UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE ANNUAL PERIOD ENDED MARCH 31, 2020
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
(State or other jurisdiction of
incorporation or organization)
165 LUDLOW AVENUE
NORTHVALE, NEW JERSEY
(Address of principal executive offices)
22-3542636
(I.R.S. Employer
Identification No.)
07647
(Zip Code)
(201) 750-2646
(Registrant’s telephone number, including area code)
Securities Registered pursuant to Section 12(g) of the Act:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.001 per share
Trading Symbol
ELTP
Name of each exchange on which registered
OTCQB
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No X
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. Yes ☐ No X
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ☐
Indicate by check mark whether the registrant has submitted electronically 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 and post such files). Yes X No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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
Non-accelerated filer
☐
X
Accelerated filer
Smaller reporting company
Emerging growth company
☐
X
☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No X
The aggregate market value of Common Stock held by non-affiliates at September 30, 2019, the last business day of the registrant’s most recently completed second fiscal quarter
was $65,061,607.
The number of shares of the registrant’s Common Stock outstanding as of June 24, 2020 was 840,404,367.
DOCUMENTS INCORPORATED BY REFERENCE
None.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K and the documents incorporated herein contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of
1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this report, statements that are
not statements of current or historical fact are forward-looking statements, and include, without limitation, estimated future results of operations, estimates of future revenues,
future expenses, future net income and future net income per share, as well as statements regarding future financing activities, the impact of the novel strain of coronavirus
referred to as COVID-19 on the health and welfare of our employees and on our business, including any response to COVID-19 such as anticipated return to historical
purchasing decisions by customers, the economic impact of COVID-19, changes in consumer spending, decisions to engage in certain medical procedures, future governmental
orders that could impact our operations and the ability of our manufacturing facilities and suppliers to fulfill their obligations to us, and any other statements that refer to our
expected, estimated or anticipated future results. Without limiting the foregoing, the words “plan”, “intend”, “may,” “will,” “expect,” “believe”, “could,” “would”,
“continue”, “pursue”, “anticipate,” “estimate,” “forecast”, “contemplate”, “envisage”, “project”, or “continue” or the negative other variations thereof, or similar
expressions or other variations or comparable terminology are intended to identify such forward-looking statements. All statements other than statements of historical fact
included in this report regarding our financial position, business strategy and plans or objectives for future operations are forward-looking statements. Without limiting the
broader description of forward-looking statements above, we specifically note, without limitation, that statements regarding the preliminary nature of the clinical program
results and the potential for further product development, that involve known and unknown risks, delays, uncertainties and other factors not under our control, the
requirement of substantial future testing, clinical trials, regulatory reviews and approvals by the Food and Drug Administration and other regulatory authorities prior and
subsequent to the commercialization of products under development and those currently related to commercial operations, our ability to fund all of our activities and our
ability to manufacture and sell any products, gain market acceptance earn a profit from sales or licenses of any drugs or our ability to discover new drugs in the future are all
forward-looking in nature.
In addition, because these statements reflect our current views concerning future events, these forward-looking statements involve risks and uncertainties including, without
limitation, the risks related to the impact of COVID-19 (such as, without limitation, the scope and duration of the pandemic and the resulting economic crisis and levels of
unemployment, governmental actions and restrictive measures implemented in response, material delays and cancellations of certain medical procedures, potential
manufacturing and supply chain disruptions and other potential impacts to the business as a result of COVID-19) and the other risks and uncertainties more fully described
under the caption “Risk Factors” in Part I, Item 1A of this document. These risks and uncertainties, many of which are outside of our control, and any other risks and
uncertainties that we are not currently able to predict or identify, individually or in the aggregate, could have a material adverse effect on our business, financial condition,
results of operations and cash flows and could cause our actual results to differ materially and adversely from those expressed in forward-looking statements contained or
incorporated by reference in this document. Additionally, the prolonged impact of COVID-19 could heighten the impact of one or more of such risk factors.
We do not undertake any obligation to update our forward-looking statements after the date of this document for any reason, even if new information becomes available or
other events occur in the future, except as may be required under applicable securities law. You are advised to consult any further disclosures we make on related subjects in
our reports filed with the Securities and Exchange Commission (the “SEC”). Also, please note that in Part 1, Item 1A, we provide a cautionary discussion of the risks,
uncertainties and possibly inaccurate assumptions relevant to our business. These are factors that, individually or in the aggregate, we think could cause our actual results to
differ materially from expected and historical results. We note these factors for investors as permitted by Section 27A of the Securities Act and Section 27E of the Exchange Act.
You are notified and should understand that it is not possible to predict or identify all such factors and consequently should not consider this to be a complete, all-inclusive
discussion of all potential risks or uncertainties.
Table of Contents
PART I
ITEM 1
BUSINESS
ITEM 1A
RISK FACTORS
ITEM 1B
UNRESOLVED STAFF COMMENTS
ITEM 2
ITEM 3
ITEM 4
PART II
ITEM 5
ITEM 6
ITEM 7
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
MARKET FOR COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8
ITEM 9
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A
CONTROLS AND PROCEDURES
ITEM 9B
OTHER INFORMATION
PART III
ITEM 10
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11
EXECUTIVE COMPENSATION
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14
PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
ITEM 15
EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES
ITEM 16
FORM 10-K SUMMARY
SIGNATURES
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ITEM 1 BUSINESS
General
PART I
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, particularly as it relates to abuse resistant products and the manufacture of generic pharmaceuticals. Our strategy includes improving off-patent drug products for
life cycle management, developing generic versions of controlled-release drug products with high barriers to entry and the development of branded and generic products that
utilize our proprietary and patented abuse resistance technologies.
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 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”) as well as generic drug products which require
ANDAs.
We believe that our business strategy enables us to reduce its risk by having a diverse product portfolio that includes both branded and 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 receive royalties from the following products currently being sold commercially:
Product
Phentermine HCl 37.5mg tablets (“Phentermine 37.5mg”)
Phendimetrazine Tartrate 35mg tablets (“Phendimetrazine 35mg”)
Phentermine HCl 15mg and 30mg capsules (“Phentermine 15mg” and “Phentermine 30mg”)
Naltrexone HCl 50mg tablets (“Naltrexone 50mg”)
Isradipine 2.5mg and 5mg capsules (“Isradipine 2.5mg” and “Isradipine 5mg”)
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”)
Trimipramine Maleate Immediate Release 25mg, 50mg and 100mg capsules (“Trimipramine
25mg”, “Trimipramine 50mg”, “Trimipramine 100mg”)
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”)
Dantrolene Sodium Capsules 25mg, 50mg and 100mg (“Dantrolene 25mg”, “Dantrolene
50mg”, Dantrolene 100mg”)
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”)
Branded
Product Equivalent
Adipex-P®
Bontril®
Adipex-P®
Revia®
n/a
Roxycodone®
Surmontil®
Therapeutic Category
Bariatric
Bariatric
Bariatric
Pain
Cardiovascular
Launch Date
April 2011
November 2012
April 2013
September 2013
January 2015
Pain
March 2016
Antidepressant
May 2017
Adderall®
Dantrium®
Central Nervous System
(“CNS”) Stimulant
Muscle Relaxant
April 2019
June 2019
Adderall XR®
Central Nervous System
(“CNS”) Stimulant
March 2020
Note: Phentermine 37.5mg is also referred to as “Phentermine Tablets”. Phentermine 15mg and Phentermine 30mg are collectively and individually referred to as
“Phentermine Capsules”. Phendimetrazine 35mg is also referred to as “Phendimetrazine Tablets”. Naltrexone 50mg is also referred to as “Naltrexone Tablets”. Isradipine
2.5mg and Isradipine 5mg are collectively and individually referred to as “Isradipine Capsules”. Oxy IR 5mg, Oxy IR 10mg, Oxy IR 15mg Oxy IR 20mg and Oxy IR 30mg are
collectively and individually referred to as “Oxy IR”. Trimipramine 25mg, Trimipramine 50mg, and Trimipramine 100mg are collectively and individually referred to as
“Trimipramine Capsules”. Amphetamine IR 5mg, Amphetamine IR 7.5mg, Amphetamine IR 10mg, Amphetamine IR 12.5mg, Amphetamine IR 15mg, Amphetamine IR 20mg and
Amphetamine IR 30mg are collectively and individually referred to as “Amphetamine IR Tablets”. Dantrolene 25mg, Dantrolene 50mg and Dantrolene 100mg are collectively
and individually referred to as “Dantrolene Capsules”. Amphetamine ER 5mg, Amphetamine ER 10mg, Amphetamine ER 15mg. Amphetamine ER 20mg, Amphetamine ER 25mg
and Amphetamine ER 30mg are collectively and individually referred to as “Amphetamine ER Capsules”.
Phentermine 37.5mg
The approved ANDA for Phentermine 37.5mg was acquired pursuant to an asset purchase agreement with Epic Pharma LLC (“Epic”) dated September 10, 2010 (the
“Phentermine Purchase Agreement”).
Sales and marketing rights for Phentermine 37.5mg are included in the licensing agreement between the Company and Precision Dose Inc. (“Precision Dose”) dated
September 10, 2010 (the “Precision Dose License Agreement”). Please see the section below titled “Precision Dose License Agreement” for further details of this agreement.
Phentermine 37.5mg is currently being manufactured by Elite and distributed by TAGI under the Precision Dose License Agreement.
Phendimetrazine Tartrate 35mg
The ANDA for Phendimetrazine was acquired by Elite in 2013.
Phendimetrazine 35mg is currently a commercial product being manufactured at the Northvale Facility and distributed by Elite.
2
Phentermine 15mg and Phentermine 30mg
Phentermine 15mg capsules and Phentermine 30mg capsules were developed by the Company, with Elite receiving approval from the United States Food and Drug
Administration (“FDA”) of the related ANDA in September 2012.
Sales and marketing rights for Phentermine 15mg and Phentermine 30mg are included in the Precision Dose License Agreement. Please see the section below titled
“Precision Dose License Agreement” for further details of this agreement.
Phentermine 15mg and Phentermine 30mg are currently being manufactured by Elite and distributed by TAGI under the Precision Dose License Agreement.
Naltrexone 50mg
The ANDA for Naltrexone 50mg was acquired by Elite in 2010.
Sales and marketing rights for Naltrexone 50mg are included in the Precision Dose License Agreement. Please see the section below titled “Precision Dose License
Agreement” for further details of this agreement. Naltrexone 50mg is currently being manufactured by Elite and distributed by TAGI under the Precision Dose License Agreement.
Isradipine 2.5mg and Isradipine 5mg
The approved ANDAs for Isradipine 2.5mg and Isradipine 5mg were acquired by Elite in 2013
Isradipine 2.5mg and Isradipine 5mg are currently a commercial product being manufactured by Elite at the Northvale Facility and distributed by Glenmark, on an exclusive
basis.
Oxycodone 5mg, Oxycodone 10mg, Oxycodone 15mg, Oxycodone 20mg and Oxycodone 30mg (“Oxy IR”)
We received notification from Epic in October 2015 of the approval by the FDA of the ANDA for Oxy IR which is owned by Epic. This product was an Identified IR
Product in the Epic Strategic Alliance Agreement Dated March 18, 2009 (the “ Epic Strategic Alliance”). Oxy IR was developed at the Northvale Facility pursuant to the Epic
Strategic Alliance, in which we are entitled to a Product Fee of 15% of Profits through March 2026, as defined in the Epic Strategic Alliance. The first commercial sale of Oxy IR
occurred in March 2016, and sales by Epic of this product are ongoing.
Trimipramine 25mg, Trimipramine 50mg and Trimipramine 100mg
The approved ANDA for Trimipramine was acquired by Elite in 2017.
Trimipramine 25mg, Trimipramine 50mg and Trimipramine 100mg are currently a commercial product being manufactured by Elite at the Northvale Facility and distributed
by Glenmark, on an exclusive basis.
Amphetamine IR Tablets
On December 10, 2018, the Company received approval from the FDA for Amphetamine IR Tablets, a generic version of Adderall®, an immediate-release mixed salt of a
single entity Amphetamine product (Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate) with strengths of 5 mg, 7.5 mg, 10
mg, 12.5 mg, 15 mg, 20 mg, and 30 mg tablets. The product is a central nervous system stimulant and is indicated for the treatment of Attention Deficit Hyperactivity Disorder
(ADHD) and Narcolepsy.
Amphetamine IR Tablets are currently a commercial product being manufactured by Elite and distributed by Lannett Company Inc. (“Lannett”), on an exclusive basis.
Dantrolene Capsules
The approved ANDAs for Dantrolene 25mg, Dantrolene 50mg and Dantrolene 100mg were acquired by Elite in 2013. Dantrolene Capsules are currently a commercial
product being manufactured by Elite at the Northvale Facility and distributed by Lannett, on an exclusive basis.
Amphetamine ER Capsules
On December 12, 2019, the Company received approval from the FDA for Amphetamine ER Capsules, a generic version of Adderall XR®, an extended-release mixed salt of
a single entity Amphetamine product (Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate) with strengths of 5mg, 10mg,
15mg, 20mg, 25mg, and 30 mg tablets. The product is a central nervous system stimulant and is indicated for the treatment of ADHD and Narcolepsy.
Amphetamine ER Capsules are currently a commercial product being manufactured by Elite and distributed by Lannett, on an exclusive basis.
3
Filed products under FDA review
SequestOx™ - Immediate Release Oxycodone with sequestered Naltrexone
SequestOx™ is our abuse-deterrent candidate for the management of moderate to severe pain where the use of an opioid analgesic is appropriate. SequestOx™ is an
immediate-release Oxycodone Hydrochloride containing sequestered Naltrexone which incorporates 5mg, 10mg, 15mg, 20mg and 30mg doses of oxycodone into capsules.
In January 2016, the Company submitted a 505(b)(2) New Drug Application for SequestOx™, after receiving a waiver of the $2.3 million filing fee from the FDA. In March
2016, the Company received notification of the FDA’s acceptance of this filing and that such filing has been granted priority review by the FDA with a target action under the
Prescription Drug User Fee Act (“PDUFA”) of July 14, 2016.
On July 15, 2016, the FDA issued a Complete Response Letter, or CRL, regarding the NDA. The CRL stated that the review cycle for the SequestOx™ NDA is complete
and the application is not ready for approval in its present form.
On July 7, 2017, the Company reported topline results from a pivotal bioequivalence fed study for or SequestOx™. The mean Tmax (the amount of time that a drug is
present at the maximum concentration in serum) of SequestOxTM was 4.6 hr. with a range of 0.5 hr. to 12 hr. and the mean Tmax of the comparator, Roxicodone®, was 3.4 hr. with a
range of 0.5 hr. to 12 hr. A key objective for the study was to determine if the reformulated SequestOxTM had a similar Tmax to the comparator when taken with a high fat meal.
Based on these results, the Company paused clinical trials for this formulation of SequestOx™. On January 30, 2018, the Company reported positive topline results from a pilot
study conducted for a modified SequestOx™ wherein, based on the results of this pilot study, the modified SequestOx™ formulation is expected to achieve bioequivalence with a
Tmax range equivalent to the reference product when conducted in a pivotal trial under fed conditions. The Company has provided the pilot data to the FDA, requesting
clarification as to the requirements for resubmission of the NDA. The FDA has provided guidance for repeated bio-equivalence studies in order to bridge the new formulation to
the original SequestOx studies and also extended our filing fee waiver until July 2020. Due to the prohibitive cost of such repeated bio-equivalence studies, the Company has
paused development of this product.
There can be no assurances of the Company conducting future clinical trials, or if such trials are conducted, there can be no assurances of the success of any future
clinical trials, or if such trials are successful, there can be no assurances that an intended future resubmission of the NDA product filing, if made, will be accepted by or receive
marketing approval from the FDA. In addition, even if marketing authorization is received, there can be no assurances that there will be future revenues or profits, or that any such
future revenues or profits would be in amounts that provide adequate return on the significant investments made to secure this marketing authorization.
Oxycodone Hydrochloride extended release (generic version of Oxycontin®)
On September 20, 2017, the Company filed an ANDA with the FDA for generic version of Oxycontin® (extended release Oxycodone Hydrochloride). OxyContin® is
approved for the management of pain severe enough to require daily, around-the-clock, long-term opioid treatment and for which alternative treatment options are inadequate. IMS
reported approximately $2.3 billion in revenue for OxyContin® and its equivalents in 2016. The FDA requested additional information relating to this filing, compliance with which
would require significant resources. Development of this product is currently paused, with the Company evaluating the feasibility of the continued development of this product.
Generic version of an antibiotic product
On January 3, 2019, the Company filed an ANDA with the FDA for a generic version of an antibiotic product. According to QVIA (formerly QuintilesIMS Health) data, the
branded product for this antibiotic and its equivalents had total annual U.S. sales of approximately $85 million for the twelve months ending September 30, 2019. The product is
jointly owned by Elite and SunGen Pharma LLC. Upon approval by the FDA of this ANDA, Elite will manufacture and package the product on a cost-plus basis. The ANDA is
currently under review by the FDA.
There can be no assurances that any of these products will receive marketing authorization and achieve commercialization within this time period, or at all. In addition,
even if marketing authorization is received, there can be no assurances that there will be future revenues or profits, or that any such future revenues or profits would be in amounts
that provide adequate return on the significant investments made to secure these marketing authorizations.
4
Approved Products Not Yet Commercialized
Loxapine 5mg, 10mg, 25mg and 50mg capsules (“Loxapine Capsules”)
The FDA approved a transfer for manufacturing of Loxapine Capsules at the Northvale Facility. The Company will provide an update upon launch of the product. The
approved ANDAs for Loxapine Capsules were acquired as part of the 2013 ANDA acquisition between the Company and Mikah Pharma. Please see the section below titled “Asset
Acquisition Agreements” for further details on the 2013 ANDA acquisition agreement. There can be no assurances that there will be future revenues or profits, or that any such
future revenues or profits would be in amounts that provide adequate return on the significant investments made to secure these marketing authorizations.
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) 300mg/7.5mg,
300mg/15mg, 300mg/30mg and 300mg/60mg tablets. 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. Acetaminophen with codeine products have annual U.S. sales of approximately $45
million according to IQVIA (formerly QuintilesIMS Health Data). The Company is not pursuing licensing deals for any opioids at this time until the market changes. The Company
will wait for the market to stabilize before pursuing these opportunities.
There can be no assurances in relation to any of the above approved products not yet commercialized, that there will be future revenues of profits, or that any such future
revenues or profits would be in amounts that provide adequate return on the significant investments made to secure these marketing authorizations.
Discontinued and Transferred Products
As part of standard operating practices, the Company, from time to time, as relevant, conducts evaluations of all ANDAs owned, consisting, without limitation, of ANDAs
acquired or approved prior to the fiscal year ended March 31, 2020 (“Fiscal 2020”) and ANDAs acquired or approved during the Fiscal 2020. Such evaluations include, without
limitation, costs and benefits relating to each ANDA owned, with such costs including those fees required under the FDA’s Generic Drug User Fee Amendment (“GDUFA”) which
is significantly influenced by the number of ANDAs owned, and other costs and benefits taking into consideration various specific market factors for each ANDA. Those ANDAs
with a cost/benefit profile not consistent with management criteria for continuation are identified for disposition and effort is made to determine the optimal course of action to
achieve disposition of the ANDA.
During Fiscal 2020, approved ANDAs for the following products were identified for disposition and transferred to third parties in exchange for cash consideration
received:
- Methadone 5mg and 10mg tablets (“Methadone Tablets”)
-
-
-
-
Phendimetrazine 35mg tablets (the “Second Phendimetrazine Product”)
Hydromorphone 8mg tablets (“Hydromorphone Tablets”)
Oxycodone and Acetaminophen 5mg/325mg, 7.5mg/325mg, 10mg/325mg tablets (“Oxycodone and Acetaminophen Tablets”)
Hydrocodone and Acetaminophen 2.5mg/325mg, 5mg/325mg, 7.5mg/325mg, 10mg/325mg tablets (“Hydrocodone and Acetaminophen Tablets”)
Methadone 5mg and 10mg tablets
The Approved ANDA for Methadone 5mg and 10mg tablets was sold to Nostrum Laboratories Inc. (“Nostrum”) for cash consideration totaling $300,000 in February 2020.
This ANDA was developed by Elite prior to Fiscal 2020, with the costs of such development being charged against income in the periods incurred. The sale of this ANDA resulted
in the recognition of other income during Fiscal 2020 in an amount equal to the cash consideration received.
Phendimetrazine 35mg tablets
The Approved ANDA for Phendimetrazine 35mg tablets was sold to Nostrum for cash consideration totaling $300,000 in February 2020. This ANDA was developed by
Elite prior to Fiscal 2020, with the costs of such development being charged against income in the periods incurred. The sale of this ANDA resulted in the recognition of other
income during Fiscal 2020 in an amount equal to the cash consideration received.
5
Please note that, at the time of this transaction, the Company had two approved ANDAs for phendimetrazine 35mg tablets. After selling one of these ANDAs, the
Company retained one approved ANDA for this product, with this ANDA being included in current commercial operations. Please see the section above titled “Commercial
Products” for more details on the ANDA retained.
Hydromorphone 8mg tablets
The Approved ANDA for Hydromorphone 8mg tablets was sold to Nostrum for cash consideration totaling $300,000 in December 2019. This ANDA had a book value of
zero at the time of its sale to Nostrum. The sale of this ANDA resulted in the recognition of other income during Fiscal 2020 in an amount equal to the cash consideration received.
Oxycodone and Acetaminophen 5mg/325mg, 7.5mg/325mg, 10mg/325mg tablets
The Approved ANDA for Oxycodone and Acetaminophen 5mg/325mg, 7.5mg/325mg and 10mg/325mg tablets was sold to Nostrum for cash consideration totaling
$300,000 in November 2019. This ANDA was developed by Elite prior to Fiscal 2020, with the costs of such development being charged against income in the periods incurred. The
sale of this ANDA resulted in the recognition of other income during Fiscal 2020 in an amount equal to the cash consideration received.
Hydrocodone and Acetaminophen 2.5mg/325mg, 5mg/325mg, 7.5mg/325mg, 10mg/325mg tablets
The Approved ANDA for Hydrocodone and Acetaminophen 2.5mg/325mg, 5mg/325mg, 7.5mg/325mg and 10mg/325mg tablets was sold to Nostrum for cash consideration
totaling $300,000 in November 2019. This ANDA was developed by Elite prior to Fiscal 2020, with the costs of such development being charged against income in the periods
incurred. The sale of this ANDA resulted in the recognition of other income during Fiscal 2020 in an amount equal to the cash consideration received.
Licensing, Manufacturing and Development Agreements
Sales and Distribution Licensing Agreement with Epic Pharma LLC for SequestOx™
On June 4, 2015, we executed an exclusive License Agreement (the “2015 SequestOx™ License Agreement”) with Epic, to market and sell in the U.S., SequestOx™, an
immediate release oxycodone with sequestered naltrexone capsule, owned by us. Epic will have the exclusive right to market ELI-200 and its various dosage forms as listed in
Schedule A of the Agreement. Epic is responsible for all regulatory and pharmacovigilance matters related to the products. Pursuant to the 2015 SequestOx™ License Agreement,
Epic will pay us non-refundable milestone payments totaling $15 million, with such amount representing the cost of an exclusive license to SequestOx™, the cost of developing the
product, the filing of an NDA with the FDA and the receipt of the approval letter for the NDA from the FDA. The 2015 SequestOx™ License Agreement expired on June 4, 2020.
During the term of this agreement, the Company received $7.5 million in non-refundable payments, with such amount consisting of $5 million due and owing on the execution date
of the 2015 SequestOx™ License Agreement and $2.5 million being earned upon the Company’s filing of an NDA with the FDA for the relevant product in January 2016. The
remaining $7.5 million in non-refundable payments required FDA approval of the relevant product, a milestone that was not achieved prior to the expiration of the agreement.
Precision Dose License Agreement
On September 10, 2010, we executed a License Agreement with Precision Dose (the “Precision Dose License Agreement”) to market and distribute Phentermine 37.5mg,
Phentermine 15mg, Phentermine 30mg, Hydromorphone 8mg, Naltrexone 50mg, and certain additional products that require approval from the FDA, through its wholly-owned
subsidiary, TAGI, in the United States, Puerto Rico and Canada. Phentermine 37.5mg was launched in April 2011. Hydromorphone 8mg was launched in March 2012. Phentermine
15mg and Phentermine 30mg were launched in April 2013. Naltrexone 50mg was launched in September 2013. Precision Dose will have the exclusive right to market these products
in the United States and Puerto Rico and a non-exclusive right to market the products in Canada.
Pursuant to the Precision Dose License Agreement, Elite will receive a license fee and milestone payments. The license fee will be computed as a percentage of the gross
profit, as defined in the Precision Dose License Agreement, earned by Precision Dose as a result of sales of the products. The license fee is payable monthly for the term of the
Precision Dose License Agreement. The milestone payments will be paid in six instalments. The first instalment was paid upon execution of the Precision Dose License Agreement.
The remaining instalments are to be paid upon FDA approval and initial shipment of the products to Precision Dose. The term of the Precision Dose License Agreement is 15 years
and may be extended for 3 successive terms, each of 5 years.
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Master Development and License Agreement with SunGen Pharma LLC
On August 24, 2016, as amended we entered into an agreement with SunGen Pharma LLC (“SunGen”) (the “SunGen Agreement”) to undertake and engage in the research,
development, sales and marketing of eight generic pharmaceutical products. Two of the products are classified as CNS stimulants (the “CNS Products”), two of the products are
classified as beta blockers and the remaining four products consist of antidepressants, antibiotics and antispasmodics. The Company has received approval from the FDA for
Amphetamine IR Tablets, Amphetamine ER Capsules and has filed an ANDA for an antibiotic product.
Under the terms of the SunGen Agreement, Elite and SunGen will share in the responsibilities and costs in the development of these products and will share substantially
in the profits from sales. Upon approval, the know-how and intellectual property rights to the products will be owned jointly by Elite and SunGen. Three of the eight products will
be jointly owned, three products will be owned by SunGen, with Elite having exclusive marketing rights and the remaining two products will be owned by Elite, with SunGen having
exclusive marketing rights. Elite will manufacture and package all eight products on a cost-plus basis.
On December 10, 2018, the Company received approval from the FDA for Amphetamine IR Tablets, a generic version of Adderall®, an immediate-release mixed salt of a
single entity Amphetamine product (Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate) with strengths of 5 mg, 7.5 mg, 10
mg, 12.5 mg, 15 mg, 20 mg, and 30 mg tablets. The product is a central nervous system stimulant and is indicated for the treatment of Attention Deficit Hyperactivity Disorder
(ADHD) and Narcolepsy. The product is jointly owned by Elite and SunGen. Elite manufactures and packages this product, at the Northvale Facility, on a cost-plus basis, and it is
currently sold pursuant to the Lannett Alliance, with the first commercial shipment of this product occurring in April 2019. Please see the section below titled “Strategic Marketing
Alliance with Lannett Company Inc.” for further details on the Lannett Alliance
On January 3, 2019, the Company filed an ANDA with the FDA for a generic version of an antibiotic product. According to QVIA (formerly QuintilesIMS Health) data, the
branded product for this antibiotic and its equivalents had total annual U.S. sales of approximately $94 million for the twelve months ending September 30, 2018. The product is
jointly owned by Elite and SunGen. Upon approval by the FDA of this ANDA, Elite will manufacture and package the product on a cost-plus basis. The ANDA is currently under
review by the FDA.
On December 12, 2019, the Company received approval from the FDA for Amphetamine ER Capsules, a generic version of Adderall XR®, an extended-release mixed salt of
a single entity Amphetamine product (Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate) with strengths of 5mg, 10mg,
15mg, 20mg, 25mg and 30mg capsules. The product is a central nervous system stimulant and is indicated for the treatment of Attention Deficit Hyperactivity Disorder
(ADHD). The product is jointly owned by Elite and SunGen. Elite manufactures and packages this product, at the Northvale Facility, on a cost plus basis and it is currently sold
pursuant to the Lannett Alliance, with the first commercial shipment of this product occurring in March 2020. Please see the section below titled “Strategic Marketing Alliance with
Lannett Company Inc.” for further details on the Lannett Alliance.
On April 3, 2020, Elite and SunGen mutually agreed to discontinue any further joint product development activities under the SunGen Agreement.
In May 2020, SunGen, under 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.
There can be no assurances that any of these products will receive marketing authorization and achieve commercialization within this time period, or at all. In addition,
even if marketing authorization is received, and even for those products for which marketing authorization has already been received, there can be no assurances that there will be
future revenues or profits, or that any such future revenues or profits would be in amounts that provide adequate return on the significant investments made to secure these
marketing authorizations or provide sufficient financial contributions to support costs of operations and overheads.
Strategic Marketing Alliance with Glenmark Pharmaceuticals, Inc. USA
On May 22, 2018, and as amended on August 1, 2018, we entered into a license, manufacturing and supply agreement with Glenmark Pharmaceuticals Inc. USA
(“Glenmark”) to market the two Elite generic products described below in the United States with the option to add products in the future (the “Glenmark Alliance”).
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Pursuant to the Glenmark Alliance, Glenmark will purchase the products from Elite and then sell and distribute them. In addition to the purchase prices for the products,
Elite will receive license fees well in excess of 50% of gross profits. Gross profits are defined as net sales less the price paid to Elite for the products, distribution fees (less than
10%) and shipping costs. Glenmark will have semi-exclusive marketing rights to the ANDA approved generic product, phendimetrazine 35mg tablets, and exclusive marketing
rights to the following ANDA approved generic products: Methadone 10mg, Methadone 5mg, Trimipramine 25mg, Trimipramine 50mg, Trimipramine 100mg, and, effective October
2, 2018, upon expiration of the Epic Manufacturing and License Agreement, exclusive marketing rights to the following ANDA approved generic products: Isradipine 2.5mg and
Isradipine 5mg. The Glenmark Alliance has an initial term of three years and automatically renews for one year periods absent prior written notice of non-renewal. In addition to
customary termination provisions, the Agreement permits Glenmark to terminate with regard to a product on at least three months’ prior written notice if it determines to stop
marketing and selling such product, and it permits Elite to terminate with regard to a product if at any time after the first twelvemonths from the first commercial sale, the average
license fee paid by Glenmark for such product is less than $100,000 for a six month sales period.
The first commercial shipment of Methadone Tablets pursuant to the Glenmark Alliance occurred in November 2018. The first commercial shipment of Isradipine Capsules
pursuant to the Glenmark Alliance occurred in March 2019. The first commercial shipment of Trimipramine Capsules occurred in April 2019. The Methadone license was terminated
in October 2019 and the Phendimetrazine license was terminated in February 2020. Both products have subsequently been divested (see “Discontinued and Transferred Products”
above).
There can be no assurances that there will be future revenues of profits, earned pursuant to the Glenmark Alliance, or that any such future revenues or profits would be in
amounts that provide adequate return on the significant investments made to secure the marketing authorizations for products included in the Glenmark Alliance or provide
sufficient financial contributions to support costs of operations and overheads.
Strategic Marketing Alliances with Lannett Company Inc
The Company has entered into two separate license, supply and distribution agreements with Lannett Company Inc. (“Lannett”). The first agreement, dated March 6,
2019, relates to products that were co-developed with SunGen (the “Lannett-SunGen Product Alliance”). The second agreement, dated April 9, 2019, relates to products that were
solely developed by Elite (the “Lannett-Elite Product Alliance”). Both agreements are collectively and individually referred to as the “Lannett Alliance”)
Pursuant to Lannett-SunGen Product Alliance with Lannett, Lannett will be the exclusive U.S. distributor for Amphetamine IR Tablets and Amphetamine ER Capsules.
Elite manufactures these products, which are purchased, marketed and distributed by Lannett under the Lannett label. In addition to the purchase prices for the products, Elite will
receive license fees well in excess of 50% of net profits, which will be shared equally with SunGen, pursuant to the SunGen Agreement. Net profits are defined as net sales less the
price paid to Elite for the products, distribution fees (less than 10%) and shipping costs. The Lannett-SunGen Product Alliance has an initial term of three years and automatically
renews for one year periods absent prior written notice of non-renewal. In addition to customary termination provisions, the Agreement permits Lannett to terminate with regard to
a product on at least three months’ prior written notice if it determines to stop marketing and selling such product, and it permits Elite to terminate with regard to a product if at any
time after the first twelve months from the first commercial sale, the average license fee paid by Lannett for such product is less than $100,000 for a six month sales period. In
addition to manufacturing fees and license fees, Lannett also paid a $750,000 milestone, upon the March 2020 commercial launch of Amphetamine ER Capsules. This milestone
payment was earned during March 2020 and was shared equally by Elite and SunGen, pursuant to the SunGen Agreement.
The first commercial shipment of Amphetamine IR Tablets, a generic version of Adderall®, with strengths of 5mg, 7.5mg, 10mg, 12.5mg, 15mg, 20mg and 30mg, pursuant to
the Lannett-SunGen Product Alliance occurred in April 2019.
The first commercial shipment of Amphetamine ER Capsules, a generic version of Adderall XR®, with strengths of 5mg, 10mg, 15mg, 20mg, 25mg and 30mg, pursuant to
the Lannett-SunGen Product Alliance occurred in March 2020.
Pursuant to the Lannett-Elite Product Alliance, Lannett will be the exclusive U.S. distributor for Dantrolene Capsules. The first commercial shipment of Dantrolene
Capsules, with strengths of 25mg, 50mg and 100mg occurred in June 2019.
Pursuant to the Lannett-Elite Product Alliance, Elite manufactures for Lannett’s purchase, marketing, and distribution of Dantrolene Capsules under the Lannett label. In
addition to the purchase prices for the products, Elite will receive license fees well in excess of 50% of gross profits. Gross profits are defined as net sales less the price paid to Elite
for the products, distribution fees (less than 10%) and shipping costs. Lannett will have exclusive marketing rights to Dantrolene Capsules. The Lannett-Elite Product Alliance has
an initial term of three years and automatically renews for one year periods absent prior written notice of non-renewal. In addition to customary termination provisions, the
Agreement permits Lannett to terminate with regard to a product on at least three months’ prior written notice if it determines to stop marketing and selling such product, and it
permits Elite to terminate with regard to a product if at any time after the first twelve months from the first commercial sale, the average license fee paid by Lannett for such product
is less than $100,000 for a six month sales period. In addition to manufacturing fees and license fees.
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Products Under Development
Elite’s research and development activities include developing its proprietary abuse deterrent technology and the development of a range of abuse deterrent opioid
products that utilize this technology or other approaches to abuse deterrence.
Elite’s proprietary abuse-deterrent technology utilizes the pharmacological approach to abuse deterrence and consists of a multi-particulate capsule which contains an
opioid agonist in addition to naltrexone, an opioid antagonist used primarily in the management of alcohol dependence and opioid dependence. When this product is taken as
intended, the naltrexone is designed to pass through the body unreleased while the opioid agonist releases over time providing therapeutic pain relief for which it is prescribed. If
the multi-particulate beads are crushed or dissolved, the opioid antagonist, naltrexone, is designed to release. The absorption of the naltrexone is intended to block the euphoria by
preferentially binding to same receptors in the brain as the opioid agonist and thereby reducing the incentive for abuse or misuse by recreational drug abusers.
We filed an NDA for the first product to utilize our abuse deterrent technology, Immediate Release Oxycodone 5mg, 10mg, 15mg, 20mg and 30mg with sequestered
Naltrexone (collectively and individually referred to as “SequestOx™”), on January 14, 2016. Please see “Filed products under FDA review; SequestOx™ - Immediate Release
Oxycodone with sequestered Naltrexone” above and please note that continued development of this product is currently paused.
On September 20, 2017, the Company filed an ANDA with the FDA for generic version of OxyContin® (extended release Oxycodone Hydrochloride). Please see “Filed
products under FDA review; Oxycodone Hydrochloride extended release (generic version of OxyContin®” above. Please note that there can be no assurances of this product
receiving marketing authorization or achieving commercialization. In addition, even if marketing authorization is received and the product is commercialized, there can be no
assurances of future revenues or profits in such amounts that would provide adequate return on the significant investments made to secure marketing authorization for this
product.
The Company is currently not selling opioids nor are we pursuing licensing deals for opioids until the market conditions improve. Further, we have divested some opioid
products. The Company will wait for the market to stabilize before pursuing these opportunities.
On January 3, 2019, the Company filed an Abbreviated New Drug Application with the US Food and Drug Administration for a generic version of an antibiotic
product. Please see “Filed products under FDA review” above. Please note that there can be no assurances of this product receiving marketing authorization or achieving
commercialization. In addition, even if marketing authorization is received and the product is commercialized, there can be no assurances of future revenues or profits in such
amounts that would provide adequate return on the significant investments made to secure marketing authorization for this product. Please also see the section below titled
“Master Development and License Agreement with SunGen Pharma LLC”.
Please note that, while the FDA is required to review applications within certain timeframes, during the review process, the FDA frequently requests that additional
information be submitted. The effect of such request and subsequent submission can significantly extend the time for the NDA review process. Until an NDA is actually approved,
there can be no assurances that the information requested and submitted will be considered adequate by the FDA to justify approval. The packaging and labeling of our developed
products are also subject to FDA regulation. Based on the foregoing, it is impossible to anticipate the amount of time that will be needed to obtain FDA approval to market any
product. In addition, there can be no assurances of the Company filing the required application(s) with the FDA or of the FDA approving such application(s) if filed, and the
Company’s ability to successfully develop and commercialize products incorporating its abuse deterrent technology is subject to a high level of risk as detailed in “Item 1A-Risk
Factors-Risks Related to our Business” of this Annual Report on Form 10-K.
Abuse-Deterrent and Sustained Release Opioids
The abuse-deterrent opioid products utilize our patented abuse-deterrent technology that is based on a pharmacological approach. These products are combinations of a
narcotic agonist formulation intended for use in patients with pain, and an antagonist, formulated to deter abuse of the drug. Both, agonist, and antagonist, have been on the
market for a number of years and sold separately in various dose strengths. We have filed INDs for two abuse resistant products under development and have tested products in
various pharmacokinetic and efficacy studies.
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The Company is currently not selling opioids nor are we pursuing licensing deals for opioids until the market conditions improve. Further, we have divested some opioid
products. The Company will wait for the market to stabilize before pursuing these opportunities.
Patents
Since our incorporation, we have secured the following patents, of which two have been assigned for a fee to another pharmaceutical company. Our patents are:
PATENT
U.S. patent 6,620,439
U.S. patent 6,926,909
U.S. patent 8,182,836
U.S. patent 8,425,933
U.S. patent 8,703,186
Canadian patent 2,521,655
Canadian patent 2,541,371
U.S. patent 9,056,054
E.P. patent 1615623
U.S. patent 10213388
EXPIRATION DATE
October 2020
October 2020
March 2024
March 2025
March 2025
April 2023
April 2024
June 2030
April 2024
June 2030
We intend to apply for patents for other products in the future; however, there can be no assurance that any of the pending applications or other applications which we
may file will be granted. We have also filed corresponding foreign applications for key patents.
Prior to the enactment in the United States of new laws adopting certain changes mandated by the General Agreement on Tariffs and Trade (“GATT”), the exclusive rights
afforded by a U.S. Patent were for a period of 17 years measured from the date of grant. Under GATT, the term of any U.S. Patent granted on an application filed subsequent to
June 8, 1995 terminates 20 years from the date on which the patent application was filed in the United States or the first priority date, whichever occurs first. Future patents granted
on an application filed before June 8, 1995, will have a term that terminates 20 years from such date, or 17 years from the date of grant, whichever date is later.
Under the Drug Price Competition Act, a U.S. product patent or use patent may be extended for up to five years under certain circumstances to compensate the patent
holder for the time required for FDA regulatory review of the product. Such benefits under the Drug Price Competition Act are available only to the first approved use of the active
ingredient in the drug product and may be applied only to one patent per drug product. There can be no assurance that we will be able to take advantage of this law.
Also, different countries have different procedures for obtaining patents, and patents issued by different countries provide different degrees of protection against the use
of a patented invention by others. There can be no assurance, therefore, that the issuance to us in one country of a patent covering an invention will be followed by the issuance
in other countries of patents covering the same invention, or that any judicial interpretation of the validity, enforceability, or scope of the claims in a patent issued in one country
will be similar to the judicial interpretation given to a corresponding patent issued in another country. Furthermore, even if our patents are determined to be valid, enforceable, and
broad in scope, there can be no assurance that competitors will not be able to design around such patents and compete with us using the resulting alternative technology.
Trademarks
SequestOx™ is a trademark owned by Elite, for which United States trademark registration is being sought.
We currently plan to license at least some of our products to other entities in the marketing of pharmaceuticals but may also sell products under our own brand name in
which case we may register trademarks for those products.
Terminated Agreements
Terminated Agreement - 2015 SequestOx™ License Agreement
On June 4, 2020, the 2015 SequestOx™ License Agreement terminated in accordance with the terms of the agreement.
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Other Business Factors and Details
COVID-19
Please see the risk factor titled “Widespread health problems, including the recent global COVID-19 pandemic, natural disasters or other unexpected events could
materially and adversely affect our business.”
Government Regulation and Approval
The design, development, and marketing of pharmaceutical compounds, on which our success depends, are intensely regulated by governmental regulatory agencies, in
particular the FDA. Non-compliance with applicable requirements can result in fines and other judicially imposed sanctions, including product seizures, injunction actions and
criminal prosecution based on products or manufacturing practices that violate statutory requirements. In addition, administrative remedies can involve voluntary withdrawal of
products, as well as the refusal of the FDA to approve ANDAs and NDAs. The FDA also has the authority to withdraw approval of drugs in accordance with statutory due
process procedures.
Before a drug may be marketed, it must be approved by the FDA either by an NDA or an ANDA, each of which is discussed below.
NDAs and NDAs under Section 505(b) of the Drug Price Competition Act
The FDA approval procedure for an NDA is generally a two-step process. During the Initial Product Development stage, an investigational new drug application (“IND”)
for each product is filed with the FDA. A 30-day waiting period after the filing of each IND is required by the FDA prior to the commencement of initial clinical testing. If the FDA
does not comment on or question the IND within such 30-day period, initial clinical studies may begin. If, however, the FDA has comments or questions, they must be answered to
the satisfaction of the FDA before initial clinical testing may begin. In some instances, this process could result in substantial delay and expense. Initial clinical studies generally
constitute Phase I of the NDA process and are conducted to demonstrate the product tolerance/safety and pharmacokinetic in healthy subjects.
After Phase I testing, extensive efficacy and safety studies in patients must be conducted. After completion of the required clinical testing, an NDA is filed, and its
approval, which is required for marketing in the United States, involves an extensive review process by the FDA. The NDA itself is a complicated and detailed application and must
include the results of extensive clinical and other testing, the cost of which is substantial. However, the NDA filings contemplated by us, which are already marketed drugs, would
be made under Sections 505 (b)(1) or 505 (b)(2) of the Drug Price Competition Act, which do not require certain studies that would otherwise be necessary; accordingly, the
development timetable should be shorter. While the FDA is required to review applications within a certain timeframe, during the review process, the FDA frequently requests that
additional information be submitted. The effect of such request and subsequent submission can significantly extend the time for the NDA review process. Until an NDA is
approved, there can be no assurance that the information requested and submitted will be considered adequate by the FDA to justify approval. The packaging and labelling of our
developed products are also subject to FDA regulation. It is impossible to anticipate the amount of time that will be needed to obtain FDA approval to market any product.
Whether or not FDA approval has been obtained, approval of the product by comparable regulatory authorities in any foreign country must be obtained prior to the
commencement of marketing of the product in that country. We intend to conduct all marketing in territories other than the United States through other pharmaceutical companies
based in those countries. The approval procedure varies from country to country, can involve additional testing, and the time required may differ from that required for FDA
approval. Although there are some procedures for unified filings for certain European countries, in general each country has its own procedures and requirements, many of which
are time consuming and expensive. Thus, there can be substantial delays in obtaining required approvals from both the FDA and foreign regulatory authorities after the relevant
applications are filed. After such approvals are obtained, further delays may be encountered before the products become commercially available.
ANDAs
The FDA approval procedure for an ANDA differs from the procedure for an NDA in that the FDA waives the requirement of conducting complete clinical studies,
although it normally requires bioavailability and/or bioequivalence studies. “Bioavailability” indicates the rate and extent of absorption and levels of concentration of a drug
product in the blood stream needed to produce a therapeutic effect. “Bioequivalence” compares the bioavailability of one drug product with another, and when established,
indicates that the rate of absorption and levels of concentration of the active drug substance in the body are equivalent for the generic drug and the previously approved drug. An
ANDA may be submitted for a drug on the basis that it is the equivalent of a previously approved drug or, in the case of a new dosage form, is suitable for use for the indications
specified.
The timing of final FDA approval of an ANDA depends on a variety of factors, including whether the applicant challenges any listed patents for the drug and whether the
brand-name manufacturer is entitled to one or more statutory exclusivity periods, during which the FDA may be prohibited from accepting applications for, or approving, generic
products. In certain circumstances, a regulatory exclusivity period can extend beyond the life of a patent, and thus block ANDAs from being approved on the patent expiration
date.
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In May 1992, Congress enacted the Generic Drug Enforcement Act of 1992, which allows the FDA to impose debarment and other penalties on individuals and companies
that commit certain illegal acts relating to the generic drug approval process. In some situations, the Generic Drug Enforcement Act requires the FDA to not accept or review
ANDAs for a period of time from a company or an individual that has committed certain violations. It also provides for temporary denial of approval of applications during the
investigation of certain violations that could lead to debarment and also, in more limited circumstances, provides for the suspension of the marketing of approved drugs by the
affected company. Lastly, the Generic Drug Enforcement Act allows for civil penalties and withdrawal of previously approved applications. Neither we nor any of our employees
have ever been subject to debarment. We do not believe that we receive any services from any debarred person.
Controlled Substances
We are also subject to federal, state, and local laws of general applicability, such as laws relating to working conditions. We are also licensed by, registered with, and
subject to periodic inspection and regulation by the Drug Enforcement Agency (“DEA”) and New Jersey state agencies, pursuant to federal and state legislation relating to drugs
and narcotics. Certain drugs that we currently develop or may develop in the future may be subject to regulations under the Controlled Substances Act and related statutes. As we
manufacture such products, we may become subject to the Prescription Drug Marketing Act, which regulates wholesale distributors of prescription drugs.
cGMP
All facilities and manufacturing techniques used for the manufacture of products for clinical use or for sale must be operated in conformity with cGMP regulations issued
by the FDA. We engage in manufacturing on a commercial basis for distribution of products and operate our facilities in accordance with cGMP regulations. If we hire another
company to perform contract manufacturing for us, we must ensure that our contractor’s facilities conform to cGMP regulations.
Compliance with Environmental Laws
We are subject to comprehensive federal, state and local environmental laws and regulations that govern, among other things, air polluting emissions, waste water
discharges, solid and hazardous waste disposal, and the remediation of contamination associated with current or past generation handling and disposal activities, including the
past practices of corporations as to which we are the legal successor or in possession. We do not expect that compliance with such environmental laws will have a material effect
on our capital expenditures, earnings, or competitive position in the foreseeable future. There can be no assurance, however, that future changes in environmental laws or
regulations, administrative actions or enforcement actions, or remediation obligations arising under environmental laws will not have a material adverse effect on our capital
expenditures, earnings, or competitive position.
Competition
We have competition with respect to our principal areas of operation. We develop and manufacture generic products, products using controlled-release drug technology,
products utilizing abuse deterrent technologies, and we develop and market (either on our own or by license to other companies) generic and proprietary controlled-release and
abuse deterrent pharmaceutical products. In both areas, our competition consists of those companies which develop controlled release, abuse deterrent drugs and alternative drug
delivery systems. We do not represent a significant presence in the pharmaceutical industry.
An increasing number of pharmaceutical companies have become interested in the development and commercialization of products incorporating advanced or novel drug
delivery systems. Some of the major pharmaceutical companies have invested and are continuing to invest significant resources in the development of their own drug delivery
systems and technologies and some have invested funds in such specialized drug delivery companies. Many of these companies have greater financial and other resources as well
as more experience than we do in commercializing pharmaceutical products. Certain companies have a track record of success in developing controlled-release drugs. Significant
among these are, without limitation, Pfizer, Sandoz (a Novartis company), Mylan Laboratories, Inc., Endo Pharmaceuticals, Inc., Teva Pharmaceuticals Industries Ltd., Amneal
Laboratories, Inc., Mallinckrodt, and Aurobindo. Each of these companies has developed expertise in certain types of drug delivery systems, although such expertise does not
carry over to developing a controlled-release version of all drugs. Such companies may develop new drug formulations and products or may improve existing drug formulations
and products more efficiently than we can. In addition, almost all of our competitors have vastly greater resources than we do. While our product development capabilities and, if
obtained, patent protection may help us to maintain our market position in the field of advanced drug delivery, there can be no assurance that others will not be able to develop
such capabilities or alternative technologies outside the scope of our patents, if any, or that even if patent protection is obtained, such patents will not be successfully challenged
in the future.
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In addition to competitors that are developing products based on drug delivery technologies, there are also companies that have announced that they are developing
opioid abuse-deterrent products that might compete directly or indirectly with Elite’s products. These include, but are not limited to Pfizer Inc., Collegium Pharmaceuticals, Inc., and
Purdue Pharma LP.
We also face competition in the generic pharmaceutical market. The principal competitive factors in the generic pharmaceutical market include: (i) introduction of other
generic drug manufacturers’ products in direct competition with our products under development, (ii) introduction of authorized generic products in direct competition with any of
our products under development, particularly if such products are approved and sold during exclusivity periods, (iii) consolidation among distribution outlets through mergers and
acquisitions and the formation of buying groups, (iv) ability of generic competitors to quickly enter the market after the expiration of patents or exclusivity periods, diminishing the
amount and duration of significant profits, (v) the willingness of generic drug customers, including wholesale and retail customers, to switch among pharmaceutical manufacturers,
(vi) pricing pressures and product deletions by competitors, (vii) a company’s reputation as a manufacturer and distributor of quality products, (viii) a company’s level of service
(including maintaining sufficient inventory levels for timely deliveries), (ix) product appearance and labelling and (x) a company’s breadth of product offerings.
