UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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: 847,054,821 shares of common stock were issued, and 846,954,821 shares of common stock were outstanding as of August 10, 2020.

 

 

 

 

 

 

    PAGE
PART I FINANCIAL INFORMATION F-1
     
ITEM 1. Financial Statements F-1
  Condensed Consolidated Balance Sheets as of June 30, 2020 (Unaudited) and March 31, 2020 (Audited) F-1
  Condensed Consolidated Statement of Operations for the Three Months Ended June 30, 2020 and 2019 (Unaudited) F-3
  Condensed Consolidated Statement of Changes in Shareholders’ Equity for the Three Months Ended June 30, 2020 and 2019 (Unaudited) F-4
  Condensed Consolidated Statement of Cash Flows for the Three Months Ended June 30, 2020 and 2019 (Unaudited) F-5
  Notes to the Unaudited Condensed Consolidated Financial Statements F-6
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 1
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk 19
ITEM 4. Controls and Procedures 19
     
PART II OTHER INFORMATION 20
     
ITEM 1. Legal Proceedings 20
ITEM 1A. Risk Factors 20
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
ITEM 3. Defaults Upon Senior Securities 20
ITEM 4. Mine Safety Disclosures 20
ITEM 5. Other Information 20
ITEM 6. Exhibits 21
     
SIGNATURES 26

 

i

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

PART I - FINANCIAL INFORMATION 

 

ITEM 1. FINANCIAL STATEMENTS

 

 

    June 30,
2020
    March 31,
2020
 
    (Unaudited)     (Audited)  
ASSETS            
Current assets:            
Cash   $ 2,787,640     $ 1,131,728  
Accounts receivable, net of allowance for doubtful accounts of $-0-, respectively     4,370,171       4,106,846  
Inventory     5,566,403       4,142,472  
Prepaid expenses and other current assets     526,880       870,233  
Total current assets     13,251,094       10,251,279  
                 
Property and equipment, net of accumulated depreciation of $11,224,823 and $10,957,334, respectively     7,142,327       7,227,648  
                 
Intangible assets, net of accumulated depreciation of $-0-, respectively     6,634,035       6,634,035  
                 
Operating lease – right-of-use asset     313,750       363,282  
                 
Other assets:                
Restricted cash - debt service for NJEDA bonds     404,993       404,802  
Security deposits     75,534       75,534  
Total other assets     480,527       480,336  
                 
Total assets   $ 27,821,733     $ 24,956,580  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY                
                 
Current liabilities                
Accounts payable   $ 2,074,144     $ 1,577,860  
Accrued expenses     4,564,651       4,821,132  
Deferred revenue, current portion     13,333       180,000  
Bonds payable, current portion, net of bond issuance costs     90,822       90,822  
Loans payable, current portion     479,864       561,550  
Lease obligation - operating lease     212,447       208,184  
Senior secured promissory note - related party, current portion     1,200,000       1,200,000  
Total current liabilities     8,635,261       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     1,340,034       1,336,489  
Loans payable, net current portion     1,596,005       463,902  
Lease obligation - operating lease, net of current portion     112,237       167,109  
Derivative financial instruments - warrants     4,257,971       3,599,378  
Other long-term liabilities     35,976       35,442  
Total long-term liabilities     7,397,781       5,661,211  
Total liabilities     16,033,042       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)

 

    June 30,
2020
    March 31,
2020
 
    (Unaudited)     (Audited)  
Shareholders’ equity:            
Series J convertible preferred stock; par value of $0.01 50 shares authorized; 24.0344 issued and outstanding as of June 30, 2020 and March 31, 2020     13,903,960       13,903,960  
Common stock; par value $0.001; 1,445,000,000 shares authorized; 841,078,964 shares issued and 840,978,964 outstanding as of June 30, 2019; 824,946,559 shares issued and 824,846,559 shares outstanding as of March 31, 2019     841,081       840,507  
Additional paid-in capital     150,319,552       150,264,605  
Treasury stock; 100,000 shares as of June 30, 2020 and March 31, 2019; at cost     (306,841 )     (306,841 )
Accumulated deficit     (152,969,061 )     (154,046,410 )
Total shareholders’ equity     11,788,691       10,655,821  
Total liabilities and shareholders’ equity   $ 27,821,733     $ 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 June 30,  
    2020     2019  
Manufacturing fees   $ 6,637,239     $ 2,927,358  
Licensing fees     901,505       431,882  
Total revenue     7,538,744       3,359,240  
Cost of revenue     4,562,350       2,060,286  
Gross profit     2,976,394       1,298,954  
                 
Operating expenses:                
Research and development     943,879       1,408,036  
General and administrative     868,777       681,476  
Non-cash compensation through issuance of stock options     5,521       26,194  
Depreciation and amortization     327,617       330,953  
Total operating expenses     2,145,794       2,446,659  
                 
Income (loss) from operations     830,600       (1,147,705 )
                 
Other income (expense):                
Interest expense and amortization of debt issuance costs     (79,431 )     (97,670 )
Gain on sale of fixed assets     38,090        
Change in fair value of derivative instruments     (658,593 )     1,522,031  
Interest income     276       3,046  
Other (expense) income, net     (699,658 )     1,427,407  
                 
Income from operations before net benefit from sale of state net operating loss credits     130,942       279,702  
                 
Net benefit from sale of state net operating loss credits     946,407        
                 
Net income attributable to common shareholders   $ 1,077,349     $ 279,702  
                 
Basic net income per share attributable to common shareholders   $ 0.00     $ 0.00  
                 
Diluted net income (loss) per share attributable to common shareholders   $ 0.00     $ (0.00 )
                 
Basic weighted average Common Stock outstanding     840,504,367       827,524,981  
                 
Diluted weighted average Common Stock outstanding     1,001,130,122       827,524,981  

 

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  

 

    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 )

 

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

 

F-4

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

    For the Three Months Ended June 30,  
    2020     2019  
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net income   $ 1,077,349     $ 279,702  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization     327,617       330,953  
Amortization of operating leases - right-of-use assets     49,532       (46,635 )
Gain on the disposal of property and equipment     (38,090 )      
Change in fair value of derivative financial instruments - warrants     658,593       (1,522,031 )
Non-cash compensation accrued     236,415       216,250  
Non-cash compensation through the issuance of employee stock options     5,521       26,194  
Non-cash rent expense and lease accretion     534       506  
Change in operating assets and liabilities:                
Accounts receivable     (263,325 )     322,951  
Inventory     (1,423,931 )     (23,991 )
Prepaid expenses and other current assets     343,355       320,250  
Accounts payable, accrued expenses and other current liabilities     53,385       415,638  
Deferred revenue and customer deposits     (170,000 )     (178,128 )
Lease obligations - operating leases     (49,532 )     46,614  
Net cash provided by operating activities     807,423       188,273  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchase of property and equipment     (14,000 )     (2,978 )
Proceeds from disposal of property and equipment     51,276        
Net cash provided by (used in) investing activities     37,276       (2,978 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from the issuance of stock           340,300  
Other loan proceeds     1,013,480        
Other loan payments     (202,076 )     (226,290 )
Net cash provided by financing activities     811,404       114,010  
                 
Net change in cash and restricted cash     1,656,103       299,305  
                 
Cash and restricted cash, beginning of period     1,536,530       2,675,768  
                 
Cash and restricted cash, end of period   $ 3,192,633     $ 2,975,073  
                 
Supplemental disclosure of cash and non-cash transactions:                
Cash paid for interest   $ 24,342     $ 20,237  
Financing of equipment purchases and insurance renewal   $ 237,926     $ 226,290  
Stock issued in payment of salaries   $ 50,000     $  
Commitment shares issued to Lincoln Park Capital   $     $ 4,200  
Supplemental non-cash amounts of lease liabilities arising from obtaining right-of-use assets   $ 554,088     $ 554,088  

 

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

 

F-5

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Overview

 

Elite Pharmaceuticals, Inc. (the “Company” or “Elite”) was incorporated on October 1, 1997 under the laws of the State of Delaware, and its wholly-owned subsidiary Elite Laboratories, Inc. (“Elite Labs”) which 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 and licensing proprietary orally administered, controlled-release drug delivery systems and products with abuse deterrent capabilities and the 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 pain, allergy, bariatric and infection. Research and development activities are done so 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”) and in conformity with the instructions on Form 10-Q and Rule 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”). 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 accruals, which are, in the opinion of management, necessary for a fair presentation of such statements. The results of operations for the three months ended June 30, 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 from the development of pain management products, manufacturing of a line of generic pharmaceutical products with approved ANDA, commercialization of products either by license and the collection of royalties, or through the manufacture of formulations and the development of new products and the expansion of licensing agreements with other pharmaceutical companies, including co-development projects, joint ventures and other collaborations. The Company also generates revenue through its focus on the development of various types of drug products, including branded drug products which require NDAs.

 

F-6

 

 

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 recognize 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 and products utilizing abuse deterrent technologies. The Company also develops and markets (either on its own or by license to other companies) generic and proprietary controlled-release and abuse deterrent 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. Revenue on product are presented gross because the Company is primarily responsible for fulfilling the promise to provide the product, is responsible to ensure that the product is produced in accordance with the related supply agreement and bears risk of loss while the inventory is in-transit to the commercial partner. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to a customer.

 

b) License Fees

 

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

 

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

 

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

 

F-7

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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

 

When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in ASC 606-10-32-18, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component as of June 30, 2020.

 

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

 

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

 

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

 

Disaggregation of revenue

 

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

 

    For the Three Months Ended June 30,  
    2020     2019  
NDA:            
Licensing fees   $ 166,167     $ 250,000  
Total NDA revenue     166,167       250,000  
ANDA:                
Manufacturing fees   6,637,239     2,927,358  
Licensing fees     735,338       181,882  
Total ANDA revenue     7,372,577       3,109,240  
Total revenue   $ 7,538,744     $ 3,359,240  

 

 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 June 30, 2020, and March 31, 2020, the Company had $404,993 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).

 

F-8

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 June 30, 2020, the Company did not identify any indicators of impairment.

 

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

 

Research and Development

 

Research and development expenditures are charged to expense as incurred.

  

Contingencies

 

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

  

Income Taxes

 

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

 

F-9

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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

 

The Company operates in multiple tax jurisdictions within the United States of America. The Company remains subject to examination in all tax jurisdiction until the applicable statutes of limitation expire. As of June 30, 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 months ended June 30, 2020 and 2019.

 

Warrants and Preferred Shares

 

The accounting treatment of warrants and preferred share series issued is determined pursuant to the guidance provided by ASC 470, Debt, ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging, as applicable. Each feature of a freestanding financial instruments 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 are assessed with determinations made regarding the proper classification in the Company’s financial statements.

 

Stock-Based Compensation

 

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

 

In accordance with the Company’s Director compensation policy and certain employment contracts, director’s fees and a portion of employee’s salaries are to be paid via the issuance of shares of the Company’s common stock, in lieu of cash, with the valuation of such share being calculated on a quarterly basis and equal to the average closing price of the Company’s common stock.

 

Earnings (Loss) Per Share Attributable to Common Shareholders’

 

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

 

F-10

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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

 

    For the Three Months Ended June 30,  
    2020     2019  
Numerator            
Net income attributable to common shareholders – basic   $ 1,077,349     $ 279,702  
Effect of dilutive instrument on net income           (1,522,031 )
Net income (loss) attributable to common shareholders - diluted   $ 1,077,349     $ (1,242,329 )
                 
Denominator                
Weighted average shares of common stock outstanding - basic     840,504,367       827,524,981  
                 
Dilutive effect of stock options and convertible securities(1)     160,625,755        
                 
Weighted average shares of common stock outstanding - diluted     1,001,130,122       827,524,981  
                 
Net income (loss) per share attributable to common shareholders                
Basic   $ 0.00     $ 0.00  
Diluted   $ 0.00     $ (0.00 )

 

(1) Equivalent common shares of 79,008,661 related to the conversion of warrants are excluded and 2,766,566 related to stock options from the calculation of diluted net income per share for the three months ended June 30, 2020, since their effect is antidulitive. Equivalent common shares of 158,017,321 related to the conversion of Series J Preferred Stock, 79,008,661 related to the conversion of warrants and 6,098,000 related to stock options are excluded from the calculation of diluted net loss per share for the three months ended June 30, 2019, since their effect is antidilutive.  

 

Fair Value of Financial Instruments

 

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

 

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

 

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

 

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

 

F-11

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Measured on a Recurring Basis

 

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

 

    Amount at     Fair Value Measurement Using  
    Fair Value     Level 1     Level 2     Level 3  
June 30, 2020                        
Liabilities                        
Derivative financial instruments – warrants   $ 4,257,971     $     $     $ 4,257,971  
                                 
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’ deficit.

 

Recently Adopted Accounting Pronouncements

 

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (ASC 808), Clarifying the Interaction between ASC 808 and ASC 606 (“ASU 2018-18”). The ASU clarifies when transactions between collaborative participants are in the scope of ASC 606. The ASU also provides some guidance on presentation of transactions not in the scope of ASC 606. ASU 2018-18 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those years. The Company is not materially impacted by the implementation of this pronouncement.

 

Recently Issued Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses”. 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.

 

F-12

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 2. INVENTORY

 

Inventory consisted of the following:

 

    June 30,
2020
    March 31,
2020
 
Finished goods   $ 141,338     $ 138,981  
Work-in-progress     119,375       677,824  
Raw materials     5,305,690       3,325,667  
      5,566,403       4,142,472  
Less: Inventory reserve            
    $ 5,566,403     $ 4,142,472  

 

NOTE 3. PROPERTY AND EQUIPMENT, NET

 

Property and equipment consisted of the following: 

 

    June 30,
2020
    March 31,
2020
 
Land, building and improvements   $ 5,277,073     $ 5,260,524  
Laboratory, manufacturing, warehouse and transportation equipment     12,333,373       12,167,754  
Office equipment and software     373,601       373,601  
Furniture and fixtures     383,103       383,103  
      18,367,150       18,184,982  
Less: Accumulated depreciation     (11,224,823 )     (10,957,334 )
    $ 7,142,327     $ 7,227,648  

 

Depreciation expense was $324,071 and $327,408 for the three months ended June 30, 2020 and 2019, respectively.

 

NOTE 4. INTANGIBLE ASSETS

 

The following table summarizes the Company’s intangible assets:


 

    June 30, 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  

 

F-13

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

    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.

 

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

 

    June 30,
2020
    March 31,
2020
 
Gross bonds payable            
NJEDA Bonds - Series A Notes   $ 1,575,000     $ 1,575,000  
Less: Current portion of bonds payable (prior to deduction of bond offering costs)     (105,000 )     (105,000 )
Long-term portion of bonds payable (prior to deduction of bond offering costs)   $ 1,470,000     $ 1,470,000  
                 
Bond offering costs   $ 354,454     $ 354,454  
Less: Accumulated amortization     (210,310 )     (206,765 )
Bond offering costs, net   $ 144,144     $ 147,689  
                 
Current portion of bonds payable - net of bond offering costs                
Current portions of bonds payable   $ 105,000     $ 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   $ 90,822     $ 90,822  
                 
Long term portion of bonds payable - net of bond offering costs                
Long term portion of bonds payable     1,470,000     $ 1,470,000  
Less: Bond offering costs to be amortized subsequent to the next 12 months     (129,966 )     (133,511 )
Long term portion of bonds payable, net of bond offering costs   $ 1,340,034     $ 1,336,489  

 

Amortization expense was $3,545 for the three months ended June 30, 2020 and 2019.

 

F-14

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 6. LOANS PAYABLE

 

Loans payable consisted of the following: 

 

    June 30,
2020
    March 31, 2020  
Equipment and insurance financing loans payable, between 3.5% and 12.73% interest and maturing between July 2020 and December 2023   $ 1,062,389     $ 1,025,452  
Loans received pursuant to the Payroll Protection Program Term Note     1,013,480        
Less: Current portion of loans payable     (479,864 )     (561,550 )
Long-term portion of loans payable   $ 1,596,005     $ 463,902  

 

The interest expense associated with the loans payable was $17,880 and $24,087 for the three months ended June 30, 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. The PPP Note carries a maturity date of April 2022, at a 1% interest rate. No payments are required for six months from the date of issuance. The amount of the forgiveness shall be calculated (and may be reduced) in accordance with the requirements of the Program, including the provisions of the CARES Act. No more than 25% of the amount forgiven can be attributable to non-payroll costs, as defined in the Program.

 

NOTE 7. RELATED PARTY SECURED PROMISSORY NOTE WITH MIKAH PHARMA LLC

 

For consideration of the assets acquired on May 15, 2017, the Company issued a Secured Promissory Note (the “Note”) to Mikah for the principal sum of $1,200,000. 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 June 30, 2020 and 2019. Accrued interest due and owing on this note was $375,000 and $345,000 as of June 30, 2020 and March 31, 2020, respectively.

