| 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, 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 three months ended June 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 months ended June 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. 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 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. ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Significant
management judgment is required to determine the level of effort required under an arrangement and the period over which the Company
expects to complete its performance obligations under the arrangement. If the Company cannot reasonably estimate when its performance
obligations either are completed or become inconsequential, then revenue recognition is deferred until the Company can reasonably make
such estimates. Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method. When
determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before
or significantly after performance, resulting in a significant financing component. Applying the practical expedient in ASC 606-10-32-18,
the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations
under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing
component as of June 30, 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 now reported will be 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 three months ended June 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 three months ended June 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 June 30,
2024 2023
ANDA:
Manufacturing fees $ 18,443,918 $ 7,909,237
Licensing fees 359,145 1,070,839
Total ANDA revenue $ 18,803,063 $ 8,980,076 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 June 30, 2024, and March 31, 2024, the Company had $ 438,222 432,832 ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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. There
were no 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 The
following table summarizes the Company’s intangible assets as of and for the periods ended June 30, 2024 and March 31, 2024: SCHEDULE
OF INTANGIBLE ASSETS
June 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). 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. 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 June 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, and State, 2019 and forward. The
Company’s policy for recording interest and penalties associated with unrecognized tax benefits is to record such interest and
penalties as a component of income tax expense. The Company did not have any unrecognized tax positions as of June 30, 2024 and March
31, 2024. Earnings
Per Share Attributable to Common Shareholders’ The
Company follows ASC 260, Earnings Per Share As
the average market price of Common Stock for the three months ended June 30, 2024 and 2023 did not exceed the exercise price of the warrants,
the potential dilution from the warrants converting into 79,008,661 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
For the Three Months Ended June 30,
2024 2023
Numerator
Net income - basic $ 615,773 $ 1,141,809
Effect of dilutive instrument on net income — —
Net income - diluted $ 615,773 $ 1,141,809
Denominator
Weighted average shares of Common Stock outstanding - basic 1,068,273,108 1,013,915,081
Dilutive effect of stock options 7,977,096 657,740
Weighted average shares of Common Stock outstanding - diluted 1,076,250,204 1,014,572,821
Net income per share
Basic $ 0.00 $ 0.00
Diluted $ 0.00 $ 0.00 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 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 2,782,913 — — 2,782,913
Balance as of June 30, 2024 $ 9,080,921 $ — $ — $ 9,080,921
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 189,367 — — 189,367
Balance as of June 30, 2023 $ 711,078 $ — $ — $ 711,078 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. 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. |
