NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview
Elite
Pharmaceuticals, Inc. (the “Company” or “Elite”) was incorporated on October 1, 1997 under the laws of the State
of Delaware, and its wholly owned subsidiary Elite Laboratories, Inc. (“Elite Labs”) was incorporated on August 23, 1990
under the laws of the State of Delaware. On January 5, 2012, Elite Pharmaceuticals was reincorporated under the laws of the State of
Nevada. Elite Labs engages primarily in researching, developing, licensing and manufacture of generic, oral dose pharmaceuticals. The
Company is equipped to manufacture controlled-release products on a contract basis for third parties and itself, if and when the products
are approved. These products include drugs that cover therapeutic areas for allergy, bariatric, attention deficit and infection. Research
and development activities are performed with an objective of developing products that will secure marketing approvals from the United
States Food and Drug Administration (“FDA”), and thereafter, commercially exploiting such products.
Principles
of Consolidation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting
principles in the United States (“GAAP”). The unaudited condensed consolidated financial statements include the accounts
of the Company and its wholly owned subsidiary, Elite Labs. All significant intercompany accounts and transactions have been eliminated
in consolidation. The unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring items,
which are, in the opinion of management, necessary for a fair presentation of such statements. The results of operations for the three
and nine months ended December 31, 2021 are not necessarily indicative of the results that may be expected for the entire year.
Segment
Information
Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification 280 (“ASC 280”), Segment Reporting,
establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making
group, in deciding how to allocate resources and in assessing performance.
The
Company’s chief operating decision maker is the Chief Executive Officer, who reviews the financial performance and the results
of operations of the segments prepared in accordance with GAAP when making decisions about allocating resources and assessing performance
of the Company.
The
Company has determined that its reportable segments are products whose marketing approvals were secured via an Abbreviated New Drug Applications
(“ANDA”) and products whose marketing approvals were secured via a New Drug Application (“NDA”). ANDA products
are referred to as generic pharmaceuticals and NDA products are referred to as branded pharmaceuticals.
There
are currently no intersegment revenues. Asset information by operating segment is not presented below since the chief operating decision
maker does not review this information by segment. The reporting segments follow the same accounting policies used in the preparation
of the Company’s condensed unaudited consolidated financial statements. Please see Note 15 for further details.
Revenue
Recognition
The
Company generates revenue primarily from manufacturing and licensing fees. Manufacturing fees include the development of pain management
products, manufacturing of a line of generic pharmaceutical products with approved ANDA, through the manufacture of formulations and
the development of new products. Licensing fees include the commercialization of products either by license and the collection of royalties,
or the expansion of licensing agreements with other pharmaceutical companies, including co-development projects, joint ventures and other
collaborations.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Under
ASC 606, Revenue from Contacts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains
control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for
those goods or services. The Company recognizes revenues following the five-step model prescribed under ASC 606: (i) identify contract(s)
with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the
transaction price to the performance obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance
obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration
it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined
to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that
are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the
amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is
satisfied. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue.
Nature
of goods and services
The
following is a description of the Company’s goods and services from which the Company generates revenue, as well as the nature,
timing of satisfaction of performance obligations, and significant payment terms for each, as applicable:
a)
Manufacturing Fees
The
Company is equipped to manufacture controlled-release products on a contract basis for third parties, if, and when, the products are
approved. These products include products using controlled-release drug technology. The Company also develops and markets (either on
its own or by license to other companies) generic and proprietary controlled-release pharmaceutical products.
The
Company recognizes revenue when the customer obtains control of the Company’s product based on the contractual shipping terms of
the contract. The Company is primarily responsible for fulfilling the promise to provide the product, is responsible to ensure that the
product is produced in accordance with the related supply agreement and bears risk of loss while the inventory is in-transit to the commercial
partner. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to a
customer.
b)
License Fees
The
Company enters into licensing and development agreements, which may include multiple revenue generating activities, including milestones
payments, licensing fees, product sales and services. The Company analyzes each element of its licensing and development agreements in
accordance with ASC 606 to determine appropriate revenue recognition. The terms of the license agreement may include payment to the Company
of licensing fees, non-refundable upfront license fees, milestone payments if specified objectives are achieved, and/or royalties on
product sales.
If
the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.
Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative
standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone
selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable
through past transactions, the Company estimates the standalone selling price taking into account available information such as market
conditions and internally approved pricing guidelines related to the performance obligations.
The
Company recognizes revenue from non-refundable upfront payments at a point in time, typically upon fulfilling the delivery of the associated
intellectual property to the customer. For those milestone payments which are contingent on the occurrence of particular future events
(for example, payments due upon a product receiving FDA approval), the Company determined that these need to be considered for inclusion
in the calculation of total consideration from the contract as a component of variable consideration using the most-likely amount method.
As such, the Company assesses each milestone to determine the probability and substance behind achieving each milestone. Given the inherent
uncertainty of the occurrence of future events, the Company will recognize revenue from the milestone when there is not a high probability
of a reversal of revenue, which typically occurs near or upon achievement of the event.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Significant
management judgment is required to determine the level of effort required under an arrangement and the period over which the Company
expects to complete its performance obligations under the arrangement. If the Company cannot reasonably estimate when its performance
obligations either are completed or become inconsequential, then revenue recognition is deferred until the Company can reasonably make
such estimates. Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method.
When
determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before
or significantly after performance, resulting in a significant financing component. Applying the practical expedient in ASC 606-10-32-18,
the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations
under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing
component as of December 31, 2021.
In
accordance with ASC 606-10-55-65, royalties are recognized when the subsequent sale of the customer’s products occurs.
The
Company entered into a sales and distribution licensing agreement with Epic Pharma LLC, (“Epic”) dated June 4, 2015 (the
“2015 Epic License Agreement”), which has been determined to satisfy the criteria for consideration as a collaborative agreement
and is accounted for accordingly. The 2015 Epic License Agreement expired on June 4, 2020 without renewal.
