UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER: 001-15697
ELITE PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
| nevada | 22-3542636 | |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
165 LUDLOW AVENUE NORTHVALE, new jersey |
07647 | |
| (Address of principal executive offices) | (Zip Code) |
(201) 750-2646
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| Common Stock, par value $0.001 per share | ELTP | OTCQB |
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date: 1,011,381,988 shares of Common Stock were issued, and 1,011,281,988 shares of Common Stock were outstanding as of August 13, 2021.
| ii |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
|
June 30, 2021 |
March 31, 2021 |
|||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 4,750,728 | $ | 3,192,768 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $-0-, respectively | 3,377,735 | 3,496,376 | ||||||
| Inventory | 6,703,517 | 5,012,902 | ||||||
| Prepaid expenses and other current assets | 484,849 | 492,621 | ||||||
| Total current assets | 15,316,829 | 12,194,667 | ||||||
| Property and equipment, net of accumulated depreciation of $12,462,783 and $12,153,626, respectively | 6,345,158 | 6,649,365 | ||||||
| Intangible assets, net of accumulated amortization of $-0-, respectively | 6,634,035 | 6,634,035 | ||||||
| Operating lease - right-of-use asset | 1,199,944 | 214,674 | ||||||
| Other assets: | ||||||||
| Restricted cash - debt service for NJEDA bonds | 405,013 | 405,013 | ||||||
| Security deposits | 91,738 | 91,738 | ||||||
| Total other assets | 496,751 | 496,751 | ||||||
| Total assets | $ | 29,992,717 | $ | 26,189,492 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 2,052,193 | $ | 929,690 | ||||
| Accrued expenses | 3,940,971 | 4,270,600 | ||||||
| Deferred revenue, current portion | 13,333 | 13,333 | ||||||
| Bonds payable, current portion, net of bond issuance costs | 95,822 | 95,822 | ||||||
| Loans payable, current portion | 486,917 | 314,996 | ||||||
| Lease obligation - operating lease, current portion | 205,820 | 188,090 | ||||||
| Total current liabilities | 6,795,056 | 5,812,531 | ||||||
| Long-term liabilities: | ||||||||
| Deferred revenue, net of current portion | 42,225 | 45,558 | ||||||
| Bonds payable, net of current portion and bond issuance costs | 1,244,213 | 1,240,668 | ||||||
| Loans payable, net of current portion | 419,720 | 500,066 | ||||||
| Lease obligation - operating lease, net of current portion | 1,004,165 | 38,866 | ||||||
| Derivative financial instruments - warrants | 1,747,785 | 2,362,246 | ||||||
| Other long-term liabilities | 38,195 | 37,628 | ||||||
| Total long-term liabilities | 4,496,303 | 4,225,032 | ||||||
| Total liabilities | 11,291,359 | 10,037,563 | ||||||
| Shareholders’ equity: | ||||||||
| Series J convertible preferred stock; par value of $0.01; 50 shares authorized; 0 issued and outstanding as of June 30, 2021 and March 31, 2021 | — | — | ||||||
| Common Stock; par value $0.001; 1,445,000,000 shares authorized; 1,011,381,988 shares issued and 1,011,281,988 shares outstanding as of June 30, 2021; 1,009,276,752 shares issued and 1,009,176,752 shares outstanding as of March 31, 2021 | 1,011,385 | 1,009,279 | ||||||
| Additional paid-in capital | 164,565,685 | 164,407,480 | ||||||
| Treasury stock; 100,000 shares as of June 30, 2021 and March 31, 2021; at cost | (306,841 | ) | (306,841 | ) | ||||
| Accumulated deficit | (146,568,871 | ) | (148,957,989 | ) | ||||
| Total shareholders’ equity | 18,701,358 | 16,151,929 | ||||||
| Total liabilities and shareholders’ equity | $ | 29,992,717 | $ | 26,189,492 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-1 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| 2021 | 2020 | |||||||
| For the Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Revenue: | ||||||||
| Manufacturing fees | $ | 5,750,036 | $ | 6,637,239 | ||||
| Licensing fees | 1,306,753 | 901,505 | ||||||
| Total revenue | 7,056,789 | 7,538,744 | ||||||
| Cost of manufacturing | 3,503,262 | 4,562,350 | ||||||
| Gross profit | 3,553,527 | 2,976,394 | ||||||
| Operating expenses: | ||||||||
| Research and development | 1,202,192 | 943,879 | ||||||
| General and administrative | 1,070,664 | 868,777 | ||||||
| Non-cash compensation through issuance of stock options | 2,811 | 5,521 | ||||||
| Depreciation and amortization | 312,702 | 327,617 | ||||||
| Total operating expenses | 2,588,369 | 2,145,794 | ||||||
| Income from operations | 965,158 | 830,600 | ||||||
| Other income (expense): | ||||||||
| Change in fair value of derivative instruments | 614,461 | (658,593 | ) | |||||
| Interest expense and amortization of debt issuance costs | (45,893 | ) | (79,431 | ) | ||||
| Gain on sale of fixed assets | — | 38,090 | ||||||
| Interest income | 42 | 276 | ||||||
| Other income (expense), net | 568,610 | (699,658 | ) | |||||
| Income from operations before income taxes | 1,533,768 | 130,942 | ||||||
| Net benefit for sale of state net operating losses and credits | 855,350 | 946,407 | ||||||
| Net income attributable to common shareholders | $ | 2,389,118 | $ | 1,077,349 | ||||
| Basic net income per share attributable to common shareholders | $ | 0.00 | $ | 0.00 | ||||
| Diluted net income per share attributable to common shareholders | $ | 0.00 | $ | 0.00 | ||||
| Basic weighted average Common Stock outstanding | 1,009,199,886 | 840,504,367 | ||||||
| Diluted weighted average Common Stock outstanding | 1,009,199,886 | 1,001,130,122 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-2 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
| Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Equity | ||||||||||||||||||||||||||||
| Series J Preferred Stock | Common Stock | Additional Paid-In | Treasury Stock | Accumulated | Total Shareholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | — | $ | — | 1,009,276,752 | $ | 1,009,279 | $ | 164,407,480 | 100,000 | $ | (306,841 | ) | $ | (148,957,989 | ) | $ | 16,151,929 | |||||||||||||||||||
| Net income | — | — | — | — | — | — | — | 2,389,118 | 2,389,118 | |||||||||||||||||||||||||||
| Non-cash compensation through the issuance of employee stock options | — | — | — | — | 2,811 | — | — | — | 2,811 | |||||||||||||||||||||||||||
| Shares issued in payment of salaries | — | — | 2,105,236 | 2,106 | 155,394 | — | — | — | 157,500 | |||||||||||||||||||||||||||
| Balance at June 30, 2021 | — | $ | — | 1,011,381,988 | $ | 1,011,385 | $ | 164,565,685 | 100,000 | $ | (306,841 | ) | $ | (146,568,871 | ) | $ | 18,701,358 | |||||||||||||||||||
|
Series J Preferred Stock |
Common Stock | Additional Paid-In | Treasury Stock | Accumulated | Total Shareholders’ | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Shares | Amount | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance as of March 31, 2020 | 24 | 13,903,960 | 840,504,367 | $ | 840,507 | $ | 150,264,605 | 100,000 | $ | (306,841 | ) | $ | (154,046,410 | ) | $ | 10,655,821 | ||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | 1,077,349 | 1,077,349 | |||||||||||||||||||||||||||
| Non-cash compensation through the issuance of employee stock options | — | — | — | — | 5,521 | — | — | — | 5,521 | |||||||||||||||||||||||||||
| Shares issued in payment of salaries | — | $ | — | 574,597 | $ | 574 | $ | 49,426 | — | $ | — | $ | — | 50,000 | ||||||||||||||||||||||
| Balance at June 30, 2020 | 24 | $ | 13,903,960 | 841,078,964 | $ | 841,081 | $ | 150,319,552 | 100,000 | $ | (306,841 | ) | $ | (152,969,061 | ) | $ | 11,788,691 | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-3 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| 2021 | 2020 | |||||||
|
For the Three Months Ended June 30, |
||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | 2,389,118 | $ | 1,077,349 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 312,702 | 327,617 | ||||||
| Amortization of operating leases - right-of-use assets | 57,530 | 49,532 | ||||||
| Gain on the disposal of property and equipment | — | (38,090 | ) | |||||
| Change in fair value of derivative financial instruments - warrants | (614,461 | ) | 658,593 | |||||
| Non-cash compensation accrued | 218,808 | 236,415 | ||||||
| Non-cash compensation through the issuance of employee stock options | 2,811 | 5,521 | ||||||
| Non-cash rent expense and lease accretion | 567 | 534 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | 118,641 | (263,325 | ) | |||||
| Inventory | (1,690,615 | ) | (1,423,931 | ) | ||||
| Prepaid expenses and other current assets | 251,896 | 343,355 | ||||||
| Accounts payable, accrued expenses and other current liabilities | 731,566 | 53,385 | ||||||
| Deferred revenue and customer deposits | (3,333 | ) | (170,000 | ) | ||||
| Lease obligations - operating leases | (59,771 | ) | (49,532 | ) | ||||
| Net cash provided by operating activities | 1,715,459 | 807,423 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | (4,950 | ) | (14,000 | ) | ||||
| Proceeds from disposal of property and equipment | — | 51,276 | ||||||
| Net cash (used in) provided by investing activities | (4,950 | ) | 37,276 | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from loans payable | — | 1,013,480 | ||||||
| Other loan payments | (152,549 | ) | (202,076 | ) | ||||
| Net cash provided by financing activities | (152,549 | ) | 811,404 | |||||
| Net change in cash and restricted cash | 1,557,960 | 1,656,103 | ||||||
| Cash and restricted cash, beginning of period | 3,597,781 | 1,536,530 | ||||||
| Cash and restricted cash, end of period | $ | 5,155,741 | $ | 3,192,633 | ||||
| Supplemental disclosure of cash and non-cash transactions: | ||||||||
| Cash paid for interest | $ | 14,043 | $ | 24,342 | ||||
| Financing of equipment purchases and insurance renewal | $ | 244,124 | $ | 237,926 | ||||
| Stock issued in payment of Directors fees, salaries and consulting expenses | $ | 157,500 | $ | 50,000 | ||||
| Supplemental non-cash amounts of lease liabilities arising from obtaining right of use assets | $ | 1,042,799 | $ | 554,088 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-4 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview
Elite Pharmaceuticals, Inc. (the “Company” or “Elite”) was incorporated on October 1, 1997 under the laws of the State of Delaware, and its wholly-owned subsidiary Elite Laboratories, Inc. (“Elite Labs”) was incorporated on August 23, 1990 under the laws of the State of Delaware. On January 5, 2012, Elite Pharmaceuticals was reincorporated under the laws of the State of Nevada. Elite Labs engages primarily in researching, developing, licensing and manufacture of generic, oral dose pharmaceuticals. The Company is equipped to manufacture controlled-release products on a contract basis for third parties and itself, if and when the products are approved. These products include drugs that cover therapeutic areas for allergy, bariatric, attention deficit and infection. Research and development activities are performed with an objective of developing products that will secure marketing approvals from the United States Food and Drug Administration (“FDA”), and thereafter, commercially exploiting such products.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Elite Labs. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring items, which are, in the opinion of management, necessary for a fair presentation of such statements. The results of operations for the three months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the entire year.
Segment Information
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 280 (“ASC 280”), Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.
The Company’s chief operating decision maker is the Chief Executive Officer, who reviews the financial performance and the results of operations of the segments prepared in accordance with GAAP when making decisions about allocating resources and assessing performance of the Company.
The Company has determined that its reportable segments are products whose marketing approvals were secured via an Abbreviated New Drug Applications (“ANDA”) and products whose marketing approvals were secured via a New Drug Application (“NDA”). ANDA products are referred to as generic pharmaceuticals and NDA products are referred to as branded pharmaceuticals.
There are currently no intersegment revenues. Asset information by operating segment is not presented below since the chief operating decision maker does not review this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s condensed unaudited consolidated financial statements. Please see Note 15 for further details.
| F-5 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
Under ASC 606, Revenue from Contacts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenues following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue.
Nature of goods and services
The following is a description of the Company’s goods and services from which the Company generates revenue, as well as the nature, timing of satisfaction of performance obligations, and significant payment terms for each, as applicable:
a) Manufacturing Fees
The Company is equipped to manufacture controlled-release products on a contract basis for third parties, if, and when, the products are approved. These products include products using controlled-release drug technology. The Company also develops and markets (either on its own or by license to other companies) generic and proprietary controlled-release pharmaceutical products.
The Company recognizes revenue when the customer obtains control of the Company’s product based on the contractual shipping terms of the contract. The Company is primarily responsible for fulfilling the promise to provide the product, is responsible to ensure that the product is produced in accordance with the related supply agreement and bears risk of loss while the inventory is in-transit to the commercial partner. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to a customer.
b) License Fees
The Company enters into licensing and development agreements, which may include multiple revenue generating activities, including milestones payments, licensing fees, product sales and services. The Company analyzes each element of its licensing and development agreements in accordance with ASC 606 to determine appropriate revenue recognition. The terms of the license agreement may include payment to the Company of licensing fees, non-refundable upfront license fees, milestone payments if specified objectives are achieved, and/or royalties on product sales.