 

NOTE 8. DEFERRED REVENUE

 

Deferred revenues in the aggregate amount of $68,891 as of June 30, 2020, were comprised of a current component of $13,333 and a long-term component of $55,558. Deferred revenues in the aggregate amount of $238,891 as of March 31, 2020, were comprised of a current component of $180,000 and a long-term component of $58,891. These line items represent the unamortized amounts of a $200,000 advance payment received for a TAGI licensing agreement with a fifteen-year term beginning in September 2010 and ending in August 2025 and the $5,000,000 advance payment Epic Collaborative Agreement with a five-year term beginning in June 2015 and ending in May 2020. These advance payments were recorded as deferred revenue when received and are earned, on a straight-line basis over the life of the licenses. The current component is equal to the amount of revenue to be earned during the 12-month period immediately subsequent to the balance date and the long-term component is equal to the amount of revenue to be earned thereafter.

 

NOTE 9. COMMITMENTS AND CONTINGENCIES

 

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

 

Operating Leases – 135 Ludlow Ave.

 

The Company entered into an operating lease for a portion of a one-story warehouse, located at 135 Ludlow Avenue, Northvale, New Jersey (the “135 Ludlow Ave. lease”). The 135 Ludlow Ave. lease is for approximately 15,000 square feet of floor space and began on July 1, 2010. During July 2014, the Company modified the 135 Ludlow Ave. lease in which the Company was permitted to occupy the entire 35,000 square feet of floor space in the building (“135 Ludlow Ave. modified lease”).

 

F-15

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The 135 Ludlow Ave. modified lease includes an initial term, which expired on December 31, 2016 with two tenant renewal options of five years each, at the sole discretion of the Company. On June 22, 2016, the Company exercised the first of these renewal options, with such option including a term that begins on January 1, 2017 and expires on December 31, 2021.

 

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

 

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

 

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

 

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

 

Lease   Classification   As of
June 30,
2020
 
Assets          
Operating   Operating lease – right-of-use asset   $ 313,750  
Total leased assets       $ 313,750  
             
Liabilities            
Current            
Operating   Lease obligation – operating lease   $ 212,447  
             
Long-term            
Operating   Lease obligation – operating lease, net of current portion     112,237  
Total lease liabilities       $ 324,684  

 

Rent expense is recorded on the straight-line basis. Rent expense under the 135 Ludlow Ave. modified lease for the three months ended June 30, 2020 and 2019 was $55,986 and $54,888, respectively. Rent expense is recorded in general and administrative expense in the unaudited condensed consolidated statements of operations.

 

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

 

Years ending March 31,   Amount  
2021   $ 169,077  
2022     171,315  
Total future minimum lease payments     340,392  
Less: interest     (15,708 )
Present value of lease payments   $ 324,684  

 

F-16

 

 

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   June 30,
2020
 
Remaining lease term (years)      
Operating leases     1.5  
         
Discount rate        
Operating leases     6 %

 

The Company has an obligation for the restoration of its leased facility and the removal or dismantlement of certain property and equipment as a result of its business operation in accordance with ASC 410, Asset Retirement and Environmental Obligations – Asset Retirement Obligations . The Company records the fair value of the asset retirement obligation in the period in which it is incurred. The Company increases, annually, the liability related to this obligation. The liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the Company records either a gain or loss. As of June 30, 2020, and March 31, 2020, the Company had a liability of $35,976 and $35,442, respectively and 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, 24.0344 shares are issued and outstanding, with a stated value of $1,000,000 per share and a par value of $0.01 as of June 30, 2020.

 

The issued shares were pursuant to an Exchange Agreement with Nasrat Hakim, (“Hakim”) a related party and the Company’s President, CEO and Chairman of the Board of Directors Pursuant to the Exchange Agreement the Company exchanged 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 June 30, 2020 (See Note 11).

 

Each Series J Preferred is convertible at the option of the holder into shares of common stock. The number of common shares is calculated by dividing the Stated Value of such share of Series J Preferred by the Conversion Price. The conversion price for the Series J Preferred is $0.1521, subject to adjustment as discussed below.

 

Based on the current conversion price, the Series J Preferred is convertible into 158,017,321 shares of common stock. The conversion price is subject to the following adjustments: (i) stock dividends and splits, (ii) sale or grant of shares below the conversion price, (iii) pro rata distributions; or (iv) fundamental changes (merger, consolidation, or sale of all or substantially all assets).

 

The holders of the Series J Preferred shall have voting rights on any matter presented to the shareholders of the Company for their action or consideration at any meeting of shareholders of the Company (or by written consent of shareholders in lieu of meeting). Each holder shall be entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Series J Preferred held by the holder are convertible as of the record date for determining the shareholders entitled to vote on such matter.

 

At issuance the Company determined that the Series J Preferred host instrument was more akin to equity than debt and that the above identified conversion feature, subject to adjustments, was clearly and closely related to the host instrument, and accordingly bifurcation and classification of the conversion feature as a derivative liability was not required. The Company has accounted for the Series J Preferred as contingently redeemable preferred stock for which redemption is not probable. The Series J Preferred was initially measured at its fair value, $13,903,960 at April 28, 2017.

 

F-17

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Increase in Authorized Shares

 

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 has been reclassified from mezzanine equity to permanent equity at its current carrying amount of $13,903,960 on the accompanying consolidated balance sheet.

 

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.

 

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: 

 

    June 30, 2020     March 31, 2020  
    Warrant Shares     Weighted Average Exercise
Price
    Warrant Shares     Weighted Average Exercise
Price
 
Balance at beginning of period     79,008,661     $ 0.1521       79,008,661     $ 0.1521  
                                 
Warrants granted pursuant to the issuance of Series J convertible preferred shares                       $  
                                 
Warrants exercised, forfeited and/or expired, net                       $  
                                 
Balance at end of period     79,008,661     $ 0.1521       79,008,661     $ 0.1521  

 

On April 28, 2017, the Company entered into an exchange agreement (the “Exchange Agreement”) with Nasrat Hakim, the Chairman of the Board, President, and Chief Executive Officer of the Company, pursuant to which the Company issued to Mr. Hakim 23.0344 shares of its newly designated Series J Convertible Preferred Stock (“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 Mr. Hakim, the “Securities”) in exchange for 158,017,321 shares of Common Stock owned by Mr. 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-18

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The fair value of the warrants issued by the Company pursuant to the issuance of Series J convertible preferred shares (79,008,661 warrant shares) 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 warrants issued by the Company pursuant to the issuance of Series J convertible preferred shares (79,008,661 warrant shares):

 

    June 30,
2020
    March 31,
2020
 
Fair value of the Company’s common stock   $ 0.0830     $ 0.0720  
Volatility     84.73 %     83.81 %
Initial exercise price   $ 0.1521     $ 0.1521  
Warrant term (in years)     6.8       7.1  
Risk free rate     0.49 %     0.55 %

 

The changes in warrants (Level 3 financial instruments) measured at fair value on a recurring basis for the three months ended June 30, 2020 were as follows: 

 

 

Balance at March 30, 2020   $ 3,599,378  
Change in fair value of derivative financial instruments - warrants     658,593  
Balance at June 30, 2020   $ 4,257,971  

 

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 has the right to sell to and Lincoln Park is 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 commencing on June 5, 2017. The Company may direct Lincoln Park, at its sole discretion and subject to certain conditions, to purchase up to 500,000 shares of common stock on any business day, provided that at least one business day has passed since the most recent purchase, increasing to up to 1,000,000 shares, depending upon the closing sale price of the common stock (such purchases, “Regular Purchases”). However, in no event shall a Regular Purchase be more than $1,000,000. The purchase price of shares of common stock related to the future funding will be based on the prevailing market prices of such shares at the time of sales. In addition, the Company may direct Lincoln Park to purchase additional amounts as accelerated purchases under certain circumstances. In the case of both Regular Purchases and accelerated purchases, the purchase price per share will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction occurring during the business days used to compute the purchase price. Sales of shares of common stock to Lincoln Park under the 2017 LPC Purchase Agreement are limited to no more than the number of shares that would result in the beneficial ownership by Lincoln Park and its affiliates, at any single point in time, of more than 4.99% of the then outstanding shares of common stock.

 

In connection with the 2017 LPC Purchase Agreement, the Company issued to Lincoln Park 5,540,551 shares of common stock and is required to issue up to 5,540,551 additional shares of Common Stock pro rata as the Company requires Lincoln Park to purchase shares under the 2017 LPC Purchase Agreement over the term of the agreement. Lincoln Park has represented to the Company, among other things, that it is an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”)). The Company sold the securities in reliance upon an exemption from registration contained in Section 4(a)(2) under the Securities Act. The securities sold may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

 

The 2017 LPC Purchase Agreement and the 2017 LPC Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of the parties. The Company has the right to terminate the 2017 LPC Purchase Agreement at any time, at no cost or penalty. Actual sales of shares of common stock to Lincoln Park under the 2017 LPC Purchase Agreement will depend on a variety of factors to be determined by us from time to time, including, among others, market conditions, the trading price of the Common Stock and determinations by us as to the appropriate sources of funding for us and our operations. There are no trading volume requirements or, other than the limitation on beneficial ownership discussed above, restrictions under the 2017 LPC Purchase Agreement. Lincoln Park has no right to require any sales by the Company but is obligated to make purchases from the Company as directed in accordance with the 2017 LPC Purchase Agreement. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s shares.

 

F-19

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The net proceeds received by the Company under the 2017 LPC Purchase Agreement will depend on the frequency and prices at which the Company sells shares of common stock to Lincoln Park. A registration statement on form S-3 was filed with the SEC on May 10, 2017 and was declared effective on June 5, 2017.

 

The Company, from time to time and at the Company’s sole discretion but no more frequently than every other business day, could direct Lincoln Park to purchase (a “Regular Purchase”) up to 500,000 shares of common stock on any such business day, increasing up to 1,000,000 shares, depending upon the closing sale price of the common stock, provided that in no event shall Lincoln Park purchase more than $760,000 worth of common stock on any single business day. The purchase price of shares of common stock related to the future Regular Purchase funding will be based on the prevailing market prices of such shares at the time of sales (or over a period of up to ten business days leading up to such time), but in no event, will shares be sold to Lincoln Park on a day the Common Stock closing price is less than the floor price of $0.10 per share, subject to adjustment.

 

In addition to Regular Purchases, on any business day on which the Company has properly submitted a Regular Purchase notice and the closing sale price is not below $0.15, the Company may purchase (an “Accelerated Purchase”) an additional “accelerated amount” under certain circumstances. The amount of any Accelerated Purchase cannot exceed the lesser of three times the number of purchase shares purchased pursuant to the corresponding Regular Purchase; and 30% of the aggregate shares of the Company’s common stock traded during normal trading hours on the purchase date. The purchase price per share for each such Accelerated Purchase will be equal to the lower of (i) 97% of the volume weighted average price during the purchase date; or (ii) the closing sale price of the Company’s common stock on the purchase date.

 

In the case of both Regular Purchases and Accelerated Purchases, the purchase price per share will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction occurring during the business days used to compute the purchase price.

 

Other than as set forth above, there are no trading volume requirements or restrictions under the Purchase Agreement, and the Company will control the timing and amount of any sales of the Company’s common stock to Lincoln Park.

 

The Company’s sales of shares of common stock to Lincoln Park under the Purchase Agreement are limited to no more than the number of shares that would result in the beneficial ownership by Lincoln Park and its affiliates, at any single point in time, of more than 9.99% of the then outstanding shares of common stock.

 

The Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, agreements, and conditions to completing future sale transactions, indemnification rights and obligations of the parties. The Company has the right to terminate the Purchase Agreement at any time, at no cost or penalty. Actual sales of shares of common stock to Lincoln Park under the Purchase Agreement will depend on a variety of factors to be determined by the Company from time to time, including, without limitation, market conditions, the trading price of the Common Stock and determinations by the Company as to appropriate sources of funding for the Company and its operations. There are no trading volume requirements or restrictions under the Purchase Agreement. Lincoln Park has no right to require any sales by the Company but is obligated to make purchases from the Company as it directs in accordance with the Purchase Agreement. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of Company shares.

 

During the three months ended June 30, 2020, there were no shares sold to Lincoln Park pursuant to the 2017 LPC Agreement. In addition, there were no shares issued to Lincoln Park as additional commitment shares, pursuant to the 2017 LPC Agreement. During the three months ended June 30, 2019, a total of 4,000,000 shares were sold to Lincoln Park pursuant to the 2017 LPC Agreement for net proceeds totaling $340,300. In addition, 47,136 shares were issued to Lincoln Park as additional commitment shares, pursuant to the 2017 LPC Agreement.

 

F-20

 

 

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

 

During the three months ended June 30, 2020, the Company did not issue any shares of common stock to its Directors in payment of director’s fees.

 

During the three months ended June 30, 2020, the Company accrued director’s fees totaling $22,500, which will be paid via cash payments totaling $7,500 and the issuance of 179,518 shares of Common Stock.

 

As of June 30, 2020, the Company owed its Directors a total of $75,000 in cash payments and 1,729,860 shares of Common Stock in payment of director fees totaling $150,000 due and owing. The Company anticipates that these shares of Common Stock will be issued prior to the end of the current fiscal year.

 

Stock-based Employee/Consultant Compensation

 

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

 

During the three months ended June 30, 2020, the Company issued 574,597 shares of Common Stock in payment of salaries totaling $50,000 pursuant to the employment contract of the Company’s Executive Vice President of Operations. During the three months ended June 30, 2020, the Company did not issue any shares pursuant to the engagement contracts with certain consultants.

 

During the three months ended June 30, 2020, the Company accrued salaries totaling $201,250 owed to the Company’s President and Chief Executive Officer, Chief Financial Officer and certain other employees which will be paid via the issuance of 2,407,767 shares of Common Stock.

 

As of June 30, 2020, the Company owed its President and Chief Executive Officer, Chief Financial Officer and certain other employees’ salaries totaling $2,462,500 which will be paid via the issuance of 26,668,099 shares of Common Stock.

 

F-21

 

 

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. 

 

    Shares
Underlying
Options
    Weighted
Average
Exercise
Price
    Weighted Average
Remaining Contractual
Term
 (in years)
    Aggregate Intrinsic
Value
 
Outstanding at March 31, 2020     5,375,000     $ 0.14       4.1     $ 6,000  
Forfeited and expired                              
Outstanding at June 30, 2020     5,375,000     $ 0.14       3.8     $ 6,000  
Exercisable at June 30, 2020     4,953,334     $ 0.14       3.8     $ 6,000  

 

The aggregate intrinsic value for outstanding options is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company common stock as of June 30, 2020 and March 31, 2020 of $0.06 and $0.07, respectively.

 

NOTE 14. CONCENTRATIONS AND CREDIT RISK

 

Revenues

 

Two customers accounted for substantially all the Company’s revenues for the three months ended June 30, 2020. These two customers accounted for approximately 73% and 19% of revenues each, respectively.

 

Four customers accounted for substantially all the Company’s revenues for the three months ended June 30, 2019. These four customers accounted for approximately 39%, 30%, 14% and 12% of revenues each, respectively.

 

Accounts Receivable

 

Two customers accounted for substantially all of the Company’s accounts receivable as of June 30, 2020. These two customers accounted for approximately 70% and 14% 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

 

Three suppliers accounted for more than 81% of the Company’s purchases of raw materials for the three months ended June 30, 2020. These three suppliers accounted for approximately 63%, 14% and 4% of purchases each, respectively.

 

Three suppliers accounted for more than 83% of the Company’s purchases of raw materials for the three months ended June 30, 2019. These three suppliers accounted for approximately 49%, 19%, and 15% of purchases each, respectively.

