (Unaudited) F-3
  Condensed Consolidated Statement of Changes in Shareholders’ Equity for the Three and Nine Months Ended December 31, 2020 and 2019 (Unaudited) F-4
  Condensed Consolidated Statement of Cash Flows for the Nine Months Ended December 31, 2020 and 2019 (Unaudited) F-6
  Notes to the Unaudited Condensed Consolidated Financial Statements F-7
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 1
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk 8
ITEM 4. Controls and Procedures 8
     
PART II OTHER INFORMATION 9
     
ITEM 1. Legal Proceedings 9
ITEM 1A. Risk Factors 9
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 9
ITEM 3. Defaults Upon Senior Securities 9
ITEM 4. Mine Safety Disclosures 9
ITEM 5. Other Information 9
ITEM 6. Exhibits 10
     
SIGNATURES 11

 

i

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

PART I - FINANCIAL INFORMATION 

 

ITEM 1. FINANCIAL STATEMENTS

 

    December 31,
2020 		    March 31,
2020 		 
    (Unaudited)     (Audited)  
ASSETS            
Current assets:            
Cash   $ 5,412,785     $ 1,131,728  
Accounts receivable, net of allowance for doubtful accounts of $-0-, respectively     3,296,207       4,106,846  
Inventory     4,802,007       4,142,472  
Prepaid expenses and other current assets     1,027,171       870,233  
Total current assets     14,538,170       10,251,279  
                 
Property and equipment, net of accumulated depreciation of $11,834,185 and $10,957,334, respectively     6,783,904       7,227,648  
                 
Intangible assets, net of accumulated amortization of $-0-, respectively     6,634,035       6,634,035  
                 
Operating lease - right-of-use asset     212,385       363,282  
                 
Other assets:                
Restricted cash - debt service for NJEDA bonds     405,005       404,802  
Security deposits     91,738       75,534  
Total other assets     496,743       480,336  
Total assets   $ 28,665,237     $ 24,956,580  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY                
                 
Current liabilities:                
Accounts payable   $ 700,905     $ 1,577,860  
Accrued expenses     4,605,014       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     406,110       561,550  
Lease obligation - operating lease, current portion     221,166       208,184  
Senior secured promissory note - related party, current portion     1,200,000       1,200,000  
Total current liabilities     7,242,350       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     1,237,123       1,336,489  
Loans payable, net of current portion     1,508,170       463,902  
Lease obligation - operating lease, net of current portion     —       167,109  
Derivative financial instruments - warrants     1,954,336       3,599,378  
Other long-term liabilities     37,068       35,442  
Total long-term liabilities     4,792,255       5,661,211  
Total liabilities     12,034,605       14,300,759  

 

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

 

F-1

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(continued)

 

    December 31,
2020 		    March 31,
2020 		 
    (Unaudited)     (Audited)  
Shareholders’ equity:            
Series J convertible preferred stock; par value of $0.01; 50 shares authorized; 0 issued and outstanding as of December 31, 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 shares outstanding as of December 31, 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     164,403,560       150,264,605  
Treasury stock; 100,000 shares as of December 31, 2020 and March 31, 2020; at cost     (306,841 )     (306,841 )
Accumulated deficit     (148,475,366 )     (154,046,410 )
Total shareholders’ equity     16,630,632       10,655,821  
Total liabilities and shareholders’ equity   $ 28,665,237     $ 24,956,580  

 

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

 

F-2

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

    For the Three Months Ended
December 31, 		    For the Nine Months Ended
December 31, 		 
    2020     2019     2020     2019  
Revenue:                        
Manufacturing fees   $ 4,849,871     $ 3,754,721     $ 17,659,834     $ 10,851,425  
Licensing fees     1,196,711       1,300,392       3,325,384       2,197,915  
Total revenue     6,046,582       5,055,113       20,985,218       13,049,340  
Cost of revenue     2,643,175       2,163,376       10,984,021       7,529,918  
Gross profit     3,403,407       2,891,737       10,001,197       5,519,422  
                                 
Operating expenses:                                
Research and development     1,245,669       986,832       3,337,287       3,032,357  
General and administrative     826,019       878,540       2,491,762       2,358,588  
Non-cash compensation through issuance of stock options     1,651       11,802       9,261       53,518  
Depreciation and amortization     328,899       323,368       990,861       986,001  
Total operating expenses     2,402,238       2,200,542       6,829,171       6,430,464  
                                 
Income (loss) from operations     1,001,169       691,195       3,172,026       (911,042 )
                                 
Other income (expense):                                
Change in fair value of derivative instruments     1,083,566       (3,059,695 )     1,645,042       (2,590,695 )
Interest expense and amortization of debt issuance costs     (79,673 )     (94,514 )     (238,857 )     (283,649 )
Gain on sale of fixed assets     6,973       —       48,463       —  
Interest income     98       2,334       463       10,667  
Proceeds from sale of ANDAs     —       600,000       —       600,000  
Other income (expense), net     1,010,964       (2,551,875 )     1,455,111       (2,263,677 )
                                 
