NOTE 1
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-
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SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
|
BASIS
OF PRESENTATION
The accompanying
audited financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America (“GAAP”).
The consolidated balance sheet as
of March 31, 2015 and the consolidated statement of operations for the year ended March 31, 2015, the consolidated statement of
cash flows for the year ended March 31, 2015 and the consolidated statement of changes in stockholders equity (deficit) for the
year ended March 31, 2015, included in this annual report on form 10-K are restated to correct errors in accounting that were
identified in the Company's annual report on Form 10-K for the year ended March 31, 2015. Please refer to Note 2 for further details
on the specifics and effects of these corrections of accounting error.
The consolidated balance sheet as
of March 31, 2014 and the consolidated statement of operations for the year ended March 31, 2014, the consolidated statement of
cash flows for the year ended March 31, 2014 and the consolidated statement of changes in stockholders equity (deficit) for the
year ended March 31, 2014, included in this annual report on form 10-K are restated to correct errors in accounting that were
identified in the Company's annual report on Form 10-K for the year ended March 31, 2014. Please refer to Note 2 for further details
on the specifics and effects of these corrections of accounting error.
PRINCIPLES
OF CONSOLIDATION
The
consolidated financial statements include the accounts of Elite Pharmaceuticals, Inc. and its wholly-owned subsidiary, Elite
Laboratories, Inc. (“Elite Labs”, and collectively, the “Company”). The financial statements of its
wholly-owned entity are consolidated and all significant intercompany accounts are eliminated upon consolidation.
NATURE
OF BUSINESS
Elite
Pharmaceuticals, Inc. was incorporated on October 1, 1997 under the laws of the State of Delaware, and its wholly-owned subsidiary
Elite Laboratories, Inc. 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
and licensing proprietary orally administered, controlled-release drug delivery systems and products with abuse deterrent capabilities
and the manufacture of generic, oral dose pharmaceuticals. The Company is equipped to manufacture controlled-release products
on a contract basis for third parties and itself if and when the products are approved. These products include drugs that cover
therapeutic areas for 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 (“US-FDA”),
and thereafter, commercially exploiting such products.
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. In determining collectability, historical trends are evaluated and specific customer issues are reviewed on a periodic
basis to arrive at appropriate allowances.
INVENTORIES
Inventories
are stated at the lower of cost (first-in, first-out basis) or market (net realizable value).
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. Such conditions may include an economic
downturn or a change in the assessment of future operations. A charge for impairment is recognized whenever the carrying amount
of a long-lived asset exceeds its fair value. Management has determined that no impairment of long-lived assets has occurred.
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.
Costs
to acquire intangible assets are capitalized and, if such assets are determined to have a finite useful life, amortized to expense
on a straight-line method over such finite useful life. Costs to acquire intangible assets that are determined to be indefinitely
lived, such as Abbreviated New Drug Applications (“ANDA’s”) are capitalized, but not amortized to expense.
All intangible
assets are tested for impairment on at least an annual basis, or sooner, should events or changes in circumstances occur that
may indicate a potential impairment of a listed intangible assets.
RESEARCH
AND DEVELOPMENT
Research
and development expenditures are charged to expense as incurred.
CONCENTRATION
OF CREDIT RISK
The Company
maintains cash balances, which, at times, may exceed the amounts insured by the Federal Deposit Insurance Corp. Uninsured balances
at March 31, 2016 are $11.5 million. Management does not believe that there is any significant risk of losses.
The Company in the normal course of business extends credit to its customers based on contract terms and
performs ongoing credit evaluations. An allowance for doubtful accounts due to uncertainty of collection is established based on
historical collection experience. Amounts are written off when payment is not received after exhaustive collection efforts. During
Fiscal 2016, Fiscal 2015 and Fiscal 2014, the Company generated all its revenues from six, seven and ten companies, respectively.
The termination of the contracts with either of such companies will result in the loss of a significant amount of revenues currently
being earned.
USE
OF ESTIMATES
The preparation
of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates made by management include, but are not limited to, the recognition of revenue, the amount of the allowance
for doubtful accounts receivable and the fair value of intangible assets, stock-based awards and derivatives.
INCOME
TAXES
The Company
uses the liability method for reporting income taxes, under which current and deferred tax liabilities and assets are recorded
in accordance with enacted tax laws and rates. Deferred income taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Under the liability method, the amounts of deferred tax liabilities and assets at the end of each period are determined using
the tax rate expected to be in effect when taxes are actually paid or recovered. Further tax benefits are recognized when it is
more likely than not, that such benefits will be realized. Valuation allowances are provided to reduce deferred tax assets to
the amount considered likely to be realized.
GAAP prescribes
a recognition threshold and measurement attribute for how a company should recognize, measure, present, and disclose in its financial
statements uncertain tax positions that the company has taken or expects to take on a tax return. GAAP requires that the financial
statements reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of
the position and all relevant facts, but without considering time values. No adjustments related to uncertain tax positions were
recognized during Fiscal 2016 and Fiscal 2015.
The Company
recognizes interest and penalties related to uncertain tax positions as a reduction of the income tax benefit. No interest and
penalties related to uncertain tax positions were accrued as of March 31, 2016 and March 31, 2015.
The Company
operates in multiple tax jurisdictions within the United States of America. Although we do not believe that we are currently under
examination in any of our major tax jurisdictions, we remain subject to examination in all of our tax jurisdiction until the applicable
statutes of limitation expire. As of March 31, 2016, a summary of the tax years that remain subject to examination in our major
tax jurisdictions are: United States – Federal, 2012 and forward, and State, 2008 and forward. The Company did not record
unrecognized tax positions for the years ended March 31, 2016, 2015 and 2014.
EARNINGS
PER COMMON SHARE
Basic
earnings per common share is calculated by dividing net earnings by the weighted average number of shares outstanding during each
period presented. Diluted earnings per share are calculated by dividing earnings by the weighted average number of shares and
common stock equivalents. The Company’s common stock equivalents consist of options, warrants and convertible securities.
COLLABORATIVE
ARRANGEMENTS
Contracts
are considered to be collaborative arrangements when they satisfy the following criteria defined in ASC 808, “Collaborative
Arrangements”:
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·
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The
parties to the contract must actively participate in the joint operating activity; and
|
|
·
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The
joint operating activity must expose the parties to the possibility of significant risks
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, 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.
REVENUE
RECOGNITION
The Company
enters into licensing, manufacturing and development agreements which may include multiple revenue generating activities, including,
without limitation, milestones, license fees, product sales and services. These multiple elements are assessed in accordance ASC
605-25 Revenue Recognition for Multiple-Element Arrangements in order to determine whether particular components of the arrangement
represent separate units of accounting.
An arrangement
component is considered to be a separate unit of accounting if the deliverable relating to the component has value to the customer
on a standalone basis, and if the arrangement includes a general right of return relative to the delivered item, delivery or performance
of the undelivered item is considered probable and substantially in control of the Company.
The Company
recognizes payments received pursuant to a multiple revenue agreement as revenue, only if the related delivered item(s) have stand-alone
value, with the arrangement being accordingly accounted for as a separate unit of accounting. If such delivered item(s) are considered
to either not have stand-alone value, the arrangement is accounted for as a single unit of accounting, and the payments received
are recognized as revenue over the estimated period of when performance obligations relating to the item(s) will be performed.
Whenever
the Company determines that an arrangement should be accounted for as a single unit of accounting, it determines the period over
which the performance obligations will be performed and revenue will be recognized. If it cannot reasonably estimate the timing
and the level of effort to complete its performance obligations under a multiple-element arrangement, revenues are then recognized
on a straight-line basis over the period encompassing the expected completion of such obligations, with such period being reassessed
at each subsequent reporting period.
Arrangement
consideration is allocated at the inception of the arrangement to all deliverables on the basis of their relative selling price
(the relative selling price method). When applying the relative selling price method, the selling price of each deliverable is
determined using vendor-specific objective evidence of selling price, if such exists; otherwise, third-part evidence of selling
price. If neither vendor-specific objective evidence nor third-party evidence of selling price exists for a deliverable, the Company
uses its best estimate of the selling price for that deliverable when applying the relative selling price method. In deciding
whether we can determine vendor-specific objective evidence or third-party evidence of selling price, the Company does not ignore
information that is reasonably available without undue cost and effort.