 

NOTE 15. SEGMENT RESULTS

 

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

 

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

 

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

 

F-22

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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

 

    For the Three Months Ended June 30,  
    2020     2019  
Operating Income (Loss) by Segment            
ANDA   $ 1,869,491     $ (652,395 )
NDA     153,784       207,704  
    $ 2,023,275     $ (444,691 )

 

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

 

    For the Three Months Ended June 30,  
    2020     2019  
Operating income (loss) by segment   $ 2,023,275     $ (444,691 )
Corporate unallocated costs     (585,032 )     (207,117 )
Interest income     276       3,046  
Interest expense and amortization of debt issuance costs     (79,431 )     (97,670 )
Depreciation and amortization expense     (327,617 )     (330,953 )
Significant non-cash items     (241,936 )     (164,944 )
Change in fair value of derivative instruments     (658,593 )     1,522,031  
Income from operations   $ 130,942     $ 279,702  

 

NOTE 16. COLLABORATIVE AGREEMENT WITH EPIC PHARMA LLC

 

On June 4, 2015, the Company executed an exclusive License Agreement (the “2015 SequestOx™ License Agreement”) with Epic Pharma LLC (“Epic”), to market and sell in the U.S., SequestOx™, an immediate release oxycodone with sequestered naltrexone capsule, owned by us. Epic will have the exclusive right to market ELI-200 and its various dosage forms as listed in Schedule A of the Agreement. Epic is responsible for all regulatory and pharmacovigilance matters related to the products. Pursuant to the 2015 SequestOx™ License Agreement, Epic will pay us non-refundable milestone payments totaling $15 million, with such amount representing the cost of an exclusive license to SequestOx™, the cost of developing the product, the filing of an NDA with the FDA and the receipt of the approval letter for the NDA from the FDA. The 2015 SequestOx™ License Agreement expired on June 4, 2020. During the term of this agreement, the Company received $7.5 million in non-refundable payments, with such amount consisting of $5 million due and owing on the execution date of the 2015 SequestOx™ License Agreement and $2.5 million being earned upon the Company’s filing of an NDA with the FDA for the relevant product in January 2016. The remaining $7.5 million in non-refundable payments required FDA approval of the relevant product, a milestone that was not achieved prior to the expiration of the agreement.

 

F-23

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 17. COLLABORATIVE AGREEMENT WITH SUNGEN PHARMA LLC

 

On August 24, 2016, as amended we entered into an agreement with SunGen Pharma LLC (“SunGen”) (the “SunGen Agreement”) to undertake and engage in the research, development, sales and marketing of eight generic pharmaceutical products. Two of the products are classified as CNS stimulants (the “CNS Products”), two of the products are classified as beta blockers and the remaining four products consist of antidepressants, antibiotics and antispasmodics. The Company has received approval from the FDA for Amphetamine IR Tablets, Amphetamine ER Capsules and has filed an ANDA for an antibiotic product.

 

Under the terms of the SunGen Agreement, Elite and SunGen will share in the responsibilities and costs in the development of these products and will share in the profits from sales of the Products. Upon approval, the know-how and intellectual property rights to the products will be owned jointly by Elite and SunGen. SunGen shall have the exclusive right to market and sell the Beta Blocker Products using SunGen’s label and Elite shall have the exclusive right to market and sell the CNS Products using Elite’s label. Elite will manufacture and package all four products on a cost-plus basis.

 

On December 10, 2018, the Company received approval from the FDA for Amphetamine IR Tablets, a generic version of Adderall®, an immediate-release mixed salt of a single entity Amphetamine product (Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate) with strengths of 5 mg, 7.5 mg, 10 mg, 12.5 mg, 15 mg, 20 mg, and 30 mg tablets. The product is a central nervous system stimulant and is indicated for the treatment of Attention Deficit Hyperactivity Disorder (ADHD) and Narcolepsy. The product is jointly owned by Elite and SunGen. Elite manufactures and packages this product, at the Northvale Facility, on a cost-plus basis, and it is currently sold pursuant to the Lannett Alliance, with the first commercial shipment of this product occurring in April 2019. Please see the section below titled “Strategic Marketing Alliance with Lannett Company Inc.” for further details on the Lannett Alliance.

 

On January 3, 2019, the Company filed an ANDA with the FDA for a generic version of an antibiotic product. According to QVIA (formerly QuintilesIMS Health) data, the branded product for this antibiotic and its equivalents had total annual U.S. sales of approximately $94 million for the twelve months ending September 30, 2018. The product is jointly owned by Elite and SunGen. 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.

 

On December 12, 2019, the Company received approval from the FDA for Amphetamine ER Capsules, a generic version of Adderall XR®, an extended-release mixed salt of a single entity Amphetamine product (Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate) with strengths of 5mg, 10mg, 15mg, 20mg, 25mg and 30mg capsules. The product is a central nervous system stimulant and is indicated for the treatment of Attention Deficit Hyperactivity Disorder (ADHD). The product is jointly owned by Elite and SunGen. Elite manufactures and packages this product, at the Northvale Facility, on a cost-plus basis and it is currently sold pursuant to the Lannett Alliance, with the first commercial shipment of this product occurring in March 2020. Please see the section below titled “Strategic Marketing Alliance with Lannett Company Inc.” for further details on the Lannett Alliance.

 

On April 3, 2020, the Company and SunGen mutually agreed to discontinue any further joint product development activities.

 

In May 2020, SunGen, under an asset purchase agreement, assigned its rights and obligations under the Master Development and License Agreement for Amphetamine IR and Amphetamine ER to Mikah Pharmaceuticals. The ANDAs for Amphetamine IR and Amphetamine ER are now registered under Elite’s name. Mikah will now be Elite’s partner with respect to Amphetamine IR and ER and will assume all the rights and obligations for these products from SunGen.

 

NOTE 18. RELATED PARTY TRANSACTION AGREEMENTS WITH EPIC PHARMA LLC

 

The Company has entered into two agreements with Epic which constitute agreements with a related party due to the management of Epic including a member on our Board of Directors at the time such agreements were executed.

 

F-24

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

On June 4, 2015, the Company entered into the 2015 Epic License Agreement (please see Note 16 above). The 2015 Epic License Agreement includes milestone payments totaling $10 million upon the filing with and approval of an NDA with the FDA. The Company has determined these milestones to be substantive, with such assessment being made at the inception of the 2015 Epic License Agreement, and based on the following:

 

The Company’s performance is required to achieve each milestone; and
The milestones will relate to past performance, when achieved; and
The milestones are reasonable relative to all of the deliverables and payment terms within the 2015 Epic License Agreement

 

The 2015 SequestOx™ License Agreement expired on June 4, 2020. During the term of this agreement, the Company received $7.5 million in non-refundable payments, with such amount consisting of $5 million due and owing on the execution date of the 2015 SequestOx™ License Agreement and $2.5 million being earned upon the Company’s filing of an NDA with the FDA for the relevant product in January 2016. The remaining $7.5 million in non-refundable payments required FDA approval of the relevant product, a milestone that was not achieved prior to the expiration of the agreement.

 

This transaction is not to be considered as an arms-length transaction.

 

Please also note that, effective April 7, 2016, all Directors on the Company’s Board of Directors that were also owners/managers of Epic had resigned as Directors of the Company and all current members of the Company’s Board of Directors have no relationship to Epic. Accordingly, Epic no longer qualifies as a party that is related to the Company.

 

NOTE 19. MANUFACTURING, LICENSE AND DEVELOPMENT AGREEMENTS

 

The Company has entered into the following active agreements:

 

License agreement with Precision Dose, dated September 10, 2010 (the “Precision Dose License Agreement”);
Development and License Agreement with SunGen (the “SunGen Agreement”);
Strategic Marketing Alliance with Glenmark Pharmaceuticals, Inc. USA dated May 29, 2018 (the “Glenmark Alliance”)
Strategic Marketing Alliance with Lannett Company. Inc. dated March 11, 2019 (the “Lannett-SunGen Product Alliance”); and
Strategic Marketing Alliance with Lannett Company. Inc. dated April 9, 2019 (the “Lannett-Elite Product Alliance”).

 

The Precision Dose Agreement provides for the marketing and distribution, by Precision Dose and its wholly owned subsidiary, TAGI Pharma, of Phentermine 37.5mg tablets (launched in April 2011), Phentermine 15mg capsules (launched in April 2013), Phentermine 30mg capsules (launched in April 2013), Hydromorphone 8mg tablets (launched in March 2012), Naltrexone 50mg tablets (launched in September 2013) and certain additional products that require approval from the FDA which has not been received. Precision Dose will have the exclusive right to market these products in the United States and Puerto Rico and a non-exclusive right to market the products in Canada. Pursuant to the Precision Dose License Agreement, Elite received $200k at signing, and is receiving milestone payments and a license fee which is based on profits achieved from the commercial sale of the products included in the agreement.

 

Revenue from the $200k payment made upon signing of the Precision Dose Agreement is being recognized over the life of the Precision Dose Agreement.

 

The milestones, totaling $500k (with $405k already received), consist of amounts due upon the first shipment of each identified product, as follows: Phentermine 37.5mg tablets ($145k), Phentermine 15 & 30mg capsules ($45k), Hydromorphone 8mg ($125k), Naltrexone 50mg ($95k) and the balance of $95k due in relation to the first shipment of generic products which still require marketing authorizations from the FDA, and to which there can be no assurances of such marketing authorizations being granted and accordingly there can be no assurances that the Company will earn and receive these milestone amounts. These milestones have been determined to be substantive, with such determination being made by the Company after assessments based on the following:

 

The Company’s performance is required to achieve each milestone; and
The milestones will relate to past performance, when achieved; and
The milestones are reasonable relative to all of the deliverables and payment terms within the Precision Dose License Agreement.

 

F-25

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The license fees provided for in the Precision Dose Agreement are calculated as a percentage of net sales dollars realized from commercial sales of the related products. Net sales dollars consist of gross invoiced sales less those costs and deductions directly attributable to each invoiced sale, including, without limitation, cost of goods sold, cash discounts, Medicaid rebates, state program rebates, price adjustments, returns, short date adjustments, charge backs, promotions, and marketing costs. The rate applied to the net sales dollars to determine license fees due to the Company is equal to an amount negotiated and agreed to by the parties to the Precision Dose License Agreement, with the following significant factors, inputs, assumptions, and methods, without limitation, being considered by either or both parties:

 

Assessment of the opportunity for each generic product in the market, including consideration of the following, without limitation: market size, number of competitors, the current and estimated future regulatory, legislative, and social environment for each generic product, and the maturity of the market;
Assessment of various avenues for monetizing the generic products, including the various combinations of sites of manufacture and marketing options;
Capabilities of each party with regards to various factors, including, one or more of the following: manufacturing resources, marketing resources, financial resources, distribution capabilities, ownership structure, personnel, assessment of operational efficiencies and stability, company culture and image;
Stage of development of each generic product, all of which did not have FDA approval at the time of the discussions/negotiations and an assessment of the risks, probability, and time frame for achieving marketing authorizations from the FDA for the products;
Assessment of consideration offered by Precision and other entities with whom discussions were conducted; and
Comparison of the above factors among the various entities with whom the Company was engaged in discussions relating to the commercialization of the generic products.

 

The SunGen Agreement provides for the research, development, sales and marketing of eight generic pharmaceutical products. Two of the products are classified as CNS stimulants (the “CNS Products”), two of the products are classified as beta blockers and the remaining four products consist of antidepressants, antibiotics and antispasmodics. To date, the Company has filed ANDAs with the FDA for the two CNS Products and one antibiotic identified in the SunGen Agreement. The Company received FDA approval of the ANDA filed for the first CNS Product in December 2018 and achieved commercial launch in April 2019, with such product being marketed pursuant to the Lannett Alliance. The Company received FDA approval of the ANDA filed for the second CNS Product in December 2019 and achieved commercial launch in March 2020, with such product being marketed pursuant to the Lannett Alliance.

 

Under the terms of the SunGen Agreement, Elite and SunGen will share in the responsibilities and costs in the development of these products and will share substantially in the profits from sales. Upon approval, the know-how and intellectual property rights to the products will be owned jointly by Elite and SunGen. Three of the eight products will be jointly owned, three products will be owned by SunGen, with Elite having exclusive marketing rights and the remaining two products will be owned by Elite, with SunGen having exclusive marketing rights. Elite will manufacture and package all eight products on a cost-plus basis.

 

On April 3, 2020, Elite and SunGen mutually agreed to discontinue any further joint product development activities under the SunGen Agreement, with joint development of the remaining generic pharmaceutical products identified in the SunGen Agreement being discontinued.

 

In May 2020, SunGen, under an asset purchase agreement, assigned its rights and obligations under the Master Development and License Agreement for Amphetamine IR and Amphetamine ER to Mikah Pharmaceuticals. The ANDAs for Amphetamine IR and Amphetamine ER are now registered under Elite’s name. Mikah will now be Elite’s partner with respect to Amphetamine IR and ER and will assume all the rights and obligations for these products from SunGen.

 

The Glenmark Alliance, provides for the manufacture by Elite and exclusive marketing by Glenmark of Isradipine capsules, Trimipramine capsules and Methadone Tablets, and semi-exclusive marketing rights for Phendimetrazine tablets. All marketing rights relating to Methadone Tablets were terminated by mutual agreement in January 2020 and all marketing rights relating to Phendimetrazine Tablets were terminated by mutual agreement in February 2020. In addition to the purchase prices for the products, Elite will receive license fees well in excess of 50% of gross profits. Gross profit is defined as net sales less the price paid to Elite for the products, distribution fees (less than 10%) and shipping costs. The Agreement has an initial term of three years and automatically renews for one-year periods absent prior written notice of non-renewal. In addition to customary termination provisions, the Agreement permits Glenmark to terminate with regard to a product on at least three months’ prior written notice if it determines to stop marketing and selling such product, and it permits Elite to terminate with regard to a product if at any time after the first twelvemonths from the first commercial sale, the average license fee paid by Glenmark for such product is less than $100,000 for a six-month sales period.

 

F-26

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Pursuant to Lannett-SunGen Product Alliance with Lannett Company Inc. (“Lannett”), Lannett will be the exclusive U.S. marketer and distributor for Amphetamine IR Tablets and Amphetamine ER Capsules. Elite will manufacture and Lannett will purchase the products from Elite and then sell and distribute them. In addition to the purchase prices for the products, Elite will receive license fees in excess of 50% of net profits, which will be shared equally with SunGen, pursuant to the SunGen Agreement. The Lannett-SunGen Product Alliance has an initial term of three years and automatically renews for one-year periods absent prior written notice of non-renewal. In addition to customary termination provisions, the Agreement permits Lannett to terminate with regard to a product on at least six months’ prior written notice, and it permits Elite or Lannett to terminate with regard to a product if at any time after the first twelve months from the first commercial sale, the average license fee paid by Lannett for such product is less than $300,000 for a six month sales period. In addition to manufacturing fees and license fees, Lannett also paid a milestone, of $750,000 upon the March 2020 commercial launch of Amphetamine ER Capsules. This milestone payment was shared equally by Elite and SunGen, pursuant to the SunGen Agreement.

 

The first commercial shipment of Amphetamine IR Tablets, a generic version of Adderall®, with strengths of 5mg, 7.5mg, 10mg, 12.5mg, 15mg, 20mg and 30mg, pursuant to the Lannett-SunGen Product Alliance occurred in April 2019. The first commercial shipment of Amphetamine ER Capsules, a generic version of Adderall XR®, with strengths of 5mg, 10mg, 15mg, 20mg, 25mg and 30mg, pursuant to the Lannett-SunGen Product Alliance occurred in March 2020.

 

Pursuant to the Lannett-Elite Product Alliance, Lannett is the exclusive U.S. marketer and distributor for Dantrolene Capsules. Elite manufactures and Lannett purchases, markets and distributes this product. In addition to the purchase prices for the products, Elite receives license fees in excess of 50% of net profits. Net profits are defined as net sales less the price paid to Elite for the products, distribution fees (less than 10%) and shipping costs. The Lannett-Elite Product Alliance has an initial term of three years and automatically renews for one-year periods absent prior written notice of non-renewal. In addition to customary termination provisions, the Agreement permits Lannett to terminate with regard to a product on at least six months’ prior written notice and it permits Elite or Lannett to terminate with regard to a product if at any time after the first twelve months from the first commercial sale, the average license fee paid by Lannett for such product is less than $300,000 for a six month sales period. The first commercial shipment of Dantrolene Capsules occurred in June 2019.

 

NOTE 20. 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 $53,214 in excess of advanced payments received to date from Mikah. This balance due from Mikah is included in the financial statement line of prepaid expenses and other current assets on the accompanying consolidated balance sheet.

 

NOTE 21. INCOME TAXES

 

Sale of New Jersey Net Operating Loss

 

In April 2020, Elite Laboratories Inc., a wholly owned subsidiary of Elite Pharmaceuticals Inc., received final approval from the New Jersey Economic Development Authority for the sale of net tax benefits of $607,635 relating to New Jersey net operating losses and net tax benefits of $338,772, relating to R&D tax credits. The Company sold the net tax benefits approved for sale for total proceeds of $946,407.

 

F-27

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 22. COVID-19 UPDATE

 

In December 2019, the Novel Corona Virus, COVID-19 was reported to have emerged in Wuhan, China. In March 2020, the World Health Organization (“WHO”) declared the COVID-19 outbreak a global pandemic. Governments at the national, state and local level in the United States, and globally, have implemented aggressive actions to reduce the spread of the virus, with such actions including, without limitation, lockdown and shelter in place orders, limitations on non-essential gatherings of people, suspension of all non-essential travel, and ordering certain businesses and governmental agencies to cease non-essential operations at physical locations. The Company’s business is deemed essential and it has continued to operate in all aspects of its pharmaceutical manufacturing, distribution, product development, regulatory compliance and other activities. The Company’s management has developed and implemented a range of measures to address the risks, uncertainties, and operational challenges associated with operating in a COVID-19 environment. The Company is closely monitoring the rapidly evolving and changing situation and are implementing plans intended to limit the impact of COVID-19 on our business so that the Company can continue to manufacture those medicines used by end user patients. Actions the Company has taken to date are, without limitation, further described below.

 

Workforce

 

The Company has taken and will continue to take, proactive measures to provide for the well-being of our 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 our already thorough cleaning protocols throughout our facilities and have prohibited visits from non-essential visitors. Certain of these measures have resulted in increased costs.

 

Manufacturing and Supply Chain

 

During the three months ended June 30, 2020, and as of the date of this Quarterly Report on Form 10-Q, the Company has not experience material, detrimental issues related to COVID-19 in our manufacturing, supply chain, quality assurance and regulatory compliance activities, and have been able to operate without interruption. The Company has taken, and plan to continue to take, commercially practical measures to keep our facility open. Our supply chains remain intact and operational, and the Company is in regular communications with our suppliers and third-party partners. Please note, however, that a prolonging of the current situation relating to COVID-19 may result in an increased risk of interruption in our supply chain in the future, with no assurances given as the materiality of such future interruption on our business, financial condition, results of operations and cash flows.

 

NOTE 23. SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events from the condensed consolidated balance sheet date through August 14, 2020 and identified the following material subsequent events:

 

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.

 

Under the terms and subject to the conditions of the 2020 LPC Purchase Agreement, the Company has the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase, up to $25.0 million of the Company’s Common Stock. Sales of Common Stock by the Company, if any, will be subject to certain limitations set forth in the 2020 LPC Purchase Agreement, and may occur from time to time, at the Company’s sole discretion, over the 36-month period commencing on July 27, 2020, the date that the registration statement covering the resale of the shares of Common Stock that have been and may be issued under the 2020 LPC Purchase Agreement was declared effective by the Securities and Exchange Commission (the “SEC”) and the other conditions to Lincoln Park’s obligation to purchase such shares set forth in the Purchase Agreement, all of which are outside of Lincoln Park’s control, were satisfied.

 

F-28

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Under the 2020 LPC Purchase Agreement, the Company may direct Lincoln Park to purchase up to 500,000 shares of Common Stock on such business day (each, a “Regular Purchase”), provided, however, that (i) the Regular Purchase may be increased to up to 600,000 shares, provided that the closing sale price of the Common Stock is not below $0.15 on the purchase date; (ii) the Regular Purchase may be increased to up to 700,000 shares, provided that the closing sale price of the Common Stock is not below $0.20 on the purchase date; (iii) the Regular Purchase may be increased to up to 800,000 shares, provided that the closing sale price of the Common Stock is not below $0.25 on the purchase date; and (iv) the Regular Purchase may be increased to up to 900,000 shares, provided that the closing sale price of the Common Stock is not below $0.30 on the purchase date. In each case, Lincoln Park’s maximum dollar commitment in any single Regular Purchase may not exceed $1,000,000. The purchase price per share for each such Regular Purchase will be based on an agreed upon fixed discount to the prevailing market prices of the Company’s Common Stock immediately preceding the time of sale. In addition to Regular Purchases, the Company may also direct Lincoln Park to purchase other amounts as accelerated purchases and as additional accelerated purchases if the closing sale price of the Common Stock is not less than $0.03 per share at such times as set forth in the 2020 LPC Purchase Agreement. There are no upper limits on the price per share that Lincoln Park must pay for shares of Common Stock. The above-referenced share amount limitations and closing sale price thresholds are subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as provided in the 2020 LPC Purchase Agreement.

 

Lincoln Park has no right to require the Company to sell any shares of Common Stock to Lincoln Park, but Lincoln Park is obligated to make purchases as the Company directs, subject to satisfaction of the conditions set forth in the 2020 LPC Purchase Agreement. Actual sales of shares of Common Stock to Lincoln Park will depend on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of the Common Stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations. In all instances, the Company may not sell shares of its Common Stock to Lincoln Park under the 2020 LPC Purchase Agreement if it would result in Lincoln Park beneficially owning more than 4.99% of its Common Stock.

 

The net proceeds under the 2020 LPC Purchase Agreement to the Company will depend on the frequency and prices at which the Company sells shares of its stock to Lincoln Park. The Company expects that any proceeds received by the Company from such sales to Lincoln Park will be used for research and product development, general corporate purposes and working capital requirements.

 

As consideration for Lincoln Park’s irrevocable commitment to purchase Common Stock upon the terms of and subject to satisfaction of the conditions set forth in the 2020 LPC Purchase Agreement, upon execution of the 2020 LPC Purchase Agreement, the Company issued to Lincoln Park 5,975,857 shares of Common Stock as commitment shares, and the Company has agreed to issue up to 5,975,857 additional shares of Common Stock as additional commitment shares, on a pro rata basis at such times during the term of the 2020 LPC Purchase Agreement as the Company may direct Lincoln Park to purchase shares of Common Stock under the 2020 LPC Purchase Agreement.

 

The Company has agreed with Lincoln Park that it will not enter into any “variable rate” transactions as defined in the 2020 LPC Purchase Agreement with any third party for a period set forth in the 2020 LPC Purchase Agreement. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s Common Stock.

 

The 2020 LPC Purchase Agreement and the 2020 LPC Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of the parties. The Company has the right to terminate the 2020 LPC Purchase Agreement at any time, at no cost or penalty. During any “event of default” under the 2020 LPC Purchase Agreement, all of which are outside of Lincoln Park’s control, Lincoln Park does not have the right to terminate the 2020 LPC Purchase Agreement; however, the Company may not deliver a notice directing Lincoln Park to make purchases of Common Stock, until such event of default is cured. In addition, in the event of bankruptcy proceedings by the Company, the 2020 LPC Purchase Agreement will automatically terminate. In addition, in the event of bankruptcy proceedings against the Company, the 2020 LPC Purchase Agreement will terminate if the proceedings are not discharged within 90 days.

 

The Company did not issue any shares of its common stock pursuant to the 2020 LPC Purchase Agreement during the three months ended June 30, 2020. As noted above subsequent to June 30, 2020, the Company issued an aggregate of 5,975,857 shares of Common Stock to Lincoln Park as initial commitment shares.

 

F-29

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

THREE MONTHS ENDED JUNE 30, 2020 (UNAUDITED)

COMPARED TO THE

THREE MONTHS ENDED JUNE 30, 2019 (UNAUDITED)

 

The following discussion of our financial condition and results of operations for the three months ended June 30, 2020 and 2019 should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended March 31, 2020. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

 

Unless expressly indicated or the context requires otherwise, the terms “Elite”, the “Company”, “we”, “us”, and “our” refer to Elite Pharmaceuticals, Inc. and subsidiary.

 

Background

 

Elite Pharmaceuticals, Inc., a Nevada corporation (the “Company”, “Elite”, “Elite Pharmaceuticals”, the “registrant”, “we”, “us” or “our”) was incorporated on October 1, 1997 under the laws of the State of Delaware, and its wholly-owned subsidiary, Elite Laboratories, Inc. (“Elite Labs”), was incorporated on August 23, 1990 under the laws of the State of Delaware. On January 5, 2012, Elite Pharmaceuticals was reincorporated under the laws of the State of Nevada.

 

We are a specialty pharmaceutical company principally engaged in the development and manufacture of oral, controlled-release products, using proprietary know-how and technology, particularly as it relates to abuse resistant products and the manufacture of generic pharmaceuticals. Our strategy includes improving off-patent drug products for life cycle management, developing generic versions of controlled-release drug products with high barriers to entry and the development of branded and generic products that utilize our proprietary and patented abuse resistance technologies.

 

We occupy manufacturing, warehouse, laboratory and office space at 165 Ludlow Avenue and 135 Ludlow Avenue in Northvale, NJ (the “Northvale Facility”). The Northvale Facility operates under Current Good Manufacturing Practice (“cGMP”) and is a United States Drug Enforcement Agency (“DEA”) registered facility for research, development and manufacturing.

 

Strategy

 

We focus our efforts on the following areas: (i) manufacturing of a line of generic pharmaceutical products with approved Abbreviated New Drug Applications (“ANDAs”); (ii) development of additional generic pharmaceutical products; (iii) development of the other products in our pipeline including the products with our partners; (iv) commercial exploitation of our products either by license and the collection of royalties, or through the manufacture of our formulations; and (v) development of new products and the expansion of our licensing agreements with other pharmaceutical companies, including co-development projects, joint ventures and other collaborations.

 

Our focus is on the development of various types of drug products, including branded drug products which require New Drug Applications (“NDAs”) under Section 505(b)(1) or 505(b)(2) of the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Drug Price Competition Act”) as well as generic drug products which require ANDAs.

 

We believe that our business strategy enables us to reduce its risk by having a diverse product portfolio that includes both branded and generic products in various therapeutic categories and to build collaborations and establish licensing agreements with companies with greater resources thereby allowing us to share costs of development and improve cash-flow.

 

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®   Pain   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

 

Note: Phentermine 37.5mg is also referred to as “Phentermine Tablets”. Phentermine 15mg and Phentermine 30mg are collectively and individually referred to as “Phentermine Capsules”. Phendimetrazine 35mg is also referred to as “Phendimetrazine Tablets”. Naltrexone 50mg is also referred to as “Naltrexone Tablets”. Isradipine 2.5mg and Isradipine 5mg are collectively and individually referred to as “Isradipine Capsules”. Oxy IR 5mg, Oxy IR 10mg, Oxy IR 15mg Oxy IR 20mg and Oxy IR 30mg are collectively and individually referred to as “Oxy IR”. Trimipramine 25mg, Trimipramine 50mg, and Trimipramine 100mg are collectively and individually referred to as “Trimipramine Capsules”. Amphetamine IR 5mg, Amphetamine IR 7.5mg, Amphetamine IR 10mg, Amphetamine IR 12.5mg, Amphetamine IR 15mg, Amphetamine IR 20mg and Amphetamine IR 30mg are collectively and individually referred to as “Amphetamine IR Tablets”. Dantrolene 25mg, Dantrolene 50mg and Dantrolene 100mg are collectively and individually referred to as “Dantrolene Capsules”. Amphetamine ER 5mg, Amphetamine ER 10mg, Amphetamine ER 15mg. Amphetamine ER 20mg, Amphetamine ER 25mg and Amphetamine ER 30mg are collectively and individually referred to as “Amphetamine ER Capsules”.

 

Phentermine 37.5mg

 

The approved ANDA for Phentermine 37.5mg was acquired pursuant to an asset purchase agreement with Epic Pharma LLC (“Epic”) dated September 10, 2010 (the “Phentermine Purchase Agreement”).

 

Sales and marketing rights for Phentermine 37.5mg are included in the licensing agreement between the Company and Precision Dose Inc. (“Precision Dose”) dated September 10, 2010 (the “Precision Dose License Agreement”). Please see the section below titled “Precision Dose License Agreement” for further details of this agreement.

 

2

 

 

Phentermine 37.5mg is currently being manufactured by Elite and distributed by TAGI under the Precision Dose License Agreement.

 

Phendimetrazine Tartrate 35mg

 

The ANDA for Phendimetrazine was acquired by Elite in 2013.

 

Phendimetrazine 35mg is currently a commercial product being manufactured at the Northvale Facility and distributed by Elite.

 

Phentermine 15mg and Phentermine 30mg

 

Phentermine 15mg capsules and Phentermine 30mg capsules were developed by the Company, with Elite receiving approval from the United States Food and Drug Administration (“FDA”) of the related ANDA in September 2012.

 

Sales and marketing rights for Phentermine 15mg and Phentermine 30mg are included in the Precision Dose License Agreement. Please see the section below titled “Precision Dose License Agreement” for further details of this agreement.

 

Phentermine 15mg and Phentermine 30mg are currently being manufactured by Elite and distributed by TAGI under the Precision Dose License Agreement..

 

Naltrexone 50mg

 

The ANDA for Naltrexone 50mg was acquired by Elite in 2010.

 

Sales and marketing rights for Naltrexone 50mg are included in the Precision Dose License Agreement. Please see the section below titled “Precision Dose License Agreement” for further details of this agreement. Naltrexone 50mg is currently being manufactured by Elite and distributed by TAGI under the Precision Dose License Agreement.

 

Isradipine 2.5mg and Isradipine 5mg

 

The approved ANDAs for Isradipine 2.5mg and Isradipine 5mg were acquired by Elite in 2013.

 

Isradipine 2.5mg and Isradipine 5mg are currently a commercial product being manufactured by Elite at the Northvale Facility and distributed by Glenmark, on an exclusive basis.

 

Oxycodone 5mg, Oxycodone 10mg, Oxycodone 15mg, Oxycodone 20mg and Oxycodone 30mg (“Oxy IR”)

 

We received notification from Epic in October 2015 of the approval by the FDA of Epic’s ANDA for Oxy IR which is owned by Epic. This product was an Identified IR Product in the Epic Strategic Alliance Agreement Dated March 18, 2009 (the “Epic Strategic Alliance”). Oxy IR was developed at the Northvale Facility pursuant to the Epic Strategic Alliance, in which we are entitled to a Product Fee of 15% of Profits through March 2026, as defined in the Epic Strategic Alliance. The first commercial sale of Oxy IR occurred in March 2016, and sales by Epic of this product are ongoing.

 

Trimipramine 25mg, Trimipramine 50mg, and Trimipramine 100mg

 

The approved ANDA for Trimipramine was acquired by Elite in 2017.

 

Trimipramine 25mg, Trimipramine 50mg and Trimipramine 100mg are currently a commercial product being manufactured by Elite at the Northvale Facility and distributed by Glenmark, on an exclusive basis.

 

3

 

 

Amphetamine IR Tablets

 

On December 10, 2018, the Company received approval from the FDA for Amphetamine IR Tablets, a generic version of Adderall®, an immediate-release mixed salt of a single entity Amphetamine product (Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate) with strengths of 5 mg, 7.5 mg, 10 mg, 12.5 mg, 15 mg, 20 mg, and 30 mg tablets. The product is a central nervous system stimulant and is indicated for the treatment of Attention Deficit Hyperactivity Disorder (ADHD) and Narcolepsy.

 

Amphetamine IR Tablets are currently a commercial product being manufactured by Elite and distributed by Lannett Company Inc. (“Lannett”), on an exclusive basis.

 

Dantrolene Capsules

 

The approved ANDAs for Dantrolene 25mg, Dantrolene 50mg and Dantrolene 100mg were acquired by Elite in 2013. Dantrolene Capsules are currently a commercial product being manufactured by Elite at the Northvale Facility and distributed by Lannett, on an exclusive basis.

 

Amphetamine ER Capsules

 

On December 12, 2019, the Company received approval from the FDA for Amphetamine ER Capsules, a generic version of Adderall XR®, an extended-release mixed salt of a single entity Amphetamine product (Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate) with strengths of 5mg, 10mg, 15mg, 20mg, 25mg, and 30 mg tablets. The product is a central nervous system stimulant and is indicated for the treatment of ADHD and Narcolepsy.

 

Amphetamine ER Capsules are currently a commercial product being manufactured by Elite and distributed by Lannett, on an exclusive basis.

 

Filed products under FDA review

 

SequestOx™ Immediate Release Oxycodone with sequestered Naltrexone

 

SequestOx™ is our abuse-deterrent candidate for the management of moderate to severe pain where the use of an opioid analgesic is appropriate. SequestOx™ is an immediate-release Oxycodone Hydrochloride containing sequestered Naltrexone which incorporates 5mg, 10mg, 15mg, 20mg and 30mg doses of oxycodone into capsules.

 

In January 2016, the Company submitted a 505(b)(2) New Drug Application for SequestOx™, after receiving a waiver of the $2.3 million filing fee from the FDA. In March 2016, the Company received notification of the FDA’s acceptance of this filing and that such filing has been granted priority review by the FDA with a target action under the Prescription Drug User Fee Act (“PDUFA”) of July 14, 2016.

 

On July 15, 2016, the FDA issued a Complete Response Letter, or CRL, regarding the NDA. The CRL stated that the review cycle for the SequestOx™ NDA is complete and the application is not ready for approval in its present form.