The
Company entered into a Master Development and License Agreement with SunGen Pharma LLC dated August 24, 2016 (the “SunGen Agreement”),
which has been determined to satisfy the criteria for consideration as a collaborative agreement and is accounted for accordingly. On
April 3, 2020, Elite and SunGen mutually agreed to discontinue any further joint product development activities.
Disaggregation
of revenue
In
the following table, revenue is disaggregated by type of revenue generated by the Company. The table also includes a reconciliation of
the disaggregated revenue with the reportable segments:
SCHEDULE
OF DISAGGREGATION OF REVENUE
|
|
For
the Three Months Ended December 31,
|
|
|
For
the Nine Months Ended December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
NDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
fees
|
|
$
|
7,667,674
|
|
|
$
|
4,849,871
|
|
|
$
|
20,639,421
|
|
|
$
|
17,659,834
|
|
Licensing
fees
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
166,167
|
|
Total
NDA revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
166,167
|
|
ANDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing
fees
|
|
$
|
7,667,674
|
|
|
$
|
4,849,871
|
|
|
$
|
20,639,421
|
|
|
$
|
17,659,834
|
|
Licensing
fees
|
|
|
1,307,140
|
|
|
|
1,196,711
|
|
|
|
3,950,623
|
|
|
|
3,159,217
|
|
Total
ANDA revenue
|
|
|
8,974,814
|
|
|
|
6,046,582
|
|
|
|
24,590,044
|
|
|
|
20,819,051
|
|
Total
revenue
|
|
$
|
8,974,814
|
|
|
$
|
6,046,582
|
|
|
$
|
24,590,044
|
|
|
$
|
20,985,218
|
|
Selected
information on reportable segments and reconciliation of operating income by segment to income (loss) from operations before income taxes
are disclosed within Note 15.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Cash
The
Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash
equivalents consist of cash on deposit with banks and money market instruments. The Company places its cash and cash equivalents with
high-quality, U.S. financial institutions and, to date has not experienced losses on any of its balances.
Restricted
Cash
As
of December 31, 2021, and March 31, 2021, the Company had $405,027 and $405,013 of restricted cash, respectively, related to debt service
reserve in regard to the New Jersey Economic Development Authority (“NJEDA”) bonds (see Note 5).
Accounts
Receivable
Accounts
receivable are comprised of balances due from customers, net of estimated allowances for uncollectible accounts. In determining collectability,
historical trends are evaluated, and specific customer issues are reviewed on a periodic basis to arrive at appropriate allowances.
Inventory
Inventory
is recorded at the lower of cost or market on specific identification by lot number basis.
Long-Lived
Assets
The
Company periodically evaluates the fair value of long-lived assets, which include property and equipment and intangibles, whenever events
or changes in circumstances indicate that its carrying amounts may not be recoverable.
Property
and equipment are stated at cost. Depreciation is provided on the straight-line method based on the estimated useful lives of the respective
assets which range from three to forty years. Major repairs or improvements are capitalized. Minor replacements and maintenance and repairs
which do not improve or extend asset lives are expensed currently.
Upon
retirement or other disposition of assets, the cost and related accumulated depreciation are removed from the accounts and the resulting
gain or loss, if any, is recognized in income.
Intangible
Assets
The
Company capitalizes certain costs to acquire intangible assets; if such assets are determined to have a finite useful life they are amortized
on a straight-line basis over the estimated useful life. Costs to acquire indefinite lived intangible assets, such as costs related to
ANDAs are capitalized accordingly.
The
Company tests its intangible assets for impairment at least annually (as of March 31st) and whenever events or circumstances change that
indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has
occurred. Such indicators may include, among others and without limitation: a significant decline in the Company’s expected future
cash flows; a sustained, significant decline in the Company’s stock price and market capitalization; a significant adverse change
in legal factors or in the business climate of the Company’s segments; unanticipated competition; and slower growth rates.
As
of December 31, 2021, the Company did not identify any indicators of impairment.
Please
also see Note 4 for further details on intangible assets.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Research
and Development
Research
and development expenditures are charged to expense as incurred.
Contingencies
Occasionally,
the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision
for a liability when it believes that it is both probable that a liability has been incurred, and the amount can be reasonably estimated.
If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s condensed
consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series
of complex judgments about future events and can rely heavily on estimates and assumptions.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled. Where applicable, the Company records a valuation allowance to reduce
any deferred tax assets that it determines will not be realizable in the future.
The
Company recognizes the benefit of an uncertain tax position that it has taken or expects to take on income tax returns it files if such
tax position is more likely than not to be sustained on examination by the taxing authorities, based on the technical merits of the position.
These tax benefits are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.
The
Company operates in multiple tax jurisdictions within the United States of America. The Company remains subject to examination in all
tax jurisdiction until the applicable statutes of limitation expire. As of December 31, 2021, a summary of the tax years that remain
subject to examination in our major tax jurisdictions are: United States – Federal, 2016 and forward, and State, 2013 and forward.
The Company did not record unrecognized tax positions for the three and nine months ended December 31, 2021 and 2020.
Warrants
and Preferred Shares
The
accounting treatment of warrants and preferred share series issued is determined pursuant to the guidance provided by ASC 470, Debt,
ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging, as applicable. Each feature of a
freestanding financial instrument including, without limitation, any rights relating to subsequent dilutive issuances, dividend issuances,
equity sales, rights offerings, forced conversions, optional redemptions, automatic monthly conversions, dividends and exercise is assessed
with determinations made regarding the proper classification in the Company’s financial statements.
Stock-Based
Compensation
The
Company accounts for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation. Under the fair value
recognition provisions, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized
as an expense on a straight-line basis over the requisite service period, based on the terms of the awards. The cost of the stock-based
payments to nonemployees that are fully vested and non-forfeitable as at the grant date is measured and recognized at that date, unless
there is a contractual term for services in which case such compensation would be amortized over the contractual term.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In
accordance with the Company’s Director compensation policy and certain employment contracts, director’s fees and a portion
of employee’s salaries are to be paid via the issuance of shares of the Company’s Common Stock (“Common Stock”),
in lieu of cash, with the valuation of such share being calculated on a quarterly basis and equal to the average closing price of the
Company’s Common Stock.