Income (loss) from operations before income taxes     2,012,133       (1,860,680 )     4,627,137       (3,174,719 )
                                 
Income tax benefit (expense)     —       —       943,907       (2,000 )
                                 
Net income (loss) attributable to common shareholders   $ 2,012,133     $ (1,860,680 )   $ 5,571,044     $ (3,176,719 )
                                 
Basic net income (loss) per share attributable to common shareholders   $ 0.00     $ (0.00 )   $ 0.01     $ (0.00 )
                                 
Diluted net income (loss) per share attributable to common shareholders   $ 0.00     $ (0.00 )   $ 0.01     $ (0.00 )
                                 
Basic weighted average Common Stock outstanding     1,009,176,752       829,394,203       921,339,333       828,466,951  
                                 
Diluted weighted average Common Stock outstanding     1,009,176,752       829,394,203       921,339,333       828,466,951  

 

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

 

F-3

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

 

    Series J Preferred Stock     Common Stock     Additional
Paid-In 		    Treasury Stock     Accumulated     Total
Shareholders’ 		 
    Shares     Amount     Shares     Amount     Capital     Shares     Amount     Deficit     Equity  
Balance as of 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  
                                                                         
Net income     —       —       —       —       —       —       —       2,012,133       2,012,133  
                                                                         
Non-cash compensation through the issuance of employee stock options     —       —       —       —       1,651       —       —       —       1,651  
                                                                         
Balance at December 31, 2020     —     $ —       1,009,276,752     $ 1,009,279     $ 164,403,560       100,000     $ (306,841 )   $ (148,475,366 )   $ 16,630,632  

 

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

 

F-4

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF 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 )
                                                                         
Net loss     —       —       —       —       —       —       —       (1,860,680 )     (1,860,680 )
                                                                         
Common Stock sold pursuant to the Lincoln Park purchase agreement     —       —       1,000,000       1,000       82,100       —       —       —       83,100  
                                                                         
Common Stock issued as additional commitment shares pursuant to the LPC purchase agreement     —       —       11,510       12       1,030       —       —       —       1,042  
                                                                         
Costs associated with raising capital     —       —       —       —       (1,042 )     —       —       —       (1,042 )
                                                                         
Non-cash compensation through the issuance of employee stock options     —       —       —       —       11,802       —       —       —       11,802  
                                                                         
Reclassification of mezzanine equity to permanent equity     24       13,903,960       —       —       —       —       —       —       13,903,960  
                                                                         
Balance at December 31, 2019     24     $ 13,903,960       833,953,570     $ 833,956     $ 149,631,585       100,000     $ (306,841 )   $ (154,982,778 )   $ 9,079,882  

 

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

 

F-5

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

    For the Nine Months Ended December 31,  
    2020     2019  
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net income (loss)   $ 5,571,044     $ (3,176,719 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:                
Depreciation and amortization     990,861       993,086  
Amortization of operating leases - right-of-use assets     150,897       (142,025 )
Gain on the disposal of property and equipment     (48,463 )     —  
Change in fair value of derivative financial instruments - warrants     (1,645,042 )     2,590,695  
Non-cash compensation accrued     676,740       723,720  
Non-cash compensation through the issuance of employee stock options     9,261       53,518  
Non-cash rent expense and lease accretion     1,626       1,555  
Change in operating assets and liabilities:                
Accounts receivable     810,639       (1,243,518 )
Inventory     (659,535 )     705,322  
Prepaid expenses and other current assets     (173,142 )     21,849  
Accounts payable, accrued expenses and other current liabilities     (1,417,530 )     (402,759 )
Deferred revenue and customer deposits     (170,000 )     (854,368 )
Lease obligations - operating leases     (154,127 )     141,960  
Net cash provided by (used in) operating activities     3,943,229       (587,684 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchase of property and equipment     (145,079 )     (3,148 )
Proceeds from disposal of property and equipment     67,200       —  
Net cash used in investing activities     (77,879 )     (3,148 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from the issuance of Common Stock     42,223       806,987  
Proceeds from loans payable     1,013,480       —  
Payment of bond principal     (105,000 )     (95,000 )
Other loan payments     (534,793 )     (523,268 )
Net cash provided by financing activities     415,910       188,719  
                 
Net change in cash and restricted cash     4,281,260       (402,113 )
                 
Cash and restricted cash, beginning of period     1,536,530       2,675,768  
                 
Cash and restricted cash, end of period   $ 5,817,790     $ 2,273,655  
                 
Supplemental disclosure of cash and non-cash transactions:                
Cash paid for interest   $ 239,940     $ 168,560  
Financing of equipment purchases and insurance renewal   $ 410,141     $ 54,462  
Stock issued in payment of Directors fees, salaries and consulting expenses   $ 352,283     $ —  
Commitment shares issued to Lincoln Park Capital   $ 469,837     $ 11,098  
Conversion of preferred stock to Common Stock   $ 13,903,960     $ —  
Supplemental non-cash amounts of lease liabilities arising from obtaining right of use assets   $ —     $ 554,088  

 

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

 

F-6

 

 

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 nine months ended December 31, 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.