Sources and Availability of Raw Materials; Manufacturing
A significant portion of our raw materials may be available only from foreign sources. Foreign sources can be subject to the special risks of doing business abroad,
including:
● greater possibility for disruption due to transportation or communication problems;
● the relative instability of some foreign governments and economies;
● interim price volatility based on labor unrest, materials or equipment shortages, export duties, restrictions on the transfer of funds, or fluctuations in currency
exchange rates; and,
● uncertainty regarding recourse to a dependable legal system for the enforcement of contracts and other rights.
While we currently obtain the raw materials that we need from over 20 suppliers, some materials used in our products are currently available from only one supplier or a
limited number of suppliers. The FDA requires identification of raw material suppliers in applications for approval of drug products. If raw materials were unavailable from a
specified supplier, FDA approval of a new supplier could delay the manufacture of the drug involved.
We have acquired pharmaceutical manufacturing equipment for manufacturing our products. We have registered our facilities with the FDA and the DEA.
Please see the Risk Factor in Part I, Item 1A entitled “We are dependent on a small number of suppliers for our raw materials and any delay or unavailability of raw
materials can materially adversely affect our ability to produce products”.
Dependence on One or a Few Major Customers
Each year we have had one or a few customers that have accounted for a large percentage of our limited revenues, therefore the termination or restructuring of a contract
with a customer may result in the loss of material amount or substantially all of our revenues. We are constantly working to develop new relationships with existing or new
customers, but despite these efforts we may not, at the time that any of our current contracts expire, have other contracts in place generating similar or material revenue. We have
agreements with Lannett, Glenmark and Precision Dose for the licensing, sales and distribution of products that we manufacture. We receive revenues to manufacture these
products and also receive a profit split or royalties based on in-market sales of the products. Please see the Risk Factor in Part I, Item 1A entitled “We depend on a limited number
of customers and any reduction, delay or cancellation of an order from these customers or the loss of any of these customers could cause our revenue to decline.”
Our Reporting Segments
We currently operate in two segments, which are products whose marketing approvals were secured via an ANDA and products whose marketing approvals were secured
via an NDA. ANDA products are referred to as generic pharmaceuticals and NDA products are referred to as branded pharmaceuticals. For the years ended March 31, 2020 and
2019 revenue from our ANDA segment were $17.0 million and $6.6 million, respectively. For the years ended March 31, 2020 and 2019 revenue from our NDA segment were $1.0
million and $1.0 million, respectively.
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Segment information is consistent with the financial information regularly reviewed by our chief operating decision maker, who we have determined to be the chief
executive office, for the purposes of making decisions about allocating resources and assessing performance of the Company. 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.
Employees
As of June 15, 2020, we had 43 full time employees. Full-time employees are engaged in operations, administration, research, and development. None of our employees is
represented by a labor union and we have never experienced a work stoppage. We believe our relationship with our employees to be good. However, our ability to achieve our
financial and operational objectives depends in large part upon our continuing ability to attract, integrate, retain, and motivate highly qualified personnel, and upon the continued
service of our senior management and key personnel.
Available Information
We file our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Exchange Act
electronically with the Securities and Exchange Commission, or SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.
You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports on the
day of filing with the SEC on our website at http://www.Elitepharma.com under the Investor Relations tab for SEC Filings or by contacting the Investor Relations Department by
calling (518) 398-6222 or sending an e-mail message to dianne@elitepharma.com.
ITEM 1A. RISK FACTORS
An investment in the Company’s Common Stock involves a high degree of risk. You should carefully consider the risks described below as well as other information
provided to you in this report, including information in the section of this document entitled “Forward Looking Statements.” The risks and uncertainties described below are not
the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently believe are immaterial may also impair our business operations. If any of
the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected, the value of our Common Stock could decline,
and you may lose all or part of your investment.
In addition to the other information contained in this report, the following risk factors should be considered carefully in evaluating an investment in us and in analyzing
our forward-looking statements.
Risks Related to Our Business
Widespread health problems, including the recent global COVID-19 pandemic, natural disasters or other unexpected events could materially and adversely affect our business.
Public health outbreaks, epidemics or pandemics, such as the coronavirus, could materially and adversely impact our business. For example, in December 2019, COVID-19
was reported to have surfaced in Wuhan, China. In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. By April 11, 2020, the President
of the United States had issued major disaster declarations for all fifty states for the first time in the country’s history. COVID-19 has resulted in global business and economic
disruption and extreme volatility in the financial markets as many jurisdictions have placed restrictions on travel and non-essential business operations and implemented social
distancing, shelter-in-place, quarantine and other similar measures for their residents to contain the spread of the virus. In response to these public health directives and orders, we
have implemented alternative working practices and work-from-home capabilities for appropriate employees, as well as social distancing, modified schedules, shift rotation and
other similar policies at our manufacturing facilities. We have also suspended international and domestic travel on behalf of the Company. Despite these actions, the Company
continues to be exposed to the risk of a significant disruption or ceasing of all manufacturing or other operations resulting from laws, executive orders or other directives from
various governmental authorities which could require such disruption or ceasing of operations due to our products and or operations being determined to be non-essential or any
other reason for which it has been determined that such actions taken against the Company will further the protection of the general population from harm that may be caused or
related to COVID-19 or any similar threat to public health.
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The effects of COVID-19, including these public health directives and orders and our policies, have had an impact on our business and may in the future materially disrupt
our business, including our manufacturing and supply chain operations by significantly reducing our output, negatively impact our productivity and delay our product
development programs. The global pandemic may have significant impacts on third-party arrangements, including those with our manufacturing, supply chain and distribution
partners, information technology and other vendors and other service providers and business partners. For example, there may be significant disruptions in the ability of any or all
of these third-party providers to meet their obligations to us on a timely basis, or at all, which may be caused by their own financial or operational difficulties, including any
closures of their facilities pursuant to a governmental order or otherwise. As a result of these disruptions and other factors, including changes in our workforce availability and
increased demand for any of our products during this pandemic, our ability to meet our obligations to third-party marketing and distribution partners may be negatively impacted.
As a result, the Company, or our third-party providers may deliver notices of the occurrent of force majeure or similar event under certain contracts which could result in prolonged
commercial disputes and ultimately legal proceedings to enforce contractual performance and/or recover losses. Any such occurrences could result in significant management
distraction and use of resources and, in the event of an adverse judgment, could result in significant cash payments. Further, the publicity of any such dispute could harm our
reputation and make the negotiation of any replacement contracts more difficult and costly, thereby prolonging the effects of any resulting disruption in our operations. Such
disruptions could be acute with respect to certain of our raw material suppliers where we may not have readily accessible alternatives or alternatives may take longer to source than
usual. While we attempt, when possible, to mitigate our raw material supply risks through stock management and alternative sourcing strategies, some raw materials are only
available from one source. Any of these disruptions could harm our ability to meet consumer demand, including any increase in demand for any of our products used during a
pandemic.
While to date we have not experienced a significant detrimental change in customer demand, the heightened possibility of changes in customer demand as the COVID-19
pandemic evolves remains. The current economic crisis and rising unemployment rates resulting from COVID-19 have the potential to significantly reduce individual disposable
income and depress consumer confidence, which could limit the ability of some consumers to purchase certain pharmaceutical products and reduce consumer spend on certain
medical procedures in the short-, medium- and long term. Additionally, as part of the measures to address COVID-19, certain healthcare providers are not currently performing
various medical procedures and an increased portion of the general public are reducing their consumption of medical services which may result in decreased demand for certain of
our products.
Furthermore, we are unable to predict the impact that COVID-19 may have going forward on the business, results of operations or financial position of any of our major
customers, which could impact each customer to varying degrees and at different times and could ultimately impact our own financial performance. Certain or many of our
competitors may also be better equipped to weather the impact of COVID-19 domestically and may be better equipped to address changes in customer demand. Additionally, our
product development programs may be adversely affected by the global pandemic and the prioritization of production during this pandemic. The public health directives in
response to COVID-19 requiring social distancing and restricting non-essential business operations have in certain cases caused and may continue to cause delays, increased
costs and additional challenges in our product development programs, including obtaining adequate patient enrolment and successfully bringing product candidates to market. In
addition, we may face additional challenges receiving regulatory approvals as previously scheduled dates or anticipated deadlines for action by the FDA on our applications and
products in development, including dates scheduled for 2020, if any, could be subject to delays beyond our control as regulators such as the FDA focus on COVID-19.
To the extent our operating cash flows, together with our cash, cash equivalents, restricted cash and restricted cash equivalents, become insufficient to cover our liquidity
and capital requirements, including funds for any future acquisitions and other corporate transactions, we may be required to seek third-party financing, and/or engage in one or
more capital markets transactions. The COVID-19 pandemic has resulted in significant disruptions to and volatility in the local, national and global financial markets and, with the
equity line with Lincoln Park Capital expiring on July 1, 2020, there can be no assurance that we would be able to obtain any required financing on a timely basis or at all. Further,
lenders and other financial institutions could require us to agree to more restrictive covenants, grant liens on our assets as collateral (resulting in an increase in our total
outstanding secured indebtedness) and/or accept other terms that are not commercially beneficial to us in order to obtain financing, as a result of the actual or perceived impact
that financial institutions believe the pandemic will have on our business. Such terms could further restrict our operations and exacerbate any impact on our results of operations
and liquidity that may result from COVID-19.
In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our ordinary shares.
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Additionally, COVID-19 could increase the magnitude of many of the other risks described herein and have other adverse effects on our operations that we are not
currently able to predict. For example, the global economic disruptions and volatility in the financial markets could further depress our ability to obtain or renew insurance on
satisfactory terms or at all. Additionally, we may also be required to delay or limit our internal strategies in the short- and medium-term by, for example, redirecting significant
resources and management attention away from implementing our strategic priorities or executing opportunistic corporate development transactions. The magnitude of the effect of
COVID-19 on our business will depend, in part, on the length and severity of the restrictions (including the effects of recently announced “re-opening” plans following a recent
slowdown of the virus infection rate in certain countries and localities) and other limitations on our ability to conduct our business in the ordinary course. The longer the pandemic
continues or resurges, the more severe the impacts described above will be on both our domestic business and international supply chains. The full extent to which COVID-19 may
impact our business will depend on future developments, which are highly uncertain and cannot be predicted with accuracy or confidence, such as the duration of the outbreak,
the severity of COVID-19, the possibility of re-occurrences of outbreaks of COVID-19, future legal requirements, executive orders or other actions requiring compliance by the
Company and general population, or the effectiveness of actions to contain and treat COVID-19, particularly in the geographies where we or our third party suppliers or other
strategic partners operate or our customers and end-users of our products reside. Taking the speed and frequency of continuously evolving developments with respect to this
pandemic, or in the event of a pandemic relating to something other than COVID-19, we cannot reasonably estimate the magnitude of any impact on our operations, and the full
extent to which COVID-19 or another pandemic may impact, in a material and adverse fashion, our business, financial condition, results of operations and cash flow, and could
cause significant volatility in the trading prices of our securities.
Furthermore, the occurrence of one or more unexpected events, including fires, tornadoes, tsunamis, hurricanes, earthquakes, floods, and other forms of severe hazards in
the United States or in other countries in which we or our suppliers operate or are located could adversely affect our operations and financial performance. We have lost power or
had to shut down operations as a result of extreme weather, natural disasters, most notably Superstorm Sandy. These types of unexpected events could result in physical damage
to and complete or partial closure of one or more of distribution centers or manufacturing facilities, or the temporary or long-term disruption in the supply of products, and/or
disruption of our ability to deliver products to customers. Further, the long-term effects of climate change on general economic conditions and the pharmaceutical manufacturing
and distribution industry in particular are unclear, and changes in the supply, demand or available sources of energy and the regulatory and other costs associated with energy
production and delivery may affect the availability or cost of goods and services, including natural resources, necessary to run our businesses. Existing insurance arrangements
may not provide protection for the costs that may arise from such events, particularly if such events are catastrophic in nature or occur in combination. Any long-term disruption in
our ability to service our customers from one or more distribution centers or outsourcing facilities could have a material adverse effect on our operations, our business, results of
operations and stock price.
Our revenues and operating results could fluctuate significantly
Our revenues and operating results may vary significantly from year-to-year and quarter-to-quarter as well as in comparison to the corresponding quarter of the preceding
year. Variations may result from one or more factors, including, without limitation:
● Effects of a global pandemic or similar situation, including, without limitation the COVID-19 pandemic that emerged in 2020, with such effects to include actions taken
by the Company, its suppliers, partners, competitors, other entities involved in the industry, other entities, and any laws, regulations, executive orders or other
governmental/regulatory actions taken in relation to such a pandemic or similar circumstance;
● Timing of approval of applications filed with the FDA;
● Timing of process validation, product launches and market acceptance of products launched;
● Changes in the amounts spent to research, develop, acquire, license or promote new and existing products;
● Results of clinical trial programs;
● Serious or unexpected health or safety concerns with our products, brand products which we have genericized, products currently under development or any other
product candidates;
● Introduction of new products by others that render our products obsolete or non-competitive;
● The ability to maintain selling prices and gross margin on our products;
● Mix of product manufactured and sold due to each product having different gross margins;
● The cost and outcome of litigation, in the event that such occurs in relation to, without limitation, intellectual property issues, regulatory or other matters;
● The ability to comply with complex and numerous governmental regulations and regulatory authorities which oversee and regulate many aspects of our business and
operations;
● Changes in coverage and reimbursement policies of health plans and other health insurers, including changes to Medicare, Medicaid, and similar state programs,
especially in relation to those products that are currently manufactured, under development or identified for future development by the Company;
● Increases in the cost of raw materials contained within our products;
● Manufacturing and supply interruptions, including product rejections or recalls due to failure to comply with manufacturing specifications;
● Timing of revenue recognition relating to our licensing and other agreements;
● The ability to avoid infringing the intellectual property of others;
● The ability to protect our intellectual property from being acquired by other entities;
● Our ability to manage growth and integrate acquired products and assets successfully; and
● The addition or loss of customers.
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A negative variation in one, many or all of the above factors could, may or will have a material adverse effect on Elite’s business, results of operations, financial condition,
and cash flow and ability to operate in the future, depending on the nature and magnitude of the variation(s).
We have a relatively limited operating history, which makes it difficult to evaluate our future prospects.
Although we have been in operation since 1990, we have a relatively short operating history and limited financial data upon which you may evaluate our business and
prospects. In addition, our business model is likely to continue to evolve as we attempt to expand our product offerings and our presence in the generic pharmaceutical market. As
a result, our potential for future profitability must be considered in view of the risks, uncertainties, expenses, and difficulties frequently encountered by companies that are
attempting to move into new markets and continuing to innovate with new and unproven technologies. Some of these risks relate to our potential inability to:
● develop new products;
● obtain regulatory approval of our products;
● manage our growth, control expenditures and align costs with revenues;
● attract, retain, and motivate qualified personnel; and respond to competitive developments.
● Sustain operations during a global pandemic or similar situation, such as the COVID-19 global pandemic first identified in 2020.
If we do not effectively address the risks we face, our business model may become unworkable and we may not achieve or sustain profitability or successfully develop
any products, resulting in a material adverse effect on Elite’s business, results of operations, financial condition, and cash flow and ability to operate in the future.
We have not been profitable and may not be profitable in the future.
To date, we have not been profitable, and we may never be profitable or, if we become profitable, we may be unable to sustain profitability. We have sustained losses from
operations in each year since our incorporation in 1990. During the years ended March 31, 2020 and 2019, we incurred net losses from operations of approximately $2.3 million and
$9.2 million, respectively. In addition, in certain years prior to the year ended March 31, 2020, including, without limitation, for the year ended March 31, 2019, the auditor’s opinion
on the financial statements were qualified with respect to there being substantial doubt as to the Company’s ability to continue as a going concern due to continued losses not
being sufficiently offset by operating revenues. A failure to generate sufficient revenues to offset related costs of operations will have a material adverse effect on our business,
results of operations, financial condition, cash flow and ability to operate in the future.
Our ability to fund our operations, maintain liquidity and meet our financing obligations is reliant on our operations, which are subject to significant risks and uncertainties
We rely on cash generated by operations as well as access to financial markets, such as the equity line with Lincoln Park and equipment financings, to fund our
commercial, product development and other operations, maintain liquidity and meet our financial obligations. The equity line with Lincoln Park expires on July 1, 2020 and there can
be no assurances as to the securing of a capital facility beyond July 1, 2020 and that even if we are able to secure such a facility, there can be no assurances as to the levels of cost
and potential dilution that would be related to such a facility.
Our operations are also subject to many significant risks and uncertainties, as described, without limitation, in this “Risk Factors” section, including, without limitation,
those risks related to the effects of a global pandemic such as or similar to the COVID-19 pandemic, competition in the markets in which we operate, litigation risks, government
investigations, including those related to our sale, marketing and/or distribution of prescription opioid medications in prior periods, and others. Any negative development or
outcome in connection with any or all of these risks and uncertainties could result in significant consequences, including, without limitation, one or more of the following:
● The dedication of a substantial portion of our cash flows from operations to the payment of legal or related expenses, resulting in these same funds being unavailable
for other purposes, including, without limitation, debt service, operations, capital expenditures, product development and future business opportunities;
● A limitation in our ability to adjust to changing market conditions, causing us to be more vulnerable to periods of negative or impaired growth in the general economy
or in our business, resulting the company being put at a competitive disadvantage as a result of a decreased or unavailable ability to engage in capital spending and
take all other actions that would otherwise be required to ensure growth and competitiveness;
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● A limitation in our ability to attract and retain key personnel;
● A decrement in our debt service and compliance obligations related to certain of our outstanding debt obligations, exposing us to events of default and reduced
credit ratings, which in turn lead to increased capital costs and potential unavailability of capital;
● An overall inability to fund our operations and liquidity needs.
The occurrence or possibility of one or more of these or similar events may cause us to pursue one or more significant corporate transactions as well as other remedial
measures, including refinancing all or part of our then-existing indebtedness, selling assets, reducing, delaying or eliminating capital expenditures, seeking to raise additional
capital or pursuing internal reorganizations, restructuring activities, strategic alliances, or cost-saving initiatives. Any refinancing of our substantial indebtedness could be at
significantly higher interest rates, which will depend on both the conditions of the market as well as the Company’s finances at such time, and may also require our compliance with
covenants that could be more onerous than current, which in turn could result in the further restriction of our business operations. Any refinancing may also increase the amount
of our secured indebtedness. In addition, the terms of existing or future debt agreements may restrict us from adopting any of the alternatives. Internal reorganizations,
restructuring activities, asset sales and cost saving initiatives may also be complex and could entail significant costs and charges or could otherwise negatively impact shareholder
value. There can also be no assurance that we will be able to accomplish any of these alternatives on terms acceptable to us, or at all, or that even if accomplished, that the
intended results and benefits would be realized.
We most likely will require additional financing to meet our business objectives.
We most likely will need additional funding to accomplish our plans to conduct the clinical development and commercialization of a range of multiple abuse resistant
opioids or initiate, continue or complete the development of additional generic products already identified for development or currently in development.
As of March 31, 2020, we had cash on hand of approximately $1.1 million and a working capital surplus of $1.6 million, and, for the fiscal year ended March 31, 2020, we
had losses from operations totaling $2.3 million, net other income totaling $0.05 million and net loss of $2.2 million.
On May 1, 2017, we entered into another 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, we have the right to sell to and Lincoln
Park is obligated to purchase up to $40 million in shares of our common stock, subject to certain limitations, from time to time, over the 36-month period commencing on June 5,
2017 and expiring on July 1, 2020.
While growth in our current generic product line, consisting of Phentermine Tablets, Phentermine Capsules, Phendimetrazine Tablets, Naltrexone Tablets, Isradipine
Capsules, Trimipramine Capsules, Oxy IR, Amphetamine IR Tablets, Amphetamine ER Capsules and Dantrolene Capsules, combined with manufacturing, profit split and royalty
revenues earned pursuant to the Lannett Alliance, the Glenmark Alliance, the Precision Dose License Agreement, from sales of Oxy IR by Epic, and successful commercialization of
other products in our product development pipeline, may lead to eventual profitability, there can be no assurances of Elite becoming profitable. Furthermore, there can be no
assurances of the continuation revenues being earned from the current generic product line, no assurances of Elite’s successful commercialization of other products in our
development pipeline, and no assurances of Elite’s ability to continue as a going concern. In addition, there can be no assurances of Elite being able to raise additional funds in a
timely manner, on acceptable terms, if needed to support commercial operations resulting in a material detrimental effect on Elite’s ability to become profitable and accordingly
being a material factor to the detriment of Elite’s ability to continue as a going concern as well as having a material adverse effect on our business, results of operations, financial
condition, and cash flow and ability to operate in the future.
To sustain operations and meet our business objectives we must be able to commercialize our products and other products or pipeline opportunities. If we are unable to
timely obtain additional financing, if necessary, and/or we are unable to timely generate greater revenues from our operations, we will be required to reduce and, possibly, cease
operations and liquidate our assets. No assurance can be given that we will be able to commercialize the new opportunities or consummate such other financing or strategic
alternative in the time necessary to avoid the cessation of our operations and liquidation of our assets.
Furthermore, the capital and credit markets have experienced extreme volatility. Disruptions in the credit markets make it harder and more expensive to obtain funding. In
the event current resources do not satisfy our needs, we may have to seek additional financing. The availability of additional financing will depend on a variety of factors such as
market conditions and the general availability of credit. Future debt financing may not be available to us when required or may not be available on acceptable terms, and as a result
we may be unable to grow our business, take advantage of business opportunities, or respond to competitive pressures.
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Please also see the risk factor titled “Widespread health problems, including the recent global COVID-19 pandemic, natural disasters or other unexpected events, could
materially and adversely affect our business”.
We have in prior years, identified material weaknesses in our internal control over financial reporting which could, if not remediated, adversely affect our ability to report our
financial condition, cash flows and results of operations in a timely and accurate manner and/or increase the risk of future misstatements, which could have a material adverse
effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline.
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Exchange
Act.
During the prior fiscal year ended March 31, 2019, the Company identified certain material weaknesses in internal controls over financial reporting which were remediated
during the fiscal year ended March 31, 2020. A material weakness is a deficiency, or a combination of deficiencies, in internal controls over financial reporting such that there is a
reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The remediation actions taken
required the retention of additional personnel and consultants, the continued retention of which is subject to the Company’s financial condition.
Despite the successful remediation of material weaknesses identified in the prior fiscal year, there can be no assurances of the continued operation of controls, due to the
financial burden such controls place on the Company, as well as the effects of other operating challenges, such as the COVID-19 global pandemic or similar situation, which may
result in our inability to maintain an environment of internal controls over financial reporting that does not have material weaknesses.
Furthermore, additional material weaknesses in our internal controls may be discovered or occur in the future that may materially adversely affect our ability to report our
financial condition and results of operations in a timely and fairly stated manner and there will be an increased risk of future misstatements.
Although we regularly review and evaluate internal controls systems to allow management to report on the effectiveness of our internal controls over financial reporting,
we may discover additional weaknesses in our internal controls over financial reporting or disclosure controls and procedures. The next time we evaluate our internal controls over
financial reporting and disclosure controls and procedures, if we identify one or more new material weaknesses or are unable to timely remediate our previously identified material
weaknesses, we would be unable to conclude that our internal controls over financial reporting or disclosure controls and procedures are effective. If we are unable to conclude
that our internal controls over financial reporting or our disclosure controls and procedures are effective, or if our independent registered public accounting firm expresses an
opinion, if such is required, that our internal controls over financial reporting is ineffective, we may not be able to report our financial condition and results of operations in a timely
and fairly stated manner, which could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of
our common shares to decline. In addition, any potential future restatements could subject us to additional adverse consequences, including sanctions by the SEC, shareholder
litigation and other adverse actions. Moreover, we may be the subject of further negative publicity focusing on such financial statement adjustments and resulting restatement and
negative reactions from our shareholders, creditors or others with whom we do business. The occurrence of any of the foregoing could have a material adverse effect on our
business, financial condition, cash flows and results of operations and could cause the market value of our common shares to decline.
We have significant intangible assets on our balance sheet. Consequently, potential impairment of intangible assets may have an adverse material effect on our profitability.
Intangible assets represent a significant portion of our assets. As of March 31, 2020, intangible assets were approximately $6.6 million, or approximately 27% of our assets.
Generally accepted accounting principles in the United States (“GAAP”) requires that intangible assets be subject to regular impairment analysis to determine if changes
in circumstances indicate that the value of the asset as recorded may not be recoverable. Such events or changes in circumstances are an inherent risk in the pharmaceutical
industry and often cannot be predicted. However, should a change in circumstance occur, requiring the impairment of an intangible asset, the result of such an impairment may
have an adverse material effect on our business, financial condition, results of operations, cash flows and stock price.
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Rising insurance costs, as well as the inability to obtain certain insurance coverage for risks faced by us, could negatively impact profitability
The cost of insurance, including directors and officer insurance, workers compensation, product liability, truck and general liability insurance have increase significantly
in recent years and may continue to increase in the future. We have increased deductibles and/or decreased coverages to mitigate some of these costs. These insurance premium
increases, as well as our increased risk due to reduced coverage and increased deductibles could have an adverse material effect on our business, financial condition, results of
operations, cash flows and stock price.
Furthermore, certain insurance coverages may not be available to us for risks faced by us, or the coverage we are able to obtain for certain risks may not be adequate to
fully reimburse the potential damages. Should either of these events occur, the lack of adequate insurance to cover the entire cost of damages could have an adverse material effect
on our business, financial condition, results of operations, cash flows and stock price.
A notice of default was issued by the New Jersey Economic Development Authority in relation to prior obligations of our tax-exempt bonds. Although we are current in our
payments under these bonds, if the principal balances due under these bonds are accelerated pursuant to the notice of default, our ability to operate in the future will be
materially and adversely affected.
Although we are, and have been for some time, current in our payments under the NJEDA Bonds, we previously were in default and a notice of default was issued in
March 2009. There can be no assurances of Elite making principal and interest payments in the amounts and on the dates specified the NJEDA Bond agreement. The failure by Elite
to make principal and/or interest payments required by the NJEDA Bonds, could result in the increased possibility of an acceleration of amounts due pursuant to such notice of
default previously issued, with such an acceleration having a material adverse effect on Elite’s business, results of operations, financial condition, cash flow and ability to operate
in the future.
For more information on the NJEDA Bonds, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations; Liquidity and
Capital Resources; NJEDA Bonds”.
We have substantial indebtedness which may adversely affect our financial health
We currently have substantial indebtedness. Total liabilities as of March 31, 2020, were $14.3 million, with such amount including, without limitation, $4.3 million in various
loans, leases and bonds payable, $3.6 million in derivative liabilities, and $6.4 million in current payables and accruals. The consequences of this substantial indebtedness could
include:
● An increase in our vulnerability to general economic and industry conditions, including recessions, depressions, effects of global pandemics such as the COVID-19
pandemic, significant inflation and other financial market volatility;
● Exposure to the risk of increased interest rates;
● The Company being required to dedicate a substantial portion of cash flow from operations for debt service and the attendant result of a diminished ability to fund
working capital, capital expenditures and other expenses;
● A limitation in our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
● Our being at a competitive disadvantage as compared to competitors with less indebtedness; and
● A limitation in our ability to borrow additional funds that may be needed to operate and expand our business.
If our manufacturing facilities are unable to manufacture our products or the manufacturing process is interrupted due to failure to comply with regulations or for other
reasons, it could have a material adverse impact on our business.
If our manufacturing facility or the facilities of any of our suppliers fail to comply with regulatory requirements or encounter other manufacturing difficulties, it could
adversely affect our ability to manufacture and supply products. All facilities and manufacturing processes used for the manufacture of pharmaceutical products are subject to
inspection by regulatory agencies at any time and must be operated in conformity with current good manufacturing practice (“cGMP”) and, in the case of controlled substances,
DEA regulations. Compliance with the FDA’s cGMP and DEA requirements applies to both drug products seeking regulatory approval and to approved drug products. In
complying with cGMP requirements, pharmaceutical manufacturing facilities must continually expend significant time, money and effort in production, recordkeeping, quality
assurance and quality control so that their products meet applicable specifications and other requirements for product safety, efficacy and quality. Failure to comply with
applicable legal requirements subjects us, our manufacturing facilities and the facilities of our third-party suppliers to possible legal or regulatory action, including, without
limitation, shutdown, which may adversely affect our ability to supply the product. Additionally, our manufacturing facilities, and those of our third party suppliers may face other
significant disruptions due to labor strikes, failure to reach acceptable agreement with labor unions, infringement of intellectual property rights, vandalism, natural disaster, storm or
other environmental damage, civil or political unrest, export or import restrictions or other events. Were we not able to manufacture products at our manufacturing facilities or were
our third party suppliers unable to manufacture products at their facilities because of regulatory, business or any other reasons, the manufacture and marketing of these products
would be interrupted. This could have a material adverse impact on our business, results of operation, financial condition, cash flows, competitive position and ability to operate.
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Any delays or unanticipated expenses in connection with the operation of sole facility could have a material adverse effect on our business.
All of our manufacturing operations are conducted at the Northvale Facility. A significant disruption at this facility, even on a short-term basis, whether due to, without
limitation, an adverse quality or compliance observation, including a total or partial suspension of production and/or distribution by regulatory authorities, an act of God, civil or
political unrest, force majeure situation or other events could impair our ability to produce and ship products on a timely basis, and could, among other consequences, subject us
to exposure to claims from customers. Any of these events could have a material adverse effect on our business, results of operations, financial condition, and cash flows.
We may discontinue the manufacture and distribution of certain existing products, which may adversely affect our business, results of operations, financial condition, and cash
flows.
As part of regular evaluations of product performance, we may determine that it is in our best interest to discontinue the manufacture and distribution of certain of our
products. We cannot guarantee that we have correctly forecasted, or will correctly forecast in the future, the appropriate products to discontinue or that a decision to discontinue
various products is prudent if market conditions change. In addition, there can be no assurances that the discontinuance of products will reduce operating expense or no cause the
incurrence of material charges associated with such a decision. Furthermore, the discontinuance of existing products, entails various risks, including, without limitation, the ability
to find a purchaser for such products, if there is a decision to sell the product, as well as the risk that the purchase price obtained will not be equal to at least the book value of the
net assets relating to such products. Other risks associated with a product discontinuance, include, without limitation, managing the expectations of and maintaining good
relations with our customers who previously purchased a discontinued product from us, and the effects such would have on future sales to these customers. We may also incur
significant liabilities and costs associated with our product discontinuance. All of the foregoing could have a material adverse effect on our business, results of operations,
financial condition, and cash flows.
Our operations could be disrupted if our information systems fail, if we are unsuccessful in implementing necessary upgrades or if we are subject to cyber-attacks.
Our business depends on the efficient and uninterrupted operation of our computer and communications systems and networks, hardware and software systems and our
other information technology. We collect and maintain information, which includes confidential and proprietary information as well as personal information regarding our
customers and employees, in digital form. Data maintained in digital form is subject to risk of cyber-attacks, which are increasing in frequency and sophistication. Cyber-attacks
could include the deployment of harmful malware, viruses, worms, and other means to affect service reliability and threaten data confidentiality, integrity and availability. Despite
our efforts to monitor and safeguard our systems to prevent data compromise, the possibility of a future data compromise cannot be eliminated entirely, and risks associated with
intrusion, tampering, and theft remain. In addition, we do not have insurance coverage with respect to system failures or cyber- attacks. A failure of our systems, or an inability to
successfully expand the capacity of these systems, or an inability to successfully integrate new technologies into our existing systems could have a material adverse effect on our
business, results of operations, financial condition, and cash flows.
We also have outsourced significant elements of our information technology infrastructure to third parties, some of which may be outside the U.S. Accordingly,
significant elements of our information technology infrastructure, require our management of multiple independent vendor relationships with third parties who may or could have
access to our confidential information. The size and complexity of our information technology systems, and those of our third-party vendors with whom we contract, make such
systems potentially vulnerable to service interruptions. The size and complexity of our and our vendors’ systems and the large amounts of confidential information that is present
on them also makes them potentially vulnerable to security breaches from inadvertent or intentional actions by our employees, partners, or vendors, or from attacks by malicious
third parties.
The Company and its vendors’ sophisticated information technology operations are spread across multiple, sometimes inconsistent, platforms, which pose difficulties in
maintaining data integrity across systems. The ever-increasing use and evolution of technology, including cloud-based computing, creates opportunities for the unintentional or
improper dissemination or destruction of confidential information stored in the Company’s systems.
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We are dependent on a small number of suppliers for our raw materials and any delay or unavailability of raw materials can materially adversely affect our ability to produce
products.
The FDA requires identification of raw material suppliers in applications for approval of drug products. If raw materials were unavailable from a specified supplier, FDA
approval of a new supplier could delay the manufacture of the drug involved.
In addition, some materials used in our products are currently available from only one supplier or a limited number of suppliers and there is a risk of a sole approved
supplier significantly raising prices. Please note that such an occurrence has taken place recently, wherein significant price increases from a sole supplier greatly reduced profit
margins, sales, and delayed product launches. These occurrences were ultimately resolved by the successful FDA approval of an alternate supplier, with such approval process
being lengthy and costly.
Further, a significant portion of our raw materials may be available only from foreign sources. Foreign sources can be subject to the special risks of doing business
abroad, including, without limitation:
● greater possibility for disruption due to transportation or communication problems;
● the relative instability of some foreign governments and economies;
● interim price volatility based on labor unrest, materials or equipment shortages, export duties, restrictions on the transfer of funds, or fluctuations in currency
exchange rates; and,
● uncertainty regarding recourse to a dependable legal system for the enforcement of contracts and other rights.
In addition, patent laws in certain foreign jurisdictions (primarily, but not necessarily, in Europe) may make it increasingly difficult to obtain raw materials for research and
development prior to expiration of applicable United States or foreign patents. Any delay or inability to obtain raw materials on a timely basis, or any significant price increases that
cannot be passed on to customers, can materially adversely affect our ability to produce products. This can materially adversely affect our business and operations.
We depend on a limited number of customers and any reduction, delay or cancellation of an order from these customers or the loss of any of these customers could cause our
revenue to decline.
Each year we have had one or a few customers that have accounted for a large percentage of our limited revenues therefore the termination of a contract with a customer
may result in the loss of substantially all of our revenues. We are constantly working to develop new relationships with existing or new customers, but despite these efforts we
may not, at the time that any of our current contracts expire, have other contracts in place generating similar or material revenue. We have agreements with Lannett, Glenmark and
Precision Dose for the sales and distribution of products that we manufacture. We receive revenues to manufacture these products and also receive a profit split or royalties based
on in-market sales of the products.
In addition, since a significant portion of our revenues is derived from a relatively few customers, any financial difficulties experienced by any one of these customers, or
any delay in receiving payments from any one of these customers, could have a material adverse effect on our business, results of operations, financial condition, and cash flows.
We are dependent on third parties to supply raw materials used in our products and to provide services for certain core aspects of our business. Any interruption or failure by
these suppliers, distributors and collaboration partners to meet their obligations pursuant to various agreements with us could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
We rely on third parties to supply raw material used in our products. In addition, we rely on third party suppliers, distributors and other third party service providers to
provide services for certain core aspects of our business, including, without limitation, manufacturing, warehousing, freight and distribution, medical affairs services, regulatory
compliance activities, sales and marketing, clinical studies, lab services and other technical and financial services. Many such third-party suppliers and contractors are subject to
requirements proscribed by FDA, DEA or both. Our business and financial viability are dependent on the continued supply of goods, materials and services, by these third parties,
their regulatory compliance and on the strength, validity and terms of our various contracts and arrangements with these third parties. Any interruption or failure by our third party
suppliers, distributors and other third party service providers to meet their obligations pursuant to the various agreements with us on schedule or in accordance terms and/or
expectations, or any termination by these third parties of their arrangements with us, which in each case, could be the result of one or more factors outside of our control, could
delay or prevent the development, approval, commercialization or manufacture of our products, result in non-compliance with applicable laws and/or regulations, cause us to incur
failure to supply penalties, disrupt our operations, increase the cost of our operations or cause harm to our reputation in the industry, any or all of which could have a material
adverse effect on our business, financial condition, results of operations, cash flows and stock price. We may also be unsuccessful in resolving any underlying issues with such
suppliers, distributors or other third-party service providers or in replacing them within a reasonable time frame on commercially reasonable terms.
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Elite’s pipeline consists of products in various stages of development, including products in early development.
Elite’s product pipeline, including the paused development of its abuse deterrent opioid products, are in various stages of development. Prior to commercialization,
product development must be completed that could include scale-up, clinical studies, regulatory filing, regulatory review, approval by the FDA, and/or other development steps.
Development is subject to risks. We cannot assure you that development will be successful, or that during development unexpected delays might occur or additional costs might
be incurred. Failure to bring to commercialization any of the products already in development by Elite will have a material adverse effect on Elite’s ability to operate in the future.
The failure to successfully identify, develop, commercialize and market new products most likely will result in a material adverse effect on our ability to operate in the future.
To sustain current operations, engender business growth, achieve current and future revenues and profitability, we significantly depend on our ability to successfully
identify, develop, commercialize and market new pharmaceutical products., including, without limitation, our own products as well as those that may be developed in partnership
with other entities, such as those that were previously developed with SunGen pursuant to a now terminated product development agreement. As a result, we must continually
develop, test and manufacture new products, which must meet regulatory standards to receive requisite marketing authorizations.
The process of developing and obtaining regulatory approvals for new products is time-consuming, costly and inherently unpredictable. There are direct, indirect, known
and unknown risks inherent in the development of pharmaceuticals, including, without limitation, products which initially show promise in preliminary pharmacological or marketing
studies, but fail to yield the positive results consistent with initial indications. Products we are currently developing may not receive the regulatory approvals or clearances
necessary for us to market them and, if approved, we may be unable to successfully commercialize them on a timely basis or at all, or if commercialized, revenues and profits
achieved from the sale of such products might not reach levels that provide sufficient return on those costs incurred during the commercialization process.
The successful commercialization of a product is subject to a number of factors, including:
● The timely filing of any NDA, ANDA or other regulatory submission applicable to our product candidates;
● Any adverse development or perceived adverse development with respect to the applicable regulatory agency’s review of such regulatory submission and approval
for the indication sought;
● The effectiveness, ease of use and safety of our products as compared to existing products;
● Customer demand and the willingness of physicians and customers to adopt our products over products with which they may have more loyalty or familiarity and
overcoming any biases towards our products;
● The cost of our product compared to alternative products and the pricing and commercialization strategies of our competitors;
● The success of our launch and marketing efforts;
● Adverse publicity about us, our products, our competitors and their products or the industry as a whole or favorable publicity about competitors;
● The advent of new and innovative alternative products; and
● Any unforeseen issues or adverse developments in connection with a product and any resulting litigation or regulatory scrutiny and harm to our reputation or the
reputation or acceptance of the product in the market.
In addition, there are many risks associated with developing, commercializing and marketing new products that are beyond our control. For example, without limitation, our
collaboration partner(s) may decide to make substantial changes to a product’s formulation or design, may experience financial difficulties or may have limited financial resources.
Any of the foregoing may delay the development, commercialization and/or marketing of new products. In addition, if a codeveloper on a new product terminates our collaboration
agreement or does not perform under the agreement, we may experience delays and additional costs in developing and marketing that product, with no assurances of us having the
resources that may be required to overcome such delays or additional costs that were beyond our control.
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We conduct research and development to enable us to manufacture and market pharmaceutical products in accordance with specific government regulations. Our drug
development efforts relating to SequestOx and certain generics are focused on technically difficult-to-formulate products and/or products that require advanced manufacturing
technology. Typically, expenses related to research, development, and regulatory approval of compounds for SequestOx, which is a branded pharmaceutical product are
significantly greater than those expenses associated with generic products. Expanded research and development efforts are required, resulting in increased research expenses.
Because of the inherent risk associated with research and development efforts in the healthcare industry, particularly with respect to new drugs, our research and development
expenditures may not result in the successful regulatory approval and introduction of new pharmaceutical products and failure in the development of any new product can occur at
any point in the process, including late in the process after substantial investment. Also, after we submit a regulatory application, the relevant governmental health authority may
require that we conduct additional studies, including, for example, studies to assess the product’s interaction with alcohol. As a result, we may be unable to reasonably predict the
total research and development costs to develop a particular product and there is a significant risk that the funds we invest in research and development will not generate financial
returns. In addition, our operating results and financial condition may fluctuate as the amount we spend to research and develop, commercialize, acquire or license new products,
technologies and businesses changes. Much of the preceding occurred with the development of SequestOx, which has not yet received marketing approval from the FDA, with
material adverse effects on our business, results of operations, financial condition, cash flows and ability to operate resulting in the past, as well as the risk remaining for the future.
We expend a significant amount of resources on product development efforts that may not result in successful product commercializations.
We conduct product development to enable us to gain approval, manufacture and market pharmaceuticals in accordance with applicable laws and regulations. We have
also partnered with third parties, such as SunGen, in the past, to develop products. There can be no assurances of the recovery of any or all investments made conducting such
product development activities, even if the product or products are successful in achieving regulatory approval and commercialization. An event of significant resources, financial
and otherwise, being consumed by product development activities that fail to achieve approval/commercialization or fail to achieve sufficient return of such investments and
resources consumed, that any investment made in such product development activities could result in a material adverse effect on our business, results of operations, financial
condition, cash flow, ability to operate and our stock price.
Before we can obtain regulatory approval, we need to successfully complete clinical trials, outcomes of which are uncertain.
In order to obtain FDA approval to market a new drug product, we must demonstrate proof of safety and effectiveness in humans. To meet these requirements, we must
conduct extensive preclinical testing and “adequate and well-controlled” clinical trials. Conducting clinical trials is a lengthy, time-consuming, and expensive process. Completion
of necessary clinical trials may take several years or more. Delays associated with products for which we are directly conducting preclinical or clinical trials may cause us to incur
additional operating expenses. The commencement and rate of completion of clinical trials may be delayed by many factors, including, without limitation, for example:
● ineffectiveness of our product candidate or perceptions by physicians that the product candidate is not safe or effective for a particular indication;
● inability to manufacture sufficient quantities of the product candidate for use in clinical trials;
● delay or failure in obtaining approval of our clinical trial protocols from the FDA or institutional review boards;
● slower than expected rate of patient recruitment and enrollment;
● inability to adequately follow and monitor patients after treatment;
● difficulty in managing multiple clinical sites;
● unforeseen safety issues;
● government or regulatory delays; and,
● clinical trial costs that are greater than we currently anticipate.
Even if we achieve positive interim results in clinical trials, these results do not necessarily predict final results, and positive results in early trials may not be indicative of
success in later trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after achieving promising results in
earlier trials. Negative or inconclusive results or adverse medical events during a clinical trial could cause us to repeat or terminate a clinical trial or require us to conduct additional
trials. We do not know whether our existing or any future clinical trials will demonstrate safety and efficacy sufficiently to result in marketable products. Our clinical trials may be
suspended at any time for a variety of reasons, including if the FDA or we believe the patients participating in our trials are exposed to unacceptable health risks or if the FDA
finds deficiencies in the conduct of these trials.
Failures or perceived failures in our clinical trials will directly delay our product development and regulatory approval process, damage our business prospects, make it
difficult for us to establish collaboration and partnership relationships, and negatively affect our reputation and competitive position in the pharmaceutical community.
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Because of these risks, our research and development efforts may not result in any commercially viable products. Any delay in, or termination of, our preclinical or clinical
trials will delay the filing of our drug applications with the FDA and, ultimately, our ability to commercialize our product candidates and generate product revenues. If a significant
portion of these development efforts are not successfully completed, required regulatory approvals are not obtained, or any approved products are not commercially successful,
our business, financial condition, and results of operations may be materially harmed.
Our pipeline of products under development include products that would be filed as branded pharmaceuticals and if generic manufacturers use litigation and regulatory means
to obtain approval for generic versions of one or more of such branded drugs, our sales may be adversely affected.
Under the Hatch-Waxman Act, the FDA can approve an ANDA for a generic bioequivalent version of a previously approved drug, without undertaking the full clinical
testing necessary to obtain approval to market a new drug. In place of such clinical studies, an ANDA applicant usually needs only to submit data demonstrating that its generic
product is bioequivalent to the branded product.
Our product development pipeline includes a range of abuse resistant opioid products, with full clinical testing activity being currently planned, in progress or
successfully completed. In recent years, various generic manufacturers have filed ANDAs seeking FDA approval for generic versions of opioids and opioids with abuse resistant
characteristics. In connection with our filings, these manufacturers may challenge the validity and/or enforceability of one or more of the underlying patents protecting our
products. While it is the Company’s intention to vigorously defend and pursue all available legal and regulatory avenues in defense of the intellectual property rights protecting
our products, it must also be stressed that litigation is inherently uncertain, and we cannot predict the timing or outcome of our efforts. There can also be no assurance that our
efforts in defense of the intellectual property rights protecting our products will be successful.
If we are not successful in defending our intellectual property rights, or opt to settle, or if a product’s marketing exclusivity rights expire or become otherwise
unenforceable, our competitors could ultimately launch generic versions of one or more of our branded products, after such products have been approved by the FDA, which
could significantly decrease our revenues and could have a material adverse effect on our business, financial conditions, results of operations and cash flow. Furthermore, such a
material adverse effect may result in a material adverse effect on our share price.
The time necessary to develop generic drugs may adversely affect whether, and the extent to which, we receive a return on our capital.
The development process for branded and generic products, including, without limitation, drug formulation, testing, and FDA review and approval, often takes three or
more years. This process requires that we expend considerable capital to pursue activities that do not yield an immediate or near-term return. Also, because of the significant time
necessary to develop a product, the actual market for a product at the time it is available for sale may be significantly less than the originally projected market for the product. If this
were to occur, our potential return on our investment in developing the product, if approved for marketing by the FDA, would be adversely affected and we may never receive a
return on our investment in the product. It is also possible for the manufacturer of the brand-name product for which we are developing a generic drug to obtain approvals from the
FDA to switch the brand-name drug from the prescription market to the OTC market. If this were to occur, we would be prohibited from marketing our product other than as an OTC
drug, in which case revenues could be substantially less than we anticipated.
The risks and uncertainties inherent in conducting clinical trials could delay or prevent the development and commercialization of our own branded products, which could have a
material adverse effect on our business, results of operations and financial condition.
With respect to our branded products which do not qualify for the FDA’s abbreviated application procedures, we must demonstrate through clinical trials that these
products are safe and effective for use. We have only limited experience in conducting and supervising clinical trials. The process of completing clinical trials and preparing an
NDA may take several years and requires substantial resources. Our studies and filings may not result in FDA approval to market our new drug products and, if the FDA grants
approval, we cannot predict the timing of any approval. There are substantial filing fees for NDAs, often in excess of $1 million in addition to the cost of product development and
clinical trials, that are not refundable if FDA approval is not obtained.
There are a number of risks and uncertainties associated with clinical trials. The results of clinical trials may not be indicative of results that would be obtained from large
scale testing. Clinical trials are often conducted with patients having advanced stages of disease and, as a result, during the course of treatment these patients can die or suffer
adverse medical effects for reasons that may not be related to the pharmaceutical agents being tested, but which nevertheless affect the clinical trial results. In addition, side effects
experienced by the patients may cause delay of approval or limit the profile of an approved product. Moreover, our clinical trials may not demonstrate sufficient safety and efficacy
to obtain approval from the FDA or foreign regulatory authorities. The FDA or foreign regulatory authorities may not agree with our assessment of the clinical data or they may
interpret it differently. Such regulatory authorities may require additional or expanded clinical trials. Even if the FDA or foreign regulatory authorities approve certain products
developed by us, there is no assurance that such regulatory authorities will not subject marketing of such products to certain limits on indicated use.
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Failure can occur at any time during the clinical trial process and, in addition, the results from early clinical trials may not be predictive of results obtained in later and
larger clinical trials, and product candidates in later clinical trials may fail to show the desired safety or efficacy despite having progressed successfully through earlier clinical
testing.
Completion of clinical trials for our product candidates may be delayed or halted for the reasons noted above in addition to many other reasons, including, without
limitation:
● Delays in patient enrolment, and variability in the number and types of patients available for clinical trials;
● Regulators or institutional review boards may not allow us to commence or continue a clinical trial;
● Our inability, or the inability of our partners, if any, to manufacture or obtain from third parties those materials required to complete clinical trials;
● Delays or failure in reaching agreement on acceptable clinical trial contracts or clinical trial protocols with prospective clinical trial sites;
● Risks associated with trial design, which may result in a failure of the trial to show statistically significant results even if the product candidate is effective;
● Difficulty in maintaining contact with patients after treatment commences, resulting in incomplete data
● Poor effectiveness of product candidates during clinical trials;
● Safety issues, including adverse events associated with product candidates;
● Failure of patients to complete clinical trials due to adverse side effects, dissatisfaction with the product candidate, or other reasons;
● Governmental or regulatory delays or changes in regulatory requirements, policy, and guidelines; and,
● Varying interpretation of data by the FDA or other relevant regulatory authorities.
In addition, our product candidates could be subject to competition for clinical study sites and patients from other therapies under development which may delay the
enrolment in or initiation of our clinical trials.
The FDA or other relevant regulatory authorities may require us to conduct unanticipated additional clinical trials, which could result in additional expense and delays in
bringing our product candidates to market. Any failure or delay in completing clinical trials for our product candidates would prevent or delay the commercialization of our product
candidates. We cannot assure that our expenses related to clinical trials will lead to the development of brand-name drugs that will generate revenues in the near future. Delays or
failure in the development and commercialization of our own branded products could have a material adverse effect on our business, results of operations and financial condition.