 

On July 7, 2017, the Company reported topline results from a pivotal bioequivalence fed study for or SequestOx™. The mean Tmax (the amount of time that a drug is present at the maximum concentration in serum) of SequestOx™ was 4.6 hr. with a range of 0.5 hr. to 12 hr. and the mean Tmax of the comparator, Roxicodone®, was 3.4 hr. with a range of 0.5 hr. to 12 hr. A key objective for the study was to determine if the reformulated SequestOx™ had a similar Tmax to the comparator when taken with a high fat meal. Based on these results, the Company paused clinical trials for this formulation of SequestOx™. On January 30, 2018, the Company reported positive topline results from a pilot study conducted for a modified SequestOx™ wherein, based on the results of this pilot study, the modified SequestOx™ formulation is expected to achieve bioequivalence with a Tmax range equivalent to the reference product when conducted in a pivotal trial under fed conditions. The Company has provided the pilot data to the FDA, requesting clarification as to the requirements for resubmission of the NDA. The FDA has provided guidance for repeated bio-equivalence studies in order to bridge the new formulation to the original SequestOx™ studies and also extended our filing fee waiver until July 2020. Due to the prohibitive cost of such repeated bio-equivalence studies, the Company has paused development of this product.

 

There can be no assurances of the Company conducting future clinical trials, or if such trials are conducted, there can be no assurances of the success of any future clinical trials, or if such trials are successful, there can be no assurances that an intended future resubmission of the NDA product filing, if made, will be accepted by or receive marketing approval from the FDA. In addition, even if marketing authorization is received, there can be no assurances that there will be future revenues or profits, or that any such future revenues or profits would be in amounts that provide adequate return on the significant investments made to secure this marketing authorization.

 

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Oxycodone Hydrochloride extended release (generic version of OxyContin®)

 

On September 20, 2017, the Company filed an ANDA with the FDA for generic version of OxyContin® (extended release Oxycodone Hydrochloride). OxyContin® is approved for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate. IMS reported approximately $2.3 billion in revenue for OxyContin® and its equivalents in 2016. The FDA requested additional information relating to this filing, compliance with which would require significant resources. Development of this product is currently paused, with the Company evaluating the feasibility of the continued development of this product.

 

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. According to IQVIA (formerly QuintilesIMS Health) data, the branded product for this antibiotic and its equivalents had total annual U.S. sales of approximately $85 million for the twelve months ending September 30, 2019. 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.

 

There can be no assurances that any of these products will receive marketing authorization and achieve commercialization within this time period, or at all. In addition, even if marketing authorization is received, there can be no assurances that there will be future revenues or profits, or that any such future revenues or profits would be in amounts that provide adequate return on the significant investments made to secure these marketing authorizations.

 

Approved Products Not Yet Commercialized

 

Loxapine 5mg, 10mg, 25mg and 50mg capsules (“Loxapine Capsules”)

 

The FDA approved a transfer for manufacturing of Loxapine Capsules at the Northvale Facility. The Company will provide an update upon launch of the product. The approved ANDAs for Loxapine Capsules were acquired as part of the 2013 ANDA acquisition between the Company and Mikah Pharma. Please see the section below titled “Asset Acquisition Agreements” for further details on the 2013 ANDA acquisition agreement. There can be no assurances that there will be future revenues or profits, or that any such future revenues or profits would be in amounts that provide adequate return on the significant investments made to secure these marketing authorizations.

 

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) 300mg/7.5mg, 300mg/15mg, 300mg/30mg and 300mg/60mg tablets. 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. Acetaminophen with codeine products have annual U.S. sales of approximately $45 million according to IQVIA (formerly QuintilesIMS Health Data). The Company is not pursuing licensing deals for any opioids at this time until the market changes. The Company will wait for the market to stabilize before pursuing these opportunities.

 

There can be no assurances in relation to any of the above approved products not yet commercialized, that there will be future revenues of profits, or that any such future revenues or profits would be in amounts that provide adequate return on the significant investments made to secure these marketing authorizations.

 

Discontinued and Transferred Products

 

As part of standard operating practices, the Company, from time to time, as relevant, conducts evaluations of all ANDAs owned, consisting, without limitation, of ANDAs acquired or approved prior to June 30, 2020. Such evaluations include, without limitation, costs and benefits relating to each ANDA owned, with such costs including those fees required under the FDA’s Generic Drug User Fee Amendment (“GDUFA”) which is significantly influenced by the number of ANDAs owned, and other costs and benefits taking into consideration various specific market factors for each ANDA. Those ANDAs with a cost/benefit profile not consistent with management criteria for continuation are identified for disposition and effort is made to determine the optimal course of action to achieve disposition of the ANDA.

 

There were no approved ANDAs identified for such disposition.

 

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Licensing, Manufacturing and Development Agreements

 

Sales and Distribution Licensing Agreement with Epic Pharma LLC for SequestOx™

 

On June 4, 2015, we executed an exclusive License Agreement (the “2015 SequestOx™ License Agreement”) with Epic, to market and sell in the U.S., SequestOx™, an immediate release oxycodone with sequestered naltrexone capsule, owned by us. Epic will have the exclusive right to market ELI-200 and its various dosage forms as listed in Schedule A of the Agreement. Epic is responsible for all regulatory and pharmacovigilance matters related to the products. Pursuant to the 2015 SequestOx™ License Agreement, Epic will pay us non-refundable milestone payments totaling $15 million, with such amount representing the cost of an exclusive license to SequestOx™, the cost of developing the product, the filing of an NDA with the FDA and the receipt of the approval letter for the NDA from the FDA. The 2015 SequestOx™ License Agreement expired on June 4, 2020. During the term of this agreement, the Company received $7.5 million in non-refundable payments, with such amount consisting of $5 million due and owing on the execution date of the 2015 SequestOx™ License Agreement and $2.5 million being earned upon the Company’s filing of an NDA with the FDA for the relevant product in January 2016. The remaining $7.5 million in non-refundable payments required FDA approval of the relevant product, a milestone that was not achieved prior to the expiration of the agreement.

 

Precision Dose License Agreement

 

On September 10, 2010, we executed a License Agreement with Precision Dose (the “Precision Dose License Agreement”) to market and distribute Phentermine 37.5mg, Phentermine 15mg, Phentermine 30mg, Hydromorphone 8mg, Naltrexone 50mg, and certain additional products that require approval from the FDA, through its wholly-owned subsidiary, TAGI, in the United States, Puerto Rico and Canada. Phentermine 37.5mg was launched in April 2011. Hydromorphone 8mg was launched in March 2012. Phentermine 15mg and Phentermine 30mg were launched in April 2013. Naltrexone 50mg was launched in September 2013. Precision Dose will have the exclusive right to market these products in the United States and Puerto Rico and a non-exclusive right to market the products in Canada.

 

Pursuant to the Precision Dose License Agreement, Elite will receive a license fee and milestone payments. The license fee will be computed as a percentage of the gross profit, as defined in the Precision Dose License Agreement, earned by Precision Dose as a result of sales of the products. The license fee is payable monthly for the term of the Precision Dose License Agreement. The milestone payments will be paid in six installments. The first installment was paid upon execution of the Precision Dose License Agreement. The remaining installments are to be paid upon FDA approval and initial shipment of the products to Precision Dose. The term of the Precision Dose License Agreement is 15 years and may be extended for 3 successive terms, each of 5 years.

 

Master Development and License Agreement with SunGen Pharma LLC

 

On August 24, 2016, as amended we entered into an agreement with SunGen Pharma LLC (“SunGen”) (the “SunGen Agreement”) to undertake and engage in the research, development, sales and marketing of eight generic pharmaceutical products. Two of the products are classified as CNS stimulants (the “CNS Products”), two of the products are classified as beta blockers and the remaining four products consist of antidepressants, antibiotics and antispasmodics. The Company has received approval from the FDA for Amphetamine IR Tablets, Amphetamine ER Capsules and has filed an ANDA for an antibiotic product.

 

Under the terms of the SunGen Agreement, Elite and SunGen will share in the responsibilities and costs in the development of these products and will share substantially in the profits from sales. Upon approval, the know-how and intellectual property rights to the products will be owned jointly by Elite and SunGen. Three of the eight products will be jointly owned, three products will be owned by SunGen, with Elite having exclusive marketing rights and the remaining two products will be owned by Elite, with SunGen having exclusive marketing rights. Elite will manufacture and package all eight products on a cost-plus basis.

 

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On December 10, 2018, the Company received approval from the FDA for Amphetamine IR Tablets, a generic version of Adderall®, an immediate-release mixed salt of a single entity Amphetamine product (Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate) with strengths of 5 mg, 7.5 mg, 10 mg, 12.5 mg, 15 mg, 20 mg, and 30 mg tablets. The product is a central nervous system stimulant and is indicated for the treatment of Attention Deficit Hyperactivity Disorder (ADHD) and Narcolepsy. The product is jointly owned by Elite and SunGen. Elite manufactures and packages this product, at the Northvale Facility, on a cost-plus basis, and it is currently sold pursuant to the Lannett Alliance, with the first commercial shipment of this product occurring in April 2019. Please see the section below titled “Strategic Marketing Alliance with Lannett Company Inc.” for further details on the Lannett Alliance.

 

On January 3, 2019, the Company filed an ANDA with the FDA for a generic version of an antibiotic product. According to QVIA (formerly QuintilesIMS Health) data, the branded product for this antibiotic and its equivalents had total annual U.S. sales of approximately $94 million for the twelve months ending September 30, 2018. The product is jointly owned by Elite and SunGen. 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.

 

On December 12, 2019, the Company received approval from the FDA for Amphetamine ER Capsules, a generic version of Adderall XR®, an extended-release mixed salt of a single entity Amphetamine product (Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate) with strengths of 5mg, 10mg, 15mg, 20mg, 25mg and 30mg capsules. The product is a central nervous system stimulant and is indicated for the treatment of Attention Deficit Hyperactivity Disorder (ADHD). The product is jointly owned by Elite and SunGen. Elite manufactures and packages this product, at the Northvale Facility, on a cost plus basis and it is currently sold pursuant to the Lannett Alliance, with the first commercial shipment of this product occurring in March 2020. Please see the section below titled “Strategic Marketing Alliance with Lannett Company Inc.” for further details on the Lannett Alliance.

 

On April 3, 2020, Elite and SunGen mutually agreed to discontinue any further joint product development activities under the SunGen Agreement.

 

In May 2020, SunGen, under an asset purchase agreement, assigned its rights and obligations under the SunGen Agreement for Amphetamine IR and Amphetamine ER to Mikah Pharmaceuticals. The ANDAs for Amphetamine IR and Amphetamine ER are now registered under Elite’s name. Mikah will now be Elite’s partner with respect to Amphetamine IR and ER and will assume all the rights and obligations for these products from SunGen.

 

There can be no assurances that there will be future revenues or profits, earned pursuant to the SunGen Agreement, or that any such future revenues or profits would be in amounts that provide adequate return on the significant investments made to secure the marketing authorizations for products included in the SunGen Agreement or provide sufficient financial contributions to support costs of operations and overheads.

 

Strategic Marketing Alliance with Glenmark Pharmaceuticals, Inc. USA

 

On May 22, 2018, and as amended on August 1, 2018, we entered into a license, manufacturing and supply agreement with Glenmark Pharmaceuticals Inc. USA (“Glenmark”) to market the two Elite generic products described below in the United States with the option to add products in the future (the “Glenmark Alliance”).

 

Pursuant to the Glenmark Alliance, Glenmark will purchase the products from Elite and then sell and distribute them. In addition to the purchase prices for the products, Elite will receive license fees well in excess of 50% of gross profits. Gross profits are defined as net sales less the price paid to Elite for the products, distribution fees (less than 10%) and shipping costs. Glenmark will have semi-exclusive marketing rights to the ANDA approved generic product, phendimetrazine 35mg tablets, and exclusive marketing rights to the following ANDA approved generic products: Methadone 10mg, Methadone 5mg, Trimipramine 25mg, Trimipramine 50mg, Trimipramine 100mg, and, effective October 2, 2018, upon expiration of the Epic Manufacturing and License Agreement, exclusive marketing rights to the following ANDA approved generic products: Isradipine 2.5mg and Isradipine 5mg. The Glenmark Alliance has an initial term of three years and automatically renews for one year periods absent prior written notice of non-renewal. In addition to customary termination provisions, the Agreement permits Glenmark to terminate with regard to a product on at least three months’ prior written notice if it determines to stop marketing and selling such product, and it permits Elite to terminate with regard to a product if at any time after the first twelvemonths from the first commercial sale, the average license fee paid by Glenmark for such product is less than $100,000 for a six month sales period.

 

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The first commercial shipment of Methadone Tablets pursuant to the Glenmark Alliance occurred in November 2018. The first commercial shipment of Isradipine Capsules pursuant to the Glenmark Alliance occurred in March 2019. The first commercial shipment of Trimipramine Capsules occurred in April 2019. The Methadone license was terminated in October 2019 and the Phendimetrazine license was terminated in February 2020. Both products have subsequently been divested (see “Discontinued and Transferred Products” above).

 

There can be no assurances that there will be future revenues or profits, earned pursuant to the Glenmark Alliance, or that any such future revenues or profits would be in amounts that provide adequate return on the significant investments made to secure the marketing authorizations for products included in the Glenmark Alliance or provide sufficient financial contributions to support costs of operations and overheads.

 

Strategic Marketing Alliances with Lannett Company Inc.

 

The Company has entered into two separate license, supply and distribution agreements with Lannett Company Inc. (“Lannett”). The first agreement, dated March 6, 2019, relates to products that were co-developed with SunGen (the “Lannett-SunGen Product Alliance”). The second agreement, dated April 9, 2019, relates to products that were solely developed by Elite (the “Lannett-Elite Product Alliance”). Both agreements are collectively and individually referred to as the “Lannett Alliance”)

 

Pursuant to Lannett-SunGen Product Alliance with Lannett, Lannett will be the exclusive U.S. distributor for Amphetamine IR Tablets and Amphetamine ER Capsules. Elite manufactures these products, which are purchased, marketed and distributed by Lannett under the Lannett label. In addition to the purchase prices for the products, Elite will receive license fees well in excess of 50% of net profits, which will be shared equally with SunGen, pursuant to the SunGen Agreement. Net profits are defined as net sales less the price paid to Elite for the products, distribution fees (less than 10%) and shipping costs. The Lannett-SunGen Product Alliance has an initial term of three years and automatically renews for one year periods absent prior written notice of non-renewal. In addition to customary termination provisions, the Agreement permits Lannett to terminate with regard to a product on at least three months’ prior written notice if it determines to stop marketing and selling such product, and it permits Elite to terminate with regard to a product if at any time after the first twelve months from the first commercial sale, the average license fee paid by Lannett for such product is less than $100,000 for a six month sales period. In addition to manufacturing fees and license fees, Lannett also paid a $750,000 milestone, upon the March 2020 commercial launch of Amphetamine ER Capsules. This milestone payment was earned during March 2020 and was shared equally by Elite and SunGen, pursuant to the SunGen Agreement.

 

The first commercial shipment of Amphetamine IR Tablets, a generic version of Adderall®, with strengths of 5mg, 7.5mg, 10mg, 12.5mg, 15mg, 20mg and 30mg, pursuant to the Lannett-SunGen Product Alliance occurred in April 2019.

 

The first commercial shipment of Amphetamine ER Capsules, a generic version of Adderall XR®, with strengths of 5mg, 10mg, 15mg, 20mg, 25mg and 30mg, pursuant to the Lannett-SunGen Product Alliance occurred in March 2020.

 

Pursuant to the Lannett-Elite Product Alliance, Lannett will be the exclusive U.S. distributor for Dantrolene Capsules. The first commercial shipment of Dantrolene Capsules, with strengths of 25mg, 50mg and 100mg occurred in June 2019.

 

Pursuant to the Lannett-Elite Product Alliance, Elite manufactures for Lannett’s purchase, marketing, and distribution of Dantrolene Capsules under the Lannett label. In addition to the purchase prices for the products, Elite will receive license fees well in excess of 50% of gross profits. Gross profits are defined as net sales less the price paid to Elite for the products, distribution fees (less than 10%) and shipping costs. Lannett will have exclusive marketing rights to Dantrolene Capsules. The Lannett-Elite Product Alliance has an initial term of three years and automatically renews for one year periods absent prior written notice of non-renewal. In addition to customary termination provisions, the Agreement permits Lannett to terminate with regard to a product on at least three months’ prior written notice if it determines to stop marketing and selling such product, and it permits Elite to terminate with regard to a product if at any time after the first twelve months from the first commercial sale, the average license fee paid by Lannett for such product is less than $100,000 for a six month sales period. In addition to manufacturing fees and license fees.

 

Products Under Development

 

Elite’s research and development activities include developing its proprietary abuse deterrent technology and the development of a range of abuse deterrent opioid products that utilize this technology or other approaches to abuse deterrence.

 

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Elite’s proprietary abuse-deterrent technology utilizes the pharmacological approach to abuse deterrence and consists of a multi-particulate capsule which contains an opioid agonist in addition to naltrexone, an opioid antagonist used primarily in the management of alcohol dependence and opioid dependence. When this product is taken as intended, the naltrexone is designed to pass through the body unreleased while the opioid agonist releases over time providing therapeutic pain relief for which it is prescribed. If the multi-particulate beads are crushed or dissolved, the opioid antagonist, naltrexone, is designed to release. The absorption of the naltrexone is intended to block the euphoria by preferentially binding to same receptors in the brain as the opioid agonist and thereby reducing the incentive for abuse or misuse by recreational drug abusers.