Earnings
Per Share Attributable to Common Shareholders’
The
Company follows ASC 260, Earnings Per Share, which requires presentation of basic and diluted earnings per share (“EPS”)
on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying financial
statements, basic earnings per share is computed by dividing net income by the weighted average number of shares of Common Stock outstanding
during the period. The computation of diluted net income per share does not include the conversion of securities that would have an antidilutive
effect.
The
following is the computation of earnings per share applicable to common shareholders for the periods indicated:
SCHEDULE
OF EARNINGS (LOSS) PER SHARE APPLICABLE TO COMMON SHAREHOLDERS
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
For
the Three Months Ended December 31,
|
|
|
For
the Nine Months Ended December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income - basic
|
|
$
|
2,283,413
|
|
|
$
|
2,012,133
|
|
|
$
|
6,469,508
|
|
|
$
|
5,571,044
|
|
Effect
of dilutive instrument on net income
|
|
|
(489,500
|
)
|
|
|
—
|
|
|
|
(1,523,394
|
)
|
|
|
—
|
|
Net
income - diluted
|
|
$
|
1,793,913
|
|
|
$
|
2,012,133
|
|
|
$
|
4,946,114
|
|
|
$
|
5,571,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares of Common Stock outstanding - basic
|
|
|
1,011,281,988
|
|
|
|
1,009,176,752
|
|
|
|
1,010,416,823
|
|
|
|
921,339,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive
effect of stock options and convertible securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares of Common Stock outstanding - diluted
|
|
|
1,011,281,988
|
|
|
|
1,009,176,752
|
|
|
|
1,010,416,823
|
|
|
|
921,339,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
Diluted
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
Fair
Value of Financial Instruments
ASC
820, Fair Value Measurements and Disclosures (“ASC 820”) provides a framework for measuring fair value in accordance
with generally accepted accounting principles.
ASC
820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market
participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s
own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable
inputs).
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value
hierarchy under ASC 820 are described as follows:
|
●
|
Level
1 – Unadjusted quoted prices in active markets for identical assets or liabilities
that are accessible at the measurement date.
|
|
●
|
Level
2 – Inputs other than quoted prices included within Level 1 that are observable for
the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices
for similar assets or liabilities in active markets; quoted prices for identical or similar
assets or liabilities in markets that are not active; inputs other than quoted prices that
are observable for the asset or liability; and inputs that are derived principally from or
corroborated by observable market data by correlation or other means.
|
|
●
|
Level
3 – Inputs that are unobservable for the asset or liability.
|
Measured
on a Recurring Basis
The
following table presents information about our liabilities measured at fair value on a recurring basis, aggregated by the level in the
fair value hierarchy within which those measurements fell:
SCHEDULE
OF LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS
|
|
|
|
|
Fair
Value Measurement Using
|
|
|
|
Amount
at Fair Value
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
December
31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments - warrants
|
|
$
|
838,852
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
838,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments - warrants
|
|
$
|
2,362,246
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,362,246
|
|
See
Note 11, for specific inputs used in determining fair value.
The
carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, prepaid expenses and other
current assets, accounts payable and accrued expenses, approximate their fair values because of the short maturity of these instruments.
Based upon current borrowing rates with similar maturities the carrying value of long-term debt approximates fair value.
Non-Financial
Assets that are Measured at Fair Value on a Non-Recurring Basis
Non-financial
assets such as intangible assets, and property and equipment are measured at fair value only when an impairment loss is recognized. The
Company did not record an impairment charge related to these assets in the periods presented.
Treasury
Stock
The
Company records treasury stock at the cost to acquire it and includes treasury stock as a component of shareholders’ equity.
Recently
Issued Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments. This update requires immediate recognition of management’s estimates of current expected credit losses (“CECL”).
Under the prior model, losses were recognized only as they were incurred. The new model is applicable to all financial instruments that
are not accounted for at fair value through net income. The standard is effective for fiscal years beginning after December 15, 2022
for public entities qualifying as smaller reporting companies. Early adoption is permitted. The Company is currently assessing the impact
of this update on the consolidated financial statements and does not expect a material impact on the consolidated financial statements.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Management
has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant
impact on our consolidated financial statements and related disclosures.
NOTE
2. INVENTORY
Inventory
consisted of the following:
SCHEDULE
OF INVENTORY
|
|
December
31, 2021
|
|
|
March
31, 2021
|
|
Finished
goods
|
|
$
|
579,336
|
|
|
$
|
274,603
|
|
Work-in-progress
|
|
|
966
|
|
|
|
781,350
|
|
Raw
materials
|
|
|
6,113,768
|
|
|
|
3,956,949
|
|
Inventory,
net
|
|
$
|
6,694,070
|
|
|
$
|
5,012,902
|
|
NOTE
3. PROPERTY AND EQUIPMENT, NET
Property
and equipment consisted of the following:
SCHEDULE
OF PROPERTY AND EQUIPMENT
|
|
December
31, 2021
|
|
|
March
31, 2021
|
|
Land,
building and improvements
|
|
$
|
5,456,523
|
|
|
$
|
5,456,523
|
|
Laboratory,
manufacturing, warehouse and transportation equipment
|
|
|
12,753,553
|
|
|
|
12,580,457
|
|
Office
equipment and software
|
|
|
373,601
|
|
|
|
373,601
|
|
Furniture
and fixtures
|
|
|
453,701
|
|
|
|
392,410
|
|
|
|
|
19,037,378
|
|
|
|
18,802,991
|
|
Less:
Accumulated depreciation
|
|
|
(13,051,288
|
)
|
|
|
(12,153,626
|
)
|
|
|
$
|
5,986,090
|
|
|
$
|
6,649,365
|
|
Depreciation
expense was $293,014 and $505,987 for the three months ended, and $897,662 and $980,227 for the nine months ended December 31, 2021 and
2020, respectively.
NOTE
4. INTANGIBLE ASSETS
The
following table summarizes the Company’s intangible assets:
SCHEDULE OF INTANGIBLE ASSETS
|
|
December
31, 2021
|
|
|
Estimated
Useful Life
|
|
Gross
Carrying Amount
|
|
|
Additions
|
|
|
Reductions
|
|
|
Accumulated
Amortization
|
|
|
Net
Book Value
|
|
Patent
application costs
|
|
*
|
|
$
|
465,684
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
465,684
|
|
ANDA
acquisition costs
|
|
Indefinite
|
|
|
6,168,351
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,168,351
|
|
|
|
|
|
$
|
6,634,035
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,634,035
|
|
|
|
March
31, 2021
|
|
|
Estimated
Useful Life
|
|
Gross
Carrying Amount
|
|
|
Additions
|
|
|
Reductions
|
|
|
Accumulated
Amortization
|
|
|
Net
Book Value
|
|
Patent
application costs
|
|
*
|
|
$
|
465,684
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
465,684
|
|
ANDA
acquisition costs
|
|
Indefinite
|
|
|
6,168,351
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,168,351
|
|
|
|
|
|
$
|
6,634,035
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,634,035
|
|
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
*
|
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:
SCHEDULE
OF BONDS PAYABLE LIABILITY
|
|
December
31, 2021
|
|
|
March
31, 2021
|
|
Gross
bonds payable
|
|
|
|
|
|
|
|
|
NJEDA
Bonds - Series A Notes
|
|
$
|
1,360,000
|
|
|
$
|
1,470,000
|
|
Less:
Current portion of bonds payable (prior to deduction of bond offering costs)
|
|
|
(115,000
|
)
|
|
|
(110,000
|
)
|
Long-term
portion of bonds payable (prior to deduction of bond offering costs)
|
|
$
|
1,245,000
|
|
|
$
|
1,360,000
|
|
|
|
|
|
|
|
|
|
|
Bond
offering costs
|
|
$
|
354,454
|
|
|
$
|
354,454
|
|
Less:
Accumulated amortization
|
|
|
(231,579
|
)
|
|
|
(220,944
|
)
|
Bond
offering costs, net
|
|
$
|
122,875
|
|
|
$
|
133,510
|
|
|
|
|
|
|
|
|
|
|
Current
portion of bonds payable - net of bond offering costs
|
|
|
|
|
|
|
|
|
Current
portions of bonds payable
|
|
$
|
115,000
|
|
|
$
|
110,000
|
|
Less:
Bonds offering costs to be amortized in the next 12 months
|
|
|
(14,178
|
)
|
|
|
(14,178
|
)
|
Current
portion of bonds payable, net of bond offering costs
|
|
$
|
100,822
|
|
|
$
|
95,822
|
|
|
|
|
|
|
|
|
|
|
Long
term portion of bonds payable - net of bond offering costs
|
|
|
|
|
|
|
|
|
Long
term portion of bonds payable
|
|
|
1,245,000
|
|
|
$
|
1,360,000
|
|
Less:
Bond offering costs to be amortized subsequent to the next 12 months
|
|
|
(108,697
|
)
|
|
|
(119,332
|
)
|
Long
term portion of bonds payable, net of bond offering costs
|
|
$
|
1,136,303
|
|
|
$
|
1,240,668
|
|
Amortization
expense was $3,545 and $3,544 for the three months ended, and $10,635 and $10,634 for the nine months ended December 31, 2021 and 2020,
respectively. As of December 31, 2021 and March 31, 2021, interest payable was $29,467 and $7,963, respectively.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
6. LOANS PAYABLE
Loans
payable consisted of the following:
SCHEDULE OF LOANS PAYABLE
|
|
December
31, 2021
|
|
|
March
31, 2021
|
|
Equipment
and insurance financing loans payable, between 3.5% and 12.73% interest and maturing between December 2021 and October 2025
|
|
$
|
596,297
|
|
|
$
|
815,062
|
|
Less:
Current portion of loans payable
|
|
|
(299,601
|
)
|
|
|
(314,996
|
)
|
Long-term
portion of loans payable
|
|
$
|
296,696
|
|
|
$
|
500,066
|
|
The
interest expense associated with the loans payable was $14,692 and $19,422 for the three months ended, and $50,290 and $58,062 for the
nine months ended December 31, 2021 and 2020, respectively.
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 “Mikah Note”) to
Mikah Pharma, LLC (“Mikah”) for the principal sum of $1,200,000. Mikah was founded in 2009 by Nasrat Hakim (“Hakim”),
a related party and the Company’s President, Chief Executive Officer and Chairman of the Board. The Mikah Note matured on December
31, 2020 and was retired at par in March 2021. The principal amount of $1,200,000 was repaid by the Company at maturity.
Interest
expense associated with the Note was $30,000 for the three months ended and $90,000 for the nine months ended December 31, 2020. A total
of $435,000 in accrued interest expense, representing interest expense accrued during the life of the Mikah Note, was due and owing as
of the maturity date of the Mikah Note. Of the $435,000 accrued interest due at maturity, $435,000 of accrued interest was satisfied
by offset against amounts due from Mikah pursuant to the development agreement between the Company and Mikah, dated December 3, 2018
(see Note 16).
NOTE
8. DEFERRED REVENUE
Deferred
revenues in the aggregate amount of $48,892 as of December 31, 2021, were comprised of a current component of $13,333 and a long-term
component of $35,559. Deferred revenues in the aggregate amount of $58,891 as of March 31, 2021, were comprised of a current component
of $13,333 and a long-term component of $45,558. These line items represent the unamortized amounts of a $200,000 advance payment received
for a TAGI Pharma (“TAGI”) licensing agreement with a fifteen-year term beginning in September 2010 and ending in August
2025 and the $5,000,000 advance payment Epic Collaborative Agreement with a five-year term beginning in June 2015 and ending in May 2020.
These advance payments were recorded as deferred revenue when received and are earned, on a straight-line basis over the life of the
licenses. The current component is equal to the amount of revenue to be earned during the 12-month period immediately subsequent to the
balance sheet date and the long-term component is equal to the amount of revenue to be earned thereafter.
NOTE
9. COMMITMENTS AND CONTINGENCIES
Occasionally,
the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision
for a liability when it believes that 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.
