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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 SEPTEMBER 30, 2021

 

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: shares of 1,011,281,988 Common Stock were issued, and 1,011,281,988 shares of Common Stock were outstanding as of November 15, 2021.

 

 

 

 

 

 

    PAGE
PART I FINANCIAL INFORMATION F-1
     
ITEM 1. Financial Statements F-1
  Condensed Consolidated Balance Sheets as of September 30, 2021 (Unaudited) and March 31, 2021 (Audited) F-1
  Condensed Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2021 and 2020 (Unaudited) F-2
  Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended September 30, 2021 and 2020 (Unaudited) F-3
  Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2021 and 2020 (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 7
ITEM 4. Controls and Procedures 7
     
PART II OTHER INFORMATION 9
     
ITEM 1. Legal Proceedings 9
ITEM 1A. Risk Factors 9
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 9
ITEM 3. Defaults Upon Senior Securities 9
ITEM 4. Mine Safety Disclosures 9
ITEM 5. Other Information 9
ITEM 6. Exhibits 10
     
SIGNATURES 11

 

ii

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

                 
    September 30, 2021     March 31, 2021  
    (Unaudited)     (Audited)  
ASSETS                
Current assets:                
Cash   $ 4,490,670     $ 3,192,768  
Accounts receivable, net of allowance for doubtful accounts of $-0-, respectively     4,672,358       3,496,376  
Inventory     6,545,658       5,012,902  
Prepaid expenses and other current assets     173,582       492,621  
Total current assets     15,882,268       12,194,667  
                 
Property and equipment, net of accumulated depreciation of $12,758,274 and $12,153,626, respectively     6,197,028       6,649,365  
                 
Intangible assets, net of accumulated amortization of $-0-, respectively     6,634,035       6,634,035  
                 
Operating lease - right-of-use asset     1,141,514       214,674  
                 
Other assets:                
Restricted cash - debt service for NJEDA bonds     405,019       405,013  
Security deposits     364,563       91,738  
Total other assets     769,582       496,751  
Total assets   $ 30,624,427     $ 26,189,492  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable   $ 1,790,146     $ 929,690  
Accrued expenses     3,779,367       4,270,600  
Deferred revenue, current portion     13,333       13,333  
Bonds payable, current portion, net of bond issuance costs     100,822       95,822  
Loans payable, current portion     410,386       314,996  
Lease obligation - operating lease, current portion     209,694       188,090  
Total current liabilities     6,303,748       5,812,531  
                 
Long-term liabilities:                
Deferred revenue, net of current portion     38,892       45,558  
Bonds payable, net of current portion and bond issuance costs     1,132,758       1,240,668  
Loans payable, net of current portion     339,775       500,066  
Lease obligation - operating lease, net of current portion     939,620       38,866  
Derivative financial instruments - warrants     1,328,352       2,362,246  
Other long-term liabilities     38,771       37,628  
Total long-term liabilities     3,818,168       4,225,032  
Total liabilities     10,121,916       10,037,563  
                 
Shareholders’ equity:                
Series J convertible preferred stock; par value of $0.01; 50 shares authorized; 0 issued and outstanding as of September 30, 2021 and March 31, 2021            
Common Stock; par value $0.001; 1,445,000,000 shares authorized; 1,011,381,988 shares issued and 1,011,281,988 shares outstanding as of September 30, 2021; 1,009,276,752 shares issued and 1,009,176,752 shares outstanding as of March 31, 2021     1,011,385       1,009,279  
Additional paid-in capital     164,569,861       164,407,480  
Treasury stock; 100,000 shares as of September 30, 2021 and March 31, 2021; at cost     (306,841 )     (306,841 )
Accumulated deficit     (144,771,894 )     (148,957,989 )
Total shareholders’ equity     20,502,511       16,151,929  
Total liabilities and shareholders’ equity   $ 30,624,427     $ 26,189,492  

 

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

 

F- 1
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

                                 
    For the Three Months Ended
September 30,
    For the Six Months Ended
September 30,
 
    2021     2020     2021     2020  
Revenue:                                
Manufacturing fees   $ 7,221,711     $ 6,172,724     $ 12,971,747     $ 12,809,963  
Licensing fees     1,336,730       1,227,168       2,643,483       2,128,673  
Total revenue     8,558,441       7,399,892       15,615,230       14,938,636  
Cost of manufacturing     4,790,292       3,778,496       8,253,369       8,340,846  
Gross profit     3,768,149       3,621,396       7,361,861       6,597,790  
                                 