 

We filed an NDA for the first product to utilize our abuse deterrent technology, Immediate Release Oxycodone 5mg, 10mg, 15mg, 20mg and 30mg with sequestered Naltrexone (collectively and individually referred to as “SequestOx™”), on January 14, 2016. Please see “Filed products under FDA review; SequestOx™ - Immediate Release Oxycodone with sequestered Naltrexone” above and please note that continued development of this product is currently paused.

 

On September 20, 2017, the Company filed an ANDA with the FDA for generic version of OxyContin® (extended release Oxycodone Hydrochloride). Please see “Filed products under FDA review; Oxycodone Hydrochloride extended release (generic version of OxyContin®” above. Please note that there can be no assurances of this product receiving marketing authorization or achieving commercialization. In addition, even if marketing authorization is received and the product is commercialized, there can be no assurances of future revenues or profits in such amounts that would provide adequate return on the significant investments made to secure marketing authorization for this product.

 

The Company is currently not selling opioids nor are we pursuing licensing deals for opioids until the market conditions improve. Further, we have divested some opioid products. The Company will wait for the market to stabilize before pursuing these opportunities.

 

On January 3, 2019, the Company filed an Abbreviated New Drug Application with the US Food and Drug Administration for a generic version of an antibiotic product. Please see “Filed products under FDA review” above. Please note that there can be no assurances of this product receiving marketing authorization or achieving commercialization. In addition, even if marketing authorization is received and the product is commercialized, there can be no assurances of future revenues or profits in such amounts that would provide adequate return on the significant investments made to secure marketing authorization for this product. Please also see the section below titled “Master Development and License Agreement with SunGen Pharma LLC”.

 

Please note that, while the FDA is required to review applications within certain timeframes, during the review process, the FDA frequently requests that additional information be submitted. The effect of such request and subsequent submission can significantly extend the time for the NDA review process. Until an NDA is actually approved, there can be no assurances that the information requested and submitted will be considered adequate by the FDA to justify approval. The packaging and labeling of our developed products are also subject to FDA regulation. Based on the foregoing, it is impossible to anticipate the amount of time that will be needed to obtain FDA approval to market any product. In addition, there can be no assurances of the Company filing the required application(s) with the FDA or of the FDA approving such application(s) if filed, and the Company’s ability to successfully develop and commercialize products incorporating its abuse deterrent technology is subject to a high level of risk as detailed in “Item 1A-Risk Factors-Risks Related to our Business” of the Annual Report on Form 10-K for the fiscal year ended March 31, 2020.

 

Abuse-Deterrent and Sustained Release Opioids

 

The abuse-deterrent opioid products utilize our patented abuse-deterrent technology that is based on a pharmacological approach. These products are combinations of a narcotic agonist formulation intended for use in patients with pain, and an antagonist, formulated to deter abuse of the drug. Both, agonist, and antagonist, have been on the market for a number of years and sold separately in various dose strengths. We have filed INDs for two abuse resistant products under development and have tested products in various pharmacokinetic and efficacy studies.

 

The Company is currently not selling opioids nor are we pursuing licensing deals for opioids until the market conditions improve. Further, we have divested some opioid products. The Company will wait for the market to stabilize before pursuing these opportunities.

  

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Patents

 

Since our incorporation, we have secured the following patents, of which two have been assigned for a fee to another pharmaceutical company. Our patents are:

 

PATENT   EXPIRATION DATE
U.S. patent 6,620,439   October 2020
U.S. patent 6,926,909   October 2020
U.S. patent 8,182,836   March 2024
U.S. patent 8,425,933   March 2025
U.S. patent 8,703,186   March 2025
Canadian patent 2,521,655   April 2023
Canadian patent 2,541,371   April 2024
U.S. patent 9,056,054   June 2030
E.P. patent 1615623   April 2024
U.S. patent 10213388   June 2030

 

We intend to apply for patents for other products in the future; however, there can be no assurance that any of the pending applications or other applications which we may file will be granted. We have also filed corresponding foreign applications for key patents.

 

Prior to the enactment in the United States of new laws adopting certain changes mandated by the General Agreement on Tariffs and Trade (“GATT”), the exclusive rights afforded by a U.S. Patent were for a period of 17 years measured from the date of grant. Under GATT, the term of any U.S. Patent granted on an application filed subsequent to June 8, 1995 terminates 20 years from the date on which the patent application was filed in the United States or the first priority date, whichever occurs first. Future patents granted on an application filed before June 8, 1995, will have a term that terminates 20 years from such date, or 17 years from the date of grant, whichever date is later.

 

Under the Drug Price Competition Act, a U.S. product patent or use patent may be extended for up to five years under certain circumstances to compensate the patent holder for the time required for FDA regulatory review of the product. Such benefits under the Drug Price Competition Act are available only to the first approved use of the active ingredient in the drug product and may be applied only to one patent per drug product. There can be no assurance that we will be able to take advantage of this law.

 

Also, different countries have different procedures for obtaining patents, and patents issued by different countries provide different degrees of protection against the use of a patented invention by others. There can be no assurance, therefore, that the issuance to us in one country of a patent covering an invention will be followed by the issuance in other countries of patents covering the same invention, or that any judicial interpretation of the validity, enforceability, or scope of the claims in a patent issued in one country will be similar to the judicial interpretation given to a corresponding patent issued in another country. Furthermore, even if our patents are determined to be valid, enforceable, and broad in scope, there can be no assurance that competitors will not be able to design around such patents and compete with us using the resulting alternative technology.

 

Trademarks

 

SequestOx™ is a trademark owned by Elite, for which United States trademark registration is being sought.

 

We currently plan to license at least some of our products to other entities in the marketing of pharmaceuticals but may also sell products under our own brand name in which case we may register trademarks for those products.

 

Terminated Agreements

 

Terminated Agreement 2015 SequestOx™ License Agreement

 

On June 4, 2020, the 2015 SequestOx™ License Agreement terminated in accordance with the terms of the agreement.

 

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Other Business Factors and Details

 

COVID-19

 

Please see the risk factor titled “Widespread health problems, including the recent global COVID-19 pandemic, natural disasters or other unexpected events could materially and adversely affect our business” included in the Annual Report on Form 10-K for the fiscal year ended March 31, 2020 filed with the SEC on June 29, 2020 (the “2020 Form 10-K”).

 

Government Regulation and Approval

 

The design, development, and marketing of pharmaceutical compounds, on which our success depends, are intensely regulated by governmental regulatory agencies, in particular the FDA. Non-compliance with applicable requirements can result in fines and other judicially imposed sanctions, including product seizures, injunction actions and criminal prosecution based on products or manufacturing practices that violate statutory requirements. In addition, administrative remedies can involve voluntary withdrawal of products, as well as the refusal of the FDA to approve ANDAs and NDAs. The FDA also has the authority to withdraw approval of drugs in accordance with statutory due process procedures.

 

Before a drug may be marketed, it must be approved by the FDA either by an NDA or an ANDA, each of which is discussed below.

 

NDAs and ANDAs under Section 505(b) of the Drug Price Competition Act

 

The FDA approval procedure for an NDA is generally a two-step process. During the Initial Product Development stage, an investigational new drug application (“IND”) for each product is filed with the FDA. A 30-day waiting period after the filing of each IND is required by the FDA prior to the commencement of initial clinical testing. If the FDA does not comment on or question the IND within such 30-day period, initial clinical studies may begin. If, however, the FDA has comments or questions, they must be answered to the satisfaction of the FDA before initial clinical testing may begin. In some instances, this process could result in substantial delay and expense. Initial clinical studies generally constitute Phase I of the NDA process and are conducted to demonstrate the product tolerance/safety and pharmacokinetic in healthy subjects.

 

After Phase I testing, extensive efficacy and safety studies in patients must be conducted. After completion of the required clinical testing, an NDA is filed, and its approval, which is required for marketing in the United States, involves an extensive review process by the FDA. The NDA itself is a complicated and detailed application and must include the results of extensive clinical and other testing, the cost of which is substantial. However, the NDA filings contemplated by us, which are already marketed drugs, would be made under Sections 505 (b)(1) or 505 (b)(2) of the Drug Price Competition Act, which do not require certain studies that would otherwise be necessary; accordingly, the development timetable should be shorter. While the FDA is required to review applications within a certain timeframe, during the review process, the FDA frequently requests that additional information be submitted. The effect of such request and subsequent submission can significantly extend the time for the NDA review process. Until an NDA is approved, there can be no assurance that the information requested and submitted will be considered adequate by the FDA to justify approval. The packaging and labelling of our developed products are also subject to FDA regulation. It is impossible to anticipate the amount of time that will be needed to obtain FDA approval to market any product.

 

Whether or not FDA approval has been obtained, approval of the product by comparable regulatory authorities in any foreign country must be obtained prior to the commencement of marketing of the product in that country. We intend to conduct all marketing in territories other than the United States through other pharmaceutical companies based in those countries. The approval procedure varies from country to country, can involve additional testing, and the time required may differ from that required for FDA approval. Although there are some procedures for unified filings for certain European countries, in general each country has its own procedures and requirements, many of which are time consuming and expensive. Thus, there can be substantial delays in obtaining required approvals from both the FDA and foreign regulatory authorities after the relevant applications are filed. After such approvals are obtained, further delays may be encountered before the products become commercially available.

 

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ANDAs

 

The FDA approval procedure for an ANDA differs from the procedure for an NDA in that the FDA waives the requirement of conducting complete clinical studies, although it normally requires bioavailability and/or bioequivalence studies. “Bioavailability” indicates the rate and extent of absorption and levels of concentration of a drug product in the blood stream needed to produce a therapeutic effect. “Bioequivalence” compares the bioavailability of one drug product with another, and when established, indicates that the rate of absorption and levels of concentration of the active drug substance in the body are equivalent for the generic drug and the previously approved drug. An ANDA may be submitted for a drug on the basis that it is the equivalent of a previously approved drug or, in the case of a new dosage form, is suitable for use for the indications specified.

 

The timing of final FDA approval of an ANDA depends on a variety of factors, including whether the applicant challenges any listed patents for the drug and whether the brand-name manufacturer is entitled to one or more statutory exclusivity periods, during which the FDA may be prohibited from accepting applications for, or approving, generic products. In certain circumstances, a regulatory exclusivity period can extend beyond the life of a patent, and thus block ANDAs from being approved on the patent expiration date.

 

In May 1992, Congress enacted the Generic Drug Enforcement Act of 1992, which allows the FDA to impose debarment and other penalties on individuals and companies that commit certain illegal acts relating to the generic drug approval process. In some situations, the Generic Drug Enforcement Act requires the FDA to not accept or review ANDAs for a period of time from a company or an individual that has committed certain violations. It also provides for temporary denial of approval of applications during the investigation of certain violations that could lead to debarment and also, in more limited circumstances, provides for the suspension of the marketing of approved drugs by the affected company. Lastly, the Generic Drug Enforcement Act allows for civil penalties and withdrawal of previously approved applications. Neither we nor any of our employees have ever been subject to debarment. We do not believe that we receive any services from any debarred person.

 

Controlled Substances

 

We are also subject to federal, state, and local laws of general applicability, such as laws relating to working conditions. We are also licensed by, registered with, and subject to periodic inspection and regulation by the Drug Enforcement Agency (“DEA”) and New Jersey state agencies, pursuant to federal and state legislation relating to drugs and narcotics. Certain drugs that we currently develop or may develop in the future may be subject to regulations under the Controlled Substances Act and related statutes. As we manufacture such products, we may become subject to the Prescription Drug Marketing Act, which regulates wholesale distributors of prescription drugs.

 

cGMP

 

All facilities and manufacturing techniques used for the manufacture of products for clinical use or for sale must be operated in conformity with cGMP regulations issued by the FDA. We engage in manufacturing on a commercial basis for distribution of products and operate our facilities in accordance with cGMP regulations. If we hire another company to perform contract manufacturing for us, we must ensure that our contractor’s facilities conform to cGMP regulations.

 

Compliance with Environmental Laws

 

We are subject to comprehensive federal, state and local environmental laws and regulations that govern, among other things, air polluting emissions, waste water discharges, solid and hazardous waste disposal, and the remediation of contamination associated with current or past generation handling and disposal activities, including the past practices of corporations as to which we are the legal successor or in possession. We do not expect that compliance with such environmental laws will have a material effect on our capital expenditures, earnings, or competitive position in the foreseeable future. There can be no assurance, however, that future changes in environmental laws or regulations, administrative actions or enforcement actions, or remediation obligations arising under environmental laws will not have a material adverse effect on our capital expenditures, earnings, or competitive position.

 

Competition

 

We have competition with respect to our principal areas of operation. We develop and manufacture generic products, products using controlled-release drug technology, products utilizing abuse deterrent technologies, and we develop and market (either on our own or by license to other companies) generic and proprietary controlled-release and abuse deterrent pharmaceutical products. In both areas, our competition consists of those companies which develop controlled-release, abuse deterrent drugs and alternative drug delivery systems. We do not represent a significant presence in the pharmaceutical industry.

 

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An increasing number of pharmaceutical companies have become interested in the development and commercialization of products incorporating advanced or novel drug delivery systems. Some of the major pharmaceutical companies have invested and are continuing to invest significant resources in the development of their own drug delivery systems and technologies and some have invested funds in such specialized drug delivery companies. Many of these companies have greater financial and other resources as well as more experience than we do in commercializing pharmaceutical products. Certain companies have a track record of success in developing controlled-release drugs. Significant among these are, without limitation, Pfizer, Sandoz (a Novartis company), Mylan Laboratories, Inc., Endo Pharmaceuticals, Inc., Teva Pharmaceuticals Industries Ltd., Amneal Laboratories, Inc., Mallinckrodt, and Aurobindo. Each of these companies has developed expertise in certain types of drug delivery systems, although such expertise does not carry over to developing a controlled-release version of all drugs. Such companies may develop new drug formulations and products or may improve existing drug formulations and products more efficiently than we can. In addition, almost all of our competitors have vastly greater resources than we do. While our product development capabilities and, if obtained, patent protection may help us to maintain our market position in the field of advanced drug delivery, there can be no assurance that others will not be able to develop such capabilities or alternative technologies outside the scope of our patents, if any, or that even if patent protection is obtained, such patents will not be successfully challenged in the future.

 

In addition to competitors that are developing products based on drug delivery technologies, there are also companies that have announced that they are developing opioid abuse-deterrent products that might compete directly or indirectly with Elite’s products. These include, but are not limited to Pfizer Inc., Collegium Pharmaceuticals, Inc., and Purdue Pharma LP

 

We also face competition in the generic pharmaceutical market. The principal competitive factors in the generic pharmaceutical market include: (i) introduction of other generic drug manufacturers’ products in direct competition with our products under development, (ii) introduction of authorized generic products in direct competition with any of our products under development, particularly if such products are approved and sold during exclusivity periods, (iii) consolidation among distribution outlets through mergers and acquisitions and the formation of buying groups, (iv) ability of generic competitors to quickly enter the market after the expiration of patents or exclusivity periods, diminishing the amount and duration of significant profits, (v) the willingness of generic drug customers, including wholesale and retail customers, to switch among pharmaceutical manufacturers, (vi) pricing pressures and product deletions by competitors, (vii) a company’s reputation as a manufacturer and distributor of quality products, (viii) a company’s level of service (including maintaining sufficient inventory levels for timely deliveries), (ix) product appearance and labeling and (x) a company’s breadth of product offerings.

 

Sources and Availability of Raw Materials; Manufacturing

 

A significant portion of our raw materials may be available only from foreign sources. Foreign sources can be subject to the special risks of doing business abroad, including:

 

greater possibility for disruption due to transportation or communication problems;

 

the relative instability of some foreign governments and economies;

 

interim price volatility based on labor unrest, materials or equipment shortages, export duties, restrictions on the transfer of funds, or fluctuations in currency exchange rates; and

 

uncertainty regarding recourse to a dependable legal system for the enforcement of contracts and other rights.

 

While we currently obtain the raw materials that we need from over 20 suppliers, some materials used in our products are currently available from only one supplier or a limited number of suppliers. The FDA requires identification of raw material suppliers in applications for approval of drug products. If raw materials were unavailable from a specified supplier, FDA approval of a new supplier could delay the manufacture of the drug involved.

 

We have acquired pharmaceutical manufacturing equipment for manufacturing our products. We have registered our facilities with the FDA and the DEA.

 

Please see the Risk Factor in Part I, Item 1A to our 2020 Form 10-K entitled “We are dependent on a small number of suppliers for our raw materials and any delay or unavailability of raw materials can materially adversely affect our ability to produce products”.

