ELTP Elite Pharmaceuticals Inc (QB)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

FOR THE QUARTERLY PERIOD ENDED September 30, 2024

 

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)

 

Registrant’s telephone number, including area code: (201) 750-2646

 

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

 

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

 

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 ☒

 

The number of shares outstanding of each of the registrant’s classes of common stock, as of November 14, 2024:

Common Stock - 1,068,273,108 shares

 

 

 

		PAGE
PART I	FINANCIAL INFORMATION	F-1
ITEM 1.	Financial Statements (Unaudited)	F-1
	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2024 and March 31, 2024	F-1
	Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2024 and 2023	F-2
	Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended September 30, 2024 and 2023	F-3
	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2024 and 2023	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	11
ITEM 4.	Controls and Procedures	11
PART II	OTHER INFORMATION	12
ITEM 1.	Legal Proceedings	12
ITEM 1A.	Risk Factors	12
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	12
ITEM 3.	Defaults Upon Senior Securities	12
ITEM 4.	Mine Safety Disclosures	12
ITEM 5.	Other Information	12
ITEM 6.	Exhibits	13
SIGNATURES		14

 

 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

		September 30, 2024				March 31, 2024
ASSETS
Current assets:
Cash		$	9,554,963			$	7,106,262
Accounts receivable, net of allowance for expected credit losses of $261,000 and $236,000 respectively			21,443,555				19,453,301
Inventory			14,164,945				12,930,464
Prepaid expenses and other current assets			130,386				524,162
Total current assets			45,293,849				40,014,189
Property and equipment, net of accumulated depreciation of $16,425,248 and $15,906,853 respectively			10,176,587				10,175,293
Intangible assets			7,241,228				6,341,228
Finance lease - right-of-use asset			2,010,440				2,079,658
Operating lease - right-of-use asset			2,089,024				2,355,201
Deferred income tax asset			20,843,504				22,160,895
Other assets:
Restricted cash - debt service for NJEDA bonds			444,124				432,832
Security deposits			99,240				94,240
Total other assets			543,364				527,072
Total assets		$	88,197,996			$	83,653,536
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	1,983,280			$	2,714,306
Accrued expenses			5,703,464				5,301,747
Deferred revenue, current portion			12,222				13,333
Bonds payable, current portion, net of bond issuance costs			125,822				115,822
Loans payable, current portion			242,058				180,399
Related party loans payable (Note 7)			4,000,000				4,000,000
Lease obligation - finance lease, current portion			364,551				312,739
Lease obligation - operating lease, current portion			422,323				411,418
Total current liabilities			12,853,720				13,049,764
Long-term liabilities:
Deferred revenue, net of current portion			—				5,556
Bonds payable, net of current portion and bond issuance costs			780,292				913,203
Loans payable, net of current portion and loan costs			2,295,872				2,366,487
Lease obligation - finance lease, net of current portion			1,424,196				1,480,317
Lease obligation - operating lease, net of current portion			1,741,240				1,957,383
Derivative financial instruments - warrants			21,835,656				6,298,008
Total long-term liabilities			28,077,256				13,020,954
Total liabilities			40,930,976				26,070,718
Shareholders’ equity:
Common Stock; par value $0.001; 1,445,000,000 shares authorized; 1,068,373,108 shares issued as of both September 30, 2024 and March 31, 2024; 1,068,273,108 shares outstanding as of both September 30, 2024 and March 31, 2024			1,068,377				1,068,377
Additional paid-in capital			173,315,207				173,210,549
Treasury stock; 100,000 shares as of both September 30, 2024 and March 31, 2024, at cost			(306,841	)			(306,841	)
Accumulated deficit			(126,809,723	)			(116,389,267	)
Total shareholders’ equity			47,267,020				57,582,818
Total liabilities and shareholders’ equity		$	88,197,996			$	83,653,536

 