We rely on third parties to conduct clinical trials and testing for our product candidates, and if they do not properly and successfully perform their legal and regulatory
obligations, as well as their contractual obligations to us, we may not be able to obtain regulatory approvals for our product candidates.
We design the clinical trials for our product candidates but rely on contract research organizations and other third parties to assist us in managing, monitoring and
otherwise carrying out these trials, including, without limitation, with respect to site selection, contract negotiation, analytical testing, and data management. We do not control
these third parties and, as a result, delays may occur as a result of the priorities and operations of these third parties differing from those which we may feel would be most optimal
to the completion of such activities in the most efficient manner possible.
Although we rely on third parties to conduct our clinical trials and related activities, we are responsible for confirming that each of our clinical trials is conducted in
accordance with our general investigational plan and protocol. Moreover, the FDA and other relevant regulatory agencies require us to comply with regulations and standards,
commonly referred to as good clinical practices and good laboratory practices, for conducting, recording, and reporting the results of clinical trials to ensure that the data and
results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities and requirements.
The FDA enforces good clinical practices and good laboratory practices through periodic inspections of trial sponsors, principal investigators, and trial sites. If we, our contract
research organizations, or our study sites fail to comply with applicable good clinical practices and good laboratory practices, the clinical data generated in our clinical trials may be
deemed unreliable and the FDA may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, the
FDA will determine that any of our clinical trials comply with good clinical practices and good laboratory practices. In addition, our clinical trials must be conducted with product
manufactured under the FDA’s current Good Manufacturing Practices, or cGMP, regulations. Our failure or the failure of our contract manufacturers if any are involved in the
process, to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.
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If third parties do not successfully carry out their duties under their agreements with us, if the quality or accuracy of the data they obtain is compromised due to failure to
adhere to our clinical protocols or regulatory requirements, or if they otherwise fail to comply with clinical trial protocols or meet expected deadlines, our clinical trials may not meet
regulatory requirements. If our clinical trials do not meet regulatory requirements or if these third parties need to be replaced, our clinical trials may be extended, delayed,
suspended, or terminated. If any of these events occur, we may not be able to obtain regulatory approval of our product candidates, which could have a material adverse effect on
our business, results of operations and financial condition.
Decreases in the degree to which individuals are covered by healthcare insurance could result in the decreased use of our products.
Employers may seek to reduce costs by reducing or eliminating employer group healthcare plans or by transferring a greater portion of their healthcare costs to their
employees. Job losses, or other economic hardships, especially, but not limited to those hardships resulting from the effects of the COVID-19 global pandemic, may also result in
reduced levels of coverage for some individuals, potentially resulting in lower healthcare coverage for themselves or their families. Furthermore, increased instability in the
insurance marketplace or an increase in uninsured Americans or others living and working in the USA may result from the Tax Cuts and Jobs Act of 2017 elimination of the Patient
Protection and Affordable Care Act (PPACA)’s requirement that individuals maintain health insurance or incur a financial penalty and other steps taken by various governmental
and other organizations to limit or end subsidies to such individuals at comparatively lower income levels. These economic conditions may affect an individual’s ability to afford
healthcare as a result of increased premiums, co-pay or deductible obligations, greater cost sensitivity to existing co-pay or deductible obligations, lost healthcare coverage or for
other reasons. It is possible that such conditions could lead to changes in patient behavior and spending patterns that could negatively affect prescription and usage of certain or
all of our products, including, without limitation, delaying of treatment, rationing of prescription medications, non-filling of prescriptions, reduction in the frequency of visits to
healthcare facilities, utilizing alternative therapies or foregoing healthcare insurance coverage altogether. Such changes may result in the reduced demand for any or all of our
products, which could have a material adverse effect on our business, results of operations, financial condition, cash flows and ability to operate as a going concern.
In December 2018, the U.S. District Court for the Northern District of Texas held in Texas v. Azar that, because the provisions of the PPACA requiring certain individuals
to either obtain health insurance or pay a shared responsibility payment (known as the individual mandate) are no longer permissible under the U.S. Congress’ taxing power, the
entire PPACA is no longer constitutional. The decision was appealed to the U.S. Court of Appeals for the Fifth Circuit. In December 2019, the Fifth Circuit issued an opinion
holding that, while the individual mandate was no longer constitutional, the case must be remanded to the district court to further evaluate whether the mandate can be severed
from the PPACA or the entire PPACA must be stricken down. In January 2020, petitions for certiorari were filed requesting that the U.S. Supreme Court review the Fifth Circuit’s
decision and ultimately decide the constitutionality of the PPACA. In March 2020, the U.S. Supreme Court granted certiorari in the consolidated cases of Texas v. California and
California v. Texas , both of which address the Fifth Circuit’s decision to strike down the individual mandate, while sending back to the district court the question of the overall
law’s constitutionality. Changes in law resulting from this ongoing lawsuit or other court challenges to the PPACA could have a material adverse effect on our business, results of
operations, financial condition, cash flows and ability to operate as a going concern.
We may decide to sell or withdraw approved ANDAs, which could result in a material adverse effect on our ability to operate in the future.
We may, from time to time, sell and/or withdraw approved ANDAs if we determine that the costs of maintaining such ANDAs is excessive when compared to their actual
current value and their perceived value and place in our strategic plans. For example, and without limitation, during the twelve months ended March 31, 2020, we received new
product approvals that would have resulted in us owning a number of ANDAs that would have required us to self-identify as a large size ANDA holder, on the measurement date,
as per the FDA’s Generic Drug User Fee Amendment (“GDUFA”) program fee structure, as opposed to the medium size ANDA classification in effect prior to these new ANDA
approvals. Based on the GDUFA program fees in effect for the period October 1, 2019 through September 30, 2020, the annual fee for large sized ANDA holders was approximately
$1.0 million greater than the fee for medium sized ANDA holders. After conducting a study of ANDAs held, with the GDUFA program fee levels being one of several relevant
factors considered, we identified and sold ANDAs relating to Methadone Tablets, Second Phendimetrazine Product, Hydromorphone Tablets, Oxycodone and Acetaminophen
Tablets and Hydrocodone and Acetaminophen Tablets.
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Although our expectations are to engage only in the sale or withdrawal of ANDAs if they advance or otherwise support our overall strategy, any such ANDA sale by
definition reduces the size and scope of our business, with a direct correlation to opportunities with respect to certain markets, products or therapeutic categories, resulting in the
potential for any such ANDA sale or withdrawal having a material adverse effect on our business, results of operations, financial condition, cash flow and ability to operate in the
future.
The pharmaceutical industry is heavily regulated, which creates uncertainty about our ability to bring new products to market and imposes substantial compliance costs on our
business in relation to product development as well as commercial operations.
Governmental authorities such as the FDA impose substantial requirements on the development, manufacture, holding, labelling, marketing, advertising, promotion,
distribution and sale of therapeutic pharmaceutical products through lengthy and detailed laboratory and clinical testing and other costly and time-consuming procedures. In
addition, before obtaining regulatory approvals for certain generic products, we must conduct limited bioequivalence studies and other research to show comparability to the
branded products. A failure to obtain satisfactory results in required pre-marketing trials may prevent us from obtaining required regulatory approvals. The FDA may also require
companies to conduct post-approval studies and post-approval surveillance regarding their drug products and to report adverse events.
Before obtaining regulatory approvals for the sale of any of our new product candidates, we must demonstrate through preclinical studies and clinical trials that the
product is safe and effective for each intended use. Preclinical and clinical studies may fail to demonstrate the safety and effectiveness of a product. Likewise, we may not be able
to demonstrate through clinical trials that a product candidate’s therapeutic benefits outweigh its risks. Even promising results from preclinical and early clinical studies do not
always accurately predict results in later, large scale trials. A failure to demonstrate safety and efficacy could or would result in our failure to obtain regulatory approvals. Clinical
trials can be delayed for reasons outside of our control, which can lead to increased development costs and delays in regulatory approval. For example, due to competition to enroll
patients in clinical trials, there have been instances of delays in clinical development of our products in the past, as a result of patients not enrolling in clinical trials at the rate
expected, or patients dropping out of trials after enrolling, at rates that were higher than expected. In addition, we rely on collaboration partners and third-party subject matter
experts that may recommend changes in trial protocol and design enhancements that are put into effect, or encounter clinical trial compliance-related issues, which may also delay
clinical trials. Product supplies may be delayed or be insufficient to treat the patients participating in the clinical trials, or manufacturers or suppliers may not meet the requirements
of the FDA or foreign regulatory authorities, such as those relating to Current Good Manufacturing Practices. We also may experience delays in obtaining, or we may not obtain,
required initial and continuing approval of our clinical trials from institutional review boards. We cannot confirm to you that we will not experience delays or undesired results in
these or any other of our clinical trials.
We cannot confirm to you that the FDA will approve, clear for marketing or certify any products developed by us or that such approval will not subject the marketing of
our products to certain limits on indicated use. The FDA may not agree with our assessment of the clinical data or they may interpret it differently. Such regulatory authorities may
require additional or expanded clinical trials. Any limitation on use imposed by the FDA or delay in or failure to obtain FDA approvals or clearances of products developed by us
would adversely affect the marketing of these products and our ability to generate product revenue, which would adversely affect our financial condition and results of operations.
In addition, with respect specifically to pharmaceutical products, the submission of a New Drug Application (NDA), such as SequestOx™, or ANDA to the FDA with
supporting clinical safety and efficacy data, for example, does not guarantee that the FDA will grant approval to market the product. Meeting the FDA’s regulatory requirements to
obtain approval to market a drug product, which varies substantially based on the type, complexity and novelty of the pharmaceutical product, typically takes years and is subject
to uncertainty.
Additional delays may result if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. Although the FDA is not
required to follow the recommendations of its Advisory Committees, it usually does. A negative Advisory Committee meeting could signal a lower likelihood of approval, although
the FDA may still end up approving our application. Regardless of an Advisory Committee meeting outcome or the FDA’s final approval decision, public presentation of our data
may shed positive or negative light on our application.
Some drugs are available in the United States that are not the subject of an FDA-approved NDA. In 2011, the FDA’s Center for Drug Evaluation and Research (“ CDER”)
Office of Compliance modified its enforcement policy with regard to the marketing of such “unapproved” marketed drugs. Under CDER’s revised guidance, the FDA encourages
manufacturers to obtain NDA approvals for such drugs by requiring unapproved versions to be removed from the market after an approved version has been introduced, subject
to a grace period at the FDA’s discretion. This grace period is intended to allow an orderly transition of supply to the market and to mitigate any potential related drug shortage.
Depending on the length of the grace period and the time it takes for subsequent applications to be approved, this may result in a period of de facto market exclusivity to the first
manufacturer that has obtained an approved NDA for the previously unapproved marketed drug. We may seek FDA approval for certain unapproved marketed drug products
through the 505(b)(2) regulatory pathway. Even if we receive approval for an NDA under Section 505(b)(2), the FDA may not take timely enforcement action against companies
marketing unapproved versions of the drug; therefore, we cannot be sure that that we will receive the benefit of any de facto exclusive marketing period or that we will fully recoup
the expenses incurred to obtain an approval. In addition, certain competitors and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA’s interpretation
of Section 505(b)(2) is successfully challenged, this could delay or even prevent the FDA from approving any NDA that we submit under Section 505(b)(2).
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Moreover, even if our product candidates are approved under Section 505(b)(2), the approval may be subject to limitations on the indicated uses for which the products
may be marketed or to other conditions of approval or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the
products.
The ANDA approval process for a new product varies in time, is difficult to estimate and can vary significantly, from as little as 10 months from the date of application, to
several years or more. Furthermore, ANDA approvals, if granted, may not include all indications for which the Company may seek to market each product.
Further, once a product is approved or cleared for marketing, failure to comply with applicable regulatory requirements can result in, among other things, suspensions or
withdrawals of approvals or clearances, seizures or recalls of products, injunctions against the manufacture, holding, distribution, marketing and sale of a product, and civil and
criminal sanctions. Furthermore, changes in existing regulations or the adoption of new regulations could prevent us from obtaining, or affect the timing of, future regulatory
approvals or clearances. Meeting regulatory requirements and evolving government standards may delay marketing of our new products for a considerable period of time, impose
costly procedures upon our activities and result in a competitive advantage to larger companies that compete against us.
Based on scientific developments, post-market experience, or other legislative or regulatory changes, the current FDA standards of review for approving new
pharmaceutical products, or new indications or uses for approved or cleared products, are sometimes more stringent than those that were applied in the past.
Some new or evolving FDA review standards or conditions for approval or clearance were not applied to many established products currently on the market, including
certain opioid products. As a result, the FDA does not have as extensive safety databases on these products as on some products developed more recently. Accordingly, we
believe the FDA has expressed an intention to develop such databases for certain of these products, including many opioids. In particular, the FDA has expressed interest in
specific chemical structures that may be present as impurities in a number of opioid narcotic active pharmaceutical ingredients, such as oxycodone, which based on certain
structural characteristics and laboratory tests may indicate the potential for having mutagenic effects. FDA has required, and may continue to require, more stringent controls of
the levels of these impurities in drug products for approval.
Also, the FDA may require labelling revisions, formulation, or manufacturing changes and/or product modifications for new or existing products containing such
impurities. The FDA’s more stringent requirements, together with any additional testing or remedial measures that may be necessary, could result in increased costs for, or delays
in, obtaining approval for certain of our products in development. Although we do not believe that the FDA would seek to remove a currently marketed product from the market
unless such mutagenic effects are believed to indicate a significant risk to patient health, we cannot make any such assurance.
In May of 2016, an FDA advisory panel recommended mandatory training of all physicians who prescribe opioids on the risks of prescription opioids. In 2016, the CDC
also issued a guideline for prescribing opioids for chronic pain that provides recommendations for primary care clinicians who are prescribing opioids for chronic pain outside of
active cancer treatment, palliative care, and end-of-life care. In addition, state health departments and boards of pharmacy have authority to regulate distribution and may modify
their regulations with respect to prescription narcotics in an attempt to curb abuse. In either case, any such new regulations or requirements may be difficult and expensive for us
to comply with, may delay our introduction of new products, may adversely affect our total revenues, and may have a material adverse effect on our business, results of
operations, financial condition and cash flows.
The FDA has the authority to require companies to undertake additional post-approval studies to assess known or signaled safety risks and to make any labelling
changes to address those risks. The FDA also can require companies to formulate approved Risk Evaluation and Mitigation Strategies (REMS) to confirm a drug’s benefits
outweigh its risks.
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The FDA’s exercise of its authority under the FFDCA could result in delays or increased costs during product development, clinical trials and regulatory review, increased
costs to comply with additional post-approval regulatory requirements and potential restrictions on sales of approved products. Foreign regulatory agencies often have similar
authority and may impose comparable requirements and costs. Post-marketing studies and other emerging data about marketed products, such as adverse event reports, may also
adversely affect sales of our products. Furthermore, the discovery of significant safety or efficacy concerns or problems with a product in the same therapeutic class as one of our
products that implicate or appear to implicate the entire class of products could have an adverse effect on sales of our product or, in some cases, result in product withdrawals. The
FDA has continuing authority over the approval of an NDA or ANDA and may withdraw approval if, among other reasons, post-marketing clinical or other experience, tests, or
data show that a drug is unsafe for use under the conditions upon which it was approved, or if FDA determines that there is a lack of substantial evidence of the drug’s efficacy
under the conditions described in its labelling. Furthermore, new data and information, including information about product misuse or abuse at the user level, may lead government
agencies, professional societies, practice management groups or patient or trade organizations to recommend or publish guidance or guidelines related to the use of our products,
which may lead to reduced sales of our products.
The FDA and the DEA have important and complementary responsibilities with respect to our business. The FDA administers an application and post-approval
monitoring process to confirm that products that are available in the market are safe, effective, and consistently of uniform, high quality. The DEA administers registration, drug
allotment and accountability systems to satisfy against loss and diversion of controlled substances. Both agencies have trained investigators that routinely, or for cause, conduct
inspections, and both have authority to seek to enforce their statutory authority and regulations through administrative remedies as well as civil and criminal enforcement actions.
The FDA regulates and monitors the quality of drug clinical trials to provide human subject protection and to support marketing applications. The FDA may place a hold on a
clinical trial and may cause a suspension or withdrawal of product approvals if regulatory standards are not maintained. The FDA also regulates the facilities, processes, and
procedures used to manufacture and market pharmaceutical products in the U.S. Manufacturing facilities must be registered with the FDA and all products made in such facilities
must be manufactured in accordance with the latest cGMP regulations, which are enforced by the FDA. Compliance with clinical trial requirements and cGMP regulations requires
the dedication of substantial resources and requires significant expenditures. In the event an approved manufacturing facility for a particular drug is required by the FDA to curtail
or cease operations, or otherwise becomes inoperable, or a third-party contract manufacturing facility faces manufacturing problems, obtaining the required FDA authorization to
manufacture at the same or a different manufacturing site could result in production delays, which could adversely affect our business, results of operations, financial condition,
and cash flow and ability to operate in the future.
The FDA is authorized to perform inspections of U.S. and foreign facilities under the FFDCA. At the end of such an inspection, FDA could issue a Form 483 Notice of
Inspectional Observations, which could cause us to modify certain activities identified during the inspection. Following such inspections, the FDA may issue an untitled letter as
an initial correspondence that cites violations that do not meet the threshold of regulatory significance of a Warning Letter. FDA guidelines also provide for the issuance of
Warning Letters for violations of “regulatory significance” for which the failure to adequately and promptly achieve correction may be expected to result in an enforcement action.
FDA also may issue Warning Letters and untitled letters in connection with events or circumstances unrelated to an FDA inspection.
Similar to other pharmaceutical companies, during Fiscal 2017, our facilities were subject to routine and new-product related inspections by the FDA. These inspections
resulted in FDA Form 483 observations and a warning letter regarding post marketing adverse drug experience reporting. We have responded to all inspection observations within
the required time frame and have implemented, or are continuing to implement, the corrective action plans as agreed with the relevant regulatory agencies. Please also see the risk
factor titled “We received a Warning Letter from the U.S. Food and Drug Administration regarding Post marketing Adverse Drug Experience reporting. The Warning Letter does
not restrict the production or shipment of any of the Company’s products, or the sale or marketing of the Company’s products, however, unless and until the Company is able to
correct the outstanding issues identified, to the FDA’s satisfaction, the FDA may withhold approval of pending drug applications or take other actions that would have a
material adverse impact on the Company”.
Many of our products contain controlled substances. The stringent DEA regulations on our use of controlled substances include restrictions on their use in research,
manufacture, distribution, and storage. A breach of these regulations could result in imposition of civil penalties, refusal to renew or action to revoke necessary registrations, or
other restrictions on operations involving controlled substances. In addition, failure to comply with applicable legal requirements subjects the manufacturing facilities of our
subsidiaries and manufacturing partners to possible legal or regulatory action, including shutdown. Any such shutdown may adversely affect their ability to supply us with
product and thus, our ability to market affected products. This could have a negative impact on our business, results of operations, financial condition, cash flows and competitive
position. See also the risk described under the caption “The DEA limits the availability of the active ingredients used in many of our current products and products in
development, as well as the production of these products, and, as a result, our procurement and production quotas may not be sufficient to meet commercial demand or
complete clinical trials.” In addition, we are subject to the Federal Drug Supply Chain Security Act (DSCSA). The U.S. government has enacted DSCSA which requires
development of an electronic pedigree to track and trace each prescription drug at the saleable unit level through the distribution system, which will be effective incrementally over
a 10-year period. Compliance with DSCSA and future U.S. federal or state electronic pedigree requirements may increase our operational expenses and impose significant
administrative burdens.
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We cannot determine what effect changes in regulations or legal interpretations or requirements by the FDA or the courts, when and if promulgated or issued, may have
on our business in the future. Changes could, among other things, require different labelling, monitoring of patients, interaction with physicians, education programs for patients or
physicians, curtailment of necessary supplies, or limitations on product distribution. These changes, or others required by the FDA or DEA could have an adverse effect on the
sales of these products. The evolving and complex nature of regulatory science and regulatory requirements, the broad authority and discretion of the FDA and the generally high
level of regulatory oversight results in a continuing possibility that, from time to time, we will be adversely affected by regulatory actions despite our ongoing efforts and
commitment to achieve and maintain full compliance with all regulatory requirements.
Furthermore, once a product receives marketing approval, the manufacturing, distribution, processing, formulation, packaging, labelling, promotion and sale of our
products are subject to extensive regulation by federal agencies, including, without limitation, the FDA, DEA, FTC, Consumer Product Safety Commission, and Environmental
Protection Agency, among others. We are also subject to state and local laws, regulations, and agencies in New Jersey and elsewhere. Such regulations are also subject to change
by the relevant federal, state and local agencies. For instance, beginning from January 1, 2015, manufacturers, wholesale distributors, and repackages of certain prescription drugs
are required to provide and capture certain product tracing information under the Drug Quality and Security Act (“DQSA”). Title II of the DQSA, referred to as the Drug Supply
Chain Security Act, requires companies in certain prescription drugs’ chain of distribution to build electronic, interoperable systems to identify and trace the products as they are
distributed in the United States. Compliance with the DQSA or any future federal or state electronic pedigree requirements may increase the Company's operational expenses and
impose significant administrative burdens.
Regulatory agencies such as the FDA regularly inspect our manufacturing facilities and the facilities of our third-party suppliers. The failure of the Northvale Facility, or a
facility of one of our third-party suppliers, to comply with applicable laws and regulations may lead to breach of representations made to our customers or to regulatory or
government action against us related to products made in that facility. We have in the past received and successfully resolved Form 483 observations from the FDA regarding
certain operations within our manufacturing network. Although we remain committed to continuing to improve our quality control and manufacturing practices, we cannot be
assured that the FDA will continue to be satisfied with our quality control and manufacturing systems and standards. If we receive any future FDA observations, we may be
subject to regulatory action including, among others, monetary sanctions or penalties, product recalls or seizure, injunctions, total or partial suspension of production and/or
distribution, and suspension or withdrawal of regulatory approvals. Further, other federal agencies, our customers and partners in our alliance, development, collaboration, and
other partnership agreements with respect to our products and services may take any such Form 483 observations into account when considering the award of contracts or the
continuation or extension of such partnership agreements. If we receive any future Form 483 observations or warning letters from the FDA, our business, consolidated results of
operations and consolidated financial condition could be materially and adversely affected.
With respect to environmental, safety and health laws and regulations, we cannot accurately predict the outcome or timing of future expenditures that we may be required
to make in order to comply with such laws as they apply to our operations and facilities. We are also subject to potential liability for the remediation of contamination associated
with both present and past hazardous waste generation, handling, and disposal activities. We are subject periodically to environmental compliance reviews by environmental,
safety, and health regulatory agencies. Environmental laws are subject to change and we may become subject to stricter environmental standards in the future and face larger
capital expenditures in order to comply with environmental laws.
Compliance with federal and state and local law regulations, including compliance with any newly enacted regulations, requires substantial expenditures of time, money,
and effort to ensure full technical compliance. Failure to comply with the FDA, DEA, EPA and other governmental regulations can result in fines, disgorgement, unanticipated
compliance expenditures, recall or seizure of products, exposure to product liability claims, total or partial suspension of production or distribution, suspension of the FDA’s
review of NDAs or ANDAs, enforcement actions, injunctions and civil or criminal prosecution, any of which could have a material and adverse effect on our business, results of
operations and financial condition.
If pharmaceutical companies are successful in limiting the use of generics through their legislative, regulatory and other efforts, our sales of generic products may suffer.
Many pharmaceutical companies increasingly have used state and federal legislative and regulatory means to delay generic competition. These efforts have included:
● Pursuing new patents for existing products which may be granted just before the expiration of earlier patents, which could extend patent protection for additional
years;
● Using the Citizen Petition process (for example, under 21 C.F.R. s. 10.30) to request amendments to FDA standards;
● Attempting to use the legislative and regulatory process to have drugs reclassified or rescheduled or to set definitions of abuse-deterrent formulations to protect
patents and profits; and
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● Engaging in state-by-state initiatives to enact legislation that restricts the substitution of some generic drugs.
If pharmaceutical companies or other third parties are successful in limiting the use of generic products through these or other means, our sales of generic products and
our growth prospects may decline. A material decline in generic product sales will have a material adverse effect on our results of operations, financial condition, cash flows and
our ability to operate.
The availability of third party reimbursement for our products is uncertain, and thus we may find it difficult to maintain current price levels. Additionally, the market may not
accept those products for which third party reimbursement is not adequately provided.
Our ability to commercialize and generate revenues and profit splits relating to the sale of our products depends, in part, on the extent to which reimbursement for the
costs of these products is available from government healthcare programs, such as Medicaid and Medicare, private health insurers and others. We cannot be certain that, over
time, third party reimbursements for our products will be adequate for us to maintain price levels sufficient for realization of an appropriate return on our investment. Government
payers, private insurers and other third party payers are increasingly attempting to contain healthcare costs by: (i) limiting both coverage and the level of reimbursement (including
adjusting co-pays) for drugs, (ii) refusing, in some cases, to provide any coverage for off-label uses for drugs and (iii) requiring or encouraging, through more favorable
reimbursement levels or otherwise, the substitution of generic alternatives to branded drugs. The Trump Administration also has been targeting drug prices in ways that could
affect reimbursement for our products. For example, beginning in January 2019, Medicare Advantage Plans will be permitted to apply “step therapy” to products covered under
Part B, which could impact our ability to negotiate for favorable product access in this sector. Additionally, in October 2018, President Trump announced a new initiative to contain
drug costs by establishing an “international pricing index” that would be used as a benchmark in deciding how much to pay for Medicare Part B drugs. The Centers for Medicare
and Medicaid Services (CMS) issued an Advance Notice of Proposed Rulemaking for the Medicare Program that would reduce Part B drug spending and reimbursement in part
based on the prices that manufacturers charge to customers in foreign countries (also referred to as reference pricing). This proposal targets physician-administered drugs, and it is
therefore possible that any final rule could adversely affect reimbursement for certain products that we sell, and we cannot anticipate the adverse impact of this or similar
developments on our business. Additionally, the new Congress is considering multiple proposals impacting healthcare. There can be no assurance as to which proposals, if any,
will be adopted, the final terms of any such proposals and the ultimate impact that such proposals would have on our business, but there can be no assurances given that any
such impact will not be materially detrimental to our business, results of operations, financial condition, cash flows and ability to operate in the future.
If we are unable to satisfy FDA regulatory requirements, we may not be able to commercialize our product candidates.
We need FDA approval prior to marketing our product candidates in the United States of America. If we fail to obtain FDA approval to market our product candidates, we
will be unable to sell our product candidates in the United States of America and we will not generate any revenue from the sale of such products.
This regulatory review and approval process, which includes evaluation of preclinical studies and clinical trials of our product candidates, is lengthy, expensive, and
uncertain. To receive approval, we must, among other things, demonstrate with substantial evidence from well-controlled clinical trials that our product candidates are both safe
and effective for each indication where approval is sought. Satisfaction of these requirements typically takes several years, and the time needed to satisfy them may vary
substantially, based on the type, complexity, and novelty of the pharmaceutical product. We cannot predict if or when we might submit for regulatory approval any of our product
candidates currently under development. Any approvals we may obtain may not cover all of the clinical indications for which we are seeking approval. Also, an approval might
contain significant limitations in the form of narrow indications, warnings, precautions, or contra-indications with respect to conditions of use.
The FDA has substantial discretion in the approval process and may either refuse to accept an application for substantive review or may form the opinion after review of
an application that the application is insufficient to allow approval of a product candidate. If the FDA does not accept our application for review or approve our application, it may
require that we conduct additional clinical, preclinical or manufacturing validation studies and submit the data before it will reconsider our application. Depending on the extent of
these or any other studies that might be required, approval of any applications that we submit may be delayed by several years, or we may be required to expend more resources
than we have available. It is also possible that any such additional studies, if performed and completed, may not be considered sufficient by the FDA to make our applications
approvable. If any of these outcomes occur, we may be forced to abandon our applications for approval.
We will also be subject to a wide variety of foreign regulations governing the development, manufacture and marketing of our products. Whether or not an FDA approval
has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must still be obtained prior to manufacturing or marketing the product in
those countries. The approval process varies from country to country and the time needed to secure approval may be longer or shorter than that required for FDA approval. We
cannot assure you that clinical trials conducted in one country will be accepted by other countries or that approval of our product in one country will result in approval in any
other country.
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Litigation, product liability claims, other significant legal proceedings, government investigations and product recalls are common in the pharmaceutical industry and can be
protracted and expensive and could delay and/or prevent entry of our products into the market, which, in turn, could have a material adverse effect on our business.
As a business that operates in the pharmaceutical industry, we are inherently exposed to significant potential risks from lawsuits, product liability claims, patent and
proprietary rights claims, other significant proceedings, government investigations or product recalls, including, without limitation, such matters associated with the testing,
manufacturing, marketing and sale of our products. While no such judgements have been made against us to date, some plaintiffs have received substantial damage awards or
settlements against other healthcare companies based upon various legal theories, including, without limitation, claims for injuries allegedly caused by use of their products. Our
business continues to be inherently exposed to the risk of being subject to product liability cases, as well as other significant legal proceedings and government investigations.
For example, we have been a manufacturer of prescription opioid medications in the past, and while we have not been subject to lawsuits, other manufacturers of such
products, as well as distributors and other sellers of such medications, have been subjects of subject of lawsuits and have received subpoenas and other requests for information
from various federal, state and local government agencies regarding the sale, marketing and/or distribution of prescription opioid medications. Numerous claims against opioid
manufacturers, have been and may continue to be filed by or on behalf of states, counties, cities, Native American tribes, other government-related persons or entities, hospitals,
health systems, unions, health and welfare funds, other third-party payers and/or individuals. In these cases, plaintiffs seek various remedies, including without limitation
declaratory and/or injunctive relief; compensatory, punitive and/or treble damages; restitution, disgorgement, civil penalties, abatement, attorneys’ fees, costs and/or other relief.
Settlement demands may seek significant monetary and other remedies, or otherwise be on terms that would result in material adverse effects on our business and ability to operate
as a going concern. The precedent of awards against and settlements by our competitors could also incentivize parties to bring additional claims against us. In addition to the risks
of direct expenditures for defense costs, settlements and/or judgments in connection with these claims, proceedings and investigations, there is a possibility of loss of revenues,
injunctions and disruption of business. Furthermore, we and other manufacturers of prescription opioid medications have been, and will likely continue to be, subject to negative
publicity and press, which could harm our brand and the demand for our products. In addition, current or future regulatory and legislative proposals could impact us and other
manufacturers of prescription opioid medications. See the risk factor “Our business and financial condition may be adversely affected by legislation” for more information.
In addition, our current and former products may cause or appear to cause serious adverse side effects or potentially dangerous drug interactions if misused or improperly
prescribed or as a result of faulty surgical technique. Any failure to effectively identify, analyze, report and protect adverse event data and/or to fully comply with relevant laws,
rules and regulations around adverse event reporting could expose the Company to legal proceedings, penalties, fines and/or reputational damage.
Also, through the use of social media, plaintiff’s attorneys have a wide variety of tools to advertise their services and solicit new clients for litigation, including using
judgments and settlements obtained in litigation against us or other pharmaceutical companies as an advertising tool. For these or other reasons, any significant product liability or
mass tort litigation in which we are a defendant could have a larger number of plaintiffs than such actions have seen historically and we could also see an increase in the number of
cases filed against us because of the increasing use of widespread and media-varied advertising. Furthermore, a ruling against other pharmaceutical companies in product liability
or mass tort litigation in which we are not a defendant could have a negative impact on pending litigation where we are a defendant.
In addition, in certain circumstances, such as in the case of products that do not meet approved specifications or for which subsequent data demonstrate such products
may be unsafe, ineffective or misused, it may be necessary for us to initiate voluntary or mandatory recalls or withdraw such products from the market. Any such recall or
withdrawal could result in adverse publicity, costs connected to the recall and loss of revenue. Adverse publicity could also result in an increased number of additional product
liability claims, whether or not these claims have a basis in scientific fact. See the risk factor “Public concern around the abuse of opioids or other products, including without
limitation law enforcement concerns over diversion or marketing practices, regulatory efforts to combat abuse, and litigation could result in costs to our business” for more
information.
We are also inherently exposed to litigation concerning patents and proprietary rights which can be protracted and expensive. Companies routinely bring litigation against
applicants and allege patent infringement or other violations of intellectual property rights as the basis for filing suit against an applicant. Elite develops, owns, and/or
manufactures generic and branded pharmaceutical products and such drug products may be subject to such litigation. Litigation often involves significant expense and can delay
or prevent introduction or sale of our products.
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There may also be situations where we use our business judgment and decide to market and sell products, notwithstanding the fact that allegations of patent
infringement(s) have not been finally resolved by the courts. The risk involved in doing so can be substantial because the remedies available to the owner of a patent for
infringement include, among other things, damages measured by the profits lost by the patent owner and not by the profits earned by the infringer. In the case of a willful
infringement, the definition of which is subjective, such damages may be trebled. Moreover, because of the discount pricing typically involved with bioequivalent products,
patented brand products generally realize a substantially higher profit margin than bioequivalent products. An adverse decision in a case such as this or in other similar litigation
could have a material adverse effect on our business, financial position and results of operations and could cause the market value of our Common Stock to decline.
If we are found liable in any lawsuits, including patent infringement, violation of proprietary rights, product liability claims or actions related to our manufacture, sales,
marketing or pricing practices or the sale, marketing and/or distribution of prescription opioid medications, or if we are subject to government investigations or product recalls, it
could result in the imposition of damages, including punitive damages, fines, reputational harm, civil lawsuits, criminal penalties, interruptions of business, modification of business
practices, equitable remedies and other sanctions against us or our personnel as well as significant legal and other costs. We may also voluntarily settle cases even if we believe
that we have meritorious defenses because of the significant legal and other costs that may be required to defend such actions. Any judgments, claims, settlements and related
costs could be well in excess of any applicable insurance. As a result, we may experience significant negative impacts on our operations. To satisfy judgments or settlements, we
also may need to seek financing, which may not be available on terms acceptable to us, or at all, when required. Judgments also could cause defaults under our debt agreements
and/or restrictions on our product use and we could incur losses as a result. Any of the risks above could have a material adverse effect on our business, financial condition,
results of operations and cash flows and ability to operate as a going concern.
The occurrence or possibility of any such result may cause us to pursue one or more significant corporate transactions as well as other remedial measures, including
internal reorganizations, restructuring activities, strategic corporate alignments, cost saving initiatives or asset sales. See the risk factor “Our ability to fund our operations,
maintain liquidity and meet our financing obligations is reliant on our operations, which are subject to significant risks and uncertainties” for more information. Likewise, any
internal reorganizations, restructuring activities, strategic corporate alignments, cost-saving initiatives or asset sales may be complex, could entail significant costs and charges or
could otherwise negatively impact shareholder value and there can be no assurance that we will be able to accomplish any of these alternatives on terms acceptable to us, or at all,
or that they will result in their intended benefits.
Please also see “Item 3. Legal Proceedings” below for further details.
The pharmaceutical industry is highly competitive and subject to rapid and significant technological change, which could impair our ability to implement our business model.
The pharmaceutical industry is highly competitive, and we may be unable to compete effectively. Competitive factors faced include, without limitation, product
development, safety, efficacy, commercialization, marketing, promotion, product quality, cost-effectiveness, reputation, service, patient convenience, access to scientific and
technical information, and ability to manage operations in an economic environment that is severely impacted by a global pandemic such as COVID-19. In addition, the
pharmaceutical industry is undergoing rapid and significant technological change, and we expect competition to intensify as technical advances in each field are made and become
more widely known. An increasing number of pharmaceutical companies have been or are becoming interested in the development and commercialization of products incorporating
advanced or novel drug delivery systems. We expect that competition in the field of drug delivery will increase in the future as other specialized research and development
companies begin to concentrate on this aspect of the business. Some of the major pharmaceutical companies have invested and are continuing to invest significant resources in
the development of their own drug delivery systems and technologies and some have invested funds in specialized drug delivery companies. Many of our competitors have longer
operating histories and, they, and future competitors, may have greater financial, research and development, marketing, and other resources than we do. Furthermore, recent trends
in this industry include market consolidation, which may further concentrate financial, technical, market and other strengths and resources with the result being a further increase
competitive pressures existent in this industry. Such companies may develop new formulations and products, or may improve existing ones, more efficiently than we can. Our
success, if any, will depend in part on our ability to keep pace with the changing technology in the fields in which we operate.
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As we expand our presence in the generic pharmaceuticals market our product candidates may face intense competition from brand-name companies that have taken
aggressive steps to thwart competition from generic companies. In particular, brand-name companies continue to sell or license their products directly or through licensing
arrangements or strategic alliances with generic pharmaceutical companies (so-called “authorized generics”). No significant regulatory approvals are required for a brand-name
company to sell directly or through a third party to the generic market, and brand-name companies do not face any other significant barriers to entry into such market. In addition,
such companies continually seek to delay generic introductions and to decrease the impact of generic competition, using tactics which include, without limitation:
● obtaining new patents on drugs whose original patent protection is about to expire;
● filing patent applications that are more complex and costly to challenge;
● filing suits for patent infringement that automatically delay approval from the FDA;
● filing citizens’ petitions with the FDA contesting approval of the generic versions of products due to alleged health and safety issues;
● developing controlled-release or other “next-generation” products, which often reduce demand for the generic version of the existing product for which we may be
seeking approval;
● changing product claims and product labeling;
● developing and marketing as over-the-counter products those branded products which are about to face generic competition; and,
● making arrangements with managed care companies and insurers to reduce the economic incentives to purchase generic pharmaceuticals.
These strategies may increase the costs and risks associated with our efforts to introduce our generic products under development and may delay or prevent such
introduction altogether.
New tariffs and evolving trade policy between the United States and other countries, including China and Mexico, may have an adverse effect on our sourcing of critical raw
materials from suppliers located outside of the United States and corresponding adverse effects on our business and results of operations.
Some of our suppliers, including those of critical active pharmaceutical ingredients are located outside of the United States. There is currently significant uncertainty
about the future relationship between the U.S. and various other countries, including China and Mexico, with respect to trade policies, treaties, government regulations and tariffs.
The Trump Administration has called for substantial changes to U.S. foreign trade policy, including the possibility of imposing greater restrictions on international trade and
significant increases in tariffs on goods imported into the U.S. These tariffs could potentially disrupt our existing supply chains and impose additional costs on our business,
including, without limitation, costs with respect to raw materials upon which our business depends. Furthermore, if tariffs, trade restrictions or trade barriers are placed on products
such as ours by foreign governments, especially China, it could cause us to raise prices for our products, which may result in the loss of customers with a corresponding
detrimental impact on our business, financial condition, results of operations, cash flow and ability to operate. If we are unable to pass along increased costs to our customers, our
margins could be adversely affected, with a corresponding detrimental impact on our business, financial condition, results of operations, cash flow and ability to operate.
Additionally, it is possible further tariffs may be imposed that could affect imports of active pharmaceutical ingredients and excipients used in our products, or our business may be
adversely impacted by retaliatory trade measures taken by China or other countries, including restricted access to such raw materials used in our products, causing us to raise
prices or make changes to our products, which could require significant resources and time for regulatory compliance. This would have a corresponding detrimental impact on our
business, financial condition, results of operations, cash flow and ability to operate. Furthermore, the continued threats of tariffs, trade restrictions and trade barriers could have a
generally disruptive impact on the global economy and, therefore, negatively impact our sales profit margins, profit splits, raw material costs and ability to source raw materials. For
example, the Trump Administration has placed tariffs on certain goods imported from China. In January 2020, the U.S. and China agreed to roll back certain tariffs, expand trade
purchases and renew commitments on intellectual property, technology transfer and currency practices. Nevertheless, given the volatility and uncertainty regarding the scope and
duration of these tariffs, and the effects of the global COVID-19 pandemic on such trade and diplomatic relations, the impact on our operations and results in uncertain and could
be significant. Given the unpredictable regulatory environment in China and the U.S. and uncertainty regarding how the U.S. or foreign governments will act with respect to tariffs,
international trade agreements and policies, further governmental action related to tariffs, additional taxes, regulatory changes or other retaliatory trade measures in the future could
occur with a corresponding detrimental impact on our business, financial condition, results of operations, cash flow and ability to operate.
Even after regulatory approval, we will be subject to ongoing significant regulatory obligations and oversight as evidenced by the FDA’s removal from the market of our
Lodrane® extended release product line in 2011.
Even if regulatory approval is obtained for a particular product candidate, the FDA and foreign regulatory authorities may, nevertheless, impose significant restrictions on
the indicated uses or marketing of such products, or impose ongoing requirements for post-approval studies. Following any regulatory approval of our product candidates, we will
be subject to continuing regulatory obligations, such as safety reporting requirements, and additional post-marketing obligations, including regulatory oversight of the promotion
and marketing of our products. If we become aware of previously unknown problems with any of our product candidates here or overseas or at our contract manufacturers’
facilities, a regulatory agency may impose restrictions on our products, our contract manufacturers or on us, including requiring us to reformulate our products, conduct additional
clinical trials, make changes in the labelling of our products, implement changes to or obtain re-approvals of our contract manufacturers’ facilities or withdraw the product from the
market. In addition, we may experience a significant drop in the sales of the affected products, our reputation in the marketplace may suffer and we may become the target of
lawsuits, including class action suits. Moreover, if we fail to comply with applicable regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory
approvals, product recalls, seizure of products, operating restrictions, and criminal prosecution. Any of these events could harm or prevent sales of the affected products or could
substantially increase the costs and expenses of commercializing and marketing these products.
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In March 2011, the FDA issued a directive removing from the market approximately 500 cough/cold and allergy products, including our Lodrane® extended release
product line. At that time, the Lodrane® extended release products constituted approximately 97% of our revenues.
Agreements between branded pharmaceutical companies and generic pharmaceutical companies are facing increased government scrutiny in the United States and
Internationally.
There are numerous and continuing litigation in which generic companies challenge the validity or enforceability of an innovator products patents and/or the applicability
of such patents to a generic applicant’s products. Settlement of such litigation is a common outcome, with review of such agreements by the U.S. Federal Trade Commission (the
“FTC”) and the Antitrust Division of the Department of Justice (the “DOJ”) being required by law. The FTC has stated publicly its view that some of these settlement agreements
violate antitrust laws and has commenced actions against the branded and generic companies that are parties to these agreements. Accordingly, in the event of the Company being
party to a settlement agreement, either as the branded, innovator product owner, or as the generic applicant, we may receive formal or informal requests from the FTC for
information about a settlement agreement and there is a risk of the FTC alleging a violation of antitrust laws and commencing an action against us.
In addition, the United States Congress has proposed legislation that would limit the types of settlement agreements generic manufacturers can enter into with brand
companies. In 2013, the Supreme Court, in FTC v. Actavis, determined that reverse payment patent settlements between generic and brand companies should be evaluated under
the rule of reason, and provided limited guidance beyond the selection of this standard. Due to the court’s non-articulation of a precise rule of lawfulness for such settlements,
there may be extensive litigation over what constitutes a reasonable and lawful patent settlement between and brand and generic company.
The impact of such future litigation, if any, legislative proposals, and potential future court decisions is uncertain, and there can be no assurances that such impact will
not have an adverse effect on the Company’s business, its financial condition, results of operations, cash flows and its stock price.
We may incur significant liability if it is determined that we are promoting or have in the past promoted the “off-label” use of drugs.
In jurisdictions including, without limitation, the United States, a company is not permitted to promote drugs for uses that are not described in the product’s labelling and
that differ from those that were approved or cleared by the FDA. Such users are commonly referred to as “off-label uses”. Under what is known as the “practice of medicine”,
physicians and other healthcare practitioners may prescribe drug products for off-label or unapproved uses. While the FDA does not regulate a physician’s choice of medications,
treatments, or product uses, the Federal Food Drug and Cosmetic Act (“FFDC”) and FDA regulations significantly restrict permissible communications on the subject of off-label
uses of drug products by pharmaceutical companies. The FDA, FTC, the Office of the Inspector General of the Department of Health and Human Services (“HHS”), the DOJ and
various state Attorneys General actively enforce laws and regulations that prohibit the promotion of off-label uses. A company that is found to have improperly promoted off-label
uses may be subject to significant liability, including civil fines, criminal fines and penalties, civil damages, exclusion from federal funded healthcare programs and potential liability
under the federal False Claims Act and any applicable state false claims act. Conduct giving rise to such liability could also form the basis for private civil litigation by third-party
payers or other persons claiming to be harmed by such conduct.
Notwithstanding the regulatory restrictions on off-label promotion, the FDA’s regulations and judicial case law allows companies to engage in some forms of truthful,
non-misleading and non-promotional speech concerning the off-label use of products. Elite believes it and its marketing partners comply with these restrictions.
Nonetheless, the FDA, HHS, DOJ, and/or state Attorneys General, and qui tam relators may take the position that the Company is not in compliance with such
requirements, and if such non-compliance is proven, the consequences of such may have an adverse material effect on our business, financial condition, results of operations,
cash flows and stock price.
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Our products contain narcotic ingredients. As a result of reports of misuse or abuse of prescription narcotics, the sale of such drugs may be subject to increased litigation risk
and new regulation, including the development of Risk Evaluation and Mitigation Strategy (“REMS”), which may prove difficult or expensive to comply with.
Some of our current products and products under development contain narcotics. Misuse or abuse of such drugs can lead to physical or other hard. The FDA and/or the
DEA may impose new regulations concerning the manufacture, storage, transportation, distribution, and sale of prescription narcotics. Such regulations may include new labelling
requirements, the development and implementation of a formal REMS, restrictions on prescription and sale of such products and mandatory reformulation in order to make abuse of
such products more difficult. In 2007, Congress passed legislation authorizing the FDA to require companies to undertake post-approval studies in order to assess known or
signaled potential serious safety risks and to make any labelling changes necessary to address safety risks. Congress also empowered the FDA to require companies to formulate
REMS to confirm a drug’s benefits exceed its risks. In 2011, the FDA issued letters to manufacturers of long-acting and extended-release opioids requiring them to develop and
submit to the FDA a post-market REMS plan to require that training is provided to prescribers of these products and that information is provided to prescribers that they can use in
counselling patients on the risks and benefits of opioid drug use. Elite does not currently own a product that requires a REMS plan, but some of the products in our pipeline may
require a REMS plan. The federal government has also released a comprehensive action plan to reduce prescription drug abuse, which may include proposed legislation to
amended existing controlled substances laws to require healthcare practitioners who request DEA registration to prescribe controlled substances to receive training on opioid
prescribing practices as a condition of registration. In addition, state health departments and boards of pharmacy have authority to regulate distribution and may modify their
regulations with respect to prescription narcotics in an attempt to curb abuse.
Such new regulations or requirements may be difficult or cost prohibitive for us to comply with, resulting in delays in the commercialization of new products, and
decreased profitability of existing and new products. Such occurrences may have material adverse effects on our business, financial condition, results of operations, cash flows
and stock price.
Our business and financial condition may be adversely affected by legislation or regulatory reform of the healthcare system in the United States.
In April 2018, New York enacted a statute called the Opioid Stewardship Act (the Stewardship Act), which, among other things, provided for certain sellers and
distributors of certain opioids in the state of New York (the Contributing Parties) to make payments to a newly created Opioid Stewardship Fund (the Fund). By its terms, the
Stewardship Act required Contributing Parties to pay a total of up to $100 million annually into the Fund, with each Contributing Party’s share based on the total amount of
morphine milligram equivalents of certain opioids sold or distributed by the Contributing Party in the state of New York during the preceding calendar year, subject to potential
adjustments by the New York State Department of Health. Failure of a Contributing Party to make required reports or pay its ratable share, or a Contributing Party passing on the
cost of its ratable share to a purchaser, could subject the Contributing Party to penalties. In December 2018, the U.S. District Court for the Southern District of New York held the
Stewardship Act unconstitutional. This ruling is on appeal. If the decision is reversed, we may be deemed to be a Contributing Party under the Stewardship Act and even if we are
not considered to be a Contributing Party, or such a determination is never made, other entities may attempt to seek reimbursement from us for payments made related to products
manufactured by us and distributed in New York. Furthermore, the application of the Stewardship Act may require additional regulatory guidance, which could be substantially
delayed, increasing the uncertainty as to the ultimate effect of the Stewardship Act on us. If we are ultimately deemed to be a Contributing Party under the Stewardship Act, or
similar legislation that could be enacted by New York or other jurisdictions, compliance with those laws could have an adverse effect on our business, results of operations,
financial condition and cash flows. Additionally, in October 2018, the U.S. Congress enacted the Substance Use-Disorder Prevention that Promotes Opioid Recovery and
Treatment for Patients and Communities Act (H.R. 6). Intended to achieve sweeping reform to combat the opioid epidemic, H.R. 6, among other provisions, amends related laws
administered by the FDA, DEA and CMS. Among other things, the law: amends requirements related to the FDA’s authority to include packaging requirements in REMS
requirements; increases civil and criminal penalties for drug manufacturers and distributors for failing to maintain effective controls against diversion of opioids or for failing to
report suspicious opioid orders; requires the DEA to estimate the amount of opioid diversion when establishing manufacturing and procurement quotas; implements expanded
anti-kickback and financial disclosure provisions; and authorizes the Department of Health and Human Services to implement a demonstration program which would award grants
to hospitals and emergency departments to develop, implement, enhance or study alternative pain management protocols and treatments that limit the use and prescription of
opioids in emergency departments. While the effect of this legislation is still uncertain, it is likely that our products will be affected by enforcement of the legislation, including
through related policies and implementing regulations. There can be no assurances that the effects of this legislation will not be detrimental to our business, results of operations,
financial condition, cash flow or ability to operate.
Furthermore, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively commonly referred to as the
“Affordable Care Act” may affect the operational results of companies in the pharmaceutical industry such as ours by imposing additional costs. Effective January 1, 2010, the
Affordable Care Act, amongst other changes, increased the minimum Medicaid drug rebates for pharmaceutical companies and revised the definition of “average manufacturer
price” for reporting purposes, which may affect the amount of Medicaid drug rebates to states related to the sales of our products, whether such sales are made directly by
Company or by one of the Company’s licensees. Beginning in 2011, the law also imposed a significant annual fee on companies that manufacture or import branded prescription
drug products.