Operating expenses:                                
Research and development     1,116,488       1,147,739       2,356,275       2,091,618  
General and administrative     925,872       796,966       1,999,127       1,665,743  
Non-cash compensation through issuance of stock options     4,176       2,089       6,987       7,610  
Depreciation and amortization     299,036       334,345       611,738       661,962  
Total operating expenses     2,345,572       2,281,139       4,974,127       4,426,933  
                                 
Income from operations     1,422,577       1,340,257       2,387,734       2,170,857  
                                 
Other income, net:                                
Change in fair value of derivative instruments     419,433       1,220,069       1,033,894       561,476  
Interest expense and amortization of debt issuance costs     (43,083 )     (79,753 )     (88,976 )     (159,184 )
Gain on sale of fixed assets           3,400             41,490  
Interest income     21       89       64       365  
Other income, net     376,371       1,143,805       944,982       444,147  
                                 
Income from operations before income taxes     1,798,948       2,484,062       3,332,716       2,615,004  
                                 
Income tax expense     (4,000 )     (2,500 )     (4,000 )     (2,500 )
                                 
Net benefit for sale of state net operating losses and credits     2,029             857,379       946,407  
                                 
Net income attributable to common shareholders   $ 1,796,977     $ 2,481,562     $ 4,186,095     $ 3,558,911  
                                 
Basic net income per share attributable to common shareholders   $ 0.00     $ 0.00     $ 0.00     $ 0.00  
                                 
Diluted net income per share attributable to common shareholders   $ 0.00     $ 0.00     $ 0.00     $ 0.00  
                                 
Basic weighted average Common Stock outstanding     1,011,281,988       913,544,660       1,010,059,593       877,180,630  
                                 
Diluted weighted average Common Stock outstanding     1,011,281,988       913,576,523       1,010,059,593       877,212,493  

 

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

 

F- 2
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

 

    Shares     Amount     Shares     Amount     Capital     Shares     Amount     Deficit     Equity  
    Series J Preferred Stock     Common Stock     Additional Paid-In     Treasury Stock     Accumulated     Total Shareholders’  
    Shares     Amount     Shares     Amount     Capital     Shares     Amount     Deficit     Equity  
Balance as of March 31, 2021         $       1,009,276,752     $ 1,009,279     $ 164,407,480       100,000     $ (306,841 )   $ (148,957,989 )   $ 16,151,929  
                                                                         
Net income                                               2,389,118       2,389,118  
                                                                         
Non-cash compensation through the issuance of employee stock options          —                         2,811                         2,811  
                                                                         
Shares issued in payment of salaries                 2,105,236       2,106       155,394                         157,500  
                                                                         
Balance at June 30, 2021         $       1,011,381,988     $ 1,011,385     $ 164,565,685       100,000     $ (306,841 )   $ (146,568,871 )   $ 18,701,358  
                                                                         
Net income         $           $     $           $     $ 1,796,977       1,796,977  
                                                                         
Non-cash compensation through the issuance of employee stock options                             4,176                         4,176  
                                                                         
Balance at September 30, 2021         $       1,011,381,988     $ 1,011,385     $ 164,569,861       100,000     $ (306,841 )   $ (144,771,894 )   $ 20,502,511  

 

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)

(continued)

   

Series J

Preferred Stock

    Common Stock     Additional Paid-In     Treasury Stock     Accumulated     Total Shareholders’  
    Shares     Amount     Shares     Amount     Capital     Shares     Amount     Deficit     Equity  
Balance as of March 31, 2020     24     $ 13,903,960       840,504,367     $ 840,507     $ 150,264,605       100,000     $ (306,841 )   $ (154,046,410 )   $ 10,655,821  
                                                                         
Net income                                               1,077,349       1,077,349  
                                                                         
Non-cash compensation through the issuance of employee stock options                             5,521                         5,521  
                                                                         
Shares issued in payment of salaries         $       574,597     $ 574     $ 49,426           $     $       50,000  
                                                                         
Balance at June 30, 2020     24     $ 13,903,960       841,078,964     $ 841,081     $ 150,319,552       100,000     $ (306,841 )   $ (152,969,061 )   $ 11,788,691  
                                                                         
Net income                                               2,481,562       2,481,562  
                                                                         
Conversion of Preferred Stock to Common Stock     (24 )     (13,903,960 )     158,017,321       158,017       13,745,943                          
                                                                         
Initial commitment shares issued pursuant to the 2020 Lincoln Park purchase agreement                 5,975,857       5,976       463,129                         469,105  
                                                                         
Common Stock sold pursuant to the 2020 Lincoln Park purchase agreement                 640,543       641       41,582                         42,223  
                                                                         
Common Stock issued as additional commitment shares pursuant to the 2020 Lincoln Park purchase agreement                 10,094       10       722                         732  
                                                                         
Costs associated with raising capital                             (469,837 )                       (469,837 )
                                                                         