When determining
the selling price for significant deliverables under a multiple-element revenue arrangement, the Company considers any or all
of the following, depending on information available or information that could be reasonably available without undue cost and
effort: vendor-specific objective evidence, third party evidence or best estimate of selling price. More specifically, factors
considered can include, without limitation and as appropriate, size of market for specific a product, number of suppliers and
other competitive market factors, forecast market shares and gross profits, barriers/time frames to market entry/launch, intellectual
property rights and protections, exclusive or non-exclusive arrangements, costs of similar/identical deliverables from third parties,
contractual terms, including, without limitation, length of contract, renewal rights, commercial terms, profit allocations, and
other commercial, financial, tangible and intangible factors that may be relevant in the valuation of a specific deliverable.
Milestone payments are accounted for in
accordance with ASC 605-28 “Revenue Recognition-Milestone Method” for any deliverables or units of accounting under
which the Company must achieve a defined performance obligation which is contingent upon future events or circumstances that are
uncertain as of the inception of the arrangement providing for such future milestone payment. Determination of the substantiveness
of a milestone is a matter of subjective assessment performed at the inception of the arrangement, and with consideration earned
from the achievement of a milestone meeting all of the following:
·
It
must be either commensurate with the Company's performance in achieving the milestone or the enhancement of the value of the delivered
item(s) as a result of a specific outcome resulting from the Company's performance to achieve the milestone; and
·
It
relates solely to past performance; and
·
It
is reasonable relative to all of the deliverables and payment terms (including other potential milestone consideration) within
the arrangement.
SEGMENT
REPORTING
FASB ASC
280-10-50, “Disclosure about Segments of an Enterprise and Related Information” requires use of the “management
approach” model for segment reporting. The management approach is based on the way a company’s management organizes
segments within the company for making operating decisions and assessing performance. Reportable segments are based on products
and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
The Company
disaggregates its product revenues into the type of marketing authorization relating to each product, specifically the following
two reportable segments:
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1.
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ANDA’s for generic products;
or
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|
2.
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NDA’s for branded products.
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Asset
information is not reviewed or included within the Company’s internal management reporting. Accordingly, the Company does
not disclose asset information for each reportable segment.
Please
see note 3 for further details.
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.
TREASURY
STOCK
The Company
records common shares purchased and held in treasury at cost.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
The carrying
amounts of current assets and liabilities approximate fair value due to the short-term nature of these instruments. The carrying
amounts of noncurrent assets are reasonable estimates of their fair values based on management’s evaluation of future cash
flows. The long-term liabilities are carried at amounts that approximate fair value based on borrowing rates available to the
Company for obligations with similar terms, degrees of risk and remaining maturities.
WARRANTS
AND PREFERRED SHARES
The accounting
treatment of warrants and preferred share series issued is determined pursuant to the guidance provided by subtopics 470, “
Debt
”,
480 “
Distinguishing liabilities from equity”
, and 815,
“Derivatives and Hedging”
of the
Accounting Standard Codification. Each feature of these 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 on the Company’s
statement of financial position, results of operations, cash flow statement and statement of changes in stockholders equity (deficit).
Please
see notes 15 and 16 for further details.
STOCK-BASED
COMPENSATION
The
Company accounts for all stock-based payments and awards under the fair value based method. Stock-based payments to non-employees
are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities
incurred, whichever is more reliably measurable. The fair value of stock-based payments to non-employees is periodically re-measured
until the counterparty performance is complete, and any change therein is recognized over the vesting period of the award and
in the same manner as if the Company had paid cash instead of paying with or using equity based instruments on an accelerated
basis. 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.
The
Company accounts for the granting of share purchase options to employees using the fair value method whereby all awards to employees
will be recorded at fair value on the date of the grant. Share based awards granted to employees with a performance condition
are measured based on the probable outcome of that performance condition during the requisite service period. Such an award with
a performance condition is accrued if it is probable that a performance condition will be achieved. Compensation costs for stock-based
payments to employees that do not include performance conditions are recognized on a straight-line basis. The fair value of all
share purchase options is expensed over their vesting period with a corresponding increase to additional capital surplus. Upon
exercise of share purchase options, the consideration paid by the option holder, together with the amount previously recognized
in additional capital surplus, is recorded as an increase to share capital
The
Company uses the Black-Scholes option valuation model to calculate the fair value of share purchase options at the date of the
grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes
in these assumptions can materially affect the fair value estimate.
The compensation expense recognized for the years ended March 31, 2016, March 31, 2015 and March 31, 2014 in relation to the
granting of share purchase options to employees was $333,362, $260,045 and $82,947 respectively.
FAIR
VALUE MEASUREMENTS
The Company
adopted Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, for financial
and non-financial assets and liabilities.
ASC 820
discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of
future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The
Company utilizes the market approach. The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value into three broad levels. The following is a brief description of those three levels:
|
Level 1:
|
Observable inputs such as
quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
Level 2:
|
Inputs other than quoted prices
that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets
or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
|
|
Level 3:
|
Unobservable inputs that reflect
the reporting entity’s own assumptions.
|
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
In May
2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The core principle of the guidance is that an entity
should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. The authoritative guidance is effective for
annual reporting periods beginning after December 15, 2016. In July 2015, the FASB extended the effective date of the guidance
by one year to December 15, 2017. The Company is currently in the process of assessing the impact this guidance will have on the
consolidated financial statements.
In July
2015, the FASB issued ASU 2015-11, Inventory — Simplifying the Measurement of Inventory. ASU 2015-11 requires inventory
to be subsequently measured using the lower of cost and net realizable value, thereby eliminating the market value approach. Net
realizable value is defined as the “estimated selling prices in the ordinary course of business, less reasonably predictable
costs of completion, disposal and transportation.” ASU 2015-11 is effective for reporting periods beginning after December
15, 2016 and is applied prospectively. Early adoption is permitted. The Company is evaluating the impact, if any, of adopting
this new accounting guidance on its financial statements.
In February,
2016, the FASB issued ASU 2016-02, Leases (Topic 842) which provides new guidance on leases. The new guidance will increase transparency
and comparability among organizations that lease buildings, equipment, and other assets by recognizing the assets and liabilities
that arise from lease transactions. Current off-balance sheet leasing activities will be required to be reflected on balance sheets
so that investors and other users of financial statements can more readily and accurately understand the rights and obligations
associated with these transactions. Consistent with the current lease standard, the new guidance addresses both finance and operating
leases. Finance leases will be accounted for in substantially the same manner as capital leases are accounted for under current
GAAP. Operating leases will be accounted for (both in the income statement and statement of cash flows) in a manner consistent
with operating leases under existing GAAP. However, as it relates to the balance sheet, lessees will recognize lease liabilities
based upon the present value of remaining lease payments and corresponding lease assets for operating leases with limited exceptions.
The new guidance will also require lessees and lessors to provide additional qualitative and quantitative disclosures to help
investors and other users for financials statements assess the amount, timing and uncertainty of cash flows arising from leases.
These disclosures are intended to supplement the amounts recorded in the financial statements so that users can understand more
about the nature of an organization’s leasing activities. The new guidance is effective annual reporting periods, including
interim reporting periods with those annual periods, beginning after December 15, 2018, with early application being also permitted,
but not required. The Company is evaluating the impact of adoption of this guidance on its financial position, results of operations
and disclosures.
