| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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 audited consolidated financial statements have been prepared in accordance with generally accepted accounting principles
in the United States (“GAAP”). The audited 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. Segment
Information Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification 280 (“ASC 280”), Segment Reporting 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 audited consolidated financial statements. Please see Note 15 for further details. Revenue
Recognition The
Company generates revenue primarily from manufacturing and licensing fees. Manufacturing fees include the development of pain management
products, manufacturing of a line of generic pharmaceutical products with approved ANDA, through the manufacture of formulations and
the development of new products. Licensing fees include the commercialization of products either by license and the collection of royalties,
or the expansion of licensing agreements with other pharmaceutical companies, including co-development projects, joint ventures and other
collaborations. ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Under
ASC 606, Revenue from Contacts with Customers Nature
of goods and services The
following is a description of the Company’s goods and services from which the Company generates revenue, as well as the nature,
timing of satisfaction of performance obligations, and significant payment terms for each, as applicable: a)
Manufacturing Fees The
Company is equipped to manufacture controlled-release products on a contract basis for third parties, if, and when, the products are
approved. These products include products using controlled-release drug technology. The Company also develops and markets (either on
its own or by license to other companies) generic and proprietary controlled-release pharmaceutical products. The
Company recognizes revenue when the customer obtains control of the Company’s product based on the contractual shipping terms of
the contract. The Company is primarily responsible for fulfilling the promise to provide the product, is responsible to ensure that the
product is produced in accordance with the related supply agreement and bears risk of loss while the inventory is in-transit to the commercial
partner. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to a
customer. b)
License Fees The
Company enters into licensing and development agreements, which may include multiple revenue generating activities, including milestones
payments, licensing fees, product sales and services. The Company analyzes each element of its licensing and development agreements in
accordance with ASC 606 to determine appropriate revenue recognition. The terms of the license agreement may include payment to the Company
of licensing fees, non-refundable upfront license fees, milestone payments if specified objectives are achieved, and/or royalties on
product sales. If
the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.
Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative
standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone
selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable
through past transactions, the Company estimates the standalone selling price taking into account available information such as market
conditions and internally approved pricing guidelines related to the performance obligations. The
Company recognizes revenue from non-refundable upfront payments at a point in time, typically upon fulfilling the delivery of the associated
intellectual property to the customer. For those milestone payments which are contingent on the occurrence of particular future events
(for example, payments due upon a product receiving FDA approval), the Company determined that these need to be considered for inclusion
in the calculation of total consideration from the contract as a component of variable consideration using the most-likely amount method.
As such, the Company assesses each milestone to determine the probability and substance behind achieving each milestone. Given the inherent
uncertainty of the occurrence of future events, the Company will recognize revenue from the milestone when there is not a high probability
of a reversal of revenue, which typically occurs near or upon achievement of the event. ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 March 31, 2022. 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 Praxgen, formerly known
as Praxgen
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 Years Ended March 31,
2022 2021
NDA:
Manufacturing fees $ 26,951,863 $ 20,997,310
Licensing fees $ — $ 166,167
Total NDA revenue — 166,167
ANDA:
Manufacturing fees $ 26,951,863 $ 20,997,310
Licensing fees 5,310,254 4,217,272
Total ANDA revenue 32,262,117 25,214,582
Total revenue $ 32,262,117 $ 25,380,749 Selected
information on reportable segments and reconciliation of operating income by segment to income (loss) from operations before income taxes
are disclosed within Note 15. 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. ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Restricted
Cash As
of March 31, 2022, and March 31, 2021, the Company had $ 405,039 405,013 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 forty years 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 March 31, 2022, 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. ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 March 31, 2022, 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 years ended March 31, 2022 and 2021. ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 Distinguishing Liabilities from Equity Derivatives and Hedging Stock-Based
Compensation The
Company accounts for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation In
accordance with the Company’s Director compensation policy and certain employment contracts, director’s fees and a portion
of employee’s salaries are to be paid via the issuance of shares of the Company’s Common Stock (“Common Stock”),
in lieu of cash, with the valuation of such share being calculated on a quarterly basis and equal to the average closing price of the
Company’s Common Stock. Earnings
Per Share Attributable to Common Shareholders’ The
Company follows ASC 260, Earnings Per Share, which requires presentation of basic and diluted earnings per share (“EPS”)
on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying financial
statements, basic earnings per share is computed by dividing net income by the weighted average number of shares of Common Stock outstanding
during the period. The computation of diluted net income per share does not include the conversion of securities that would have an antidilutive
effect. ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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
2022 2021
For the Years Ended March 31,
2022 2021
Numerator
Net income - basic $ 8,898,245 $ 5,088,421
Effect of dilutive instrument on net income (1,425,409 ) (1,237,132 )
Net income - diluted $ 7,472,836 $ 3,851,289
Denominator
Weighted average shares of Common Stock outstanding - basic 1,010,607,713 942,997,875
Dilutive effect of stock options and convertible securities — —
Weighted average shares of Common Stock outstanding - diluted 1,010,607,713 942,997,875
Net income per share
Basic $ 0.01 $ 0.01
Diluted $ 0.01 $ 0.00 Fair
Value of Financial Instruments ASC
820, Fair Value Measurements and Disclosures 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. ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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
Amount at Fair Value Measurement Using
Fair Value Level 1 Level 2 Level 3
March 31, 2022
Liabilities
Derivative financial instruments - warrants $ 936,837 $ — $ — $ 936,837
March 31, 2021
Liabilities
Derivative financial instruments - warrants $ 2,362,246 $ — $ — $ 2,362,246 See
Note 11 for specific inputs used in determining fair value. The
carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, prepaid expenses and other
current assets, accounts payable and accrued expenses, approximate their fair values because of the short maturity of these instruments.
Based upon current borrowing rates with similar maturities the carrying value of long-term debt approximates fair value. Non-Financial
Assets that are Measured at Fair Value on a Non-Recurring Basis Non-financial
assets such as intangible assets, and property and equipment are measured at fair value only when an impairment loss is recognized. The
Company did not record an impairment charge related to these assets in the periods presented. Treasury
Stock The
Company records treasury stock at the cost to acquire it and includes treasury stock as a component of shareholders’ equity. Recently
Issued Accounting Pronouncements In
June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments 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. |