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.
| F-6 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
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, 2021.
In accordance with ASC 606-10-55-65, royalties are recognized when the subsequent sale of the customer’s products occurs.
The Company entered into a sales and distribution licensing agreement with Epic Pharma LLC, (“Epic”) dated June 4, 2015 (the “2015 Epic License Agreement”), which has been determined to satisfy the criteria for consideration as a collaborative agreement, and is accounted for accordingly. The 2015 Epic License Agreement expired on June 4, 2020 without renewal.
The Company entered into a Master Development and License Agreement with SunGen Pharma LLC dated August 24, 2016 (the “SunGen Agreement”), which has been determined to satisfy the criteria for consideration as a collaborative agreement, and is accounted for accordingly. On April 3, 2020, Elite and SunGen mutually agreed to discontinue any further joint product development activities.
| F-7 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Disaggregation of revenue
In the following table, revenue is disaggregated by type of revenue generated by the Company. The table also includes a reconciliation of the disaggregated revenue with the reportable segments:
SCHEDULE OF DISAGGREGATION OF REVENUE
|
For the Three Months Ended June 30, |
||||||||
| 2021 | 2020 | |||||||
| NDA: | ||||||||
| Licensing fees | $ | — | $ | 166,167 | ||||
| Total NDA revenue | — | 166,167 | ||||||
| ANDA: | ||||||||
| Manufacturing fees | $ | 5,750,036 | $ | 6,637,239 | ||||
| Licensing fees | 1,306,753 | 735,338 | ||||||
| Total ANDA revenue | 7,056,789 | 7,372,577 | ||||||
| Total revenue | $ | 7,056,789 | $ | 7,538,744 | ||||
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.
Restricted Cash
As of June 30, 2021, and March 31, 2021, the Company had $405,013 and $405,013, of restricted cash, respectively, related to debt service reserve in regard to the New Jersey Economic Development Authority (“NJEDA”) bonds (see Note 5).
Accounts Receivable
Accounts receivable are comprised of balances due from customers, net of estimated allowances for uncollectible accounts. In determining collectability, historical trends are evaluated, and specific customer issues are reviewed on a periodic basis to arrive at appropriate allowances.
Inventory
Inventory is recorded at the lower of cost or market on specific identification by lot number basis.
Long-Lived Assets
The Company periodically evaluates the fair value of long-lived assets, which include property and equipment and intangibles, whenever events or changes in circumstances indicate that its carrying amounts may not be recoverable.
Property and equipment are stated at cost. Depreciation is provided on the straight-line method based on the estimated useful lives of the respective assets which range from three to forty years. Major repairs or improvements are capitalized. Minor replacements and maintenance and repairs which do not improve or extend asset lives are expensed currently.
Upon retirement or other disposition of assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss, if any, is recognized in income.
| F-8 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 June 30, 2021, the Company did not identify any indicators of impairment.
Please also see Note 4 for further details on intangible assets.
Research and Development
Research and development expenditures are charged to expense as incurred.
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 June 30, 2021, a summary of the tax years that remain subject to examination in our major tax jurisdictions are: United States – Federal, 2016 and forward, and State, 2013 and forward. The Company did not record unrecognized tax positions for the three months ended June 30, 2021 and 2020.
| F-9 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Warrants and Preferred Shares
The accounting treatment of warrants and preferred share series issued is determined pursuant to the guidance provided by ASC 470, Debt, ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging, as applicable. Each feature of a freestanding financial instrument including, without limitation, any rights relating to subsequent dilutive issuances, dividend issuances, equity sales, rights offerings, forced conversions, optional redemptions, automatic monthly conversions, dividends and exercise is assessed with determinations made regarding the proper classification in the Company’s financial statements.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation. Under the fair value recognition provisions, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, based on the terms of the awards. The cost of the stock-based payments to nonemployees that are fully vested and non-forfeitable as at the grant date is measured and recognized at that date, unless there is a contractual term for services in which case such compensation would be amortized over the contractual term.
In accordance with the Company’s Director compensation policy and certain employment contracts, director’s fees and a portion of employee’s salaries are to be paid via the issuance of shares of the Company’s Common Stock (“Common Stock”), in lieu of cash, with the valuation of such share being calculated on a quarterly basis and equal to the average closing price of the Company’s Common Stock.
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.
| F-10 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following is the computation of earnings per share applicable to common shareholders for the periods indicated:
SCHEDULE OF EARNINGS (LOSS) PER SHARE APPLICABLE TO COMMON SHAREHOLDERS
| 2021 | 2020 | |||||||
|
For the Three Months Ended June 30, |
||||||||
| 2021 | 2020 | |||||||
| Numerator | ||||||||
| Net income - basic | $ | 2,389,118 | $ | 1,077,349 | ||||
| Effect of dilutive instrument on net income | — | — | ||||||
| Net income - diluted | $ | 2,389,118 | $ | 1,077,349 | ||||
| Denominator | ||||||||
| Weighted average shares of Common Stock outstanding - basic | 1,009,199,886 | 840,504,367 | ||||||
| Dilutive effect of stock options and convertible securities | — | 160,625,755 | ||||||
| Weighted average shares of Common Stock outstanding - diluted | 1,009,199,886 | 1,001,130,122 | ||||||
| Net income per share | ||||||||
| Basic | $ | 0.00 | $ | 0.00 | ||||
| Diluted | $ | 0.00 | $ | 0.00 | ||||
Fair Value of Financial Instruments
ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) provides a framework for measuring fair value in accordance with generally accepted accounting principles.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).
The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820 are described as follows:
| ● | Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. | |
| ● | Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. | |
| ● | Level 3 – Inputs that are unobservable for the asset or liability. |
| F-11 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Measured on a Recurring Basis
The following table presents information about our liabilities measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fell:
SCHEDULE OF LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS
| Fair Value Measurement Using | ||||||||||||||||
| Amount at | ||||||||||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| June 30, 2021 | ||||||||||||||||
| Liabilities | ||||||||||||||||
| Derivative financial instruments - warrants | $ | 1,747,785 | $ | — | $ | — | $ | 1,747,785 | ||||||||
| 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. This update requires immediate recognition of management’s estimates of current expected credit losses (“CECL”). Under the prior model, losses were recognized only as they were incurred. The new model is applicable to all financial instruments that are not accounted for at fair value through net income. The standard is effective for fiscal years beginning after December 15, 2022 for public entities qualifying as smaller reporting companies. Early adoption is permitted. The Company is currently assessing the impact of this update on the consolidated financial statements and does not expect a material impact on the consolidated financial statements.
Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures.
| F-12 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2. INVENTORY
Inventory consisted of the following:
SCHEDULE OF INVENTORY
| June 30, 2021 | March 31, 2021 | |||||||
| Finished goods | $ | 470,912 | $ | 274,603 | ||||
| Work-in-progress | 31,629 | 781,350 | ||||||
| Raw materials | 6,200,976 | 3,956,949 | ||||||
| Inventory, net | $ | 6,703,517 | $ | 5,012,902 | ||||
NOTE 3. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT
| June 30, 2021 | March 31, 2021 | |||||||
| Land, building and improvements | $ | 5,456,523 | $ | 5,456,523 | ||||
| Laboratory, manufacturing, warehouse and transportation equipment | 12,585,407 | 12,580,457 | ||||||
| Office equipment and software | 373,601 | 373,601 | ||||||
| Furniture and fixtures | 392,410 | 392,410 | ||||||
| Property and equipment, gross | 18,807,941 | 18,802,991 | ||||||
| Less: Accumulated depreciation | (12,462,783 | ) | (12,153,626 | ) | ||||
| Property and equipment, net | $ | 6,345,158 | $ | 6,649,365 | ||||
Depreciation expense was $309,157 and $324,071 for the three months ended June 30, 2021 and 2020, respectively.
NOTE 4. INTANGIBLE ASSETS
The following table summarizes the Company’s intangible assets:
SCHEDULE OF INTANGIBLE ASSETS
| June 30, 2021 | ||||||||||||||||||||||||
| Estimated | Gross | |||||||||||||||||||||||
| Useful | Carrying | Accumulated | Net Book | |||||||||||||||||||||
| Life | Amount | Additions | Reductions | Amortization | Value | |||||||||||||||||||
| Patent application costs | * | $ | 465,684 | $ | — | $ | — | $ | — | $ | 465,684 | |||||||||||||
| ANDA acquisition costs | Indefinite | 6,168,351 | — | — | — | 6,168,351 | ||||||||||||||||||
| $ | 6,634,035 | $ | — | $ | — | $ | — | $ | 6,634,035 | |||||||||||||||
| March 31, 2021 | ||||||||||||||||||||||||
| Estimated | Gross | |||||||||||||||||||||||
| Useful | Carrying | Accumulated | Net Book | |||||||||||||||||||||
| Life | Amount | Additions | Reductions | Amortization | Value | |||||||||||||||||||
| Patent application costs | * | $ | 465,684 | $ | — | $ | — | $ | — | $ | 465,684 | |||||||||||||
| ANDA acquisition costs | Indefinite | 6,168,351 | — | — | — | 6,168,351 | ||||||||||||||||||
| $ | 6,634,035 | $ | — | $ | — | $ | — | $ | 6,634,035 | |||||||||||||||
| * | Patent application costs were incurred in relation to the Company’s abuse deterrent opioid technology. Amortization of the patent costs will begin upon the issuance of marketing authorization by the FDA. Amortization will then be calculated on a straight-line basis through the expiry of the related patent(s). |
| F-13 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5. NJEDA BONDS
During August 2005, the Company refinanced a bond issue occurring in 1999 through the issuance of Series A and B Notes tax-exempt bonds (the “NJEDA Bonds” and/or “Bonds”). During July 2014, the Company retired all outstanding Series B Notes, at par, along with all accrued interest due and owed.
In relation to the Series A Notes, the Company is required to maintain a debt service reserve. The debt service reserve is classified as restricted cash on the accompanying unaudited condensed consolidated balance sheets. The NJEDA Bonds require the Company to make an annual principal payment on September 1st based on the amount specified in the loan documents and semi-annual interest payments on March 1st and September 1st, equal to interest due on the outstanding principal. The annual interest rate on the Series A Note is 6.5%. The NJEDA Bonds are collateralized by a first lien on the Company’s facility and equipment acquired with the proceeds of the original and refinanced bonds.
The following tables summarize the Company’s bonds payable liability:
SCHEDULE OF BONDS PAYABLE LIABILITY
| June 30, 2021 | March 31, 2021 | |||||||
| Gross bonds payable | ||||||||
| NJEDA Bonds - Series A Notes | $ | 1,470,000 | $ | 1,470,000 | ||||
| Less: Current portion of bonds payable (prior to deduction of bond offering costs) | (110,000 | ) | (110,000 | ) | ||||
| Long-term portion of bonds payable (prior to deduction of bond offering costs) | $ | 1,360,000 | $ | 1,360,000 | ||||
| Bond offering costs | $ | 354,454 | $ | 354,454 | ||||
| Less: Accumulated amortization | (224,489 | ) | (220,944 | ) | ||||
| Bond offering costs, net | $ | 129,965 | $ | 133,510 | ||||
| Current portion of bonds payable - net of bond offering costs | ||||||||
| Current portions of bonds payable | $ | 110,000 | $ | 110,000 | ||||
| Less: Bonds offering costs to be amortized in the next 12 months | (14,178 | ) | (14,178 | ) | ||||
| Current portion of bonds payable, net of bond offering costs | $ | 95,822 | $ | 95,822 | ||||
| Long term portion of bonds payable - net of bond offering costs | ||||||||
| Long term portion of bonds payable | 1,360,000 | $ | 1,360,000 | |||||
| Less: Bond offering costs to be amortized subsequent to the next 12 months | (115,787 | ) | (119,332 | ) | ||||
| Long term portion of bonds payable, net of bond offering costs | $ | 1,244,213 | $ | 1,240,668 | ||||
Amortization expense was $3,545 and $3,545 for the three months ended June 30, 2021 and 2020, respectively. As of June 30, 2021 and March 31, 2021, interest payable was $31,850 and $7,963, respectively.
NOTE 6. LOANS PAYABLE
Loans payable consisted of the following:
SCHEDULE OF LOANS PAYABLE
| June 30, 2021 | March 31, 2021 | |||||||
| Equipment and insurance financing loans payable, between 3.5% and 12.73% interest and maturing between June 2021 and October 2025 | $ | 906,637 | $ | 815,062 | ||||
| Less: Current portion of loans payable | (486,917 | ) | (314,996 | ) | ||||
| Long-term portion of loans payable | $ | 419,720 | $ | 500,066 | ||||
The interest expense associated with the loans payable was $6,109 and $17,880 for the three months ended June 30, 2021 and 2020, respectively.
| F-14 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7. RELATED PARTY SECURED PROMISSORY NOTE WITH MIKAH PHARMA, LLC
For consideration of the assets acquired on May 15, 2017, the Company issued a Secured Promissory Note (the “Mikah Note”) to Mikah Pharma, LLC (“Mikah”) for the principal sum of $1,200,000. Mikah was founded in 2009 by Nasrat Hakim (“Hakim”), a related party and the Company’s President, Chief Executive Officer and Chairman of the Board. The Mikah Note matured on December 31, 2020 and was retired at par in March 2021. The principal amount of $1,200,000 was repaid by the Company at maturity.