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

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		2024				2023				2024				2023
		For the Three Months Ended September 30,								For the Six Months Ended September 30,
		2024				2023				2024				2023
Revenue:
Manufacturing fees		$	18,225,190			$	13,507,870			$	36,669,108			$	21,417,107
Licensing fees			655,155				649,315				1,014,300				1,720,154
Total revenue			18,880,345				14,157,185				37,683,408				23,137,261
Cost of manufacturing			10,682,917				7,710,106				21,011,202				11,939,627
Gross profit			8,197,428				6,447,079				16,672,206				11,197,634
Operating expenses:
Research and development			1,966,094				2,618,349				4,129,621				3,761,894
General and administrative			2,273,744				1,533,208				4,242,898				3,194,912
Non-cash compensation through issuance of stock options			52,329				42,777				104,658				57,777
Depreciation and amortization			420,318				327,240				846,030				655,522
Total operating expenses			4,712,485				4,521,574				9,323,207				7,670,105
Income from operations			3,484,943				1,925,505				7,348,999				3,527,529
Other (expense) income:
Change in fair value of derivative financial instruments - warrants			(12,754,735	)			(2,468,350	)			(15,537,648	)			(2,657,717	)
Change in fair value of stock-based liabilities			—				(2,066,820	)			—				(2,066,820	)
Interest expense and amortization of debt issuance costs			(255,136	)			(130,438	)			(505,917	)			(249,850	)
Interest income			5,902				7,320				11,292				10,836
Other income			—				—				12,000				—
Other expense, net			(13,003,969	)			(4,658,288	)			(16,020,273	)			(4,963,551	)
Loss before income taxes			(9,519,026	)			(2,732,783	)			(8,671,274	)			(1,436,022	)
Income tax (expense) benefit			(1,517,203	)			17,667,384				(1,749,182	)			17,512,432
Net (loss) income attributable to common shareholders		$	(11,036,229	)		$	14,934,601			$	(10,420,456	)		$	16,076,410
Basic net (loss) income per share attributable to common shareholders		$	(0.01	)		$	0.01			$	(0.01	)		$	0.02
Diluted net (loss) income per share attributable to common shareholders		$	(0.01	)		$	0.01			$	(0.01	)		$	0.02
Basic weighted average Common Stock outstanding			1,068,273,108				1,013,915,081				1,068,273,108				1,013,915,081
Diluted weighted average Common Stock outstanding			1,068,273,108				1,019,316,919				1,068,273,108				1,016,944,870

 

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

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

 

		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, 2024			—			$	—				1,068,373,108			$	1,068,377			$	173,210,549				100,000			$	(306,841	)		$	(116,389,267	)		$	57,582,818
Net income			—				—				—				—				—				—				—				615,773				615,773
Non-cash compensation through the issuance of employee stock options			—				—				—				—				52,329				—				—				—				52,329
Balance at June 30, 2024			—			$	—				1,068,373,108			$	1,068,377			$	173,262,878				100,000			$	(306,841	)		$	(115,773,494	)		$	58,250,920
Net loss			—				—				—				—				—				—				—				(11,036,229	)			(11,036,229	)
Non-cash compensation through the issuance of employee stock options			—				—				—				—				52,329				—				—				—				52,329
Balance at September 30, 2024			—			$	—				1,068,373,108			$	1,068,377			$	173,315,207				100,000			$	(306,841	)		$	(126,809,723	)		$	47,267,020

 

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

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

 

		Series J Preferred Stock								Common Stock								Additional Paid-In				Treasury Stock								Accumulated				Total Shareholders’
		Shares				Amount				Shares				Amount				Capital				Shares				Amount				Deficit				Equity
Balance as of March 31, 2023			—				—				1,013,915,081			$	1,014,019			$	164,750,980				100,000			$	(306,841	)		$	(136,497,898	)		$	28,960,260
Net income			—				—				—				—				—				—				—				1,141,809				1,141,809
Non-cash compensation through the issuance of employee stock options			—				—				—				—				15,000				—				—				—				15,000
Balance at June 30, 2023			—			$	—				1,013,915,081			$	1,014,019			$	164,765,980				100,000			$	(306,841	)		$	(135,356,089	)		$	30,117,069
Balance			—			$	—				1,013,915,081			$	1,014,019			$	164,765,980				100,000			$	(306,841	)		$	(135,356,089	)		$	30,117,069
Net income			—				—				—				—				—				—				—				14,934,601				14,934,601
Net income (loss)			—				—				—				—				—				—				—				14,934,601				14,934,601
Non-cash compensation through the issuance of employee stock options			—				—				—				—				42,777				—				—				—				42,777
Balance at September 30, 2023			—			$	—				1,013,915,081			$	1,014,019			$	164,808,757				100,000			$	(306,841	)		$	(120,421,488	)		$	45,094,447
Balance			—			$	—				1,013,915,081			$	1,014,019			$	164,808,757				100,000			$	(306,841	)		$	(120,421,488	)		$	45,094,447

 