NOTE 2
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-
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RESTATEMENT OF PRIOR
FINANCIAL INFORMATION
|
After
receiving a comment letter from the SEC in connection with its standard periodic review of our Form 10-K for the Fiscal Year Ended
March 31, 2015, our Form 10-Q for the Quarterly Period Ended June 30, 2015 and, in the process of review, our Form 10-Q, as amended,
for the Quarterly Period Ended September 30, 2015, we conducted further reviews of our financial statements. Based on such reviews,
the following determinations were made with regards to previously filed annual reports on Form 10-K:
Accounting
for convertible preferred shares prior to the fiscal year ended March 31, 2016
The Company
determined that the accounting for Convertible Preferred Stock (“Mezzanine Preferred”) for annual periods prior to
the fiscal year ended March 31, 2016 was incorrect. Specifically, it has been determined the Mezzanine Preferred which had originally
been classified as derivative liabilities on annual reports filed on Form 10-K prior to the fiscal year ended March 31, 2016,
should instead be accounted for as quasi equity instruments and recorded as mezzanine equity. In addition, the Mezzanine Preferred
which were recorded at fair value each annual reporting period, with changes recorded in net income (loss), will instead be recorded
at the maximum redemption amount each annual reporting period with changes to this amount being recorded in additional paid in
capital. Accordingly, the change in carrying value of the Mezzanine Preferred, which was originally included in the calculation
of net income as well as the calculation of net income attributable to common shareholders for annual periods prior to the fiscal
year ended March 31, 2016, should instead be included only in the calculation of net income attributable to common shareholders.
Consequently, correction of this error in accounting has no effect on earnings per share.
The correction
of this accounting error has no effect on financial statements relating to the fiscal year ended March 31, 2016, which include
the correct accounting for the Mezzanine Preferred.
In accordance
with the guidance provided by the SEC’s Staff Accounting Bulletin 99,
Materiality
(“SAB 99”) and Staff
Accounting Bulletin 108,
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements
(“SAB 108”), the Company has determined that the impact of adjustments relating to the corrections
of this accounting error are not material to previously issued annual audited and unaudited consolidated financial statements.
Accordingly, these changes are disclosed herein and will be disclosed prospectively.
As a
result of the aforementioned correction of accounting errors, the relevant annual financial statements have been restated as follows:
Effects
on financials for the Year Ended March 31, 2015
|
|
As of March 31, 2015
|
|
|
|
As Previously
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
Condensed Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
$
|
52,762,573
|
|
|
$
|
(35,000,000
|
)
1
|
|
$
|
17,762,573
|
|
Convertible preferred shares
|
|
|
—
|
|
|
|
35,000,000
|
1
|
|
|
35,000,000
|
|
Additional paid-in capital
|
|
|
161,0221,568
|
|
|
|
(54,095,240
|
)
1
|
|
|
106,926,328
|
|
Accumulated Deficit
|
|
|
(196,076,975
|
)
|
|
|
54,095,240
|
1
|
|
|
(141,981,735
|
)
|
|
|
Year Ended March 31, 2015
|
|
|
|
As Previously
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
Condensed Consolidated Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Fair Value of derivative Liabilities
|
|
$
|
44,049,943
|
|
|
$
|
(23,709,070
|
)
1
|
|
$
|
20,340,874
|
|
Net Income (Loss)
2
|
|
|
28,929,674
|
|
|
|
(23,709,070
|
)
1
|
|
|
5,220,604
|
|
Change in carrying value of convertible preferred mezzanine equity
|
|
|
—
|
|
|
|
23,709,070
|
1
|
|
|
23,707,070
|
|
Net Income (Loss) attributable to common shareholders
2
|
|
|
28,929,674
|
|
|
|
—
|
|
|
|
28,929,674
|
|
Net Income (Loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.05
|
|
|
|
—
|
|
|
$
|
0.05
|
|
Diluted
|
|
$
|
(0.02
|
)
|
|
|
—
|
|
|
$
|
(0.02
|
)
|
|
|
Year Ended March 31, 2015
|
|
|
|
As Previously
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
Condensed Consolidated Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
2
|
|
$
|
28,929,674
|
|
|
$
|
(23,709,070
|
)1
|
|
$
|
5,220,604
|
|
Change in Fair Value of derivative Liabilities
|
|
|
(44,049,943
|
)
|
|
|
23,709,070
|
1
|
|
|
(20,340,874
|
)
|
Net cash used in operating activities
|
|
|
(15,103,233
|
)
|
|
|
—
|
|
|
|
(15,103,233
|
)
|
Change in maximum redemption value of convertible preferred mezzanine equity (non-cash financing transaction)
|
|
|
—
|
|
|
|
23,709,070
|
1
|
|
|
23,709,070
|
|
Effects
on financials for the year ended March 31, 2014
|
|
As of March 31, 2014
|
|
|
|
As Previously
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
Condensed Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities-Preferred Shares
|
|
$
|
60,981,570
|
|
|
$
|
(60,981,570
|
)
1
|
|
$
|
—
|
|
Convertible Preferred Shares
|
|
|
—
|
|
|
|
60,981,570
|
1
|
|
|
60,981,570
|
|
Additional paid-in capital
|
|
|
143,555,091
|
|
|
|
(77,804,310
|
)
1
|
|
|
65,750,781
|
|
Accumulated Deficit
|
|
|
(255,006,646
|
)
|
|
|
77,804,310
|
1
|
|
|
177,202,336
|
|
|
|
Year Ended March 31, 2014
|
|
|
|
As Previously
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
Condensed Consolidated Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivatives
|
|
$
|
(90,704,173
|
)
|
|
$
|
55,314,374
|
1
|
|
$
|
(35,389,799
|
)
|
Net Income (Loss)
2
|
|
|
(96,575,271
|
)
|
|
|
55,314,374
|
1
|
|
|
(41,260,897
|
)
|
Change in maximum redemption value of convertible preferred mezzanine equity
|
|
|
—
|
|
|
|
(55,314,374
|
)
1
|
|
|
(55,314,374
|
)
|
Net Income (Loss) attributable to common shareholders
2
|
|
|
(96,575,271
|
)
|
|
|
—
|
|
|
|
(96,575,271
|
)
|
Net Income (Loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.21
|
)
|
|
|
—
|
|
|
$
|
(0.21
|
)
|
Diluted
|
|
$
|
(0.21
|
)
|
|
|
—
|
|
|
$
|
(0.21
|
)
|
|
|
Year Ended March 31, 2014
|
|
|
|
As Previously
Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
Condensed Consolidated Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
2
|
|
$
|
(96,575,271
|
)
|
|
$
|
55,314,374
|
1
|
|
$
|
(41,260,897
|
)
|
Change in Fair Value of derivative Liabilities
|
|
|
90,704,173
|
|
|
|
(55,314,374
|
)
1
|
|
|
35,389,799
|
|
Net cash used in operating activities
|
|
|
(4,216,875
|
)
|
|
|
—
|
|
|
|
(4,216,875
|
)
|
Change in maximum redemption value of convertible preferred mezzanine equity (non-cash financing transaction)
|
|
|
—
|
|
|
|
(55,314,374
|
)
1
|
|
|
(55,314,374
|
)
|
|
1
|
Adjustments
relate solely to correction of errors in accounting for convertible preferred shares.
|
|
|
|
|
2
|
For annual periods
prior to the fiscal year ended March 31, 2016, as previously reported Net Income (Loss) and Net Income (Loss) Attributable
to Common Shareholders, were the same and, accordingly, both amounts were reported on a single line item identified as Net
Income (Loss) Attributable to Common Shareholders
|
FASB
ASC 280-10-50, “Disclosure about Segments of an Enterprise and Related Information” requires use of the “management
approach” model for segment reporting. The management approach is based on the way a company’s management organizes
segments within the company for making operating decisions and assessing performance. Reportable segments are based on products
and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
The
Company disaggregates its product revenues into the type of marketing authorization relating to each product, specifically the
following two reportable segments:
|
1.
|
ANDA’s
for generic products; or
|
|
2.
|
NDA’s
for branded products.