Interest expense associated with the Note was $30,000 for the three months ended June 30, 2020. A total of $435,000 in accrued interest expense, representing interest expense accrued during the life of the Mikah Note, was due and owing as of the maturity date of the Mikah Note. Of the $435,000 accrued interest due at maturity, $343,379 of accrued interest was satisfied by offset against amounts due from Mikah pursuant to the development agreement between the Company and Mikah, dated December 3, 2018 (see Note 16). The balance of $91,621 of accrued interest expense owing in relation to the Mikah Note was recorded as a non-interest bearing, general liability of the Company.
NOTE 8. DEFERRED REVENUE
Deferred revenues in the aggregate amount of $55,558 as of June 30, 2021, were comprised of a current component of $13,333 and a long-term component of $42,225. Deferred revenues in the aggregate amount of $58,891 as of March 31, 2021, were comprised of a current component of $13,333 and a long-term component of $45,558. These line items represent the unamortized amounts of a $200,000 advance payment received for a TAGI Pharma (“TAGI”) licensing agreement with a fifteen-year term beginning in September 2010 and ending in August 2025 and the $5,000,000 advance payment Epic Collaborative Agreement with a five-year term beginning in June 2015 and ending in May 2020. These advance payments were recorded as deferred revenue when received and are earned, on a straight-line basis over the life of the licenses. The current component is equal to the amount of revenue to be earned during the 12-month period immediately subsequent to the balance sheet date and the long-term component is equal to the amount of revenue to be earned thereafter.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Occasionally, the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability when it believes that is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and 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.
Operating Leases
The Company entered into an operating lease for a portion of a one-story warehouse, located at 135 Ludlow Avenue, Northvale, New Jersey (the “135 Ludlow Ave. lease”). The 135 Ludlow Ave. lease is for approximately 15,000 square feet of floor space and began on July 1, 2010. During July 2014, the Company modified the 135 Ludlow Ave. lease in which the Company was permitted to occupy the entire 35,000 square feet of floor space in the building (“135 Ludlow Ave. modified lease”).
The 135 Ludlow Ave. modified lease includes an initial term, which expired on December 31, 2016 with two tenant renewal options of five years each, at the sole discretion of the Company. On June 22, 2016, the Company exercised the first of these renewal options, with such option including a term that begins on January 1, 2017 and expires on December 31, 2021. On June 30, 2021, the Company exercised the second of the renewal options, with such option including a term that begins on January 1, 2022 and expires on December 31, 2026.
| F-15 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The 135 Ludlow Ave. modified lease property required significant leasehold improvements and qualifications, as a prerequisite, for its intended future use. Manufacturing, packaging, warehousing and regulatory activities are currently conducted at this location. Additional renovations and construction to further expand the Company’s manufacturing resources are in progress.
In October 2020, the Company entered into an operating lease for office space in Pompano Beach, Florida (the “Pompano Office Lease”). The Pompano Office Lease is for approximately 1,275 square feet of office space, with Elite taking occupancy on November 1, 2020. The Pompano Office includes a 3 month abatement from November 2020 through February 2021 and has a term of three years, ending on October 31, 2023.
The Company assesses whether an arrangement is a lease or contains a lease at inception. For arrangements considered leases or that contain a lease that is accounted for separately, the Company determines the classification and initial measurement of the right-of-use asset and lease liability at the lease commencement date, which is the date that the underlying asset becomes available for use. The Company has elected to account for non-lease components associated with its leases and lease components as a single lease component.
The Company recognizes a right-of-use asset, which represents the Company’s right to use the underlying asset for the lease term, and a lease liability, which represents the present value of the Company’s obligation to make payments arising over the lease term. The present value of the lease payments is calculated using either the implicit interest rate in the lease or an incremental borrowing rate.
Lease assets and liabilities are classified as follows on the condensed consolidated balance sheet:
SCHEDULE OF LEASE ASSETS AND LIABILITIES
| Lease | Classification | As of June 30, 2021 | ||||
| Assets | ||||||
| Operating | Operating lease – right-of-use asset | $ | 1,199,944 | |||
| Total leased assets | $ | 1,199,944 | ||||
| Liabilities | ||||||
| Current | ||||||
| Operating | Lease obligation – operating lease | $ | 205,820 | |||
| Long-term | ||||||
| Operating | Lease obligation – operating lease, net of current portion | 1,004,165 | ||||
| Total lease liabilities | $ | 1,209,985 | ||||
Rent expense is recorded on the straight-line basis. Rent expense under the 135 Ludlow Ave. modified lease for the three months ended June 30, 2021 and 2020 was $57,105 and $55,986, respectively. Rent expense under the Pompano Office Lease for the three months ended June 30, 2021 and 2020 was $5,772 and $0, respectively. Rent expense is recorded in general and administrative expense in the unaudited condensed consolidated statements of operations.
| F-16 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The table below shows the future minimum rental payments, exclusive of taxes, insurance and other costs, under the 135 Ludlow Ave. modified lease and the Pompano Office Lease:
SCHEDULE OF THE FUTURE MINIMUM RENTAL PAYMENTS
| Years ending March 31, | Amount | |||
| 2022 | 190,703 | |||
| 2023 | 259,794 | |||
| 2024 | 254,050 | |||
| 2025 | 243,612 | |||
| 2026 | 248,484 | |||
| Thereafter | 189,144 | |||
| Total future minimum lease payments | 1,385,787 | |||
| Less: interest | (175,802 | ) | ||
| Present value of lease payments | $ | 1,209,985 | ||
The weighted-average remaining lease term and the weighted-average discount rate of our lease was as follows:
SCHEDULE OF WEIGHTED-AVERAGE REMAINING LEASE TERM AND THE WEIGHTED-AVERAGE DISCOUNT RATE
| Lease Term and Discount Rate | June 30, 2021 | |||
| Remaining lease term (years) | ||||
| Operating leases | 8 | |||
| Discount rate | ||||
| Operating leases | 6 | % | ||
The Company has an obligation for the restoration of its leased facility and the removal or dismantlement of certain property and equipment as a result of its business operation in accordance with ASC 410, Asset Retirement and Environmental Obligations – Asset Retirement Obligations . The Company records the fair value of the asset retirement obligation in the period in which it is incurred. The Company increases, annually, the liability related to this obligation. The liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the Company records either a gain or loss. As of June 30, 2021, and March 31, 2021, the Company had a liability of $38,195 and $37,628, respectively, recorded as a component of other long-term liabilities.
NOTE 10. PREFERRED STOCK
Series J convertible preferred stock
On April 28, 2017, the Company created the Series J Convertible Preferred Stock (“Series J Preferred”) in conjunction with the Certificate of Designations (“Series J COD”). A total of 50 shares of Series J Preferred were authorized, zero shares are issued and outstanding, with a stated value of $1,000,000 per share and a par value of $0.01 as of June 30, 2021.
On April 27, 2017, a total of 24.0344 shares of Series J Preferred were issued pursuant to an exchange agreement (the “Exchange Agreement”) with Hakim, a related party and the Company’s President, Chief Executive Officer and Chairman of the Board of Directors. The Exchange Agreement provided for Hakim to exchange 158,017,321 shares of Common Stock for 24.0344 shares of Series J Preferred and warrants to purchase 79,008,661 shares of Common Stock at $0.1521 per share. The aggregate stated value of the Series J Preferred issued was equal to the aggregate value of the shares of Common Stock exchanged, with such value of each share of Common Stock exchanged being equal to the closing price of the Common Stock on April 27, 2017. In connection with the Exchange Agreement, the Company also issued warrants to purchase 79,008,661 shares of Common Stock at $0.1521 per share, and such warrants are classified as liabilities on the accompanying unaudited condensed consolidated balance sheet as of June 30, 2021 (See Note 11).
| F-17 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
An amendment to the Company’s Articles of Incorporation to increase the number of shares of Common Stock the Company is authorized to issue from 995,000,000 shares to 1,445,000,000 shares was approved at the Company’s Annual Meeting of Shareholders held on December 4, 2019. Prior to the approval of the increase in the number of authorized shares, there were insufficient authorized shares if the Series J Preferred Stock were converted. As a result, the shares were classified in mezzanine equity. After the approval of the increase in the number of authorized shares, there are now sufficient authorized shares in the event of a full conversion of Series J Preferred Stock. With the approval of the increase in the number of authorized shares, there is no longer the presumption that a cash settlement will be required. Therefore, the Series J Preferred was reclassified from mezzanine equity to permanent equity at its carrying amount of $13,903,960 on the consolidated balance sheet as of March 31, 2020.
On June 23, 2020, the Company held a Special Meeting of Shareholders, with such including a proposal for shareholders to again vote on the above referenced amendment to the Company’s Articles of Incorporation. This proposal was also passed by shareholder vote.
On August 24, 2020, Hakim converted the 24.0344 shares of Series J Preferred into 158,017,321 shares of Common Stock at a conversion price of $0.1521 per share.
NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS – WARRANTS
The Company evaluates and accounts for its freestanding instruments in accordance with ASC 815, Accounting for Derivative Instruments and Hedging Activities.
The Company issued warrants, with a term of ten years, to affiliates in connection with an exchange agreement dated April 28, 2017, as further described in this note below.
A summary of warrant activity is as follows:
SCHEDULE OF WARRANT ACTIVITY
| June 30, 2021 | March 31, 2021 | |||||||||||||||
| Warrant Shares | Weighted Average Exercise Price | Warrant Shares | Weighted Average Exercise Price | |||||||||||||
| Balance at beginning of period | 79,008,661 | $ | 0.1521 | 79,008,661 | $ | 0.1521 | ||||||||||
| Warrants granted pursuant to the issuance of Series J convertible preferred shares | — | — | — | — | ||||||||||||
| Warrants exercised, forfeited and/or expired, net | — | — | — | — | ||||||||||||
| Balance at end of period | 79,008,661 | $ | 0.1521 | 79,008,661 | $ | 0.1521 | ||||||||||
On April 28, 2017, the Company entered into an Exchange Agreement with Hakim, the Chairman of the Board, President, and Chief Executive Officer of the Company, pursuant to which the Company issued to Hakim 24.0344 shares of its Series J Preferred and warrants to purchase an aggregate of 79,008,661 shares of its Common Stock (the “Series J Warrants” and, along with the Series J Preferred issued to Hakim, the “Securities”) in exchange for 158,017,321 shares of Common Stock owned by Hakim. The fair value of the Series J Warrants was determined to be $6,474,674 upon issuance at April 28, 2017.
The Series J Warrants are exercisable for a period of 10 years from the date of issuance, commencing April 28, 2020. The initial exercise price is $0.1521 per share and the Series J Warrants can be exercised for cash or on a cashless basis. The exercise price is subject to adjustment for any issuances or deemed issuances of Common Stock or Common Stock equivalents at an effective price below the then exercise price. Such exercise price adjustment feature prohibits the Company from being able to conclude the warrants are indexed to its own stock and thus such warrants are classified as liabilities and measured initially and subsequently at fair value. The Series J Warrants also provide for other standard adjustments upon the happening of certain customary events.
| F-18 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The fair value of the Series J Warrants was calculated using a Black-Scholes model instead of a Monte Carlo Simulation because the probability with the shareholder approval provisions was no longer a factor. The following assumptions were used in the Black-Scholes model to calculate the fair value of the Series J Warrants:
SCHEDULE OF THE FAIR VALUE OF THE WARRANTS ISSUED
| June 30, 2021 | March 31, 2021 | |||||||
| Fair value of the Company’s Common Stock | $ | 0.0500 | $ | 0.0610 | ||||
| Volatility | 76.07 | % | 75.18 | % | ||||
| Initial exercise price | $ | 0.1521 | $ | 0.1521 | ||||
| Warrant term (in years) | 5.8 | 6.1 | ||||||
| Risk free rate | 1.21 | % | 1.40 | % | ||||
The changes in warrants (Level 3 financial instruments) measured at fair value on a recurring basis for the three months ended June 30, 2021 were as follows:
SCHEDULE OF CHANGES IN WARRANTS MEASURED AT FAIR VALUE ON A RECURRING BASIS
| Balance at March 31, 2021 | $ | 2,362,246 | ||
| Change in fair value of derivative financial instruments - warrants | (614,461 | ) | ||
| Balance at June 30, 2021 | $ | 1,747,785 |
NOTE 12. SHAREHOLDERS’ EQUITY
Lincoln Park Capital – May 1, 2017 Purchase Agreement
On May 1, 2017, the Company entered into a purchase agreement (the “2017 LPC Purchase Agreement”), together with a registration rights agreement (the “2017 LPC Registration Rights Agreement”), with Lincoln Park.
Under the terms and subject to the conditions of the 2017 LPC Purchase Agreement, the Company had the right to sell to and Lincoln Park was obligated to purchase up to $40 million in shares of Common Stock, subject to certain limitations, from time to time, over the 36-month period that commenced on June 5, 2017.
The 2017 LPC Agreement expired on July 1, 2020.
During the three months ended June 30, 2020, there were no shares sold to Lincoln Park pursuant to the 2017 LPC Agreement. In addition, there were no shares issued to Lincoln Park as additional commitment shares, pursuant to the 2017 LPC Agreement.