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

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		2024				2023
		For the Six Months Ended September 30,
		2024				2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income		$	(10,420,456	)		$	16,076,410
Adjustments to reconcile net loss (income) to net cash provided by (used in) operating activities:
Depreciation and amortization			622,947				655,522
Provision for losses on accounts receivable			24,584				30,798
Amortization of operating leases - right-of-use assets			266,177				11,163
Amortization of finance leases - right-of-use assets			223,088				—
Amortization of debt discount - bonds offering costs			7,089
Loss on asset disposal			121,481				—
Change in fair value of derivative financial instruments - warrants			15,537,648				2,657,717
Change in fair value of stock-based liabilities			—				2,066,820
Deferred tax expense			1,317,391				(17,261,347	)
Non-cash compensation through the issuance of employee stock options			104,658				57,777
Non-cash rent expense and lease accretion			—				655
Change in operating assets and liabilities:
Accounts receivable			(2,014,838	)			(7,431,310	)
Inventory			(1,234,481	)			(5,673,668	)
Prepaid expenses and other current assets			587,233				677,224
Accounts payable			(731,026	)			1,162,183
Accrued expenses			401,717				4,043,722
Deferred revenue			(6,667	)			(6,668	)
Lease obligations - operating leases			(205,238	)			(12,751	)
Net cash provided by (used in) operating activities			4,601,307				(2,945,753	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment			(870,972	)			—
Purchase of intangible assets			(900,000	)			—
Proceeds from disposition of property and equipment			125,250				—
Net cash used in investing activities			(1,645,722	)			—
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of bond principal			(130,000	)			(125,000	)
Proceeds from related party loans payable			—				4,000,000
Payments on principal on finance lease obligations			(158,179	)			—
Loan payments			(207,413	)			(97,275	)
Net cash (used in) provided by financing activities			(495,592	)			3,777,725
Net change in cash and restricted cash			2,459,993				831,972
Cash and restricted cash, beginning of period			7,539,094				8,244,681
Cash and restricted cash, end of period		$	9,999,087			$	9,076,653
Supplemental disclosure of cash and non-cash transactions:
Cash paid for interest		$	367,135			$	119,412
Cash paid for income taxes		$	496,262			$	127,522
Finance directors and officers insurance premium		$	198,457			$	—
Recognition of finance lease right of use asset and lease liabilities entered into		$	153,870			$	—
Reconciliation of cash and restricted cash
Cash		$	9,554,963			$	8,653,903
Restricted cash - debt service for NJEDA bonds			444,124				422,750
Total cash and restricted cash shown in statement of cash flows		$	9,999,087			$	9,076,653

 

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

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Overview

 

Elite Pharmaceuticals, Inc. (the “Company” or “Elite”) was incorporated on October 1, 1997 under the laws of the State of Delaware, and its wholly-owned subsidiary Elite Laboratories, Inc. (“Elite Labs”) was incorporated on August 23, 1990 under the laws of the State of Delaware. On January 5, 2012, Elite Pharmaceuticals was reincorporated under the laws of the State of Nevada. Elite Labs engages primarily in researching, developing, licensing, manufacturing, and sales 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 product candidates 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 product candidates that will secure marketing approvals from the United States Food and Drug Administration (“FDA”), and thereafter, commercially exploiting such products.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of the Company are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC. 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. Certain information or footnote disclosures normally included in condensed financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Form 10-K as filed with the SEC on July 1, 2024. The interim results for the six months ended September 30, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending March 31, 2025 or for any future periods.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as reported amounts of revenues and expenses during the reporting period. Such management estimates and assumptions include, but are not limited to, standalone selling price for each distinct performance obligation included in customer contracts with multiple performance obligations, the period of benefit for deferred commissions, valuation of intangible assets, the useful life of property and equipment and identifiable intangible assets, stock-based compensation expense and income taxes. Actual results could differ from those estimates.

 

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 Application (“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. The Company paused further development of NDAs and has not engaged in business activities. Accordingly, during the three and six months ended September 30, 2024 and 2023, the Company has only engaged in business activities in a single operating segment.

 

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 consolidated financial statements. Please see Note 13 for further details.

 

F-6

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Revenue Recognition

 

The Company generates revenue from manufacturing and licensing fees and direct sales to pharmaceutical distributors for pharmacies and institutions. Manufacturing fees include the development of pain management products, manufacturing of a line of generic pharmaceutical products with approved ANDA, through the manufacture of formulations and the development of new products. Licensing fees include the commercialization of products either by license and the collection of royalties, or the expansion of licensing agreements with other pharmaceutical companies, including co-development projects, joint ventures and other collaborations.