 

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Dependence on One or a Few Major Customers

 

Each year we have had one or a few customers that have accounted for a large percentage of our limited revenues, therefore the termination or restructuring of a contract with a customer may result in the loss of material amount or substantially all of our revenues. We are constantly working to develop new relationships with existing or new customers, but despite these efforts we may not, at the time that any of our current contracts expire, have other contracts in place generating similar or material revenue. We have agreements with Lannett, Glenmark and Precision Dose for the licensing, sales and distribution of products that we manufacture. We receive revenues to manufacture these products and also receive a profit split or royalties based on in-market sales of the products. Please see the Risk Factor in Part I, Item 1A to our 2020 Form 10-K entitled “We depend on a limited number of customers and any reduction, delay or cancellation of an order from these customers or the loss of any of these customers could cause our revenue to decline.”

 

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 condensed consolidated financial statements and accompanying notes. Note 1 Summary of Significant Accounting Policies, of the Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q describes the significant accounting policies and methods used in the preparation of our unaudited condensed consolidated financial statements. 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.

 

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 June 30, 2020 compared to June 30, 2019

 

Revenue, Cost of revenue and Gross profit:

 

    For the Three Months
Ended June 30,
    Change  
    2020     2019     Dollars     Percentage  
Manufacturing fees   $ 6,637,239     $ 2,927,358     $ 3,709,881       127 %
Licensing fees     901,505       431,882       469,623       109 %
Total revenue     7,538,744       3,359,240       4,179,504       124 %
Cost of revenue     4,562,350       2,060,286       2,502,064       121 %
Gross profit   $ 2,976,394     $ 1,298,954     $ 1,677,440       129 %
                                 
Gross profit - percentage     39 %     39 %                

 

Total revenues for the three-month period ended June 30, 2020 increased by $4.2 million or 124%, to $7.5 million, as compared to $3.4 million, for the corresponding period in 2019 primarily due to revenues earned from Amphetamine ER Tablets which was launched during the current fiscal year and increased sales of Amphetamine IR Tablets, Isradipine and Phentermine during the three month period ended June 30, 2020 as compared to the comparable period of the prior fiscal year.

 

Manufacturing fees increased by $3.7 million, or 127%, primarily due to revenues earned from the manufacture of Amphetamine ER Tablets which was launched during the current fiscal year and increased sales of Amphetamine IR Tablets, Isradipine and Phentermine during the three month period ended June 30, 2020 as compared to the comparable period of the prior fiscal year.

 

Licensing fees increased by $0.5 million, or 109%. This increase is primarily due to license fees earned from in-market sales of Amphetamine ER Tablets, which were launched during the current fiscal year and increased fees earned from in-market sales of Amphetamine IR Tablets during the three months ended June 30, 2020 as compared to the comparable period of the prior fiscal year.

 

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Costs of revenue consists of manufacturing and assembly costs. Our costs of revenue increased by $2.5 million or 121%, to $4.6 million as compared to $2.1 million for the corresponding period in the prior fiscal year. This increase was due in large part to the increase in manufacturing revenues as compared to the comparable period of the prior fiscal year, which have a strong positive correlation to these costs of revenues.

 

Our gross profit margin was 39% during the three months ended June 30, 2020 as compared to 39% during the comparable period of the prior fiscal year.

 

Operating expenses: 

 

    For the Three Months
Ended June 30,
    Change  
    2020     2019     Dollars     Percentage  
Operating expenses:                                
Research and development   $ 943,879     $ 1,408,036     $ (464,157 )     -33 %
General and administrative     868,777       681,476       187,301       27 %
Non-cash compensation     5,521       26,194       (20,673 )     -79 %
Depreciation and amortization     327,617       330,953       (3,336 )     -1 %
Total operating expenses   $ 2,145,794     $ 2,446,659     $ (300,865 )     -12 %

 

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 June 30, 2020 decreased by $0.3 million, or 12%, to $2.1 million as compared to $2.4 million for the corresponding period in the prior fiscal year.

 

Research and development costs for the three months ended June 30, 2020 were $0.9 million, a decrease of $0.5 million, or 33%, from $1.4 million of such costs for the comparable period of the prior year. The decrease was a result of the timing and nature of product development activities during the three month period ended June 30, 2020 as compared to the comparable period of the prior fiscal year.

 

General and administrative expenses for the three months ended June 30, 2020 were $0.9 million, an increase of $0.2 million, or 27% from $0.7 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 being in excess of ongoing cost reduction initiatives.

 

Non-cash compensation expense for the three months ended June 30, 2020 and 2019 was $0.01 million and $0.03 million, respectively.

 

Depreciation and amortization expenses for the three months ended June 30, 2020 were $0.3 million, which was virtually unchanged from $0.3 million in such costs for the comparable period of the prior fiscal year.

 

As a result of the foregoing, our operating profit for the three months ended June 30, 2020 was $0.8 million, compared to an operating loss of $1.1 million for the comparable period of the prior fiscal year.

 

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Other income (expense):

 

    For the Three Months
Ended June 30,
    Change  
    2020     2019     Dollars     Percentage  
Other income (expense):                        
Interest expense and amortization of debt issuance costs   $ (79,431 )   $ (97,670 )   $ 18,239       -19 %
Gain on sale of fixed assets     38,090       —        38,090       n/a  
Change in fair value of derivative instruments     (658,593 )     1,522,031       (2,180,624 )     -143 %
Interest income     276       3,046       (2,770 )     -91 %
Other (expense) income, net   $ (699,658 )   $ 1,427,407     $ (2,127,065 )     -149 %

  

Other (expense) income, net for the three months ended June 30, 2020 was a net other expense of $0.7 million, a decrease of $2.1 million from the net other income of $1.4 million for the comparable period of the prior fiscal year. The decrease in other income (expense) was due to derivative income relating to changes in the fair value of our outstanding warrants during the three months ended June 30, 2020. Please note that the change in the fair value of derivative instruments is determined in large part by the change in the closing price of the Company’s Common Stock as of the end of the period, as compared to the closing price at the beginning of the period, with a strong inverse relationship between the fair value of our derivatives instruments and decreases in the closing price of the Company’s Common Stock. Please see Note 10 to the Unaudited Condensed Consolidated Financial Statements above.

 

As a result of the foregoing, our net income before the net benefit from sale of net operating loss credits for the three months ended June 30, 2020 was $0.1 million, compared to $0.3 million for the comparable period of the prior fiscal year.

 

Change in value of convertible preferred share mezzanine equity:

 

There were no changes in the value of our convertible preferred stock, which is included in the calculation of net loss attributable to common shareholders for the three months ended June 30, 2020, and June 30, 2019.

 

Liquidity and Capital Resources

 

Capital Resources 

 

    June 30,
2020
    March 31,
2020
    Change  
Current assets   $ 13,251,094     $ 10,251,279     $ 2,999,815  
Current liabilities   $ 8,635,261     $ 8,639,548     $ (4,287 )
Working capital   $ 4,615,833     $ 1,611,731     $ 3,004,102  

   

Our working capital (total current assets less total current liabilities) increased by $3.0 million from $1.6 million as of March 31, 2020 to $4.6 million as of June 30, 2020, with such increase being primarily related to the net income of $1.1 million and a net positive cash flow of .$1.7 million achieved during the three months ended June 30, 2020.

 

Summary of Cash Flows:

 

    For the Three Months
Ended June 30,
 
    2020     2019  
Net cash provided by operating activities   $ 807,423     $ 188,273  
Net cash provided by (used in) investing activities   $ 37,276     $ (2,978 )
Net cash provided by financing activities   $ 811,404     $ 114,010  

  

Net cash provided by operating activities for the three months ended June 30, 2020 was $0.8 million, which included net income of $1.1 million, offset by increases in assets/decreases in liabilities totaling $1.5 million and increased by non-cash expenses totaling $1.2 million.

 

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Net cash provided by investing activities for the three months ended June 30, 2020 was $0.04 million.

 

Net cash provided by financing activities was $0.8 million for the three months ended June 30, 2020 which consist primarily of proceeds from the payroll protection program loan offset by loan payments.

 

Lincoln Park Capital - May 1, 2017 Purchase Agreement

 

On May 1, 2017, we 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, we have the right to sell to and Lincoln Park is obligated to purchase up to $40 million in shares of our Common Stock, subject to certain limitations, from time to time, over the 36-month period commencing on June 5, 2017. We may direct Lincoln Park, at our sole discretion and subject to certain conditions, to purchase up to 500,000 shares of Common Stock on any business day, provided that at least one business day has passed since the most recent purchase, increasing to up to 1,000,000 shares, depending upon the closing sale price of the Common Stock (such purchases, “Regular Purchases”). However, in no event shall a Regular Purchase be more than $1,000,000. The purchase price of shares of Common Stock related to the future funding will be based on the prevailing market prices of such shares at the time of sales. In addition, we may direct Lincoln Park to purchase additional amounts as accelerated purchases under certain circumstances. Our sales of shares of Common Stock to Lincoln Park under the 2017 LPC Purchase Agreement are limited to no more than the number of shares that would result in the beneficial ownership by Lincoln Park and its affiliates, at any single point in time, of more than 4.99% of the then outstanding shares of Common Stock.

 

In connection with the 2017 LPC Purchase Agreement, we issued to Lincoln Park 5,540,551 shares of Common Stock and we are required to issue up to 5,540,551 additional shares of Common Stock pro rata as we require Lincoln Park to purchase our shares under the Purchase Agreement over the term of the agreement. Lincoln Park has represented to us, among other things, that it is an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”)). We sold the securities in reliance upon an exemption from registration contained in Section 4(a)(2) under the Securities Act. The securities sold may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

 

The 2017 LPC Purchase Agreement and the 2017 LPC Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of the parties. We have the right to terminate the 2017 LPC Purchase Agreement at any time, at no cost or penalty. Actual sales of shares of Common Stock to Lincoln Park under the Purchase Agreement will depend on a variety of factors to be determined by us from time to time, including, among others, market conditions, the trading price of the Common Stock and determinations by us as to the appropriate sources of funding for us and our operations. There are no trading volume requirements or, other than the limitation on beneficial ownership discussed above, restrictions under the Purchase Agreement. Lincoln Park has no right to require any sales by us but is obligated to make purchases from us as we direct in accordance with the Purchase Agreement. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of our shares.

 

The net proceeds received by us under the 2017 LPC Purchase Agreement will depend on the frequency and prices at which we sell shares of our stock to Lincoln Park. We anticipate that any proceeds received by us from such sales to Lincoln Park under the 2017 LPC Purchase Agreement will be used for research and product development, general corporate purposes and working capital requirements.

 

A registration statement on form S-3 was filed with the SEC on May 10, 2017 and was declared effective on June 5, 2017.

 

The 2017 LPC Purchase Agreement expired on July 1, 2020, in accordance with its terms and conditions.

 

The Company did not issue any shares of its common stock pursuant to the 2017 LPC Purchase Agreement during the three months ended June 30, 2020.

 

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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 (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.

 

Under the terms and subject to the conditions of the 2020 LPC Purchase Agreement, the Company has the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase, up to $25.0 million of the Company’s Common Stock. Sales of Common Stock by the Company, if any, will be subject to certain limitations set forth in the 2020 LPC Purchase Agreement, and may occur from time to time, at the Company’s sole discretion, over the 36-month period commencing on July 27, 2020, the date that the registration statement covering the resale of the shares of Common Stock that have been and may be issued under the 2020 LPC Purchase Agreement was declared effective by the Securities and Exchange Commission (the “SEC”) and the other conditions to Lincoln Park’s obligation to purchase such shares set forth in the Purchase Agreement, all of which are outside of Lincoln Park’s control, were satisfied.

 

Under the 2020 LPC Purchase Agreement, the Company may direct Lincoln Park to purchase up to 500,000 shares of Common Stock on such business day (each, a “Regular Purchase”), provided, however, that (i) the Regular Purchase may be increased to up to 600,000 shares, provided that the closing sale price of the Common Stock is not below $0.15 on the purchase date; (ii) the Regular Purchase may be increased to up to 700,000 shares, provided that the closing sale price of the Common Stock is not below $0.20 on the purchase date; (iii) the Regular Purchase may be increased to up to 800,000 shares, provided that the closing sale price of the Common Stock is not below $0.25 on the purchase date; and (iv) the Regular Purchase may be increased to up to 900,000 shares, provided that the closing sale price of the Common Stock is not below $0.30 on the purchase date. In each case, Lincoln Park’s maximum dollar commitment in any single Regular Purchase may not exceed $1,000,000. The purchase price per share for each such Regular Purchase will be based on an agreed upon fixed discount to the prevailing market prices of the Company’s Common Stock immediately preceding the time of sale. In addition to Regular Purchases, the Company may also direct Lincoln Park to purchase other amounts as accelerated purchases and as additional accelerated purchases if the closing sale price of the Common Stock is not less than $0.03 per share at such times as set forth in the 2020 LPC Purchase Agreement. There are no upper limits on the price per share that Lincoln Park must pay for shares of Common Stock. The above-referenced share amount limitations and closing sale price thresholds are subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as provided in the 2020 LPC Purchase Agreement.

 

Lincoln Park has no right to require the Company to sell any shares of Common Stock to Lincoln Park, but Lincoln Park is obligated to make purchases as the Company directs, subject to satisfaction of the conditions set forth in the 2020 LPC Purchase Agreement. Actual sales of shares of Common Stock to Lincoln Park will depend on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of the Common Stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations. In all instances, the Company may not sell shares of its Common Stock to Lincoln Park under the 2020 LPC Purchase Agreement if it would result in Lincoln Park beneficially owning more than 4.99% of its Common Stock.

 

The net proceeds under the 2020 LPC Purchase Agreement to the Company will depend on the frequency and prices at which the Company sells shares of its stock to Lincoln Park. The Company expects that any proceeds received by the Company from such sales to Lincoln Park will be used for research and product development, general corporate purposes and working capital requirements.

 

As consideration for Lincoln Park’s irrevocable commitment to purchase Common Stock upon the terms of and subject to satisfaction of the conditions set forth in the 2020 LPC Purchase Agreement, upon execution of the 2020 LPC Purchase Agreement, the Company issued to Lincoln Park 5,975,857 shares of Common Stock as commitment shares, and the Company has agreed to issue up to 5,975,857 additional shares of Common Stock as additional commitment shares, on a pro rata basis at such times during the term of the 2020 LPC Purchase Agreement as the Company may direct Lincoln Park to purchase shares of Common Stock under the 2020 LPC Purchase Agreement.

 

The Company has agreed with Lincoln Park that it will not enter into any “variable rate” transactions as defined in the 2020 LPC Purchase Agreement with any third party for a period set forth in the 2020 LPC Purchase Agreement. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s Common Stock.

 

The 2020 LPC Purchase Agreement and the 2020 LPC Registration Rights Agreement contain customary representations, warranties, agreements and conditions to completing future sale transactions, indemnification rights and obligations of the parties. The Company has the right to terminate the 2020 LPC Purchase Agreement at any time, at no cost or penalty. During any “event of default” under the 2020 LPC Purchase Agreement, all of which are outside of Lincoln Park’s control, Lincoln Park does not have the right to terminate the 2020 LPC Purchase Agreement; however, the Company may not deliver a notice directing Lincoln Park to make purchases of Common Stock, until such event of default is cured. In addition, in the event of bankruptcy proceedings by the Company, the 2020 LPC Purchase Agreement will automatically terminate. In addition, in the event of bankruptcy proceedings against the Company, the 2020 LPC Purchase Agreement will terminate if the proceedings are not discharged within 90 days.

 

The Company did not issue any shares of its common stock pursuant to the 2020 LPC Purchase Agreement during the three months ended June 30, 2020. As noted above, subsequent to June 30, 2020, the Company issued an aggregate of 5,975,857 shares of Common Stock to Lincoln Park as initial commitment shares.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We believe that our market risk exposures are immaterial as we do not have instruments for trading purposes, and reasonable possible near-term changes in market rates or prices will not result in material near-term losses in earnings, material changes in fair values or cash flows for all instruments.

 

We maintain all our cash, cash equivalents and restricted cash in three financial institutions, and we perform periodic evaluations of the relative credit standing of these institutions. However, no assurances can be given that the third-party institutions will retain acceptable credit ratings or investment practices.

 

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. 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.

 

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 Securities Exchange Act of 1934, as amended (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 June 30, 2020 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.

 

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

Pending Litigation

 

There have been no material developments in any of the legal proceedings discussed in Item 3 of our 2020 Form 10-K.

 

ITEM 1A. RISK FACTORS

 

None.

 

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

 

Nasrat Hakim, the holder of all of the Series J convertible preferred stock and the Series J common stock purchase warrant, waived any rights he may have pursuant to the anti-dilution provisions of these Series J securities with regard to transactions effected under the 2020 LPC Purchase Agreement.

 

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ITEM 6. EXHIBITS

 

Exhibit No.   Description
     
3.1(a)   Articles of Incorporation of Elite-Nevada, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on January 9, 2012.
     
3.1(b)   Certificate of Designations of the Series G Convertible Preferred Stock as filed with the Secretary of State of the State of Nevada on April 18, 2013, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, dated April 18, 2013 and filed with the SEC on April 22, 2013.
     
3.1(c)   Certificate of Designation of the Series H Junior Participating Preferred Stock, incorporated by reference to Exhibit 2 (contained in Exhibit 1) to the Registration Statement on Form 8-A filed with the SEC on November 15, 2013.
     
3.1(d)   Certificate of Designations of the Series I Convertible Preferred Stock as filed with the Secretary of State of the State of Nevada on February 6, 2014, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, dated February 6, 2014 and filed with the SEC on February 7, 2014.
     
3.1(e)   Certificate of Designations of the Series J Convertible Preferred Stock as filed with the Secretary of State of the State of Nevada on May 3, 2017, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, dated April 28, 2017 and filed with the SEC on April 28, 2017.
     
3.1(f)   Certificate of Amendment to Articles of Incorporation, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, dated June 24, 2020 and filed with the SEC on June 24, 2020.
     
3.2(a)   Amended and Restated By-Laws of the Company, incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K dated April 23, 2020 and filed with the SEC on April 23, 2020.
     
4.1   Form of specimen certificate for Series G Convertible Preferred Stock of the Company, incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K, dated April 18, 2013 and filed with the SEC on April 22, 2013.
     
4.2   Form of specimen certificate for Series I Convertible Preferred Stock of the Company, incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K, dated February 6, 2014 and filed with the SEC on February 7, 2014.

   

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4.3   Rights Agreement, dated as of November 15, 2013, between the Company and American Stock Transfer & Trust Company, LLC., incorporated by reference to Exhibit 1 to the Registration Statement on Form 8-A filed with the SEC on November 15, 2013.
     
4.4   Form of Series H Preferred Stock Certificate, incorporated by reference to Exhibit 1 to the Registration Statement on Form 8-A filed with the SEC on November 15, 2013.
     
4.5   Warrant to purchase shares of Common Stock issued to Nasrat Hakim dated April 28, 2017 incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, dated April 28, 2017, and filed with the SEC on April 28, 2017.
     
10.1   Elite Pharmaceuticals, Inc. 2014 Equity Incentive Plan, incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement for its Annual Meeting of Shareholders, filed with the SEC on April 3, 2014.
     
10.2   Form of Confidentiality Agreement (corporate), incorporated by reference to Exhibit 10.7 to the Form SB-2.
     
10.3   Form of Confidentiality Agreement (employee), incorporated by reference to Exhibit 10.8 to the Form SB-2.
     
10.4   Loan Agreement, dated as of August 15, 2005, between New Jersey Economic Development Authority (“NJEDA”) and the Company, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated August 31, 2005 and filed with the SEC on September 6, 2005.
     
10.5   Series A Note in the aggregate principal amount of $3,660,000.00 payable to the order of the NJEDA, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, dated August 31, 2005 and filed with the SEC on September 6, 2005.
     
10.6   Series B Note in the aggregate principal amount of $495,000.00 payable to the order of the NJEDA, incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, dated August 31, 2005 and filed with the SEC on September 6, 2005.
     
10.7   Mortgage from the Company to the NJEDA, incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K, dated August 31, 2005 and filed with the SEC on September 6, 2005.
     
10.8   Indenture between NJEDA and the Bank of New York as Trustee, dated as of August 15, 2005, incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K, dated August 31, 2005 and filed with the SEC on September 6, 2005.
     
10.9   Strategic Alliance Agreement, dated as of March 18, 2009, by and among the Company, Epic Pharma, LLC and Epic Investments, LLC, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated March 18, 2009 and filed with the SEC on March 23, 2009.
     
10.10   Amendment to Strategic Alliance Agreement, dated as of April 30, 2009, by and among the Company, Epic Pharma, LLC and Epic Investments, LLC, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated April 30, 2009 and filed with the SEC on May 6, 2009.
     
10.11   Second Amendment to Strategic Alliance Agreement, dated as of June 1, 2009, by and among the Company, Epic Pharma, LLC and Epic Investments, LLC, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated June 1, 2009, and filed with the SEC on June 5, 2009.
     
10.12   Third Amendment to Strategic Alliance Agreement, dated as of Aug 18, 2009, by and among the Company, Epic Pharma LLC and Epic Investments, LLC, incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q, for the period ending June 30, 2009 and filed with the SEC on August 19, 2009.
     
10.13   Employment Agreement, dated as of November 13, 2009, by and between the Company and Carter J. Ward, incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q, for the period ending September 30, 2009 and filed with the SEC on November 16, 2009.
     
10.14   Elite Pharmaceuticals Inc. 2009 Equity Incentive Plan, as adopted November 24, 2009, incorporated by reference to Exhibit 10.1 to the Registration Statement Under the Securities Act of 1933 on Form S-8, dated December 18, 2009 and filed with the SEC on December 22, 2009.
     
10.15   License Agreement, dated as of September 10, 2010, by and among Precision Dose Inc. and the Company, incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q, for the period ended September 30, 2010 and filed with the SEC on November 15, 2010 (Confidential Treatment granted with respect to portions of the Agreement).
     
10.16   Manufacturing and Supply Agreement, dated as of September 10, 2010, by and among Precision Dose Inc. and the Company, incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q, for the period ended September 30, 2010 and filed with the SEC on November 15, 2010 (Confidential Treatment granted with respect to portions of the Agreement).

 

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10.17   August 1, 2013 Employment Agreement with Nasrat Hakim, incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K, dated August 1, 2013 and filed with the SEC on August 5, 2013.
     
10.18   August 1, 2013 Mikah LLC Asset Purchase Agreement, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K/A, dated August 1, 2013 and filed with the SEC on July 31. 2020
     
10.19   August 1, 2013 Secured Convertible Note from the Company to Mikah Pharma LLC., incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, dated August 1, 2013 and filed with the SEC on August 5, 2013.
     
10.20   August 1, 2013 Security Agreement from the Company to Mikah Pharma LLC., incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, dated August 1, 2013 and filed with the SEC on August 5, 2013.
     
10.21   October 15, 2013 Hakim Credit Line Agreement, incorporated by reference to Exhibit 10.16 to the Quarterly Report on Form 10-Q for the period ended September 30, 2013.
     
10.22   October 2, 2013 Manufacturing and Licensing Agreement with Epic Pharma LLC, incorporated by reference to Exhibit 10.17 to the Amended Quarterly Report on Form 10-Q/A for the period ended September 30, 2013 and filed with the SEC on April 25, 2014. Confidential Treatment granted with respect to portions of the Agreement.
     
10.23   February 7, 2014 Amendment to Secured Convertible Note from the Company to Mikah, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated February 7, 2014 and filed with the SEC on February 7, 2014.
     
10.24   Employment Agreement with Dr. G. Kenneth Smith, dated October 20, 2014, incorporated by reference to Exhibit 10.82 to the Quarterly Report on Form 10-Q for the period ended September 30, 2014 and filed with the SEC on November 14, 2014.
     
10.25   January 28, 2015 First Amendment to the Loan Agreement between Nasrat Hakim and Elite Pharmaceuticals dated October 15, 2013, incorporated by reference to Exhibit 10.83 to the Quarterly Report on Form 10-Q for the period ended December 31, 2014 and filed with the SEC on February 17, 2015.
     
10.26   January 28, 2015 Termination of Development and License Agreement for Mikah-001 between Elite Pharmaceuticals, Inc. and Mikah Pharma LLC and Transfer of Payment, incorporated by reference to Exhibit 10.84 to the Quarterly Report on Form 10-Q for the period ended December 31, 2014 and filed with the SEC on February 17, 2015.
     
10.27   June 4, 2015 License Agreement with Epic Pharma LLC, incorporated by reference to Exhibit 10.85 to Amendment No. 1 to the Annual Report on Form 10-K for the fiscal year ended March 31, 2015 and filed with the SEC on July 11, 2016. (Confidential Treatment granted with respect to portions of the Agreement).
     
10.28   Amendment No. 1 to Hakim Employment Agreement, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on January 29, 2016.
     
10.29   August 24, 2016 Master Development and License Agreement between Elite and SunGen Pharma LLC. incorporated by reference to Exhibit 10.44 to the Quarterly Report on Form 10-Q for the period ended September 30, 2016 and filed with the SEC on November 9, 2016. (Confidential Treatment granted with respect to portions of the Agreement).
     
10.30   Purchase Agreement between the Company and Lincoln Park Capital LLC dated May 1, 2017, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated May 2, 2017 and filed with the SEC on May 2, 2017.
     
10.31   Registration Rights Agreement between the Company and Lincoln Park Capital LLC dated May 1, 2017, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, dated May 2, 2017 and filed with the SEC on May 2, 2017.
     
10.32   April 28, 2017 Exchange Agreement between the Company and Nasrat Hakim, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated April 28, 2017 and filed with the SEC on April 28. 2017.
     
10.33   May 2017 Trimipramine Acquisition Agreement from Mikah Pharma, incorporated by reference to Exhibit 10.50 to the Annual Report on Form 10-K, for the period ended March 31, 2017 and filed with the SEC on June 14, 2017.

 

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10.34   May 2017 Secured Promissory Note from the Company to Mikah Pharma, incorporated by reference to Exhibit 10.51 to the Annual Report on Form 10-K, for the period ended March 31, 2017 and filed with the SEC on June 14, 2017.
     
10.35   May 2017 Security Agreement between the Company to Mikah Pharma, incorporated by reference to Exhibit 10.52 to the Annual Report on Form 10-K, for the period ended March 31, 2017 and filed with the SEC on June 14, 2017.
     
10.36   May 2017 Assignment of Supply and Distribution Agreement between Dr. Reddy’s Laboratories and Mikah Pharma, incorporated by reference to Exhibit 10.53 to the Annual Report on Form 10-K, for the period ended March 31, 2017 and filed with the SEC on June 14, 2017.
     
10.37   May 2017 Assignment of Manufacturing and Supply Agreement between Epic and Mikah Pharma, incorporated by reference to Exhibit 10.54 to the Annual Report on Form 10-K, for the period ended March 31, 2017 and filed with the SEC on June 14, 2017.
     
10.38   Supply and Distribution Agreement between Dr. Reddy’s Laboratories and Mikah Pharma, incorporated by reference to Exhibit 10.55 to the Annual Report on Form 10-K, for the period ended March 31, 2017 and filed with the SEC on June 14, 2017. (Confidential Treatment granted with respect to portions of the Agreement).
     
10.39   Manufacturing and Supply Agreement between Epic and Mikah Pharma, incorporated by reference to Exhibit 10.56 to the Annual Report on Form 10-K, for the period ended March 31, 2017 and filed with the SEC on June 14, 2017. (Confidential Treatment granted with respect to portions of the Agreement).
     
10.40   Master Development and License Agreement For Products Between Elite Pharmaceuticals, Inc. And SunGen dated July 6, 2017, incorporated by reference to Exhibit 10.57 to the Quarterly Report on Form 10-Q for the period ended June 30, 2017 and filed with the SEC on August 9, 2017. (Confidential Treatment granted with respect to portions of the Agreement).
     
10.41   First Amendment to Master Development And License Agreement For Products Between Elite Pharmaceuticals, Inc. and SunGen Pharma, LLC, incorporated by reference to Exhibit 10.59 to the Quarterly Report on Form 10-Q for the period ended June 30, 2017 and filed with the SEC on August 9, 2017. (Confidential Treatment granted with respect to portions of the Agreement).
     
10.42   Second Amendment to Master Development And License Agreement For Products Between Elite Pharmaceuticals, Inc. and SunGen Pharma, LLC, incorporated by reference to Exhibit 10.58 to the Quarterly Report on Form 10-Q for the period ended June 30, 2017 and filed with the SEC on August 9, 2017. (Confidential Treatment granted with respect to portions of the Agreement).
     
10.43   May 22, 2018 License, Manufacturing and Supply Agreement with Glenmark Pharmaceuticals Inc. USA, incorporated by reference to Exhibit 10.60 to the Annual Report on Form 10-K for the fiscal year ended March 31, 2018 and filed with the SEC on June 14, 2018. (Confidential treatment granted with respect to portions of the Agreement).
     
10.44   August 1, 2018 Amendment to the Glenmark Pharmaceuticals Inc. USA License, Supply and Distribution Agreement, incorporated by reference to Exhibit 10.44 to the Quarterly Report on Form 10-Q, for the period ended December 31, 2019 and filed with the SEC on February 10, 2020. (Portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10)).of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10)).
     
10.45   License, Supply And Distribution Agreement effective March 6, 2019 by and between Elite Pharmaceuticals, Inc., and Elite Laboratories, Inc. and Lannett Company, Inc., USA, incorporated by reference to Exhibit 10.45 to the Quarterly Report on Form 10-Q, for the period ended December 31, 2019 and filed with the SEC on February 10, 2020. (Portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10)).
     
10.46   License, Supply And Distribution Agreement effective April 9, 2019 by and between Elite Pharmaceuticals, Inc., and Elite Laboratories, Inc. and Lannett Company, Inc., USA, incorporated by reference to Exhibit 10.49 to the Annual Report on Form 10-K for the fiscal year ended March 31, 2019 and filed with the SEC on June 21, 2019 (portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10)).
     
10.47   License, Supply And Distribution Agreement effective March 6, 2019 by and between Elite Pharmaceuticals, Inc., and Elite Laboratories, Inc. and Lannett Company, Inc., USA, incorporated by reference to Exhibit 10.50 to the Annual Report on Form 10-K for the fiscal year ended March 31, 2019 and filed with the SEC on June 21, 2019 (portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10)).
     
10.48   Development Agreement effective December 3, 2018 by and between Mikah Pharma LLC and Elite Laboratories, Inc., incorporated by reference to Exhibit 10.51 to the Annual Report on Form 10-K for the fiscal year ended March 31, 2019 and filed with the SEC on June 21, 2019 (portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10)).

 

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10.49   Asset Purchase Agreement dated November 13, 2019 by and between the Company and Nostrum Laboratories Inc, incorporated by reference to Exhibit 10.49 to the Quarterly Report on Form 10-Q, for the period ended December 31, 2019 and filed with the SEC on February 10, 2020.
     
10.50   January 2, 2020 Amendment to the Glenmark Pharmaceuticals Inc. USA License, Supply and Distribution Agreement, incorporated by reference to Exhibit 10.50 to the Quarterly Report on Form 10-Q, for the period ended December 31, 2019 and filed with the SEC on February 10, 2020. (Portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10)).
     
10.51   Asset Purchase Agreement executed January 16, 2020 by and between the Company and Nostrum Laboratories Inc., incorporated by reference to Exhibit 10.49 to the Quarterly Report on Form 10-Q, for the period ended December 31, 2019 and filed with the SEC on February 10, 2020.
     
10.52   Employment Agreement with Douglas Plassche, incorporated by reference to Exhibit 10.52 to the Annual Report on Form 10-K for the fiscal year ended March 31, 2020 and filed with the SEC on June 29, 2020.
     
10.53   June 21, 2019 Retention Agreement with Douglas Plassche, incorporated by reference to Exhibit 10.53 to the Annual Report on Form 10-K for the fiscal year ended March 31, 2020 and filed with the SEC on June 29, 2020.
     
10.54   July 29, 2019 Amendment To The License, Supply And Distribution Agreement Between Elite Pharmaceuticals, Inc./Elite Laboratories, Inc. And Lannett Company, Inc. (Portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10)), incorporated by reference to Exhibit 10.54 to the Annual Report on Form 10-K for the fiscal year ended March 31, 2020 and filed with the SEC on June 29, 2020.
     
10.55   Purchase Agreement, dated July 8, 2020, by and between the Company and Lincoln Park Capital Fund, LLC, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated July 8, 2020 and filed with the SEC on July 9, 2020.
     
10.56   Registration Rights Agreement, dated July 8, 2020, by and between the Company and Lincoln Park Capital Fund, LLC, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, dated July 8, 2020 and filed with the SEC on July 9, 2020.
     
10.57   Series J Preferred Stock and Series J Common Stock Purchase Warrant anti-dilution waiver *
     
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

 

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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.
     
August 14, 2020 By: /s/ Nasrat Hakim
    Nasrat Hakim
Chief Executive Officer, President and
Chairman of the Board of Directors
(Principal Executive Officer)
     
August 14, 2020 By: /s/ Carter J. Ward
    Carter J. Ward
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)

 

 

 

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