Lincoln Park Capital Transaction - July 8, 2020 Purchase Agreement
On July 8, 2020, the Company entered into a purchase agreement (the “2020 LPC Purchase Agreement”), and a registration rights agreement (the “2020 LPC Registration Rights Agreement”), with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park has committed to purchase up to $25.0 million of the Company’s Common Stock, $0.001 par value per share, from time to time over the term of the 2020 LPC Purchase Agreement, at the Company’s direction.
During the three months ended June 30, 2021, there were no shares sold to Lincoln Park pursuant to the 2020 LPC Purchase Agreement. In addition, there were no shares issued to Lincoln Park as additional commitment shares, pursuant to the 2020 LPC Purchase Agreement.
| F-19 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 13. STOCK-BASED COMPENSATION
Part of the compensation paid by the Company to its Directors and employees consists of the issuance of Common Stock or via the granting of options to purchase Common Stock.
Stock-based Director Compensation
The Company’s Director compensation policy, instituted in October 2009 and further revised in January 2016, includes provisions that a portion of director’s fees are to be paid via the issuance of shares of the Company’s Common Stock, in lieu of cash, with the valuation of such shares being calculated on a quarterly basis and equal to the average closing price of the Company’s Common Stock.
During the three months ended June 30, 2021, the Company issued 886,710 shares of Common Stock to its Directors in payment of director’s fees totaling an aggregate of $60,000 and with such aggregate director’s fees being earned and accrued over the twelve month period beginning on April 1, 2020 and ending on March 31, 2021. In addition, the Company made cash payments totaling an aggregate of $30,000 in payment of director’s fees earned over the same twelve month period.
During the three months ended June 30, 2021, the Company accrued director’s fees totaling $22,500, which will be paid via cash payments totaling $7,500 and the issuance of 268,963 shares of Common Stock.
As of June 30, 2021, the Company owed its Directors a total of $7,500 in cash payments and 268,963 shares of Common Stock in payment of director fees totaling $22,500 due and owing. The Company anticipates that these shares of Common Stock will be issued prior to the end of the current fiscal year.
Stock-based Employee/Consultant Compensation
Employment contracts with the Company’s President and Chief Executive Officer and certain other employees and engagement contracts with certain consultants include provisions for a portion of each employee’s salaries or consultant’s fees to be paid via the issuance of shares of the Company’s Common Stock, in lieu of cash, with the valuation of such shares being calculated on a quarterly basis and equal to the average closing price of the Company’s Common Stock.
During the three months ended June 30, 2021, the Company issued 1,218,526 shares of Common Stock in payment of salaries totaling $97,500 pursuant to the employment contract of the Company’s former Chief Financial Officer, with such salaries being earned and accrued over the thirty-month period beginning on October 1, 2018 and ending on March 31, 2021.
During the three months ended June 30, 2021, the Company accrued salaries totaling $193,750 owed to the Company’s President and Chief Executive Officer and certain other employees which will be paid via the issuance of 3,506,847 shares of Common Stock.
As of June 30, 2021, the Company owed its President and Chief Executive Officer and certain other employees’ salaries totaling $3,156,250, which will be paid via the issuance of 38,373,435 shares of Common Stock.
| F-20 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Options
Under its 2014 Stock Option Plan and prior options plans, the Company may grant stock options to officers, selected employees, as well as members of the Board of Directors and advisory board members. All options have generally been granted at a price equal to or greater than the fair market value of the Company’s Common Stock at the date of the grant. Generally, options are granted with a vesting period of up to three years and expire ten years from the date of grant. A summary of the activity of Company’s 2014 Stock Option Plan for the three months ended June 30, 2021 is as follows:
SCHEDULE OF STOCK OPTION PLAN
|
Shares
Underlying Options |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contractual Term (in years) |
Aggregate
Intrinsic Value |
|||||||||||||
| Outstanding at March 31, 2021 | 5,900,000 | $ | 0.13 | 3.7 | $ | 6,000 | ||||||||||
| Granted | 300,000 | $ | 0.06 | 3.0 | ||||||||||||
| Outstanding at June 30, 2021 | 6,200,000 | $ | 0.13 | 3.8 | $ | 6,000 | ||||||||||
| Exercisable at June 30, 2021 | 5,246,667 | $ | 0.13 | 3.8 | $ | 6,000 | ||||||||||
The aggregate intrinsic value for outstanding options is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s Common Stock as of June 30, 2021 and March 31, 2021 of $0.08 and $0.07, respectively.
NOTE 14. CONCENTRATIONS AND CREDIT RISK
Revenues
Two customers accounted for approximately 92% of the Company’s revenues for the three months ended June 30, 2021. These two customers accounted for approximately 83% and 9% of revenues each, respectively.
Two customers accounted for approximately 92% of the Company’s revenues for the three months ended June 30, 2020. These two customers accounted for approximately 73% and 19% of revenues each, respectively.
Accounts Receivable
Two customers accounted for approximately 93% of the Company’s accounts receivable as of June 30, 2021. These two customers accounted for approximately 84% and 9% of accounts receivable each, respectively.
Three customers accounted for substantially all the Company’s accounts receivable as of March 31, 2021. These three customers accounted for approximately 73%, 15% and 11% of accounts receivable each, respectively.
Purchasing
Four suppliers accounted for more than 64% of the Company’s purchases of raw materials for the three months ended June 30, 2021. These four suppliers accounted for approximately 38%, 14%, 7% and 5% of purchases each, respectively.
Three suppliers accounted for more than 81% of the Company’s purchases of raw materials for the three months ended June 30, 2020. These three suppliers accounted for approximately 63%, 14%, and 4% of purchases each, respectively.
NOTE 15. SEGMENT RESULTS
FASB ASC 280-10-50 requires use of the “management approach” model for segment reporting. The management approach is based on the way a company’s management organized 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.
| F-21 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company has determined that its reportable segments are ANDAs for generic products and NDAs for branded products. The Company identified its reporting segments based on the marketing authorization relating to each and the financial information used by its chief operating decision maker to make decisions regarding the allocation of resources to and the financial performance of the reporting segments.
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 unaudited condensed consolidated financial statements.
The following represents selected information for the Company’s reportable segments:
SCHEDULE OF SELECTED INFORMATION FOR REPORTABLE SEGMENTS
| For the three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Operating Income by Segment | ||||||||
| ANDA | $ | 2,351,334 | $ | 1,869,491 | ||||
| NDA | — | 153,784 | ||||||
| $ | 2,351,334 | $ | 2,023,275 | |||||
The table below reconciles the Company’s operating income by segment to income from operations before provision for income taxes as reported in the Company’s unaudited condensed consolidated statements of operations.
SCHEDULE OF OPERATING LOSS BY SEGMENT TO (LOSS) INCOME FROM OPERATIONS
| 2021 | 2020 | |||||||
| For the Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Operating income by segment | $ | 2,351,334 | $ | 2,023,275 | ||||
| Corporate unallocated costs | (851,856 | ) | (585,032 | ) | ||||
| Interest income | 42 | 276 | ||||||
| Interest expense and amortization of debt issuance costs | (45,893 | ) | (79,431 | ) | ||||
| Depreciation and amortization expense | (312,702 | ) | (327,617 | ) | ||||
| Significant non-cash items | (221,618 | ) | (241,936 | ) | ||||
| Change in fair value of derivative instruments | 614,461 | (658,593 | ) | |||||
| Income from operations before income taxes | $ | 1,533,768 | $ | 130,942 | ||||
NOTE 16. RELATED PARTY AGREEMENTS WITH MIKAH PHARMA, LLC
On December 3, 2018, the Company executed a development agreement with Mikah, pursuant to which Mikah and the Company will collaborate to develop and commercialize generic products including formulation development, analytical method development, bioequivalence studies and manufacture of development batches of generic products. As of March 31, 2021, the Company has incurred costs which are $238,451 in excess of advanced payments received to date from Mikah. This balance due from Mikah was offset, in full, against accrued interest due and owing to Mikah pursuant to the Mikah Note (see Note 7).
In May 2020, SunGen Pharma LLC (“SunGen”), pursuant to an asset purchase agreement, assigned its rights and obligations under the SunGen Agreement for Amphetamine IR and Amphetamine ER to Mikah Pharmaceuticals. The ANDAs for Amphetamine IR and Amphetamine ER are now registered under Elite’s name. Mikah will now be Elite’s partner with respect to Amphetamine IR and ER and will assume all the rights and obligations for these products from SunGen. Mikah Pharmaceuticals was founded in 2009 by Nasrat Hakim, a related party and the Company’s President, Chief Executive Officer and Chairman of the Board.
In June 2021, the Company entered into a development and license agreement with Mikah Pharma LLC, pursuant to which Mikah Pharma LLC will engage in the research, development, sales and licensing of generic pharmaceutical products. In addition, Mikah Pharma LLC will collaborate to develop and commercialize generic products including formulation development, analytical method development, manufacturing, sales and marketing of generic products. Initially two generic products were identified for the parties to develop.
| F-22 |
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 17. INCOME TAXES
Sale of New Jersey Net Operating Loss
In April 2020, Elite Labs received final approval from the New Jersey Economic Development Authority for the sale of net tax benefits of $607,635 relating to New Jersey net operating losses and net tax benefits of $338,772, relating to R&D tax credits. The Company sold the net tax benefits approved for sale for total proceeds of $946,407, during the three months ended June 30, 2020.
Sale of New Jersey Net Operating Loss and Research and Development Tax Credit
In April 2021, Elite Labs received final approval from the New Jersey Economic Development Authority for the sale of net tax benefits of $796,860 relating to New Jersey net operating losses and net tax benefits of $58,490, relating to research and development tax credits. The Company sold the net tax benefits approved for sale at a transfer price equal to ninety three and one half cents for every benefit dollar and incurred transaction fees of $12,861, resulting in net proceeds to the Company of $855,350, during the three months ended June 30, 2021.
NOTE 18. COVID-19 UPDATE
In December 2019, the Novel Corona Virus, COVID-19 was reported to have emerged in Wuhan, China. In March 2020, the World Health Organization (“WHO”) declared the COVID-19 outbreak a global pandemic. Governments at the national, state and local level in the United States, and globally, have implemented aggressive actions to reduce the spread of the virus, with such actions including, without limitation, lockdown and shelter in place orders, limitations on non-essential gatherings of people, suspension of all non-essential travel, and ordering certain businesses and governmental agencies to cease non-essential operations at physical locations. Under current and applicable laws and regulations, the Company’s business is deemed essential and it has continued to operate in all aspects of its pharmaceutical manufacturing, distribution, product development, regulatory compliance and other activities. The Company’s management has developed and implemented a range of measures to address the risks, uncertainties, and operational challenges associated with operating in a COVID-19 environment. The Company is closely monitoring the rapidly evolving and changing situation and are implementing plans intended to limit the impact of COVID-19 on our business so that the Company can continue to manufacture those medicines used by end user patients. Actions the Company has taken to date are, without limitation, further described below.
Workforce
The Company has taken and will continue to take, proactive measures to provide for the well-being of its workforce while continuing to safely produce pharmaceutical products. The Company has implemented alternative working practices, which include, without limitation, modified schedules, shift rotation and work at home abilities for appropriate employees to best ensure adequate social distancing. In addition, the Company increased its already thorough cleaning protocols throughout its facilities and has prohibited visits from non-essential visitors. Certain of these measures have resulted in increased costs.
Manufacturing and Supply Chain
During the three months ended June 30, 2021, and as of the date of this Quarterly Report on Form 10-Q, the Company has not experienced material, detrimental issues related to COVID-19 in its manufacturing, supply chain, quality assurance and regulatory compliance activities, and has been able to operate without interruption. The Company has taken, and plans to continue to take, commercially practical measures to keep its facilities open. The Company’s supply chains remain intact and operational, and the Company is in regular communications with its suppliers and third-party partners. A prolonging of the current situation relating to COVID-19 may result in an increased risk of interruption in the Company supply chain in the future, with no assurances given as the materiality of such future interruption on the Company’s business, financial condition, results of operations and cash flows.
NOTE 19. SUBSEQUENT EVENTS
None.
| F-23 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations for the three months ended June 30, 2021 and 2020 should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended March 31, 2021. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.
Unless expressly indicated or the context requires otherwise, the terms “Elite”, the “Company”, “we”, “us”, and “our” refer to Elite Pharmaceuticals, Inc. and subsidiary.
Background
Elite Pharmaceuticals, Inc., a Nevada corporation (the “Company”, “Elite”, “Elite Pharmaceuticals”, the “registrant”, “we”, “us” or “our”) 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.
We are a specialty pharmaceutical company principally engaged in the development and manufacture of oral, controlled-release products, using proprietary know-how and technology for the manufacture of generic pharmaceuticals. Our strategy includes developing generic versions of controlled-release drug products with high barriers to entry.
We occupy manufacturing, warehouse, laboratory and office space at 165 Ludlow Avenue and 135 Ludlow Avenue in Northvale, NJ (the “Northvale Facility”). The Northvale Facility operates under Current Good Manufacturing Practice (“cGMP”) and is a United States Drug Enforcement Agency (“DEA”) registered facility for research, development and manufacturing.