 

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

 

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, at which time the performance obligation is deemed to be completed. 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, 2024.

 

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

 

c) Sale of product under the Elite label

 

The Company began direct sales of products under the Company’s own label on April 1, 2023. License agreements will remain in place for select products. With this transition, however, a large portion of the manufacturing and license fees have been replaced with revenues from sales of Elite labeled pharmaceutical products to distributors for pharmacies and institutions.

 

The Company recognizes revenue when the customer obtains control of the Company’s product based on the contractual shipping terms, at which time the performance obligation is deemed to be completed. The Company is primarily responsible for fulfilling the promise to deliver the product and bears risk of loss while the inventory is in-transit to the purchaser. Revenue is measured as the amount of consideration earned from the sale of Elite labeled pharmaceutical products are recorded at their net realizable value which consists of gross amounts invoiced reduced by contractual reductions, including, without limitation, chargebacks, discounts and program rebates, as applicable.

 

The Company provides for chargebacks to wholesalers for sales to various end-customers to include, but not limited to, hospitals, group purchasing organizations, and pharmacies. Chargebacks represent the difference between the price the wholesaler pays and the price that the end-customer pays for a product. The company’s estimate for chargebacks is developed based upon management’s assumption of anticipated product returns, other rebates, as well as historical information.

 

Disaggregation of revenue

 

In the following table, revenue is disaggregated by type of revenue generated by the Company. The Company recognizes revenue at a point in time for all performance obligations. During the six months ended September 30, 2024 and 2023, the Company had paused further development of NDAs and has not engaged in business activities in that segment. Accordingly, during the six months ended September 30, 2024 and 2023, the Company has only engaged in business activities in a single operating segment. 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,
		2024				2023				2024				2023
ANDA:
Manufacturing fees		$	18,225,190			$	13,507,870			$	36,669,108			$	21,417,107
Licensing fees			655,155				649,315				1,014,300				1,720,154
Total revenue		$	18,880,345			$	14,157,185			$	37,683,408			$	23,137,261

 

Selected information on reportable segments and reconciliation of operating income by segment to income from operations before income taxes are disclosed within Note 13.

 

Restricted Cash

 

As of September 30, 2024, and March 31, 2024, the Company had $444,124 and $432,832, of restricted cash, respectively, related to debt service reserve in regard to the New Jersey Economic Development Authority (“NJEDA”) bonds (see Note 5).

 

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.

 

F-10

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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.

 

There were no such impairments recorded during the six months ended September 30, 2024 and 2023. The Company notes that none of its patents relate to any of the Company’s revenue producing activities.

 

On June 17, 2024, the Company and Nostrum Laboratories Inc. (“Nostrum”) entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”), pursuant to which Nostrum was obligated to (i) sell to the Company all of its rights in and to the approved abbreviated new drug applications (ANDAs) for generic Norco® (Hydrocodone Bitartrate and Acetaminophen tablets, USP CII), generic Percocet® (Oxycodone Hydrochloride and Acetaminophen, USP CII), and generic Dolophine® (Methadone Hydrochloride tablets), each a “Product”, and (ii) grant to the Company a royalty-free, non-exclusive perpetual license to use the manufacturing technology, proprietary information, processes, techniques, protocols, methods, know-how, and improvements necessary or used to manufacture each Product in accordance with the applicable ANDA, in exchange for $900,000 in cash (the “Transaction”). The Asset Purchase Agreement includes customary representations and warranties and various customary covenants. The closing of the Transaction occurred on June 21, 2024.

 

The following table summarizes the Company’s intangible assets as of September 30, 2024 and March 31, 2024:

 SCHEDULE OF INTANGIBLE ASSETS

		September 30, 2024
		Estimated Useful Life		Gross Carrying Amount				Additions				Impairment losses				Accumulated Amortization				Net Book Value
Patent application costs		-*		$	289,039			$	—			$	—			$	—			$	289,039
ANDA acquisition costs		Indefinite			6,052,189				900,000				—				—				6,952,189
				$	6,341,228			$	900,000			$	—			$	—			$	7,241,228

 

		March 31, 2024
		Estimated Useful Life		Gross Carrying Amount				Additions				Impairment losses				Accumulated Amortization				Net Book Value
Patent application costs		-*		$	289,039			$	—			$	—			$	—			$	289,039
ANDA acquisition costs		Indefinite			6,052,189				—				—				—				6,052,189
				$	6,341,228			$	—			$	—			$	—			$	6,341,228

 

*

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).

 

F-11

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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. Due to temporary differences in the timing of recognition of items included in income for accounting and tax purposes, deferred tax assets or liabilities are recorded to reflect the impact arising from these differences on future tax payments.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, 2024, a summary of the tax years that remain subject to examination in our major tax jurisdictions are: United States – Federal, 2020 and forward. The Company did not record unrecognized tax positions for the six months ended September 30, 2024.

 

(Loss) Income Per Share Attributable to Common Shareholders’

 

The Company follows ASC 260, Earnings Per Share, which requires presentation of basic and diluted (loss) income 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 (loss) income 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 (loss) income per share does not include the change in fair value of derivative instruments or the conversion of securities that would have an antidilutive effect.

 

As the Company was in a net loss position for the three and six months ended September 30, 2024, the potential dilution from the warrants converting into 79,008,661 shares of Common Stock and the stock options converting into 15,670,000 shares of Common Stock for these periods has been excluded from the number of shares used in calculating diluted net income per share as their inclusion would have been antidilutive.

 

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

		2024				2023				2024				2023
		For the Three Months Ended September 30,								For the Six Months Ended September 30,
		2024				2023				2024				2023
Numerator
Net (loss) income - basic		$	(11,036,229	)		$	14,934,601			$	(10,420,456	)		$	16,076,410
Effect of dilutive instrument on net income			—				—				—				—
Net (loss) income - diluted		$	(11,036,229	)		$	14,934,601			$	(10,420,456	)		$	16,076,410
Denominator
Weighted average shares of Common Stock outstanding - basic			1,068,273,108				1,013,915,081				1,068,273,108				1,013,915,081
Dilutive effect of stock options and convertible securities			—				5,401,838				—				3,029,789
Weighted average shares of Common Stock outstanding - diluted			1,068,273,108				1,019,316,919				1,068,273,108				1,016,944,870
Net (loss) income per share
Basic		$	(0.01	)		$	0.01			$	(0.01	)		$	0.02
Diluted		$	(0.01	)		$	0.01			$	(0.01	)		$	0.02

 

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.

 

F-12

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 the Company’s 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
		Amount at Fair Value				Level 1				Level 2				Level 3
Balance as of March 31, 2024		$	6,298,008			$	—			$	—			$	6,298,008
Change in fair value of derivative financial instruments - warrants			15,537,648				—				—				15,537,648
Balance as of September 30, 2024		$	21,835,656			$	—			$	—			$	21,835,656

 

						Fair Value Measurement
		Amount at Fair Value				Level 1				Level 2				Level 3
Balance as of March 31, 2023		$	521,711			$	—			$	—			$	521,711
Change in fair value of derivative financial instruments - warrants			2,657,717				—				—				2,657,717
Balance as of September 30, 2023		$	3,179,428			$	—			$	—			$	3,179,428

 

See Note 10 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, and related party loans payable 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.

 

Recently Issued Accounting Pronouncements

 

In December 2023, the FASB issued ASU 2023-09 (Topic 740), Improvements to income tax disclosures, which enhances the disclosure requirements for the income tax rate reconciliation, domestic and foreign income taxes paid, requiring disclosure of disaggregated income taxes paid by jurisdiction, unrecognized tax benefits, and modifies other income tax-related disclosures. The amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted and should be applied prospectively. The Company is currently evaluating the effect of adopting this guidance on its condensed consolidated financial statements.

 

F-13

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segments,” which aims to improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses. Currently, Topic 280 requires that a public entity disclose certain information about its reportable segments. Topic 280 also requires other specified segment items and amounts to be disclosed under certain circumstances. The amendments in this ASU do not change or remove those disclosure requirements and do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company does not expect that the requirements of ASU 2023 – 07 will have a material impact on its condensed consolidated financial statements.

 

Management has evaluated recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on the Company’s condensed consolidated financial statements and related disclosures.