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”).
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. On June 30, 2021, the Company exercised the second
of the renewal options, with such option including a term that begins on January 1, 2022 and expires on December 31, 2026.
The
135 Ludlow Ave. modified lease property required significant leasehold improvements and qualifications, as a prerequisite, for its intended
future use. Manufacturing, packaging, warehousing and regulatory activities are currently conducted at this location. Additional renovations
and construction to further expand the Company’s manufacturing resources are in progress.
In
October 2020, the Company entered into an operating lease for office space in Pompano Beach, Florida (the “Pompano Office Lease”).
The Pompano Office Lease is for approximately 1,275 square feet of office space, with Elite taking occupancy on November 1, 2020. The
Pompano Office includes a 3-month abatement from November 2020 through February 2021 and has a term of three years, ending on October
31, 2023.
The
Company assesses whether an arrangement is a lease or contains a lease at inception. For arrangements considered leases or that contain
a lease that is accounted for separately, the Company determines the classification and initial measurement of the right-of-use asset
and lease liability at the lease commencement date, which is the date that the underlying asset becomes available for use. The Company
has elected to account for non-lease components associated with its leases and lease components as a single lease component.
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:
SCHEDULE OF LEASE ASSETS AND LIABILITIES
Lease
|
|
Classification
|
|
As
of December 31, 2021
|
|
Assets
|
|
|
|
|
|
|
Operating
|
|
Operating
lease – right-of-use asset
|
|
$
|
1,082,168
|
|
Total
leased assets
|
|
|
|
$
|
1,082,168
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Operating
|
|
Lease
obligation – operating lease
|
|
$
|
153,813
|
|
|
|
|
|
|
|
|
Long-term
|
|
|
|
|
|
|
Operating
|
|
Lease
obligation – operating lease, net of current portion
|
|
|
933,542
|
|
Total
lease liabilities
|
|
|
|
$
|
1,087,355
|
|
Rent
expense is recorded on the straight-line basis. Rent expense under the 135 Ludlow Ave. modified lease for the three months ended December
31, 2021 and 2020 was $57,105 and $55,986, respectively, and $171,315 and $167,958 for the nine months ended December 31, 2021 and 2020,
respectively. Rent expense under the Pompano Office Lease for the three and nine months ended December 31, 2021 was $6,144 and $17,688,
respectively. There was no rent expense under the Pompano Office lease for the three and nine months ended December 31, 2020 as there
was a rent abatement period from November 2020 through February 2021. Rent expense is recorded in general and administrative expense
in the unaudited condensed consolidated statements of operations.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
table below shows the future minimum rental payments, exclusive of taxes, insurance and other costs, under the 135 Ludlow Ave. modified
lease and the Pompano Office Lease:
SCHEDULE
OF FUTURE MINIMUM RENTAL PAYMENTS
Years
ending March 31,
|
|
Amount
|
|
2022
|
|
|
64,578
|
|
2023
|
|
|
259,794
|
|
2024
|
|
|
254,050
|
|
2025
|
|
|
243,612
|
|
2026
|
|
|
248,484
|
|
Thereafter
|
|
|
189,144
|
|
Total
future minimum lease payments
|
|
|
1,259,662
|
|
Less:
interest
|
|
|
(172,307
|
)
|
Present
value of lease payments
|
|
$
|
1,087,355
|
|
The
weighted-average remaining lease term and the weighted-average discount rate of our lease was as follows:
SCHEDULE OF WEIGHTED-AVERAGE
REMAINING LEASE TERM AND THE WEIGHTED-AVERAGE DISCOUNT RATE
Lease
Term and Discount Rate
|
|
December
31, 2021
|
|
Remaining
lease term (years)
|
|
|
|
|
Operating
leases
|
|
|
7
|
|
|
|
|
|
|
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 December 31, 2021, and March 31, 2021, the Company had a liability of $38,187 and $37,628, respectively, recorded as a component
of other long-term liabilities.
NOTE
10. PREFERRED STOCK
Series
J convertible preferred stock
On
April 28, 2017, the Company created the Series J Convertible Preferred Stock (“Series J Preferred”) in conjunction with the
Certificate of Designations (“Series J COD”). A total of 50 shares of Series J Preferred were authorized, zero shares are
issued and outstanding, with a stated value of $1,000,000 per share and a par value of $0.01 as of December 31, 2021.
On
April 27, 2017, a total of 24.0344 shares of Series J Preferred were issued pursuant to an exchange agreement (the “Exchange Agreement”)
with Hakim, a related party and the Company’s President, Chief Executive Officer and Chairman of the Board of Directors. The Exchange
Agreement provided for Hakim to exchange 158,017,321 shares of Common Stock for 24.0344 shares of Series J Preferred and warrants to
purchase 79,008,661 shares of Common Stock at $0.1521 per share. The aggregate stated value of the Series J Preferred issued was equal
to the aggregate value of the shares of Common Stock exchanged, with such value of each share of Common Stock exchanged being equal to
the closing price of the Common Stock on April 27, 2017. In connection with the Exchange Agreement, the Company also issued warrants
to purchase 79,008,661 shares of Common Stock at $0.1521 per share, and such warrants are classified as liabilities on the accompanying
unaudited condensed consolidated balance sheet as of December 31, 2021 (See Note 11).
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
An
amendment to the Company’s Articles of Incorporation to increase the number of shares of Common Stock the Company is authorized
to issue from 995,000,000 shares to 1,445,000,000 shares was approved at the Company’s Annual Meeting of Shareholders held on December
4, 2019. Prior to the approval of the increase in the number of authorized shares, there were insufficient authorized shares if the Series
J Preferred Stock were converted. As a result, the shares were classified in mezzanine equity. After the approval of the increase in
the number of authorized shares, there are now sufficient authorized shares in the event of a full conversion of Series J Preferred Stock.
With the approval of the increase in the number of authorized shares, there is no longer the presumption that a cash settlement will
be required. Therefore, the Series J Preferred was reclassified from mezzanine equity to permanent equity at its carrying amount of $13,903,960
on the consolidated balance sheet as of March 31, 2020.
On
June 23, 2020, the Company held a Special Meeting of Shareholders, with such including a proposal for shareholders to again vote on the
above referenced amendment to the Company’s Articles of Incorporation. This proposal was also passed by shareholder vote.
On
August 24, 2020, Hakim converted the 24.0344 shares of Series J Preferred into 158,017,321 shares of Common Stock at a conversion price
of $0.1521 per share.
NOTE
11. DERIVATIVE FINANCIAL INSTRUMENTS – WARRANTS
The
Company evaluates and accounts for its freestanding instruments in accordance with ASC 815, Accounting for Derivative Instruments
and Hedging Activities.
The
Company issued warrants, with a term of ten years, to affiliates in connection with an exchange agreement dated April 28, 2017, as further
described in this note below.
A
summary of warrant activity is as follows:
SCHEDULE OF WARRANT ACTIVITY
|
|
December
31, 2021
|
|
|
March
31, 2021
|
|
|
|
Warrant
Shares
|
|
|
Weighted
Average Exercise Price
|
|
|
Warrant
Shares
|
|
|
Weighted
Average Exercise Price
|
|
Balance
at beginning of period
|
|
|
79,008,661
|
|
|
$
|
0.1521
|
|
|
|
79,008,661
|
|
|
$
|
0.1521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
granted pursuant to the issuance of Series J convertible preferred shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
exercised, forfeited and/or expired, net
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of
period
|
|
|
79,008,661
|
|
|
$
|
0.1521
|
|
|
|
79,008,661
|
|
|
$
|
0.1521
|
|
On
April 28, 2017, the Company entered into an Exchange Agreement with Hakim, the Chairman of the Board, President, and Chief Executive
Officer of the Company, pursuant to which the Company issued to Hakim 24.0344 shares of its Series J Preferred and warrants to purchase
an aggregate of 79,008,661 shares of its Common Stock (the “Series J Warrants” and, along with the Series J Preferred issued
to Hakim, the “Securities”) in exchange for 158,017,321 shares of Common Stock owned by Hakim. The fair value of the Series
J Warrants was determined to be $6,474,674 upon issuance at April 28, 2017.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
Series J Warrants are exercisable for a period of 10 years from the date of issuance, commencing April 28, 2020. The initial exercise
price is $0.1521 per share and the Series J Warrants can be exercised for cash or on a cashless basis. The exercise price is subject
to adjustment for any issuances or deemed issuances of Common Stock or Common Stock equivalents at an effective price below the then
exercise price. Such exercise price adjustment feature prohibits the Company from being able to conclude the warrants are indexed to
its own stock and thus such warrants are classified as liabilities and measured initially and subsequently at fair value. The Series
J Warrants also provide for other standard adjustments upon the happening of certain customary events.
The
fair value of the Series J Warrants was calculated using a Black-Scholes model instead of a Monte Carlo Simulation because the probability
with the shareholder approval provisions was no longer a factor. The following assumptions were used in the Black-Scholes model to calculate
the fair value of the Series J Warrants:
SCHEDULE
OF FAIR VALUE OF WARRANTS ISSUED
|
|
December
31, 2021
|
|
|
March
31, 2021
|
|
Fair
value of the Company’s Common Stock
|
|
$
|
0.0331
|
|
|
$
|
0.0610
|
|
Volatility
|
|
|
74.89
|
%
|
|
|
75.18
|
%
|
Initial exercise
price
|
|
$
|
0.1521
|
|
|
$
|
0.1521
|
|
Warrant
term (in years)
|
|
|
5.3
|
|
|
|
6.1
|
|
Risk
free rate
|
|
|
1.44
|
%
|
|
|
1.40
|
%
|
The
changes in warrants (Level 3 financial instruments) measured at fair value on a recurring basis for the nine months ended December 31,
2021 were as follows:
SCHEDULE OF CHANGES IN WARRANTS MEASURED AT FAIR VALUE ON A RECURRING BASIS
Balance
at March 31, 2021
|
|
$
|
2,362,246
|
|
Change
in fair value of derivative financial instruments - warrants
|
|
|
(1,523,394
|
)
|
Balance
at December 31, 2021
|
|
$
|
838,852
|
|
NOTE
12. SHAREHOLDERS’ EQUITY
Lincoln
Park Capital Transaction - July 8, 2020 Purchase Agreement
On
July 8, 2020, the Company entered into a purchase agreement (the “2020 LPC Purchase Agreement”), and a registration rights
agreement (the “2020 LPC Registration Rights Agreement”), with Lincoln Park Capital Fund, LLC (“Lincoln Park”),
pursuant to which Lincoln Park has committed to purchase up to $25.0 million of the Company’s Common Stock, $0.001 par value per
share, from time to time over the term of the 2020 LPC Purchase Agreement, at the Company’s direction.
The
Company did not issue any shares of its Common Stock pursuant to the 2020 LPC Purchase Agreement during the nine months ended December
31, 2021. In addition, there were no shares issued to Lincoln Park as additional commitment shares, pursuant to the 2020 LPC Agreement.
During
the nine months ended December 31, 2020 the Company issued an aggregate of 5,975,857 shares of Common Stock in the amount of $469,105
to Lincoln Park as initial commitment shares. The Company sold 640,543 shares of its Common Stock pursuant to the 2020 LPC Purchase Agreement
during the nine months ended December 31, 2020 for net proceeds totaling $42,223. In addition, 10,094 shares were issued to Lincoln Park
as additional commitment shares, pursuant to the 2020 LPC Agreement.
NOTE
13. STOCK-BASED COMPENSATION
Part
of the compensation paid by the Company to its Directors and employees consists of the issuance of Common Stock or via the granting of
options to purchase Common Stock.•
Stock-based
Director Compensation
The
Company’s Director compensation policy, instituted in October 2009 and further revised in January 2016, includes provisions that
a portion of director’s fees are to be paid via the issuance of shares of the Company’s Common Stock, in lieu of cash, with
the valuation of such shares being calculated on quarterly basis and equal to the average closing price of the Company’s Common
Stock.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
During
the nine months ended December 31, 2021, the Company issued 886,710 shares of Common Stock to its Directors in payment of director’s
fees totaling an aggregate of $60,000 and with such aggregate director’s fees being earned and accrued over the twelve-month period
beginning on April 1, 2020 and ending on March 31, 2021. In addition, the Company made cash payments totaling an aggregate of $30,000
in payment of director’s fees earned over the same twelve-month period.
During
the nine months ended December 31, 2021, the Company accrued director’s fees totaling $67,500, which will be paid via cash payments
totaling $22,500 and the issuance of 969,319 shares of Common Stock.
As
of December 31, 2021, the Company owed its Directors a total of $22,500 in cash payments and 969,319 shares of Common Stock in payment
of director fees totaling $67,500 due and owing. The Company anticipates that these shares of Common Stock will be issued prior to the
end of the current fiscal year.
Stock-based
Employee/Consultant Compensation
Employment
contracts with the Company’s President and Chief Executive Officer 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 nine months ended December 31, 2021, the Company issued 1,218,526
shares of Common Stock in payment of salaries
totaling $97,500
pursuant to the employment contract of the
Company’s former Chief Financial Officer, with such salaries being earned and accrued over the thirty-month period beginning on
October 1, 2018 and ending on March 31, 2021.
During
the nine months ended December 31, 2021, the Company accrued salaries totaling $581,250 owed to the Company’s President and Chief
Executive Officer and certain other employees which will be paid via the issuance of 12,787,606 shares of Common Stock.
As
of December 31, 2021, the Company owed its President and Chief Executive Officer and certain other employees’ salaries totaling
$3,543,750 which will be paid via the issuance of 47,654,194 shares of Common Stock.
During
the nine months ended December 31, 2021, the Company accrued 2,228,004
shares of Common Stock in payment of consulting
fees totaling $153,333,
pursuant to engagement contracts with consultants, and with such consulting expenses being earned and accrued over the forty-eight-month
period beginning on January 1, 2018 and ending December 31, 2021.
Options
Under
its 2014 Stock Option Plan and prior options plans, the Company may grant stock options to officers, selected employees, as well as members
of the Board of Directors and advisory board members. All options have generally been granted at a price equal to or greater than the
fair market value of the Company’s Common Stock at the date of the grant. Generally, options are granted with a vesting period
of up to three years and expire ten years from the date of grant. A summary of the activity of Company’s 2014 Stock Option Plan
for the nine months ended December 31, 2021 is as follows:
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SCHEDULE OF STOCK OPTION PLAN
|
|
Shares
Underlying
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted Average
Remaining Contractual Term (in years)
|
|
|
Aggregate Intrinsic
Value
|
|
Outstanding at March 31, 2021
|
|
|
5,900,000
|
|
|
$
|
0.13
|
|
|
|
3.7
|
|
|
$
|
6,000
|
|
Forfeited and expired
|
|
|
(750,000
|
)
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Granted
|
|
|
300,000
|
|
|
$
|
0.06
|
|
|
|
3.0
|
|
|
|
—
|
|
Outstanding at December 31, 2021
|
|
|
5,450,000
|
|
|
$
|
0.14
|
|
|
|
2.7
|
|
|
$
|
6,000
|
|
Exercisable at December 31, 2021
|
|
|
5,130,001
|
|
|
$
|
0.14
|
|
|
|
2.7
|
|
|
$
|
6,000
|
|
The
aggregate intrinsic value for outstanding options is calculated as the difference between the exercise price of the underlying awards
and the quoted price of the Company’s Common Stock as of December 31, 2021 and March 31, 2021 of $0.11 and $0.06, respectively.
NOTE
14. CONCENTRATIONS AND CREDIT RISK
Revenues
Two
customers accounted for approximately 96% of the Company’s revenues for the nine months ended December 31, 2021. These two customers
accounted for approximately 85% and 11% of revenues each, respectively. The same two customers accounted for 84% and 9% of revenues each,
respectively, for the three months ended December 31, 2021.
Two
customers accounted for approximately 93% of the Company’s revenues for the nine months ended December 31, 2020. These two customers
accounted for approximately 79% and 14% of revenues each, respectively. The same two customers accounted for 82% and 12% of revenues
each, respectively, for the three months ended December 31, 2020.
Accounts
Receivable
Two
customers accounted for approximately 99% of the Company’s accounts receivable as of December 31, 2021. These two customers accounted
for approximately 73% and 25% of accounts receivable each, respectively.
Three
customers accounted for substantially all the Company’s accounts receivable as of March 31, 2021. These three customers accounted
for approximately 73%, 15% and 11% of accounts receivable each, respectively.
Purchasing
Four
suppliers accounted for more than 70%
of the Company’s purchases of raw materials for the nine months ended December 31, 2021. These four suppliers accounted for
approximately 55%, 6%, 5%
and 4%
of purchases each, respectively.
Four
suppliers accounted for more than 81% of the Company’s purchases of raw materials for the nine months ended December 31, 2020.
These four suppliers accounted for approximately 59%, 12%, 5%, and 5% of purchases each, respectively.
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.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
Company has determined that its reportable segments are ANDAs for generic products and NDAs for branded products. The Company identified
its reporting segments based on the marketing authorization relating to each and the financial information used by its chief operating
decision maker to make decisions regarding the allocation of resources to and the financial performance of the reporting segments.
Asset
information by operating segment is not presented below since the chief operating decision maker does not review this information by
segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s unaudited condensed
consolidated financial statements.
The
following represents selected information for the Company’s reportable segments:
SCHEDULE OF SELECTED INFORMATION FOR REPORTABLE SEGMENTS
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
For the Three Months Ended December 31,
|
|
|
For the Nine Months Ended December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Operating Income by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ANDA
|
|
$
|
3,061,035
|
|
|
$
|
2,395,955
|
|
|
|
8,068,073
|
|
|
|
6,446,116
|
|
NDA
|
|
|
—
|
|
|
$
|
(10,972
|
)
|
|
|
—
|
|
|
|
142,812
|
|
Operating Income by Segment
|
|
$
|
3,061,035
|
|
|
$
|
2,384,983
|
|
|
$
|
8,068,073
|
|
|
$
|
6,588,928
|
|
The
table below reconciles the Company’s operating income by segment to income from operations before provision for income taxes as
reported in the Company’s unaudited condensed consolidated statement of operations:
SCHEDULE OF OPERATING LOSS BY SEGMENT TO (LOSS) INCOME FROM OPERATIONS
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
For the Three Months Ended December 31,
|
|
|
For the Nine Months Ended December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Operating income by segment
|
|
$
|
3,061,035
|
|
|
$
|
2,384,983
|
|
|
$
|
8,068,073
|
|
|
$
|
6,588,928
|
|
Corporate unallocated costs
|
|
|
(716,881
|
)
|
|
|
(830,042
|
)
|
|
|
(2,288,461
|
)
|
|
|
(1,691,578
|
)
|
Interest income
|
|
|
13
|
|
|
|
98
|
|
|
|
77
|
|
|
|
463
|
|
Interest expense and amortization of debt issuance costs
|
|
|
(37,400
|
)
|
|
|
(79,673
|
)
|
|
|
(126,376
|
)
|
|
|
(238,857
|
)
|
Depreciation and amortization expense
|
|
|
(296,559
|
)
|
|
|
(328,899
|
)
|
|
|
(908,297
|
)
|
|
|
(990,861
|
)
|
Significant non-cash items
|
|
|
(216,295
|
)
|
|
|
(217,900
|
)
|
|
|
(652,281
|
)
|
|
|
(686,000
|
)
|
Change in fair value of derivative instruments
|
|
|
489,500
|
|
|
|
1,083,566
|
|
|
|
1,523,394
|
|
|
|
1,645,042
|
|
NOTE
16. RELATED PARTY AGREEMENTS WITH MIKAH PHARMA, LLC
On
December 3, 2018, the Company executed a development agreement with Mikah, pursuant to which Mikah and the Company will collaborate to
develop and commercialize generic products including formulation development, analytical method development, bioequivalence studies and
manufacture of development batches of generic products. As of March 31, 2021, the Company has incurred costs which are $238,451 in excess
of advanced payments received to date from Mikah. This balance due from Mikah was offset, in full, against accrued interest due and owing
to Mikah pursuant to the Mikah Note (see Note 7).
In
May 2020, SunGen Pharma LLC (“SunGen”), pursuant to 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. Mikah Pharmaceuticals was founded in 2009 by Nasrat Hakim, a related party
and the Company’s President, Chief Executive Officer and Chairman of the Board.
In
June 2021, the Company entered into a development and license agreement with Mikah Pharma LLC, pursuant to which Mikah Pharma LLC will
engage in the research, development, sales and licensing of generic pharmaceutical products. In addition, Mikah Pharma LLC will collaborate
to develop and commercialize generic products including formulation development, analytical method development, manufacturing, sales
and marketing of generic products. Initially two generic products were identified for the parties to develop.
ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
17. INCOME TAXES
Sale
of New Jersey Net Operating Loss
In
April 2020, Elite Labs 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 during the nine months ended December 31, 2020.
Sale
of New Jersey Net Operating Loss and Research and Development Tax Credit
In
April 2021, Elite Labs received final approval from the New Jersey Economic Development Authority for the sale of net tax benefits of
$796,860 relating to New Jersey net operating losses and net tax benefits of $58,490, relating to research and development tax credits.
The Company sold the net tax benefits approved for sale at a transfer price equal to ninety-three- and one-half cents for every benefit
dollar and incurred transaction fees of $12,861, resulting in net proceeds to the Company of $857,379, during the nine months ended December
31, 2021.
NOTE
18. COVID-19 UPDATE
In
December 2019, the Novel Corona Virus, COVID-19 was reported to have emerged in Wuhan, China. In March 2020, the World Health Organization
(“WHO”) declared the COVID-19 outbreak a global pandemic. Governments at the national, state and local level in the United
States, and globally, have implemented aggressive actions to reduce the spread of the virus, with such actions including, without limitation,
lockdown and shelter in place orders, limitations on non-essential gatherings of people, suspension of all non-essential travel, and
ordering certain businesses and governmental agencies to cease non-essential operations at physical locations. Under current and applicable
laws and regulations, the Company’s business is deemed essential, and it has continued to operate in all aspects of its pharmaceutical
manufacturing, distribution, product development, regulatory compliance and other activities. The Company’s management has developed
and implemented a range of measures to address the risks, uncertainties, and operational challenges associated with operating in a COVID-19
environment. The Company is closely monitoring the rapidly evolving and changing situation and are implementing plans intended to limit
the impact of COVID-19 on our business so that the Company can continue to manufacture those medicines used by end user patients. Actions
the Company has taken to date are, without limitation, further described below.
Workforce
The
Company has taken and will continue to take, proactive measures to provide for the well-being of its workforce while continuing to safely
produce pharmaceutical products. The Company has implemented alternative working practices, which include, without limitation, modified
schedules, shift rotation and work at home abilities for appropriate employees to best ensure adequate social distancing. In addition,
the Company increased its already thorough cleaning protocols throughout its facilities and has prohibited visits from non-essential
visitors. Certain of these measures have resulted in increased costs.
Manufacturing
and Supply Chain
During
the three and nine months ended December 31, 2021, and as of the date of this Quarterly Report on Form 10-Q, the Company has not experienced
material, detrimental issues related to COVID-19 in its manufacturing, supply chain, quality assurance and regulatory compliance activities,
and has been able to operate without interruption. The Company has taken, and plans to continue to take, commercially practical measures
to keep its facilities open. The Company’s supply chains remain intact and operational, and the Company is in regular communications
with its suppliers and third-party partners. A prolonging of the current situation relating to COVID-19 may result in an increased risk
of interruption in the Company supply chain in the future, with no assurances given as the materiality of such future interruption on
the Company’s business, financial condition, results of operations and cash flows.
NOTE
19. SUBSEQUENT EVENTS
The
Company has evaluated subsequent events from the balance sheet date through February 11, 2022 and noted no material subsequent
events.