Strategy
We focus our efforts on the following areas: (i) manufacturing of a line of generic pharmaceutical products with approved Abbreviated New Drug Applications (“ANDAs”); (ii) development of additional generic pharmaceutical products; (iii) development of the other products in our pipeline including the products with our partners; (iv) commercial exploitation of our products either by license and the collection of royalties, or through the manufacture of our formulations; and (v) development of new products and the expansion of our licensing agreements with other pharmaceutical companies, including co-development projects, joint ventures and other collaborations.
Our focus is on the development of various types of drug products, including generic drug products which require ANDAs as well as branded drug products which require New Drug Applications (“NDAs”) under Section 505(b)(1) or 505(b)(2) of the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Drug Price Competition Act”).
We believe that our business strategy enables us to reduce its risk by having a diverse product portfolio that includes generic products in various therapeutic categories and to build collaborations and establish licensing agreements with companies with greater resources thereby allowing us to share costs of development and improve cash-flow.
| 1 |
Commercial Products
We own, license, contract manufacture or have contractual rights to receive royalties from the following products currently approved for commercial sale:
| Product |
Branded
Product Equivalent |
Therapeutic Category |
Launch Date |
|||
| Phentermine HCl 37.5mg tablets (“Phentermine 37.5mg”) | Adipex-P® | Bariatric | April 2011 | |||
| Phendimetrazine Tartrate 35mg tablets (“Phendimetrazine 35mg”) | Bontril® | Bariatric | November 2012 | |||
| Phentermine HCl 15mg and 30mg capsules (“Phentermine 15mg” and “Phentermine 30mg”) | Adipex-P® | Bariatric | April 2013 | |||
| Naltrexone HCl 50mg tablets (“Naltrexone 50mg”) | Revia® | Addiction Treatment | September 2013 | |||
| Isradipine 2.5mg and 5mg capsules (“Isradipine 2.5mg” and “Isradipine 5mg”) | n/a | Cardiovascular | January 2015 | |||
| Oxycodone HCl Immediate Release 5mg, 10mg, 15mg, 20mg and 30mg tablets (“OXY IR 5mg”, “Oxy IR 10mg”, “Oxy IR 15mg”, “OXY IR 20mg” and “Oxy IR 30mg”) | Roxycodone® | Pain | March 2016 | |||
| Trimipramine Maleate Immediate Release 25mg, 50mg and 100mg capsules (“Trimipramine 25mg”, “Trimipramine 50mg”, “Trimipramine 100mg”) | Surmontil® | Antidepressant | May 2017 | |||
| Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate Immediate Release 5mg, 7.5mg, 10mg, 12.5mg, 15mg, 20mg and 30mg tablets (“Amphetamine IR 5mg”, “Amphetamine IR 7.5mg”, “Amphetamine IR 10mg”, “Amphetamine IR 12.5mg”, “Amphetamine IR 15mg”, “Amphetamine IR 20mg” and “Amphetamine IR 30mg”) | Adderall® | Central Nervous System (“CNS”) Stimulant | April 2019 | |||
| Dantrolene Sodium Capsules 25mg, 50mg and 100mg (“Dantrolene 25mg”, “Dantrolene 50mg”, “Dantrolene 100mg”) | Dantrium® | Muscle Relaxant | June 2019 | |||
| Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate Extended Release 5mg, 10mg, 15mg, 20mg, 25mg, and 30mg capsules (“Amphetamine ER 5mg”, “Amphetamine ER 10mg”, “Amphetamine ER 15mg”, “Amphetamine ER 20mg”, “Amphetamine ER 25mg”, and “Amphetamine ER 30mg”) | Adderall XR® | Central Nervous System (“CNS”) Stimulant | March 2020 | |||
| Loxapine Succinate 5mg, 10mg, 25mg and 50gm capsules (“Loxapine 5mg”, “Loxapine 10mg”, “Loxapine 25mg”, and Loxapine 50mg”) | Loxapine® | Antipsychotic | May 2021 |
Approved Products Not Yet Commercialized
Acetaminophen and Codeine Phosphate
The Company received approval from the FDA of an ANDA for a generic version of Tylenol® with Codeine (acetaminophen and codeine phosphate). Acetaminophen with codeine is a combination medication indicated for the management of mild to moderate pain, where treatment with an opioid is appropriate and for which alternative treatments are inadequate. The Company is not pursuing licensing deals for any opioids at this time and, in light of the current market and litigation around opioid products, the Company has no plans to commercialize this product at this time.
Critical Accounting Policies and Estimates
The preparation of the unaudited condensed consolidated financial statements and related disclosures in conformity with GAAP, and our discussion and analysis of its financial condition and operating results require our management to make judgments, assumptions and estimates that affect the amounts reported in its unaudited condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and such differences may be material.
There were no significant changes during the three months ended June 30, 2021 to the items that we disclosed as our significant accounting policies and estimates described in “Note 1, Summary of Significant Accounting Policies” to the Company’s financial statements as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021.
| 2 |
Results of Operations
The following set forth our results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results.
Three months ended June 30, 2021 compared to June 30, 2020
Revenue, Cost of revenue and Gross profit:
|
For the Three Months Ended June 30, |
Change | |||||||||||||||
| 2021 | 2020 | Dollars | Percentage | |||||||||||||
| Manufacturing fees | $ | 5,750,036 | $ | 6,637,239 | $ | (887,203 | ) | (13 | )% | |||||||
| Licensing fees | 1,306,753 | 901,505 | 405,248 | 45 | % | |||||||||||
| Total revenue | 7,056,789 | 7,538,744 | (481,955 | ) | (6 | )% | ||||||||||
| Cost of manufacturing | 3,503,262 | 4,562,350 | (1,059,088 | ) | (23 | )% | ||||||||||
| Gross profit | $ | 3,553,527 | $ | 2,976,394 | $ | 577,133 | 19 | % | ||||||||
| Gross profit - percentage | 50 | % | 39 | % | ||||||||||||
Total revenues for the three-month period ended June 30, 2021 decreased by $0.5 million or 6%, to $7.1 million, as compared to $7.5 million, for the corresponding period of the prior year, primarily due to timing of sales of Amphetamine IR Tablets and Amphetamine ER Capsules, somewhat offset by an increase in licensing fees of many of our products during the three month period ended June 30, 2021 as compared to the comparable period of the prior fiscal year.
Manufacturing fees decreased by $0.9 million, or 13%, primarily due to lower revenue due to the timing of sales of Amphetamine IR Tablets and Amphetamine ER Capsules during the three month period ended June 30, 2021 as compared to the comparable period of the prior fiscal year.
Licensing fees increased by $0.4 million, or 45%. This increase is primarily due to licensing fees earned from the sale of Amphetamine ER Capsules and Amphetamine IR Tablets during the three months ended June 30, 2021 as compared to the comparable period of the prior fiscal year.
Costs of revenue consists of manufacturing and assembly costs. Our costs of revenue decreased by $1.1 million or 23%, to $3.5 million as compared to $4.6 million for the corresponding period in the prior fiscal year. This decrease was due in large part to a decrease in manufacturing revenues, and also due to an improved margin on products sold during the three months ended June 30, 2021, as compared to the comparable period of the prior fiscal year.
Our gross profit margin was 50% during the three months ended June 30, 2021 as compared to 39% during the comparable period of the prior fiscal year.
| 3 |
Operating expenses:
| For the Three Months Ended June 30, | Change | |||||||||||||||
| 2021 | 2020 | Dollars | Percentage | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | 1,202,192 | $ | 943,879 | $ | 258,313 | 27 | % | ||||||||
| General and administrative | 1,070,664 | 868,777 | 201,887 | 23 | % | |||||||||||
| Non-cash compensation | 2,811 | 5,521 | (2,710 | ) | (49 | )% | ||||||||||
| Depreciation and amortization | 312,702 | 327,617 | (14,915 | ) | (5 | )% | ||||||||||
| Total operating expenses | $ | 2,588,369 | $ | 2,145,794 | $ | 442,575 | 21 | % | ||||||||
Operating expenses consist of research and development costs, general and administrative, non-cash compensation and depreciation and amortization expenses. Operating expenses for the three months ended June 30, 2021 increased by $0.5 million, or 21%, to $2.6 million as compared to $2.1 million for the corresponding period in the prior fiscal year.
Research and development costs for the three months ended June 30, 2021 were $1.2 million, an increase of $0.3 million, or 27%, from approximately $0.9 million of such costs for the comparable period of the prior year. The increase was a result of the timing and nature of product development activities during the three month period ended June 30, 2021 as compared to the comparable period of the prior fiscal year.
General and administrative expenses for the three months ended June 30, 2021 were $1.1 million, an increase of $0.2 million, or 23% from $0.9 million of such costs for the comparable period of the prior year due to increased costs and headcounts relating to regulatory compliance and laboratory activities.
Non-cash compensation expense for the three months ended June 30, 2021 and 2020 was less than $0.1 million.
Depreciation and amortization expenses for the three months ended June 30, 2021 were $0.3 million, which was virtually unchanged from $0.3 million in such costs for the comparable period of the prior fiscal year.
As a result of the foregoing, our income from operations for the three months ended June 30, 2021 was $1.0 million, compared to income from operations of $0.8 million for the comparable period of the prior fiscal year.
Other income (expense):
| For the Three Months Ended June 30, | Change | |||||||||||||||
| 2021 | 2020 | Dollars | Percentage | |||||||||||||
| Other income (expense): | ||||||||||||||||
| Change in fair value of derivative instruments | $ | 614,461 | $ | (658,593 | ) | $ | 1,273,054 | (193 | )% | |||||||
| Interest expense and amortization of debt issuance costs | (45,893 | ) | (79,431 | ) | 33,538 | (42 | )% | |||||||||
| Gain on sale of fixed assets | — | 38,090 | (38,090 | ) | n/a | |||||||||||
| Interest income | 42 | 276 | (234 | ) | (85 | )% | ||||||||||
| Other income (expense), net | $ | 568,610 | $ | (699,658 | ) | $ | 1,268,268 | (181 | )% | |||||||
| 4 |
Other income, net for the three months ended June 30, 2021 was $0.6 million, an increase of $1.3 million from the other expense, net of $0.7 million for the comparable period of the prior fiscal year. The increase in other income (expense) was due to income relating to changes in the fair value of our outstanding derivative warrants during the three months ended June 30, 2021. Please note that the change in the fair value of derivative instruments is determined in large part by the change in the closing price of the Company’s Common Stock as of the end of the period, as compared to the closing price at the beginning of the period, with a strong inverse relationship between the fair value of our derivatives instruments and decreases in the closing price of the Company’s Common Stock. Please see Note 11 to the Unaudited Condensed Consolidated Financial Statements above.
As a result of the foregoing, our net income before the net benefit from sale of net operating loss credits for the three months ended June 30, 2021 was $1.5 million, compared to net income $0.1 million for the comparable period of the prior fiscal year.
Liquidity and Capital Resources
Capital Resources
| June 30, 2021 | March 31, 2021 | Change | ||||||||||
| Current assets | $ | 15,316,829 | $ | 12,194,667 | $ | 3,122,162 | ||||||
| Current liabilities | $ | 6,795,056 | $ | 5,812,531 | $ | 982,525 | ||||||
| Working capital | $ | 8,521,773 | $ | 6,382,136 | $ | 2,139,637 | ||||||
Our working capital (total current assets less total current liabilities) increased by $2.1 million from $6.4 million as of March 31, 2021 to $8.5 million as of June 30, 2021, with such increase being primarily related to the net income of $2.4 million and a net positive cash flow of $1.6 million achieved during the three months ended June 30, 2021.
Summary of Cash Flows:
| For the Three Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Net cash provided by operating activities | $ | 1,715,459 | $ | 807,423 | ||||
| Net cash (used in) provided by investing activities | $ | (4,950 | ) | $ | 37,276 | |||
| Net cash provided by financing activities | $ | (152,549 | ) | $ | 811,404 | |||
Net cash provided by operating activities for the three months ended June 30, 2021 was $1.7 million, which included net income of $2.4 million and increases in non-cash expenses totaling $0.02 million, offset by net increases in assets and decreases in liabilities totaling $0.7 million.
Net cash used in investing activities for the three months ended June 30, 2021 was comprised of purchases of property and equipment of less than $0.01 million.
Net cash used in financing activities was $0.2 million for the three months ended June 30, 2021 which consisted primarily of loan payments.
Lincoln Park Capital – July 8, 2020 Purchase Agreement
On July 8, 2020, the Company entered into a purchase agreement (the “2020 LPC Purchase Agreement”), and a registration rights agreement, with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park has committed to purchase up to $25.0 million of the Company’s Common Stock, $0.001 par value per share, from time to time over the term of the 2020 LPC Purchase Agreement, at the Company’s direction.
During the three months ended June 30, 2021 and 2020, respectively, there were no shares sold to Lincoln Park pursuant to the 2020 LPC Purchase Agreement. In addition, there were no shares issued to Lincoln Park as additional commitment shares, pursuant to the 2020 LPC Purchase Agreement.
| 5 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2021 at the reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting
Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Internal control over financial reporting may not prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are achieved. Further, the design of a control system must be balanced against resource constraints, and therefore the benefits of controls must be considered relative to their costs. Given the inherent limitations in all systems of controls, no evaluation of controls can provide absolute assurance all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Accordingly, given the inherent limitations in a cost-effective system of internal control, financial statement misstatements due to error or fraud may occur and may not be detected. Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance of achieving their objectives. We conduct periodic evaluations of our systems of controls to enhance, where necessary, our control policies and procedures.