 

NOTE 2. INVENTORY

 

Inventory consisted of the following:

 

SCHEDULE OF INVENTORY

		September 30, 2024				March 31, 2024
Finished goods		$	4,620,746			$	4,465,970
Work-in-progress			1,793,421				1,804,426
Raw materials			7,750,778				6,660,068
Inventory		$	14,164,945			$	12,930,464

 

NOTE 3. PROPERTY AND EQUIPMENT, NET

 

Property and equipment consisted of the following:

 

SCHEDULE OF PROPERTY AND EQUIPMENT

		September 30, 2024				March 31, 2024
Land, building and improvements		$	11,649,918			$	11,061,149
Laboratory, manufacturing, warehouse and transportation equipment			14,021,898				14,090,978
Office equipment and software			373,601				373,601
Furniture and fixtures			556,418				556,418
Property and equipment, gross			26,601,835				26,082,146
Less: Accumulated depreciation			(16,425,248	)			(15,906,853	)
Property and equipment, net		$	10,176,587			$	10,175,293

 

Depreciation expense was $227,356 and $327,240 for the three months ended September 30, 2024 and 2023, respectively, and $622,947 and $655,522 for the six months ended September 30, 2024 and 2023, respectively.

 

NOTE 4. ACCRUED EXPENSES

 

As of September 30, 2024 and March 31, 2024, the Company’s accrued expenses consisted of the following:

 

SCHEDULE OF ACCRUED EXPENSES

		September 30, 2024				March 31, 2024
Co-development profit split		$	4,008,074			$	3,684,587
Employee bonuses			559,248				206,225
Income tax			420,856				485,327
Legal and professional expense			125,000				90,000
Audit fees			80,000				125,000
Director dues			22,500				22,500
Consultant contract fees			—				20,000
Salaries and fees payable			172,424				—
Other accrued expenses			315,362				668,108
Total accrued expenses		$	5,703,464			$	5,301,747

 

F-14

 

 

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 5. NJEDA BONDS

 

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

 

In relation to the Series A Notes, the Company is required to maintain a debt service reserve. The debt service reserve is classified as restricted cash on the accompanying 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

		September 30, 2024				March 31, 2024
Gross bonds payable
NJEDA Bonds - Series A Notes		$	990,000			$	1,120,000
Less: Current portion of bonds payable (prior to deduction of bond offering costs)			(140,000	)			(130,000	)
Long-term portion of bonds payable (prior to deduction of bond offering costs)		$	850,000			$	990,000
Bond offering costs		$	354,454			$	354,454
Less: Accumulated amortization			(270,568	)			(263,479	)
Bond offering costs, net		$	83,886			$	90,975
Current portion of bonds payable - net of bond offering costs
Current portions of bonds payable		$	140,000			$	130,000
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		$	125,822			$	115,822
Long term portion of bonds payable - net of bond offering costs
Long term portion of bonds payable		$	850,000			$	990,000
Less: Bond offering costs to be amortized subsequent to the next 12 months			(69,708	)			(76,797	)
Long term portion of bonds payable, net of bond offering costs		$	780,292			$	913,203

 

Amortization expense was $3,545 and $3,548 for the three months ended September 30, 2024 and 2023, respectively, and $7,089 and $7,096 for the six months ended September 30, 2024 and 2023, respectively. Interest payable was $5,363 and $6,067 as of September 30, 2024 and March 31, 2024, respectively. Interest expense was $18,200 and $19,553 for the three months ended September 30, 2024 and 2023, respectively, and $39,785 and $39,785 for the six months ended September 30, 2024 and 2023, respectively.

 

Maturities of bonds for the next five years are as follows:

 

SCHEDULE OF MATURITIES OF BONDS

Years ending March 31,		Amount
Remainder of 2025		$	—
2026			140,000
2027			150,000
2028			160,000
2029			170,000
Thereafter			370,000
Total		$	990,000

 

F-15

 

 

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

		September 30, 2024				March 31, 2024
Mortgage loan payable 4.75% interest and maturing June 2032		$	2,377,263			$	2,418,426
Equipment and insurance financing loans payable, between 5.99% and 12.02% interest and maturing between October 2024 and October 2025			160,667				128,460
Less: Current portion of loans payable			(242,058	)			(180,399	)
Long-term portion of loans payable		$	2,295,872			$	2,366,487

 

The interest expense associated with the loans payable was $33,135 and $93,832 for the three months ended September 30, 2024 and 2023, respectively, and $68,017 and $171,070 for the six months ended September 30, 2024 and 2023, respectively.

 

Loan principal payments for the next five years are as follows:

 

SCHEDULE OF LOAN PRINCIPAL PAYMENTS

Future principal balances
Years ending March 31,		Amount
Remainder of 2025		$	171,445
2026			120,749
2027			92,773
2028			94,433
2029			98,447
Thereafter