 

F-7

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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

 

Nature of goods and services

 

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

 

a) Manufacturing Fees

 

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

 

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

 

b) License Fees

 

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

 

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

 

F-8

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 December 31, 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. On April 3, 2020, Elite and SunGen mutually agreed to discontinue any further joint product development activities.

 

Disaggregation of revenue

 

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

 

    For the Three Months Ended
December 31, 		    For the Nine Months Ended
December 31, 		 
    2020     2019     2020     2019  
NDA:                        
Licensing fees   $ —     $ 250,000     $ 166,167     $ 750,000  
Total NDA revenue     —       250,000       166,167       750,000  
ANDA:                                
Manufacturing fees   $ 4,849,871     $ 3,754,721     $ 17,659,834     $ 10,851,425  
Licensing fees     1,196,711       1,050,392       3,159,217       1,447,915  
Total ANDA revenue     6,046,582       4,805,113       20,819,051       12,299,340  
Total revenue   $ 6,046,582     $ 5,055,113     $ 20,985,218     $ 13,049,340  

 

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

 

F-9

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 December 31, 2020, and March 31, 2020, the Company had $405,005 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.

 

As of December 31, 2020, the Company did not identify any indicators of impairment.

 

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

 

F-10

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 December 31, 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 nine months ended December 31, 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.

 

F-11

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 simple average closing price of the Company’s Common Stock for each trading day of the quarter then ended.

 

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 share does not include the conversion of securities that would have an antidilutive effect.

 

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

 

    For the Three Months Ended
December 31, 		    For the Nine Months Ended
December 31, 		 
    2020     2019     2020     2019  
Numerator                        
Net income (loss) - basic   $ 2,012,133     $ (1,860,680 )   $ 5,571,044     $ (3,176,719 )
Effect of dilutive instrument on net income     -       -       -       -  
Net income (loss) - diluted   $ 2,012,133     $ (1,860,680 )   $ 5,571,044     $ (3,176,719 )
                                 
Denominator                                
Weighted average shares of Common Stock outstanding - basic     1,009,176,752       829,394,203       921,339,333       828,466,951  
                                 
Dilutive effect of stock options and convertible securities     —       —       —       —  
                                 
Weighted average shares of Common Stock outstanding - diluted     1,009,176,752       829,394,203       921,339,333       828,466,951  
                                 
Net income (loss) per share                                
Basic   $ 0.00     $ (0.00 )   $ 0.01     $ (0.00 )
Diluted   $ 0.00     $ (0.00 )   $ 0.01     $ (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).

 

F-12

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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.

 

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  
    Fair Value     Level 1     Level 2     Level 3  
December 31, 2020                        
Liabilities                        
Derivative financial instruments - warrants   $ 1,954,336     $ —     $ —     $ 1,954,336  
                                 
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.

 

F-13

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Recently Issued Accounting Pronouncements

 

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

 

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

 

NOTE 2. INVENTORY

 

Inventory consisted of the following:

 

    December 31,
2020 		    March 31,
2020 		 
Finished goods   $ 33,315     $ 138,981  
Work-in-progress     43,946       677,824  
Raw materials     4,724,746       3,325,667  
    $ 4,802,007     $ 4,142,472  

 

NOTE 3. PROPERTY AND EQUIPMENT, NET

 

Property and equipment consisted of the following: 

 

    December 31,
2020 		    March 31,
2020 		 
Land, building and improvements   $ 5,273,023     $ 5,260,524  
Laboratory, manufacturing, warehouse and transportation equipment     12,579,055       12,167,754  
Office equipment and software     373,601       373,601  
Furniture and fixtures     392,410       383,103  
      18,618,089       18,184,982  
Less: Accumulated depreciation     (11,834,185 )     (10,957,334 )
    $ 6,783,904     $ 7,227,648  

 

Depreciation expense was $505,987 and $326,908 for the three months ended, and $980,227 and $982,456 for the nine months ended December 31, 2020 and 2019, respectively.

 

F-14

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 4. INTANGIBLE ASSETS

 

The following table summarizes the Company’s intangible assets:

 

    December 31, 2020
    Estimated   Gross                          
    Useful   Carrying                 Accumulated     Net Book  
    Life   Amount     Additions     Reductions     Amortization     Value  
Patent application costs   *   $ 465,684     $ —     $ —     $ —     $ 465,684  
ANDA acquisition costs   Indefinite     6,168,351       —       —       —       6,168,351  
        $ 6,634,035     $ —     $ —     $ —     $ 6,634,035  

 

 

    March 31, 2020  
    Estimated     Gross                          
    Useful     Carrying                 Accumulated     Net Book  
    Life     Amount     Additions     Reductions     Amortization     Value  
Patent application costs     *     $ 465,684     $ —     $ —     $ —     $ 465,684  
ANDA acquisition costs     Indefinite       6,168,351       —       —       —       6,168,351  
            $ 6,634,035     $ —     $ —     $ —     $ 6,634,035  

 

*

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

 

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.

 

F-15

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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

 

    December 31,
2020 		    March 31,
2020 		 
Gross bonds payable            
NJEDA Bonds - Series A Notes   $ 1,470,000     $ 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)   $ 1,360,000     $ 1,470,000  
                 
Bond offering costs   $ 354,454     $ 354,454  
Less: Accumulated amortization     (217,399 )     (206,765 )
Bond offering costs, net   $ 137,055     $ 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     (122,877 )     (133,511 )
Long term portion of bonds payable, net of bond offering costs   $ 1,237,123     $ 1,336,489  

 

Amortization expense was $3,544 and $3,545 for the three months ended, and $10,634 and $10,630 for the nine months ended December 31, 2020 and 2019, respectively.

 

NOTE 6. LOANS PAYABLE

 

Loans payable consisted of the following: 

 

    December 31,
2020 		    March 31,
2020 		 
Equipment and insurance financing loans payable, between 3.5% and 12.73% interest and maturing between January 2021 and October 2025   $ 900,800     $ 1,025,452  
Loan received pursuant to the Payroll Protection Program Term Note     1,013,480       —  
Less: Current portion of loans payable     (406,110 )     (561,550 )
Long-term portion of loans payable   $ 1,508,170     $ 463,902  

 

The interest expense associated with the loans payable was $19,422 and $18,291 for the three months ended, and $58,062 and $63,170 for the nine months ended December 31, 2020 and 2019, respectively.

 

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. In January 2021, the Company’s application for forgiveness of amounts due under the PPP Note was approved, in full, in accordance with the CARES Act and the Program.

 

F-16

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 $90,000 for the nine months ended December 31, 2020 and 2019, respectively. Accrued interest due and owing on this note was $435,000 and $345,000 as of December 31, 2020 and March 31, 2020, respectively.

 

The Note matured on December 31, 2020 without repayment. Subsequent to December 31, 2020, amounts due pursuant to the note, consisting of unpaid principal of $1,200,000 plus unpaid accrued interest through December 31, 2020 of $435,000 remain as a general, non-interest bearing liability of the Company.

 

NOTE 8. DEFERRED REVENUE

 

Deferred revenues in the aggregate amount of $68,891 as of December 31, 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 sheet 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.

 

F-17

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The 135 Ludlow Ave. modified lease property required significant leasehold improvements and qualifications, as a prerequisite, for its intended future use. Manufacturing, packaging, warehousing, and regulatory activities are currently conducted at this location. Additional renovations and construction to further expand the Company’s manufacturing resources are in progress.

 

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

 

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

 

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

 

Lease   Classification   As of
December 31,
2020 		 
Assets            
Operating   Operating lease – right-of-use asset   $ 212,385  
Total leased assets       $ 212,385  
             
Liabilities            
Current            
Operating   Lease obligation – operating lease   $ 221,166  
             
Long-term            
Operating   Lease obligation – operating lease, net of current portion     —  
Total lease liabilities       $ 221,166  

 

Rent expense is recorded on the straight-line basis. Rent expense under the 135 Ludlow Ave. modified lease for the three months ended December 31, 2020 and 2019 was $55,986 and $18,296, respectively, and $167,958 and $128,072 for the nine months ended December 31, 2020 and 2019, respectively. Rent expense is recorded in general and administrative expense in the unaudited condensed consolidated statements of operations.

 

The table below shows the future minimum rental payments, exclusive of taxes, insurance, and other costs, under the 135 Ludlow Ave. modified lease:

 

Years ending March 31,   Amount  
2021   $ 57,105  
2022     171,315  
Total future minimum lease payments     228,420  
Less: interest     (7,254 )
Present value of lease payments   $ 221,166  

 

F-18

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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

 

Lease Term and Discount Rate   December 31,
2020 		 
Remaining lease term (years)        
Operating leases     1  
         
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 Obligation . 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 December 31, 2020, and March 31, 2020, the Company had a liability of $37,069 and $35,442, respectively, recorded as a component of other long-term liabilities.

 

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 December 31, 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 December 31, 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.

 

F-19

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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: 

 

    December 31, 2020     March 31, 2020  
    Warrant Shares     Weighted Average Exercise Price     Warrant Shares     Weighted Average Exercise Price  
Balance at beginning of period – April 1, 2020 and 2019, respectively     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.

 

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.

 

F-20

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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:

 

    December 31,
2020 		    March 31,
2020 		 
Fair value of the Company’s Common Stock   $ 0.0521     $ 0.0720  
Volatility     76.28 %     83.81 %
Initial exercise price   $ 0.1521     $ 0.1521  
Warrant term (in years)     6.3       7.1  
Risk free rate     0.65 %     0.55 %

 

The changes in warrants (Level 3 financial instruments) measured at fair value on a recurring basis for the nine months ended December 31, 2020 were as follows: 

 

Balance at March 31, 2020   $ 3,599,378  
Change in fair value of derivative financial instruments - warrants     (1,645,042 )
Balance at December 31, 2020   $ 1,954,336  

 

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 nine months ended December 31, 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 nine months ended December 31, 2019, a total of 8,895,233 shares were sold to Lincoln Park pursuant to the 2017 LPC Agreement for net proceeds totaling $806,987. In addition, 111,778 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.

 

During the nine months ended December 31, 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 nine months ended December 31, 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.

 

F-21

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 a quarterly basis and equal to the simple average of the closing price of the Company’s Common Stock for each trading day of the quarter then ended.

 

During the nine months ended December 31, 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 nine months ended December 31, 2020, the Company accrued director’s fees totaling $67,500, which will be paid via cash payments totaling $22,500 and the issuance of 638,393 shares of Common Stock.

 

As of December 31, 2020, the Company owed its Directors a total of $22,500 in cash payments and 638,393 shares of Common Stock in payment of director fees totaling $67,500 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 simple average of the closing price of the Company’s Common Stock for the quarter then ended.

 

During the nine months ended December 31, 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 nine months ended December 31, 2020, the Company accrued salaries totaling $597,500 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 8,492,964 shares of Common Stock.

 

As of December 31, 2020, the Company owed its President and Chief Executive Officer, Chief Financial Officer and certain other employees’ salaries totaling $2,858,750 which will be paid via the issuance of 32,753,296 shares of Common Stock.

 

During the nine months ended December 31, 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.

 

F-22

 

 

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 nine months ended December 31, 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     (75,000 )                        
Outstanding at December 31, 2020     5,300,000     $ 0.14       3.6     $ 6,000  
Exercisable at December 31, 2020     5,220,001     $ 0.14       3.6     $ 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 December 31, 2020 and March 31, 2020 of $0.09 and $0.07, respectively.

 

NOTE 14. CONCENTRATIONS AND CREDIT RISK

 

Revenues

 

Two customers accounted for approximately 93% of the Company’s revenues for the nine months ended December 31, 2020. These two customers accounted for approximately 79% and 14% of revenues each, respectively. The same two customers accounted for 82% and 12% of revenues each, respectively, for the three months ended December 31, 2020.

 

Three customers accounted for approximately 94% of the Company’s revenues for the nine months ended December 31, 2019. These three customers accounted for approximately 57%, 24%, and 13% of revenues each, respectively. The same three customers accounted for approximately 69%, 12% and 13% of revenues each for three months ended December 31, 2019.

 

Accounts Receivable

 

Two customers accounted for approximately 94% of the Company’s accounts receivable as of December 31, 2020. These two customers accounted for approximately 88% and 6% 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 81% of the Company’s purchases of raw materials for the nine months ended December 31, 2020. These four suppliers accounted for approximately 59%, 12%, 5% and 5% of purchases each, respectively.

 

Eight suppliers accounted for more than 85% of the Company’s purchases of raw materials for the nine months ended December 31, 2019. Included in these seven suppliers were three suppliers accounting for approximately 34%, 25%, and 11% of purchases each, respectively.

 

F-23

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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. Disaggregated revenue by reportable segments is included within Note 1.

 

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

 

    For the Three Months Ended
December 31, 		    For the Nine Months Ended
December 31, 		 
    2020     2019     2020     2019  
Operating Income by Segment                        
ANDA   $ 2,395,955     $ 2,431,906     $ 6,446,116     $ 2,538,560  
NDA     (10,972 )     135,500       142,812       407,245  
    $ 2,384,983     $ 2,567,406     $ 6,588,928     $ 2,945,805  

 

The table below reconciles the Company’s operating income by segment to income (loss) from operations before income taxes as reported in the Company’s unaudited condensed consolidated statements of operations. 

 

    For the Three Months Ended
December 31, 		    For the Nine Months Ended
December 31, 		 
    2020     2019     2020     2019  
Operating income by segment   $ 2,384,983     $ 2,567,406     $ 6,588,928     $ 2,945,805  
Corporate unallocated costs     (830,042 )     (739,790 )     (1,691,578 )     (1,738,579 )
Interest income     98       2,334       463       10,667  
Interest expense and amortization of debt issuance costs     (79,673 )     (94,515 )     (238,857 )     (283,649 )
Depreciation and amortization expense     (328,899 )     (323,368 )     (990,861 )     (986,001 )
Significant non-cash items     (217,901 )     (213,052 )     (686,000 )     (532,267 )
Change in fair value of derivative instruments     1,083,566       (3,059,695 )     1,645,042       (2,590,695 )
Income (loss) from operations before income taxes   $ 2,012,132     $ (1,860,680 )   $ 4,627,137     $ (3,174,719 )

 

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.

 

F-24

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 17. INCOME TAXES

 

Sale of New Jersey Net Operating Loss and R&D Tax Credits

 

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, which is captured within the Income tax benefit (expense) line item on the Company’s Condensed Consolidated Statement of Operations.

 

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. Under current and applicable laws and regulations, 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 nine months ended December 31, 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. The Company’s 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

 

Forgiveness of Payroll Protection Program Loan

 

On January 12, 2021, the Company received notification that the United States Small Business Administration (“SBA”), had approved, in full, the Company’s application for forgiveness of amounts received pursuant to the CARES Act and the Program.

 

F-25

 

 

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 nine months ended December 31, 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 products co-developed with partners; (iv) commercial exploitation of our products either by sales under our own label, license and the collection of royalties, or through the manufacture of our formulations; and (v) development of new products for sale under our own label, 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.

 

1

 

 

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.

 

The Company developed pilot data to address a key FDA concern in the CRL, but the Company has now 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.

 

2

 

 

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 anticipates commercial launch of this product during the first quarter of the fiscal year ending March 31, 2022.

 

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 has no plans to commercialize this product at this time.

   

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 nine months ended December 31, 2020 to the items that we disclosed as our Critical Accounting Policies and Estimates described in Item 7 of 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 December 31, 2020 compared to December 31, 2019

 

Revenue, Cost of revenue and Gross profit:

 

    For the Three Months Ended
December 31, 		    Change  
    2020     2019     Dollars     Percentage  
Manufacturing fees   $ 4,849,871     $ 3,754,721     $ 1,095,150       29 %
Licensing fees     1,196,711       1,300,392       (103,681 )     (8 )%
Total revenue     6,046,582       5,055,113       991,469       20 %
Cost of revenue     2,643,175       2,163,376       479,799       22 %
Gross profit   $ 3,403,407     $ 2,891,737     $ 511,670       18 %
                                 
Gross profit - percentage     56 %     57 %                

 

Total revenues for three months ended December 31, 2020 increased by $1.0 million or 20%, to $6.0 million, as compared to $5.0 million for the corresponding period in 2019, primarily due to revenues earned from Amphetamine ER Capsules, which were launched during the current fiscal year, offset by decreases in license fee revenues resulting from the full amortization of SequestOx™ milestone revenues occurring in June 2020 and accordingly providing no contribution to revenues during the three months ended December 31, 2020, while contributing to revenues in the comparable period of the prior year.

 

3

 

 

Manufacturing fees increased by $1.1 million, or 29%, primarily due to revenues earned from Amphetamine ER Capsules, which were launched during the current fiscal year, and increased sales of Amphetamine IR Tablets, Dantrolene capsules and Trimipramine capsules during the three months ended December 31, 2020 as compared to the comparable period of the prior year.

 

Licensing fees decreased by $0.1 million, or 8%. This decrease is primarily due to the full amortization of SequestOx™ milestone license fees occurring in June 2020.

 

Costs of revenue consists of manufacturing and assembly costs. Our costs of revenue increased by $0.4 million or 22%, to $2.6 million as compared to $2.2 million for the corresponding period in the prior fiscal year. This increase was due in large part to the increased manufacturing activities and related manufacturing revenues during the three months ended December 31, 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 56% during the three months ended December 31, 2020 as compared to 57% during the comparable period of the prior fiscal year.

 

Operating expenses:

 

    For the Three Months Ended
December 31, 		    Change  
    2020     2019     Dollars     Percentage  
Operating expenses:                                
Research and development   $ 1,245,669     $ 986,832     $ 258,837       26 %
General and administrative     826,019       878,540       (52,521 )     -6 %
Non-cash compensation     1,651       11,802       (10,151 )     -86 %
Depreciation and amortization     328,899       323,368       5,531       2 %
Total operating expenses   $ 2,402,238     $ 2,200,542     $ 201,696       9 %

 

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 December 31, 2020 increased by $0.2 million or 9% to $2.4 million, as compared to $2.2 million for the corresponding period in 2019.

 

Research and development costs for the three months ended December 31, 2020 were $1.2 million, an increase of $0.2 million, or 26%, from $1.0 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 three months ended December 31, 2020 as compared to the comparable period of the prior year.

 

General and administrative expenses for the three months ended December 31,2020 were $0.8 million, a decrease of $0.1 million or 6% from $0.9 million of such costs for the comparable period of the prior year. The decrease was 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 cost control initiatives.

 

Non-cash compensation expense for the three months ended December 31, 2020 and 2019 was less than $0.1 million.

 

Depreciation and amortization expenses for the three months ended December 31,2020 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 December 31,2020 was $1.0 million, compared to $0.7 million for the comparable period of the prior year.

 

4

 

 

Other income (expense):

 

    For the Three Months Ended
December 31, 		    Change  
    2020     2019     Dollars     Percentage  
Other income (expense):                                
Interest expense and amortization of debt issuance costs   $ (79,673 )   $ (94,514 )   $ 14,841       -16 %
Gain on sale of assets     6,973               6,973       n/a  
Proceeds from sale of ANDA’s     ---       600,000       (600,000 )     -100 %
Change in fair value of derivative instruments     1,083,566       (3,059,695 )     4,143,261       n/a  
Interest income     98       2,334       (2,236 )     -96 %
Other income (expense), net   $ 1,010,963     $ (2,551,875 )   $ 3,562,838       n/a  

 

Other income, net for the three months ended December 31, 2020 was $1.1 million, an increase in other income, net of $3.6 million from other expense, net of $2.6 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 December 31, 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 December 31, 2020 was $2.0 million, compared to a net loss of $1.9 million for the comparable period of the prior year.

 

Nine months ended December 31, 2020 compared to December 31, 2019

 

Revenue, Cost of revenue and Gross profit:

 

    For the Nine Months Ended
December 31, 		    Change  
    2020     2019     Dollars     Percentage  
Manufacturing fees   $ 17,659,834     $ 10,851,425     $ 6,808,409       63 %
Licensing fees     3,325,384       2,197,915       1,127,469       51 %
Total revenue     20,985,218       13,049,340       7,935,878       61 %
Cost of revenue     10,984,021       7,529,918       3,454,103       46 %
Gross profit   $ 10,001,197     $ 5,519,422     $ 4,481,775       81 %
                                 
Gross profit - percentage     48 %     42 %                

 

Total revenues for the nine-month period ended December 31, 2020 increased by $7.9 million or 61%, to $21.0 million, as compared to $13.1 million, for the corresponding period of the prior year 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 nine-month period ended December 31, 2020 as compared to the comparable period of the prior fiscal year.

 

Manufacturing fees increased by $6.8 million, or 63%, 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 nine month period ended December 31, 2020 as compared to the comparable period of the prior fiscal year.

 

Licensing fees increased by $1.1 million, or 51%. 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 nine months ended December 31, 2020 as compared to the comparable period of the prior fiscal year, offset by the full amortization of license fee revenues recognized from SequestOx™ milestones occurring during June 2020. The nine months ended December 31, 2020 included less than three months of such license fee revenues as compared to the comparable period of the prior year which included a full nine months of such license fee revenues.

 

5

 

 

Costs of revenue consists of manufacturing and assembly costs. Our costs of revenue increased by $3.5 million or 46%, to $11.0 million as compared to $7.5 million for the corresponding period in the prior fiscal year. This increase was due in large part to the increased manufacturing activities and related manufacturing revenues during the nine months ended December 31, 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 48% during the nine months ended December 31, 2020 as compared to 42% during the comparable period of the prior fiscal year. 

 

Operating expenses: 

 

    For the Nine Months Ended
December 31, 		    Change  
    2020     2019     Dollars     Percentage  
Operating expenses:                        
Research and development   $ 3,337,287     $ 3,032,357     $ 304,930       10 %
General and administrative     2,491,762       2,358,588       133,174       6 %
Non-cash compensation     9,261       53,518       (44,257 )     -83 %
Depreciation and amortization     990,861       986,001       4,860       0 %
Total operating expenses   $ 6,829,171     $ 6,430,464     $ 398,707       6 %

 

Operating expenses consist of research and development costs, general and administrative, non-cash compensation and depreciation and amortization expenses. Operating expenses for the nine months ended December 31, 2020 increased by $0.4 million, or 6%, to $6.8 million as compared to $6.4 million for the corresponding period in the prior fiscal year.

 

Research and development costs for the nine months ended December 31, 2020 were $3.3 million, an increase of $0.3 million, or 10%, from approximately $3.0 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 nine-month period ended December 31, 2020 as compared to the comparable period of the prior fiscal year.

 

General and administrative expenses for the nine months ended December 31, 2020 were $2.5 million, an increase of $0.1 million, or 6% from $2.4 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 nine months ended December 31, 2020 and 2019 was less than $0.1 million.

 

Depreciation and amortization expenses for the nine months ended December 31, 2020 were $1.0 million, which was virtually unchanged from $1.0 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 nine months ended December 31, 2020 was $3.2 million, compared to a loss from operations of $0.9 million for the comparable period of the prior fiscal year.