Management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting. Management has used the framework set forth in the report entitled “Internal Control—Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of our internal control over financial reporting. Based on its evaluation, management has concluded that our internal control over financial reporting was effective as of June 30, 2021 at the reasonable assurance level.
Changes in Internal Controls Over Financial Reporting
There were no changes, subsequent to those identified in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021 filed with the SEC on June 15, 2021, in our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during the end of the period covered by this Quarterly Report.
| 6 |
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Pending Litigation
We may be subject from time to time to various claims and legal actions arising during the ordinary course of our business. We believe that there are currently no claims or legal actions that would reasonably be expected to have a material adverse effect on our results of operations, financial condition or cash flows.
ITEM 1A. RISK FACTORS
There have been no material changes in the risk factors described in our Annual Report on Form 10-K for the year ended March 31, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
| 7 |
ITEM 6. EXHIBITS
| * | Filed herewith. |
| ** | Furnished herewith. |
| 8 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ELITE PHARMACEUTICALS, INC. | ||
| August 16, 2021 | By: | /s/ Nasrat Hakim |
|
Nasrat Hakim Chief Executive Officer, President and Chairman of the Board of Directors (Principal Executive Officer) |
||
| August 16, 2021 | By: | /s/ Marc Bregman |
|
Marc Bregman Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer) |
||
| 9 |
Exhibit 10.1
EXPLANATORY NOTE: [***] INDICATES THE PORTION OF THIS EXHIBIT
THAT HAS BEEN OMITTED BECAUSE IT IS BOTH (I) NOT MATERIAL AND
(II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED
MASTER DEVELOPMENT AND LICENSE AGREEMENT FOR PRODUCTS BETWEEN ELITE PHARMACEUTICALS, INC. AND MIKAH PHARMA LLC
This DEVELOPMENT AND LICENSE AGREEMENT (the “Agreement”), dated June 10, 2021 (the “Effective Date”) between Mikah Pharma LLC, 20 Kilmer Drive, Hillsborough, NJ 08844, USA (“Mikah”) and Elite Laboratories, Inc. (a subsidiary of Elite Pharmaceuticals, Inc.), organized under the laws of the State of Delaware, with offices at 165 Ludlow Avenue, Northvale, New Jersey, USA (“Elite”); Mikah and Elite may sometimes hereinafter be referred to as a “Party” or collectively as the “Parties”.
WHEREAS Mikah is engaged in the research, development, sales, and licensing of generic pharmaceutical products; and
WHEREAS Elite is engaged in the research, development, manufacturing, sales, and licensing of generic products;
WHEREAS Mikah and Elite wish to collaborate to develop and commercialize generic products including formulation development, analytical method development, manufacturing, sales, and marketing of generic products:
NOW, THEREFORE in consideration of the mutual covenants and agreements contained herein, the sufficiency, adequacy, and satisfaction of which are hereby acknowledged, Mikah and Elite hereby agree as follows:
ARTICLE 1
DEFINITIONS
The following terms shall have the meanings set forth in this Agreement:
| 1.1 | “Affiliate” shall mean any person or entity, which, directly or indirectly, controls, is controlled by, or is under common control with, a party or its assignee. Control shall be determined based upon either their legal right to control or de facto control of the entity. |
| 1.2 | “Agreement” shall have the meaning set forth in the Preamble and shall include any exhibits and attachments hereto. |
| 1.3 | “ANDA” shall mean Abbreviated New Drug Application pursuant to the applicable part of FD&C Act, and any supplements and amendments thereto which may be filed by the Parties. |
| 1.4 | “API” shall mean the active pharmaceutical ingredient. |
EXPLANATORY NOTE: [***] INDICATES THE PORTION OF THIS EXHIBIT
THAT HAS BEEN OMITTED BECAUSE IT IS BOTH (I) NOT MATERIAL AND
(II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED
| 1.5 | “Applicable Laws” shall mean all laws, ordinances, codes, rules and regulations applicable to the manufacturing of the Product or any aspect thereof in the Territory and the obligations of Elite or Mikah, as the context requires under this Agreement, including, without limitation: (i) all applicable federal, state and local laws and regulations of the Territory (including Environmental Laws); (ii) the U.S. Federal Food, Drug and Cosmetic Act, and (iii) the Regulations promulgated under the FD&C Act including without limitation those regarding cGMP, each as amended from time to time and (iv) all laws ordinances, codes, rules and regulations applicable to Elite as they apply to the Products. |
| 1.6 | “CMC” means - Chemistry, Manufacturing, and Controls under the FD&C Act. |
| 1.7 | “Competitive Product” shall mean a product which addresses the same therapeutic indication as a Product, contains the same active pharmaceutical ingredient as a Product and references the same reference listed drug (RLD) in its ANDA. |
| 1.8 | “Data” shall refer to all data, materials, plans, reports, test results and other information developed in connection with the Products. |
| 1.9 | “Facility” shall mean Elite’s finished product manufacturing facility located at 165 Ludlow Avenue, Northvale, New Jersey or any other facility jointly approved by the Parties, and associated costs shall be shared equally by the Parties. |
| 1.10 | “FDA” shall mean the United States Food and Drug Administration. |
| 1.11 | “FD&C Act” shall mean the United States Federal Food, Drug and Cosmetics Act, (21 U.S.C. 301, et seq.), as amended from time to time, and any regulation promulgated thereunder, including, without limitation, all current Good Manufacturing Practices and current good laboratory practices as defined therein, in each case, as amended from time to time. |
| 1.12 | “Force Majeure” shall mean the occurrence of an event which materially interferes with the ability of a Party to perform its obligations or duties hereunder which is not within the reasonable control of the Party affected, not due to malfeasance, and which could not with the exercise of due diligence have been avoided, including, but not limited to, fire, accident, work stoppage, sabotage, strike, riot, civil commotion, terrorism, act of God or change in law. |
| 1.13 | “GDUFA Facility Fees” shall mean the annual facility fees required under the Generic Drug Users Fee Act. |
| 1.14 | “Good Manufacturing Practices” or “cGMP” shall mean the current good manufacturing practices for manufacturing finished products and active pharmaceutical ingredients as set forth in the FD&C Act, their attendant rules and regulations, and any other current good manufacturing practices which are applicable to the Facility. |
| 2 |
EXPLANATORY NOTE: [***] INDICATES THE PORTION OF THIS EXHIBIT
THAT HAS BEEN OMITTED BECAUSE IT IS BOTH (I) NOT MATERIAL AND
(II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED
| 1.15 | “Know-How” means proprietary know-how, trademarks, inventions, data, technology, and information relating to Product, which either Party hereto has the lawful right to disclose to the other Party. “Know-How” shall include, without limitation, processes and analytical methodology used in development, testing, analysis and manufacture and medical, clinical, toxicological testing as well as other scientific data relating to Product. |
| 1.16 | “Product” means products as listed in Exhibit A. |
| 1.17 | “Regulatory Filings” means filings with the FDA such as the ANDA. |
| 1.18 | “Regulatory Approvals” shall mean the approvals required under the FD&C Act to sell and market the Product in the Territory. |
| 1.19 | “Specifications” with respect to the Product shall mean the development, manufacturing, quality control, packaging, labeling, shipping and storage specifications in the applicable USP-NF (United States Pharmacopeia- National Formulary), monograph, the Drug Master File or other Regulatory Filing, in the form of specifications set forth as part of this Agreement, and such specifications as may from time to time be established by applicable Regulatory Authorities and as mutually agreed upon by the Parties. |
| 1.20 | “Termination Event” has the meaning set forth in Section 10.1. |
| 1.21 | “Territory” means the United States of America, its territories, possessions, commonwealths. |
ARTICLE 2
DEVELOPMENT
| 2.1 | Product Development. The roles and responsibilities of each of the Parties in the development of the Products are outlined in Exhibit C. |
ARTICLE 3
MARKETING AND SALES
| 3.1 | Elite will be responsible for engaging a third party to market and sell the Products using the third-party label by Product. Elite shall be responsible or ensure the third party engaged to market and sell, is responsible for all permits, licenses, and distribution costs and for complying with all regulations and applicable laws and permits required to file the Product in the Territories. Mikah shall be a party to the sales agreements with third parties. |
| 3.2 | Trademarks. The Parties agree and acknowledge that they shall not acquire by virtue of this Agreement any interest in any trademarks or trade names of the other Party. |
| 3 |
EXPLANATORY NOTE: [***] INDICATES THE PORTION OF THIS EXHIBIT
THAT HAS BEEN OMITTED BECAUSE IT IS BOTH (I) NOT MATERIAL AND
(II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED
ARTICLE 4
REGULATORY
| 4.1 | Ownership and Regulatory Filings. Elite and Mikah shall jointly own the Product regulatory filings. Elite shall be listed as the ANDA holder and be responsible for filing and prosecution of the ANDA with the FDA and, following Regulatory Approval, be responsible for the maintenance of the ANDA and correspondence with and reporting to the FDA and other regulatory authorities. Mikah shall cooperate with and support Elite in connection with any such regulatory matters to the extent that may be reasonably requested. Elite shall notify Mikah of any changes made to the ANDA and shall copy Mikah on any correspondence related to the ANDA. |
| 4.2 | GDUFA (ANDA) filing fees shall be shared equally by the Parties. |
ARTICLE 5
MANUFACTURING AND SUPPLY OF PRODUCT
| 5.1 | Manufacturing Agreement. Elite shall supply Product at cost (materials, labor, and allocable overhead) plus [***] or at a transfer price agreed upon in a separate Manufacturing and Supply Agreement with the third party responsible for marketing and selling the Product. Elite and Mikah will both execute the Manufacturing and Supply Agreement. Elite will obtain and maintain all required registrations and licenses filings (including but not limited to FDA and DEA) in order to manufacture the Product, including paying the required GDUFA Facility Fee in accordance with the Product’s Specifications and in compliance with all applicable law. Elite will be responsible for required stability studies. |
| 5.2 | Quality Agreement. In conjunction with the execution of this Agreement, Elite and Mikah agree to execute a Quality Agreement. |
ARTICLE 6
PAYMENTS
| 6.1 | Elite and Mikah agree that cost sharing and profit sharing shall be in accordance with Exhibit B. |
| 4 |
EXPLANATORY NOTE: [***] INDICATES THE PORTION OF THIS EXHIBIT
THAT HAS BEEN OMITTED BECAUSE IT IS BOTH (I) NOT MATERIAL AND
(II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED
| 6.2 | Records. Elite and Mikah shall keep complete and accurate records of all the components of the calculations in Appendix B including Product procurement, production cost (material, labor and overhead), sales of the Product and the calculation of all gross invoice sales, cash, discounts, net invoice sales, deductions, and net sales of the Product. Both Parties shall have the right, at its expense and after thirty (30) days’ prior written notice to the other Party, through an independent certified public accountant, on a mutually agreeable date, to examine such records at any time within one (1) year after the due date of the Profit Split payments to which such records relate, during regular business hours, during the term of this Agreement and for twelve (12) months after expiration of the last production lot of Product sold by the Party, in order to verify the accuracy of the reports to be made under this Agreement. If the accountant determines that a Party has under-compensated the other Party, the findings shall be shared with the other Party. If the other Party agrees that the Party has not paid all of the compensation the other Party was entitled to receive, or it is later determined that the Party did not pay all of the compensation due to the other Party, then the Party shall pay the proper amount of compensation and all costs and expenses incurred by the other Party to hire the accountant and all of the accountant’s expenses, and all legal expenses, to obtain the appropriate compensation. If the Party disputes in good faith the accuracy of the results of such examination, the Parties will retain a second independent certified public accountant whose examination will be binding upon both parties. If the second independent certified public accountant verifies the findings of the first independent certified public accountant, then the Party will pay all of the expenses of both independent certified public accountant examinations. |
| 6.3 | Reports. Elite will provide sales Reports as described in Schedule B. |
| 6.4 | Terms. The Profit Split shall be paid to Mikah and Elite by the third party sales and marketing partner. The payments shall be quarterly based upon the previous quarter’s Products shipped to its customers. |
ARTICLE 7
REPRESENTATIONS, WARRANTIES AND COVENANTS
| 7.1 | Representations and warranties: |
| (a) | Each Party represents and warrants to the other that it is authorized to enter into and to perform its obligations under this Agreement. | |
| (b) | Each Party represents and warrants to the other that its obligations created under this Agreement do not conflict in any manner with any of its pre-existing obligations. | |
| (c) | Each Party represents and warrants to the other that it is the owner of any Know-How to be used or relied upon by such Party in performing its obligations under this Agreement. | |
| (d) | Both Mikah and Elite represent and warrant that: |
| 5 |
EXPLANATORY NOTE: [***] INDICATES THE PORTION OF THIS EXHIBIT
THAT HAS BEEN OMITTED BECAUSE IT IS BOTH (I) NOT MATERIAL AND
(II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED
| (i) | it has not received any notice or claim that the use of its Know-How infringes any patent or intellectual property rights of any third party in the Territory; and | |
| (ii) | to its actual knowledge, without any independent investigation, the use of its Know-How will not infringe any patent or intellectual property rights of any third party in the Territory. |
| (e) | Each Party hereby represents and warrants that it is not in violation of any law or regulation, nor is it aware of any violation of any law or regulation by any other Person, which violation could reasonably be expected to adversely affect its performance of its obligations hereunder, and except as otherwise contemplated hereby, such Party holds each of the licenses, permits, approvals or authorizations necessary with respect to its current business and operations (and its rights and obligations contemplated hereby) in compliance with all laws and regulations and maintains compliance with cGMP. |
| 7.2 | Non-Competition. |
| (a) | Mikah hereby covenants and agrees that without the prior written consent of Elite during the Term of this Agreement, Mikah will not directly or indirectly market a Competitive Product. Mikah will not engage in any R&D development, manufacturing, or contract manufacturing activities of a Competitive Product for any of its affiliates or third party. | |
| (b) | Elite hereby covenants and agrees that without the prior written consent of Mikah during the Term of this Agreement, Elite will not directly or indirectly market a Competitive Product. Elite will not engage in any R&D development, manufacturing, or contract manufacturing activities of a Competitive Product for any of its affiliates or third party. |
| 7.3 | Cooperation Upon Bankruptcy. If there is a voluntary or involuntary filing of a petition for bankruptcy, insolvency or placing in receivership of either Party, the Party shall use, and cause its representatives and affiliates to use, best efforts to make all necessary arrangements and take all required actions to permit the other Party to retain all rights licensed hereunder with respect to the Products. |