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The Affordable Care Act contemplates the promulgation of significant future regulatory action which may also further affect our business. In addition, since its
enactment, the legislative and executive branches of the federal government have proposed multiple revisions to the Affordable Care Act, the effect of which, if implemented, may
result in changes to the health care laws or regulatory framework that could result in the reduction of revenues or increased costs which could also have a material adverse effect
on our business, results of operations and financial condition.
Please also see the above risk factor titled “The availability of third-party reimbursement for our products is uncertain, and thus we may find it difficult to maintain current
price levels. Additionally, the market may not accept those products for which third party reimbursement is not adequately provided”.
The DEA limits the availability of the active ingredients used in many of our current products and products in development, as well as the production and distribution of these
products, and, as a result, our procurement, production, and distribution quotas may not be sufficient to meet commercial demand or complete clinical trials.
The DEA regulates chemical compounds as Schedule I, II, III, IV or V substances, with Schedule I substances considered to present the highest risk of substance abuse
and Schedule V substances the lowest risk. The active ingredients in some of our current products and products in development, including, without limitation, hydromorphone,
methadone, phentermine, phendimetrazine and oxycodone, are listed by the DEA as Scheduled substances under the Controlled Substances Act of 1970. Consequently, their
manufacture, shipment, storage, sale, and use are subject to a high degree of regulation. Furthermore, the DEA limits the availability of the active ingredients used in many of our
current products and products in development and we and/or our contract customers and suppliers, must annually apply to the DEA for procurement quotas in order to obtain and
distribute these substances. As a result, our procurement and production quotas may not be sufficient to meet commercial demand or to complete clinical trials. Moreover, the DEA
may adjust these quotas from time to time during the year, although the DEA has substantial discretion in whether or not to make such adjustments. Any delay or refusal by the
DEA in establishing our quotas, or modification of our quotas, for controlled substances could delay or result in the stoppage of our clinical trials or product launches or could
cause trade inventory disruptions for those products that already been launched, which could have a material adverse effect on our business, financial position, cash flows and
stock price.
Approvals for our new generic drug products may be delayed or become more difficult to obtain if the FDA institutes changes to its approval requirements.
The FDA may institute changes to its ANDA approval requirements, which may make it more difficult or expensive for us to obtain approval for our new generic products.
For instance, in July 2012, the Generic Drug Fee User Amendments of 2012 (“GDUFA”) was enacted into law. The GDUFA legislation implemented fees for new ANDAs, Drug
Master Files, product and establishment fees and a one-time fee for back-logged ANDAs pending approval as of October 1, 2012. In return, the program is intended to provide
faster and more predictable ANDA reviews by the FDA and increased inspections of drug facilities. Under GDUFA, generic product companies face significant penalties for failure
to pay the new user fees, including rendering an ANDA not “substantially complete” until the fee is paid. Any failure by us or our suppliers to pay the fees or to comply with the
other provisions of GDFUA may impact or delay our ability to file ANDAs, obtain approvals for new generic products, generate revenues and thus may have a material adverse
effect on our business, results of operations and financial condition.
In addition to the implementation of new fees and review procedures by the FDA, the FDA may also implement other changes that may directly affect some of our ANDA
filings pending approval from the FDA, such as changes to guidance from the FDA regarding bioequivalency requirements for particular drugs. Such changes may cause our
development of such generic drugs to be significantly more difficult or result in delays in FDA approval or result in our decision to abandon or terminate certain projects. Any
changes in FDA requirements may make it more difficult for us to file ANDAs or obtain approval of our ANDAs and generate revenues and thus have a material adverse effect on
our business, results of operations and financial condition.
The illegal distribution and sale by third parties of counterfeit versions of our products or of stolen products could have a negative impact on our reputation and a material
adverse effect on our business, results of operations and financial condition.
Third parties could illegally distribute and sell counterfeit versions of our products, which do not meet the rigorous manufacturing and testing standards that our
products undergo. Counterfeit products are frequently unsafe or ineffective and can be life-threatening. Counterfeit medicines may contain harmful substances, the wrong dose of
the active pharmaceutical ingredient or no active pharmaceutical ingredients at all. However, to distributors and users, counterfeit products may be visually indistinguishable from
the authentic version.
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Reports of adverse reactions to counterfeit drugs or increased levels of counterfeiting could materially affect patient confidence in the authentic product. It is possible
that adverse events caused by unsafe counterfeit products will mistakenly be attributed to the authentic product. In addition, thefts of inventory at warehouses, plants or while in-
transit, which are not properly stored, and which are sold through unauthorized channels could adversely impact patient safety, our reputation, and our business.
Public loss of confidence in the integrity of pharmaceutical products as a result of counterfeiting or theft could have a material adverse effect on our business, results of
operations and financial condition.
We received a Complete Response Letter from the FDA that indicated that our SequestOx™ NDA is not ready for approval in its present form. We have paused further
development of this product and we cannot assure that development will restart. If we are unable to obtain approval for SequestOx™ or if we incur significant costs or delays in
obtaining such approval, our ability to commercialize SequestOx™ may be materially adversely affected.
In July 2016, the FDA issued a Complete Response Letter, or CRL, regarding the NDA. The CRL stated that the review cycle for the SequestOx NDA is complete and the
application is not ready for approval in its present form. On December 21, 2016, we met with the FDA for an end-of-review meeting to discuss steps that we could take to obtain
approval of SequestOx. Based on the FDA response, we believe there is a path forward to address the issues cited in the CRL, with such path forward including modification of the
SequestOx formulation, and the successful completion of in vitro and in vivo studies. If we are unable to modify the formulation or if we are unable to successfully complete the
required studies, we will not meet the requirements specified by the FDA for resubmission of the NDA. Furthermore, there can be no assurances given that the FDA will eventually
approve our NDA. If we are unable to obtain approval for SequestOx, or if we incur significant costs or delays in obtaining such approval, our ability to commercialize SequestOx
may be materially adversely affected. Furthermore, in the event that the Company does receive marketing approval for SequestOx™, there can be no assurances of the Company
realizing future revenues or profits related to this product, or that any such future revenues and profits would be in amounts that provide adequate return on the significant
investments made to secure this marketing authorization. The Company has currently paused further development of SequestOx due to the prohibitive cost of such and attendant
risks related thereto.
Our business and operations could be negatively affected by shareholder activism, which could cause us to incur significant expenses, hinder execution of our business strategy
and impact our share price
In recent years, shareholder activism involving corporate governance, fiduciary duties of Directors and Officers, strategic direction and operations has become
increasingly prevalent. If we become the subject of such shareholder activism, their demands may disrupt our business and divert the attention of our management, Board and
employees. Also, we may incur substantial costs, including legal fees and other expenses, related to such activist shareholder matters. Perceived uncertainties resulting from such
activist shareholder matters may result in loss of potential business opportunities with our current and potential customers and business partners, be exploited by our competitors
and make attracting and retaining qualified personnel more difficult. In addition, such shareholder activism may cause significant fluctuations in our share price based on temporary
or speculative market perceptions, uncertainties or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
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The effects of shareholder activism pursued against the Company could have an adverse material effect on our business, financial condition, results of operations, cash
flows and stock price.
Extensive industry regulation has had and will continue to have, a significant impact on our business in the area of cost of goods, especially our product development,
manufacturing and distribution capabilities.
We, like all other pharmaceutical companies located or engaged in business in the U.S. are subject to extensive, complex, costly and evolving regulation by the federal
government, including the FDA and, in the case of controlled drugs, the DEA, as well as applicable state government agencies. The Federal Food, Drug and Cosmetic Act, the
Controlled Substance Act and multiple other federal statutes, regulations and guidance govern or influence the development, testing, manufacture, packing, labelling, storing,
record keeping, safety, approval, advertising, promotion, sale, shipment and distribution of our products.
The process for obtaining governmental approval to manufacture and market pharmaceutical products is rigorous, time-consuming and costly and we cannot predict the
extent to which we may be affected by legislative and regulatory developments. We are dependent on receiving FDA and other governmental or third-party approvals prior to
manufacturing, marketing and shipping our products. The FDA approval process for a particular product candidate can take several years and requires us to dedicate substantial
resources to complete all activities necessary to secure approvals and we may not be able to obtain regulatory approval for our product candidates in a timely manner, or at all. In
order to obtain approval for our generic product candidates, we must demonstrate that our drug product is therapeutically equivalent and bioequivalent to a drug previously
approved by the FDA through the drug approval process, known as the reference listed drug (“RLD”) or reference standard drug (“RS”). Bioequivalence may be demonstrated in
vivo or in vitro by comparing the generic product candidate to the innovator drug product. During the FDA review process, the FDA may request additional information and
studies to support approval of an application, which could delay approval of the product and impair our ability to compete with other versions of the generic drug product.
Inherent to this process is the possibility that we will not obtain FDA or other necessary approvals, or that the rate, timing and cost of such approvals will adversely
affect our product introduction plans or results of operations. We may carry inventories of certain products in anticipation of launch and if such products are not subsequently
launched, we may be required to write-off the related inventory, if such inventories have no foreseeable commercial value to us.
In addition, facilities used to manufacture and/or test materials and drug products we market are subject to periodic inspection of facilities by the FDA, the DEA, and other
authorities to confirm that firms are in compliance with all applicable regulations. The FDA conducts pre-approval and/or post-approval inspections to determine whether systems
and processes are in compliance with cGMP and other FDA regulations. A Form 483 notice is generally issued at the conclusion of an FDA inspection and lists conditions the
FDA inspectors believe may violate cGMP or other FDA regulations. If more serious violations are identified, the FDA may take additional action, such as issuing warning letters,
import alerts, etc. The DEA and comparable state-level agencies also heavily regulate the manufacturing, holding, processing, security, record-keeping and distribution of drugs
that are controlled substances. We manufacture and/or distribute certain controlled substances and are accordingly subject to oversight, regulation and inspection by the DEA.
The DEA periodically inspects facilities for compliance with its regulations. If our manufacturing facilities or those of our suppliers fail to comply with applicable regulatory
requirements, it could result in regulatory action and additional costs.
Our inability or the inability of our suppliers to comply with applicable FDA and other regulatory requirements can result in, among other things, delays in or denials of
new product approvals, warning letters, import alerts, fines, consent decrees restricting or suspending manufacturing operations, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of sales and/or criminal prosecution. Any of these or other regulatory actions could have an adverse material effect on our business, financial
condition, results of operations, cash flows and stock price.
While we have instituted internal compliance programs, if these programs do not meet regulatory agency standards or if compliance is deemed deficient in any significant
way, it could have an adverse material effect on our business, financial condition, results of operations, cash flows and stock price.
Our manufacturing operations as well as our suppliers' manufacturing operations are subject to establishment registration by the FDA and periodic inspections by the FDA to
assure compliance regarding the manufacturing of our products. If we or our suppliers do not maintain the current registrations or if we or our partners receive notices of
manufacturing and quality-related observations following inspections by the FDA, our operating results would be materially negatively impacted.
Our facilities, as well as those of applicable suppliers, rely on maintaining current FDA, and DEA if applicable, registration and other license to produce and develop
generic drugs and raw materials used in such operations. If we, or one of our suppliers does not successfully renew and maintain current FDA, DEA and other required licenses,
our operations and financial results would be negatively impacted. We and our suppliers are subject to periodic inspection by the FDA, DEA and other regulatory agencies, as
applicable, to assure regulatory compliance regarding the manufacture and distribution of pharmaceutical products and raw materials. These regulatory bodies impose stringent
mandatory requirements on the manufacture and distribution of pharmaceutical products to ensure their safety and efficacy. If we or any of our third party suppliers receive notices
of manufacturing and quality-related observations and are unable to satisfactorily resolve the issues and observations identified in a timely fashion, there could be a material
adverse effect on our business, financial condition, results of operations, cash flow and stock price.
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If brand pharmaceutical companies are successful in limiting the use of generics through legislative and regulatory efforts, our sales of generic products may suffer
Many brand pharmaceutical companies have increasingly used state and federal legislative and regulatory means to delay generic competition. These efforts have
included, without limitation:
● Pursuing new patents for existing products which may be granted prior to the expiration of an existing patent, thereby achieving extended patent protection for
additional years or otherwise delay market entry of generic competition;
● Using the Citizen Petition process to request amendments to FDA standards;
● Seeking changes to U.S. Pharmacopeia, an organization that publishes industry recognized compendia of drug standards;
● Attaching patent extension amendments to non-related federal legislation;
● Engaging in state by state initiatives to enact legislation that restricts the substitution of some generic drugs, which could have an impact on products that we are
developing;
● Persuading regulatory bodies to withdraw the approval of brand-name drugs for which the patents are about to expire and converting the market to another product
of the brand company on which longer patent protection exists;
● Entering into agreements whereby other generic companies will begin to market an authorized generic at the same time or after generic competition initially enters the
market;
● Filing suits for patent infringement and other claims that may delay or prevent regulatory approval, manufacture and/or scale of generic products;
● Introducing “next generation” products prior to the expiration of market exclusivity for the reference product, which often materially reduces demand for the generic
or the reference product for which we seek regulatory approval for a generic equivalent.
Some pharmaceutical companies have lobbied the United States Congress for amendments to the Hatch-Waxman Act that would give them additional advantages over
generic competitors. For example, although the term of a company’s drug patent can be extended to reflect a portion of the time an NDA is under regulatory review, some
companies have proposed extending the patent term by a full year for each year spent in clinical trials rather than the one-half year that is currently permitted.
If proposals like these were to become effective, or if any other actions, such as those listed above or otherwise, by our competitors and other third parties to prevent or
delay activities necessary to the approval, manufacture, distribution or sale of our products are successful, our entry in to the market and our ability to generate revenues
associated with new products may be delayed, reduced or eliminated, any or all of which could have a material adverse effect on our business, financial condition, results of
operations, cash flows and stock price.
Health care initiatives and other third-party payor cost-containment pressures have and could continue to cause us to sell our products at lower prices, resulting in decreased
revenues.
Some of our products that are marketed under license granted to marketing partners such as Lannett, Glenmark and TAGI, in turn, purchased or reimbursed by state and
federal government authorities, private health insurers and other organizations, such as health maintenance organizations, or HMOs and managed care organizations, or MCOs.
Third-party payors increasingly challenge pharmaceutical product pricing. There also continues to be a trend toward managed health care in the United States. Pricing pressures
by third-party payors and the growth of organizations such as HMOs and MCOs could result in lower prices and a reduction in demand for our products.
One such governmental program, known as the 340B Program, requires pharmaceutical manufacturers to enter into an agreement, called a pharmaceutical pricing
agreement (PPA), with the Secretary of Health and Human Services. Under the PPA, the manufacturer agrees to provide front-end discounts on covered outpatient drugs
purchased by specified providers, called “covered entities,” that serve the nation’s most vulnerable patient populations. Outpatient prescription drugs, over the counter drugs
(accompanied by a prescription), and clinic-administered drugs within eligible facilities are covered.
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In addition, legislative and regulatory proposals and enactments to reform health care and government insurance programs could significantly influence the manner in
which pharmaceutical products and medical devices are prescribed and purchased. We expect there will continue to be federal and state laws and/or regulations, proposed and
implemented, that could limit the amounts that federal and state governments will pay for health care products and services. The extent to which future legislation or regulations, if
any, relating to the health care industry or third-party coverage and reimbursement may be enacted or what effect such legislation or regulation would have on our business
remains uncertain. For example, H.R.987, the “Strengthening Health Care and Lowering Prescription Drug Costs Act,” which incorporated a bipartisan effort to address prescription
drug pricing combined with broader provisions protecting the Affordable Care Act, was passed by the House of Representatives on May 16, 2019, but it is not expected to pass in
the Senate. The bill does represent bipartisan consensus on the need to reform the drug pricing system. Such measures or other health care system reforms that are adopted could
have a material adverse effect on our industry generally and our ability to successfully commercialize our products or could limit or eliminate our spending on development projects
and affect our ultimate profitability, which could have a material adverse effect on our business, financial condition, results of operations, cash flow and stock price.
We may become subject to federal and state false claims litigation brought by private individuals and the government.
We are subject to state and federal laws that govern the submission of claims for reimbursement. The FFCA imposes civil liability on individuals or entities that knowingly
submit, or cause to be submitted, false or fraudulent claims for payment to the government. Violations of the FFCA and other similar laws may result in criminal fines, imprisonment
and substantial civil penalties for each false claim submitted (including civil penalties presently in excess of $22 thousand per claim, plus treble damages, plus liability for attorney’s
fees) and exclusion from federally funded health care programs, including Medicare and Medicaid. The FFCA also allows private individuals to bring a suit on behalf of the
government against an individual or entity for violations of the FFCA. These suits, also known as Qui Tam or whistle-blower actions, may be brought by, with only a few
exceptions, any private citizen who has material information of a false claim that has not yet been previously disclosed. These suits have increased significantly in recent years
because the FFCA allows an individual to share in the amounts paid to the federal government in fines or settlement as a result of a successful Qui Tam action, in addition to the
recovery of legal fees in bringing such an action. If our past or present operations are found to be in violation of any of such laws or any other governmental regulations that may
apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from federal health care programs and/or the curtailment or
restructuring of our operations. Any penalties, damages, fines, curtailment, or restructuring of our operations could adversely affect our ability to operate our business and our
financial results. Action against us for violation of these laws, even if we successfully defend against them, could cause us to incur significant legal expenses and divert our
management’s attention from the operation of our business.
Recently, the Department of Justice has begun to use the 1961 federal Travel Act as a tool to pursue criminal charges in the case of health care kickback and commercial
bribery allegations. This law was enacted as part of the Kennedy administration’s war on organized crime. It formed the basis for a federal enforcement action against a Texas
physician-owned specialty hospital and a number of surgeons and administrators, who were convicted of conspiring to pay or receive bribes in exchange for referrals of patients in
violation of a state commercial bribery law. Importantly, this case was not limited to claims covered under federal programs, and the failure of the state to bring charges under its
own statute did not prevent the federal case from proceeding. The Travel Act may be used by the Justice Department as a way to expand its reach to penalize kickbacks and similar
arrangements even when the Anti-Kickback Statute and FFCA would not apply. These efforts could increase our vulnerability to litigation and penalties if our past or present
operations are found to be in violation of applicable law which could have a material adverse effect on our business, financial condition, results of operations, cash flow and stock
price.
The design, development, manufacture and sale of our products involves the risk of product liability claims by consumers and other third parties and insurance against such
potential claims is expensive and may be difficult to obtain.
The design, development, manufacture, distribution and sale of our products involve an inherent risk of product liability claims and associated adverse publicity.
Insurance coverage is expensive, increasing in price to prohibitive levels, may be difficult to obtain or may be not available in the future on acceptable terms, or at all. Although we
currently maintain product liability insurance for our products in amounts we believe to be commercially reasonable, if the coverage limits of these insurance policies are not
adequate, a claim brought against us, whether covered by insurance or not, could have a material adverse effect on our business, financial condition, results of operations, cash
flow and stock price.
The recent enactment of State laws affecting the pricing of our products could have the effect of reducing our profitability
Since 2016, several state legislatures have enacted laws regulating the pricing of various types of pharmaceutical products, including generic pharmaceutical products.
These laws vary in applicability and scope, and generally require manufacturers to notify various state agencies of price increases over a given threshold for a given period of time
and to include a justification for any price increases. At least one state law (subsequently struck by the court) authorized the state attorney general to seek civil penalties and
disgorgement in the event a price increase is deemed unconscionable. To the extent these laws apply to our products, they could limit the prices which the company may charge
for its products and reduce the company’s profitability and could have a material adverse effect on our business, growth prospects, financial condition, results of operations, cash
flow and stock price.
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Sales of our products may be adversely affected by the continuing consolidation within the retail and wholesale pharmaceutical markets.
Our products, whether sold directly by the Company or through third parties that are licensed to market and distribute our products are sold in large part to a market that
is comprised of a relatively few retail drug chains, wholesalers, and managed care organizations, with such entities continuing to undergo consolidation. Such consolidation may
provide these customers or our products with additional purchasing leverage, and consequently, may increase the pricing pressures faced by us. Additionally, the emergence of
large buying groups representing independent retail pharmacies, and the prevalence and influence of managed care organizations and similar institutions, enable those groups to
extract price discounts on our products.
In addition, our revenues and quarterly results comparisons may also be affected by fluctuations in the buying patterns of retail chains, major distributors, and other trade
buyers.
The occurrence of any of the above could have a material adverse effect on our business, financial condition, results of operations, cash flow and stock price.
Policies regarding returns, rebates, allowances and chargebacks, and marketing programs adopted by wholesalers may reduce our revenues in future fiscal periods.
Based on industry practice, generic drug manufacturers have liberal return policies and have been willing to give customers post-sale inventory allowances. Such industry
practices apply to the current sales of our products by our marketing partners, which in turn effect profit splits and license fees received, and they will also affect prospective
future sales made directly by Company.
Under these arrangements, from time to time, customers are given credits on our generic products that are held by them in inventory after there is a decrease in the market
prices of the same generic products due to competitive pricing. Therefore, if new competitors enter the marketplace and significantly lower the prices of any of their competing
products, the price of our products would also likely be reduced. As a result, we, or are marketing partners, would be obligated to provide credits to our customers who are then
holding inventories of such products, which could reduce sales revenue, profit splits, license fees and gross margin for the period the credit is provided. Like most competitors in
this market, our marketing partners, or us in the case of prospective direct sales made by the Company, also give credits for chargebacks to wholesalers that have contracts with
our marketing partners, or us, prospectively, for their sales to hospitals, group purchasing organizations, pharmacies, or other customers. A chargeback is the difference between
the price the wholesaler pays and the price that the wholesaler’s end-customer pays for a product. Although, our marketing partners establish, and prospectively we would also
establish reserves based on prior experience and best estimates of the impact that these policies may have in subsequent periods, we cannot ensure that such reserves established
are adequate or that actual product returns, rebates, allowances, and chargebacks will not exceed estimates. Differences between established reserves and actual amounts of such
credits and charges, could result in a material adverse effect on our business, financial condition, results of operations, cash flow and stock price.
Unstable economic conditions may adversely affect our industry, business, results of operations and financial condition.
The global economy has undergone a period of significant volatility, especially during a global pandemic, such as the COVID-19 pandemic, which has led to diminished
credit availability, declines in consumer confidence, and increases in unemployment rates. There remains caution about the stability of the U.S. economy, and we cannot assure
that further deterioration in the financial markets will not occur. These economic conditions have resulted in, and could lead to further, reduced consumer spending related to
healthcare in general and pharmaceutical products in particular.
In addition, we have exposure to many different industries and counterparties, including our partners under our alliance and collaboration agreements, suppliers of raw
chemical materials, drug wholesalers and other customers that may be affected by an unstable economic environment. Any economic instability may affect these parties’ ability to
fulfil their respective contractual obligations to us, cause them to limit or place burdensome conditions upon future transactions with us or drive us and our competitors to
decrease prices, each of which could materially and adversely affect our business, results of operations and financial condition, cash flows and stock price.
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If our product candidates do not achieve market acceptance among physicians, patients, health care payors and the medical community, they will not be commercially successful,
and our business will be adversely affected.
The degree of market acceptance of any of our approved product candidates among physicians, patients, health care payors and the medical community will depend on a
number of factors, including, without limitation:
● acceptable evidence of safety and efficacy;
● relative convenience and ease of administration;
● the prevalence and severity of any adverse side effects;
● availability of alternative treatments;
● pricing and cost effectiveness;
● effectiveness of sales and marketing strategies; and,
● ability to obtain sufficient third-party coverage or reimbursement.
If we are unable to achieve market acceptance for our product candidates, then such product candidates will not be commercially successful, and our business will be
adversely affected.
In addition, even if we are able to obtain regulatory approvals for our new products, the success of those products as well as the success of our previously approved
products, is dependent upon market acceptance. Levels of market acceptance for our new products could be affected by several factors, including, without limitation:
● the availability of alternative products from our competitors;
● the prices of our products relative to those of our competitors;
● the timing of our market entry;
● the ability to market our products effectively at the retail level;
● the perception of patients and the healthcare community, including third-party payers, regarding the safety, efficacy and benefits of our drug products compared to
those of competing products; and,
● the acceptance of our products by government and private formularies.
Some of these factors are not within our control, and our products may not achieve expected levels of market acceptance. Additionally, continuing and increasingly
sophisticated studies of the proper utilization, safety and efficacy of pharmaceutical products are being conducted by the industry, government agencies and others which can call
into question the utilization, safety, and efficacy of previously marketed products. In some cases, studies have resulted, and may in the future result, in the discontinuance of
product marketing or other risk management programs such as the need for a patient registry. Any or all of the above could result in a material adverse effect on our business,
financial condition, results of operations, cash flow and stock price.
We may experience pricing pressure on the price of our products due to social or political pressure to lower the cost of drugs, which would reduce our revenue and future
profitability.
We may experience downward pricing pressure on the price of our products due to social or political pressure to lower the cost of drugs, which would reduce our revenue
and future profitability. Recent events have resulted in increased public and governmental scrutiny of the cost of drugs, especially in connection with price increases following
companies’ acquisition of the rights to certain drug products. In particular, U.S. federal prosecutors have issued subpoenas to pharmaceutical companies seeking information
about drug pricing practices. In addition, the U.S. Senate is publicly investigating a number of pharmaceutical companies relating to drug-price increases and pricing practices. Our
revenue and future profitability could be negatively affected if these inquiries were to result in legislative or regulatory proposals that limit our ability to increase the prices of our
products which could have a material adverse effect on our business, growth prospects, financial condition, results of operations, cash flow and stock price.
In addition, in September 2016, a group of U.S. Senators introduced legislation that would require pharmaceutical manufacturers to justify price increases of more than
10% in a 12-month period, and a large number of individual States have introduced legislation aimed at drug pricing regulation, transparency or both. While this proposed
legislation has not been enacted into law to date, our revenue and future profitability could be negatively affected by the passage of this law or similar federal or state legislation.
Furthermore, pressure from social activist groups and future government regulations may also put downward pressure on the price of drugs, which could result in downward
pressure on the prices of our products in the future, which could have a material adverse effect on our business, growth prospects, financial condition, results of operations, cash
flow and stock price.
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Public concern over the abuse of opioid medications, including increased legal and regulatory action, could negatively affect our business.
While Elite has de-emphasized its programs with respect to opioids and will continue to focus on products other than opioids, certain governmental and regulatory
agencies, as well as state and local jurisdictions, are focused on the abuse of opioid medications in the United States. State and local governmental agencies may investigate us as
a manufacturer and/or distributor of medicines containing opioids or in conjunction with their investigation of other pharmaceutical wholesale distributors, and others in the
supply chain that have a direct or indirect connection to our operations in relation to the distribution of opioid medications. In addition, multiple lawsuits have been filed against
other pharmaceutical manufacturers and distributors alleging, among other claims, that they failed to provide effective controls and procedures to guard against the diversion of
controlled substances, acted negligently by distributing controlled substances to pharmacies that serve individuals who abuse controlled substances, and failed to report
suspicious orders of controlled substances in accordance with regulations. Additional governmental entities have indicated an intent to sue these other manufacturers and
distributors. While no such actions have been taken against us, the immediate effect on the Company has been an inability to commercialize and market three opioid products
approved during fiscal years prior to the twelve months ended March 31, 2020 and a cessation of orders for another two other opioid products that had been marketed by our
marketing partners. During the year ended March 31, 2020, we disposed of four approved ANDA’s for opioid products. As of March 31, 2020, we continue to hold one approved
ANDA for an opioid product that, while approved by the FDA, has not been launched commercially. Further, defense against any such opioid related lawsuits could be prohibitive
with regards to cost resulting in an adverse material effect on our business, financial condition, results of operations, cash flows and stock price. Similar allegations made against
us, even without litigation, could also negatively affect our business in various ways, including through increased costs and harm to our reputation. In addition, an adverse
resolution of any lawsuit or investigation could also have a material adverse effect on our business, results of operations, cash flows and stock price.
Our business is dependent on market perceptions of us and the safety and efficacy or our products. Negative publicity relating to us or our products could have a material
adverse effect on our business, results of operations, financial condition, and cash flows.
Market perceptions or our business are important to us, especially market perceptions of the safety and quality of our products. If any of our products or similar products
that other companies distribute are subject to market withdrawal, recall, or are proven to be, or are claimed to be, harmful to consumers, then this could have a material adverse
effect on our business, results of operations, financial condition, and cash flows. Furthermore, due to the importance of market perceptions, negative publicity associated with
product quality, illness or other adverse effects resulting from, or perceived to be resulting from, our products, or similar products made by other companies, could have a material
adverse effect on our business, results of operations, financial condition, and cash flows.
If we are unable to protect our intellectual property rights or avoid claims that we infringed on the intellectual property rights of others, our ability to conduct business may be
impaired.
Our success depends on our ability to protect our current and future products and to defend our intellectual property rights. If we fail to protect our intellectual property
adequately, competitors may manufacture and market products similar to ours.
We currently hold ten patents. We intend to file further patent applications in the future. We cannot be certain that our pending patent applications will result in the
issuance of patents. If patents are issued, third parties may sue us to challenge our patent protection, and although we know of no reason why they should prevail, it is possible
that they could. In addition to modification or revocation of patents in legal proceedings, issued patents may later be modified or revoked by the U.S. Patent and Trademark Office
or by analogous foreign offices. It is likewise possible that our patent rights may not prevent or limit our present and future competitors from developing, using or commercializing
products that are similar or functionally equivalent to our products.
In addition, we may be required to obtain licenses to patents, or other proprietary rights of third parties, in connection with the development and use of our products and
technologies as they relate to other persons’ technologies. At such time as we discover a need to obtain any such license, we will need to establish whether we will be able to
obtain such a license on favorable terms, if at all. The failure to obtain the necessary licenses or other rights could preclude the sale, manufacture or distribution of our products.
We rely particularly on trade secrets, unpatented proprietary expertise and continuing innovation that we seek to protect, in part, by entering into confidentiality
agreements with licensees, suppliers, employees, and consultants. We cannot provide assurance that these agreements will not be breached or circumvented. We also cannot be
certain that there will be adequate remedies in the event of a breach. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality
agreements. We cannot be sure that our trade secrets and proprietary technology will not otherwise be obtained by other entities, such as government or regulatory authorities, or
become known, obtained, or independently developed by our competitors or by other entities through means beyond our control. We also cannot be sure that, if patents are not
issued with respect to products arising from research, we will be able to maintain the confidentiality of information relating to these products. In addition, efforts to ensure our
intellectual property rights can be costly, time-consuming, and/or ultimately unsuccessful.
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Our competitors or other third parties may allege that we are infringing their intellectual property, forcing us to expend substantial resources in litigation, the outcome of
which is uncertain.
Companies that produce branded pharmaceutical products routinely bring litigation against ANDA or similar applicants that seek regulatory approval to manufacture and
market generic forms of branded products, alleging patent infringement or other violations of intellectual property rights. Patent holders may also bring patent infringement suits
against companies that are currently marketing and selling approved generic products. Litigation often involves significant expense. Additionally, if the patents of others are held
valid, enforceable and infringed by our current products or future product candidates, we would, unless we could obtain a license from the patent holder, need to delay selling our
corresponding generic product and, if we are already selling our product, cease selling and potentially destroy existing product stock. Additionally, we could be required to pay
monetary damages or royalties to license proprietary rights from third parties and we may not be able to obtain such licenses on commercially reasonable terms or at all.
There may be situations in which we may make business and legal judgments to market and sell products that are subject to claims of alleged patent infringement prior to
final resolution of those claims by the courts based upon our belief that such patents are invalid, unenforceable or are not infringed by our marketing and sale of such products.
This is commonly referred to in the pharmaceutical industry as an “at-risk” launch. The risk involved in an at-risk launch can be substantial because, if a patent holder ultimately
prevails against us, the remedies available to such holder may include, among other things, damages calculated based on the profits lost by the patent holder, which can be
significantly higher than the profits we make from selling the generic version of the product. Moreover, if a court determines that such infringement is willful, the damages could be
subject to trebling. We could face substantial damages from adverse court decisions in such matters. We could also be at risk for the value of such inventory that we are unable to
market or sell.
The occurrence of any of the above could have a material adverse effect on our business, financial condition, results of operations, cash flow and stock price.
We depend on qualified scientific and technical employees and are increasingly dependent on our direct sales force, if key personnel were to leave us or if we are unsuccessful
in attracting qualified personnel, our ability to develop products and grow our business could be materially harmed.
Because of the specialized scientific nature of our business, we are highly dependent upon our ability to continue to attract and retain qualified scientific and technical
personnel. We are not aware of any pending, significant losses of scientific or technical personnel. Loss of the services of, or failure to recruit, key scientific and technical
personnel, however, would be significantly detrimental to our product-development programs. As a result of our small size and limited financial and other resources, it may be
difficult for us to attract and retain qualified officers and qualified scientific and technical personnel.
In addition, marketing of our branded product, SequestOx™ will require much greater use of a direct sales force compared to marketing of our generic products. Our ability
to realize significant revenues from marketing and sales activities depends on our ability or the ability of our partners to attract and retain qualified sales personnel. Competition for
qualified sales personnel is intense. Any failure to attract or retain qualified sales personnel could negatively impact our sales revenue and have a material adverse effect on our
business, results of operations, financial condition, cash flows and stock price.
We have entered into employment agreements with our executive officers and certain other key employees. We do not maintain “ Key Man” life insurance on any
executives.
If our collaboration or licensing arrangements are unsuccessful, our revenues and product development may be limited.
We have entered into several collaborations and licensing arrangements for the development of products. However, there can be no assurance that any of these
agreements will result in FDA approvals, or that we will be able to market any such finished products at a profit. Collaboration and licensing arrangements pose the following risks:
● collaborations and licensing arrangements may be terminated, in which case we will experience increased operating expenses and capital requirements if we elect to
pursue further development of the related product candidate;
● collaborators and licensees may delay clinical trials and prolong clinical development, under-fund a clinical trial program, stop a clinical trial, or abandon a product
candidate;
● expected revenue might not be generated because milestones may not be achieved, and product candidates may not be developed;
● collaborators and licensees could independently develop, or develop with third parties, products that could compete with our future products;
● the terms of our contracts with current or future collaborators and licensees may not be favorable to us in the future;
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● a collaborator or licensee with marketing and distribution rights to one or more of our products may not commit enough resources to the marketing and distribution of
our products, limiting our potential revenues from the commercialization of a product;
● disputes may arise delaying or terminating the research, development, or commercialization of our product candidates, or result in significant and costly litigation or
arbitration; and,
● one or more third-party developers could obtain approval for a similar product prior to the collaborator or licensee resulting in unforeseen price competition in
connection with the development product.
Our operations could be disrupted if our information systems fail, if we are unsuccessful in implementing necessary upgrades or if we are subject to cyber-attacks.
Our business depends on the efficient and uninterrupted operation of our computer and communications systems and networks, hardware and software systems and our
other information technology. As such, we continuously invest financial and other resources to maintain, enhance, further develop, replace or add to our information technology
infrastructure. Such efforts carry risks such as cost overruns, project delays and business interruptions, which could have a material adverse effect on our business, financial
condition, results of operations and cash flows. Additionally, these measures are not guaranteed to protect against all cybersecurity incidents.
In the ordinary course of our business, we collect and maintain information, which includes confidential, proprietary and personal information regarding our customers
and employees, in digital form. Data maintained in digital form is subject to risk of cyber-attacks, which are increasing in frequency and sophistication and are made by groups and
individuals with a wide range of motives and expertise, including criminal groups, “hackers” and others. Cyber-attacks could include the deployment of harmful malware, viruses,
worms, denial-of-service attacks, ransomware, social engineering and other means to affect service reliability and threaten data confidentiality, integrity and availability. Despite
our efforts to monitor and safeguard our systems to prevent data compromise, the possibility of a future data compromise cannot be eliminated entirely, and risks associated with
intrusion, tampering and theft remain. In addition, we do not have insurance coverage with respect to system failures or cyber-attacks. If our systems were to fail or we are unable
to successfully expand the capacity of these systems, or we are unable to integrate new technologies into our existing systems, our operations and financial results could suffer.
We also have outsourced certain elements and functions of our operations, including elements of our information technology infrastructure, to third parties, some of
which may be outside the U.S. As a result, we are managing many independent vendor relationships with third parties who may or could have access to our confidential
information. The size and complexity of our and our vendors’ systems make such systems potentially vulnerable to service interruptions. The size and complexity of our and our
vendors’ systems and the large amounts of confidential information that is present on them also makes them potentially vulnerable to security breaches from inadvertent or
intentional actions by our employees, our partners, our vendors or other third parties, or from attacks by malicious third parties.
The Company and its vendors’ information technology operations are spread across multiple, sometimes inconsistent platforms, which pose difficulties in maintaining
data integrity across systems. The ever-increasing use and evolution of technology, including cloud-based computing, creates opportunities for the unintentional or improper
dissemination or destruction of confidential information stored in the Company’s systems.
Any breach of our security measures or the accidental loss, inadvertent disclosure, unapproved dissemination, misappropriation or misuse of trade secrets, proprietary
information or other confidential information, whether as a result of theft, hacking, fraud, trickery or other forms of deception, or for any other cause, could enable others to
produce competing products, use our proprietary technology or information and/or adversely affect our business position. Further, any such interruption, security breach, loss or
disclosure of confidential information could result in financial, legal, business and reputational harm to our company and could have a material adverse effect on our business,
financial condition, results of operations, cash flows and stock price.
We may experience pricing pressure on the price of our products due to social or political pressure to lower the cost of drugs, which would reduce our revenue and future
profitability.
We may experience downward pricing pressure on the price of our products due to social or political pressure to lower the cost of drugs, which would reduce our revenue
and future profitability. Recent events have resulted in increased public and governmental scrutiny of the cost of drugs, especially in connection with price increases following
companies’ acquisition of the rights to certain drug products. In particular, U.S. federal prosecutors have issued subpoenas to pharmaceutical companies seeking information
about drug pricing practices. In addition, the U.S. Senate is publicly investigating a number of pharmaceutical companies relating to drug-price increases and pricing practices. Our
revenue and future profitability could be negatively affected if these inquiries were to result in legislative or regulatory proposals that limit our ability to increase the prices of our
products.
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In addition, in September 2016, a group of U.S. Senators introduced legislation that would require pharmaceutical manufacturers to justify price increases of more than
10% in a 12-month period, and a large number of individual States have introduced legislation aimed at drug pricing regulation, transparency or both. While this proposed
legislation has not been enacted into law to date, our revenue and future profitability could be negatively affected by the passage of this law or similar federal or state legislation.
Furthermore, pressure from social activist groups and future government regulations may also put downward pressure on the price of drugs, which could result in downward
pressure on the prices of our products in the future.
We may not have and may be unable to obtain or maintain adequate insurance coverage to cover all potential liabilities.
We may not have and may be unable to obtain or maintain in the future insurance, on acceptable terms, that provide adequate coverage against potential liabilities or
other losses, such as the cost of a recall or defense against claims, if any claim is brought against us, for any reason, regardless of the merits, success or failure of such claim. In the
past year, as a result of product liability and securities litigation in the general marketplace, and a threatened claim of action against us in relation to the shareholder vote
conducted in December 2019, our insurance premiums have increased significantly, while also providing no greater, and in most cases, lower levels of coverage. The significant
premium increases experienced were prior to, and accordingly did not consider, the impact of the COVID-19 global pandemic on the legal and litigation environment in which we
and all other companies operate.
The amount of our insurance coverage is accordingly limited by our financial resources and greatly impacted by the significant premium increases of the past year and
reasonably expected further increases in the near to mid-term due to the global pandemic. Furthermore, even where claims are submitted to insurance carriers for defenses and
indemnity that are within coverage limits, there can be no assurance that such claims will be fully covered by insurance or that the indemnitors or insurers will remain financially
viable to provide reimbursement consistent with coverage maintained.
Any failure by us, to obtain sufficient insurance coverage, with reimbursement of claims being provided and generate sufficient cash flow, if needed, above insurance
coverage, to pay amounts due in relation to potential claims, will have a material adverse effect on our business, financial condition, results of operations, cash flow and ability to
operate as a going concern.
Impact of Federal Income Tax Reform
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (“TCJA”), that significantly changes the Internal Revenue Code of 1986, as amended.
The TCJA, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%,
limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of
current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated,
immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits.
Any federal net operating loss carryovers created in 2018 and thereafter will be carried forward indefinitely pursuant to the TCJA.
The changes described herein could, individually or in aggregate, increase our future effective tax rate and have a material adverse effect on our business, financial
condition, results of operations, cash flows and stock price.
In addition, prospective or retroactive regulatory and administrative guidance relating to the TCJA could adversely impact our business and current or future projections
of cash taxes.
Risk Related to Our Common Stock
Our stock price has been volatile and may fluctuate in the future.
The market price for the publicly traded stock of pharmaceutical companies is generally characterized by high volatility. There has been significant volatility in the market
prices for our Common Stock. For the twelve months ended March 31, 2020, the closing sale price on the OTC Bulletin Board (“OTC-BB”) of our Common Stock fluctuated from a
high of $0.1410 per share to a low of $0.033 per share. The price per share of our Common Stock may not exceed or even remain at current levels in the future. The market price of
our Common Stock may be affected by a number of factors, including, without limitation:
● Results of our clinical trials;
● Approval or disapproval of our ANDAs or NDAs;
● Announcements of innovations, new products, or new patents by us or by our competitors;
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● Announcements of other material events;
● Governmental regulation;
● Patent or proprietary rights developments;
● Proxy contests or litigation;
● News regarding the efficacy of, safety of or demand for drugs or drug technologies;
● Economic and market conditions, generally and related to the pharmaceutical industry;
● Healthcare legislation;
● Changes in third-party reimbursement policies for drugs; and
● Fluctuations in our operating results.
The sale or issuance of our common stock to Lincoln Park or upon conversion of outstanding preferred stock or exercise of outstanding warrants and options may cause
dilution and the sale of the shares of common stock acquired by Lincoln Park or the issuance of shares upon conversion or exercise of outstanding preferred stock and
warrants, or the perception that such sales and issuances may occur, could cause the price of our common stock to fall.
On May 1, 2017, we entered into the Purchase Agreement with Lincoln Park, pursuant to which Lincoln Park has committed to purchase up to $40,000,000 of our common
stock. Concurrently with the execution of the Purchase Agreement, we issued 5,540,550 shares of our common stock to Lincoln Park as an initial fee for its commitment to purchase
shares of our common stock under the Purchase Agreement. Furthermore, for each additional purchase by Lincoln Park, additional commitment shares in commensurate amounts
up to a total of 5,540,550 shares will be issued based upon the relative proportion of the aggregate amount of $40,000,000 purchased by Lincoln Park. The purchase shares that may
be sold pursuant to the Purchase Agreement may be sold by us to Lincoln Park at our discretion from time to time over a 36-month period commencing after June 5, 2017 and
expiring on July 1, 2020. The purchase price for the shares that we may sell to Lincoln Park under the Purchase Agreement will fluctuate based on the price of our common stock.
Depending on market liquidity at the time, sales of such shares may cause the trading price of our common stock to fall.
We generally have the right to control the timing and amount of any sales of our shares to Lincoln Park. Additional sales of our common stock, if any, to Lincoln Park will
depend upon market conditions and other factors to be determined by us. Lincoln Park may ultimately purchase all, some, or none of the shares of our common stock that may be
sold pursuant to the Purchase Agreement and, after it has acquired shares, Lincoln Park may sell all, some or none of those shares.
In addition, as of March 31, 2020, there were outstanding shares of preferred stock convertible into approximately 158 million shares of Common Stock and warrants to
purchase an aggregate of approximately 79 million shares of Common Stock at an exercise price of $0.1521 per share, vested options to purchase an aggregate of approximately 4.9
million shares at a weighted average exercise price of $0.14. Additional shares of Common Stock may be issuable as a result of anti-dilution provisions in the outstanding preferred
stock and warrants.
As a result of the above discussed potential issuance of securities, such issuances by us could result in substantial dilution to the interests of other holders of our
common stock. Additionally, the sale of a substantial number of shares of our common stock to Lincoln Park or pursuant to the conversion or exercise of outstanding shares of
preferred stock and warrants, or the anticipation of such issuances, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price
that we might otherwise wish to effect sales.
The issuance of our common stock to Directors, Employees, and Consultants in payment of fees and salaries cause dilution and the sale of these shares of common stock so
issued, or the perception that sales of these shares so issued may occur, could cause the price of our common stock to fall.
Pursuant to the Company’s policies relating to the compensation of Directors, 2/3 of all director fees are paid via the issuance of shares of Common Stock, with such
shares being valued at the simple average of the closing price of the Company’s Common Stock for each day in the period for which the director fees were incurred. In addition,
members of the Company’s management, certain employees and consultants receive a portion of their salaries or compensation via the issuance of shares Common Stock, with
such shares being valued by the same method as that used for the shares issued in payment of director fees.
The issuance of these shares is dilutive to holders of our Common Stock, and the subsequent sale of these shares, or the perception that the sale of these shares may
occur, could cause the price of our common stock to fall.
49
Raising of additional funding through sales of our securities could cause existing holders of our Common Stock to experience substantial dilution.
Any additional financing that involves the further sale of our securities could cause existing holders of our Common Stock to experience substantial dilution. On the other
hand, if we incurred debt, we would be subject to risks associated with indebtedness, including the risk that interest rates might fluctuate, and cash flow would be insufficient to
pay principal and interest on such indebtedness.
The issuance of additional shares of our Common Stock or our preferred stock could make a change of control more difficult to achieve.
The issuance of additional shares of our Common Stock, including those shares issued pursuant to conversion of convertible preferred shares, or the issuance of shares
of an additional series of preferred stock could be used to make a change of control of us more difficult and expensive. Under certain circumstances, such shares could be used to
create impediments to, or frustrate persons seeking to cause, a takeover or to gain control of us. Such shares could be sold to purchasers who might side with our Board of
Directors in opposing a takeover bid that the Board of Directors determines not to be in the best interests of our shareholders. It might also have the effect of discouraging an
attempt by another person or entity through the acquisition of a substantial number of shares of our Common Stock to acquire control of us with a view to consummating a merger,
sale of all or part of our assets, or a similar transaction, since the issuance of new shares could be used to dilute the stock ownership of such person or entity.
Provisions of our Articles of Incorporation and By-Laws could defer a change of our Management which could discourage, or delay offers to acquire us.
Provisions of our Articles of Incorporation and By-Laws law may make it more difficult for someone to acquire control of us or for our shareholders to remove existing
management and might discourage a third party from offering to acquire us, even if a change in control or in Management would be beneficial to our shareholders. For example, as
discussed above, our Articles of Incorporation allows us to issue shares of preferred stock without any vote or further action by our shareholders. Our Board of Directors has the
authority to fix and determine the relative rights and preferences of preferred stock. Our Board of Directors also has the authority to issue preferred stock without further
shareholder approval. As a result, our Board of Directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets
upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together
with a premium, prior to the redemption of our common stock. In this regard, on November 15, 2013, we entered into a Shareholder Rights Plan and, under the Rights Plan, our
Board of Directors declared a dividend distribution of one Right for each outstanding share of our common stock and one right for each share of Common Stock into which any of
our outstanding Preferred Stock is convertible, to shareholders of record at the close of business on that date. Each Right entitles the registered holder to purchase from us one
“Unit” consisting of one one-millionth (1/1,000,000) of a share of Series H Junior Participating preferred stock, at a purchase price of $2.10 per Unit, subject to adjustment, and may
be redeemed prior to November 15, 2023, the expiration date, at $0.000001 per Right, unless earlier redeemed by the Company. The Rights generally are not transferable apart from
the common stock and will not be exercisable unless and until a person or group acquires or commences a tender or exchange offer to acquire, beneficial ownership of 15% or more
of our common stock. However, for Mr. Hakim, our Chief Executive Officer, the Rights Plan’s the 15% threshold excludes shares beneficially owned by him as of November 15, 2013
and all shares issuable to him pursuant to his employment agreement and the Mikah Note. Our By-Laws provide for the classification of our Board of Directors into three classes.
There are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance with GAAP. Any future
changes in estimates, judgments and assumptions used or necessary revisions to prior estimates, judgments or assumptions could lead to a restatement of our results.
The consolidated financial statements included in this Annual Report on Form 10-K are prepared in accordance with GAAP. This involves making estimates, judgments
and assumptions that affect reported amounts of assets (including intangible assets), liabilities, mezzanine equity, stockholders’ equity, operating revenues, costs of sales,
operating expenses, other income, and other expenses. Estimates, judgments, and assumptions are inherently subject to change in the future and any necessary revisions to prior
estimates, judgments or assumptions could lead to a restatement. Any such changes could result in corresponding changes to the amounts of assets (including goodwill and other
intangible assets), liabilities, mezzanine equity, stockholders’ equity, operating revenues, costs of sales, operating expenses, other income and other expenses.
Our Common Stock is considered a “penny stock”. The application of the “penny stock” rules to our Common Stock could limit the trading and liquidity of our Common Stock,
adversely affect the market price of our Common Stock, and increase the transaction costs to sell shares of our Common Stock.
Our common stock is a “low-priced” security or “penny stock” under rules promulgated under the Securities Exchange Act of 1934, as amended. In accordance with these
rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure document which describes the risks associated with such stocks, the
broker-dealer’s duties in selling the stock, the customer’s rights and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability
determination approving the customer for low-priced stock transactions based on the customer’s financial situation, investment experience and objectives. Broker-dealers must
also disclose these restrictions in writing to the customer, obtain specific written consent from the customer, and provide monthly account statements to the customer. The effect
of these restrictions will likely decrease the willingness of broker-dealers to make a market in our Common Stock, will decrease liquidity of our Common Stock and will increase
transaction costs for sales and purchases of our Common Stock as compared to other securities.
50
Our Common Stock is quoted on the Over-the-Counter Bulletin Board. The Over-the-Counter Bulletin Board is a quotation system, not an issuer listing service, market, or
exchange, therefore, buying and selling stock on the Over-the-Counter Bulletin Board is not as efficient as buying and selling stock through an exchange. As a result, it may be
difficult to sell our Common Stock for an optimum trading price or at all.
The Over-the-Counter Bulletin Board (the “OTCBB”) is a regulated quotation service that displays real-time quotes, last sale prices and volume limitations in over-the-
counter securities. Because trades and quotations on the OTCBB involve a manual process, the market information for such securities cannot be guaranteed. In addition, quote
information, or even firm quotes, may not be available. The manual execution process may delay order processing and intervening price fluctuations may result in the failure of a
limit order to execute or the execution of a market order at a significantly different price. Execution of trades, execution reporting and the delivery of legal trade confirmations may be
delayed significantly. Consequently, one may not be able to sell shares of our Common Stock at the optimum trading prices.
When fewer shares of a security are being traded on the OTCBB, volatility of prices may increase, and price movement may outpace the ability to deliver accurate quote
information. Lower trading volumes in a security may result in a lower likelihood of an individual’s orders being executed, and current prices may differ significantly from the price
one was quoted by the OTCBB at the time of the order entry. Orders for OTCBB securities may be cancelled or edited like orders for other securities. All requests to change or
cancel an order must be submitted to, received, and processed by the OTCBB. Due to the manual order processing involved in handling OTCBB trades, order processing and
reporting may be delayed, and an individual may not be able to cancel or edit his order. Consequently, one may not be able to sell shares of Common Stock at the optimum trading
prices.
The dealer’s spread (the difference between the bid and ask prices) may be large and may result in substantial losses to the seller of securities on the OTCBB if the
Common Stock or other security must be sold immediately. Further, purchasers of securities may incur an immediate “paper” loss due to the price spread. Moreover, dealers trading
on the OTCBB may not have a bid price for securities bought and sold through the OTCBB. Due to the foregoing, demand for securities that are traded through the OTCBB may be
decreased or eliminated.
We have no plans to pay regular dividends on our ordinary shares or to conduct ordinary share repurchases.
We do not intend to pay any cash dividends either currently or in the foreseeable future on our ordinary shares. Additionally, we do not intend to conduct ordinary share
repurchases either currently or in the foreseeable future.
ITEM 1B UNRESOLVED STAFF COMMENTS
None.
ITEM 2 PROPERTIES
We own a facility located at 165 Ludlow Avenue, Northvale, New Jersey (“ 165 Ludlow”) which contains approximately 15,000 square feet of floor space. This real
property and the improvements thereon are encumbered by a mortgage in favor of the New Jersey Economic Development Authority (“NJEDA”) as security for a loan through tax-
exempt bonds from the NJEDA to Elite. The mortgage contains certain customary provisions including, without limitation, the right of NJEDA to foreclose upon a default by Elite.
The NJEDA has declared the payment of this bond to be in default (for more information on the NJEDA Bonds, see Part II, Item 7 “Management’s Discussion and Analysis of
Financial Condition and Results of Operations; Liquidity and Capital Resources; NJEDA Bonds”). We are currently using the Facility as a laboratory, manufacturing, storage,
distribution, and office space.
We 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, we 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”).
51
The 135 Ludlow Ave. modified lease includes an initial term, which expires 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.
The 135 Ludlow Ave. property required significant leasehold improvements and qualifications, as a prerequisite, for its intended future use. While manufacturing,
packaging, warehousing and regulatory activities are currently conducted at this location, additional renovations and construction continue to occur as required by operations.
165 Ludlow and 135 Ludlow are hereinafter referred to as the “Facilities” or the “Northvale Facility”.
Properties used in our operation are considered suitable for the purposes for which they are used, at the time they are placed into service, and are believed adequate to
meet our needs for the reasonably foreseeable future.
ITEM 3 LEGAL PROCEEDINGS
In the ordinary course of business, we may be subject to litigation from time to time. There is no current, pending or, to our knowledge, threatened litigation or
administrative action to which we are a party or of which our property is the subject (including litigation or actions involving our officers, directors, affiliates, or other key
personnel, or holders of record or beneficially of more than 5% of any class of our voting securities, or any associate of any such party) which in our opinion has, or is expected to
have, a material adverse effect upon our business, prospects financial condition or operations.
ITEM 4 MINE SAFETY DISCLOSURES
Not Applicable.
52
PART II
ITEM 5 MARKET FOR COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our Common Stock is quoted on the Over-the-Counter Bulletin Board under the ticker symbol “ELTP”. The following table shows, for the periods indicated, the high and
low bid prices per share of our Common Stock as by OTC Bulletin Board. Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
Quarter Ended
Fiscal Year Ending March 31, 2020
March 31, 2020
December 31, 2019
September 30, 2019
June 30, 2019
Fiscal Year Ending March 31, 2019
March 31, 2019
December 31, 2018
September 30, 2018
June 30, 2018
High
Low
0.11 $
0.11 $
0.14 $
0.10 $
0.11 $
0.11 $
0.13 $
0.10 $
0.05
0.08
0.04
0.03
0.07
0.07
0.08
0.08
$
$
$
$
$
$
$
$
As of June 26, 2020, the last reported sale price of our Common Stock, as reported by the OTCBB, was $0.0900.
Holders
As of June 23, 2020, there were, respectively, approximately 124 and 1 holders of record of our Common Stock and Series J Preferred Stock.
Dividends
We have never paid cash dividends on our Common Stock. Unless required to pay dividends on our Series J Preferred Stock, we currently anticipate that we will retain all
available funds for use in the operation and expansion of our business.
Recent Sales of Unregistered Securities
None.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth certain information regarding Elite’s equity compensation plans as of March 31, 2020:
Number of
securities
remaining
available
for future
issuance
under equity
compensation
plans
(excluding
securities
reflected in
column
(a))
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants
and rights
(a)
Weighted-
average
exercise
price per share
of outstanding
options,
warrants and
rights
(b)
—
—
—
—
—
—
2,750,000
----(2)
2,750,000
Plan Category
Equity compensation plans approved by security holders (1)
Equity compensation plans not approved by security holders
Total
(1) Represents securities reserved and available for grant under the 2014 Equity Incentive Plan
(2) Represents securities reserved and available for grant under the 2009 Equity Incentive Plan
53
2014 Equity Incentive Plan
Our 2014 Equity Incentive Plan (the “2014 Plan”) was adopted by the Board on March 17, 2014, to attract, motivate and retain officers, employees, consultants, and
directors by issuing common stock-based incentives to directors, officers, employees, and consultants who are selected for participation. By relating incentive compensation to
increases in shareholder value, it is hoped that these individuals will both continue in the long-term service of the Company and be motivated to experience a heightened interest
and participate in the future success of Company operations. An aggregate of 3,000,000 shares of Common Stock are reserved for grant and issuance pursuant to the 2014 Plan.
The 2014 Plan is administered and interpreted by our Compensation Committee (the “Administrator”). Awards under the 2014 Plan may be granted in any one or all of the following
forms: (i) incentive stock options (“ISOs”) intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”); (ii) non-qualified stock options
(“NSOs”); (iii) stock appreciation rights, which may be granted in tandem with options or on a stand-alone basis; (iv) shares of restricted stock; (v) shares of unrestricted stock;
(vi) performance shares, and (vii) performance units.
Options may not be granted under the 2014 Plan at an exercise price of less than the fair market value of the common stock on the date of grant and the term of options
cannot exceed ten years. ISOs may only be granted to persons who are employees of the Company. The exercise price of an ISO granted to a holder of more than 10% of the
common stock must be at least 110% of the fair market value of the common stock on the date of grant, and the term of these options cannot exceed five years.
The Administrator also may grant stock appreciation rights. Stock appreciation rights represent the right to receive upon exercise an amount payable in cash or common
stock equal to (A) the number of shares with respect to which the stock appreciation right is being exercised multiplied by (B) the excess of (i) the fair market value of a share of
common stock on the date the award is exercised over (ii) the exercise price specified in the award agreement.
Under the performance award component of the 2014 Plan, participants may be granted an award denominated in shares of common stock or in dollars. Achievement of
the performance targets, or multiple performance targets established by the Administrator relating to corporate, group, unit or individual performance based upon standards set by
the Administrator shall entitle the participant to payment at the full amount or a portion of the amount specified with respect to the award, at the discretion of the Administrator
based on its evaluation of the performance of the target goals applicable to such award. Payment may be made in cash, common stock or any combination thereof, as determined
by the Administrator, and shall be adjusted in the event the participant ceases to be an employee of the Company before the end of a performance cycle by reason of death,
disability, or retirement.
Under the stock component of the 2014 Plan, the Administrator may, in selected cases, grant to a plan participant a given number of shares of restricted stock or
unrestricted stock. Restricted stock under the 2014 Plan is common stock restricted as to sale pending fulfilment of such vesting schedule and employment requirements as the
Administrator shall determine. Prior to the lifting of the restrictions, the participant will nevertheless be entitled to receive distributions in liquidation and dividends on, and to vote
the shares of, the restricted stock. The 2014 Plan provides for forfeiture of restricted stock for breach of conditions of grant.
The 2014 Plan also permits the board of directors (and not the Compensation Committee) to grant awards of NSOs, restricted stock or unrestricted stock to non-employee
directors. The board may authorize individual grants or adopt one or more formulas for grants of awards to the non-employee directors. All options granted to non-employee
directors must have an exercise price equal to the fair market value at the date of grant.
The exercise price of awards may be paid in cash, in shares of common stock (valued at fair market value at the date of exercise), by delivery of a notice of exercise
together with irrevocable instructions to a broker to deliver to the Company the proceeds of the sale of common stock or of a loan from the broker sufficient to pay the exercise
price, by having the Company withhold from shares being exercised the number of shares having a fair market value equal to the exercise price for all shares being exercised, or by a
combination of the foregoing means of payment, as may be determined by the Administrator.
54
2009 Equity Incentive Plan
Our 2009 Equity Incentive Plan was adopted by the Board on November 24, 2009, to provide incentives to attract, retain and motivate eligible persons whose present and
potential contributions are important to the success of Elite and its subsidiaries, by offering them an opportunity to participate in our future performance through awards of
Options, the right to purchase Common Stock and Stock Bonuses. An aggregate of 8,000,000 shares of Common Stock are reserved for grant and issuance pursuant to the 2009
Equity Incentive Plan. The 2009 Equity Incentive Plan is administered and interpreted by our Compensation Committee (the “Compensation Committee”). Under the 2009 Equity
Incentive Plan, we are permitted to grant both incentive stock options (“Incentive Stock Options” or “ISOs”) within the meaning of Section 422 of the Internal Revenue Code (the
“Code”) to employees, and other options which do not qualify as Incentive Stock Options (the “Non-Qualified Options”) to employees, officers, Directors of and consultants to
Elite. The per share purchase price of options granted under the 2009 Equity Incentive Plan may not be less than the fair market value of the shares on the date of the grant,
provided that the exercise price of any ISO granted to a ten percent stockholder will not be less than 110% of the fair market value on the date of the grant. Recipients of ISO’s and
Non-Qualified Options have no voting, dividend, or other rights as stockholders with respect to shares of Common Stock covered by options prior to becoming the holders of
record of such shares.
Under the 2009 Equity Incentive Plan, we also are permitted to offer stock awards (“2009 Equity Incentive Plan Stock Awards”) to eligible persons. The 2009 Equity
Incentive Plan defines such stock awards as an offer by us to sell to an eligible person shares that may or may not be subject to restrictions. The purchase of price of shares sold
pursuant to a 2009 Equity Incentive Plan Stock Award may not be less than the fair market value of the shares on the grant date, provided, however, that the number of shares
issued for the payment of employee and officers’ salaries, or directors’ fees will be computed using the average daily closing price, which is defined as the simple average of the
closing price of each trading day in the quarter or other applicable period for which payment is due.
We also are permitted to award stock bonuses under the 2009 Equity Incentive Plan, which defines such stock bonuses as an award of shares for extraordinary services
rendered to the Company.
The 2009 Equity Incentive Plan expired on November 24, 2019.
Issuer Purchases of Equity Securities
None.
ITEM 6 SELECTED FINANCIAL DATA
Not applicable.
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is intended to provide a reader of our consolidated financial
statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our
future results. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related
notes and other financial data included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this
Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You
should review Item 1A of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by
the forward-looking statements contained in the following discussion and analysis.
Results of Operations:
Years Ended March 31, 2020 and 2019
Revenue, Cost of revenue and Gross profit:
Manufacturing fees
Licensing fees
Total revenue
Cost of revenue
Gross profit
Years Ended March 31,
Change
2020
2019
Dollars
Percentage
$
$
14,526,048
3,468,591
17,994,639
10,015,855
7,978,784
$
$
5,387,696
2,180,812
7,568,508
4,700,978
2,867,530
$
$
9,138,352
1,287,779
10,426,131
5,314,877
5,111,254
170%
59%
138%
113%
178%
Gross profit - percentage
44%
38%
55
Total revenues for the year ended March 31, 2020 increased by $10.4 million or 138%, to $18.0 million, as compared to $7.6 million, for the corresponding period of the prior
year.
Manufacturing fees increase by $9.1 million, or 170%, due to the commercial launch of Amphetamine ER Capsules and Amphetamine IR Tablets during the fiscal year
ended March 31, 2020.
Licensing fees increased by $1.3 million, or 59% due to license fees earned in relation to the shipment and sales of Amphetamine ER Capsules and Amphetamine IR
Tablets, which were launched during the fiscal year ended March 31, 2020.
Costs of revenue consists of manufacturing and assembly costs. Our costs of revenue increased by $5.3 million or 113%, to $10.0 million as compared to $4.7 million for
the corresponding period of the prior year. The increase in costs of revenue is due to increased manufacturing volumes, with costs of revenue having a strong positive correlation
to manufacturing volume.
Our gross profit margin was 44% during the year ended March 31, 2020 as compared to 38% during the year ended March 31, 2019. The increase in profit margin
percentage is due to difference in manufacturing product mix on a year on year basis, combined higher license revenues earned due to increase in-market revenues.
Operating expenses:
Operating expenses:
Research and development
General and administrative
Non-cash compensation
Depreciation and amortization
Total operating expenses
Years Ended March 31,
Change
2020
2019
Dollars
Percentage
$
$
5,532,462 $
3,349,837
62,098
1,319,795
10,264,192 $
7,599,820 $
3,083,546
136,369
1,206,495
12,026,230 $
(2,067,358)
266,291
(74,271)
113,300
(1,762,038)
-27%
9%
-54%
9%
-15%
Operating expenses consist of research and development costs, general and administrative, non-cash compensation and depreciation and amortization expenses.
Operating expenses for the year ended March 31, 2020 decreased by $1.8 million, or 15%, to $10.3 million, as compared to $12.0 million for the prior year.
Research and development costs for the year ended March 31, 2020 were $5.5 million, a decrease of $2.1 million or 27% from $7.6 million of such costs for the prior year.
The decrease was due to the timing and composition of ongoing development of our generic product pipeline, combined with approvals received on Amphetamine IR Tablets and
Amphetamine ER Tablets resulting in commencement of commercialization and termination of development activities.
General and administrative expenses for the year ended March 31, 2020 were $3.3 million, an increase of $0.3 million or 9% from $3.1 million of such costs for the prior year.
The increase was due to increased regulatory compliance and health and commercial insurance costs as compared to the prior year.
Non-cash compensation expense for the year ended March 31, 2020 was $0.06 million, a decrease of $0.07 million or 54% from $0.13 million of such costs for the prior year.
Non-cash compensation expense derives from the timing in amortization of the value of employee stock options issued over the course of the last three years.
Depreciation and amortization expense for the year ended March 31, 2020 was $1.3 million, an increase of $0.1 million, or 9% from $1.2 million of such costs for the
comparable period of the prior year. The increase was due to acquisitions of additional fixed assets as well as higher depreciation absorption rates as compared to the prior year.
As a result of the foregoing, our loss from operations for the year ended March 31, 2020 was $2.3 million, compared to a loss from operations of $9.2 million for the year
ended March 31, 2019.
56
Other income (expense):
Other income (expense):
Interest expense and amortization of debt issuance costs
Change in fair value of derivative instruments
Interest income
Income (loss) realized from transfer / discontinuance of intangible assets
Other income/(expense), net
Years Ended March, 31
Change
2020
2019
Dollars
Percentage
$
$
(355,874) $
(1,111,548)
11,979
1,502,500
47,057 $
(369,173) $
180,041
21,461
(628,966)
(796,637) $
13,299
(1,291,589)
(9,482)
2,131,466
841,694
-4%
-717%
-44%
339%
106%
Other income (expense), net for the year ended March 31, 2020 was net other income of $0.05 million, an increase in net other income of $0.84 million from the net other
expense of $0.80 million for the comparable period of the prior year. The increase in other income was primarily due to income realized from the sale of intangible assets of
approximately $1.5 million during the year ended March 31, 2020, as compared to a loss of $0.6 million for the comparable period of the prior year, offset by the change in the fair
value of our outstanding warrants (derivative instruments) during the year ended March 31, 2020 totaling other expense of $1.1 million, as compared to $0.2 million income for the
comparable period of the prior year. Please note that the change in fair value of derivative instruments is determined in large part by the number of warrants outstanding and the
change in the closing price of our Common Stock as of the end of the year, as compared to the closing price at the beginning of the year, with a strong inverse relationship between
derivative revenues and increases in the closing price of our Common Stock.
As a result of the foregoing, our net loss from operations before the net benefit from sale of state net operating loss credits for the year ended March 31, 2020 was $2.2
million, compared to net loss from operations before the net benefit from sale of state net operating loss credits of $10.0 million for the comparable period of the prior year.
Net benefit from sale of state net operating loss credits
Elite Labs, a wholly owned subsidiary of Elite did not received final approval from the New Jersey Economic Development Authority for the sale of net tax benefits during
the year ended March 31, 2020 and accordingly did not sell net tax benefits during Fiscal 2020, as compared to net tax benefits sold for total proceeds of $0.7 million during the
comparable period of the prior year.
Change in value of convertible preferred share mezzanine equity
There was no change in the value of our convertible preferred stock, which is included in the calculation of net income (loss) attributable to common shareholders for the
years ended March 31, 2020 and March 31, 2019.
Liquidity and Capital Resources
Capital Resources
Current assets
Current liabilities
Working capital
March 31,
2020
March 31,
2019
$
$
$
10,251,279 $
8,639,548 $
1,611,731 $
8,856,542 $
6,906,134 $
1,950,408 $
Change
1,394,737
1,233,414
(338,679)
The Company considers cash and working capital balances as several of the factors the Company uses in evaluating its performance, without limitation. As of March 31,
2020, the Company had cash on hand of $1.1 million and accounts receivable to be collected within expected operating cycles of $4.1 million. The Company believes that such
resources, combined with the working capital surplus of $1.6 million and the continuation of ongoing operations are sufficient to fund operations through the current operating
cycle. For the year ended March 31, 2020, the Company had losses from operations totaling $2.3 million, net other income totaling $0.05 million and a net loss of $2.2 million. In
addition, there were no changes in the carrying value of preferred share mezzanine equity for the year ended March 31, 2020. Please note that the Company’s other income and net
loss available to common shareholders are significantly influenced by the fluctuations in the fair value of warrant derivatives, change in carry value of convertible preferred share
mezzanine equity with such fair values bearing a strong inverse correlation to the market share price of the Company’s Common Stock.
57
Please also note that while the equity line available under the 2017 LPC Purchase Agreement had approximately $34.5 million available for purchase of shares of Common
Stock, the equity line expires on July 1, 2020, pursuant to its terms and conditions, and the Company does not anticipate selling a significant amount of shares, if at all, pursuant to
the 2017 LPC Purchase Agreement during the period subsequent to March 31, 2020 through the expiration of the equity line.
Our working capital (total current assets less total current liabilities) decreased by $0.4 million from $2.0 million as of March 31, 2019 to $1.6 million as of March 31, 2020,
with such decrease being primarily related to the increase in receivables and inventory resulting from significantly increased manufacturing revenues and operations during the last
half of Fiscal 2020, offset by a higher rate of increase in corresponding current liabilities during the same period.
In addition, the Company had previously received Notices of Default from the Trustee of the NJEDA Bonds as a result of the utilization of the debt service reserve being
used to pay interest payments as well as the company’s failure to make scheduled principal payments. All monetary defaults were cured during Fiscal 2015 and the Company is
current on all NJEDA Bond interest and principal payments. See “NJEDA Bonds” below and the Risk Factor in Part I, Item 1A entitled “A notice of default was issued by the New
Jersey Economic Development Authority in relation to prior obligations of our tax-exempt bonds. Although we are current in our payments under these bonds, If the principal
balances due under these bonds are accelerated pursuant to the notice of default, our ability to operate in the future will be materially and adversely affected”.
Summary of Cash Flows:
Net cash used in operating activities
Net cash provided by (used in) investing activities
Net cash provided by financing activities
Year Ended March 31, 2020
Years Ended March 31,
2020
2019
$
(1,793,821) $
(34,953)
689,536
(6,792,769)
330,870
1,566,860
Net cash used in operating activities for the year ended March 31, 2020 was $1.8 million, which included a net loss of $2.2 million, and net use of cash resulting from
changes in operating assets and liabilities of $3.2 million. The changes in the balance of assets and liabilities include increases in account receivables of $2.8 million and decrease in
deferred revenues and customer deposits of $1.2 million, which result in a net decrease in cash offset by decreases in inventory of $0.4 million, which results in a net increase in
operating cash flow. The net loss of $2.2 million is offset by non-cash expenses which include, without limitation, depreciation, and amortization of $1.5 million. change in fair value
of derivative financial instruments – warrants of $1.1 million and non-cash compensation of $1.0 million.
Net cash used in investing activities for the year ended March 31, 2020 was $0.03 million, which primarily resulted from cash payments made in relation to equipment
purchases.
Net cash provided by financing activities for the year ended March 31, 2020 was $0.7 million. This consisted of proceeds from the sale of common stock to Lincoln Park
Capital of $1.5 million, offset by $0.7 million in loan principal payments, including repayment of an NJEDA Bonds of $0.1 million.
Overall, as a result of the foregoing, the Company had a net decrease in cash of $1.1 million during the year ended March 31, 2020.
Year Ended March 31, 2019
Net cash used in operating activities for the year ended March 31, 2019 was $6.8 million, which included a net loss of $9.3 million, and net use of cash resulting from
changes in operating assets and liabilities of $0.9 million. The changes in the balance of assets and liabilities include increases in account receivables of $0.5 million and decrease in
deferred revenues of $1.0 million, which result in a net decrease in cash offset by decreases in inventory of $0.4 million, which results in a net increase in operating cash flow. The
net loss of $9.3 million is offset by non-cash expenses which include, without limitation, depreciation and amortization of $1.3 million, non-cash compensation of $1.7 million and
non-cash loss realized on the sale and discontinuance of intangible assets of $0.6 million.
Net cash provided by investing activities for the year ended March 31, 2019 was $0.3 million, which primarily resulted from cash proceeds realized from the sale of
intangible assets.
58
Net cash provided by financing activities for the year ended March 31, 2018 was $1.6 million. This consisted of proceeds from the sale of common stock to Lincoln Park
Capital of $2.1 million, offset by $0.5 million in loan principal payments, including repayment of an NJEDA Bonds of $0.1 million.
Overall, as a result of the foregoing, the Company had a net decrease in cash of $4.9 million during the year ended March 31, 2019.
Lincoln Park Capital
On May 1, 2017, we 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, we have the right to sell to and Lincoln Park is obligated to purchase up to $40 million
in shares of our Common Stock, subject to certain limitations, from time to time, over the 36-month period commencing on June 5, 2017. We may direct Lincoln Park, at our sole
discretion and subject to certain conditions, to purchase up to 500,000 shares of Common Stock on any business day, provided that at least one business day has passed since the
most recent purchase, increasing to up to 1,000,000 shares, depending upon the closing sale price of the Common Stock (such purchases, “Regular Purchases”). However, in no
event shall a Regular Purchase be more than $1,000,000. The purchase price of shares of Common Stock related to the future funding will be based on the prevailing market prices
of such shares at the time of sales. In addition, we may direct Lincoln Park to purchase additional amounts as accelerated purchases under certain circumstances. Our sales of
shares of Common Stock to Lincoln Park under the 2017 LPC Purchase Agreement are limited to no more than the number of shares that would result in the beneficial ownership by
Lincoln Park and its affiliates, at any single point in time, of more than 4.99% of the then outstanding shares of Common Stock.
In connection with the 2017 LPC Purchase Agreement, we issued to Lincoln Park 5,540,551 shares of Common Stock and we are required to issue up to 5,540,551 additional
shares of Common Stock pro rata as we require Lincoln Park to purchase our shares under the Purchase Agreement over the term of the agreement. Lincoln Park has represented to
us, among other things, that it is an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (the “Securities
Act”)). We sold the securities in reliance upon an exemption from registration contained in Section 4(a)(2) under the Securities Act. The securities sold may not be offered or sold in
the United States absent registration or an applicable exemption from registration requirements.
The 2017 LPC Purchase Agreement and the 2017 LPC Registration Rights Agreement contain customary representations, warranties, agreements and conditions to
completing future sale transactions, indemnification rights and obligations of the parties. We have the right to terminate the 2017 LPC Purchase Agreement at any time, at no cost
or penalty. Actual sales of shares of Common Stock to Lincoln Park under the Purchase Agreement will depend on a variety of factors to be determined by us from time to time,
including, among others, market conditions, the trading price of the Common Stock and determinations by us as to the appropriate sources of funding for us and our operations.
There are no trading volume requirements or, other than the limitation on beneficial ownership discussed above, restrictions under the Purchase Agreement. Lincoln Park has no
right to require any sales by us but is obligated to make purchases from us as we direct in accordance with the Purchase Agreement. Lincoln Park has covenanted not to cause or
engage in any manner whatsoever, any direct or indirect short selling or hedging of our shares.
The net proceeds received by us under the 2017 LPC Purchase Agreement will depend on the frequency and prices at which we sell shares of our stock to Lincoln Park.
We anticipate that any proceeds received by us from such sales to Lincoln Park under the 2017 LPC Purchase Agreement will be used for research and product development,
general corporate purposes and working capital requirements.
A registration statement on form S-3 was filed with the SEC on May 10, 2017 and was declared effective on June 5, 2017.
The 2017 LPC Purchase Agreement expires on July 1, 2020, in accordance with its terms and conditions.
During the fiscal year ended March 31, 2020, the Company issued 199,181 shares of its common stock as additional commitment shares and sold 15,358,627 shares of its
common stock for proceeds totaling $1,437,978.
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NJEDA Bonds
On August 31, 2005, the Company successfully completed a refinancing of a prior 1999 bond issue through the issuance of new tax-exempt bonds (the “Bonds”). The
refinancing involved borrowing $4,155,000, evidenced by a 6.5% Series A Note in the principal amount of $3,660,000 maturing on September 1, 2030 and a 9% Series B Note in the
principal amount of $495,000 maturing on September 1, 2012. The net proceeds, after payment of issuance costs, were used (i) to redeem the outstanding tax-exempt Bonds
originally issued by the Authority on September 2, 1999, (ii) refinance other equipment financing and (iii) for the purchase of certain equipment to be used in the manufacture of
pharmaceutical products. As of March 31, 2016, all of the proceeds were utilized by the Company for such stated purposes.
Interest is payable semi-annually on March 1 and September 1 of each year. The Bonds are collateralized by a first lien on the Company’s facility and equipment acquired
with the proceeds of the original and refinanced Bonds. The related Indenture requires the maintenance of a Debt Service Reserve Fund of $366,000 in relation to the Series A
Notes.
Bond issue costs of $354,454 were paid from the bond proceeds and are being amortized over the life of the bonds. Amortization of bond issuance costs amounted to
$14,178 for the fiscal year ended March 31, 2020.
The NJEDA Bonds require the Company to make an annual principal payment on September 1st of varying amounts as specified in the loan documents and semi-annual
interest payments on March 1st and September 1st, equal to interest due on the outstanding principal at the applicable rate for the semi-annual period just ended.
As of the date of filing of this Annual Report on Form 10-K, there are no interest or principal amounts in arrears. The Series B Notes were retired, at par in July 2014.
Exchange Agreement
On April 28, 2017, we entered into an exchange agreement (the “Exchange Agreement”) with Nasrat Hakim, our Chief Executive Officer, pursuant to which we issued to
Mr. Hakim 24.0344 shares of our newly designated Series J Convertible Preferred Stock and Warrants to purchase an aggregate of 79,008,661 shares of our Common Stock in
exchange for 158,017,321 shares of our common stock owned by Mr. Hakim. Please see “Item 13 Certain Relationships And Related Transactions, And Director Independence;
Certain Related Person Transactions; Transactions with Nasrat Hakim and Mikah Pharma LLC” in Part III.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in
financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures, or capital resources that would be considered material to investors.
Effects of Inflation
We are subject to price risks arising from price fluctuations in the market prices of the products that we sell. Management does not believe that inflation risk is material to
our business or our consolidated financial position, results of operations, or cash flows.
Cybersecurity
As of March 31, 2020, the Company had no reportable incidents of cybersecurity.
Critical Accounting Policies and Estimates
Our significant accounting policies are disclosed in Note 1 of our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. The
following discussion addresses our most critical accounting policies, which are those that are both important to the portrayal of our financial condition and results of operations
and that require significant judgment or use of complex estimates.
Segment Information
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 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 U.S. GAAP when
making decisions about allocating resources and assessing performance of the Company.
60
The Company has determined that its reportable segments are products whose marketing approvals were secured via an Abbreviated New Drug Applications (“ANDA”)
and products whose marketing approvals were secured via a New Drug Application (“NDA”). ANDA products are referred to as generic pharmaceuticals and NDA products are
referred to as branded pharmaceuticals.
There are currently no intersegment revenues. Asset information by operating segment is not presented below since the chief operating decision maker does not review
this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s audited consolidated financial statements.
Please see note 15 for further details.
Revenue Recognition
The Company generates revenue from the development of pain management products, manufacturing of a line of generic pharmaceutical products with approved ANDA,
commercialization of products either by license and the collection of royalties, or through the manufacture of formulations and the development of new products and the expansion
of licensing agreements with other pharmaceutical companies, including co-development projects, joint ventures and other collaborations. The Company also generates revenue
through its focus on the development of various types of drug products, including branded drug products which require NDAs.
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 and products utilizing abuse deterrent technologies. The Company also develops and markets (either on its own or by license
to other companies) generic and proprietary controlled-release and abuse deterrent 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. Revenue on
product are presented gross because 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.
61
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 not recognize revenue from the milestone until 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 March 31, 2020.
In accordance with ASC 606-10-55-65, royalties are recognized when the subsequent sale of the customer’s products occurs.
Collaborative Arrangements
Contracts are considered to be collaborative arrangements when they satisfy the following criteria defined in ASC 808, Collaborative Arrangements:
● The parties to the contract must actively participate in the joint operating activity; and,
● The joint operating activity must expose the parties to the possibility of significant risk and rewards, based on whether or not the activity is successful.
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.
Accounts Receivable
Accounts receivable are comprised of balances due from customers, net of estimated allowances for uncollectible accounts, if any. 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 a 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.
62
Upon retirement or other disposition of assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss, if any, is
recognized in income.
Intangible Assets
The Company capitalizes certain costs to acquire intangible assets; if such assets are determined to have a finite useful life they are amortized on a straight-line basis over
the estimated useful life. Costs to acquire indefinite lived intangible assets, such as costs related to ANDAs are capitalized accordingly.
The Company tests its intangible assets for impairment at least annually (as of March 31st) and whenever events or circumstances change that indicate impairment may
have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others and without
limitation: a significant decline in the Company’s expected future cash flows; a sustained, significant decline in the Company’s stock price and market capitalization; a significant
adverse change in legal factors or in the business climate of the Company’s segments; unanticipated competition; and slower growth rates.
Research and Development
Research and development expenditures are charged to expense as incurred.
Leases
Lease agreements are evaluated to determine if they are capital leases meeting any of the following criteria at inception: (a) transfer of ownership; (b) bargain purchase
option; (c) the lease term is equal to 75 percent or more of the estimated economic life of the leased property; or (d) the present value at the beginning of the lease term of the
minimum lease payments, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any
profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at lease inception over any related investment tax credit retained by
the lessor and expected to be realized by the lessor.
If at its inception a lease meets any of the four lease criteria above, the lease is classified by the Company as a capital lease; and if none of the four criteria are met, the
lease is classified by the Company as an operating lease.
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 consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value
can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Where applicable, the Company records a
valuation allowance to reduce any deferred tax assets that it determines will not be realizable in the future.
The Company recognizes the benefit of an uncertain tax position that it has taken or expects to take on income tax returns it files if such tax position is more likely than not
to be sustained on examination by the taxing authorities, based on the technical merits of the position. These tax benefits are measured based on the largest benefit that has a
greater than 50% likelihood of being realized upon ultimate resolution.
The Company operates in multiple tax jurisdictions within the United States of America. The Company remains subject to examination in all tax jurisdiction until the
applicable statutes of limitation expire. As of March 31, 2020, a summary of the tax years that remain subject to examination in our major tax jurisdictions are: United States –
Federal, 2014 and forward, and State, 2010 and forward. The Company did not have any unrecognized tax positions for the years ended March 31, 2020 and 2019.
63
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 instruments 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 are 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 Topic 718, Compensation-Stock Compensation. Under the fair value recognition
provisions of this topic, 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, in lieu of cash, with the valuation of such share being calculated on a quarterly basis and equal to the simple average
closing price of the Company’s common stock.
Earnings (Loss) Per Share Applicable to Common Shareholders’
The Company follows ASC 260, Earnings Per Share, which requires presentation of basic and diluted earnings (loss) 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 (loss) per share is computed by dividing net income (loss) by the weighted
average number of shares of common stock outstanding during the period. Diluted EPS excluded all dilutive potential shares if their effect was anti-dilutive.
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurements and Disclosures ("ASC Topic 820") provides a framework for measuring fair value in accordance with generally accepted
accounting principles.
ASC Topic 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 Topic 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 Topic 820 are described as follows:
● Level 1
● Level 2
● Level 3
Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.
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.
Inputs that are unobservable for the asset or liability.
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.
64
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 (deficit).
Recently Adopted Accounting Standards
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) in February 2016 and subsequent
ASUs in 2018 and 2019 (collectively referred to as “Topic 842”) on the treatment of leases, which guidance is effective for annual reporting periods beginning after December 15,
2019 and early adoption is permitted. Under Topic 842, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the
commencement date: 1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and 2) a right-of-use asset,
which is an asset that represents the lessee’s right-of-use, or control the use of, a specified asset for the lease term. Entities are allowed to apply Topic 842 using a modified
retrospective approach either (1) retrospectively to each reporting period presented in the financial statements with the cumulative effect adjustment recognized at the beginning of
the earliest comparative period; or (2) retrospectively at the beginning of the period of adoption through a cumulative-effective adjustment. The modified retrospective approach
includes a number of optional practical expedients that entities may elect to apply.
On April 1, 2019, the Company adopted Topic 842 using the modified retrospective basis with a cumulative-effect adjustment at the beginning of the period of adoption
and therefore did not revise prior period information or disclosure. Further, the Company elected the package of practical expedients upon transition that allows the Company not
to reassess the lease classification for expired and existing leases, whether initial direct costs qualify for capitalization for any expired or existing leases or whether any expired
contracts are or contain leases. The adoption of ASU 2016-02 resulted in the recognition of operating leases and lease liabilities of approximately $0.6 million on the consolidated
balance sheet as of April 1, 2019. The operating leases and lease liabilities relate to a real estate lease.
The impact of the adoption of Topic 842 on the accompanying consolidated balance sheet as of April 1, 2019 was as follows:
Operating lease - right of use
Deferred rent liability
Lease obligation - operating lease
Lease obligation - operating lease, net of current portion
See additional lease disclosures in Note 9.
Recently Issued Accounting Pronouncements
March 31,
2019
Adoption
Adjustment
April 1,
2019
$
$
$
$
- $
13,022 $
- $
- $
554,088 $
(13,022) $
191,817 $
375,293 $
554,088
-
191,817
375,293
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (ASC 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value
Measurement. ASU 2018-13 removes certain disclosures, modifies certain disclosures and adds additional disclosures. The ASU is effective for annual periods, including interim
periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The Company adopted the guidance as of April 1, 2020 and is evaluating the
effect that this update will have on its consolidated financial statements and related disclosures.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808) , Clarifying the Interaction between Topic 808 and Topic 606. The ASU
clarifies when transactions between collaborative participants are in the scope of ASC 606. The ASU also provides some guidance on presentation of transactions not in the scope
of ASC 606. ASU 2018-18 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted for fiscal years, and
interim periods within those years. The Company adopted the guidance as of April 1, 2020 and is currently evaluating the impact the standard will have on our consolidated
financial statements and related disclosures.
65
In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments. The ASU clarifies disclosure guidance for fair value options, adds
clarifications to the subsequent measurement of fair value, clarifies disclosure for depository and lending institutions, clarifies the line-of-credit or revolving-debt arrangements
guidance, and the interaction of Financial Instruments - Credit Losses (Topic 326) with Leases (Topic 842) and Transfers and Servicing-Sales of Financial Assets (Subtopic 860-20).
In accordance with ASU 2020-03, the Company adopted the guidance as of April 1, 2020. The Company is currently evaluating the impact of this guidance on its consolidated
financial statements and related disclosures.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The
guidance provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that
reference LIBOR or another rate that is expected to be discontinued. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022.
The Company is not materially impacted by the implementation of this pronouncement.
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.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We believe that our market risk exposures are immaterial as we do not have instruments for trading purposes, and reasonable possible near-term changes in market rates or
prices will not result in material near-term losses in earnings, material changes in fair values or cash flows for all instruments.
We maintain all of our cash, cash equivalents and restricted cash in two financial institutions, and we perform periodic evaluations of the relative credit standing of these
institutions. However, no assurances can be given that the third-party institutions will retain acceptable credit ratings or investment practices.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto and filed as a part of this Annual Report on Form 10-K are our Consolidated Financial Statements, beginning on page F-1.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A CONTROLS AND PROCEDURES
Management’s Annual Report on Internal Control over Financial Reporting
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the
Company’s disclosure controls and procedures (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended (the “ Exchange Act”)) as of
March 31, 2020, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control (“COSO”). Based on that evaluation,
the Company’s Chief Executive Officer and the Company’s Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of
March 31, 2020 to ensure that information required to be disclosed by our Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange Commission rules and forms and such information is accumulated and communicated to management as
appropriate to allow timely decisions regarding required disclosures.
The Company’s internal control over financial reporting was designed to provide reasonable assurance regarding the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.
Please note, however, as a result of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Furthermore, projections of any
evaluation of effectiveness of current internal controls over financial reporting to future periods, are subject to the risk that such current controls may become inadequate due to
changes in conditions, or that a future deterioration in the degree of compliance with current policies and procedures may occur.
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The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2020, with such assessment being
pursuant to the criteria set forth by COSO in Internal Control-Integrated Framework (2013). Based on our assessment, we determined that, based on those criteria, as of March
31, 2020, the Company’s internal control over financial reporting is effective.
Changes in internal control over financial reporting
During Fiscal 2020, the Company has taken significant actions to remediate the material weaknesses as described in our Annual Report on Form 10-K filed with the SEC on
June 21, 2019 (the “2019 10-K”). Additional personnel were hired and independent, third party subject matter experts were engaged to assist with the documentation and evaluation
of the existing control environment, identification of gaps and weaknesses in controls, as well as advise on the formulation and implementation of improved controls, testing and
remediation of weaknesses identified.
Changes in controls concerning remediation of material weaknesses relating to segregation of duties:
In connection with the current year assessment, management, with the assistance of engaged subject matter experts, implemented the following in order to remediate
material weaknesses relating to segregation of duties as described in the 2019 10-K:
● Key accounting/finance personnel were hired;
● New position in supply chain operations was created and staffed;
● Increased utilization of software resources resulting in more effective segregation of duties;
● Independent, third party, financial reporting experts were engaged to support the financial reporting process, providing enhancements to review and reconciliation
activities during the financial statement preparation and review process.
Changes in controls concerning remediation of material weaknesses relating to the testing of controls
In connection with the current year assessment, management, with the assistance of engaged subject matter experts, implemented the following in order to remediate
material weaknesses relating to the testing of controls, as described in the 2019 10-K:
● Internal personnel, including newly hired accounting/finance and supply chain professionals were trained in the relevant controls, the testing activities and assumed
the increased responsibility of performing tests, as appropriate; and,
● Independent, third party, internal control experts were engaged to support the Company’s testing activities as well as perform selected tests, as necessary;
Changes in controls concerning remediation of material weaknesses relating to the formalizing and implementation of revised controls, policies and procedure
documentation
● Key accounting/finance and supply chain personnel were hired to assist in the formalizing and implementation of revised controls;
● Certain personnel, key to the implementation of the control environment received additional “Open SAP” training to enhance in-house SAP knowledge, capabilities,
resulting in enhanced controls being identified, formulated and implemented; and,
● Independent, third party, internal control experts were engaged to support the Company’s formalizing and implementation of revised controls, policies and procedure
documentation
ITEM 9B OTHER INFORMATION
None
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ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The following sets forth biographical information about each of our directors and executive officers as of the date of this report:
Name
Nasrat Hakim
Barry Dash, Ph. D.
Jeffrey Whitnell
Davis Caskey
Carter J. Ward
Douglas Plassche
Age
59
89
64
72
56
57
Position
President, Chief Executive Officer and Director
Director
Director
Director
Chief Financial Officer, Secretary and Treasurer
Executive Vice President of Operations
Director/Officer Since
August 2013
April 2005
October 2009
April 2016
July 2009
August 2013
Director Tier
III
II
III
I
The principal occupations and employment of each Director during the past five years is set forth below. In each instance in which dates are not provided in connection
with a director’s business experience, such nominee has held the position indicated for at least the past five years.
Each director currently holds office until the expiration of his Tier (each for three years) or until such director’s death, resignation, or removal. Pursuant to our recently
amended and restated bylaws, our Board of Directors is now classified into three separate tiers of directors, with each respective tier to serve a three-year term and until their
successors are duly elected and qualified.
Nasrat Hakim
Nasrat Hakim has served as a Director, President, and Chief Executive officer since August 2013. He has been a member of the Audit Committee, member and chairman of
the nominating Committee and member of the Compensation Committee since September 2016. Mr. Hakim has more than 30 years of pharmaceutical and medical industry experience
in Quality Assurance, Analytical Research and Development, Technical Services, and Regulatory Compliance. He brings with him proven management experience, in-depth
knowledge of manufacturing systems, development knowledge in immediate and extended release formulations and extensive regulatory experience of GMP and FDA regulations.
From 2004 to 2013, Mr. Hakim was employed by Actavis, Watson and Alpharma in various senior management positions. Most recently, Mr. Hakim served as International Vice
President of Quality Assurance at Actavis, overseeing 25 sites with more than 3,000 employees under his leadership. Mr. Hakim also served as Corporate Vice President of
Technical Services, Quality and Regulatory Compliance for Actavis U.S., Global Vice President, Quality, and Regulatory Compliance for Alpharma, as well as Executive Director of
Quality Unit at TheraTech, overseeing manufacturing and research and development. In 2009, Mr. Hakim founded Mikah Pharma, LLC, a virtual, fully functional pharmaceutical
company. Mr. Hakim holds a Bachelor in Chemistry/Bio-Chemistry and Masters of Science in Chemistry from California State University at Sacramento, Sacramento, CA; a Masters
in Law with Graduate Certification in U.S. and International Taxation from St. Thomas University, School of Law, Miami, FL.; and a Graduate Certification in Regulatory Affairs
(RAC) from California State University at San Diego, San Diego, CA. Mr. Hakim’s leadership experience (consisting of extensive experience in senior management positions,
responsible for 25 global manufacturing/regulatory sites with more than 3,000 employees under his leadership), industry experience (comprising more than 30 years of
pharmaceutical and medical industry experience served in various quality assurance, analytical research and development/technical services and compliance positions) and
academic experience (including Bachelor degrees in Chemistry and Bio-Chemistry, Masters degrees in Chemistry and Law, with Graduate Certification in U.S. and International
Taxation, and a Graduate Certification in Regulatory Affairs) led to the conclusion that he is qualified to serve as a director.
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Barry Dash, Ph.D.
Dr. Barry Dash has served as a Director since April 2005, member of the Audit Committee since April 2005, member of the Nominating Committee since April 2005 and
member and Chairman of the Compensation Committee since June 2007. Dr. Dash has been, since 1995, President and Managing Member of Dash Associates, L.L.C., an
independent consultant to the pharmaceutical and health industries. From 1983 to 1996 he was employed by Whitehall-Robins Healthcare, a division of American Home Products
Corporation (now known as Wyeth), initially as Vice President of Scientific Affairs, then as Senior Vice President of Scientific Affairs and then as Senior Vice President of
Advanced Technologies, during which time he personally supervised six separate departments: Medical and Clinical Affairs, Regulatory Affairs, Technical Affairs, Research and
Development, Analytical R&D and Quality Management/Q.C. Dr. Dash had been employed by the Whitehall Robins Healthcare from 1960 to 1976, during which time he served as
Director of Product Development Research, Assistant Vice President of Product Development and Vice President of Scientific Affairs. Dr. Dash had been employed by J.B.
Williams Company (Nabisco Brands, Inc.) from 1978 to 1982. From 1976 to 1978 he was Vice President and Director of Laboratories of the Consumer Products Division of American
Can Company. Dr. Dash holds a Ph.D. from the University of Florida and M.S. and B.S. degrees from Columbia University where he was Assistant Professor at the College of
Pharmaceutical Sciences from 1956 to 1960. He is a member of the American Pharmaceutical Association, the American Association for the Advancement of Science and the
Society of Cosmetic Chemist, American Association of Pharmaceutical Scientists, Drug Information Association, American Foundation for Pharmaceutical Education, and
Diplomate American Board of Forensic Examiners. He is the author of scientific publications and patents in the pharmaceutical field. Dr. Dash’s extensive education in
pharmaceutical sciences and his experience in the development of scientific products, including his experience in regulatory affairs, led to the conclusion that he is qualified to
serve as a director.
Jeffrey Whitnell
Jeffrey Whitnell has served as a Director since October 23, 2009, Chairman of the Audit Committee, member of the Compensation Committee since October 2009 and
designated by the Board as an “audit committee financial expert” as defined under applicable rules under the Exchange Act. Since April 2015, Mr. Whitnell has provided financial
advisory services, primarily to the healthcare industry, including LifeWatch Services, where he served as the Vice President, Finance & Controller. From June2010 to March 2015,
Mr. Whitnell was the Chief Financial Officer for ReliefBand Medical Technologies, a medical device company. From June 2009 to June 2010, Mr. Whitnell provided financial
advisory services to various healthcare companies, including ReliefBand Medical Technologies. From June 2004 to June 2009, Mr. Whitnell was Chief Financial Officer and Senior
Vice President of Finance at Akorn, Inc. From June 2002 to June 2004, Mr. Whitnell was Vice President of Finance and Treasurer for Ovation Pharmaceuticals. From 1997 to 2001,
Mr. Whitnell was Vice President of Finance and Treasurer for MediChem Research. Prior to 1997, Mr. Whitnell held various finance positions at Akzo Nobel and Motorola. Mr.
Whitnell began his career as an auditor with Arthur Andersen & Co. He is a certified public accountant and holds an M.B.A. in Finance from the University of Chicago Booth
School of Business and a B.S. in Accounting from the University of Illinois. Mr. Whitnell’s qualifications as an accounting and audit expert provide specific experience to serve as
a director for the Company.
Davis Caskey
Davis Caskey has served as a Director since April 2016, and a member of the Audit Committee, the nominating Committee and the Compensation Committee since
September 2016. He brings more than 40 years of pharmaceutical industry experience to this position. Mr. Caskey is currently President & CEO of Caskey LLC, which he formed in
2013 to serve as an umbrella to manage his pharmaceutical consulting and other business interests. From 1990 to 2013, Davis served as the operating officer of ECR
Pharmaceuticals, of which he was a founding member. HiTech Pharmacal acquired the privately held ECR in 2009 and Mr. Caskey continued in his role until retiring in 2013. At ECR,
Mr. Caskey was credited with the establishment of the company's sales and marketing structure, its product distribution format, and the development and management of the firm’s
internal organization. His responsibilities included the oversight of drug development and regulatory filings, product acquisitions, and acquisition of other companies. A primary
focus was to conceive and develop, with the assistance of key strategic partners, unique dosage forms and extended release formulations of products which enhance patient
compliance and safety. Prior to ECR, Mr. Caskey was employed by A.H. Robins for 18 years in various field and home office management positions. His experience brings critical
insight into the marketing and distribution of pharmaceutical products in a rapid and ever-changing competitive marketplace. Mr. Caskey attended the University of Texas (Austin)
and Lamar University, and holds bachelor’s and master’s degrees.
Carter J. Ward
Carter J. Ward has served as Chief Financial Officer, Secretary, and Treasurer of the Company since July 1, 2009. Prior to joining the Company, from July 2005 to April
2009, Mr. Ward filled multiple finance and supply chain leadership roles with the Actavis Group and its U.S. subsidiary, Amide Pharmaceuticals. From September 2004 to June 2005,
Mr. Ward was a consultant, mainly engaged in improving internal controls and supporting Sarbanes Oxley compliance of Centennial Communications Inc., a NASDAQ listed
wireless communications provider. From 1999 to September 2004, Mr. Ward was the Chief Financial Officer for Positive Healthcare/Ceejay Healthcare, a U.S.-Indian joint venture
engaged in the manufacture and distribution of generic pharmaceuticals and nutraceuticals in India. Mr. Ward began his career as a certified public accountant in the audit
department of KPMG and is a Certified Supply Chain Professional (“CSCP”). Mr. Ward holds a B.S. in Accounting from Long Island University, Brooklyn, NY, from where he
graduated summa cum laude. Mr. Ward’s experience and expertise in the area of finance and supply chain, provides the qualifications, attributes, and skills to serve as an officer for
the Company.
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Douglas Plassche
Douglas Plassche has served as Executive Vice President of Operations since August 2013. Prior to joining the Company, from 2009 to 2013, Mr. Plassche served as the
Managing Director of the New Jersey Solid Oral Dose Operations of Actavis, overseeing 450 employees and the production of more than 100 products. From 2007 to 2009, Mr.
Plassche was the Senior Director of Manufacturing for PAR Pharmaceuticals, overseeing 200 employees and the production of more than 70 products. From 1990 – 2007, Mr.
Plassche was employed by Schering-Plough, progressing steadily through multiple disciplines, locations, and technical operations sectors with increasing levels of responsibility.
Mr. Plassche has a bachelor’s degree in Economics from Rochester University.
There are no family relationships between any of our directors and executive officers.
Committees of the Board
The Board of Directors has an Audit Committee, a Compensation Committee, and a Nominating Committee.
Audit Committee
During Fiscal 2020, the members of the Audit Committee were Jeffrey Whitnell (Chairman of the Audit Committee), Dr. Barry Dash, Davis Caskey and Nasrat Hakim. We
deem Messrs. Whitnell, Dash, and Caskey to be independent and Mr. Whitnell to be qualified as an audit committee financial expert. The Board of Directors has determined that
Messrs. Whitnell, Dash and Caskey are independent directors as (i) defined in Rule 10A-3(b)(1)(ii) under the Exchange Act and (ii) under Sections 803A(2) and 803B(2)(a) of the
NYSE American LLC Company Guide (although our securities are not listed on the NYSE American LLC or any other national exchange).
Nominating Committee
During Fiscal 2020, the members of the Nominating Committee were Nasrat Hakim (Chairman of the Nominating Committee), Dr. Barry Dash, and Davis Caskey. There were
no material changes to the procedures by which security holders may recommend nominees to our Board of Directors since the filing of our last Annual Report on Form 10-K.
Compensation Committee
During Fiscal 2020, the members of the Compensation Committee were Dr. Barry Dash (Chairman of the Compensation Committee), Jeffrey Whitnell, Davis Caskey and
Nasrat Hakim.
Code of Conduct and Ethics
At the first meeting of the Board of Directors following the annual meeting of stockholders held on June 22, 2004, and as further updated effective July 2009, the Board of
Directors adopted a Code of Business Conduct and Ethics that is applicable to the Company’s directors, officers, and employees. A copy of the Code of Business Conduct and
Ethics is available on our website at www.elitepharma.com, under Investor Relations.
ITEM 11 EXECUTIVE COMPENSATION
Compensation discussion and analysis summary
Our approach to executive compensation, one of the most important and complex aspects of corporate governance, is influenced by our belief in rewarding people for
consistently strong execution and performance. We believe that the ability to attract and retain qualified executive officers and other key employees is essential to our long-term
success.
Compensation Linked to Attainment of Performance Goals
Our plan to obtain and retain highly skilled employees is to provide significant incentive compensation opportunities and market competitive salaries. The plan was
intended to link individual employee objectives with overall company strategies and results, and to reward executive officers and significant employees for their individual
contributions to those strategies and results. Furthermore, we believe that equity awards serve to align the interests of our executives with those of our stockholders. As such,
equity is a key component of our compensation program.
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Role of the Compensation Committee
The Company formed the Compensation Committee in June 2007. Since the formation of the Compensation Committee all elements of the executives’ compensation are
determined by the Compensation Committee, which currently is comprised of three independent non-employee directors, and one director who is also the Company’s Chief
Scientific Officer. However, the Compensation Committee’s decisions concerning the compensation of the Company’s Chief Executive Officer are subject to ratification by the
independent directors of the Board of Directors. The members of the Compensation Committee are Dr. Barry Dash (Chairman of the Compensation Committee), Jeffrey Whitnell,
Davis Caskey and Nasrat Hakim. The Committee operates pursuant to a charter. Under the Compensation Committee charter, the Compensation Committee has authority to retain
compensation consultants, outside counsel, and other advisors that the committee deems appropriate, in its sole discretion, to assist it in discharging its duties, and to approve the
terms of retention and fees to be paid to such consultants. The Compensation Committee did not engage any advisors.
Named Executive Officers
The named executive officers for the fiscal year ended March 31, 2020 were:
● Nasrat Hakim, Chief Executive Officer, and President for the full year;
● Carter J. Ward, Chief Financial Officer, Secretary, and Treasurer for the full year;
● Douglas Plassche, Executive Vice President for the full year.
These individuals are referred to collectively as the “Named Executive Officers”.
We also had one key employee during the fiscal year ended March 31, 2020 - George Kenneth Smith.
Our executive compensation program
Overview
The primary elements of our executive compensation program are base salary, incentive cash and stock bonus opportunities and equity incentives typically in the form of
stock option grants or payment of a portion of annual salary as stock. Although we provide other types of compensation, these three elements are the principal means by which we
provide the Named Executive Officers with compensation opportunities.
The annual bonus opportunity and equity compensation components of the executive compensation program reflect our belief that a portion of an executive’s
compensation should be performance-based. This compensation is performance-based because payment is tied to the achievement of corporate performance goals. To the extent
that performance goals are not achieved, executives will receive a lesser amount of total compensation.
Elements of our executive compensation program
Base Salary
We pay a base salary to certain of the Named Executive Officers, with such payments being made in either cash, Common Stock or a combination of cash and Common
Stock. In general, base salaries for the Named Executive Officers are determined by evaluating the responsibilities of the executive’s position, the executive’s experience, and the
competitive marketplace. Base salary adjustments are considered and take into account changes in the executive’s responsibilities, the executive’s performance, and changes in the
competitive marketplace. We believe that the base salaries of the Named Executive Officers are appropriate within the context of the compensation elements provided to the
executives and because they are at a level which remains competitive in the marketplace.
Bonuses
The Board of Directors may authorize us to give discretionary bonuses, payable in cash or shares of Common Stock, to the Named Executive Officers and other key
employees. Such bonuses are designed to motivate the Named Executive Officers and other employees to achieve specified corporate, business unit and/or individual, strategic,
operational, and other performance objectives.
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Stock Options
Stock options constitute performance-based compensation because they have value to the recipient only if the price of our Common Stock increases. Stock options for
each of the Named Executive Officers generally vest over time, obtainment of a corporate goal or a combination of the two.
The grant of stock options at Elite is designed to motivate our Named Executive Officers to achieve our short-term and long-term corporate goals.
Retirement and Deferred Compensation Benefits
We do not presently provide the Named Executive Officers with a defined benefit pension plan or any supplemental executive retirement plans, nor do we provide the
Named Executive Officers with retiree health benefits. We have adopted a deferred compensation plan under Section 401(k) of the Code. The plan provides for employees to defer
compensation on a pre-tax basis subject to certain limits, however, Elite does not provide a matching contribution to its participants.
The retirement and deferred compensation benefits provided to the Named Executive Officers are not material factors considered in making other compensation
determinations with respect to Named Executive Officers.
Post-Termination/Change of Control Compensation
Pursuant to his employment agreement, Nasrat Hakim, our Chief Executive Officer, is entitled to a payment in an amount equal to two year’s base annual salary in effect
upon the date of termination, less applicable deductions, and withholdings, payable in Common Stock upon a Change of Control (as defined in the Hakim Employment Agreement).
For more detailed information, please see “Agreements with Named Executive Officers” below.
We do not presently provide the Named Executive Officers with any plan or arrangement, other than those that may be contained in employment contracts, in connection
with any termination, including, without limitation, through retirement, resignation, severance, or constructive termination (including a change in responsibilities) of such Named
Executive Officer’s employment with the Company.
As part of the Company’s efforts to ensure the retention and continuity of key employees, officers, and directors in the event of a change of control of the ownership of
the Company, unless otherwise stated in applicable employment contracts, key executives would receive an amount equal to twelve months of such executive’s salary, and certain
Directors and managers would receive an amount equal to six months of such Director’s or manager’s fees or salaries, as applicable. In addition, any outstanding and unvested
options would immediately vest, in the event of a change of control.
Perquisites
As described in more detail below, the perquisites provided to certain of the Named Executive Officers consist of car allowances and life insurance premiums. These
perquisites represent a small fraction of the total compensation of each such Named Executive Officer. The value of the perquisites we provide are taxable to the Named Executive
Officers and the incremental cost to us of providing these perquisites is reflected in the Summary Compensation Table. The Board of Directors believes that the perquisites
provided are reasonable and appropriate. For more information on perquisites provided to the Named Executive Officers, please see the “All Other Compensation” column of the
Summary Compensation Table and “Agreements with Named Executive Officers,” below.
Agreements with Named Executive Officers
Nasrat Hakim
Pursuant to his August 2013 employment agreement, and as amended on January 12, 2016 (the “Hakim Employment Agreement”), Mr. Hakim receives an annual salary of
$500,000 per year. The Salary is paid in shares of the Company’s Common Stock pursuant to the Company’s current procedures for paying Company executives in Stock. He also is
entitled to an annual bonus equal to up to 100% of his annual salary, payable in accordance with the Company’s payroll practices. The Board may also award discretionary
bonuses in its sole discretion. Mr. Hakim is entitled to employee benefits (e.g., health, vacation, employee benefit plans and programs) consistent with other Company employees
of his seniority and a car allowance. The Hakim Employment Agreement contains confidentially, non-competition and other standard restrictive covenants.
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Mr. Hakim’s employment is terminable by the Company for cause (as defined in the Hakim Employment Agreement). The Hakim Employment Agreement also may be
terminated by the Company upon at least 30 days written notice due to disability (as defined in the Hakim Employment Agreement) or without cause. Mr. Hakim can terminate the
Hakim Employment Agreement by resigning, provided he gives notice at least 60 days prior to the effective resignation date. If Mr. Hakim is terminated for cause or he resigns, he
only is entitled to accrued and unpaid annual salary, accrued vacation time and any reasonable and necessary business expenses, all through the date of termination and payable
in stock (“Basic Termination Benefits”). If Mr. Hakim is terminated because of disability or death, in addition to Basic Termination Benefits, He is entitled his pro rata annual bonus
through the date of termination (payable in Stock). If the Company terminates Mr. Hakim without cause, in addition to Basic Termination Benefits, Mr. Hakim is entitled to his pro
rata annual bonus through the date of termination and an amount equal to two years’ annual salary (all payable in Stock).
Upon a Change of Control (as defined in the Hakim Employment Agreement), Mr. Hakim is entitled to a payment in an amount equal to two year’s base annual salary in
effect upon the Date of Termination, less applicable deductions, and withholdings, payable in Stock computed in the same manner as set forth as the Salary.
Carter J. Ward
On November 12, 2009, the Company entered into an employment agreement with Mr. Carter J. Ward (the “ Ward Employment Agreement”). Pursuant to the terms of the
Ward Employment Agreement, Mr. Ward continues as an at-will employee of the Company as its Chief Financial Officer. Mr. Ward receives a base salary of $150,000, with $125,000
of such amount being paid in accordance with the Company’s payroll practices and $25,000 of such amount being paid by the issuance of restricted shares of Common Stock, in
lieu of cash. The Common Stock component of Mr. Ward’s compensation is to be computed on a quarterly basis, with the number of shares issued equal to the quotient of the
quarterly amount due of $6,250 divided by the average daily closing price of the Company’s Common Stock for the quarter just ended.
On February 2, 2013, the Board of Directors increased Mr. Ward’s base salary to $155,000 retroactive to January 1, 2013. This $5,000 increase to be paid by the issuance of
restricted shares of Common Stock. The Common Stock component of Mr. Ward’s compensation is to be computed on a quarterly basis, with the number of shares issued equal to
the quotient of the quarterly amount due of $7,500 divided by the average daily closing price of the Company’s Common Stock for the quarter just ended.
On March 1, 2015, Mr. Ward’s compensation was adjusted to include a total compensation of $187,200, consisting of $157,200 being paid in accordance with the
Company’s payroll practices and $30,000 being paid by the issuance of restricted shares of Common Stock in lieu of cash.
On March 1, 2016, Mr. Ward’s compensation was adjusted to include a total compensation of $192,816, consisting of $162,816 being paid in accordance with the
Company’s payroll practices and $30,000 being paid by the issuance of restricted shares of Common Stock in lieu of cash.
On April 1, 2020, Mr. Ward’s compensation was adjusted to include a total compensation of $200,529, consisting of $170,529 being paid in accordance with the
Company’s payroll practices and $30,000 being paid by the issuance of restricted shares of Common Stock in lieu of cash.
Mr. Ward’s rate of compensation has not changed since April 1, 2020.
The Common Stock component of Mr. Ward’s compensation is to be computed on a quarterly basis, with the number of shares issued being equal to the quotient of the
quarterly amount due, divided by the average daily closing price of the Company’s Common Stock for the quarter just ended.
Douglas Plassche
On July 20, 2013, the Company entered into an employment agreement with Mr. Douglas Plassche (the “Plassche Employment Agreement”). Pursuant to the Plassche
Employment Agreement, Mr. Plassche serves as an at-will employee, in the position of Vice President of Operations, commencing on August 12, 2013. The Plassche Employment
Agreement includes a total base compensation of $236,000, consisting of $211,000 being paid in accordance with the Company’s payroll practices and $25,000 being paid by the
issuance of restricted shares of Common Stock in lieu of cash. Mr. Plassche is also eligible for an annual bonus in cash and/or equity-based awards for up to an equivalent of 30%
of base salary, with such annual bonus being granted based upon the achievement of agreed milestones and at the discretion of the Company and its Chief Executive Officer. In
addition, pursuant to the Plassche Employment Agreement, he was granted options to purchase 3,000,000 shares of Common Stock, at a price of $ 0.07 per share, (the closing price
of the Common Stock on the date of the Plassche Employment Agreement). The options were issued pursuant to the 2004 Employee Stock Option Plan and vest over a period of
three years with the vesting period commencing one year from the date of issuance.
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Mr. Plassche’s employment is terminable by either party. If the Company terminates Mr. Plassche without cause, Mr. Plassche is entitled to an amount equal to six months
of base annual salary in effect upon the date of termination.
On March 1, 2015, Mr. Plassche’s compensation was adjusted to include a total base compensation of $249,800, consisting of $224,800 being paid in accordance with the
Company’s payroll practices and $25,000 being paid by the issuance of restricted shares of Common Stock in lieu of cash.
On March 1, 2016, Mr. Plassche’s compensation was adjusted to include a total base compensation of $253,552, consisting of $228,552 being paid in accordance with the
Company’s payroll practices and $25,000 being paid by the issuance of restricted shares of Common Stock in lieu of cash.
On June 21, 2019, Mr. Plassche entered into a retention agreement with the Company (the “Plassche Retention Agreement”), pursuant to which Mr. Plassche will be
entitled to a lump sum retention payment of $253,552 at any time after June 30, 2021, provided Mr. Plassche remains continuously employed by the Company through such date. In
addition, Mr. Plassche is due a one-time $30,000 relocation payment and a guaranteed annual bonus of $75,000 pursuant to the Plassche Retention Agreement.
On April 1, 2020, Mr. Plassche’s compensation was adjusted to include a total base compensation of $272,530, consisting of $247,530 being paid in accordance with the
Company’s payroll practices and $25,000 being paid by the issuance of restricted shares of Common Stock in lieu of cash.
The Common Stock component of Mr. Plassche’s compensation is to be computed on a quarterly basis, with the number of shares issued being equal to the quotient of
the quarterly amount due, divided by the average daily closing price of the Company’s Common Stock for the quarter just ended.
George Kenneth Smith
On October 20, 2014, the Company entered into an employment agreement with Mr. George Kenneth Smith (the “Smith Employment Agreement”). Pursuant to the Smith
Employment Agreement, Mr. Smith serves as an at-will employee, in the position of Vice President, Legal, commencing on October 20, 2014. The Smith Employment Agreement
includes a total base compensation of $400,000, consisting of $150,000 being paid in accordance with the Company’s payroll practices and $250,000 being paid by the issuance of
restricted shares of Common Stock in lieu of cash. Mr. Smith is also eligible for an annual bonus and discretionary bonus, with such being at the discretion of the Company and its
Chief Executive Officer. In addition, pursuant to the Smith Employment Agreement, Mr. Smith was granted options to purchase 1,500,000 shares of Common Stock, at a price of $
0.29 per share, (the closing price of the Common Stock on the date of the Smith Employment Agreement). The options were issued pursuant to the 2009 Employee Stock Option
Plan and vest over a period of three years with the vesting period commencing one year from the date of issuance.
Mr. Smith’s employment is terminable by either party. If the Company terminates Mr. Smith without cause, or if Mr. Smith is terminated upon a change of control event, as
defined in the Smith Employment Agreement, Mr. Smith is entitled to an amount equal to one year of base annual salary in effect upon the date of termination.
On March 1, 2016, Mr. Smith’s compensation was adjusted to include a total base compensation of $412,000, consisting of $162,000 being paid in accordance with the
Company’s payroll practices and $250,000 being paid by the issuance of restricted shares of Common Stock in lieu of cash.
Mr. Smith’s rate of compensation has not changed since March 1, 2016.
The Common Stock component of Mr. Smith’s compensation is to be computed on a quarterly basis, with the number of shares issued being equal to the quotient of the
quarterly amount due, divided by the average daily closing price of the Company’s Common Stock for the quarter just ended.
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Hedging Policy
We do not permit the Named Executive Officers to “hedge” ownership by engaging in short sales or trading in any options contracts involving securities.
Options Exercised and Stock Vested
No options have been exercised by our Named Executive Officers during the 2020 Fiscal Year.
There was no vesting during Fiscal 2020 of options to purchase Common Stock that were issued to Named Executive Officers in prior periods.
Pension Benefits
We do not provide pension benefits to the Named Executive Officers.
Nonqualified Deferred Compensation
We do not have any defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax qualified.
Potential Payments Upon Termination or Change of Control
We do not presently provide the Named Executive Officers with any plan or arrangement, other than those that may be contained in the employment contracts of Mr.
Nasrat Hakim, Mr. Douglass Plassche, and Mr. George Kenneth Smith, as disclosed above, in connection with any termination, including, without limitation, through retirement,
resignation, severance, or constructive termination (including a change in responsibilities) of such Named Executive Officer’s employment with the Company.
As part of the Company’s efforts to ensure the retention and continuity of key employees, officers, and directors in the event of a change of control of the ownership of
the Company, unless otherwise stated in applicable employment contracts, key executives would receive an amount equal to twelve months of such executive’s salary, and certain
Directors and managers would receive an amount equal to six months of such Director’s or manager’s fees or salaries, as applicable. In addition, any outstanding and unvested
options would immediately vest, in the event of a change of control.
Compensation of named executive officers:
Salary (1)
($)
Bonus (1)
($)
Option
Awards (1)
($)
All Other
Compensation (1)
($)
Total
($)
Name and Principal Position
Nasrat Hakim, President, Chief Executive Officer and Chairman of the Board of Directors
2020(1)
2019(1)
Fiscal Year
500,000(2)
500,000(2)
500,000(3)
500,000(3)
Carter J. Ward, Chief Financial Officer
Douglas Plassche, Executive Vice President
George Kenneth Smith, Vice President
2020(1)
2019(1)
192,816(5)
192,816(5)
30,000(6)
-
2020(1)
2019(1)
253,552(7)
253,552(7)
75,000(8)
75,000(8)
2020(1)
2019(1)
412,000(10)
412,000(10)
—
—
—
—
—
—
—
—
—
—
78,000(4)
48,000(4)
1,078,000
1,048,000
—
—
222,816
192,816
36,000(11)
6,000(9)
259,552
334,552
—
—
412,000
412,000
(1)
(2)
Represents amounts paid or accrued for the fiscal years ended March 31, 2020 and 2019, respectively.
Represents total salaries paid or accrued to Mr. Hakim pursuant to the Hakim Employment Agreement, with such amounts to be paid via the issuance of Common Stock in
lieu of cash.
No shares of Common Stock have been issued to Mr. Hakim in payment of salaries due for Fiscal 2020. A total of 6,305,856 shares of Common Stock are due and owing to Mr.
Hakim in payment of salaries earned by during Fiscal 2020. A total of 5,473,559 shares of Common Stock are due and owing to Mr. Hakim in payment of salaries earned by Mr.
Hakim during Fiscal 2019. In aggregate, a total of $1,625,000 is accrued, due and owing to Mr. Hakim for salaries earned during Fiscal 2020, Fiscal 2019 and the twenty-four
months ended March 31, 2018, but not paid. This amount is to be paid via the issuance of 16,954,026 shares of Common Stock, with the date of such issuance of shares of
Common Stock being undetermined.
75
(3)
(4)
(5)
(6)
(7)
(8)
Represents bonuses paid or accrued to Mr. Hakim pursuant to the Hakim Employment Agreement.
A total of $125,000 of bonus earned by Mr. Hakim during Fiscal 2020 was paid in accordance with the Company’s payroll practices. A total of $375,000 of bonus earned by
Mr. Hakim during Fiscal was accrued and is owing to Mr. Hakim.
Mr. Hakim was also paid $125,000 during Fiscal 2020 for bonuses earned and accrued during the twelve months ended March 31, 2017, with such amount being paid in
accordance with the Company’s payroll practices.
As of March 31, 2020, Mr. Hakim is owed an additional $1,000,000 in bonus earned during the twenty-four-month period ending March 31, 2019. Pursuant to the Hakim
Employment Agreement, these bonuses are to be paid in accordance with the Company’s payroll practices.
Represents amounts paid for auto and housing allowances.
Represents salaries earned by Mr. Ward pursuant to the Ward Employment Agreement.
Fiscal 2020 salaries consist of $162,816 being paid in accordance with the Company’s payroll practices and $30,000 being accrued, due and owing to be paid via the issuance
of 378,362 shares of Common Stock.
Fiscal 2019 salaries consist of $162,816 being paid in accordance with the Company’s payroll practices and $30,000 being accrued, due and owing to be paid via the issuance
of 328,414 shares of Common Stock.
In aggregate, salaries totaling $67,500 are accrued, due and owing to Mr. Ward for salaries earned and not paid during Fiscal 2020, Fiscal 2019 and the twelve month period
ended March 31, 2018, with such accrued amount to be paid via the issuance of 775,171 shares of Common Stock, with the date of such issuance of shares of Common Stock
being undetermined.
Discretionary cash bonuses awarded by the Chief Executive Officer which was accrued and owing as of March 31, 2020 and paid during April 2020 in accordance with the
Company’s payroll practices
Represents salaries earned by Mr. Plassche pursuant to the Plassche Employment Agreement.
Fiscal 2020 salaries consist of $228,552 being paid in accordance with the Company’s payroll practices and $25,000 being accrued, due and owing and to be paid via the
issuance of 315,302 shares of Common Stock. Fiscal 2019 salaries consist of $228,552 being paid in accordance with the Company’s payroll practices and $25,000 being
accrued, due and owing and to be paid via the issuance of 276,678 shares of Common Stock.
In aggregate, salaries totaling $56,250 are accrued, due and owing to Mr. Plassche for salaries earned and not paid during Fiscal 2020, Fiscal 2019, and the twelve month
period ended March 31, 2018, with such accrued amount to be paid via the issuance of 645,976 shares of Common Stock, with the date of such issuance of shares of Common
Stock being undetermined.
Cash bonuses paid pursuant to the Plassche Employment Agreement
Bonus awarded during Fiscal 2020 was accrued as of March 31, 2020 and paid in April 2020 in accordance with the Company’s payroll practices.
Bonus awarded during Fiscal 2019 was accrued as of March 31, 2019 and paid in April 2019 in accordance with the Company’s payroll practices.
Represents amounts paid for auto allowances
(9)
(10) Represents salaries earned by Mr. Smith pursuant to the Smith Employment Agreement.
Fiscal 2020 salaries consist of $162,000 being paid in accordance with the Company’s payroll practices and $250,000 being accrued, due and owing and to paid via the
issuance of 3,153,020 shares of Common Stock. Fiscal 2019 salaries consist of $162,000 being paid in accordance with the Company’s payroll practices and $250,000 being
accrued, due and owing and to be paid via the issuance of 2,736,780 shares of Common Stock.
In aggregate, salaries totaling $562,500 are accrued, due and owing to Mr. Smith for salaries earned and not paid during Fiscal 2020, Fiscal 2019, and the twelve month period
ended March 31, 2018, with such accrued amount to be paid via the issuance of 6,459,757 shares of Common Stock, with the date of such issuance of shares of Common
Stock being undetermined.
(11) Consists of auto allowances of $6,000 paid to Mr. Plassche during Fiscal 2020 and $30,000 relocation reimbursement due and owing to Mr. Plassche, pursuant to the Plassche
Retention Agreement.
Outstanding Equity Awards at March 31, 2020
Name
Carter Ward
Douglas Plassche
George Kenneth Smith
Number of
securities
underlying
unexercised
options
Exercisable
(#)
Number of
securities
underlying
unexercised
options
Unexercisable
(#)
Equity Incentive Plan
Awards:
Number of
securities
underlying
unexercised
unearned options
(#)
Options
Exercise
Price
($)
-
-
-
-
-
-
0.12
0.07
0.29
150,000
3,000,000
1,500,000
76
Option
Expiration
Date
6/19/2022
7/23/2023
10/20/2024
The following table sets forth information concerning director compensation for the year ended March 31, 2020:
Name
Barry Dash
Jeffrey Whitnell
Davis Caskey
Fees
Earned or
Paid In
Cash (1)
($)
Stock
Awards (1)
($)
Option
Awards
($)
Non-Equity
Incentive
Plan
Compensation
($)
Non-qualified
Deferred
Compensation
($)
All Other
Compensation
($)
10,000(2)
10,000(2)
10,000(2)
20,000(3)
20,000(3)
20,000(3)
-
-
-
-
-
-
-
-
-
-
-
-
Total
($)
30,000
30,000
30,000
(1) Please refer to the section below titled “Director Fee Compensation” for details on the Company’s director fee compensation policy.
(2) Amounts represent Director fees earned during the fiscal year ended March 31, 2020 which are to be paid in cash. These fees were accrued and unpaid as of March 31, 2020,
with a payment date being undetermined. In aggregate, Directors fees totaling $67,500 ($22,500 for each of the Company’s three non-employee Directors) is accrued, due and
owing for Director fees earned during Fiscal 2020, Fiscal 2019 and the twelve month period ended March 31, 2018. This amount is to be paid in cash, with the date of such
payment being undetermined.
(3) Director fees earned during the fiscal year ended March 31, 2020 which are to be paid via the issuance of an aggregate of 756,725 shares of Common Stock, with Dr. Dash, Mr.
Whitnell and Mr. Caskey each receiving 252,242 shares of Common Stock. In aggregated, a total of 1,550,342 shares of Common Stock is accrued, due and owing as of March
31, 2018 (with each of Company’s three non-employee Directors being owed 516,781 shares of this aggregate total) for Director fees earned during Fiscal 2020, Fiscal 2019 and
the twelve month period ended March 31, 2018. Payment of this amount due via share issuance will be made at an undetermined date
Director Fee Compensation
The Company’s policy regarding director fees is as follows: (i) Directors who are employees or consultants of the Company (and/or any of its subsidiaries) receive no
additional remuneration for serving as directors or members of committees of the Board; (ii) all Directors are entitled to reimbursement for out-of-pocket expenses incurred by them
in connection with their attendance at the Board or committee meetings; (iii) Directors who are not employees or consultants of the Company (and/or any of its subsidiaries)
receive a $30,000 annual retainer fee, with $20,000 of this amount being paid via the issuance of restricted Common Stock of the Company in lieu of cash, as described below, and
the remaining $10,000 being paid in cash; (iv) The Chairman of the Board receives a $30,000 annual retainer fee paid via the issuance of restricted shares of Common Stock of the
Company in lieu of cash, as described below; (v) Directors and the Chairman do not receive any additional compensation for attendance at or chairing of any meetings; and, (vi)
Mr. Nasrat Hakim received no additional compensation, above the annual retainer fee due to the Chairman of the Board, for the period that he also served as Chief Executive
Officer.
Director Equity Compensation
Members of the Board of Directors and the Chairman are paid their annual retainer fees via the issuance of restricted shares of Common Stock of the Company, in lieu of
cash. The number of shares to be issued to each Director and the Chairman is equal to the quotient of the quarterly amount due to each Director and the Chairman, respectively,
divided by the average daily closing price of the Company’s stock for the quarter just ended.
Members of the Board of Directors during the fiscal years ended March 31, 2020 and March 31, 2019 did not receive any options or equity compensation for serving as
directors other than shares of Common Stock earned in lieu of cash in relation to Director fees due.
Other
The Company’s Articles of Incorporation provide for the indemnification of each of the Company’s directors to the fullest extent permitted under Nevada General
Corporation Law.
77
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information, as of June 23, 2020 (except as otherwise indicated), regarding beneficial ownership of our Common Stock and our Series
J Preferred Stock by (i) each person who is known by us to own beneficially more than 5% of each such class, (ii) each of our directors, (iii) each of our executive officers and (iv) all
our directors and executive officers as a group. As of June 23, 2020, we had 840,404,367 million shares of Common Stock outstanding (exclusive of 0.1 million treasury shares) and
24.0344 shares of Series J Preferred Stock outstanding. On any matter presented to the holders of our Common Stock for their action or consideration at any meeting of our
Shareholders, each share of Common Stock entitles the holder to one vote and each share of Series J Preferred Stock entitles the holder to the number of votes equal to the number
of shares of Common Stock into which such share of Series J Preferred Stock is convertible (6,574,631 shares of Common Stock per whole share of Series J Preferred Stock).
As used in the table below and elsewhere in this report, the term beneficial ownership with respect to a security consists of sole or shared voting power, including the
power to vote or direct the vote, and/or sole or shared investment power, including the power to dispose or direct the disposition, with respect to the security through any
contract, arrangement, understanding, relationship, or otherwise, including a right to acquire such power(s) during the 60 days immediately following June 23, 2020. Except as
otherwise indicated, the Shareholders listed in the table have sole voting and investment powers with respect to the shares indicated.
Name and Address of Beneficial Owner of Common Stock
Nasrat Hakim, President, Chief Executive Officer and Chairman of the Board of Directors*
Barry Dash, Director*
Jeffrey Whitnell, Director*
Davis Caskey, Director*
Carter J. Ward, Chief Financial Officer *
Douglas Plassche, Executive Vice President *
Ashok Nigalaye, Former Director
All Directors and Officers as a group
Amount and Nature of
Beneficial Ownership
Common Stock
Series J
Preferred
Stock
Percent (% )
of Voting
Securities
Beneficially
Owned (11)
107,760,381(1) 24.03443452410(2)
24.7%
1,932,792(3)
1,884,257(4)
746,673(5)
4,697,089(6)
4,133,572(7)
50,265,539(8)
**%
**%
**%
**%
**%
4.7%
121,154,764(9) 24.03443452410(2)
25.9%
The address is c/o Elite Pharmaceuticals Inc., 165 Ludlow Avenue, Northvale, NJ 07647.
*
** Less than 1%
(1)
(2)
(3)
(4)
Includes 11,797,561 shares of Common Stock held and 16,954,159 shares of Common Stock due and owing to Mr. Hakim as of March 31, 2020 (the latest practicable date) for
compensation earned pursuant to Mr. Hakim’s employment agreement with the Company and 79,008,661 shares of Common Stock issuable upon exercise of the Series J
Warrants.
Series J Preferred Stock has an aggregate of 158,017,321 voting rights.
Includes 1,416,011 shares of Common Stock held and 516,781 shares of Common Stock due and owing to Dr. Dash as of March 31, 2020 (the latest practicable date) for
Directors fees accrued as of such date.
Includes 1,367,476 shares of Common Stock held and 516,781 shares of Common Stock due and owing to Mr. Whitnell as of March 31, 2020 (the latest practicable date) for
Directors fees accrued as of such date.
78
(5)
(6)
(7)
Includes 229,892 shares of Common Stock held and 516,781 shares of Common Stock due and owing to Mr. Caskey as of March 31, 2020 (the latest practicable date) Date for
Directors fees accrued as of such date.
Includes 3,771,919 shares of Common Stock held and 775,170 shares of Common Stock due and owing to Mr. Ward as of March 31, 2020 (the latest practicable date) for
salaries earned pursuant to Mr. Ward’s employment agreement with the Company, and vested options to purchase 150,000 shares of Common Stock.
Includes 487,596 shares of Common Stock held 645,976 shares of Common Stock due and owing to Mr. Plassche as of March 31, 2020 (the latest practicable date) for salaries
earned pursuant to Mr. Plassche’s employment agreement with the Company, and vested options to purchase 3,000,000 shares of Common Stock.
(8) Dr. Nigalaye resigned on June 5, 2015. Address is c/o Granulation Technology Inc. 12 Industrial Road, Fairfield, NJ 07004. Includes 50,265,539 shares of Common Stock held
(9)
with the Company’s transfer agent in account(s) that is (are) beneficially owned by Dr. Nigalaye.
Relates only to current directors and officers. Includes 19,070,455 shares of Common Stock held, 19,925,648 shares of Common Stock due and owing as of June 23, 2020 for
director’s fees and salaries accrued as of such date, vested options to purchase 3,150,000 shares of Common Stock, and warrants to purchase 79,008,661 shares of Common
Stock.
(10) The denominator includes 158,017,321 votes attributable to the outstanding Series J Preferred Stock. Accordingly, the percentage of Common Stock beneficially owned by
each Owner listed in the table other than Mr. Hakim is slightly greater than the percentage listed in this column.
Series J Preferred
Each share of Series J Preferred has a stated value of $1,000,000 (the “Stated Value”). Commencing on the earlier of four years from the date of issuance of the Series J
Preferred or the date that shareholder approval of an increase in the authorized shares of common stock is obtained (the “Shareholder Approval”) and the requisite corporate
action has been effected, each share of Series J Preferred is convertible into shares of Company Common Stock at a rate calculated by dividing the Stated Value by $0.1521 (the
“Conversion Price”) (prior to any adjustment, 6,574,622 shares of Common Stock per whole share of Series J Preferred). Shareholder Approval was obtained, so the Series J
Preferred is now convertible. Subject to certain exceptions, the Conversion 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 Conversion Price. The Conversion price also is adjustable upon the happening of certain customary events such as stock
dividends and splits, pro rata distributions and fundamental transactions.
Holders of Series J Preferred vote, along with the holders of Common Stock, on any matter presented to the shareholders. Each holder of Series J Preferred is entitled to
cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series J Preferred held by such holder are convertible.
The Series J Preferred ranks senior to the Common Stock with respect to the payment of dividends. So long as any shares of Series J Preferred remain outstanding, the
Company cannot declare, pay, or set aside any dividends on shares of any other of its capital stock, unless the holders receive, a dividend on each outstanding share of Series J
Preferred in an amount equal to the dividend the holders would have been entitled to receive upon conversion, in full, of the shares of Series J Preferred.
Upon liquidation, dissolution or winding up of the Company, holders of Series J Preferred are entitled to receive for each share of Series J Preferred Stock, pari passu and
pro rata with the holders of Common Stock, out of the Company’s assets, an amount equal to the amount distributable with regard to the number of whole shares of Common Stock
into which the shares of Series J Preferred held by the holders are convertible as of the date of the Liquidation regardless of whether an Authorized Share Deficiency exists.
Series J Warrants
The Series J Warrants are exercisable for a period of 10 years from the date of issuance. The initial exercise price is $0.1521 per share and the 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. The Warrants provide for other standard adjustments upon the happening of certain customary events.
79
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Related Person Transactions
In May 2020, SunGen, under 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.
Director Independence
All related person transactions are reviewed and, as appropriate, may be approved or ratified by the Board of Directors. If a Director is involved in the transaction, he or
she may not participate in any review, approval, or ratification of such transaction. Related person transactions are approved by the Board of Directors only if, based on all of the
facts and circumstances, they are in, or not inconsistent with, our best interests and the best interests of our stockholders, as the Board of Directors determines in good faith. The
Board of Directors takes into account, among other factors it deems appropriate, whether the transaction is on terms generally available to an unaffiliated third-party under the
same or similar circumstances and the extent of the related person’s interest in the transaction. The Board of Directors may also impose such conditions as it deems necessary and
appropriate on us or the related person in connection with the transaction.
In the case of a transaction presented to the Board of Directors for ratification, the Board of Directors may ratify the transaction or determine whether rescission of the
transaction is appropriate.
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Company’s independent registered public accounting firm is Buchbinder Tunick & Company LLP (“Buchbinder”).
The following table presents fees, including reimbursements for expenses, for professional audit services rendered by Buchbinder, for the audits of our financial
statements and interim reviews of our quarterly financial statements.
Audit Fees
Audit-Related Fees
Tax Fees
Audit Fees
$
Fiscal 2020
Fiscal 2019
120,000 $
—
8,000
122,000
1,850
7,000
Represents fees for professional services provided for the audit of our annual financial statements, services that are performed to comply with generally accepted auditing
standards, and review of our financial statements included in our quarterly reports and services in connection with statutory and regulatory filings.
Audit-Related Fees
Represents the fees for assurance and related services that were reasonably related to the performance of the audit or review of our financial statements.
Tax Fees
Represents preparation of Federal, State and Local income tax returns.
The Audit Committee has determined that Buchbinder’s rendering of these audit-related services was compatible with maintaining auditor’s independence. The Board of
Directors considered Buchbinder to be well qualified to serve as our independent public accountants. The Committee also pre-approved the charges for services performed in
Fiscal 2020.
The Audit Committee pre-approves all audit related and tax services and the terms thereof (which may include providing comfort letters in connection with securities
underwriting) and non-audit services (other than non-audit services prohibited under Section 10A(g) of the Exchange Act or the applicable rules of the SEC or the Public Company
Accounting Oversight Board) to be provided to us by the independent auditor; provided, however, the pre-approval requirement is waived with respect to the provisions of non-
audit services for us if the “de minimus” provisions of Section 10A (i)(1)(B) of the Exchange Act are satisfied. This authority to pre-approve non-audit services may be delegated to
one or more members of the Audit Committee, who shall present all decisions to pre-approve an activity to the full Audit Committee at its first meeting following such decision.
80
ITEM 15 EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES
(a) The following are filed as part of this Annual Report on Form 10-K
PART IV
(1) The financial statements and schedules required to be filed by Item 8 of this Annual Report on Form 10-K and listed in the Index to Consolidated Financial Statements.
(2) The Exhibits required by Item 601 of Regulation S-K and listed below in the “Index to Exhibits required by Item 601 of Regulation S-K.”
(b) The Exhibits are filed with or incorporated by reference in this Annual Report on Form 10-K
(c) None
Index to Exhibits required by Item 601 of Regulation S-K.
Exhibit No.
3.1(a)
3.1(b)
Articles of Incorporation of Elite-Nevada, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on January 9, 2012.
Certificate of Designations of the Series G Convertible Preferred Stock as filed with the Secretary of State of the State of Nevada on April 18, 2013, incorporated
by reference to Exhibit 4.1 to the Current Report on Form 8-K, dated April 18, 2013 and filed with the SEC on April 22, 2013.
Description
3.1(c)
Certificate of Designation of the Series H Junior Participating Preferred Stock, incorporated by reference to Exhibit 2 (contained in Exhibit 1) to the Registration
Statement on Form 8-A filed with the SEC on November 15, 2013.
3.1(d)
Certificate of Designations of the Series I Convertible Preferred Stock as filed with the Secretary of State of the State of Nevada on February 6, 2014, incorporated
by reference to Exhibit 3.1 to the Current Report on Form 8-K, dated February 6, 2014 and filed with the SEC on February 7, 2014.
3.1(e)
Certificate of Designations of the Series J Convertible Preferred Stock as filed with the Secretary of State of the State of Nevada on May 3, 2017, incorporated by
reference to Exhibit 3.1 to the Current Report on Form 8-K, dated April 28, 2017 and filed with the SEC on April 28, 2017.
3.1(f)
Certificate of Amendment to Articles of Incorporation, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, dated June 24, 2020 and filed
with the SEC on June 24, 2020.
81
3.2(a)
Amended and Restated By-Laws of the Company, incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K dated April 23, 2020 and filed with
the SEC on April 23, 2020.
4.1
4.2
4.3
4.4
4.5
4.6
10.1
10.2
10.3
10.4
10.5
Form of specimen certificate for Series G Convertible Preferred Stock of the Company, incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K,
dated April 18, 2013 and filed with the SEC on April 22, 2013.
Form of specimen certificate for Series I Convertible Preferred Stock of the Company, incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K,
dated February 6, 2014 and filed with the SEC on February 7, 2014.
Rights Agreement, dated as of November 15, 2013, between the Company and American Stock Transfer & Trust Company, LLC., incorporated by reference to
Exhibit 1 to the Registration Statement on Form 8-A filed with the SEC on November 15, 2013.
Form of Series H Preferred Stock Certificate, incorporated by reference to Exhibit 1 to the Registration Statement on Form 8-A filed with the SEC on November 15,
2013.
Warrant to purchase shares of Common Stock issued to Nasrat Hakim dated April 28, 2017 incorporated by reference to Exhibit 4.1 to the Current Report on Form
8-K, dated April 28, 2017, and filed with the SEC on April 28, 2017.
Description of Common Stock.*
Elite Pharmaceuticals, Inc. 2014 Equity Incentive Plan, incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement for its Annual
Meeting of Shareholders, filed with the SEC on April 3, 2014.
Form of Confidentiality Agreement (corporate), incorporated by reference to Exhibit 10.7 to the Form SB-2.
Form of Confidentiality Agreement (employee), incorporated by reference to Exhibit 10.8 to the Form SB-2.
Loan Agreement, dated as of August 15, 2005, between New Jersey Economic Development Authority (“NJEDA”) and the Company, incorporated by reference
to Exhibit 10.1 to the Current Report on Form 8-K, dated August 31, 2005 and filed with the SEC on September 6, 2005.
Series A Note in the aggregate principal amount of $3,660,000.00 payable to the order of the NJEDA, incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K, dated August 31, 2005 and filed with the SEC on September 6, 2005.
82
10.6
10.7
10.8
10.9
Series B Note in the aggregate principal amount of $495,000.00 payable to the order of the NJEDA, incorporated by reference to Exhibit 10.3 to the Current Report
on Form 8-K, dated August 31, 2005 and filed with the SEC on September 6, 2005.
Mortgage from the Company to the NJEDA, incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K, dated August 31, 2005 and filed with the
SEC on September 6, 2005.
Indenture between NJEDA and the Bank of New York as Trustee, dated as of August 15, 2005, incorporated by reference to Exhibit 10.5 to the Current Report on
Form 8-K, dated August 31, 2005 and filed with the SEC on September 6, 2005.
Strategic Alliance Agreement, dated as of March 18, 2009, by and among the Company, Epic Pharma, LLC and Epic Investments, LLC, incorporated by reference
to Exhibit 10.1 to the Current Report on Form 8-K, dated March 18, 2009 and filed with the SEC on March 23, 2009.
10.10
Amendment to Strategic Alliance Agreement, dated as of April 30, 2009, by and among the Company, Epic Pharma, LLC and Epic Investments, LLC, incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated April 30, 2009 and filed with the SEC on May 6, 2009.
10.11
Second Amendment to Strategic Alliance Agreement, dated as of June 1, 2009, by and among the Company, Epic Pharma, LLC and Epic Investments, LLC,
incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated June 1, 2009, and filed with the SEC on June 5, 2009.
10.12
Third Amendment to Strategic Alliance Agreement, dated as of Aug 18, 2009, by and among the Company, Epic Pharma LLC and Epic Investments, LLC,
incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q, for the period ending June 30, 2009 and filed with the SEC on August 19, 2009.
10.13
Employment Agreement, dated as of November 13, 2009, by and between the Company and Carter J. Ward, incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q, for the period ending September 30, 2009 and filed with the SEC on November 16, 2009.
10.14
Elite Pharmaceuticals Inc. 2009 Equity Incentive Plan, as adopted November 24, 2009, incorporated by reference to Exhibit 10.1 to the Registration Statement
Under the Securities Act of 1933 on Form S-8, dated December 18, 2009 and filed with the SEC on December 22, 2009.
10.15
10.16
License Agreement, dated as of September 10, 2010, by and among Precision Dose Inc. and the Company, incorporated by reference to Exhibit 10.8 to the
Quarterly Report on Form 10-Q, for the period ended September 30, 2010 and filed with the SEC on November 15, 2010 (Confidential Treatment granted with
respect to portions of the Agreement).
Manufacturing and Supply Agreement, dated as of September 10, 2010, by and among Precision Dose Inc. and the Company, incorporated by reference to Exhibit
10.9 to the Quarterly Report on Form 10-Q, for the period ended September 30, 2010 and filed with the SEC on November 15, 2010 (Confidential Treatment granted
with respect to portions of the Agreement).
10.17
August 1, 2013 Employment Agreement with Nasrat Hakim, incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K, dated August 1, 2013
and filed with the SEC on August 5, 2013.
10.18
August 1, 2013 Mikah LLC Asset Purchase Agreement, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K/A, dated August 1, 2013 and
filed with the SEC on August 30, 2018. (Confidential Treatment granted with respect to portions of the Agreement).
10.19
August 1, 2013 Secured Convertible Note from the Company to Mikah Pharma LLC., incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K,
dated August 1, 2013 and filed with the SEC on August 5, 2013.
10.20
August 1, 2013 Security Agreement from the Company to Mikah Pharma LLC., incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, dated
August 1, 2013 and filed with the SEC on August 5, 2013.
83
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
October 15, 2013 Hakim Credit Line Agreement, incorporated by reference to Exhibit 10.16 to the Quarterly Report on Form 10-Q for the period ended September
30, 2013.
October 2, 2013 Manufacturing and Licensing Agreement with Epic Pharma LLC, incorporated by reference to Exhibit 10.17 to the Amended Quarterly Report on
Form 10-Q/A for the period ended September 30, 2013 and filed with the SEC on April 25, 2014. Confidential Treatment granted with respect to portions of the
Agreement.
February 7, 2014 Amendment to Secured Convertible Note from the Company to Mikah, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-
K, dated February 7, 2014 and filed with the SEC on February 7, 2014.
Employment Agreement with Dr. G. Kenneth Smith, dated October 20, 2014, incorporated by reference to Exhibit 10.82 to the Quarterly Report on Form 10-Q for
the period ended September 30, 2014 and filed with the SEC on November 14, 2014.
January 28, 2015 First Amendment to the Loan Agreement between Nasrat Hakim and Elite Pharmaceuticals dated October 15, 2013, incorporated by reference to
Exhibit 10.83 to the Quarterly Report on Form 10-Q for the period ended December 31, 2014 and filed with the SEC on February 17, 2015.
January 28, 2015 Termination of Development and License Agreement for Mikah-001 between Elite Pharmaceuticals, Inc. and Mikah Pharma LLC and Transfer of
Payment, incorporated by reference to Exhibit 10.84 to the Quarterly Report on Form 10-Q for the period ended December 31, 2014 and filed with the SEC on
February 17, 2015.
June 4, 2015 License Agreement with Epic Pharma LLC, incorporated by reference to Exhibit 10.85 to Amendment No. 1 to the Annual Report on Form 10-K for the
fiscal year ended March 31, 2015 and filed with the SEC on July 11, 2016. (Confidential Treatment granted with respect to portions of the Agreement).
Amendment No. 1 to Hakim Employment Agreement, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on January
29, 2016.
August 24, 2016 Master Development and License Agreement between Elite and SunGen Pharma LLC. incorporated by reference to Exhibit 10.44 to the Quarterly
Report on Form 10-Q for the period ended September 30, 2016 and filed with the SEC on November 9, 2016. (Confidential Treatment granted with respect to
portions of the Agreement).
Purchase Agreement between the Company and Lincoln Park Capital LLC dated May 1, 2017, incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K, dated May 2, 2017 and filed with the SEC on May 2, 2017.
Registration Rights Agreement between the Company and Lincoln Park Capital LLC dated May 1, 2017, incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K, dated May 2, 2017 and filed with the SEC on May 2, 2017.
April 28, 2017 Exchange Agreement between the Company and Nasrat Hakim, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated
April 28, 2017 and filed with the SEC on April 28. 2017.
May 2017 Trimipramine Acquisition Agreement from Mikah Pharma, incorporated by reference to Exhibit 10.50 to the Annual Report on Form 10-K, for the period
ended March 31, 2017 and filed with the SEC on June 14, 2017.
May 2017 Secured Promissory Note from the Company to Mikah Pharma, incorporated by reference to Exhibit 10.51 to the Annual Report on Form 10-K, for the
period ended March 31, 2017 and filed with the SEC on June 14, 2017.
May 2017 Security Agreement between the Company to Mikah Pharma, incorporated by reference to Exhibit 10.52 to the Annual Report on Form 10-K, for the
period ended March 31, 2017 and filed with the SEC on June 14, 2017.
May 2017 Assignment of Supply and Distribution Agreement between Dr. Reddy’s Laboratories and Mikah Pharma, incorporated by reference to Exhibit 10.53 to
the Annual Report on Form 10-K, for the period ended March 31, 2017 and filed with the SEC on June 14, 2017.
May 2017 Assignment of Manufacturing and Supply Agreement between Epic and Mikah Pharma, incorporated by reference to Exhibit 10.54 to the Annual
Report on Form 10-K, for the period ended March 31, 2017 and filed with the SEC on June 14, 2017.
Supply and Distribution Agreement between Dr. Reddy’s Laboratories and Mikah Pharma, incorporated by reference to Exhibit 10.55 to the Annual Report on
Form 10-K, for the period ended March 31, 2017 and filed with the SEC on June 14, 2017. (Confidential Treatment granted with respect to portions of the
Agreement).
Manufacturing and Supply Agreement between Epic and Mikah Pharma, incorporated by reference to Exhibit 10.56 to the Annual Report on Form 10-K, for the
period ended March 31, 2017 and filed with the SEC on June 14, 2017. (Confidential Treatment granted with respect to portions of the Agreement).
Master Development and License Agreement For Products Between Elite Pharmaceuticals, Inc. And SunGen dated July 6, 2017, incorporated by reference to
Exhibit 10.57 to the Quarterly Report on Form 10-Q for the period ended June 30, 2017 and filed with the SEC on August 9, 2017. (Confidential Treatment granted
with respect to portions of the Agreement).
84
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
First Amendment to Master Development And License Agreement For Products Between Elite Pharmaceuticals, Inc. and SunGen Pharma, LLC, incorporated by
reference to Exhibit 10.59 to the Quarterly Report on Form 10-Q for the period ended June 30, 2017 and filed with the SEC on August 9, 2017. (Confidential
Treatment granted with respect to portions of the Agreement).
Second Amendment to Master Development And License Agreement For Products Between Elite Pharmaceuticals, Inc. and SunGen Pharma, LLC, incorporated
by reference to Exhibit 10.58 to the Quarterly Report on Form 10-Q for the period ended June 30, 2017 and filed with the SEC on August 9, 2017. (Confidential
Treatment granted with respect to portions of the Agreement).
May 22, 2018 License, Manufacturing and Supply Agreement with Glenmark Pharmaceuticals Inc. USA, incorporated by reference to Exhibit 10.60 to the Annual
Report on Form 10-K for the fiscal year ended March 31, 2018 and filed with the SEC on June 14, 2018. (Confidential treatment granted with respect to portions of
the Agreement).
August 1, 2018 Amendment to the Glenmark Pharmaceuticals Inc. USA License, Supply and Distribution Agreement, incorporated by reference to Exhibit 10.44 to
the Quarterly Report on Form 10-Q, for the period ended December 31, 2019 and filed with the SEC on February 10, 2020. (Portions of this Agreement have been
redacted in compliance with Regulation S-K Item 601(b)(10)).of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10)).
License, Supply And Distribution Agreement effective March 6, 2019 by and between Elite Pharmaceuticals, Inc., and Elite Laboratories, Inc. and Lannett
Company, Inc., USA, incorporated by reference to Exhibit 10.45 to the Quarterly Report on Form 10-Q, for the period ended December 31, 2019 and filed with the
SEC on February 10, 2020. (Portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10)).
License, Supply and Distribution Agreement effective April 9, 2019 by and between Elite Pharmaceuticals, Inc., and Elite Laboratories, Inc. and Lannett Company,
Inc., USA, incorporated by reference to Exhibit 10.49 to the Annual Report on Form 10-K for the period ended March 31, 2019 and filed with the SEC on June 21,
2019 (portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10)).
License, Supply and Distribution Agreement effective March 6, 2019 by and between Elite Pharmaceuticals, Inc., and Elite Laboratories, Inc. and Lannett
Company, Inc., USA, incorporated by reference to Exhibit 10.50 to the Annual Report on Form 10-K for the period ended March 31, 2019 and filed with the SEC on
June 21, 2019 (portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10)).
Development Agreement effective December 3, 2018 by and between Mikah Pharma LLC and Elite Laboratories, Inc., incorporated by reference to Exhibit 10.51 to
the Annual Report on Form 10-K for the period ended March 31, 2019 and filed with the SEC on June 21, 2019 (portions of this Agreement have been redacted in
compliance with Regulation S-K Item 601(b)(10)).
10.49
Asset Purchase Agreement dated November 13, 2019 by and between the Company and Nostrum Laboratories Inc. , incorporated by reference to Exhibit 10.49 to
the Quarterly Report on Form 10-Q, for the period ended December 31, 2019 and filed with the SEC on February 10, 2020.
10.50
January 2, 2020 Amendment to the Glenmark Pharmaceuticals Inc. USA License, Supply and Distribution Agreement, incorporated by reference to Exhibit 10.50 to
the Quarterly Report on Form 10-Q, for the period ended December 31, 2019 and filed with the SEC on February 10, 2020. (Portions of this Agreement have been
redacted in compliance with Regulation S-K Item 601(b)(10)).
85
10.51
Asset Purchase Agreement executed January 16, 2020 by and between the Company and Nostrum Laboratories Inc., incorporated by reference to Exhibit 10.49 to
the Quarterly Report on Form 10-Q, for the period ended December 31, 2019 and filed with the SEC on February 10, 2020.
10.52
10.53
10.54
21
23.1
31.1
31.2
32.1
32.2
Employment Agreement with Douglas Plassche *
June 21, 2019 Retention Agreement with Douglas Plassche.*
July 29, 2019 Amendment To The License, Supply And Distribution Agreement Between Elite Pharmaceuticals, Inc./Elite Laboratories, Inc. And Lannett
Company, Inc. (Portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10)).*
Subsidiaries of the Company, incorporated by reference to Exhibit 21 to the Annual Report on Form 10-K, for the period ended March 31, 2019 and filed with the
SEC on June 21, 2019.
Consent of Buchbinder Tunick & Company LLP, Independent Registered Public Accounting Firm*
Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) and Rule 15d-14(a)*
Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) and Rule 15d-14(a)*
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
*
Filed herewith.
**
Furnished herewith.
ITEM 16 FORM 10-K SUMMARY
None.
86
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
ELITE PHARMACEUTICALS, INC.
By:
/s/ Nasrat Hakim
Nasrat Hakim
Chief Executive Officer
Dated: June 29, 2020
By:
/s/ Carter J. Ward
Carter J. Ward
Chief Financial Officer
Dated: June 29, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature
Title
/s/ Nasrat Hakim
/s/ Carter J. Ward
/s/ Barry Dash
/s/ Jeffrey Whitnell
/s/ Davis Caskey
Chief Executive Officer, President and Chairman of the Board of Directors
Chief Financial Officer, Treasurer, Secretary
Director
Director
Director
87
Date
June 29, 2020
June 29, 2020
June 29, 2020
June 29, 2020
June 29, 2020
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2020 AND 2019
CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
PAGE
F-2
F-3
F-5
F-6
F-7
F-8
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Elite Pharmaceuticals, Inc. and Subsidiary
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Elite Pharmaceuticals, Inc. and Subsidiary (the Company) as of March 31, 2020 and 2019, and the related
consolidated statements of operations, stockholders’ Equity (deficit), and cash flows for each of the years in the two-year period ended March 31, 2020, and the related notes
(collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of the Company as of March 31, 2020 and 2019 and the results of its operations and its cash flows for each of the years in the two-year period ended March 31, 2020 in conformity
with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Buchbinder & Tunick Company LLP
Buchbinder & Tunick Company LLP
We have served as the Company’s auditor since 2010.
Little Falls, New Jersey 07424
June 29, 2020
F-2
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AUDITED)
ASSETS
Current assets:
Cash
Accounts receivable, net of allowance for doubtful accounts of $-0-, respectively
Inventory
Prepaid expenses and other current assets
Total current assets
Property and equipment, net of accumulated depreciation of $10,957,334 and $9,651,718, respectively
Intangible assets, net of accumulated amortization of $-0-, respectively
Operating lease – right-of-use asset
Other assets:
Restricted cash - debt service for NJEDA bonds
Security deposits
Total other assets
Total assets
LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable
Accrued expenses
Deferred revenue, current portion
Bonds payable, current portion, net of bond issuance costs
Loans payable, current portion
Lease obligation - operating lease, current portion
Customer deposits
Senior secured promissory note - related party, current portion
Total current liabilities
Long-term liabilities:
Deferred revenue, net of current portion
Bonds payable, net of current portion and bond issuance costs
Senior secured promissory note - related party, net of current portion
Loans payable, net of current portion
Lease obligation - operating lease, net of current portion
Derivative financial instruments - warrants
Other long-term liabilities
Total long-term liabilities
Total liabilities
$
March 31,
2020
March 31,
2019
1,131,728 $
4,106,846
4,142,472
870,233
10,251,279
2,277,643
1,321,805
4,515,723
741,371
8,856,542
7,227,648
8,443,849
6,634,035
6,634,035
363,282
-
404,802
75,534
480,336
398,125
69,383
467,508
$
24,956,580 $
24,401,934
$
1,577,860 $
4,821,132
180,000
90,822
561,550
208,184
-
1,200,000
8,639,548
58,891
1,336,489
-
463,902
167,109
3,599,378
35,442
5,661,211
1,375,347
3,713,601
1,013,333
80,822
573,029
-
150,000
-
6,906,132
238,890
1,427,315
1,200,000
699,269
-
2,487,830
46,402
6,099,706
14,300,759
13,005,838
The accompanying notes are an integral part of these audited consolidated financial statements.
F-3
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
March 31,
2020
March 31,
2019
Mezzanine equity
Series J convertible preferred stock; par value $0.01; 50 shares authorized, 24.0344 issued and outstanding as of March 31, 2019
-
13,903,960
Shareholders’ equity (deficit):
Series J convertible preferred stock; par value of $0.01 50 shares authorized; 24.0344 issued and outstanding as of March 31, 2020
Common stock; par value $0.001; 1,445,000,000 shares authorized, 840,504,367 shares issued and 840,404,367 outstanding as of March 31,
2020; 995,000,000 shares authorized; 824,946,559 shares issued and 824,846,559 outstanding as of March 31, 2019
Additional paid-in capital
Treasury stock; 100,000 shares as of March 31, 2020 and March 31, 2019; at cost
Accumulated deficit
Total shareholders’ equity (deficit)
Total liabilities, mezzanine equity and shareholders’ equity (deficit)
$
13,903,960
-
840,507
150,264,605
(306,841)
(154,046,410)
10,655,821
24,956,580 $
824,949
148,780,087
(306,841)
(151,806,059)
(2,507,864)
24,401,934
The accompanying notes are an integral part of these audited consolidated financial statements.
F-4
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AUDITED)
Manufacturing fees
Licensing fees
Total revenue
Cost of revenue
Gross profit
Operating expenses:
Research and development
General and administrative
Non-cash compensation through issuance of stock options
Depreciation and amortization
Total operating expenses
Loss from operations
Other income (expense):
Interest expense
Change in fair value of derivative instruments - warrants
Interest income
Gain (loss) realized from transfer/discontinuance of intangible assets
Other income (expense), net
Loss from operations before income taxes
Income tax provision
Net benefit from sale of state net operating loss credits
Net loss attributable to common shareholders
Basic net loss per share attributable to common shareholders
Diluted net loss per share attributable to common shareholders
Basic weighted average Common Stock outstanding
Diluted weighted average Common Stock outstanding
$
$
$
$
Years Ended March 31,
2020
2019
14,526,048 $
3,468,591
17,994,639
10,015,855
7,978,784
5,532,462
3,349,837
62,098
1,319,795
10,264,192
5,387,696,
2,180,812
7,568,508
4,700,978
2,867,530
7,599,820
3,083,546
136,369
1,206,495
12,026,230
(2,285,408)
(9,158,700)
(355,874)
(1,111,548)
11,979
1,502,500
47,057
(369,173)
180,041
21,461
(628,966)
(796,637)
(2,238,351)
(9,955,337)
(2,000)
-
-
676,016
(2,240,351) $
(9,279,321)
(0.00) $
(0.00) $
(0.01)
(0.01)
832,326,965
814,172,891
993,260,953
816,312,992
The accompanying notes are an integral part of these audited consolidated financial statements.
F-5
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(AUDITED)
Series J Preferred
Stock
Shares Amount
- $
-
-
-
-
-
- $
-
Additional
Common Stock
Shares
Amount
Paid-In
Capital
Treasury Stock
Shares Amount
Accumulated
Deficit
Total
Shareholders’
Equity
(Deficit)
- 802,626,761 $ 802,629 $ 146,602,502 100,000 $ (306,841) $ (142,526,738) $
4,571,552
-
-
-
-
-
-
(9,279,321)
(9,279,321)
- 22,033,967 22,034
2,041,502
-
-
-
2,063,536
-
285,831
286
28,444
-
-
(28,730)
-
-
-
-
-
-
28,730
(28,730)
-
-
136,369
-
-
-
136,369
- 824,946,559 $ 824,949 $ 148,780,087 100,000 $ (306,841) $ (151,806,059) $
(2,507,864)
-
-
-
-
-
-
(2,240,351)
(2,240,351)
-
- 15,358,627 15,359
1,422,619
-
-
-
1,437,978
-
-
-
-
199,181
199
20,111
-
-
(20,310)
-
-
-
-
-
-
20,310
(20,310)
-
-
62,098
-
-
-
62,098
-
-
-
-
Balance as of March 31, 2018
Net loss
Common Stock sold pursuant to the Lincoln Park
purchase agreement
Common Stock issued as additional commitment
shares pursuant to the LPC purchase
agreement
Costs associated with raising capital
Non-cash compensation through the issuance of
employee stock options
Balance at March 31, 2019
Net loss
Common Stock sold pursuant to the Lincoln Park
purchase agreement
Common Stock issued as additional commitment
shares pursuant to the LPC purchase
agreement
Costs associated with raising capital
Non-cash compensation through the issuance of
employee stock options
Reclassification of mezzanine equity to permanent
equity
24 13,903,960
13,903,960
Balance at 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
The accompanying notes are an integral part of these audited consolidated financial statements.
F-6
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Amortization of operating leases – right-of-use assets
Change in fair value of derivative financial instruments - warrants
Non-cash compensation accrued
Non-cash compensation through the issuance of employee stock options
Non-cash rent expense and lease accretion
Non-cash loss on sale and discontinuance of intangible assets
Change in operating assets and liabilities:
Accounts receivable
Inventory
Prepaid expenses and other current assets
Accounts payable, accrued expenses and other current liabilities
Deferred revenue and customer deposits
Lease obligations - operating leases
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment
Proceeds from sale of intangible assets
Net cash (used in) provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of stock
Payment of bond principal
Other loan payments
Net cash provided by financing activities
Net change in cash and restricted cash
Cash and restricted cash, beginning of year
Cash and restricted cash, end of year
Supplemental disclosure of cash and non-cash transactions:
Cash paid for interest
Financing of equipment purchases and insurance renewal
Commitment shares issued to Lincoln Park Capital
Supplemental non-cash amounts of lease liabilities arising from obtaining right of use assets
Years Ended March 31,
2020
2019
$
(2,240,351) $
(9,279,321)
1,319,795
190,806
1,111,548
966,655
62,098
2,081
-
(2,785,041)
373,251
216,091
344,395
(1,163,332)
(191,817)
(1,793,821)
(34,953)
-
(34,953)
1,437,978
(95,000)
(653,442)
689,536
1,256,917
-
(180,042)
1,581,250
136,369
5,254
628,966
(545,926)
382,278
(23,826)
61,002
(863,333)
-
(6,792,760)
(19,130)
350,000
330,870
2,063,536
(90,000)
(406,681)
1,566,855
(1,139,238)
(4,895,035)
2,675,768
7,570,803
1,536,530 $
2,675,768
240,785 $
54,462 $
20,310 $
554,088 $
226,455
686,968
28,729
-
$
$
$
$
$
The accompanying notes are an integral part of these audited consolidated financial statements.
F-7
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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”) which 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, manufacturing and licensing generic, oral dose pharmaceuticals and proprietary
orally administered, controlled-release drug delivery systems. The Company is equipped to manufacture immediate release and 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 that include, without limitation, pain, allergy, bariatric and
infection. Research and development activities are done so with an objective of developing products that will secure marketing approvals from the United States Food and Drug
Administration (“FDA”), and thereafter, commercially exploiting such products.
Principles of Consolidation
The accompanying audited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States
(“GAAP”) and in conformity with the instructions on Form 10-K and Rule 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission
(“SEC”). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Elite Laboratories, Inc. All significant intercompany
accounts and transactions have been eliminated in consolidation. The consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are,
in the opinion of management, necessary for a fair presentation of such statements.
Segment Information
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 audited consolidated financial statements.
Please see Note 15 for further details.
Revenue Recognition
The Company generates revenue from the development of pain management products, manufacturing of a line of generic pharmaceutical products with approved ANDA,
commercialization of products either by license and the collection of royalties, or through the manufacture of formulations and the development of new products and the expansion
of licensing agreements with other pharmaceutical companies, including co-development projects, joint ventures and other collaborations. The Company also generates revenue
through its focus on the development of various types of drug products, including branded drug products which require NDAs.
F-8
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 recognize 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 manufacturers immediate-release and controlled release generic pharmaceutical products for which required FDA approvals have been received and are
owned by the Company. These products are either sold directly by the Company, under its own label, or are sold under licenses granted to a third party, under a third-party label.
Please note that while the Company is equipped to manufacture immediate-release and controlled release generic pharmaceutical which are owned by third parties, on a contract
basis, it did not engage in any such contract manufacturing activities during the periods within the scope of these financial statements.
The Company recognizes revenue when the customer obtains control of the Company’s product based on the contractual shipping terms of the contract. Revenue on
product are presented gross because 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 milestone payments, licensing fees,
product sales and services. The Company analyzes each element of its licensing and development agreements in accordance with ASC 606 to determine appropriate revenue
recognition. The terms of the license agreement may include payment to the Company of licensing fees, non-refundable upfront license fees, milestone payments if specified
objectives are achieved, and/or royalties on product sales.
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple
performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying
each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling
price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and
internally approved pricing guidelines related to the performance obligations.
The Company recognizes revenue from non-refundable upfront payments at a point in time, typically upon fulfilling the delivery of the associated intellectual property to
the customer. For those milestone payments which are contingent on the occurrence of particular future events (for example, payments due upon a product receiving FDA
approval), the Company determined that these need to be considered for inclusion in the calculation of total consideration from the contract as a component of variable
consideration using the most-likely amount method. As such, the Company assesses each milestone to determine the probability and substance behind achieving each milestone.
Given the inherent uncertainty of the occurrence of future events, the Company will not recognize revenue from the milestone until there is not a high probability of a reversal of
revenue, which typically occurs near or upon achievement of the event.
F-9
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant management judgment is required to determine the level of effort required under an arrangement and the period over which the Company expects to complete
its performance obligations under the arrangement. If the Company cannot reasonably estimate when its performance obligations either are completed or become inconsequential,
then revenue recognition is deferred until the Company can reasonably make such estimates. Revenue is then recognized over the remaining estimated period of performance using
the cumulative catch-up method.
When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after
performance, resulting in a significant financing component. Applying the practical expedient in ASC 606-10-32-18, the Company does not assess whether a significant financing
component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s
contracts contained a significant financing component as of March 31, 2020.
In accordance with ASC 606-10-55-65, royalties are recognized when the subsequent sale of the customer’s products occurs.
Disaggregation of revenue
In the following table, revenue is disaggregated by type of revenue generated by the Company and timing of revenue recognition. The table also includes a reconciliation
of the disaggregated revenue with the reportable segments:
NDA:
Licensing fees
Total NDA revenue
ANDA:
Manufacturing fees
Licensing fees
Total ANDA revenue
Total revenue
Collaborative Arrangements
For the Year Ended March 31,
2020
2019
$
$
$
1,000,000 $
1,000,000
14,526,048 $
2,468,591
16,994,639
17,994,639 $
1,000,000
1,000,000
5,387,696
1,180,812
6,568,508
7,568,508
Contracts are considered to be collaborative arrangements when they satisfy the following criteria defined in ASC 808, Collaborative Arrangements:
● The parties to the contract must actively participate in the joint operating activity; and,
● The joint operating activity must expose the parties to the possibility of significant risk and rewards, based on whether or not the activity is successful.
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, in accordance with GAAP. 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, in accordance with GAAP. On April 3, 2020, Elite and SunGen
mutually agreed to discontinue any further joint product development activities.
F-10
Cash
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 March 31, 2020, and March 31, 2019, the Company had $404,802 and $398,125 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.
Intangible Assets
The Company capitalizes certain costs to acquire intangible assets; if such assets are determined to have a finite useful life they are amortized on a straight-line basis over
the estimated useful life. Costs to acquire indefinite lived intangible assets, such as costs related to ANDAs are capitalized accordingly.
The Company tests its intangible assets for impairment at least annually (as of March 31st) and whenever events or circumstances change that indicate impairment may
have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others and without
limitation: a significant decline in the Company’s expected future cash flows; a sustained, significant decline in the Company’s stock price and market capitalization; a significant
adverse change in legal factors or in the business climate of the Company’s segments; unanticipated competition; and slower growth rates.
As of March 31, 2020, the Company did not identify any indicators of impairment.
F-11
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value
can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Where applicable, the Company records a
valuation allowance to reduce any deferred tax assets that it determines will not be realizable in the future.
The Company recognizes the benefit of an uncertain tax position that it has taken or expects to take on income tax returns it files if such tax position is more likely than not
to be sustained on examination by the taxing authorities, based on the technical merits of the position. These tax benefits are measured based on the largest benefit that has a
greater than 50% likelihood of being realized upon ultimate resolution.
The Company operates in multiple tax jurisdictions within the United States of America. The Company remains subject to examination in all tax jurisdiction until the
applicable statutes of limitation expire. As of March 31, 2020, a summary of the tax years that remain subject to examination in our major tax jurisdictions are: United States –
Federal, 2015 and forward, and State, 2011 and forward. The Company did not record unrecognized tax positions for the years ended March 31, 2020 and 2019.
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 instruments 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 are 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, 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.
F-12
Earnings (Loss) Per Share Attributable to Common Shareholders’
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company follows ASC 260, Earnings Per Share, which requires presentation of basic and diluted earnings (loss) 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 (loss) per share is computed by dividing net income (loss) by the weighted
average number of shares of common stock outstanding during the period. Diluted EPS excluded all potential dilutive shares if their effect was anti-dilutive.
The following is the computation of loss per share applicable to common shareholders for the periods indicated:
Numerator
Net loss attributable to common shareholders – basic
Effect of dilutive instrument on net loss
Net loss attributable to common shareholders - diluted
Denominator
Weighted average shares of common stock outstanding - basic
Dilutive effect of stock options, warrants and convertible securities
Weighted average shares of common stock outstanding – diluted
Net loss per share attributable to common shareholders
Basic
Diluted
Fair Value of Financial Instruments
Years Ended March 31,
2020
2019
$
$
(2,240,351) $
1,111,548
(1,128,803) $
(9,279,320)
(180,042)
(9,459,362)
832,326,965
814,172,891
160,933,988
2,140,101
993,260,953
816,312,992
$
$
(0.00) $
(0.00) $
(0.01)
(0.01)
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-13
Measured on a Recurring Basis
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
March 31 2020
Liabilities
Amount at
Fair Value
Level 1
Level 2
Level 3
Fair Value Measurement Using
Derivative financial instruments – warrants
$
3,599,378 $
March 31, 2019
Liabilities
Derivative financial instruments – warrants
$
2,487,830 $
See Note 11, for specific inputs used in determining fair value.
- $
- $
- $
3,599,378
- $
2,487,830
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’ deficit.
Recently Adopted Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (ASC 842) in February 2016 and subsequent ASUs
in 2018 and 2019 (collectively referred to as “ASC 842”) on the treatment of leases, which guidance is effective for annual reporting periods beginning after December 15, 2019 and
early adoption is permitted. Under ASC 842, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: 1)
a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and 2) a right-of-use asset, which is an asset that
represents the lessee’s right-of-use, or control the use of, a specified asset for the lease term. Entities are allowed to apply ASC 842 using a modified retrospective approach either
(1) retrospectively to each reporting period presented in the financial statements with the cumulative effect adjustment recognized at the beginning of the earliest comparative
period; or (2) retrospectively at the beginning of the period of adoption through a cumulative-effective adjustment. The modified retrospective approach includes a number of
optional practical expedients that entities may elect to apply.
F-14
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On April 1, 2019, the Company adopted ASC 842 using the modified retrospective basis with a cumulative-effect adjustment at the beginning of the period of adoption and
therefore did not revise prior period information or disclosure. Further, the Company elected the package of practical expedients upon transition that allows the Company not to
reassess the lease classification for expired and existing leases, whether initial direct costs qualify for capitalization for any expired or existing leases or whether any expired
contracts are or contain leases. The adoption of ASU 2016-02 resulted in the recognition of operating leases and lease liabilities of approximately $0.6 million on the consolidated
balance sheet as of April 1, 2019. The operating leases and lease liabilities relate to a real estate lease.
The impact of the adoption of ASC 842 on the accompanying consolidated balance sheet as of April 1, 2019 was as follows:
Operating lease - right of use
Deferred rent liability
Lease obligation - operating lease
Lease obligation - operating lease, net of current portion
See additional lease disclosures in Note 9.
Recently Issued Accounting Pronouncements
March 31,
2019
Adoption
Adjustment
April 1,
2019
$
$
$
$
- $
13,022 $
- $
- $
554,088 $
(13,022) $
191,817 $
375,293 $
554,088
-
191,817
375,293
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (ASC 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value
Measurement (“ASU 2018-13”). ASU 2018-13 removes certain disclosures, modifies certain disclosures and adds additional disclosures. The ASU is effective for annual periods,
including interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the effect that this update will
have on its consolidated financial statements and related disclosures.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (ASC 808), Clarifying the Interaction between ASC 808 and ASC 606 (“ASU 2018-18”).
The ASU clarifies when transactions between collaborative participants are in the scope of ASC 606. The ASU also provides some guidance on presentation of transactions not in
the scope of ASC 606. ASU 2018-18 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted for fiscal
years, and interim periods within those years. The Company is not materially impacted by the implementation of this pronouncement.
In March 2020, the FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments. The ASU clarifies disclosure guidance for fair value options,
adds clarifications to the subsequent measurement of fair value, clarifies disclosure for depository and lending institutions, clarifies the line-of-credit or revolving-debt
arrangements guidance, and the interaction of Financial Instruments - Credit Losses (ASC 326) with Leases (ASC 842) and Transfers and Servicing-Sales of Financial Assets
(ASC 860-20). The Company is not materially impacted by the implementation of this pronouncement.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU
2020-04”). The guidance provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain
criteria, that reference LIBOR or another rate that is expected to be discontinued. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through
December 31, 2022. The Company is not materially impacted by the implementation of this pronouncement.
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-15
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. INVENTORY
Inventory consisted of the following:
Finished goods
Work-in-progress
Raw materials
Less: Inventory reserve
NOTE 3. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following:
Land, building and improvements
Laboratory, manufacturing, warehouse and transportation equipment
Office equipment and software
Furniture and fixtures
Less: Accumulated depreciation
March 31,
2020
March 31,
2019
138,981 $
677,824
3,325,667
4,142,472
-
4,142,472 $
575,699
189,069
3,750,955
4,515,723
-
4,515,723
March 31,
2020
March 31,
2019
5,260,524 $
12,167,754
373,601
383,103
18,184,982
(10,957,334)
7,227,648 $
5,260,523
12,078,340
373,601
383,103
18,095,567
(9,651,718)
8,443,849
$
$
$
$
Depreciation expense was $1,305,616 and $1,242,739 for the years ended March 31, 2020 and 2019, respectively.
NOTE 4. INTANGIBLE ASSETS
The following table summarizes the Company’s intangible assets:
Patent application costs
ANDA acquisition costs
Patent application costs
ANDA acquisition costs
Estimated
Useful
Life
*
Indefinite
Estimated
Useful
Life
*
Indefinite
$
$
$
$
Gross
Carrying
Amount
March 31, 2020
Additions
Reductions
465,684 $
6,168,351
6,634,035 $
- $
-
- $
Accumulated
Amortization
Net Book
Value
- $
-
- $
- $
-
- $
465,684
6,168,351
6,634,035
March 31, 2019
Gross
Carrying
Amount
Additions
Reductions
Accumulated
Amortization
Net Book
Value
465,684 $
7,247,317
7,713,001 $
- $
-
- $
- $
(1,078,966)
(1,078,966) $
- $
-
- $
465,684
6,168,351
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-16
The following ANDA’s, with an aggregate carrying amount of $291,491 were discontinued during Fiscal 2019:
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
● 40227 – Phentermine 30mg capsules
● 40448 – Phentermine 30mg capsules
● 40460 – Phentermine 15mg capsules
The following ANDA’s, with an aggregate carrying amount of $787,475 were transferred to Epic Pharma for cash consideration totaling $450,000 during Fiscal 2019:
● 40600 – Hydroxyzine 10mg
● 40602 – Hydroxyzine 25mg
● 40604 – Hydroxyzine 50mg
The primary catalyst for the discontinuance and transfer of the above referenced ANDA’s was the FDA’s Generic Drug User Fee Amendment (“GDUFA”) fee structure,
which provides for additional annual fees in excess of $1.1 million (as per the most current fee schedule published in August 2018) for entities that own in excess of 19 ANDA’s as
of the annual April 15 measurement date.
The ANDA’s approved by the FDA subsequent to the prior year’s measurement date, when added to those previously approved and owned by the Company, would
have resulted in the Company owning more than 19 ANDA’s. Management conducted an evaluation of all ANDA’s held and the feasibility of incurring the additional GDUFA fees
and identified the above ANDA’s as being not significant to the Company’s plans. The ANDA’s that were discontinued were duplicates of ANDA’s currently in commercial
production and the ANDA’s sold to Epic Pharma were related to products that were not qualified for manufacture at the Northvale Facility.
The aggregate carrying amount of the four ANDAs discontinued or transferred during Fiscal 2020 was $0 and the aggregate cash consideration received in relation to the
transfer of ANDAs was $1,502,500, resulting in a realized gain on transfer/discontinuance of intangible assets of $1,502,500.
The aggregate carrying amount of the six ANDAs discontinued or transferred during Fiscal 2019 was $1,078,966 and the aggregate cash consideration received in relation
to the transfer of ANDAs was $450,000, resulting in a realized loss on transfer/discontinuance of intangible assets of $628,966.
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
audited 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.
F-17
The following tables summarize the Company’s bonds payable liability:
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Gross bonds payable
NJEDA Bonds - Series A Notes
Less: Current portion of bonds payable (prior to deduction of bond offering costs)
Long-term portion of bonds payable (prior to deduction of bond offering costs)
Bond offering costs
Less: Accumulated amortization
Bond offering costs, net
Current portion of bonds payable - net of bond offering costs
Current portions of bonds payable
Less: Bonds offering costs to be amortized in the next 12 months
Current portion of bonds payable, net of bond offering costs
Long term portion of bonds payable - net of bond offering costs
Long term portion of bonds payable
Less: Bond offering costs to be amortized subsequent to the next 12 months
Long term portion of bonds payable, net of bond offering costs
Amortization expense was $14,174 and $14,172 for the years ended March 31, 2020 and 2019, respectively.
Maturities of bonds for the next five years are as follows:
Years ending March 31,
2021
2022
2023
2024
2025
Thereafter
NOTE 6. LOANS PAYABLE
Loans payable consisted of the following:
March 31,
2020
March 31,
2019
$
$
$
$
$
$
$
$
1,575,000 $
(105,000)
1,470,000 $
354,454 $
(206,765)
147,689 $
105,000 $
(14,178)
90,822 $
1,670,000
(95,000)
1,575,000
354,453
(192,591)
161,862
95,000
(14,178)
80,822
1,470,000 $
(133,511)
1,336,489 $
1,575,000
(147,685)
1,427,315
Amount
105,000
110,000
115,000
125,000
130,000
990,000
1,575,000
$
$
Equipment and insurance financing loans payable, between 3.5% and 12.73% interest and maturing between March 2020 and July 2024 $
Less: Current portion of loans payable
Long-term portion of loans payable
$
1,025,452 $
(561,550)
463,902 $
1,272,298
(573,029)
699,269
The interest expense associated with the loans payable was $79,870 and $114,980 for the years ended March 31, 2020 and 2019, respectively.
March 31,
2020
March 31,
2019
F-18
Loan principal payments for the next five years are as follows:
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ending March 31,
2021
2022
2023
2024
Amount
561,550
249,316
169,444
45,142
1,025,452
$
$
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 “Note”) to Mikah for the principal sum of $1,200,000. The
Note matures on December 31, 2020 in which the Company shall pay the outstanding principal balance of the Note. Interest shall be computed on the unpaid principal amount at
the per annum rate of ten percent (10%); provided, upon the occurrence of an Event of Default as defined within the Note, the principal balance shall bear interest from the date of
such occurrence until the date of actual payment at the per annum rate of fifteen percent (15%). All interest payable hereunder shall be computed on the basis of actual days
elapsed and a year of 360 days. Instalment payments of interest on the outstanding principal shall be paid as follows: quarterly commencing August 1, 2017 and on November 1,
February 1, May 1 and August 1 of each year thereafter. No principal or interest payments have been made on the Note since its issuance. All unpaid principal and accrued but
unpaid interest shall be due and payable in full on the Maturity Date. The interest expense associated with the Note was $120,000 for the years ended March 31, 2020 and 2019.
Accrued interest due and owing on this note was $345,000 and $225,000 as of March 31, 2020 and March 31, 2019, respectively.
NOTE 8. DEFERRED REVENUE
Deferred revenues in the aggregate amount of $238,891 as of March 31, 2020, were comprised of a current component of $180,000 and a long-term component of $58,891.
Deferred revenues in the aggregate amount of $1,252,223 as of March 31, 2019, were comprised of a current component of $1,013,333 and a long-term component of $238,890. These
line items represent the unamortized amounts of a $200,000 advance payment received for a 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 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 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 – 135 Ludlow Ave.
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.
The 135 Ludlow Ave. 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 process.
F-19
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 our leases and lease components as a single lease
component.
The Company recognizes a right-of-use asset, which represents the Company’s right-of-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 consolidated balance sheet:
Lease
Assets
Operating
Total leased assets
Liabilities
Current
Operating
Long-term
Operating
Total lease liabilities
Classification
Operating lease – right-of-use asset
Lease obligation – operating lease
Lease obligation – operating lease, net of current portion
As of
March 31,
2020
$
$
363,282
363,282
$
208,184
$
167,109
375,293
Rent expense is recorded on the straight-line basis. Rent expense under the 135 Ludlow Ave. modified lease for the years ended March 31, 2020 and 2019, was $220,650
and $219,638, respectively. Rent expense is recorded in general and administrative expense in the audited consolidated statements of operations.
The table below show the future minimum rental payments, exclusive of taxes, insurance and other costs, under the 135 Ludlow Ave. modified lease:
Years ending March 31,
2021
2022
Total future minimum lease payments
Less: interest
Present value of lease payments
F-20
Amount
225,063
171,315
396,378
(21,085)
375,293
$
$
The weighted-average remaining lease term and the weighted-average discount rate of our lease was as follows:
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lease Term and Discount Rate
Remaining lease term (years)
Operating leases
Discount rate
Operating leases
March 31,
2020
1.8
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 March 31,
2020, and March 31, 2019, the Company had a liability of $35,442 and $46,402, respectively, and 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, 24.0344 shares are issued and outstanding, with a stated value of $1,000,000 per share and a par value of $0.01 as of
March 31, 2020.
The shares were issued pursuant to an Exchange Agreement with Nasrat Hakim, (“Hakim”) a related party and the Company’s President, CEO and Chairman of the Board
of Directors. Pursuant to the Exchange Agreement the Company exchanged 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 were classified as liabilities on the
accompanying audited consolidated balance sheet as of March 31, 2020 (See Note 11).
Each Series J Preferred is convertible at the option of the holder into shares of common stock, that is the earlier of (i) the date that shareholder approval is obtained, and
the requisite corporate action has been effected regarding a Fundamental Transaction (as defined in the Series J COD); or (ii) not less than three years subsequent to the Original
Issue Date (the date of the first issuance of any shares of the Series J Preferred Stock) (the “Conversion Date”). The number of common shares is calculated by dividing the Stated
Value of such share of Series J Preferred by the Conversion Price. The conversion price for the Series J Preferred shall equal $0.1521, subject to adjustment as discussed below.
Based on the current conversion price, the Series J Preferred is convertible into 158,017,321 shares of common stock. The conversion price is subject to the following
adjustments: (i) stock dividends and splits, (ii) sale or grant of shares below the conversion price, unless such adjustment is specifically excluded (iii) pro rata distributions; or (iv)
fundamental changes (merger, consolidation, or sale of all or substantially all assets).
The holders of the Series J Preferred shall have voting rights on any matter presented to the shareholders of the Company for their action or consideration at any meeting
of shareholders of the Company (or by written consent of shareholders in lieu of meeting). Each holder shall be entitled to cast the number of votes equal to the number of whole
shares of common stock into which the shares of Series J Preferred held by the holder are convertible as of the record date for determining the shareholders entitled to vote on
such matter regardless of whether an Authorized Share Deficiency Exists.
F-21
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has determined that the Series J Preferred host instrument was more akin to equity than debt and that the above identified conversion feature, subject to
adjustments, was clearly and closely related to the host instrument, and accordingly bifurcation and classification of the conversion feature as a derivative liability was not
required. The Company has accounted for the Series J Preferred as contingently redeemable preferred stock for which redemption is not probable. Accordingly, the Series J
Preferred is presented in mezzanine equity based on their initial measurement amount (fair value), as required by ASC 480-10-S99, Distinguishing Liabilities from Equity – SEC
Materials. No subsequent adjustment of the initial measurement amounts for these contingently redeemable Series J Preferred is necessary unless the redemption of the Series J
Preferred becomes probable. Accordingly, the amount presented as temporary equity for the contingently redeemable Series J Preferred outstanding is its issuance-date fair value.
The Series J Preferred was initially measured at its fair value, $13,903,960 at April 28, 2017.
The fair value of the Series J Preferred issued by the Company pursuant to the exchange agreement was calculated using a Monte Carlo Simulation because of the
probability assumptions associated with the shareholder approval provisions; the following are the Monte Carlo inputs:
Fair value of the Company’s common stock
Initial exercise price
Number of Series J Preferred issued
Fully diluted shares outstanding as of measurement date
Risk-free rate
Volatility
Shareholder approval threshold
Probability of approval is ending stock price is greater than threshold - midpoint
Probability of approval is ending stock price is greater than threshold - midpoint
Trials
F-22
$
$
$
April 28,
2017
0.1521
0.1521
24.0344
923,392,780
2.30%
90.00%
0.1521
82.50%
17.50%
200,000
Authorized, issued and outstanding shares, along with carrying value are as follows:
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shares authorized
Shares outstanding
Par value
Stated value
Conversion price
Common Stock to be issued upon conversion
Carrying value of Series J convertible preferred stock
Increase in Authorized Shares
March 31,
2020
March 31,
2019
50.000
24.0344
0.01 $
1,000,000 $
0.1521 $
158,017,321
13,903,960 $
50.000
24.0344
0.01
1,000,000
0.1521
158,017,321
13,903,960
$
$
$
$
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 has been
reclassified from mezzanine equity to permanent equity at its current carrying amount of $13,903,960 on the accompanying consolidated balance sheet.
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 seven years, to Nasrat Hakim, pursuant to the Exchange Agreement detailed below.
A summary of warrant activity is as follows:
Balance at beginning of period
Warrants granted pursuant to the issuance of Series J convertible preferred shares
Warrants exercised, forfeited and/or expired, net
Balance at end of period
March 31 2020
March 31, 2019
Warrant
Shares
Weighted
Avg.
Exercise
Price
Warrant
Shares
Weighted
Avg.
Exercise
Price
79,008,661 $
0.1521
79,008,661 $
0.1521
-
-
-
-
-
-
-
-
79,008,661 $
0.1521
79,008,661 $
0.1521
On April 28, 2017, the Company entered into an exchange agreement (the “Exchange Agreement”) with Nasrat Hakim, the Chairman of the Board, President, and Chief
Executive Officer of the Company, pursuant to which the Company issued to Mr. Hakim 23.0344 shares of its newly designated Series J Convertible Preferred Stock ( “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 Mr. Hakim,
the “Securities”) in exchange for 158,017,321 shares of Common Stock owned by Mr. 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 on the earlier of (i) the date that Shareholder Approval is obtained,
and the requisite corporate action has been effected; or (ii) 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. The Series J Warrants are not exercisable during any period when an Authorized Share Deficiency exists and will expire on the expiry date, without regards to
the existence of an Authorized Shares Deficiency (see Note 10). As of March 31, 2020, the Company does not have a sufficient number of unreserved authorized shares to effect
the entire conversion of the Series J Preferred, therefore the Series J Warrants are not currently exercisable. Please also see Note 10.
F-23
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of the warrants issued by the Company pursuant to the issuance of Series J convertible preferred shares (79,008,661 warrant shares) was calculated using a
Monte Carlo Simulation because of the probability assumptions associated with the Shareholder Approval provisions. The following are the key assumptions used in the Monte
Carlo Simulation:
Fair value of the Company's Common Stock
Initial exercise price
Number of common warrants
Fully diluted shares outstanding as of measurement date
Warrant term (in years)
Risk-free rate
Volatility
Shareholder approval threshold
Probability of approval if ending stock price is greater than threshold - midpoint
Probability of approval if ending stock price is greater than threshold - midpoint
Trials
Fair value of derivative financial instruments - warrants
March 31,
2019
0.9900
0.1521
79,008,661
824,946,559
8.08
2.35%
90.00%
0.1580
82.50%
17.50%
100,000
2,487,830
$
$
$
$
The fair value of the warrants issued by the Company pursuant to the issuance of Series J convertible preferred shares (79,008,661 warrant shares) was calculated using a
Black-Scholes model instead of a Monte 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 warrants issued by the Company pursuant to the issuance of Series J convertible preferred shares (79,008,661 warrant
shares):
Fair value of the Company’s common stock
Volatility
Initial exercise price
Warrant term (in years)
Risk free rate
F-24
$
$
March 31,
2020
0.0720
83.81%
0.1521
7.1
0.55%
The changes in warrants (Level 3 financial instruments) measured at fair value on a recurring basis for the year ended March 31, 2020 were as follows:
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Balance as of March 31, 2018
Change in fair value of derivative financial instruments - warrants
Balance as of March 31, 2019
Change in fair value of derivative financial instruments - warrants
Balance as of March 31, 2020
NOTE 12. SHAREHOLDERS’ EQUITY
Lincoln Park Capital – May 1, 2017 Purchase Agreement
$
$
2,667,871
(180,041)
2,487,830
1,111,548
3,599,378
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 has the right to sell to and Lincoln Park is 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 commencing on June 5, 2017. The Company may direct Lincoln
Park, at its sole discretion and subject to certain conditions, to purchase up to 500,000 shares of common stock on any business day, provided that at least one business day has
passed since the most recent purchase, increasing to up to 1,000,000 shares, depending upon the closing sale price of the common stock (such purchases, “Regular Purchases”).
However, in no event shall a Regular Purchase be more than $1,000,000. The purchase price of shares of common stock related to the future funding will be based on the prevailing
market prices of such shares at the time of sales. In addition, the Company may direct Lincoln Park to purchase additional amounts as accelerated purchases under certain
circumstances. In the case of both Regular Purchases and accelerated purchases, the purchase price per share will be equitably adjusted for any reorganization, recapitalization,
non-cash dividend, stock split, reverse stock split or other similar transaction occurring during the business days used to compute the purchase price. Sales of shares of common
stock to Lincoln Park under the 2017 LPC Purchase Agreement are limited to no more than the number of shares that would result in the beneficial ownership by Lincoln Park and
its affiliates, at any single point in time, of more than 4.99% of the then outstanding shares of common stock.
In connection with the 2017 LPC Purchase Agreement, the Company issued to Lincoln Park 5,540,551 shares of common stock and is required to issue up to 5,540,551
additional shares of Common Stock pro rata as the Company requires Lincoln Park to purchase shares under the 2017 LPC Purchase Agreement over the term of the agreement.
Lincoln Park has represented to the Company, among other things, that it is an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities
Act of 1933, as amended (the “Securities Act”)). The Company sold the securities in reliance upon an exemption from registration contained in Section 4(a)(2) under the Securities
Act. The securities sold may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
The 2017 LPC Purchase Agreement and the 2017 LPC Registration Rights Agreement contain customary representations, warranties, agreements and conditions to
completing future sale transactions, indemnification rights and obligations of the parties. The Company has the right to terminate the 2017 LPC Purchase Agreement at any time, at
no cost or penalty. Actual sales of shares of common stock to Lincoln Park under the 2017 LPC Purchase Agreement will depend on a variety of factors to be determined by us
from time to time, including, among others, market conditions, the trading price of the Common Stock and determinations by us as to the appropriate sources of funding for us and
our operations. There are no trading volume requirements or, other than the limitation on beneficial ownership discussed above, restrictions under the 2017 LPC Purchase
Agreement. Lincoln Park has no right to require any sales by the Company but is obligated to make purchases from the Company as directed in accordance with the 2017 LPC
Purchase Agreement. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s shares.
The net proceeds received by the Company under the 2017 LPC Purchase Agreement will depend on the frequency and prices at which the Company sells shares of
common stock to Lincoln Park. A registration statement on Form S-3 was filed with the SEC on May 10, 2017 and was declared effective on June 5, 2017.
The Company, from time to time and at the Company’s sole discretion but no more frequently than every other business day, could direct Lincoln Park to purchase (a
“Regular Purchase”) up to 500,000 shares of common stock on any such business day, increasing up to 1,000,000 shares, depending upon the closing sale price of the common
stock, provided that in no event shall Lincoln Park purchase more than $760,000 worth of common stock on any single business day. The purchase price of shares of common
stock related to the future Regular Purchase funding will be based on the prevailing market prices of such shares at the time of sales (or over a period of up to ten business days
leading up to such time), but in no event, will shares be sold to Lincoln Park on a day the Common Stock closing price is less than the floor price of $0.10 per share, subject to
adjustment.
F-25
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition to Regular Purchases, on any business day on which the Company has properly submitted a Regular Purchase notice and the closing sale price is not below
$0.15, the Company may purchase (an “Accelerated Purchase”) an additional “accelerated amount” under certain circumstances. The amount of any Accelerated Purchase cannot
exceed the lesser of three times the number of purchase shares purchased pursuant to the corresponding Regular Purchase; and 30% of the aggregate shares of the Company’s
common stock traded during normal trading hours on the purchase date. The purchase price per share for each such Accelerated Purchase will be equal to the lower of (i) 97% of
the volume weighted average price during the purchase date; or (ii) the closing sale price of the Company’s common stock on the purchase date.
In the case of both Regular Purchases and Accelerated Purchases, the purchase price per share will be equitably adjusted for any reorganization, recapitalization, non-
cash dividend, stock split, reverse stock split or other similar transaction occurring during the business days used to compute the purchase price.
Other than as set forth above, there are no trading volume requirements or restrictions under the Purchase Agreement, and the Company will control the timing and
amount of any sales of the Company’s common stock to Lincoln Park.
The Company’s sales of shares of common stock to Lincoln Park under the Purchase Agreement are limited to no more than the number of shares that would result in the
beneficial ownership by Lincoln Park and its affiliates, at any single point in time, of more than 9.99% of the then outstanding shares of common stock.
The Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, agreements, and conditions to completing future sale
transactions, indemnification rights and obligations of the parties. The Company has the right to terminate the Purchase Agreement at any time, at no cost or penalty. Actual sales
of shares of common stock to Lincoln Park under the Purchase Agreement will depend on a variety of factors to be determined by the Company from time to time, including,
without limitation, market conditions, the trading price of the Common Stock and determinations by the Company as to appropriate sources of funding for the Company and its
operations. There are no trading volume requirements or restrictions under the Purchase Agreement. Lincoln Park has no right to require any sales by the Company but is obligated
to make purchases from the Company as it directs in accordance with the Purchase Agreement. Lincoln Park has covenanted not to cause or engage in any manner whatsoever,
any direct or indirect short selling or hedging of Company shares.
During the year ended March 31, 2020, a total of 15,358,627 shares were sold to Lincoln Park pursuant to the 2017 LPC Agreement for net proceeds totaling $1,437,978. In
addition, 199,181 shares were issued to Lincoln Park as additional commitment shares, pursuant to the 2017 LPC Agreement. During the year ended March 31, 2019, a total of
22,033,967 shares were sold to Lincoln Park pursuant to the 2017 LPC Agreement for net proceeds totaling $2,063,541. In addition, 285,831 shares were issued to Lincoln Park as
additional commitment shares, pursuant to the 2017 LPC Agreement.
Summary of Common Stock Activity
During the years ended March 31, 2020 and 2019, the Company issued 15,557,808 and 22,319,798 shares of Common Stock, respectively, with such issuances of Common
Stock being summarized as follows:
Common Stock issued as of March 31, 2019 and 2018, respectively
Common Stock sold pursuant to the Lincoln Park Capital Purchase Agreements, with net proceeds of such shares totaling $1,437,978
and $2,063,541 for the years ended March 31, 2020 and 2019, respectively.
Common Stock issued as initial and additional commitment shares pursuant to the Lincoln Park Capital Purchase Agreements
Common Stock issued during the fiscal year
Common Stock issued as of March 31, 2020 and 2019, respectively
NOTE 13. STOCK-BASED COMPENSATION
Years Ended March 31,
2020
824,946,559
2019
802,626,761
15,358,627
199,181
15,557,808
22,033,967
285,831
22,319,798
840,504,367
824,946,559
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.
F-26
Stock-based Director Compensation
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s Director compensation policy was 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 quarterly basis and equal to the
average closing price of the Company’s common stock.
During the year ended March 31, 2020, the Company did not issue any shares of common stock to its Directors in payment of director’s fees.
During the year ended March 31, 2020, the Company accrued director’s fees totaling $60,000, which will be paid via cash payments totaling $30,000 and the issuance of
756,725 shares of Common Stock.
As of March 31, 2020, the Company owed its Directors a total of $67,500 in cash payments and 1,550,342 shares of Common Stock in payment of director fees totaling
$202,500 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, Chief Financial 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 year ended March 31, 2020, the Company did not issue any shares pursuant to employment contracts with the Company’s President and Chief Executive
Officer, Chief Financial Officer or certain other employees. During the year ended March 31, 2020, the Company did not issue any shares pursuant to the engagement contracts
with certain consultants.
During the year ended March 31, 2020, the Company accrued salaries totaling $305,000 owed to the Company’s President and Chief Executive Officer, Chief Financial
Officer and certain other employees which will be paid via the issuance of 3,846,685 shares of Common Stock.
As of March 31, 2020, the Company owed its President and Chief Executive Officer, Chief Financial Officer and certain other employees’ salaries totaling $2,311,250 which
will be paid via the issuance of 24.8 million shares of Common Stock.
Options
Under its 2014 Stock Option Plan and prior option 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.
Outstanding at March 31, 2018
Granted
Forfeited and expired
Exercised
Outstanding at March 31, 2019
Granted
Forfeited and expired
Exercised
Outstanding at March 31, 2020
Exercisable at March 31, 2020
Shares
Underlying
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
6,618,000 $
-
(460,000)
-
6,158,000 $
115,000 $
(898,000)
-
5,375,000 $
4,953,334 $
0.16
6.1 $
90,390
0.15
0.10
0.14
0.14
5.0 $
9.5
4.1 $
4.1 $
87,330
6,000
6,000
F-27
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 common stock as of March 31, 2020 and March 31, 2019 of $0.07 and $0.10, respectively.
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. CONCENTRATIONS AND CREDIT RISK
Revenues
Three customers accounted for approximately 92% of the Company’s revenues for the year ended March 31, 2020. These three customers accounted for approximately
55%, 24%, and 13% of revenues each.
Four customers accounted for substantially all the Company’s revenues for the year ended March 31, 2019. These four customers accounted for approximately 57%, 22%,
9% and 8% of revenues each, respectively.
Accounts Receivable
Four customers accounted for substantially all the Company’s accounts receivable as of March 31, 2020. These four customers accounted for approximately 73%, 13%,
8% and 5% of accounts receivable each.
Four customers accounted for substantially all the Company’s accounts receivable as of March 31, 2019. These four customers accounted for approximately 38%, 34%,
19%, and 4% of accounts receivable each.
Purchasing
Three suppliers accounted for approximately 71% of the Company’s purchases of raw materials for the year ended March 31, 2020. These three suppliers that accounted
for approximately 41%, 23%, and 7% of purchases each.
Three suppliers accounted for more than 60% of the Company’s purchases of raw materials for year ended March 31, 2019. These three suppliers accounted for
approximately 35%, 17% and 11% of purchases each, respectively.
NOTE 15. SEGMENT RESULTS
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.
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 audited consolidated financial statements.
The following represents selected information for the Company’s reportable segments:
Revenue by Segment
ANDA
NDA
Years Ended March 31,
2020
2019
$
$
16,994,639 $
1,000,000
17,994,639 $
6,568,508
1,000,000
7,568,508
F-28
Operating Income (Loss) by Segment
ANDA
NDA
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended March 31,
2020
2019
$
$
3,579,047 $
580,414
4,159,461 $
(4,361,649)
122,961
(4,238,688)
The table below reconciles the Company’s operating loss by segment to loss from operations before provision for income taxes as reported in the Company’s audited
consolidated statements of operations.
Operating income (loss) by segment
Corporate unallocated costs
Interest income
Interest expense and amortization of debt issuance costs
Depreciation and amortization expense
Significant non-cash items
Change in fair value of derivative instruments
Loss from operations before income tax
NOTE 16. COLLABORATIVE AGREEMENT WITH EPIC PHARMA LLC
Years Ended March 31,
2020
2019
4,159,461 $
(2,721,103)
11,980
(355,874)
(1,319,795)
(901,472)
(1,111,548)
(2,238,351) $
(4,238,688)
(2,683,720)
8,448
(369,174)
(1,206,495)
(1,645,750)
180,042
(9,955,337)
$
$
On June 4, 2015, the Company executed an exclusive License Agreement (the “2015 SequestOx™ License Agreement”) with Epic Pharma LLC (“Epic”), to market and sell
in the U.S., SequestOx™, an immediate release oxycodone with sequestered naltrexone capsule, owned by us. Epic will have the exclusive right to market ELI-200 and its various
dosage forms as listed in Schedule A of the Agreement. Epic is responsible for all regulatory and pharmacovigilance matters related to the products. Pursuant to the 2015
SequestOx™ License Agreement, Epic will pay us non-refundable milestone payments totaling $15 million, with such amount representing the cost of an exclusive license to
SequestOx™, the cost of developing the product, the filing of an NDA with the FDA and the receipt of the approval letter for the NDA from the FDA. The 2015 SequestOx™
License Agreement expired on June 4, 2020. During the term of this agreement, the Company received $7.5 million in non-refundable payments, with such amount consisting of $5
million due and owing on the execution date of the 2015 SequestOx™ License Agreement and $2.5 million being earned upon the Company’s filing of an NDA with the FDA for the
relevant product in January 2016. The remaining $7.5 million in non-refundable payments required FDA approval of the relevant product, a milestone that was not achieved prior to
the expiration of the agreement.
NOTE 17. COLLABORATIVE AGREEMENT WITH SUNGEN PHARMA LLC
On August 24, 2016, as amended we entered into an agreement with SunGen Pharma LLC (“SunGen”) (the “SunGen Agreement”) to undertake and engage in the research,
development, sales and marketing of eight generic pharmaceutical products. Two of the products are classified as CNS stimulants (the “CNS Products”), two of the products are
classified as beta blockers and the remaining four products consist of antidepressants, antibiotics and antispasmodics. The Company has received approval from the FDA for
Amphetamine IR Tablets, Amphetamine ER Capsules and has filed an ANDA for an antibiotic product.
Under the terms of the SunGen Agreement, Elite and SunGen will share in the responsibilities and costs in the development of these products and will share substantially
in the profits from sales. Upon approval, the know-how and intellectual property rights to the products will be owned jointly by Elite and SunGen. Three of the eight products will
be jointly owned, three products will be owned by SunGen, with Elite having exclusive marketing rights and the remaining two products will be owned by Elite, with SunGen having
exclusive marketing rights. Elite will manufacture and package all eight products on a cost-plus basis.
On December 10, 2018, the Company received approval from the FDA for Amphetamine IR Tablets, a generic version of Adderall®, an immediate-release mixed salt of a
single entity Amphetamine product (Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate) with strengths of 5 mg, 7.5 mg, 10
mg, 12.5 mg, 15 mg, 20 mg, and 30 mg tablets. The product is a central nervous system stimulant and is indicated for the treatment of Attention Deficit Hyperactivity Disorder
(ADHD) and Narcolepsy. The product is jointly owned by Elite and SunGen. Elite manufactures and packages this product, at the Northvale Facility, on a cost-plus basis, and it is
currently sold pursuant to the Lannett Alliance, with the first commercial shipment of this product occurring in April 2019. Please see the section below titled “Strategic Marketing
Alliance with Lannett Company Inc.” for further details on the Lannett Alliance
On January 3, 2019, the Company filed an ANDA with the FDA for a generic version of an antibiotic product. According to QVIA (formerly QuintilesIMS Health) data, the
branded product for this antibiotic and its equivalents had total annual U.S. sales of approximately $94 million for the twelve months ending September 30, 2018. The product is
jointly owned by Elite and SunGen. Upon approval by the FDA of this ANDA, Elite will manufacture and package the product on a cost-plus basis. The ANDA is currently under
review by the FDA.
F-29
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 12, 2019, the Company received approval from the FDA for Amphetamine ER Capsules, a generic version of Adderall XR®, an extended-release mixed salt of
a single entity Amphetamine product (Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate) with strengths of 5mg, 10mg,
15mg, 20mg, 25mg and 30mg capsules. The product is a central nervous system stimulant and is indicated for the treatment of Attention Deficit Hyperactivity Disorder
(ADHD). The product is jointly owned by Elite and SunGen. Elite manufactures and packages this product, at the Northvale Facility, on a cost-plus basis and it is currently sold
pursuant to the Lannett Alliance, with the first commercial shipment of this product occurring in March 2020. Please see the section below titled “Strategic Marketing Alliance with
Lannett Company Inc.” for further details on the Lannett Alliance.
On April 3, 2020, the Company and SunGen mutually agreed to discontinue any further joint product development activities.
In May 2020, SunGen, under an asset purchase agreement, assigned its rights and obligations under the Master Development and License 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.
There can be no assurances that any of these products will receive marketing authorization and achieve commercialization within this time period, or at all. In addition,
even if marketing authorization is received, and even for those products for which marketing authorization has already been received, there can be no assurances that there will be
future revenues of profits, or that any such future revenues or profits would be in amounts that provide adequate return on the significant investments made to secure these
marketing authorizations or provide sufficient financial contributions to support costs of operations and overheads.
NOTE 18. RELATED PARTY TRANSACTION AGREEMENTS WITH EPIC PHARMA LLC
The Company has entered into two agreements with Epic which constitute agreements with a related party due to the management of Epic including a member on our
Board of Directors at the time such agreements were executed.
On June 4, 2015, the Company entered into the 2015 Epic License Agreement (please see Note 16 above). The 2015 Epic License Agreement includes milestone payments
totaling $10 million upon the filing with and approval of an NDA with the FDA. The Company has determined these milestones to be substantive, with such assessment being
made at the inception of the 2015 Epic License Agreement, and based on the following:
● The Company’s performance is required to achieve each milestone; and
● The milestones will relate to past performance, when achieved; and
● The milestones are reasonable relative to all of the deliverables and payment terms within the 2015 Epic License Agreement
The 2015 SequestOx™ License Agreement expired on June 4, 2020. During the term of this agreement, the Company received $7.5 million in non-refundable payments,
with such amount consisting of $5 million due and owing on the execution date of the 2015 SequestOx™ License Agreement and $2.5 million being earned upon the Company’s
filing of an NDA with the FDA for the relevant product in January 2016. The remaining $7.5 million in non-refundable payments required FDA approval of the relevant product, a
milestone that was not achieved prior to the expiration of the agreement.
This transaction is not to be considered as an arms-length transaction.
Please also note that, effective April 7, 2016, all Directors on the Company’s Board of Directors that were also owners/managers of Epic had resigned as Directors of the
Company and all current members of the Company’s Board of Directors have no relationship to Epic. Accordingly, Epic no longer qualifies as a party that is related to the
Company.
NOTE 19. MANUFACTURING, LICENSE AND DEVELOPMENT AGREEMENTS
The Company has entered into the following active agreements:
● License agreement with Precision Dose, dated September 10, 2010, as amended (the “Precision Dose License Agreement”);
● Development and License Agreement with SunGen (the “SunGen Agreement”);
● Strategic Marketing Alliance with Glenmark Pharmaceuticals, Inc. USA dated May 22, 2018 (the “Glenmark Alliance”).
● Strategic Marketing Alliance with Lannett Company. Inc. dated March 6, 2019 (the “Lannett-SunGen Product Alliance”)
● Strategic Marketing Alliance with Lannett Company. Inc. dated April 9, 2019 (the “Lannett-Elite Product Alliance”)
F-30
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Precision Dose Agreement currently provides for the marketing and distribution, by Precision Dose and its wholly owned subsidiary, TAGI Pharma, of Phentermine
37.5mg tablets (launched in April 2011), Phentermine 15mg capsules (launched in April 2013), Phentermine 30mg capsules (launched in April 2013), Naltrexone 50mg tablets
(launched in September 2013) and certain additional products that require approval from the FDA which has not been received. Precision Dose will have the exclusive right to
market these products in the United States and Puerto Rico and a non-exclusive right to market the products in Canada. Pursuant to the Precision Dose License Agreement, Elite
received $200k at signing, and is receiving milestone payments and a license fee which is based on profits achieved from the commercial sale of the products included in the
agreement.
Revenue from the $200k payment made upon signing of the Precision Dose Agreement is being recognized over the life of the Precision Dose Agreement.
The milestones, totaling $500k (with $405k already received), consist of amounts due upon the first shipment of each identified product, as follows: Phentermine 37.5mg
tablets ($145k), Phentermine 15 & 30mg capsules ($45k), Hydromorphone 8mg ($125k), Naltrexone 50mg ($95k) and the balance of $95k due in relation to the first shipment of
generic products which still require marketing authorizations from the FDA, and to which there can be no assurances of such marketing authorizations being granted and
accordingly there can be no assurances that the Company will earn and receive these milestone amounts. These milestones have been determined to be substantive, with such
determination being made by the Company after assessments based on the following:
● The Company’s performance is required to achieve each milestone; and
● The milestones will relate to past performance, when achieved; and
● The milestones are reasonable relative to all of the deliverables and payment terms within the Precision Dose License Agreement.
The license fees provided for in the Precision Dose Agreement are calculated as a percentage of net sales dollars realized from commercial sales of the related products.
Net sales dollars consist of gross invoiced sales less those costs and deductions directly attributable to each invoiced sale, including, without limitation, cost of goods sold, cash
discounts, Medicaid rebates, state program rebates, price adjustments, returns, short date adjustments, charge backs, promotions, and marketing costs. The rate applied to the net
sales dollars to determine license fees due to the Company is equal to an amount negotiated and agreed to by the parties to the Precision Dose License Agreement, with the
following significant factors, inputs, assumptions, and methods, without limitation, being considered by either or both parties:
● Assessment of the opportunity for each generic product in the market, including consideration of the following, without limitation: market size, number of
competitors, the current and estimated future regulatory, legislative, and social environment for each generic product, and the maturity of the market;
● Assessment of various avenues for monetizing the generic products, including the various combinations of sites of manufacture and marketing options;
● Capabilities of each party with regards to various factors, including, one or more of the following: manufacturing resources, marketing resources, financial resources,
distribution capabilities, ownership structure, personnel, assessment of operational efficiencies and stability, company culture and image;
● Stage of development of each generic product, all of which did not have FDA approval at the time of the discussions/negotiations and an assessment of the risks,
probability, and time frame for achieving marketing authorizations from the FDA for the products;
● Assessment of consideration offered by Precision and other entities with whom discussions were conducted; and
● Comparison of the above factors among the various entities with whom the Company was engaged in discussions relating to the commercialization of the generic
products.
The SunGen Agreement provides for the research, development, sales and marketing of eight generic pharmaceutical products. Two of the products are classified as CNS
stimulants (the “CNS Products”), two of the products are classified as beta blockers and the remaining four products consist of antidepressants, antibiotics and antispasmodics.
To date, the Company has received approval of ANDA’s filed for Amphetamine IR Tablets and Amphetamine ER Capsules, both of which have been commercially launched and
are sold pursuant to the Lannett Alliance. The Company has also filed, pursuant to the SunGen Agreement, an ANDA, which is under review by the FDA, for an antibiotic product.
On April 3, 2020, the Company and SunGen mutually agreed to discontinue any further joint product development activities.
Under the terms of the SunGen Agreement, Elite and SunGen share in the responsibilities and costs in the development of these products and will share substantially in
the profits from sales. Upon approval, the know-how and intellectual property rights to the products will be owned jointly by Elite and SunGen. Three of the eight products will be
jointly owned, three products will be owned by SunGen, with Elite having exclusive marketing rights and the remaining two products will be owned by Elite, with SunGen having
exclusive marketing rights. Elite will manufacture and package all eight products on a cost-plus basis.
F-31
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In May 2020, SunGen, under an asset purchase agreement, assigned its rights and obligations under the Master Development and License 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.
The Glenmark Alliance, provides for the manufacture by Elite and exclusive marketing by Glenmark of Isradipine capsules, Trimipramine capsules and Methadone Tablets,
and semi-exclusive marketing rights for Phendimetrazine tablets. All marketing rights relating to Methadone Tablets were terminated by mutual agreement in January 2020 and all
marketing rights relating to Phendimetrazine Tablets were terminated by mutual agreement in February 2020. In addition to the purchase prices for the products, Elite will receive
license fees well in excess of 50% of gross profits. Gross profit is defined as net sales less the price paid to Elite for the products, distribution fees (less than 10%) and shipping
costs. The Agreement has an initial term of three years and automatically renews for one-year periods absent prior written notice of non-renewal. In addition to customary
termination provisions, the Agreement permits Glenmark to terminate with regard to a product on at least three months’ prior written notice if it determines to stop marketing and
selling such product, and it permits Elite to terminate with regard to a product if at any time after the first twelvemonths from the first commercial sale, the average license fee paid
by Glenmark for such product is less than $100,000 for a six-month sales period.
Pursuant to Lannett-SunGen Product Alliance with Lannett Company Inc. (“Lannett”), Lannett will be the exclusive U.S. marketer and distributor for Amphetamine IR
Tablets and Amphetamine ER Capsules. Elite will manufacture and Lannett will purchase the products from Elite and then sell and distribute them. In addition to the purchase
prices for the products, Elite will receive license fees in excess of 50% of net profits, which will be shared equally with SunGen, pursuant to the SunGen Agreement. The Lannett-
SunGen Product Alliance has an initial term of three years and automatically renews for one-year periods absent prior written notice of non-renewal. In addition to customary
termination provisions, the Agreement permits Lannett to terminate with regard to a product on at least six months’ prior written notice, and it permits Elite or Lannett to terminate
with regard to a product if at any time after the first twelve months from the first commercial sale, the average license fee paid by Lannett for such product is less than $300,000 for a
six month sales period. In addition to manufacturing fees and license fees, Lannett also paid a milestone, of $750,000 upon the March 2020 commercial launch of Amphetamine ER
Capsules. This milestone payment was shared equally by Elite and SunGen, pursuant to the SunGen Agreement.
The first commercial shipment of Amphetamine IR Tablets, a generic version of Adderall®, with strengths of 5mg, 7.5mg, 10mg, 12.5mg, 15mg, 20mg and 30mg, pursuant to
the Lannett-SunGen Product Alliance occurred in April 2019. The first commercial shipment of Amphetamine ER Capsules, a generic version of Adderall XR ®, with strengths of
5mg, 10mg, 15mg, 20mg, 25mg and 30mg, pursuant to the Lannett-SunGen Product Alliance occurred in March 2020.
Pursuant to the Lannett-Elite Product Alliance, Lannett is the exclusive U.S. marketer and distributor for Dantrolene Capsules. Elite manufactures and Lannett purchases,
markets and distributes this product. In addition to the purchase prices for the products, Elite receives license fees in excess of 50% of net profits. Net profits are defined as net
sales less the price paid to Elite for the products, distribution fees (less than 10%) and shipping costs. The Lannett-Elite Product Alliance has an initial term of three years and
automatically renews for one-year periods absent prior written notice of non-renewal. In addition to customary termination provisions, the Agreement permits Lannett to terminate
with regard to a product on at least six months’ prior written notice and it permits Elite or Lannett to terminate with regard to a product if at any time after the first twelve months
from the first commercial sale, the average license fee paid by Lannett for such product is less than $300,000 for a six month sales period. The first commercial shipment of
Dantrolene Capsules occurred in June 2019.
NOTE 20. 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. The Company received a total of $480,000 from Mikah as an advance payment for the purchase of pharmaceutical materials relating to future product development
conducted pursuant to this agreement. This amount was recorded as a deposit and contained within the customer deposits financial statement line item on the consolidated
balance sheet. As of the date of this report, the Company has purchased raw materials with an aggregate cost of $542,214 pursuant to this agreement. As of March 31, 2020, the
balance due from Mikah was $62,214 and was included in the financial statement line of prepaid expenses and other current assets on the accompanying consolidated balance
sheet.
F-32
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21. INCOME TAXES
The components of the credit for income taxes are as follows:
Federal
Current
Deferred
State
Current
Deferred
Benefit from sale of state net operating loss credits
Net benefit from sale of state net operating loss credits
Year Ended March 31,
2020
2019
$
$
- $
-
-
-
-
- $
-
-
3,000
-
673,016
676,016
The major components of deferred tax assets and liabilities at March 31, 2020 and 2019 are as follows (amounts in thousands of dollars):
Federal
Net operating loss carry forward
Valuation allowance
State
Net operating loss carry forward
Valuation Allowance
Year Ended March 31,
2020
2019
$
$
21,360 $
(21,360)
-
2,258
(2,258)
- $
21,005
(21,005)
-
2,239
(2,239)
-
At March 31, 2020 and 2019 a 100% valuation allowance is provided, as it is uncertain if the deferred tax assets will provide any future benefits because of the uncertainty
about the Company’s ability to generate the future taxable income necessary to use the net operating loss carry forwards.
The company believes that temporary timing differences between accrual and payment of income taxes are not material to the financial position of the Company.
As of March 31, 2020, Elite has a federal net operating loss carry forward of $21.4 million, which do not expire and net operating loss carry forward in state tax jurisdictions
of $2.2 million some of which will begin to expire in 2020.
NOTE 22. OTHER INCOME – PROCEEDS FROM SALE OF ANDAs
Sale of ANDAs for Oxycodone Hydrochloride and Acetaminophen, USP CII (generic version of Percocet®)
In November 2019, approved ANDAs for a generic version of Percocet® (oxycodone hydrochloride and acetaminophen, USP CII) 5mg, 7.5mg and 10mg tablets with 325mg
of acetaminophen were sold to Nostrum Laboratories Inc. (“Nostrum”) for cash consideration totaling $300,000. The three related approved ANDA’s were developed by Elite, with
the costs of such development being charged to expense in the periods incurred, in accordance with generally accepted accounting principles.
Sale of ANDAs for Hydrocodone bitartrate and acetaminophen tablets USP CII (generic version of Norco)
In November 2019, approved ANDAs for a generic version of Norco® (hydrocodone bitartrate and acetaminophen tablets USP CII) 2.5mg/325mg, 5mg/325mg,
7.5mg/325mg and 10mg/325mg tablets were sold to Nostrum for cash consideration totaling $300,000. The four related approved ANDA’s were developed by Elite, with the costs of
such development being charged to expense in the periods incurred, in accordance with generally accepted accounting principles.
F-33
Sale of ANDAs for Methadone hydrochloride tablets (generic version of Dolophine)
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In February 2020, approved ANDAs for a generic version of Dolophine® (methadone hydrochloride tablets, 5 mg and 10 mg) were sold to Nostrum for cash consideration
totaling $300,000. The two related approved ANDA’s were developed by Elite, with the costs of such development being charged to expense in the periods incurred, in accordance
with generally accepted accounting principles.
Sale of ANDA for Hydromorphone HCl tablet (generic version of Dilaudid)
In February 2020, the approved ANDA for a generic version of Dilaudid® (hydromorphone hydrochloride tablets, 8mg) were sold to Nostrum for cash consideration
totaling $300,000. The carrying value of the asset relating to this ANDA was zero.
Sale of ANDAs for Phendimetrazine tartrate tablet (generic version of Bontril)
In February 2020, approved ANDAs for a generic version of Bontril PDM® (phendimetrazine tartrate tablet, 35 mg) were sold to Nostrum for cash consideration totaling
$300,000. The related approved ANDA’s were developed by Elite, with the costs of such development being charged to expense in the periods incurred, in accordance with
generally accepted accounting principles.
NOTE 23. 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. 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 our 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 our already thorough cleaning protocols throughout our facilities and have
prohibited visits from non-essential visitors. Certain of these measures have resulted in increased costs.
Manufacturing and Supply Chain
During the year ended March 31, 2020, and as of the date of this Annual Report on Form 10-K, the Company has not experience material, detrimental issues related to
COVID-19 in our manufacturing, supply chain, quality assurance and regulatory compliance activities, and have been able to operate without interruption. The Company has taken,
and plan to continue to take, commercially practical measures to keep our facility open. Our supply chains remain intact and operational, and the Company is in regular
communications with our suppliers and third-party partners. Please note, however, that a prolonging of the current situation relating to COVID-19 may result in an increased risk of
interruption in our supply chain in the future, with no assurances given as the materiality of such future interruption on our business, financial condition, results of operations and
cash flows.
NOTE 24. SUBSEQUENT EVENTS
The Company has evaluated subsequent events from the consolidated balance sheet date through June 29, 2020 (the latest practicable date). The following are material
subsequent events:
Loan received pursuant to the Payroll Protection Program
In April 2020, the Company was approved for, and received a loan with proceeds of $1.01 million under the Paycheck Protection Program (“PPP”). The PPP, established as
part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses, with the amount of the loan being determined by
application of a formula defined in the CARES Act that is based, in large part, on payroll expenses incurred by the Company. Amounts received pursuant to the PPP are intended to
fund qualifying expenses, as defined in the CARES Act, which include, without limitation, employee payroll, health care benefits, rent and utilities, mortgage payments and interest
on other debt obligations incurred prior to February 15, 2020.
F-34
Under the terms of the PPP, certain amounts received as a loan may be forgiven if they are used for qualifying expenses. The United States Treasury Department
published an interim final rule in the Federal Registry on June 1, 2020, with such interim final rule allowing for further comments up to July 1, 2020, to define the terms and
conditions under which amounts will qualify for forgiveness. In addition, the Paycheck Program Flexibility Act of 2020 was signed into law by the President of the United States on
June 5, 2020, which amends the CARES Act and eases the rules on the use of loan proceeds and forgiveness criteria. Any loan amounts that are not forgiven are required to be
repaid over a two-year period, with a deferral period of six months and at an annual interest rate of 1%. Please note that the terms and conditions governing forgiveness and
repayment could be amended or revised in the future.
The loan received has been recorded as a liability by the Company as of the date received. The Company intends to apply for forgiveness of amounts received under the
PPP, in accordance with requirements of the CARES Act, as amended. Any loan amounts forgiven will be removed from liabilities recorded. Please note that there can be no
assurances of forgiveness of any or all of the loan amount received pursuant to the PPP and there can also be no assurances as to the terms and conditions of repayment of any
loan amounts not forgiven.
Sale of New Jersey Net Operating Loss
In April 2020, Elite Laboratories Inc., a wholly owned subsidiary of Elite Pharmaceuticals Inc., 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 at a transfer price equal to ninety-two cents for every benefit dollar for total proceeds of $870,695.
Shareholder Meeting of June 23, 2020
The Company held a Special Meeting of Shareholders on June 23, 2020. The requisite quorum for the meeting of 50.0% was present. At the meeting, Shareholders voted as
follows:
Proposal No. 1
To again vote on the amendment of our 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 and to file a new amendment to our Articles of Incorporation reflecting such approval.
For: 776,095,460
Proposal No. 2
Against: 134,034,571
Abstain: 4,064,230
Granting discretionary authority to adjourn the virtual Special Meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time
of the virtual Special Meeting to approve Proposal No. 1.
For: 836,158,065
Against: 70,781,471
Abstain: 7,254,725
Following approval of Proposal No. 1 above, the Company filed an amendment to its Articles of Incorporation with the Secretary of State of the State of Nevada re-
adopting the prior amendment increasing the number of shares of common stock that it is authorized to issue from 995,000,000 shares to 1,445,000,000 shares. The par value of the
common stock remains $0.001 per share.
F-35
Description of Common Stock
Exhibit 4.6
The following summary description of the common stock of Elite Pharmaceuticals, Inc. (“we”, “our” or “us”) is based on the provisions of our amended and restated
articles of incorporation as amended (“Articles of Incorporation”), as well as our amended and restated bylaws (“Bylaws”), and the applicable provisions of the Nevada Revised
Statutes (“Nevada Law”). This information is qualified entirely by reference to the applicable provisions of our Articles of Incorporation, Bylaws and Nevada Law. Our Articles of
Incorporation and Bylaws have previously been filed as exhibits with the Securities and Exchange Commission.
Voting Rights
Holders of our common stock are entitled to one vote per share in the election of directors and on all other matters on which shareholders are entitled or permitted to
vote. Holders of our common stock are not entitled to cumulative voting rights.
Dividend Rights
Subject to the terms of any then outstanding series of preferred stock, the holders of our common stock are entitled to dividends in the amounts and at times as may be
declared by our board of directors out of funds legally available therefor.
Liquidation Rights
Upon liquidation or dissolution, holders of our common stock are entitled to share ratably in all net assets available, if any, for distribution to shareholders after we
have paid, or provided for payment of, all of our debts and liabilities, and after payment of any liquidation preferences to holders of any then outstanding shares of preferred stock.
Other Matters
Holders of our common stock have no redemption, conversion or preemptive rights. There are no sinking fund provisions applicable to our common stock. The rights,
preferences and privileges of the holders of our common stock are subject to the rights of the holders of shares of any series of outstanding preferred stock and preferred stock
that we may issue in the future.
All of our outstanding shares of common stock are fully paid and nonassessable.
Anti-Takeover Effects of Provisions of Nevada Law, Our Articles of Incorporation,
Our Bylaws and Our Shareholders’ Rights Plan
Nevada Control Share Law
We may be, or in the future we may become, subject to Nevada’s control share law. A corporation is subject to Nevada’s control share law if it has more than 200
shareholders, at least 100 of whom are shareholders of record and residents of Nevada, and if the corporation does business in Nevada, including through an affiliated corporation.
This control share law may have the effect of discouraging corporate takeovers. As of June 23, 2020, we have less than 100 shareholders of record who are residents of Nevada.
The control share law focuses on the acquisition of a “controlling interest,” which means the ownership of outstanding voting shares that would be sufficient, but for the
operation of the control share law, to enable the acquiring person to exercise the following proportions of the voting power of the corporation in the election of directors: (1) one-
fifth or more but less than one-third; (2) one-third or more but less than a majority; or (3) a majority or more. The ability to exercise this voting power may be direct or indirect, as
well as individual or in association with others.
The effect of the control share law is that an acquiring person, and those acting in association with that person, will obtain only such voting rights in the control shares as
are conferred by a resolution of the shareholders of the corporation, approved at a special or annual meeting of shareholders. The control share law contemplates that voting rights
will be considered only once by the other shareholders. Thus, there is no authority to take away voting rights from the control shares of an acquiring person once those rights
have been approved. If the shareholders do not grant voting rights to the control shares acquired by an acquiring person, those shares do not become permanent non-voting
shares. The acquiring person is free to sell the shares to others. If the buyer or buyers of those shares themselves do not acquire a controlling interest, the shares are not governed
by the control share law.
If control shares are accorded full voting rights and the acquiring person has acquired control shares with a majority or more of the voting power, a shareholder of record,
other than the acquiring person, who did not vote in favor of approval of voting rights, is entitled to demand fair value for such shareholder’s shares.
In addition to the control share law, Nevada has a business combination law, which prohibits certain business combinations between Nevada publicly traded corporations
and “interested shareholders” for two years after the interested shareholder first becomes an interested shareholder, unless the corporation’s board of directors approves the
combination in advance. For purposes of Nevada law, an interested shareholder is any person who is: (a) the beneficial owner, directly or indirectly, of 10% or more of the voting
power of the outstanding voting shares of the corporation, or (b) an affiliate or associate of the corporation and at any time within the previous two years was the beneficial owner,
directly or indirectly, of 10% or more of the voting power of the then-outstanding shares of the corporation. The definition of “business combination” contained in the statute is
sufficiently broad to cover virtually any kind of transaction that would allow a potential acquirer to use the corporation’s assets to finance the acquisition or otherwise to benefit
its own interests rather than the interests of the corporation and its other shareholders.
The effect of Nevada’s business combination law is to potentially discourage parties interested in taking control of the Company from doing so if it cannot obtain the
approval of our board of directors.
Articles of Incorporation and Bylaws
Our Articles of Incorporation and/or Bylaws provide that:
● our Bylaws may be amended or repealed by our board of directors or our shareholders;
● our board of directors is authorized to issue, without shareholder approval, preferred stock, the rights of which will be determined at the discretion of our board
of directors and that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that our
board of directors does not approve;
● our Board of directors is classified into three separate classes of directors with each respective class serving a three-year term;
● our shareholders do not have cumulative voting rights, and therefore shareholders holding a majority of the voting stock outstanding will be able to elect all of
our directors; and
● our shareholders must comply with advance notice provisions to bring business before or nominate directors for election at a shareholder meeting.
Shareholder Rights Plan
On November 15, 2013, we entered into a Shareholder Rights Plan and, under the Rights Plan, our board of directors declared a dividend distribution of one Right for
each outstanding share of our common stock and one right for each share of common stock into which any of our outstanding Preferred Stock is convertible, to shareholders of
record at the close of business on that date. Each Right entitles the registered holder to purchase from us one “Unit” consisting of one one-millionth (1/1,000,000) of a share of
Series H Junior Participating preferred stock, at a purchase price of $2.10 per Unit, subject to adjustment, and may be redeemed prior to November 15, 2023, the expiration date, at
$0.000001 per Right, unless earlier redeemed by us. The Rights generally are not transferable apart from the common stock and will not be exercisable unless and until a person or
group acquires or commences a tender or exchange offer to acquire, beneficial ownership of 15% or more of our common stock. However, for Mr. Hakim, our Chief Executive
Officer, the Rights Plan’s 15% threshold excludes shares beneficially owned by him as of November 15, 2013 and all shares issuable to him pursuant to his employment agreement
and the Mikah Note.
The description and terms of the Rights are set forth in the Rights Agreement. The foregoing description of the Rights and the Rights Agreement are qualified in their
entire by reference to the disclosure in our Registration Statement on Form 8-A12G [add hyperlink]and the Rights Agreement [add hyperlink]filed therewith, filed with the SEC on
November 15, 2013, with such filing and exhibit being herein incorporated by reference.
Potential Effects of Authorized but Unissued Stock
We have shares of common stock and preferred stock available for future issuance without shareholder approval. We may utilize these additional shares for a variety of
corporate purposes, including future public offerings to raise additional capital, to facilitate corporate acquisitions or payment as a dividend on the capital stock.
The existence of unissued and unreserved common stock and preferred stock may enable our board of directors to issue shares to persons friendly to current
management or to issue preferred stock with terms that could render more difficult or discourage a third-party attempt to obtain control of us by means of a merger, tender offer,
proxy contest or otherwise, thereby protecting the continuity of our management. In addition, our board of directors has the discretion to determine designations, rights,
preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences of each series of preferred
stock, all to the fullest extent permissible under Nevada Law and subject to any limitations set forth in our Articles of Incorporation. The purpose of authorizing our board of
directors to issue preferred stock and to determine the rights and preferences applicable to such preferred stock is to eliminate delays associated with a shareholder vote on
specific issuances. The issuance of preferred stock, while providing desirable flexibility in connection with possible financings, acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third-party to acquire, or could discourage a third-party from acquiring, a majority of our outstanding voting stock.
Exhibit 10.52
July 20, 2013
Personal and Confidential
Douglas Plassche
18 Sunrise Circle
Clinton, NJ 08809
Dear Doug,
This letter agreement (the “Agreement”) shall confirm our understanding as to the terms of your employment with Elite Laboratories, Inc., a Delaware corporation (the “Company”).
1. Commencing on April 12, 2013, you shall become an employee of the Company as a Vice President of Operations and your job responsibilities will include: scheduling and
overseeing the manufacture and packaging of pharmaceutical products according to Food and Drug Administration (FDA) guidelines and Good Manufacturing Practices
(cGMP) for generic and branded products; managing raw material and component purchasing for production; overseeing facility maintenance and shipping and receiving;
preparing department budget including capital requirements; identifying personnel needs and motivating subordinates; training and developing junior staff members in a
growing company; interfacing and consulting with R&D, Analytical and Quality Assurance Groups and writing Standard Operating Procedures and validation protocols. You
will report directly to the CEO.
2. You shall receive an annual base salary equal to $205,000.00 which shall be payable in accordance with the Company’s payroll practices.
3.
In addition to your base salary, you shall receive annual stock compensation at the rate of $25,000 (the “Stock Compensation”). The Stock Compensation is earned in equal
increments, on an annual basis, with amounts accruing only while you are employed by the Company. The Stock Compensation shall be paid to you annually on or before
March 31st after the end of each year via the issuance of shares of $0.001 par value common stock (the “ELTP Shares”) of Elite Pharmaceuticals Inc. (“Elite”). The number of
ELTP Shares to be issued in payment of the Stock Compensation is calculated as the quotient of the annual amount of Stock Compensation accrued to you as of the December
31st immediately preceding such issuance of ELTP Shares divided by the simple average of the daily closing price (as posted on Google, Yahoo, Wall Street Journal or any
similar data source) of each trading day during which you were employed by the Company during the prior year. The ELTP Shares will be registered on Form S-8, if deemed
appropriate by Elite’s Board of Directors.
165 Ludlow Avenue • Northvale, NJ 07647 • Ph: (201)750-2646 • Fax: (201)750-2755 www.elitepharma.com
4.
In addition, you are eligible for an annual bonus in cash and/or equity-based awards for up to an equivalent of 30% of your base salary. Such awards would be granted based
upon agreed upon milestones in the discretion of the Company and its Chief Executive Officer (the “CEO”).
5. You shall receive a monthly automobile allowance in the amount of Five Hundred Dollars ($500).
6. Upon the approval by the Board of Directors of Elite, you will be granted stock options to purchase 3,000,000 ELTP Shares at the stock price on the closing day of the signing
of this letter. The options will vest over a three-year period, commencing one year from the date of issuance.
7. You shall receive 15 days paid vacation time during each calendar year, pro rated for periods of less than a full calendar year; provided, that the timing and duration of any
particular vacation shall not interfere with the business of the Company or the effective performance of your duties hereunder, as reasonably determined in good faith by the
CEO.
8. Starting with the first day of your employment at the Company, you shall be entitled to participate in all health insurance plans maintained by the Company for its employees,
subject to applicable eligibility requirements. Nothing in the foregoing shall limit or restrict the Company’s discretion to amend, revise or terminate any benefit or plan without
your notice or consent.
9. While you are employed by the Company, you agree to devote your best efforts to the interests of the Company and to not knowingly undertake or engage in any
employment, occupation or business enterprise that is directly or indirectly adverse to the interest of the Company. You agree to observe in all material respects any and all
rules and policies that the Company may now or hereafter establish from time to time, governing the conduct of its employees or business.
10. You understand and agree that your employment with the Company is terminable at will by either the Company or you. You may terminate your employment at any time with or
without notice and the Company has a similar right to terminate your employment for any reason or no reason. You acknowledge that there have been no representations or
promises made to you that your employment will continue for a set period of time or that your employment will be terminated only under particular circumstances. You
acknowledge that no representations, express or implied, may be made that are inconsistent with this policy and no one at the Company is authorized to make representations,
express or implied, inconsistent with this policy. If the Company terminates this Agreement without Cause it will give Executive notice at least thirty (30) days prior to the
effective termination date; further Company shall pay you an amount equal to six months of base annual salary in effect upon the date of termination
165 Ludlow Avenue • Northvale, NJ 07647 • Ph: (201)750-2646 • Fax: (201)750-2755 www.elitepharma.com
2
11. You represent that your employment with the Company will not conflict with or be constrained by any prior employment obligations, covenants not to compete, confidentiality
obligations or similar restrictions.
12. As a condition to entering into this Agreement and being employed by the Company you agree to execute and deliver the Proprietary Rights Agreement in the form attached
hereto as Exhibit A.
13. This Agreement contains the entire understanding between the Company and you with respect to its subject matter. It may not be extended, varied, modified, supplemented,
or otherwise changed except by written agreement signed by both you and an authorized officer of the Company. A waiver by the Company of any right or provision under
this Agreement shall not operate or be construed as a waiver of such right or provision at any other time. If a court finds a portion of this Agreement unenforceable, such
finding shall not affect enforcement of the other portions of this Agreement. Any portion found to be unenforceable shall be construed to be reformed to extend as far as is
enforceable. This Agreement shall inure to the benefit of, and may be enforced by the successor and assigns of, the Company. This Agreement is entered into under the laws
of the State of New Jersey and shall be governed by the laws of the State of New Jersey. Any lawsuit or legal action or proceeding relating to this Agreement shall be brought
in one of the state of federal courts sitting in the City and State of New York, and both you and the Company submit to the jurisdiction of such courts for that purpose.
14. If any term or provision hereof is determined to be invalid or unenforceable, the remaining terms and provisions hereof shall be unimpaired and the invalid or unenforceable
term or provision shall, for purposes of such jurisdiction, be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision.
15. You represent and warrant that you have had a full opportunity to seek legal advice and representation by an independent counsel of your own choosing in connection with
this Agreement.
16. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute one and the
same agreement (and all signatures need not appear on any one counterpart), and this Agreement shall become effective when one or more counterparts has been signed by
each of the parties hereto and delivered to each of the other parties hereto. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile
or electronic transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. A faxed or electronically delivered signature shall have
the same legally binding effect as an original signature.
165 Ludlow Avenue • Northvale, NJ 07647 • Ph: (201)750-2646 • Fax: (201)750-2755 www.elitepharma.com
3
If you find the foregoing arrangement acceptable and believe that the foregoing accurately summarizes our understanding, please kindly so indicate by executing and dating the
attached copy of this Agreement in the space provided and returning a copy to me.
Very truly yours,
Elite Laboratories, Inc.
By:
Name:
Title:
s/Jerry Treppel
Jerry Treppel
Chairman & Ceo
7/24/13
ACCEPTED & AGREED AS OF
s/Doug Plassche 7/23/13
By:
Name: Doug Plassche
165 Ludlow Avenue • Northvale, NJ 07647 • Ph: (201)750-2646 • Fax: (201)750-2755 www.elitepharma.com
4
Exhibit 10.53
June 21, 2019
Personal and Confidential
Douglas Plassche
Dear Doug,
This letter agreement (the “Agreement”) shall confirm our understanding as to the terms of your continuing employment with Elite Laboratories, Inc., a Delaware corporation (the
“Company”).
In recognition of the value Elite places on your past and continued service to the Company, we are pleased to offer you an incentive to continue to remain employed with the
Company and to provide for the continuity of management and the success of the Company’s operations during a period of substantial change by ensuring your commitment to
continue to serve diligently in your present position for an additional two year period starting June 30, 2019. In consideration of the foregoing Elite will pay you $30,000 for
relocation expenses within two weeks of executing this letter agreement. In addition, at any time after June 30, 2021 and provided that you remain continuously employed with the
Company through June 30, 2021, you will be entitled to a lump sum retention payment of $253,552, less applicable withholding taxes, regardless of whether you remain with the
Company or leave the Company any time after June 30, 2021. Further in the two-year period up to June 30, 2021 your salary of $253,552 per year and bonus of $75,000 is guaranteed.
These benefits will replace what is stated in your offer letter.
165 Ludlow Avenue. Northvale, NJ 07647, Ph: (201)750-2646, Fax: (201)750-2755 www.elitepharma.com
(Signature Page follows)
If you find the foregoing arrangement acceptable and believe that the foregoing accurately summarizes our understanding, please kindly so indicate by executing and dating the
attached copy of this Agreement in the space provided and returning a copy to me.
Very truly yours,
Elite Laboratories, Inc
By:
/s/ Nasrat Hakim
Nasrat Hakim
President and CEO
ACCEPTED & AGREED
By:
/s/Douglas Plassche
Douglas Plassche
165 Ludlow Avenue. Northvale, NJ 07647, Ph: (201)750-2646, Fax: (201)750-2755 www.elitepharma.com
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 IN PUBLICLY DISCLOSED.
FIRST AMENDMENT TO
THE LICENSE, SUPPLY AND DISTRIBUTION AGREEMENT BETWEEN ELITE
PHARMACEUTICALS, INC./ELITE LABORATORIES, INC. AND LANNETT COMPANY, INC.
Exhibit 10.54
This Amendment, dated as of July 29, 2019 (the “Amendment”), by and between Elite Pharmaceuticals, Inc., a Nevada corporation and Elite Laboratories, Inc., a Delaware
corporation with offices at 165 Ludlow Avenue, Northvale, New Jersey 07647 (collectively “Elite”) and Lannett Company, Inc., a Delaware corporation located at 9000 State Road,
Philadelphia, PA 19136 and/or its Affiliates (“Lannett”) (and together the “Parties”) relating to that License, Supply and Distribution Agreement between the Parties dated March 6,
2019 (the “Agreement”);
WHEREAS Lannett and Elite desire to amend the Agreement on the terms and subject to the conditions contained herein, and
WHEREAS, capitalized terms used herein and not otherwise defined shall have the meaning assigned to such terms in the Agreement.
NOW, THEREFORE in consideration of the mutual covenants and agreements contained herein, the sufficiency, adequacy and satisfaction of which are hereby acknowledged,
Lannett and Elite hereby agree as follows:
1.
Section 1.1 (v) shall be replaced in its entirety with the new Section 1.1 (v) below:
v. “Net Profits” is calculated as listed in Schedule C and means the Net Sales of a Product minus the sum of (i) the Distribution Fee, (ii) Transfer Price of Product and (iii)
shipping costs from the Facility:
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 IN PUBLICLY DISCLOSED.
2.
Section 3.3 shall be replaced in its entirety with new Section 3.3 below:
a. License Fees. Throughout the Initial Term and Renewal Term, LANNETT shall pay to ELITE *** percent (***%) of the Net Profits received from sales of each Product
within forty-five (45) days of the end of each calendar quarter (“License Fees”). Such payment shall additionally include a sales summary for each Product, generally in
the format as provided in Schedule C. In no case shall the License Fees for any calendar quarter be negative; provided, however, in the event of a loss in any calendar
quarter, subject to ELITE’s written approval of any Product pricing by LANNETT that leads to quarterly losses and subject to the loss carryover clause that follows, the
amount of that loss shall be carried forward to subsequent calendar quarters until the amount of such loss has been fully absorbed. In the event that Net Profits for
calendar quarter are negative, LANNETT shall carry over *** percent (***%) of the value by which the Net Profits are negative in such calendar quarter and deduct this
amount from the calculation of Net Sales for the following calendar quarter. If Net Profits are negative in two (2) or more consecutive calendar quarters, LANNETT shall
invoice ELITE for *** percent (***%) of the value by which the Net Profits are negative for the previous calendar quarter and carry over *** percent (***%) of the
value by which Net Profits are negative for the current calendar quarter and deduct this amount from the calculation of Net Sales for the following calendar quarter. For
the avoidance of doubt, if Net Profits are negative in subsequent calendar quarters, the amounts will be similarly carried over or reimbursed as per the terms set forth in
this Section 3.3 until Net Profits are positive. Reimbursement of negative Net Profits owed by ELITE in this Section 3.3 shall be payable to LANNETT within forty-five
(45) days after receipt of an invoice from LANNETT.
3.
The Title Page for the Schedules that follows the signatures and precedes the schedules shall be replaced in its entirety with the new titles listed below:
Schedule A: Products
Schedule B: Product Specifications
Schedule C: Quarterly Report for Calculation of Net Profit
Schedule D: Shipping Instructions
4. Schedule C of the Agreement shall be replaced in its entirety with new Schedule C below:
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 IN PUBLICLY DISCLOSED.
SCHEDULE C
QUARTERLY REPORT FOR CALCULATION OF NET PROFIT
PRODUCT NAME:________________________________________________________
QUANTITY SOLD BY SKU
GROSS SALES
XXXX UNITS
$
DEDUCTIONS:
CHARGEBACKS
REBATES
ADMINISTRATIVE FEES
BILLBACKS
RETURNS
SHELF STOCK ADJUSTMENTS
OTHER DEDUCTIONS
CASH DISCOUNTS
MEDICAID
$
NET SALES
TRANSFER PRICE
DISTRIBUTION FEES
SHIPPING COSTS
NET PROFIT
PROFIT SHARE PAYMENT TO ELITE AT THE APPLICABLE LICENSE FEE
PERCENTAGE SET FORTH IN SECTION 3.3
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 IN PUBLICLY DISCLOSED.
Except as expressly provided in this Amendment, the Agreement and all provisions therein are and shall continue to be in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed by their duly authorized representatives as of the day and year first above written.
Elite Pharmaceuticals, Inc.
By:
Name:
Title:
Date:
s/ Nasrat Hakim
Nasrat Hakim
President and CEO
7-29-2019
Elite Laboratories, Inc.
By:
Name:
Title:
Date:
s/ Nasrat Hakim
Nasrat Hakim
President and CEO
7-29-2019
Lannett Company, Inc.
By:
Name:
Title:
Date:
s/ John Kozlowski
John Kozlowski
COSSO
7-31-2019
4
We consent to the incorporation by reference in the following documents of our reports dated June 29, 2020, relating to the consolidated financial statements of Elite
Pharmaceuticals, Inc. and Subsidiary, included in the Annual Report on Form 10-K of the Company for the year ended March 31, 2020.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
Registration Statement No. 333-217866 on Form S-3
Registration Statement No. 333-197694 on Form S-8
Registration Statement No. 333-163907 on Form S-8
Registration Statement No. 333-132140 on Form S-8
Registration Statement No. 333-118524 on Form S-8
/s/ Buchbinder Tunick & Company LLP
Little Falls, New Jersey
June 29, 2020
I, Nasrat Hakim, certify that:
CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER
Exhibit 31.1
1)
I have reviewed this annual report on Form 10-K for the year ended March 31, 2020 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 fourth fiscal quarter 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: June 29, 2020
/s/ Nasrat Hakim
Nasrat Hakim
Chief Executive Officer, President and Chairman of the Board of
Directors
(Principal Executive Officer)
I, Carter J. Ward certify that:
CERTIFICATION BY PRINCIPAL FINANCIAL OFFICER
Exhibit 31.2
1)
I have reviewed this annual report on Form 10-K for the year ended March 31, 2020 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 fourth fiscal quarter 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: June 29, 2020
/s/ Carter J. Ward
Carter J. Ward
Chief Financial Officer, Treasurer and Secretary
(Principal Accounting and Financial Officer)
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 Annual Report of Elite Pharmaceuticals, Inc. (the “Company”) on Form 10-K for the year ended March 31, 2020 filed with Securities and Exchange
Commission (the “Report”), I, Nasrat Hakim, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the
consolidated result of operations of the Company for the periods presented.
Exhibit 32.1
Date: June 29, 2020
/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.
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 Annual Report of Elite Pharmaceuticals, Inc. (the “Company”) on Form 10-K for the year ended March 31, 2020 filed with Securities and Exchange
Commission (the “Report”), I, Carter J. Ward, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the
consolidated result of operations of the Company for the periods presented.
Exhibit 32.2
Date: June 29, 2020
/s/ Carter J. Ward
Carter J. Ward
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.