Non-cash compensation through the issuance of employee stock options                             2,089                         2,089  
                                                                         
Shares issued in payment of Director fees                 1,550,343       1,551       133,449                         135,000  
                                                                         
Shares issued in payment of salaries                 71,739       71       6,179                         6,250  
                                                                         
Shares issued in payment of consulting expenses                 1,931,891       1,932       159,101                         161,033  
                                                                         
Balance at September 30, 2020         $       1,009,276,752     $ 1,009,279     $ 164,401,909       100,000     $ (306,841 )   $ (150,487,499 )   $ 14,616,848  

 

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

 

F- 4
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

    2021     2020  
    For the Six Months Ended September 30,  
    2021     2020  
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net income   $ 4,186,095     $ 3,558,911  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization     611,738       661,961  
Amortization of operating leases - right-of-use assets     115,960       99,827  
Gain on the disposal of property and equipment           (41,490 )
Change in fair value of derivative financial instruments - warrants     (1,033,894 )     (561,476 )
Non-cash compensation accrued     428,999       460,490  
Non-cash compensation through the issuance of employee stock options     6,987       7,610  
Non-cash rent expense and lease accretion     1,143       1,077  
Change in operating assets and liabilities:                
Accounts receivable     (1,175,982 )     30,874  
Inventory     (1,532,756 )     (320,091 )
Prepaid expenses and other current assets     290,338       488,912  
Accounts payable, accrued expenses and other current liabilities     97,724       (1,408,835 )
Deferred revenue and customer deposits     (6,666 )     (170,000 )
Lease obligations - operating leases     (120,442 )     (99,828 )
Net cash provided by operating activities     1,869,244       2,707,942  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchase of property and equipment     (152,311 )     (94,848 )
Proceeds from disposal of property and equipment           54,675  
Net cash used in investing activities     (152,311 )     (40,173 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Payment of bond principal   (110,000 )     (105,000 )
Other loan payments   (309,025 )     (384,341 )
Proceeds from the issuance of Common Stock         42,223  
Other loan proceeds           1,013,480  
Net cash (used in) provided by financing activities     (419,025 )     566,362  
                 
Net change in cash and restricted cash     1,297,908       3,234,131  
                 
Cash and restricted cash, beginning of period     3,597,781       1,536,530  
                 
Cash and restricted cash, end of period   $ 4,895,689     $ 4,770,661  
                 
Supplemental disclosure of cash and non-cash transactions:                
Cash paid for interest   $ 88,976     $ 160,266  
Financing of equipment purchases and insurance renewal   $ 244,124     $ 237,936  
Stock issued in payment of Directors fees, salaries and consulting expenses   $ 157,500     $ 352,283  
Supplemental non-cash amounts of lease liabilities arising from obtaining right of use assets   $ 1,042,800     $  
Commitment shares issued to Lincoln Park Capital   $     $ 469,837  
Conversion of preferred stock to Common Stock   $     $ 13,903,960  

 

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”) 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 six months ended September 30, 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.

 

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

 

Nature of goods and services

 

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

 

a) Manufacturing Fees

 

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

 

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

 

b) License Fees

 

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

 

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

 

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

 

F- 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 September 30, 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 September 30,     For the Six Months Ended September 30,  
    2021     2020     2021     2020  
NDA:                                
Licensing fees   $     $     $     $ 166,167  
Total NDA revenue                       166,167  
ANDA:                                
Manufacturing fees   $ 7,221,711     $ 6,172,724     $ 12,971,747     $ 12,809,963  
Licensing fees     1,336,730       1,227,168       2,643,483       1,962,506  
Total ANDA revenue     8,558,441       7,399,892       15,615,230       14,772,469  
Total revenue   $ 8,558,441     $ 7,399,892     $ 15,615,230     $ 14,938,636  

 

Cash

 

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

 

F- 8
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Restricted Cash

 

As of September 30, 2021, and March 31, 2021, the Company had $405,019 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 September 30, 2021, the Company did not identify any indicators of impairment.

 

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

 

Research and Development

 

Research and development expenditures are charged to expense as incurred.

 

F- 9
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Contingencies

 

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

 

Income Taxes

 

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

 

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

 

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

 

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.