| 6 |
EXPLANATORY NOTE: [***] INDICATES THE PORTION OF THIS EXHIBIT
THAT HAS BEEN OMITTED BECAUSE IT IS BOTH (I) NOT MATERIAL AND
(II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED
ARTICLE 8
INTELLECTUAL PROPERTY RIGHTS
| 8.1 | Elite shall be responsible for the patent reviews. Out-of-pocket costs, if required, will be shared equally. |
| 8.2 | With respect to any Product developed hereunder, the Parties shall jointly own the Know-how and Intellectual Property. Elite shall be responsible for filing and prosecuting the patents, defending the patents against infringement and defending patent infringement claims brought by others. Out-of-pocket costs, if required, will be shared equally. Each Party shall promptly render all necessary assistance reasonably requested by the other Party in applying for and prosecuting patent applications in the US relating to such Party’s Know-How under this Agreement. US Patent Law shall determine ownership of inventions. |
ARTICLE 9
INDEMNIFICATION
| 9.1 | Indemnification of Mikah. Elite shall indemnify and hold harmless Mikah and its officers, directors and employees against and from any losses, damages, injuries, liabilities, exposure, claims, demands, settlement, judgments, awards, fines, penalties, taxes, fees (including attorneys’ fees), charges or expenses (collectively, “Losses”) that are suffered or incurred at any time by Mikah or such persons, or to which Mikah or such persons may otherwise become subject at any time, and that become payable or arise out of or by virtue of, or relate to: |
| (a) | Any breach by Elite or default by Elite in the performance of, or any failure on the part of Elite to observe, perform or abide by, any restriction, covenant, obligation, representation, warranty, or other provision contained in this Agreement or | |
| (b) | Any injury or alleged injury to any person (including death) or to the property of any person not a party hereto arising out of or alleging the negligence or intentional act or omission of Elite or its employees or agents failing to perform their duties under the Agreement. |
| 9.2 | Indemnification of Elite. Mikah shall indemnify and hold harmless Elite and its officers, directors, or employees against and from any Losses that are suffered or incurred at any time by Elite or such persons, or to which Elite or such persons may otherwise become subject at any time, and that become payable or arise out of or by virtue of, or relate to: |
| 7 |
EXPLANATORY NOTE: [***] INDICATES THE PORTION OF THIS EXHIBIT
THAT HAS BEEN OMITTED BECAUSE IT IS BOTH (I) NOT MATERIAL AND
(II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED
| (a) | Any breach by Mikah or default by Mikah in the performance of, or any failure on the part of Mikah to observe, perform or abide by, any restriction, covenant, obligation, representation, warranty, or other provision contained in this Agreement or | |
| (b) | Any injury or alleged injury to any person (including death) or to the property of any person not a party hereto arising out of or alleging the negligence or intentional act or omission of Mikah or its employees or agents failing to perform their duties under the Agreement. |
| 9.3 | Notice and Legal Defense. Promptly after receipt by a Party hereunder of any claim or notice of the commencement of any action, administrative or legal proceeding, or investigation as to which the indemnity provided for in Section 7.1 and 7.2 hereof may apply, the Party seeking indemnification shall notify the indemnifying Party in writing of such fact. The indemnifying Party shall assume the defense thereof; provided, however, that if the defendants in any such action include both the Party seeking indemnification and the indemnifying Party and counsel for the Party seeking indemnification shall reasonably conclude that there may be legal defenses available to such Party which are different from or additional to, or inconsistent with, those available to the indemnifying Party, the Party seeking indemnification shall have the right to select separate counsel to participate in the defense of such action on behalf of such Party seeking indemnification, at the indemnifying Party’s expense. |
| 9.4 | Insurance. Elite, who will manufacture the Product, shall maintain commercial general liability insurance through the term of this Agreement upon launch of the first Product, which insurance shall afford limits of not less than $5,000,000 for each occurrence for personal injury or property damage liability. Furthermore, the manufacturer, Elite and the party who shall market and sell the Product shall maintain product liability insurance, which the Parties shall ensure through the term of this Agreement upon launch of the first Product and for a period of three (3) years thereafter, which insurance shall afford limits of not less than $5,000,000 in the aggregate per annum with respect to product and completed operations liability. This insurance shall be written to cover claims incurred, discovered, manifested, or made during or after the expiration of this Agreement. |
| 9.5 | LIMITATION OF DAMAGES. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR LOST PROFITS (OTHER THAN AS ARE ORDINARILY ENCOMPASSED BY CONTRACT DAMAGES), LOSS OF GOODWILL, OR ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES, HOWEVER CAUSED, ARISING UNDER ANY THEORY OF LIABILITY. THIS LIMITATION SHALL APPLY EVEN IF A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. |
| 8 |
EXPLANATORY NOTE: [***] INDICATES THE PORTION OF THIS EXHIBIT
THAT HAS BEEN OMITTED BECAUSE IT IS BOTH (I) NOT MATERIAL AND
(II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED
ARTICLE 10
TERM AND TERMINATION AND DEFAULT
| 10.1 | Termination. Either Party shall have the option to terminate this Agreement upon the occurrence of a “Termination Event”. A “Termination Event” shall mean: (a) the voluntary or involuntary filing of a petition for bankruptcy, insolvency or placing in receivership of either Party; (b) a material breach of the terms of this Agreement by one Party followed by written notice of such breach by the non-breaching Party followed by the failure of the breaching Party to cure such breach within sixty (60) days of the date upon which written notice of breach was given in accordance with Section 10.2; (c) adverse changes in the intellectual property environment wherein either Party, in its reasonable commercial judgment believes a third party patent may be infringed upon by a Product; (d) upon six (6) months written notice to the other Party, if in terminating Party’s reasonable judgment the Product ceases to be commercially viable. |
| 10.2 | Events of Default. An event of default under this Agreement shall be deemed to exist upon the occurrence of any one or more of the following events: |
| (a) | Failure by either Party hereto to perform fully, or comply fully, with, any material provision of this Agreement and such failure continues for a period of sixty (60) days after receipt of written notice of such nonperformance or noncompliance; | |
| (b) | Failure of either Party to pay any amount due to other Party, which failure continues for a period of sixty (60) days after written notice of such non-payment unless, and to the extent such non-payment is due to a good faith dispute concerning the amount owed. |
| 10.3 | WARRANTY LIMITATION. EXCEPT AS EXPRESSLY SET FORTH IN SECTION 6, THE PARTIES MAKE NO WARRANTIES, EXPRESSED OR IMPLIED, CONCERNING TECHNOLOGY, GOODS, SERVICES, RIGHTS OR THE MANUFACTURE AND SALE OF PRODUCTS, AND HEREBY DISCLAIM: ANY OTHER WARRANTIES, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR USE OR PURPOSE OR NONINFRINGEMENT WITH RESPECT TO ANY AND ALL OF THE FOREGOING. |
ARTICLE 11
RESOLUTION OF DISPUTES; ARBITRATION
| 11.1 | The following dispute resolution process shall apply to all disputes that arise under this Agreement (the “Dispute Resolution Process”). In the event of any dispute under this Agreement, the disputing Party shall provide written notice of the dispute to the other Parties detailing such dispute. Within ten (10) business days from the date of the written notice, the Parties will meet at a mutually acceptable time and place or via phone or teleconference, and thereafter as often as they reasonably deem necessary, to exchange relevant information and to attempt to resolve the dispute. If they are unable to resolve the dispute within fifteen (15) business days of their first meeting, the matter shall be referred to a senior board level manager of each of the Parties. |
| 9 |
EXPLANATORY NOTE: [***] INDICATES THE PORTION OF THIS EXHIBIT
THAT HAS BEEN OMITTED BECAUSE IT IS BOTH (I) NOT MATERIAL AND
(II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED
| 11.2 | If the senior board level managers of the Parties are unable to resolve the matter within three (3) business days after notification then, any Party to the dispute may initiate binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association; such arbitration to be held in New Jersey on an expedited basis. |
| 11.3 | Expenses. Each Party shall be responsible for its own legal fees, travel, and related expenses during the Parties’ attempt to resolve the dispute. |
| 11.4 | Other Rights. Nothing in this Section 11 shall be deemed to waive the right of any Party to apply to a court of competent jurisdiction for a temporary restraining order, a preliminary injunction, or other equitable relief to preserve the status quo or prevent irreparable harm. |
ARTICLE 12
MISCELLANEOUS
| 12.1 | Recitals. The recitals are hereby incorporated by reference and made part of this Agreement. |
| 12.2 | Survival. Except as expressly provided in this Agreement, expiration or termination of this Agreement will not relieve the Parties of any obligation that accrued prior to such expiration or termination. Upon expiration or early termination of this Agreement, all rights and obligations of the Parties shall cease, except as follows: |
| (a) | The obligations of confidentiality set forth in Section 12.5 of Article 12 shall survive; | |
| (b) | The Parties obligations under Article 9 shall survive; and | |
| (c) | Any cause of action or claim of Mikah or Elite accrued or to accrue because of any breach or default by the other Party hereunder shall survive. |
| 12.3 | Entire Agreement; Amendment. This Agreement, with all of the Exhibits, contains the entire understanding of the Parties with respect to the subject matter hereof and supersedes all previous verbal and written agreements, representations, and warranties. This Agreement may be released, waived, or modified only by written agreement signed by the Party against whom enforcement of any release, waiver, modification, or other change is sought. |
| 12.4 | Standard Forms. In ordering and delivering the services or Product, Mikah and Elite may employ their standard forms, but nothing in those forms shall be construed to modify, amend, or supplement the terms of this Agreement and, in the case of any conflict herewith, the terms of this Agreement shall govern and control. |
| 10 |
EXPLANATORY NOTE: [***] INDICATES THE PORTION OF THIS EXHIBIT
THAT HAS BEEN OMITTED BECAUSE IT IS BOTH (I) NOT MATERIAL AND
(II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED
| 12.5 | Confidentiality. Elite and Mikah shall not use, except in connection with this Agreement, nor disclose any information concerning the other Party’s business or any proprietary information of the other Party, including but not limited to, technical or scientific data, unpublished findings, biological material, know-how, specifications, processes, techniques, patent, patent litigation strategies or tactics, trade secrets, algorithms, programs, designs, drawings, or formulae; and any engineering, manufacturing, marketing, financial, litigation, intellectual property or business plan, confidential knowledge, data or other similar information, whether received pursuant to this Agreement or otherwise (“Confidential Information”) without the prior written consent of such other Party. The obligation of non-disclosure referred to above shall not apply to: |
| (i) | Information which is known to the receiving Party or one of its Affiliates or independently developed by the receiving Party or one of its Affiliates prior to the time of disclosure, in each case, to the extent evidenced by written records; | |
| (ii) | Information disclosed to the receiving Party by a third party, which has a right to make such disclosure; | |
| (iii) | Information which is or becomes patented, published or otherwise part of the public domain as a result of acts by the disclosing Party or a third person obtaining such information as a matter of right; or | |
| (iv) | Information which is required to be disclosed by order of the FDA or similar authority in other countries or a court of competent jurisdiction; provided that the Parties shall use their best efforts to obtain confidential treatment of such information by the court or agency. |
| 12.6 | Force Majeure. Failure of any Party to perform its obligations under this Agreement as a result of Force Majeure shall not subject such Party to any liability or place it in breach of any term or condition of this Agreement to the other Party if such failure is caused by any cause beyond the reasonable control of such non-performing Party. The Party prevented from performing its obligations or duties because of Force Majeure shall promptly notify the other Party hereto of the occurrence and particulars of such Force Majeure and shall provide the other Party, from time to time, with its best estimate of the duration of such Force Majeure and with notice of the termination thereof. The Party so affected shall use its best efforts to avoid or remove such causes of nonperformance. Upon termination of Force Majeure, the performance of any suspended obligation or duty shall promptly recommence. Neither Party shall be liable to the other Party for any direct, indirect, consequential, incidental, special, punitive, or exemplary damages arising out of or relating to the suspension or termination of any of its obligations or duties under this Agreement by reason of the occurrence of Force Majeure. In the event that Force Majeure has occurred and is continuing for a period of at least three (3) months, the other Party shall have the right to terminate this Agreement upon thirty (30) days notice. |
| 12.7 | Waiver. The failure of a Party to enforce any breach or provision of this Agreement shall not constitute a continuing waiver of such breach or provision and such Party may at any time thereafter act upon or enforce such breach or provisions of this Agreement. Any waiver of breach executed by either Party shall affect only the specific breach and shall not operate as a waiver of any subsequent or preceding breach. |
| 11 |
EXPLANATORY NOTE: [***] INDICATES THE PORTION OF THIS EXHIBIT
THAT HAS BEEN OMITTED BECAUSE IT IS BOTH (I) NOT MATERIAL AND
(II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED
| 12.8 | No Assignment. The Parties may not delegate, subcontract, sublicense or otherwise transfer to a third party its rights or obligations under this Agreement, except to any Affiliate of the Party, without the consent of the other Party. Notwithstanding the foregoing, either party may assign this Agreement to an acquirer that acquires more than fifty percent (50%) interest in the Party. Subject to the foregoing, this Agreement shall inure to the benefit of and be binding upon the Parties and their respective permitted successors and assigns. |
| 12.9 | Severability. If a court of competent jurisdiction declares any clause or provision of this Agreement invalid or unenforceable, such provision shall be severed and the remaining provisions of the Agreement shall continue in full force and effect. The Parties shall use their best efforts to agree upon a valid and enforceable provision as a substitute for the severed provision, taking into account the intent of this Agreement. |
| 12.10 | Notices. Except as otherwise specifically provided, any notice or other documents to be given under this Agreement shall be in writing and shall be deemed to have been duly given if sent by registered mail, nationally recognized overnight delivery service or facsimile transmission to a party or delivered in person to a party at the address or facsimile number set out below for such party or such other address as the party may from time to time designate by written notice to the other: |
If to Elite, to:
Elite Pharmaceuticals, Inc.
Attn: CFO
165 Ludlow Avenue
Northvale, New Jersey 07647
If to Mikah to:
Mikah Pharma LLC
Attn: CEO
20 Kilmer Drive
Hillsborough, NJ 08844
Any such notice provided pursuant to this Section 10.11 shall be deemed to have been received by the addressee ten business days following the date of dispatch of the notice or other document by registered mail or, where the notice or other document is sent by overnight delivery service, by hand or is given by facsimile, simultaneously with the transmission or delivery. Notwithstanding the foregoing, any notice or other document sent by overnight delivery service, by hand or by facsimile and received by the recipient after 5:30 p.m. local time (of the recipient) shall be deemed to be delivered the next Business Day. To prove the giving of a notice or other document it shall be sufficient to show that it was dispatched. Either party may change its address at which notice is to be received by written notice provided pursuant to this Section 10.11.
| 12 |
EXPLANATORY NOTE: [***] INDICATES THE PORTION OF THIS EXHIBIT
THAT HAS BEEN OMITTED BECAUSE IT IS BOTH (I) NOT MATERIAL AND
(II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED
| 12.11 | Governing Law; Dispute Resolution; Venue. Agreement shall be construed, and the rights of the Parties determined, in accordance with the laws of the State of New Jersey without regard to conflict of law or choice of law rules. Any controversy or claim pursuant to this Agreement or the breach thereof shall be settled in accordance with Article 9 of this Agreement. Judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof, including any non-U.S. Court and both Parties agree that such non-U.S. Court shall apply judicial comity to any such judgment and enforcement thereof. For purposes of dispute resolution, including litigation, each Party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in Essex County, State of New Jersey, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action, or proceeding is improper or inconvenient venue for such proceeding. Each Party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such Party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. |
| 12.12 | Independent Parties. The relationship of the Parties under this Agreement is that of independent contractors. Neither Party shall be deemed to be the agent of the other, nor shall the Parties be deemed to be partners or joint venturers, and neither is authorized to take any action binding upon the other. Elite expressly acknowledges for itself, its employees, agents, and subcontractors, that none of them are employees of Mikah and that none of them are entitled to participate in any benefit plans of Mikah. Elite further acknowledges that none of its employees, agents or subcontractors are eligible to participate in any benefit plans of Mikah, even if it is later determined that the status of any of them was that of an employee during the period of this engagement of Elite by Mikah. |
| 12.13 | Headings. The headings contained in this Agreement are included herein for reference and convenience and shall not affect the meaning of the provisions of this Agreement. |
| 12.14 | Publicity. Neither Party shall make any public announcement concerning, or otherwise publicly disclose, any information with respect to the transactions contemplated by this Agreement or any of the terms and conditions hereof without the prior written consent of the other Party hereto. Notwithstanding the foregoing, either Party may make any public disclosure concerning the transactions contemplated hereby that in the opinion of such Party’s counsel may be required by law, government agencies, the U.S. Securities and Exchange Commission, or the rules of any stock exchange on which such Party’s or its Affiliates’ securities trade; provided, however, the Party making such disclosure shall provide the non-disclosing Party with a copy of the intended disclosure reasonably, and to the extent practicable, prior to public dissemination, and the Parties hereto shall coordinate with one another regarding the timing, form and content of such disclosure. |
| 13 |
EXPLANATORY NOTE: [***] INDICATES THE PORTION OF THIS EXHIBIT
THAT HAS BEEN OMITTED BECAUSE IT IS BOTH (I) NOT MATERIAL AND
(II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED
| 12.15 | No Third-Party Beneficiaries. Except as specifically stated to the contrary herein, no person or entity not a Party to this Agreement, including any employee of any Party to this Agreement, shall have or acquire any rights by reason of this Agreement, nor shall either Party have any obligations or liabilities to such other person or entity by reason of this Agreement. |
| 12.16 | Remedies Cumulative. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a Party shall be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such Party, and the exercise by a Party of any one remedy shall not preclude the exercise of any other remedy. |
| 12.17 | Further Assurances. Each Party shall execute and deliver such additional instruments and other documents and use commercially reasonable efforts to take or cause to be taken, all actions and to do, or cause to be done, all things necessary under applicable law to consummate the transactions contemplated hereby. |
| 12.18 | Counterparts; Facsimile, Electronic Signatures. This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute a single agreement. This Agreement may be executed by facsimile signatures or by a pdf (or other similar format) copy of the signature delivered by e-mail, which signatures shall have the same force and effect as original signatures. |
| 12.19 | Drafting. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. |
| 12.20 | Currency. Wherever a monetary currency is indicated throughout this Agreement, that currency shall be United States Dollars, unless otherwise clearly indicated. |
| 12.21 | Days. Wherever reference is made to days, working days or any measurement of time in days, calendar days shall be used regardless of weekends and holidays. Wherever reference is made to “Business Days” such reference shall exclude weekend days and dates which are official government holidays in New Jersey. |
(Signature Page follows)
| 14 |
EXPLANATORY NOTE: [***] INDICATES THE PORTION OF THIS EXHIBIT
THAT HAS BEEN OMITTED BECAUSE IT IS BOTH (I) NOT MATERIAL AND
(II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written.
| Mikah Pharma LLC | Elite Pharmaceuticals, Inc. | ||
| By: | /s/ Nasrat Hakim | By: | /s/ Marc Bregman |
| Name: | Nasrat Hakim | Name: | Marc Bregman |
| Title: | CEO | Title: | CFO |
| Date: | Date: | ||
| 15 |
Exhibit A
PRODUCTS
The following table lists Products as defined in Section 1.16.
| Products | Reference Listed Drug |
| [***] | [***] |
| [***] | [***] |
EXPLANATORY NOTE: [***] INDICATES THE PORTION OF THIS EXHIBIT
THAT HAS BEEN OMITTED BECAUSE IT IS BOTH (I) NOT MATERIAL AND
(II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED
Exhibit B
PAYMENTS
| 1. | The Party responsible for marketing and sales shall pay the other Party according to the profit splits below. |
| Products | [***] Products | [***] Products |
| Elite profit share | [***] | [***] |
| Mikah profit share | [***] | [***] |
* Parties jointly own the ANDA
| 2. | The Party responsible for third party marketing and sales shall determine the Profit Split according to the table below and shall provide a report (the “Report”) providing documentation of the items outlined below. |
| Gross Invoice Sales | Invoiced Sales | |
| Net Sales |
Gross Invoice Sales less the following: cash discounts, charge backs, buying groups/wholesaler administrative fees/rebates, allowances, Medicaid and returns |
|
| Deductions |
Cost of goods sold and [***] of net sales allowance to the third-party doing marketing and sales (or alternative amount mutually agreed upon by the Parties) |
|
| Profit share to third party (if applicable) | Profit share to third party doing marketing and sales | |
| Net Profits | Net Sales less Deductions and third-party profit share | |
| Profit Split | Net Profit dollars x profit share |
Profit sharing payments shall be made quarterly. In no case shall the profit share be negative. In the event of a loss in any month, the party doing sales may carry forward the losses to future months until the loss is fully absorbed.
The calculation of Product Gross Profit and the Licensing Fee shall be performed by the Party responsible for marketing and sales and presented to the other Party as a report (“Report”) which shall include the information outlined above.
Whenever possible, the Report will be made using actual sales, charge backs, administrative fees/rebates, price adjustments, and returns as provided by third party marketer and seller; however, in some cases estimated numbers may be required because of timing of charge backs, fees, returns, etc. A true up Report will be completed and presented to each Party within 60 days after the end of each calendar year.
| 2 |
EXPLANATORY NOTE: [***] INDICATES THE PORTION OF THIS EXHIBIT
THAT HAS BEEN OMITTED BECAUSE IT IS BOTH (I) NOT MATERIAL AND
(II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED
Exhibit C
ROLES AND RESPONSIBILITIES OF PARTIES
| 1. | Mikah will be responsible, at its sole cost and expense, for: |
| a. | All development work required for the development of an approvable, generic bioequivalent formulation of the Product and; | |
| b. | All analytical method development, and; | |
| c. | All necessary support for development. | |
| d. | Primary responsibility for compiling the Data and documents to ensure writing the CMC section, writing other required sections adequate for the filing of an ANDA. |
| 2. | Elite will be responsible, at its sole cost and expense, for: |
| a. | The facility (FDA and DEA approved) including, but not limited to, equipment, quality assurance and regulatory support. | |
| b. | Collaboration with Mikah to transfer the initial formulation and methods, and to support the development process. | |
| c. | Execution of QbD. | |
| d. | The manufacturing, testing, and packaging of ANDA products required for pilot, pivotal clinical trials, and registration batches. | |
| e. | Collaboration with Mikah to transfer all methods. | |
| f. | Perform method validation for assay, dissolution, impurity, and cleaning. | |
| g. | Perform release testing and; | |
| h. | Establish and maintain stability protocols and testing for said ANDA’s. |
| 3. | Mikah shall be responsible, at its sole cost and expense, for: |
| a. | Identifying API for Products |
| 4. | Elite and Mikah shall equally share [***] for the following: |
| a. | The cost of the biostudies. | |
| b. | The out-of-pocket development costs including but not limited to excipients (including controlled release polymers) and outside lab costs, if applicable. | |
| c. | API costs for the development of Products. |
Elite and Mikah will mutually discuss and agree upon the BE study design and sponsorship.
| 3 |
Exhibit 31.1
CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER
I, Nasrat Hakim, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 of Elite Pharmaceuticals, Inc. (the “Registrant”) |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
| 5. | The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
| Date: August 16, 2021 | /s/ Nasrat Hakim |
|
Nasrat Hakim Chief Executive Officer, President and Chairman of the Board of Directors (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION BY PRINCIPAL FINANCIAL OFFICER
I, Marc Bregman, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 of Elite Pharmaceuticals, Inc. (the “Registrant”) |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have : |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
| 5. | The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
| Date: August 16, 2021 | /s/ Marc Bregman |
|
Marc Bregman Chief Financial Officer, Treasurer and Secretary (Principal Accounting and Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Elite Pharmaceuticals, Inc. (the “Registrant”) on Form 10-Q for the quarter ended June 30, 2021 filed with the Securities and Exchange Commission (the “Report”), I, Nasrat Hakim, Chief Executive Officer of the Registrant, certify, pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
The Report fully complies with the requirements of Section13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
Information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
| Date: August 16, 2021 | /s/ Nasrat Hakim |
|
Nasrat Hakim Chief Executive Officer, President and Chairman of the Board of Directors (Principal Executive Officer) |
This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
A signed original of this written statement required by Section 906 has been provided to Elite Pharmaceuticals, Inc. and will be retained by Elite Pharmaceuticals Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Elite Pharmaceuticals, Inc. (the “Registrant”) on Form 10-Q for the quarter ended June 30, 2021 filed with the Securities and Exchange Commission (the “Report”), I, Marc Bregman, Chief Financial Officer and Treasurer of the Registrant, certify, pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
The Report fully complies with the requirements of Section13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
Information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
| Date: August 16, 2021 | /s/ Marc Bregman |
|
Marc Bregman Chief Financial Officer, Treasurer and Secretary (Principal Accounting and Financial Officer) |
This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
A signed original of this written statement required by Section 906 has been provided to Elite Pharmaceuticals, Inc. and will be retained by Elite Pharmaceuticals Inc. and furnished to the Securities and Exchange Commission or its staff upon request.