 

Other income (expense):

 

    For the Nine Months Ended
December 31, 		    Change  
    2020     2019     Dollars     Percentage  
Other income (expense):                        
Interest expense and amortization of debt issuance costs   $ (238,857 )   $ (283,649 )   $ 44,792       -16 %
Gain on sale of assets     48,463               48,463       n/a  
Proceeds from sale of ANDA’s     ---       600,000       (600,000 )     -100 %
Change in fair value of derivative instruments     1,645,042       (2,590,695 )     4,235,737       n/a  
Interest income     463       10,667       (10,204 )     -96 %
Other income, net   $ 1,455,111     $ (2,263,677 )   $ 3,718,788       n/a %

 

6

 

 

Other income, net for the nine months ended December 31, 2020 was $1.5 million, an increase of $3.8 million from the other expense, net of $2.3 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 nine months ended December 31, 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 nine months ended December 31, 2020 was $4.6 million, compared to net loss $3.2 million for the comparable period of the prior fiscal year. The Company received a net benefit from sale of net operating loss credits of $0.9 million during the nine months ended December 31, 2020, resulting in net income attributable to common shareholders of $5.5 million, compared to a net loss of $3.2 million for the comparable period of the prior fiscal year.

 

Liquidity and Capital Resources

 

Capital Resources 

 

    December 31,
2020 		    March 31,
2020 		    Change  
Current assets   $ 14,538,170     $ 10,251,279     $ 4,286,891  
Current liabilities   $ 7,242,350     $ 8,639,548     $ (1,397,198 )
Working capital   $ 7,295,820     $ 1,611,731     $ 5,684,089  

 

Our working capital (total current assets less total current liabilities) increased by $5.7 million from $1.6 million as of March 31, 2020 to $7.3 million as of December 31, 2020, with such increase being primarily related to the net income of $5.6 million and a net positive cash flow of $4.3 million achieved during the nine months ended December 31, 2020.

 

Summary of Cash Flows:

 

    For the Nine Months Ended
December 31, 		 
    2020     2019  
Net cash provided by (used in) operating activities   $ 3,943,229     $ (587,684 )
Net cash used in investing activities   $ (77,879 )   $ (3,148 )
Net cash provided by financing activities   $ 415,910     $ 188,719  

 

Net cash provided by operating activities for the nine months ended December 31, 2020 was $3.9 million, which included net income of $5.6 million and increases in non-cash expenses totaling $0.1 million, offset by net increases in assets and decreases in liabilities totaling $1.8 million.

 

Net cash used in investing activities for the nine months ended December 31, 2020 was comprised of purchases of purchases of property and equipment of $0.15 million offset by proceeds from the sale of property and equipment of $0.07 million.

 

Net cash provided by financing activities was $0.4 million for the nine months ended December 31, 2020 which consisted primarily of proceeds from the payroll protection program loan offset by loan payments.

   

Lincoln Park Capital – July 8, 2020 Purchase Agreement

 

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

  

During the nine months ended December 31, 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 nine months ended December 31, 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.

 

7

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Given the inherent limitations in all systems of controls, no evaluation of controls can provide absolute assurance all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgements in decision making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions over time, controls may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Accordingly, given the inherent limitations in a cost-effective system of internal control, financial statement misstatements due to error or fraud may occur and may not be detected. We conduct periodic evaluations of our systems of controls, to enhance where necessary.

 

Management’s Report on Internal Control Over Financial Reporting

 

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by the Quarterly Report on Form 10-Q, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control (“COSO”). Based on that evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2020, at the reasonable assurance level, to ensure that information required to be disclosed by our Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures.

 

Changes in Internal Controls

 

There were no changes, subsequent to those identified in our Annual Report on Form 10-K for the fiscal year ended March 31, 2020 filed with the SEC on June 29, 2020, in our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during the end of the period covered by this Quarterly Report.

 

8

 

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

Pending Litigation

 

We may be subject from time to time to various claims and legal actions arising during the ordinary course of our business. We believe that there are currently no claims or legal actions that would reasonably be expected to have a material adverse effect on our results of operations, financial condition or cash flows.

 

ITEM 1A. RISK FACTORS

 

There have been no material changes in the risk factors described in our Annual Report on Form 10-K for the year ended March 31, 2020.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

9

 

 

ITEM 6. EXHIBITS

 

Exhibit No.

  Description
     
31.1   Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) and Rule 15d-14(a)*
     
31.2   Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) and Rule 15d-14(a)*
     
32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
     
32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
     
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith.
** Furnished herewith.

 

10

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

ELITE PHARMACEUTICALS, INC.
     
February 16, 2021 By: /s/ Nasrat Hakim
    Nasrat Hakim
Chief Executive Officer, President and
Chairman of the Board of Directors
(Principal Executive Officer)
     
February 16, 2021 By: /s/ Carter J. Ward
    Carter J. Ward
Chief Financial Officer, Treasurer and
Secretary
(Principal Financial and Accounting Officer)

 

 

11

 

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