 

F- 10
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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
September 30,
    For the Six Months Ended
September 30,
 
    2021     2020     2021     2020  
Numerator                                
Net income - basic   $ 1,796,977     $ 2,481,562     $ 4,186,095     $ 3,558,911  
Effect of dilutive instrument on net income     (418,433 )     (1,220,069 )     (1,033,894 )      (561,476 )
Net income - diluted   $ 1,377,544     $ 1,261,493     $ 3,152,201     $ 2,997,435  
                                 
Denominator                                
Weighted average shares of Common Stock outstanding - basic     1,011,281,988       913,544,660       1,010,059,593       877,180,630  
                                 
Dilutive effect of stock options and convertible securities           31,863             31,863  
                                 
Weighted average shares of Common Stock outstanding - diluted     1,011,281,988       913,576,523       1,010,059,593       877,212,493  
                                 
Net income per share                                
Basic   $ 0.00     $ 0.00     $ 0.00     $ 0.00  
Diluted   $ 0.00     $ 0.00     $ 0.00     $ 0.00  

 

F- 11
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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.

 

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  
September 30, 2021                                
Liabilities                                
Derivative financial instruments - warrants   $ 1,328,352     $     $     $ 1,328,352  
                                 
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.

 

F- 12
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Non-Financial Assets that are Measured at Fair Value on a Non-Recurring Basis

 

Non-financial assets such as intangible assets, and property and equipment are measured at fair value only when an impairment loss is recognized. The Company did not record an impairment charge related to these assets in the periods presented.

 

Treasury Stock

 

The Company records treasury stock at the cost to acquire it and includes treasury stock as a component of shareholders’ equity.

 

Recently Issued Accounting Pronouncements

 

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

 

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

 

NOTE 2. INVENTORY

 

Inventory consisted of the following:

 SCHEDULE OF INVENTORY

    September 30, 2021     March 31, 2021  
Finished goods   $ 348,293     $ 274,603  
Work-in-progress     1,722       781,350  
Raw materials     6,195,643       3,956,949  
 Inventory, net   $ 6,545,658     $ 5,012,902  

 

NOTE 3. PROPERTY AND EQUIPMENT, NET

 

Property and equipment consisted of the following:

 SCHEDULE OF PROPERTY AND EQUIPMENT

    September 30, 2021     March 31, 2021  
Land, building and improvements   $ 5,456,524     $ 5,456,523  
Laboratory, manufacturing, warehouse and transportation equipment     12,732,767       12,580,457  
Office equipment and software     373,601       373,601  
Furniture and fixtures     392,410       392,410  
      18,955,302       18,802,991  
Less: Accumulated depreciation     (12,758,274 )     (12,153,626 )
    $ 6,197,028     $ 6,649,365  

 

Depreciation expense was $295,491 and $255,118 for the three months ended, and $604,648 and $654,871 for the six months ended September 30, 2021 and 2020, respectively.

 

F- 13
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 4. INTANGIBLE ASSETS

 

The following table summarizes the Company’s intangible assets:

    September 30, 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  

 

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

 

NOTE 5. NJEDA BONDS

 

During August 2005, the Company refinanced a bond issue occurring in 1999 through the issuance of Series A and B Notes tax-exempt bonds (the “NJEDA Bonds” and/or “Bonds”). During July 2014, the Company retired all outstanding Series B Notes, at par, along with all accrued interest due and owed.

 

In relation to the Series A Notes, the Company is required to maintain a debt service reserve. The debt service reserve is classified as restricted cash on the accompanying unaudited condensed consolidated balance sheets. The NJEDA Bonds require the Company to make an annual principal payment on September 1st based on the amount specified in the loan documents and semi-annual interest payments on March 1st and September 1st, equal to interest due on the outstanding principal. The annual interest rate on the Series A Note is 6.5%. The NJEDA Bonds are collateralized by a first lien on the Company’s facility and equipment acquired with the proceeds of the original and refinanced bonds.

 

F- 14
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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

 

    September 30, 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     (228,034 )     (220,944 )
Bond offering costs, net   $ 126,420     $ 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     (112,242 )     (119,332 )
Long term portion of bonds payable, net of bond offering costs   $ 1,132,758     $ 1,240,668  

 

Amortization expense was $3,545 and $3,545 for the three months ended, and $7,090 and $7,090 for the six months ended September 30, 2021 and 2020, respectively. As of September 30, 2021 and March 31, 2021, interest payable was $7,367 and $7,963, respectively.

 

F- 15
 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 6. LOANS PAYABLE

 

Loans payable consisted of the following:

 

    September 30, 2021     March 31, 2021  
Equipment and insurance financing loans payable, between 3.5% and 12.73% interest and maturing between June 2021 and October 2025   $ 750,161     $ 815,062  
Less: Current portion of loans payable     (410,386 )     (314,996 )
Long-term portion of loans payable   $ 339,775     $ 500,066  

 

The interest expense associated with the loans payable was $17,001 and $20,760 for the three months ended, and $35,598 and $38,640 for the six months ended September 30, 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 $60,000 for the six months ended September 30, 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 $52,225 as of September 30, 2021, were comprised of a current component of $13,333 and a long-term component of $38,892. 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 is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumpti