U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
 
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended 
September 30, 2013
 
or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period ended                       to                        
 
Commission File Number: 001-15697
 
ELITE PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
 
Nevada
 
22-3542636
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
165 Ludlow Avenue, Northvale, New Jersey
 
07647
(Address of principal executive offices)
  
(Zip Code)
 
(201) 750-2646
(Registrant's telephone number, including area code)
   
(Former name, former address and former fiscal year, if changed since last report)
 
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  x  No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes  x  No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large Accelerated filer  ¨
Accelerated Filer  ¨
Non-Accelerated Filer  ¨
  Smaller Reporting Company  x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  ¨ No  x
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.   As of November 4, 2013, the issuer had outstanding 507,937,469 shares of common stock, $0.001 par value (exclusive of 100,000 shares held in treasury).
 
 
 
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
INDEX
 
 
 
Page No.
 
PART I – FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
Condensed Consolidated Balance Sheets as of September 30, 2013 (unaudited) and March 31, 2013 (audited)
F-1
 
 
 
 
Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2013   (unaudited) and September 30, 2012 (unaudited)
F-3
 
 
 
 
Condensed Consolidated Statement of Changes in Stockholders’ Deficit for the six months ended September 30, 2013 (unaudited)
F-4
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)
F-5
 
 
 
 
Notes to 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 Disclosures about Market Risk
17
 
 
 
Item 4.
Controls and Procedures
17
 
 
 
 
PART II – OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
17
 
 
 
Item 1A.
Risk Factors
17
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
18
 
 
 
Item 3.
Defaults upon Senior Securities
18
 
 
 
Item 4.
Mine Safety Disclosures
18
 
 
 
Item 5.
Other Information
18
 
 
 
Item 6.
Exhibits
18
 
 
 
SIGNATURES
24
 
 
 
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
 
September 30,
 
March 31,
 
 
 
2013
 
2013
 
 
 
(Unaudited)
 
(Audited)
 
ASSETS
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
766,201
 
$
369,023
 
Accounts receivable (net of allowance for doubtful accounts of -0-)
 
 
635,959
 
 
665,154
 
Inventories (net of reserve of -0- and $93,338, respectively)
 
 
1,719,673
 
 
1,358,146
 
Prepaid expenses and other current assets
 
 
156,916
 
 
151,051
 
 
 
 
 
 
 
 
 
Total Current Assets
 
 
3,278,749
 
 
2,543,374
 
 
 
 
 
 
 
 
 
PROPERTY AND EQUIPMENT , net of accumulated depreciation of $5,283,619 and $5,068,522, respectively
 
 
3,940,211
 
 
4,028,943
 
 
 
 
 
 
 
 
 
INTANGIBLE ASSETS – net of accumulated amortization of $-0-
 
 
6,314,004
 
 
694,426
 
 
 
 
 
 
 
 
 
OTHER ASSETS
 
 
 
 
 
 
 
Investment in Novel Laboratories, Inc.
 
 
3,329,322
 
 
3,329,322
 
Security deposits
 
 
14,314
 
 
14,314
 
Restricted cash – debt service for EDA bonds
 
 
295,462
 
 
267,820
 
EDA bond offering costs, net of accumulated amortization of $114,608 and $107,519, respectively
 
 
239,845
 
 
246,934
 
 
 
 
 
 
 
 
 
Total Other Assets
 
 
3,878,943
 
 
3,858,390
 
 
 
 
 
 
 
 
 
TOTAL ASSETS
 
$
17,411,907
 
$
11,125,133
 
 
The accompanying notes are an integral part of the condensed consolidated financial statements
 
 
F-1

 
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
 
September 30,
 
March 31,
 
 
 
2013
 
2013
 
 
 
(Unaudited)
 
(Audited)
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
EDA bonds payable
 
$
3,385,000
 
$
3,385,000
 
Short term loans and current portion of long-term debt
 
 
2,916
 
 
6,296
 
Convertible Note Payable (net of debt discount of $4,219,292 and -0-, respectively)
 
 
5,780,708
 
 
-0-
 
Related Party Line of Credit
 
 
600,000
 
 
600,000
 
Accounts payable and accrued expenses
 
 
1,925,375
 
 
1,325,126
 
Deferred revenues
 
 
13,333
 
 
13,333
 
Preferred share derivative interest payable
 
 
16,365
 
 
27,500
 
 
 
 
 
 
 
 
 
Total Current Liabilities
 
 
11,723,697
 
 
5,357,255
 
 
 
 
 
 
 
 
 
LONG TERM LIABILITIES
 
 
 
 
 
 
 
Deferred revenues
 
 
145,556
 
 
152,223
 
Other long term liabilities
 
 
96,078
 
 
91,571
 
Derivative liability – preferred shares
 
 
203,008
 
 
6,334,621
 
Derivative liability – warrants
 
 
11,095,970
 
 
7,862,848
 
 
 
 
 
 
 
 
 
Total Long Term Liabilities
 
 
11,540,612
 
 
14,441,263
 
 
 
 
 
 
 
 
 
TOTAL LIABILITIES
 
 
23,264,309
 
 
19,798,518
 
 
 
 
 
 
 
 
 
STOCKHOLDERS’ DEFICIT
 
 
 
 
 
 
 
Common stock – par value $0.001, Authorized 690,000,000 shares. Issued 494,811,263 shares and 374,493,959 shares, respectively. Outstanding 494,711,263 shares and 374,393,959 shares, respectively
 
 
494,812
 
 
374,495
 
 
 
 
 
 
 
 
 
Additional paid-in-capital
 
 
131,106,847
 
 
119,690,336
 
 
 
 
 
 
 
 
 
Accumulated deficit
 
 
(137,147,220)
 
 
(128,431,375)
 
 
 
 
 
 
 
 
 
Treasury stock at cost (100,000 common shares)
 
 
(306,841)
 
 
(306,841)
 
 
 
 
 
 
 
 
 
TOTAL STOCKHOLDERS’ DEFICIT
 
 
(5,852,402)
 
 
(8,673,385)
 
 
 
 
 
 
 
 
 
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
$
17,411,907
 
$
11,125,133
 
 
The accompanying notes are an integral part of the condensed consolidated financial statements
 
 
F-2

 
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
 
THREE MONTHS ENDED
 
SIX MONTHS ENDED
 
 
 
September 30,
 
September 30,
 
 
 
2013
 
2012
 
2013
 
2012
 
REVENUES
 
 
 
 
 
 
 
 
 
 
 
 
 
Manufacturing Fees
 
$
921,347
 
$
466,020
 
$
1,464,780
 
$
845,716
 
Royalties & Profit Splits
 
 
231,578
 
 
154,168
 
 
404,833
 
 
282,663
 
Lab Fee Revenues
 
 
5,972
 
 
14,329
 
 
10,972
 
 
84,693
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Revenues
 
 
1,158,897
 
 
634,517
 
 
1,880,585
 
 
1,213,072
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
COSTS OF REVENUES
 
 
616,635
 
 
479,631
 
 
1,195,647
 
 
933,995
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross Profit
 
 
542,262
 
 
154,886
 
 
684,938
 
 
279,077
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OPERATING EXPENSES
 
 
 
 
 
 
 
 
 
 
 
 
 
Research and Development
 
 
854,777
 
 
228,475
 
 
1,424,268
 
 
425,357
 
General and Administrative
 
 
272,561
 
 
401,174
 
 
649,018
 
 
766,135
 
Non-cash compensation through issuance of stock options
 
 
18,937
 
 
15,133
 
 
28,424
 
 
21,246
 
Depreciation and Amortization
 
 
82,567
 
 
25,372
 
 
245,399
 
 
67,370
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Operating Expenses
 
 
1,228,842
 
 
670,154
 
 
2,347,109
 
 
1,280,108
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(LOSS) FROM OPERATIONS
 
 
(686,580)
 
 
(515,268)
 
 
(1,662,171)
 
 
(1,001,031)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OTHER INCOME / (EXPENSES)
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
 
 
(255,945)
 
 
(61,247)
 
 
(330,723)
 
 
(119,784)
 
Change in fair value of warrant derivatives
 
 
(6,129,579)
 
 
2,093,653
 
 
(3,233,122)
 
 
(2,995,081)
 
Change in fair value of preferred share derivatives
 
 
(2,565,495)
 
 
(187,383)
 
 
(3,466,332)
 
 
(4,830,866)
 
Interest expense attributable to preferred share derivatives
 
 
(17,476)
 
 
(28,823)
 
 
(41,060)
 
 
(83,901)
 
Discount in Series E issuance attributable to beneficial conversion features
 
 
—
 
 
(250,000)
 
 
—
 
 
(437,500)
 
Other Income
 
 
19,831
 
 
—
 
 
19,831
 
 
—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Other Income / (Expense)
 
 
(8,948,664)
 
 
1,566,200
 
 
(7,051,406)
 
 
(8,467,132)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
 
 
(9,635,244)
 
 
1,050,932
 
 
(8,713,577)
 
 
(9,468,163)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PROVISION FOR INCOME TAXES
 
 
(2,269)
 
 
(1,023)
 
 
(2,269)
 
 
(4,023)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS
 
$
(9,637,513)
 
$
1,049,909
 
$
(8,715,846)
 
$
(9,472,186)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET (LOSS) PER SHARE
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
$
(0.02)
 
$
0.00
 
$
(0.02)
 
$
(0.03)
 
Diluted
 
$
(0.02)
 
$
0.00
 
$
(0.02)
 
$
(0.03)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
 
421,991,654
 
 
348,298,807
 
 
405,073,773
 
 
342,712,859
 
Diluted
 
 
421,991,654
 
 
505,759,554
 
 
405,073,773
 
 
342,712,859
 
 
The accompanying notes are an integral part of the condensed consolidated financial statements
 
 
F-3

 
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
(Unaudited)
 
 
 
Common Stock
 
 
 
 
Treasury Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Paid-In
 
 
 
 
 
 
 
Accumulated
 
Stockholders’
 
 
 
Shares
 
Amount
 
Capital
 
Shares
 
Amount
 
Deficit
 
Deficit
 
Balance at March 31, 2013
 
 
374,493,959
 
$
374,495
 
$
119,690,336
 
 
100,000
 
$
(306,841)
 
$
(128,431,375)
 
$
(8,673,385)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(8,715,845)
 
 
(8,715,845)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common shares sold pursuant to the Lincoln Park Capital purchase agreement
 
 
25,856,021
 
 
25,856
 
 
1,874,144
 
 
 
 
 
 
 
 
 
 
 
1,900,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common shares issued in lieu of cash in payment of preferred share derivative interest expense
 
 
724,714
 
 
725
 
 
51,471
 
 
 
 
 
 
 
 
 
 
 
52,196
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conversion of Series C, Series E and Series G Preferred Shares into Common Shares
 
 
90,150,920
 
 
90,150
 
 
9,507,795
 
 
 
 
 
 
 
 
 
 
 
9,597,945
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-cash compensation through the issuance of stock options
 
 
 
 
 
 
 
 
28,424
 
 
 
 
 
 
 
 
 
 
 
28,424
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Costs associated with raising capital
 
 
 
 
 
 
 
 
(47,987)
 
 
 
 
 
 
 
 
 
 
 
(47,987)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common shares issued as commitment shares pursuant to the Lincoln Park Capital purchase agreement
 
 
3,485,649
 
 
3,486
 
 
(3,486)
 
 
 
 
 
 
 
 
 
 
 
—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common shares issued pursuant to the exercise of cash warrants
 
 
100,000
 
 
100
 
 
6,150
 
 
 
 
 
 
 
 
 
 
 
6,250
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at September 30, 2013
 
 
494,811,263
 
$
494,812
 
$
131,106,847
 
 
100,000
 
$
(306,841)
 
$
(137,147,220)
 
$
(5,857,402)
 
 
The accompanying notes are an integral part of the condensed consolidated financial statements
 
 
F-4

 
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
 
SIX MONTHS ENDED SEPTEMBER 30
 
 
 
2013
 
2012
 
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
 
Net Loss
 
$
(8,715,845)
 
$
(9,472,186)
 
Adjustments to reconcile net loss to cash used in operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
 
 
222,299
 
 
236,143
 
Change in fair value of warrant derivative liability
 
 
3,233,122
 
 
2,995,081
 
Change in fair value of preferred share derivative liability
 
 
3,466,332
 
 
4,830,866
 
Discount in Series E issuance attributable to embedded beneficial conversion feature
 
 
—
 
 
437,500
 
Preferred share derivative interest satisfied by the issuance of common stock
 
 
52,196
 
 
126,106
 
Non-cash compensation accrued
 
 
154,750
 
 
95,000
 
Non-Cash Interest Expense
 
 
183,391
 
 
 
 
Non-cash compensation satisfied by the issuance of common stock and options
 
 
28,424
 
 
21,246
 
Non-cash rent expense
 
 
3,799
 
 
4,809
 
Non-cash lease accretion
 
 
708
 
 
667
 
 
 
 
 
 
 
 
 
Changes in Assets and Liabilities
 
 
 
 
 
 
 
Accounts receivable
 
 
29,195
 
 
(166,096)
 
Inventories
 
 
(361,527)
 
 
(175,853)
 
Prepaid and other current assets
 
 
(5,865)
 
 
15,592
 
Accounts payable, accrued expenses and other current liabilities
 
 
442,119
 
 
(39,828)
 
Deferred revenues and Customer deposits
 
 
(6,667)
 
 
(6,669)
 
Derivative interest payable
 
 
(11,135)
 
 
(42,206)
 
 
 
 
 
 
 
 
 
NET CASH USED IN OPERATING ACTIVITIES
 
 
(1,284,704)
 
 
(1,139,828)
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
Purchases of property and equipment
 
 
(120,396)
 
 
(96,156)
 
Cost of leasehold improvements
 
 
(6,082)
 
 
(20,082)
 
Costs incurred for intellectual property assets
 
 
(22,261)
 
 
(23,315)
 
Deposits to / (withdrawals from) restricted cash, net
 
 
(27,642)
 
 
6,554
 
NET CASH USED IN INVESTING ACTIVITIES
 
 
(176,381)
 
 
(132,999)
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 
 
 
Proceeds from issuance of Series E Convertible Preferred Stock
 
 
—
 
 
437,500
 
Proceeds from sale of common shares to Lincoln Park Capital
 
 
1,900,000
 
 
—
 
Proceeds from exercise of cash warrants
 
 
6,250
 
 
187,500
 
Proceeds from draws against Treppel credit line
 
 
 
 
 
200,000
 
Other loan payments
 
 
—
 
 
(3,381)
 
Costs associated with raising capital
 
 
(47,987)
 
 
(9,856)
 
NET CASH PROVIDED BY FINANCING ACTIVITIES
 
 
1,858,263
 
 
811,763
 
 
 
 
 
 
 
 
 
NET CHANGE IN CASH AND CASH EQUIVALENTS
 
 
397,178
 
 
(461,064)
 
 
 
 
 
 
 
 
 
CASH AND CASH EQUIVALENTS – beginning of period
 
 
369,023
 
 
668,407
 
CASH AND CASH EQUIVALENTS – end of period
 
$
766,201
 
$
207,343
 
 
 
 
 
 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
 
 
 
 
Cash paid for interest
 
$
146,624
 
$
115,826
 
Cash paid for taxes
 
 
—
 
 
4,023
 
Non-Cash Financing Transactions
 
 
 
 
 
 
 
Commitment shares issued to Lincoln Park Capital
 
 
260,538
 
 
 
 
Conversion of Preferred Shares to Common Shares
 
 
9,597,945
 
 
 
 
Acquisition of intellectual property
 
 
5,597,317
 
 
 
 
Convertible Note Payable
 
 
5,597,317
 
 
 
 
 
The accompanying notes are an integral part of the condensed consolidated financial statements
 
 
F-5

 
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
( UNAUDITED )
 
NOTE 1      -      DEFINITIONS
 
“Cash Reserves” are equal to the amount listed in Note 2
 
“Current Balance Sheet Date” means September 30, 2013
 
“Current Bond Liability” is equal to the amount listed in Note 2
 
“Current Fiscal Year” means the twelve months ended March 31, 2014
 
“Current Quarter” means the three months ended September 30, 2013
 
“Current YTD” means the six months ended September 30, 2013
 
“Derivative Interest Liability Common Shares” means the following Common Shares issued in lieu of cash in payment of Derivative Interest due and owing as of the Current Balance Sheet Date:
 
Common Shares Issued
148,804
 
“ FDA ” means the U.S. Food and Drug Administration
 
“Hakim Credit Line Limit” equals $ 1,000,000
 
“Hakim Credit Line Balance” equals zero
 
“Hakim Credit Line Interest Due” equals zero
 
“ Outstanding Bond Principal Payments” means principal payments which were due and owing on the NJEDA Bonds on or before the Current Balance Sheet Date and not made, consisting of the following:
Payment Date
 
Amount
 
September 1, 2010
 
 
225,000
 
September 1, 2011
 
 
470,000
 
September 1, 2012
 
 
730,000
 
September 1, 2013
 
 
915,000
 
 
“ Prior Year Balance Sheet Date ” means September 30, 2012
 
“ Prior Fiscal Year ” means the twelve months ended March 31, 2013
 
“ Prior Year Quarter ” means the three months ended September 30, 2012
 
 
F-6

 
“ Restricted Cash Interest Payments ” means the following withdrawal of funds from the debt service reserve, with such funds being used to make interest payments due to holders of the NJEDA Bonds:
Payment Date
 
Amount
 
March 1, 2009
 
$
120,775
 
September 1, 2009
 
 
120,775
 
March 1, 2010
 
 
113,075
 
September 1, 2010
 
 
113,075
 
March 1, 2011
 
 
113,075
 
September 1, 2011
 
 
113,075
 
March 1, 2012
 
 
113,075
 
September 1, 2012
 
 
113,075
 
March 1, 2013
 
 
113,075
 
September 1, 2013
 
 
113,075
 
 
“ Restricted Cash Principal Payments ” means the following withdrawal of funds from the debt service reserve, with such funds being used to make principal payments due to holders of the NJEDA Bonds:
Payment Date
 
Amount
 
September 1, 2009
 
 
210,000
 
 
“SEC” means the Securities and Exchange Commission
 
“Treppel Credit Line Balance” equals $ 600,000
 
“Treppel Credit Line Interest Due” equals $ 15,288
 
“Treppel Credit Line Limit” equals $ 1,000,000
 
“Working Capital Deficit” is equal to the amount listed in Note 2

NOTE 2      -     BASIS OF PRESENTATION AND LIQUIDITY
 
The information in this quarterly report on Form 10-Q includes the results of operations of Elite Pharmaceuticals, Inc. and its consolidated subsidiaries (collectively the “Company” or “Elite”) for the Current Quarter and Prior Year Quarter. The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission in accordance with accounting principles generally accepted for interim financial statement presentation. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the condensed consolidated financial position, results of operations and cash flows of the Company for the periods presented have been included.
 
The financial results for the interim periods are not necessarily indicative of the results to be expected for the full year or future interim periods.
 
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2013 and filed with the SEC on June 21, 2012. There have been no changes in significant accounting policies since March 31, 2013.
 
The Company does not anticipate being profitable for the Current Fiscal Year; therefore a current provision for income tax was not established for the Current Quarter. Only the minimum liability required for state corporation taxes was considered.
 
 
F-7

 
The accompanying unaudited condensed consolidated financial statements were prepared on the assumption that the Company will continue as a going concern. As of the Current Balance Sheet Date, the Company had the following:
 
Cash reserves (“Cash Reserves”)
 
$
 0.8 million
 
Working capital deficit (“Working Capital Deficit”)
 
$
 8.4 million
 
Losses from operations for the Current Quarter
 
$
 0.7 million
 
Other loss for the Current Quarter
 
$
 8.9 million
 
Net loss for the Current Quarter
 
$
 9.6 million
 
NJEDA Bonds Payable (“Current Bond Liability”)
 
$
 3.4 million
 
 
The financial statements do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.
 
In addition, the Company has received Notice of Default from the Trustee of the NJEDA Bonds as a result of the utilization of the debt service reserve being used to pay semi-annual interest payments due on September 1 st and March 1 st of each year. The debt service reserve was first used to make such semi-annual interest payments on March 1, 2009 and has been utilized for all semi-annual interest payments due since then, with the Restricted Cash Interest Payments constituting such payments.
 
The Company has replenished all amounts withdrawn from the debt service reserve for the payment of semi-annual interest payments, as required, and in accordance with the applicable terms and conditions of such replenishments.
 
The Company did not have sufficient funds available to make the Restricted Cash Principal Payments and the Outstanding Principal Payments.
 
The debt service reserve was utilized to make the Restricted Cash Principal Payments, with the Company replenishing such amounts withdrawn from the debt service reserve, as required and in accordance with the applicable terms and conditions of such replenishments.
 
The Company requested that the Trustee utilize the debt service reserve to pay the principal payment due on September 1, 2010. This request was denied and accordingly the principal payment due on September 1, 2010 was not made.
 
The Company did not have sufficient funds available to make the principal payments due on September 1, 2011, 2012 and 2013, with such amount due including principal payments due in the prior year but not paid. There were not sufficient funds available in the debt service reserve and the payment was not made.
 
Please refer to the definition of Outstanding Bond Principal Payments for details on the amounts of the principal payments which were due and not made.
 
Resolution of the Company’s default on the NJEDA Bonds and our request for postponement of principal payments will have a significant effect on our ability to operate in the future.
 
Please refer to Note 6 to our financial statements for a more detailed discussion of the NJEDA Bonds and Notice of Default.
 
Please also note that the Working Capital Deficit includes the Current Bond Liability. This amount was first classified as a current liability as of March 31, 2010, due to the Notice of Default received from the Trustee in relation to the NJEDA Bonds. Please refer to the balance sheet and note 6 to our financial statements for details on the Current Bond Liability.
 
 
F-8

 
As of the Current Balance Sheet Date, we had Cash Reserves.
 
On June 12, 2012, Elite entered into a bridge loan agreement, as amended on December 5, 2012, and August 2, 2013, (the “Treppel Credit Line Agreement”) with Jerry Treppel, the Company’s Chairman. Under the terms of the Treppel Credit Line Agreement, Elite has the right, in its sole discretion to a line of credit (the “Treppel Credit Line”) in the maximum principal amount of up to the Treppel Credit Line Limit, at any one time. Mr. Treppel provided the Treppel Credit Line for the purpose of supporting the acceleration of Elite’s product development activities. The outstanding amount is evidenced by a promissory note which shall mature on July 31, 2014, at which time the entire unpaid principal balance, plus accrued interest thereon shall be due and payable in full. Elite may prepay any amounts owed without penalty. Any such prepayments shall first be due and owing and then to principal. Interest only shall be payable quarterly on July 1, October 1, January 1 and April 1 of each year. Prior to maturity or the occurrence of an Event of Default as defined in the Treppel Credit Line Agreement, the Company may borrow, repay and reborrow under the Treppel Credit Line through maturity. Amounts borrowed under the Treppel Credit Line bear interest at the rate of ten percent ( 10 %) per annum. For more detailed information, please refer to the Current Reports on Form 8-K filed with the SEC on June 13, 2012 December 10, 2012 and August 6, 2013, with such filings being herein incorporated by reference.
 
As of the Current Balance Sheet Date, the principal balance of the Treppel Credit Line was equal to the Treppel Credit Line Balance and the interest due was equal to the Treppel Credit Line Interest Due.
 
On October 15, 2013, subsequent to the Current Balance Sheet Date, Elite entered into a bridge loan agreement (the “Hakim Credit Line Agreement”) with Nasrat Hakim, the Company’s CEO and President. Under the terms of the Hakim Credit Line Agreement, Elite has the right, in its sole discretion to a line of credit (the “Hakim Credit Line”) in the maximum principal amount of up to the Hakim Credit Line Limit, at any one time. Mr. Hakim provided the Hakim Credit Line for the purpose of supporting the acceleration of Elite’s product development activities. The outstanding amount is evidenced by a promissory note which shall mature on June 30, 2015, at which time the entire unpaid principal balance, plus accrued interest thereon shall be due and payable in full. Elite may prepay any amounts owed without penalty. Any such prepayments shall first be due and owing and then to principal. Interest only shall be payable quarterly on July 1, October 1, January 1 and April 1 of each year. Prior to maturity or the occurrence of an Event of Default as defined in the Hakim Credit Line Agreement, the Company may borrow, repay and reborrow under the Hakim Credit Line through maturity. Amounts borrowed under the Hakim Credit Line bear interest at the rate of ten percent ( 10 %) per annum. For more detailed information, please refer to the Current Reports on Form 8-K filed with the SEC on October 16, 2013 and exhibit 10.16 to this quarterly report on Form 10-Q, with such filings being herein incorporated by reference.
 
As of the Current Balance Sheet Date, the principal balance of the Hakim Credit Line was equal to the Hakim Credit Line Balance and the interest due was equal to the Hakim Credit Line Interest Due.
 
On April 19, 2013, the Company entered into a purchase agreement (the “LPC Purchase Agreement”), together with a registration rights agreement (the “LPC Registration Rights Agreement”), with Lincoln Park Capital Fund, LLC (“LPC”).
 
Under the terms and subject to the conditions of the LPC Agreement, the Company has the right to sell to and LPC is obligated to purchase up to $ 10 million in shares of the Company’s Common Stock, subject to certain limitations, from time to time, over the 36 month period commencing on May 9, 2013, the date that the registration statement, which the Company agreed to file with the Securities and Exchange Commission (the “SEC”) pursuant to the LPC Registration Rights Agreement, was declared effective by the SEC. The Company may direct LPC, at its sole discretion and subject to certain conditions, to purchase stock in amounts of up to $ 80,000 on any single business day, so long as at least two business days have passed since the most recent purchase, increasing to up to $ 500,000 per purchase, depending upon the closing sale price of the Common Stock. The purchase price of the shares of Common Stock related to the future funding will be based on the prevailing market prices of such shares at the time of sales (or over a period of up to 12 business days leading up to such time), but in no event will shares be sold to LPC on a day the Common Stock closing price is less than the floor price of $ 0.07 per share, subject to adjustment. The Company’s sales of shares of Common Stock to LPC under the LPC Purchase Agreement are limited to no more than the number of shares that would result in the beneficial ownership by LPC and its affiliates, at any single point in time, of more than 9.99 % of the then outstanding shares of Common Stock.
 
 
F-9

 
A Current Report on Form 8-K was filed with the SEC on April 22, 2013 with regards to the LPC Purchase Agreement and LPC Registration Rights Agreement with such filing being herein incorporated by reference. A Securities Registration Statement on Form S-1 was filed with the SEC on April 25, 2013 and declared effective by the SEC on May 9, 2013. A post-effective amendment to the Registration Statement was filed with the SEC and declared effective on June 26, 2013.
 
Shares issued pursuant to the LPC Purchase Agreement are summarized as follows:
 
 
 
Three Months Ended
 
Six Months Ended
 
 
 
September 30,
 
September 30,
 
 
 
2013
 
2012
 
2013
 
2012
 
Initial commitment shares issued
 
 
—
 
 
—
 
 
2,929,115
 
 
—
 
Additional commitment shares issued
 
 
439,369
 
 
—
 
 
556,534
 
 
—
 
Purchased shares issued
 
 
19,982,403
 
 
—
 
 
25,856,021
 
 
—
 
Proceeds from purchased shares
 
$
1,500,000
 
 
—
 
$
1,900,000
 
$
—
 
 
Despite having entered into the Treppel Credit Line Agreement, the Hakim Credit Line Agreement and the LPC Purchase Agreement we still may be required to seek additional capital in the future and there can be no assurances that Elite will be able to obtain such additional capital on favorable terms, if at all.
 
Management has evaluated subsequent events or transactions occurring through the date the financial statements were issued (please see note 15).
 
Segment Reporting
FASB ASC 280-10-50, “Disclosure about Segments of an Enterprise and Related Information” requires use of the “management approach” model for segment reporting. The management approach is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. The Company operates in one segment for the three and six months ended September 30, 2013.

NOTE 3      -     CASH AND CASH EQUIVALENTS
 
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.

NOTE 4      -       INVENTORIES
 
Inventories consist of raw materials, work in process and finished goods and are stated at the lower of cost (first-in, first-out basis) or market (net realizable value), and summarized as follows:
 
 
 
September 30, 2013
 
March 31, 2013
 
Raw Materials
 
$
910,187
 
$
774,758
 
Work-in-Process
 
 
809,486
 
 
676,726
 
Finished Goods
 
 
—
 
 
—
 
Less: Inventory Reserve
 
 
—
 
 
(93,338)
 
Total Inventory
 
$
1,719,673
 
$
1,358,146
 
 
 
F-10

 
NOTE 5      -     INTANGIBLE ASSETS
 
Costs to acquire intangible assets, such as asset purchases of Abbreviated New Drug Applications (“ANDAs”) which are approved by the FDA or costs incurred in the application of patents are capitalized and amortized on the straight-line method, based on their estimated useful lives ranging from five to fifteen years, commencing upon approval of the patent or site transfers required for commercialization of an acquired ANDA. Such costs are charged to expense if the patent application or ANDA site transfer is unsuccessful.
 
As of the Current Balance Sheet Date, the following costs were recorded as intangible assets on the Company’s balance sheet:
 
 
 
Patent
 
 
 
 
Total
 
 
 
Application
 
ANDA
 
Intangible
 
 
 
Costs
 
Acquisitions
 
Assets
 
Intangible Assets as of March 31, 2013
 
$
244,424
 
$
450,000
 
$
694,424
 
 
 
 
 
 
 
 
 
 
 
 
Costs Capitalized During Current Fiscal Year
 
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2013
 
 
18,498
 
 
—
 
 
18,498
 
Three months ended September 30, 2013
 
 
3,765
 
 
5,597,317
 
 
5,601,082
 
 
 
 
 
 
 
 
 
 
 
 
Total Costs Capitalized-six months ended September 30, 2013
 
 
22,263
 
 
5,597,317
 
 
5,619,580
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of Intangible Assets During Current Fiscal Year
 
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2013
 
 
—
 
 
—
 
 
—
 
Three months ended September 30, 2013
 
 
—
 
 
—
 
 
—
 
 
 
 
 
 
 
 
 
 
 
 
Total Amortization – three months ended September 30, 2013
 
 
—
 
 
—
 
 
—
 
 
 
 
 
 
 
 
 
 
 
 
Intangible Assets as of September 30, 2013
 
$
266,687
 
$
6,047,317
 
$
6,314,004
 
 
The costs incurred in patent applications for the Current YTD and Current Quarter, were related to our abuse resistant opioid product lines. Additional costs incurred in relation to such patent applications will be capitalized as intangible assets, with amortization of such costs to commence upon approval of the patents.

NOTE 6      -     NJEDA BONDS
 
On August 31, 2005, the Company successfully completed a refinancing of a prior 1999 bond issue through the issuance of new tax-exempt bonds (the “Bonds”) via the issuance of the following:
 
 
 
Principal
 
 
 
 
 
 
 
 
Amount
 
 
 
 
 
 
 
 
On
 
Interest
 
 
 
 
Description
 
Issue Date
 
Rate
 
 
Maturity
 
Series A Note
 
3,660,000
 
6.50
%
 
September 1, 2030
 
Series B Note
 
495,000
 
9.0
%
 
September 1, 2012
 
 
The net proceeds, after payment of issuance costs, were used (i) to redeem the outstanding tax-exempt Bonds originally issued by the Authority on September 2, 1999, (ii) refinance other equipment financing and (iii) for the purchase of certain equipment to be used in the manufacture of pharmaceutical products. As of the Current Balance Sheet Date, all of the proceeds were utilized by the Company for such stated purposes.
 
 
F-11

 
Interest is payable semiannually on March 1 and September 1 of each year. The 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 related Indenture requires the maintenance of a Debt Service Reserve Fund as follows:
 
Description
 
Amount
 
Series A Note Proceeds
 
$
366,000
 
Series B Note Proceeds
 
 
49,500
 
Total
 
$
415,500
 
 
The Debt Service Reserve is maintained in restricted cash accounts that are classified in Other Assets.
 
Bond issue costs were paid from the bond proceeds and are being amortized over the life of the bonds. These costs and amortization activity are summarized as follows:
 
 
 
 
 
 
 
 
 
Balances
 
 
 
 
 
 
 
 
 
As of
 
 
 
Balances
 
Amortization
 
Current
 
 
 
As of
 
Expense
 
Balance Sheet
 
Description
 
March 31, 2013
 
Current YTD
 
Date
 
Bond Issue Costs
 
$
354,453
 
 
 
 
$
354,453
 
Accumulated Amortization
 
 
(107,519)
 
 
(7,089)
 
 
(114,608)
 
Unamortized Balance
 
$
246,934
 
 
 
 
$
239,845
 
 
The NJEDA Bonds require the Company to make an annual principal payment on September 1 st of varying amounts as specified in the loan documents and semi-annual interest payments on March 1 st and September 1 st , equal to interest due on the outstanding principal at the applicable rate for the semi-annual period just ended.
 
Due to the Company not having sufficient funds, the following withdrawals were made from the debt service reserve, with the funds being used to make interest payments due to the holders of the NJEDA Bonds:
 
Payment Date
 
Amount
 
March 1, 2009
 
$
120,775
 
September 1, 2009
 
 
120,775
 
March 1, 2010
 
 
113,075
 
September 1, 2010
 
 
113,075
 
March 1, 2011
 
 
113,075
 
September 1, 2011
 
 
113,075
 
March 1, 2012
 
 
113,075
 
September 1, 2012
 
 
113,075
 
March 1, 2013
 
 
113,075
 
September 1, 2013
 
 
113,075
 
 
Due to the Company not having sufficient funds, the following withdrawal was made from the debt service reserve, with the funds being used to make a principal payment due to the holders of the NJEDA Bonds:
 
Payment Date
 
Amount
 
September 1, 2009
 
$
210,000
 
 
 
F-12

 
Pursuant to the terms of the NJEDA Bonds, the Company is required to replenish any amounts withdrawn from the debt service reserve and used to make principal or interest payments in six monthly installments, each being equal to one-sixth of the amount withdrawn and with the first installment due on the 15 th of the month in which the withdrawal from debt service reserve occurred and the remaining five monthly payments being due on the 15 th of the five immediately subsequent months. The Company has, to date, made all payments required in relation to the withdrawals made from the debt service reserve in relation to the Restricted Cash Interest Payments and the Restricted Cash Principal Payment.
 
In addition, the Company did not have sufficient funds available to make the principal payments due on September 1, 2010, September 1, 2011, September 1, 2012 and September 1, 2013. These principal payments are summarized as follows:
 
Payment Date
 
Amount
 
September 1, 2010
 
$
 225,000  (1)
 
September 1, 2011
 
 
470,000  (2)
 
September 1, 2012
 
 
730,000  (3)
 
September 1, 2013
 
 
915,000 (4)
 
 
(1)            The Company request to withdraw funds from the debt service reserve to pay the amount due on September 1, 2010 was denied by the Trustee and accordingly, the principal payment due on such date was not made.
(2)            The principal payment due on September 1, 2011, included the amount due and September 1, 2010 and not paid. There were not sufficient funds available in the debt service reserve and the principal payment due on September 1, 2011 was not made.
(3)            The principal payment due on September 1, 2012, included the amount due and September 1, 2011 and not paid. There were not sufficient funds available in the debt service reserve and the principal payment due on September 1, 2012 was not made.
(4)            The principal payment due on September 1, 2013, included the amount due and September 1, 2012 and not paid. There were not sufficient funds available in the debt service reserve and the principal payment due on September 1, 2013 was not made.
 
The Company has received Notice of Default from the Trustee of the NJEDA Bonds in relation to the withdrawals from the debt service reserve, and no payment of scheduled principal amounts. Resolution of the Company’s default under the NJED Bonds will have a significant effect on our ability to operate in the future.
 
Due to issuance of a Notice of Default being received from the Trustee of the NJEDA Bonds, and until the event of default is waived or rescinded, the Company has classified the Current Bond Liability, as a current liability.

NOTE 7      -     DERIVATIVE LIABILITIES
 
Accounting Standard Codification “ASC” 815 – Derivatives and Hedging , which provides guidance on determining what types of instruments or embedded features in an instrument issued by a reporting entity can be considered indexed to its own stock for the purpose of evaluating the first criteria of the scope exception in the pronouncement on accounting for derivatives. These requirements can affect the accounting for warrants and convertible preferred instruments issued by the Company. As the conversion features within, and the detachable warrants issued with the Company’s Series B, Series C, Series E and Series G Preferred Stock, do not have fixed settlement provisions because their conversion and exercise prices may be lowered if the Company issues securities at lower prices in the future, we have concluded that the instruments are not indexed to the Company’s stock and are to be treated as derivative liabilities.
 
 
F-13

 
Preferred Stock Derivative Liabilities
 
Preferred Stock Derivative Liability as of Current Balance Sheet Date
 
 
 
Series C
 
Series E
 
Series G
 
Total
 
Preferred Shares Authorized
 
 
3,200
 
 
4,000
 
 
1,375
 
 
8,575
 
Preferred shares Outstanding
 
 
24
 
 
—
 
 
158
 
 
182
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underlying common shares into which Preferred may convert
 
 
160,000
 
 
—
 
 
1,478,479
 
 
1,638,479
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Closing price on valuation date
 
$
0.12
 
$
0.12
 
$
0.12
 
$
0.12
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock derivative liability at Current Balance Sheet Date
 
$
19,824
 
 
—
 
$
183,184
 
$
203,008
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock derivative liability at March 31, 2013
 
$
697,584
 
$
5,637,037
 
 
—
 
$
6,334,621
 
 
CHANGE IN VALUE OF PREFERRED STOCK DERIVATIVE LIABILITY
 
 
 
Three months ended
 
Six months ended
 
 
 
September 30,
 
September 30,
 
 
 
2013
 
2012
 
2013
 
2012
 
Change in Preferred Stock Derivative Liability
 
$
(2,565,495)
 
$
(187,383)
 
$
(3,466,332)
 
$
(4,830,866)
 
 
Warrant Derivative Liabilities
The portion of derivative liabilities related to outstanding warrants was valued using the Black-Scholes option valuation model and the following assumptions on the following dates:
 
FAIR VALUE OF WARRANT DERIVATIVE LIABILITY
 
 
 
 
March 31
 
 
June 30
 
 
September 30
 
 
 
 
2013
 
 
2013
 
 
2013
 
 
Risk-Free interest rate
 
 
0.04% - 0.77%
 
 
 
0.02% - 1.41%
 
 
 
0.03% - 1.39%
 
 
Expected volatility
 
 
106% - 168%
 
 
 
35% - 97%
 
 
 
62% - 117%
 
 
Expected life (in years)
 
 
0.5 – 5.1
 
 
 
0.2 – 4.8
 
 
 
0.8 – 4.6
 
 
Expected dividend yield
 
 
—
 
 
 
—
 
 
 
—
 
 
Number of warrants
 
 
139,344,939
 
 
 
139,344,939
 
 
 
120,491,539
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value of
 
 
 
 
 
 
 
 
 
 
 
 
 
Warrant Derivative Liability
 
$
7,862,848
 
 
$
4,966,391
 
 
$
11,095,970
 
 
 
CHANGE IN VALUE OF WARRANT DERIVATIVE LIABILITY
 
 
 
Three months ended
 
Six months ended
 
 
 
September 30
 
September 30
 
 
 
2013
 
2012
 
2013
 
2012
 
Change in Warrant Derivative Liability
 
$
(6,129,579)
 
$
2,093,653
 
$
(3,233,122)
 
$
(2,995,081)
 
 
 
F-14

 
The risk free interest rate was based on rates established by the U.S. Treasury Department. The expected volatility was based on the historical volatility of the Company’s share price for periods equal to the expected life of the outstanding warrants at each valuation date. The expected dividend rate was based on the fact that the Company has not historically paid dividends on common stock and does not expect to pay dividends on common stock in the future.

NOTE 8 -         PREFERRED SHARE DERIVATIVE INTEREST PAYABLE
 
Preferred share derivative interest payable as of the Current Balance Sheet Date consisted of the amount reported on the liability section of the balance sheet and titled “Preferred Share Derivative Interest Payable”. This amount was paid via the issuance of the Derivative Interest Liability Common Shares in October 2013.

NOTE 9    -      OPERATING LEASES
 
The Company entered into a lease for a portion of a one-story warehouse, located at 135 Ludlow Avenue, Northvale, New Jersey, consisting of approximately 15,000 square feet of floor space. The lease term began on July 1, 2010 and is classified as an operating lease. The lease includes an initial term of 5 years and 6 months and the Company has the option to renew the lease for two additional terms, each of 5 years . The property related to this lease will be used for the storage of pharmaceutical finished goods, raw materials, equipment and documents as well as engaging in manufacturing, packaging and distribution activities.
 
This property required significant leasehold improvements and qualification as a prerequisite to achieving suitability for such intended future use and in January 2013, the Company began using the facility at 135 Ludlow Avenue for commercial production and commenced shipping packaged products from the facility.
 
Minimum 5 year payments* for the leasing of 15,000 square feet at 135 Ludlow are as follows:
 
Fiscal year ended March 31, 2014
 
 
83,259
 
Fiscal year ended March 31, 2015
 
 
85,344
 
Fiscal year ended March 31, 2016
 
 
87,363
 
Fiscal year ended March 31, 2017
 
 
89,112
 
Fiscal year ended March 31, 2018
 
 
90,894
 
Total Minimum 5 year lease payments
 
$
435,972
 
 
* Minimum lease payments are exclusive of additional expenses related to certain expenses incurred in the operation and maintenance of the premises, including, without limitation, real estate taxes and common area charges which may be due under the terms and conditions of the lease, but which are not quantifiable at the time of filing of this quarterly report on Form 10-Q.
 
Rent expense relating to the operating lease is recorded using the straight line method, and is summarized as follows:
 
RENT EXPENSE
 
 
 
Three months ended
 
Six months ended
 
 
 
September 30,
 
September 30,
 
 
 
2013
 
2012
 
2013
 
2012
 
Rent Expense
 
$
22,584
 
$
22,584
 
$
45,169
 
$
45,169
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in deferred rent liability
 
$
1,899
 
$
2,403
 
$
3,799
 
$
4,807
 
 
 
F-15

 
DEFERRED RENT LIABILITY (LONG-TERM LIABILITY)
 
 
 
March 31
 
June 30
 
September 30
 
 
 
2013
 
2013
 
2013
 
Balance of Deferred Rent Liability
 
$
68,260
 
$
70,160
 
$
72,062
 

NOTE 10  -    DEFERRED REVENUES
 
Deferred revenues are summarized as follows:
 
Advance payment received
 
$
200,000
 
Total revenue recognized as of March 31, 2013
 
 
(34,444)
 
Revenue recognized six months ended June 30, 2013
 
 
(6,667)
 
Total Deferred Revenues as of Current Balance Sheet Date
 
$
158,889
 
 
 
 
 
 
Current Portion of Deferred Revenues as of Current Balance Sheet Date
 
$
13,333
 
Non-Current Portion of Deferred Revenues as of Current Balance Sheet Date
 
$
145,556
 
 
Deferred revenues represents the unamortized amount of an advance payment received from Precision Dose Inc. for a licensing agreement with a fifteen year term beginning in September 2010 and ending in August 2025. The advance payment was recorded as deferred revenue when received and is earned, on a straight line basis over the fifteen year life of the license. The current portion of deferred revenues, represents the revenue that will be recognized over the 12 months immediately subsequent to Current Balance Sheet Date. The long term portion of deferred revenues, represents the revenue that will be recognized during the period that begins more than twelve months subsequent to the Current Balance Sheet Date. Please refer to exhibit 10.9 of the quarterly report on form 10-Q filed on November 15, 2010 for further details on the Precision Dose Manufacturing Agreement, with such exhibit being herein incorporated by this reference.

NOTE 11  -     STOCKHOLDERS’ EQUITY
 
Common Stock
 
During the Current YTD, the Company issued shares of Common Stock, as follows:
 
 
 
Shares
 
 
 
Of
 
Description
 
Common Stock
 
Common Shares issued in lieu of cash in payment of Preferred Share Derivative Interest
 
 
724,714
 
 
 
 
 
 
Common Shares issued pursuant to the conversion of Series C, Series E and Series G Preferred Share derivatives
 
 
90,150,920
 
 
 
 
 
 
Common shares sold pursuant to the LPC Purchase Agreement
 
 
25,856,021
 
 
 
 
 
 
Common shares issued as commitment shares pursuant to the LPC Purchase Agreement
 
 
3,485,649
 
 
 
 
 
 
Common shares issued pursuant to the exercise of cash warrants
 
 
100,000
 
 
 
 
 
 
Total Common Shares issued during the Current YTD
 
 
120,317,304
 
 
 
F-16

 
Options
 
Options issued and outstanding as of the Current Balance Sheet Date are summarized as follows:
 
 
 
Number of Options
 
Range of Exercise Prices
 
Vested Options
 
2,552,332
 
$0.06 to $2.80
 
Non-Vested Options
 
4,156,668
 
$0.07 to $2.25
 
 
Each option represents the right to purchase one share of common stock. The non-vested options are scheduled to vest in various increments during dates that are within the period beginning on January 18, 2013 and through August 15, 2016, or upon the occurrence of certain defined events and require that employees awarded such options be employed by the Company on the vesting date.

NOTE 12  -    PER SHARE INFORMATION
 
Basic earnings per share of common stock (“Basic EPS”) is computed by dividing the net (loss) income by the weighted-average number of shares of common stock outstanding. Diluted earnings per share of common stock (“Diluted EPS”) are computed by dividing the net (loss) income by the weighted-average number of shares of common stock, and dilutive common stock equivalents and convertible securities then outstanding. GAAP requires the presentation of both Basic and Diluted EPS, if such Diluted EPS is not anti-dilutive, on the face of Company’s Condensed Statements of Operations.
 
The calculation of Basic EPS and Diluted EPS is summarized as follows:
 
 
 
For the Three Months
 
For the Six Months
 
 
 
Ended September 30,
 
Ended September 30
 
 
 
2013
 
2012
 
2013
 
2012
 
Numerator
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (loss) attributable to common shareholders - Basic
 
$
(9,637,513)
 
$
1,049,909
 
$
(8,715,846)
 
$
(9,472,186)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income attributable to common shareholders - Diluted
 
 
n/a
 
 
1,078,733
 
 
n/a
 
 
n/a
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Denominator