|
The
following represents selected information for the Company’s reportable segments for the fiscal years ended March 31, 2016,
2015 and 2014:
|
|
Years Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenues from External Customers
|
|
|
|
|
|
|
|
|
|
|
|
|
ANDA
|
|
$
|
9,164,999
|
|
|
$
|
5,015,246
|
|
|
$
|
4,601,376
|
|
NDA
|
|
|
3,333,333
|
|
|
|
—
|
|
|
|
—
|
|
Total revenues from external customers
|
|
$
|
12,498,332
|
|
|
$
|
5,015,246
|
|
|
$
|
4,601,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted income from continuing operations before income tax
|
ANDA
|
|
|
4,940,515
|
|
|
|
1,650,128
|
|
|
|
1,272,172
|
|
NDA
|
|
|
(9,305,998
|
)
|
|
|
(14,939,115
|
)
|
|
|
(3,933,203
|
)
|
The table
below provides reconciliations of the Company’s segment adjusted income from continuing operations before income tax to
our consolidated (loss) income from continuing operations before income taxes, which is determined in accordance with U.S. GAAP,
for the fiscal years ended March 31, 2016, 2015 and 2014:
|
|
Years Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Total segment adjusted (loss) from continuing operations before income tax
|
|
$
|
(4,365,483
|
)
|
|
$
|
(13,288,987
|
)
|
|
$
|
(2,661,031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate unallocated costs
|
|
|
(1,772,241
|
)
|
|
|
(1,319,939
|
)
|
|
|
(1,351,921
|
)
|
Interest revenue
|
|
|
9,802
|
|
|
|
7
|
|
|
|
—
|
|
Interest expense
|
|
|
(290,468
|
)
|
|
|
(287,231
|
)
|
|
|
(859,328
|
)
|
Depreciation and amortization expense
|
|
|
(665,647
|
)
|
|
|
(616,994
|
)
|
|
|
(500,906
|
)
|
Significant noncash items other than depreciation and amortization expense
|
|
|
(1,513,433
|
)
|
|
|
(1,281,052
|
)
|
|
|
(749,935
|
)
|
Change in value of derivatives
|
|
|
7,394,006
|
|
|
|
20,340,874
|
|
|
|
(35,430,386
|
)
|
Gain on sale of investment
|
|
|
—
|
|
|
|
1,670,678
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) from continuing operations before income tax
|
|
$
|
(1,203,464
|
)
|
|
$
|
5,217,356
|
|
|
$
|
41,553,507
|
|
Asset
information is not reviewed or included within the Company’s internal management reporting. Accordingly, the Company has
not disclosed asset for each reportable segment.
Inventories
are recorded at the lower of cost or market on a first-in-first-out basis. Inventories at March 31, 2016 and 2015
consist of the following:
|
|
2016 (Audited)
|
|
|
2015
(Audited and
Restated)
|
|
Finished Goods
|
|
$
|
225,699
|
|
|
$
|
122,773
|
|
Work-in-Process
|
|
|
222,784
|
|
|
|
58,770
|
|
Raw Materials
|
|
|
2,845,246
|
|
|
|
2,850,459
|
|
|
|
$
|
3,293,729
|
|
|
$
|
3,032,002
|
|
NOTE
5
|
-
|
PROPERTY
AND EQUIPMENT
|
Property and equipment at March 31,
2016 and 2015 consists of the following:
|
|
2016
(Audited)
|
|
|
2015
(Audited and
Restated)
|
|
Laboratory, manufacturing, and warehouse equipment
|
|
$
|
8,255,286
|
|
|
$
|
7,593,017
|
|
Office equipment and Software
|
|
|
234,634
|
|
|
|
209,551
|
|
Furniture and fixtures
|
|
|
49,804
|
|
|
|
49,804
|
|
Transportation equipment
|
|
|
66,855
|
|
|
|
66,855
|
|
Land, building and improvements
|
|
|
6,230,543
|
|
|
|
4,556,692
|
|
|
|
|
14,837,122
|
|
|
|
12,475,919
|
|
Less: Accumulated depreciation
|
|
|
(6,726,401
|
)
|
|
|
(6,074,117
|
)
|
|
|
$
|
8,110,721
|
|
|
$
|
6,401,802
|
|
Depreciation expense
amounted to $652,284 and $566,028 for the years ended March 31, 2016 and 2015, respectively.
NOTE 6
|
-
|
INTANGIBLE ASSETS
|
Costs
to acquire intangible assets are capitalized and if such assets are determined to have a finite useful life, amortized to expense
using a straight line method over this finite useful life. Costs to acquire intangible assets that are determined to be indefinitely
lived, such as the costs to acquire Abbreviated New Drug Applications (“ANDA’s”), are capitalized, but not amortized
to expense.
Patent
application costs capitalized were incurred in relation to the Company’s abuse deterrent opioid technology. Amortization
of such patent costs will begin upon the issuance of marketing authorization by the FDA of a product incorporating such patented
technology and be calculated on a straight line basis through the expiry of the related patent(s).
All
intangible assets are tested for impairment on at least an annual basis, as close to year end as practical, or sooner, should
events or changes in circumstances occur that may indicate a potential impairment of a listed intangible asset.
As of
March 31, 2016 and 2015, the following costs were recorded as intangible assets on the Company’s balance sheet:
|
|
2016
(Audited)
|
|
|
2015
(Audited
and
Restated)
|
|
Intangible assets at beginning of fiscal year
|
|
|
|
|
|
|
|
|
Patent application costs
|
|
$
|
334,457
|
|
|
$
|
302,602
|
|
ANDA acquisitions
|
|
|
6,047,317
|
|
|
|
6,047,317
|
|
Less: Accumulated Amortization
|
|
|
—
|
|
|
|
—
|
|
Net Intangible Assets at beginning of fiscal year
|
|
$
|
6,381,774
|
|
|
$
|
6,349,919
|
|
|
|
|
|
|
|
|
|
|
Intangible asset costs capitalized during the fiscal year
|
|
|
|
|
|
|
|
|
Patent application costs
|
|
$
|
30,025
|
|
|
$
|
31,855
|
|
ANDA acquisition costs
|
|
|
—
|
|
|
|
—
|
|
Total cost of intangible assets capitalized
|
|
$
|
30,025
|
|
|
$
|
31,855
|
|
|
|
|
|
|
|
|
|
|
Intangible assets at end of fiscal year
|
|
|
|
|
|
|
|
|
Patent application costs
|
|
$
|
364,482
|
|
|
$
|
334,457
|
|
ANDA acquisition costs
|
|
|
6,047,317
|
|
|
|
6,047,317
|
|
Less: Accumulated Amortization
|
|
|
—
|
|
|
|
—
|
|
Net Intangible Assets
|
|
$
|
6,411,799
|
|
|
$
|
6,381,774
|
|
The
costs incurred in patent applications totaling $30,025 and $31,855 for Fiscal 2016 and Fiscal 2015, respectively, were all related
to our abuse resistant and extended release opioid product lines. The Company is continuing its efforts to achieve approval of
such patents. Additional costs incurred in relation to such patent applications will be capitalized as intangible assets, with
amortization of such costs to commence upon approval of the patents and commercialization of products utilizing the patented technologies.
The
ANDA acquisition costs of $450,000 recorded as of the beginning of Fiscal 2015 and included as a part of intangible assets as
of March 31, 2015 and March 31, 2014, are related to our acquisition of the ANDA for Phentermine 37.5mg tablets.
The
ANDA acquisition costs incurred during Fiscal 2014, totaling approximately $5.6 million consist of 12 approved ANDA’s (the
“Mikah Approved ANDAs”) and one ANDA that is under active review with the FDA (the “Mikah ANDA Application Product”)
which were acquired from Mikah Pharma LLC (“Mikah”) pursuant an asset purchase agreement between the Company and Mikah
dated August 1, 2013 (the “Mikah Asset Purchase Agreement”). A Current Report on Form 8-K was filed with the SEC on
August 5, 2013 in relation to the Mikah Asset Purchase Agreement, with such filing being herein incorporated by reference.
NOTE 7
|
-
|
INVESTMENT IN NOVEL
LABORATORIES INC.
|
At the
end of 2006, Elite entered into a joint venture with VGS Pharma, LLC (“
VGS
”) and created Novel Laboratories,
Inc. (“
Novel
”), a privately-held company specializing in pharmaceutical research, development, manufacturing,
licensing, acquisition and marketing of specialty generic pharmaceuticals. Novel's business strategy is to focus on its core strength
in identifying and timely executing niche business opportunities in the generic pharmaceutical area. Elite’s ownership interest
in Novel consisted of 9,800 shares of Novel’s Class A Voting Common Stock. As of October 1, 2007, Elite deconsolidated its
financial statements from Novel and the investment in Novel was accounted for under the cost method of accounting.
On June
10, 2014, the Company received $5 million in exchange for the 9,800 shares of Novel’s Class A Voting Common Stock owned
by the Company. At the time of this transaction, the investment had a book value of $3,329,322, with a gain on sale of investment
of $1,670,685 being realized and recorded as an other income item.
Summary
Description and History of NJEDA Bonds
On August
31, 2005, the Company successfully completed a refinancing of a prior 1999 bond issue through the issuance of new tax-exempt bonds
(the “Bonds”) via the issuance of the following:
Description
|
|
Principal
Amount
On
Issue Date
|
|
|
Interest
Rate
|
|
|
Maturity
|
Series A Note
|
|
$
|
3,660,000
|
|
|
|
6.50
|
%
|
|
September 1, 2030
|
Series B Note
|
|
|
495,000
|
|
|
|
9.0
|
%
|
|
September 1, 2012
|
The net
proceeds, after payment of issuance costs, were used (i) to redeem the outstanding tax-exempt Bonds originally issued by the Authority
on September 2, 1999, (ii) refinance other equipment financing and (iii) for the purchase of certain equipment to be used in the
manufacture of pharmaceutical products. As of March 31, 2016, all of the proceeds were utilized by the Company for such stated
purposes.
On July
23, 2014, the Company retired all outstanding Series B notes, at par, along with all accrued interest due and owing as of such
date. As of March 31, 2016, there are no amounts due and owing in relation the Series B notes.
Interest
is payable semiannually on March 1 and September 1 of each year. The Bonds are collateralized by a first lien on the Company’s
facility and equipment acquired with the proceeds of the original and refinanced Bonds. The related Indenture requires the maintenance
of a Debt Service Reserve Fund of $366,000 in relation to the Series A Notes.
The Debt
Service Reserve is maintained in restricted cash accounts that are classified in Other Assets.
Bond issue
costs were paid from the bond proceeds and are being amortized over the life of the bonds. These costs and amortization activity
are summarized as follows:
Description
|
|
Balances
As of
March 31, 2015
|
|
|
Amortization
Expense
Current YTD
|
|
|
Balances
As of
March 31, 2016
|
|
Bond Issue Costs
|
|
$
|
354,453
|
|
|
|
|
|
|
$
|
354,453
|
|
Accumulated Amortization
|
|
|
(135,874
|
)
|
|
|
(14,178
|
)
|
|
|
(150,052
|
)
|
Unamortized Balance
|
|
$
|
218,579
|
|
|
|
|
|
|
$
|
204,401
|
|
The NJEDA
Bonds require the Company to make an annual principal payment on September 1
st
of varying amounts as specified in the
loan documents and semi-annual interest payments on March 1
st
and September 1
st
, equal to interest due on
the outstanding principal at the applicable rate for the semi-annual period just ended.
Balance
Sheet Classification of Bond Liability
Bond
principal amounts scheduled to mature within 12 months of the balance sheet date were recorded as current liabilities as of such
date. Bond principal amounts scheduled to mature on dates later than 12 months from the balance sheet date were recorded as non-current
liabilities as of such date.
Bond
financing consisting of the following, as of March 31,
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Refinanced NJEDA Bonds
|
|
$
|
2,065,000
|
|
|
$
|
2,275,000
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
(220,000
|
)
|
|
|
(210,000
|
)
|
|
|
|
|
|
|
|
|
|
Long term portion, net of current maturities
|
|
$
|
1,845,000
|
|
|
$
|
2,065,000
|
|
Maturities of Bonds for the next five
years are as follows:
YEAR ENDING MARCH 31,
|
|
AMOUNT
|
|
2017
|
|
$
|
220,000
|
|
2018
|
|
|
85,000
|
|
2019
|
|
|
90,000
|
|
2020
|
|
|
95,000
|
|
2021
|
|
|
105,000
|
|
Thereafter
|
|
|
1,470,000
|
|
|
|
$
|
2,065,000
|
|
NOTE 9
|
-
|
LOANS
PAYABLE AND LONG TERM DEBT
|
Loans
Payable
During
the ordinary course of business, the Company has secured loans to support the collateralized financing of fixed asset acquisition,
or the renewal of insurance policies. The Company has secured such loans with initial principal amounts totaling $442,399 and
$909,477 during Fiscal 2016 and Fiscal 2015, respectively. Payment terms of these loans range from 9 months to 60 months at annual
interest rates that range from 6.8% to 12.2%.
Principal
amounts scheduled for payment within 12 months of the balance sheet date are classified as current liabilities on the balance
sheet.
Principal
amounts scheduled for payment on dates later than 12 months after the balance sheet date are classified as non-current liabilities
on the balance sheet.
Loans
payable and long term debt consisted of the following:
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
|
|
Current
|
|
|
Long-
Term
|
|
|
Current
|
|
|
Long-
Term
|
|
Equipment and Insurance financing loans payable
|
|
$
|
342,945
|
|
|
$
|
520,827
|
|
|
$
|
265,165
|
|
|
$
|
560,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Rent-135 Ludlow Ave Lease (see note 9)
|
|
|
|
|
|
|
19,528
|
|
|
|
|
|
|
|
42,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease termination costs – 135 Ludlow Ave lease (see note 9)
|
|
|
—
|
|
|
|
27,896
|
|
|
|
—
|
|
|
|
26,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
342,945
|
|
|
$
|
568,251
|
|
|
$
|
265,165
|
|
|
$
|
629,137
|
|
Loan principal payments for the next
five years are as follows:
YEAR ENDING MARCH 31,
|
|
AMOUNT
|
|
2017
|
|
$
|
342,945
|
|
2018
|
|
|
199,164
|
|
2019
|
|
|
174,229
|
|
2020
|
|
|
129,476
|
|
2021
|
|
|
17,958
|
|
Thereafter
|
|
|
—
|
|
|
|
$
|
863,772
|
|
NOTE 10
|
-
|
RELATED
PARTY LINES OF CREDIT AND NOTES PAYABLE
|
Hakim
$1,000,000 Bridge Revolving Credit Line
On October
15, 2013 (the “Hakim Credit Line Effective Date”), we entered into a bridge loan agreement (the “Hakim Loan
Agreement”) with Mr. Nasrat Hakim, our President and CEO. Under the terms of the Hakim Loan Agreement, we have the right,
in our sole discretion, to a line of credit (“Hakim Credit Line”) in the maximum principal amount of up to $1,000,000
at any one time. Mr. Hakim provided the Credit Line for the purpose of supporting the acceleration of our product development
activities. The outstanding amount will be evidenced by a promissory note which shall mature on March 31, 2016, as amended., at
which time the entire unpaid principal balance plus accrued interest thereon shall be due and payable in full. We may prepay any
amounts owed without penalty. Any such prepayments shall first be attributable to interest due and owing and then to principal.
Interest only shall be payable quarterly on January 1, April 1, July 1 and October 1 of each year. Prior to maturity or the occurrence
of an Event of Default as defined in the Hakim Loan Agreement, we may borrow, repay, and reborrow under the Hakim Credit Line
through maturity. Amounts borrowed under the Hakim Credit Line will bear interest at the rate of ten percent (10%) per annum.
As of
March 31, 2016, the principal balance owed under the Hakim Credit Line was $718,309, with an additional $70,784 in accrued interest
being also owed, in accordance with the terms and conditions of the Hakim Credit Line. This principal balance was paid in full
on May 23, 2016. Accrued interest consisting of $70,784 due and owing on March 31, 2016, plus $9,134 in interest due and owing
in principal balances outstanding during the period April 1, 2016 through May 23, 2016 was paid on May 24, 2016. Accordingly,
as of May 24, 2016, there are no amounts due and owing under the Hakim Loan Agreement and the Hakim Loan Agreement is expired.
As of
March 31, 2015, the principal balance owed under the Hakim Credit Line was $583,071, with an additional $18,105 in accrued interest
being also owed, in accordance with the terms and conditions of the Hakim Credit Line.
As of March 31, 2014, the principal
balance owed under the Hakim Credit Line was $528,750, with an additional $9,810 in accrued interest being also owed, in accordance
with the terms and conditions of the Hakim Credit Line.
Total interest expense accrued pursuant to the Hakim Credit Line was $52,678, $63,947 and $16,674 for
Fiscal 2016, Fiscal 2015 and Fiscal 2014, respectively. An additional $9,134 in interest was accrued during the period April 1,
2016 through May 23, 2016, with all principal and interest amounts owed being paid in full on May 24, 2016.
Please
note that this transaction is not to be considered as an arms-length transaction.
Convertible
Note Payable to Mikah Pharma LLC
On August
1, 2013, Elite Laboratories Inc. (“Elite Labs”), a wholly owned subsidiary of the Company, executed an asset purchase
agreement (the “Mikah Purchase Agreement”) with Mikah Pharma LLC (“Mikah”), an entity that is wholly owned
by Mr. Nasrat Hakim, who, in conjunction with this transaction, was appointed as Elite’s CEO, President and a Director on
August 2, 2012, and acquired from Mikah a total of 13 Abbreviated New Drug Applications (“ANDAs”) consisting of 12
ANDAs approved by the FDA and one ANDA under active review with the FDA, and all amendments thereto (the “Acquisition”)
for aggregate consideration of $10,000,000, inclusive of imputed interest payable pursuant to a non-interest bearing, secured
convertible note due in August 2016 (the “Mikah Note”). The Mikah Note was amended on February 7, 2014 to make it
convertible into shares of the Company’s Series I Convertible Preferred Stock.
The Mikah
Note, as amended, was interest free and due and payable on the third anniversary of its issuance. Subject to certain limitations,
the principal amount of the Mikah Note was convertible at the option of Mikah into shares of Common Stock at a rate of $0.07 (approximately
14,286 shares per $1,000 in principal amount), the closing market price of the Company’s Common Stock on the date that the
asset purchase agreement and Note were executed and/or into shares of the Company’s Series I Convertible Preferred Stock
at the rate of 1 share of Series I Preferred Stock for each $100,000 of principal owed on the Mikah Note. The conversion rate
was adjustable for customary corporate actions such as stock splits and, subject to certain exclusions, includes weighted average
anti-dilution for common stock transactions at prices below the then applicable conversion rate. Pursuant to a security agreement
(the “Security Agreement”), repayment of the Mikah Note was secured by the ANDAs acquired in the Acquisition.
On February
7, 2014, Mikah converted the principal amount of $10,000,000, representing the entire principal balance due under the Mikah Note,
into 100 shares of the Company’s Series I Preferred Stock, with the Mikah Note being retired.
Please
note that this transaction is not to be considered as an arms-length transaction.
NOTE 11
|
-
|
LEASES
OF RENTAL PROPERTIES
|
The following
leases for rental properties were operative during the year ended March 31, 2016:
|
|
135 Ludlow Ave
(see notes 10 and 11)
|
|
Effective Date
|
|
|
July 1, 2010
(3)
|
|
|
|
|
|
|
Termination Date
|
|
|
December 31, 2016
|
|
|
|
|
|
|
Lease term
|
|
|
6 years with 2 tenant renewal options for 5 years each
|
|
|
|
|
|
|
Rent expense for the 2016 Fiscal Year
|
|
|
$ 180,854
|
|
Rent expense for the 2015 Fiscal Year
|
|
|
$ 153,430
|
|
|
|
|
|
|
Minimum 5 Year Lease Payments
(1)
|
|
|
|
|
Fiscal year ended March 31, 2017
(2)
|
|
|
155,169
|
|
Fiscal year ended March 31, 2018
(2)
|
|
|
—
|
|
Fiscal year ended March 31, 2019
(2)
|
|
|
—
|
|
Fiscal year ended March 31, 2020
(2)
|
|
|
—
|
|
Fiscal year ended March 31, 2021
(2)
|
|
|
—
|
|
|
|
|
$ 155,169
|
|
|
(1)
|
Minimum
lease payments are exclusive of additional expenses related to certain expenses incurred
in the operation and maintenance of the premises, including, without limitation, real
estate taxes and common area charges which may be due under the terms and conditions
of the lease.
|
|
(2)
|
Minimum
lease payments calculated for the initial term of the lease only, with such initial term
expiring on December 31, 2016.
|
|
(3)
|
Inclusive
of a modification of lease agreement dated July 29, 2014
|
Rent expense related to the operating
lease at 135 Ludlow was recorded using the straight line method and summarized as follows:
Summary of Rent
Expense – 135 Ludlow Avenue
|
|
Fiscal Year
Ended
March 31, 2016
|
|
|
Fiscal Year
Ended
March 31, 2015
|
|
Rent Expense
|
|
$
|
180,854
|
|
|
$
|
153,430
|
|
|
|
|
|
|
|
|
|
|
Actual lease payments
|
|
|
203,850
|
|
|
|
114,321
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in deferred rent liability
|
|
|
(22,996
|
)
|
|
|
39,109
|
|
|
|
|
|
|
|
|
|
|
Adjustments to deferred rent liability
|
|
|
—
|
|
|
|
(15,409
|
)
|
|
|
|
|
|
|
|
|
|
Balance of deferred rent liability
|
|
|
19,528
|
|
|
|
42,524
|
|
NOTE 12
|
-
|
LEASE
OF 135 LUDLOW AVENUE
|
The Company
entered into a lease for a portion of a one-story warehouse, located at 135 Ludlow Avenue, Northvale, New Jersey, consisting of
approximately 15,000 square feet of floor space. The lease term began on July 1, 2010 and is classified as an operating lease.
On July
29, 2014, the Company modified this operating lease, with the material terms of the modification including the Company being permitted
to occupy the entire 35,000 square feet in the building, with this expansion being necessary to support the Company’s growing
and projected commercial operations.
The lease,
as modified, includes an initial term which expires on December 31, 2016 and two tenant renewal options of five years each, with
such options being at the sole discretion of the Company. The property related to this lease will be used for the storage of pharmaceutical
finished goods, raw materials, equipment and documents as well as pharmaceutical manufacturing, packaging, distribution activities
and related regulatory activities.
The additional
20,000 square feet for which the Company secured occupancy rights pursuant to the July 2014 modification agreement requires significant
leasehold improvements and qualification as a prerequisite for its intended future use. These improvements are currently in progress.
Please
refer to Note 9 of these financial statements for details on minimum lease payments, rent expense and deferred rent liabilities.
NOTE 13
|
-
|
LEASE
TERMINATION COSTS - 135 LUDLOW AVENUE
|
The lease
for the property located at 135 Ludlow Avenue, Northvale NJ, includes a requirement that, at termination, the Company return the
property to its condition at the inception of the lease, with normal wear and tear excepted. Such requirement accordingly represents
an unconditional obligation associated with the retirement of a long-lived asset and subject to ASC 410 of the Codification. The
Company estimates such costs would amount to $50,000, at lease termination, and pursuant to ASC 410 has recorded a liability and
offsetting asset equal to the present value, at lease inception, of such obligation. This liability is accreted over the term
of the lease (including extensions), using the interest method and principally included within interest expense.
NOTE 14
|
-
|
DEFERRED
REVENUES
|
Deferred revenues in the aggregate amount of $4,292,220, consisting of a current component of $1,013,333
and a long term component of $3,278,887. 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. The advance payment
was recorded as deferred revenue when received and is earned, on a straight line basis over the life of the license. 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 15
|
-
|
MEZZANINE
EQUITY – CONVERTIBLE PREFERRED SHARES
|
On February
6, 2014, the Company created the Series I Convertible Preferred Stock (“Series I Preferred”). A total of 500 shares
of Series I Preferred are authorized and as of the current Balance Sheet Date, 100 shares are issued and outstanding, with a stated
value of $100,000 and a par value of $0.01. The Certificate of Designations (“COD”) for the Series I Preferred contain
the following features:
|
·
|
Conversion
feature - the Series I Preferred Shares may be converted, at the option of the Holder,
into the Company’s Common Stock at a stated conversion price of $0.07.
|
|
·
|
Subsequent
dilutive issuances - if the Company issues options at a price below the Conversion Price,
then the Conversion Price will be reduced.
|
|
·
|
Subsequent
dividend issuances - if the Company issues Common Stock in lieu of cash in satisfaction
of its dividend obligation on its Series C Certificate, the applicable Conversion Price
of the Series I Preferred is adjusted.
|
Management
has determined that the Series I Preferred host instrument is more akin to equity than debt and also that the above financial
instruments are clearly and closely related to the host instrument, with bifurcation and classification as a derivative liability
being not required.
Based
on Management’s review of the COD, the host instrument, the Series I Preferred Shares, will be classified as mezzanine equity.
The above identified embedded financial instruments: Conversion Feature, Subsequent Dilutive Issuances and Subsequent Dividend
Issuances will not be bifurcated from the host and are therefore classified as mezzanine equity with the Series I Preferred. The
Series I Preferred will be carried at the maximum redemption value, with changes in this value charged to retained earnings or
to additional paid-in capital in the absence of retained earnings.
Changes
in carrying value are also subtracted from net income (loss), (in a manner similar to the treatment of dividends paid on preferred
stock), in arriving at net income (loss) available to common stockholders used in the calculation of earnings per share.
CONVERTIBLE PREFERRED
MEZZANINE EQUITY
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
Shares authorized
|
|
|
500
|
|
|
|
500
|
|
Shares outstanding
|
|
|
100
|
|
|
|
100
|
|
Par value
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
Stated value
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
Conversion Price
|
|
$
|
0.07
|
|
|
$
|
0.07
|
|
Common shares to be issued upon redemption
|
|
|
142,857,143
|
|
|
|
142,857,143
|
|
Closing price on valuation date
|
|
$
|
0.31
|
|
|
$
|
0.2450
|
|
|
|
|
|
|
|
|
|
|
Carrying value of convertible preferred mezzanine equity
|
|
$
|
44,285,714
|
|
|
$
|
35,000,000
|
|
INCREASE / (DECREASE)
IN VALUE OF CONVERTIBLE PREFERRED MEZZANINE EQUITY
|
|
FISCAL YEAR ENDED
|
|
|
|
March 31,
2016
|
|
|
March 31,
2015
|
|
Series I Preferred
|
|
|
9,285,715
|
|
|
|
(23,709,069
|
)
|
NOTE 16
|
-
|
DERIVATIVE
LIABILITIES - WARRANTS
|
To date,
the Company has authorized the issuance of Common Stock Purchase Warrants, with terms of five to seven years, to various corporations
and individuals, in connection with the sale of securities, loan agreements and consulting agreements. Exercise prices on those
warrants outstanding during Fiscal 2016 and Fiscal 2015 range from $0.0625 to $0.25 per warrant. The warrants expire at various
times through April 25, 2018.
A
summary of warrant activity for the fiscal years indicated below is as follows:
|
|
Fiscal Year 2016
|
|
|
Fiscal Year 2015
|
|
|
|
Warrant
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Warrant
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Balance at beginning of year
|
|
|
89,870,034
|
|
|
$
|
0.06
|
|
|
|
102,143,091
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant exercises, forfeited or expired
|
|
|
48,283,968
|
|
|
$
|
0.06
|
|
|
|
12,273,057
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
|
41,586,066
|
|
|
$
|
0.06
|
|
|
|
89,870,034
|
|
|
$
|
0.06
|
|
Accounting
Standard Codification “ASC” 815 –
Derivatives and Hedging
, which provides guidance on determining what
types of instruments or embedded features in an instrument issued by a reporting entity can be considered indexed to its own stock
for the purpose of evaluating the first criteria of the scope exception in the pronouncement on accounting for derivatives. These
requirements can affect the accounting for warrants and convertible preferred instruments issued by the Company. As the conversion
features within, and the detachable warrants, if any, issued with the Company’s Series E and Series I Preferred Stock, do
not have fixed settlement provisions because their conversion and exercise prices may be lowered if the Company issues securities
at lower prices in the future, we have concluded that the instruments are not indexed to the Company’s stock and are to
be treated as derivative liabilities.
The
Warrant Derivative Liabilities are measured at fair market value, using the market approach and a level 3 fair value hierarchy,
on a recurring basis as of March 31, 2016 and March 31, 2015, in accordance with the valuation techniques discussed in ASC 820.
The portion
of derivative liabilities related to outstanding warrants was valued using the Black-Scholes option valuation model, a level 3
fair value hierarchy using the following assumptions:
|
|
March 31
2016
|
|
March 31
2015
|
|
March 31
2014
|
Risk-Free interest rate
|
|
0.18% - 0.73%
|
|
0.05% - 0.89%
|
|
0.05% - 1.32%
|
Expected volatility
|
|
52% - 81%
|
|
93% - 113%
|
|
111% - 207%
|
Expected life (in years)
|
|
0.2 – 2.1
|
|
1.2 – 3.1
|
|
0.3 - 4.1
|
Expected dividend yield
|
|
0%
|
|
0%
|
|
0%
|
Number of warrants
|
|
41,586,066
|
|
89,870,034
|
|
102,143,093
|
|
|
|
|
|
|
|
Fair value – Warrant Derivative Liability
|
|
$10,368,567
|
|
$17,762,573
|
|
$38,103,446
|
|
|
|
|
|
|
|
Change in warrant derivative liability for the twelve months ended
|
|
$7,394,006
|
|
$(18,447,573)
|
|
$32,997,869
|
The risk
free interest rate was based on rates established by the US Treasury Department. The expected volatility was based on the historical
volatility of the Company’s share price for periods equal to the expected life of the outstanding warrants at each valuation
date. The expected dividend rate was based on the fact that the Company has not historically paid dividends on common stock and
does not expect to pay dividends on common stock in the future.
The changes of $7,394,006, $(18,447,573) and $32,997,869 in value of the warrant derivative liability occurring during the
years ended March 31, 2016, 2015 and 2014, respectively, are included in the amounts reported in the “Other Income/(Expense)”
section of the statement of operations. Increases in value are reported as other expenses and decreases in value are reported
as other income.
The following table summarizes, as of March 31, 2016, 2015 and 2014, the warrant activity subject to Level
3 inputs which are measured on a recurring basis:
Fair value measurements of warrants using significant unobservable inputs (Level 3)
|
|
March 31
|
|
|
March 31
|
|
|
March 31
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance at Beginning of Fiscal Year
|
|
$
|
17,762,573
|
|
|
$
|
38,103,446
|
|
|
$
|
7,862,848
|
|
Warrants Exercised
|
|
|
(14,788,012
|
)
|
|
|
(2,578,300
|
)
|
|
|
(2,757,271
|
)
|
Change in fair value of warrant liability
|
|
|
7,394,006
|
|
|
|
(18,447,573
|
)
|
|
|
32,997,869
|
|
Balance at End of Fiscal Year
|
|
$
|
10,368,567
|
|
|
$
|
17,762,573
|
|
|
$
|
38,103,446
|
|
Lincoln
Park Capital
Pursuant
to an April 19, 2013 purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”) we had the right to sell
to and Lincoln Park was obligated to purchase up to $10 million in shares of the Company’s Common Stock, subject to certain
limitations, from time to time, over the 36 month period commencing on May 9, 2013. We raised the entire $10 million from the
sale of shares to Lincoln Park pursuant to that agreement. That agreement terminated in March 2014 with the sale of all shares
covered by that agreement.
On
April 10, 2014, we entered into another Purchase Agreement and a Registration Rights Agreement with Lincoln Park. Pursuant to
the terms of the Purchase Agreement, Lincoln Park has agreed to purchase from us up to $40 million of our common stock (subject
to certain limitations) from time to time over a 36-month period. Pursuant to the terms of the Registration Rights Agreement,
we have filed with the SEC a registration statement to register for resale under the Securities Act the shares that have been
or may be issued to Lincoln Park under the Purchase Agreement. That registration statement was declared effective by the SEC on
May 1, 2014. A post-effective amendment to that Registration Statement was subsequently filed with the SEC and declared effective
on July 1, 2014.
Upon
execution of the Purchase Agreement, we have issued 1,928,641 shares of our common stock to Lincoln Park pursuant to the
Purchase Agreement as consideration for its commitment to purchase additional shares of our common stock under that agreement
and we are obligated to issue up to an additional 1,928,641 commitment shares to Lincoln Park pro rata as up to $40 million
of our common stock is purchased by Lincoln Park. Through June 7, 2016, we have sold to Lincoln Park an aggregate of 76.7
million shares under the Purchase Agreement for aggregate gross proceeds of approximately $21.2 million. In addition, we have
issued an additional 1.0 million Commitment Shares.
We
may, from time to time and at our sole discretion but no more frequently than every other business day, direct Lincoln Park to
purchase (a “Regular Purchase”) up to 500,000 shares of our common stock on any such business day, increasing up to
800,000 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 our 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 10 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.
In
addition to Regular Purchases, on any business day on which we have properly submitted a Regular Purchase notice and the closing
sale price is not below $0.15, we 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 our 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 our 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 we will control
the timing and amount of any sales of our common stock to Lincoln Park.
Our
sales of shares of Common Stock to Lincoln Park under the Lincoln Park 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
Lincoln Park Purchase Agreement and the Lincoln Park 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 Lincoln Park Purchase Agreement at any time, at no cost or penalty. Actual sales of shares of Common
Stock to Lincoln Park under the Lincoln Park 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 Lincoln Park 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 Lincoln Park 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 under the Purchase Agreement to the Company will depend on the frequency and prices at which the Company sells shares
of its stock to Lincoln Park. The Company expects that any proceeds received by the Company from such sales to Lincoln Park under
the Lincoln Park Purchase Agreement will be used for general corporate purposes and working capital requirements.
Summary
of Common Stock Activity
During
Fiscal Years 2016, 2015 and 2014 the Company issued a total of 80,386,651, 70,918,271 and 185,748,471 shares of Common
Stock, respectively, with such issuances of Common Stock being summarized as follows:
Description
|
|
Fiscal Year
2016
|
|
|
Fiscal Year
2015
|
|
|
Fiscal Year
2014
|
|
|
|
|
|
|
|
|
|
|
|
Common shares sold pursuant to the Lincoln Park Capital Purchase Agreements, with net proceeds of such shares totaling $6,199,643, $13,236,624 and $10,000,000 in Fiscal 2016, Fiscal 2015, and Fiscal 2014, respectively.
|
|
|
23,945,346
|
|
|
|
47,172,240
|
|
|
|
65,143,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued as commitment shares pursuant to the Lincoln Park Capital Purchase Agreements
|
|
|
298,923
|
|
|
|
2,566,861
|
|
|
|
5,858,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares issued in lieu of cash payment in payment of preferred share derivative interest expenses totaling zero, zero and $68,089 for Fiscal 2016, Fiscal 2015 and Fiscal 2014, respectively
|
|
|
---
|
|
|
|
---
|
|
|
|
878,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares issued pursuant to the conversion of Series B, Series C, Series E and Series I Convertible Preferred Share derivatives, with such derivative liabilities totaling zero, $2,272,500, and 9,825,066 for Fiscal 2016, Fiscal 2015 and Fiscal 2014, respectively, at the time of their conversion.
|
|
|
---
|
|
|
|
6,060,000
|
|
|
|
91,796,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares issued in payment of Director’s fees totaling $100,071, $110,000 and $110,000 for Fiscal 2016, Fiscal 2015 and Fiscal 2014, respectively
|
|
|
408,892
|
|
|
|
321,611
|
|
|
|
1,210,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued in payment of employee salaries totaling $1,039,000, $849,737 and $368,233 for Fiscal 2016, Fiscal 2015 and Fiscal 2014, respectively.
|
|
|
4,236,555
|
|
|
|
2,518,668
|
|
|
|
3,439,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued in payment of consulting expenses totaling $24,000, $23,999 and $18,836 for Fiscal 2016, Fiscal 2015 and Fiscal 2014, respectively
|
|
|
97,467
|
|
|
|
70,169
|
|
|
|
210,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued pursuant to warrants exercised
|
|
|
48,283,968
|
|
|
|
11,985,388
|
|
|
|
16,904,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued pursuant to options exercised
|
|
|
112,500
|
|
|
|
223,334
|
|
|
|
308,333
|
|
Milestone shares issued pursuant to EPIC Strategic Alliance Agreement totaling $840,000, zero and zero for Fiscal 2016, Fiscal 2015 and Fiscal 2014, respectively
|
|
|
3,000,000
|
|
|
|
---
|
|
|
|
---
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Common Shares issued during Fiscal 2016, Fiscal 2015 and Fiscal 2014
|
|
|
80,383,651
|
|
|
|
70,918,271
|
|
|
|
185,748,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares issued at March 31,
|
|
|
711,544,352
|
|
|
|
631,160,701
|
|
|
|
560,242,430
|
|
NOTE 18
|
-
|
PER
SHARE INFORMATION
|
Basic
earnings per share of common stock (“Basic EPS”) is computed by dividing the net income(loss) by the
weighted-average number of shares of common stock outstanding. Diluted earnings per share of common stock (“Diluted
EPS”) is computed by dividing the net income(loss) by the weighted-average number of shares of common stock and
dilutive common stock equivalents and convertible securities then outstanding. GAAP requires the presentation of both Basic
EPS and Diluted EPS, if such Diluted EPS is not anti-dilutive, on the face of the Company’s Consolidated Statements of
Operations. As the Company had a net loss for Fiscal Year 2016 and 2014, Diluted EPS is not presented as the effect of the
Company’s common stock equivalents and convertible securities is anti-dilutive.
Basic
EPS is calculated as follows:
|
|
Fiscal Year
2016
|
|
|
Fiscal Year
2015
|
|
|
Fiscal Year
2014
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) attributable to common shareholders
|
|
$
|
(9,968,727
|
)
|
|
$
|
28,929,674
|
|
|
$
|
(96,575,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
673,905,485
|
|
|
|
591,214,959
|
|
|
|
463,021,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings (Loss) per Share – Basic
|
|
$
|
(0.01
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive securities excluded from the
calculation of diluted loss per share for Fiscal 2016 and 2014
|
Stock Options
|
|
|
581,020
|
|
|
|
n/a
|
|
|
|
174,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Preferred Mezzanine Equity
|
|
|
142,857,143
|
|
|
|
n/a
|
|
|
|
148,917,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
22,926,029
|
|
|
|
n/a
|
|
|
|
15,782,718
|
|
Diluted
Earnings (Loss) per share (for Fiscal 2015) is calculated as follows:
|
|
Fiscal Year
2015
|
|
Net Income attributable to common shareholders
|
|
$
|
28,929,674
|
|
Adjustments to Net Income
|
|
|
|
|
Reversal of Change in Value of Warrant Derivatives
|
|
|
(18,447,573
|
)
|
Reversal of Change in Value of Convertible Preferred Share Mezzanine Equity
|
|
|
(25,602,370
|
)
|
|
|
|
|
|
Net loss attributable to common shareholders on a diluted basis
|
|
$
|
(15,120,269
|
)
|
|
|
|
|
|
Denominator
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
591,214,959
|
|
|
|
|
|
|
Dilutive effects of convertible preferred mezzanine equity and warrants
|
|
|
|
|
Convertible preferred mezzanine equity
|
|
|
142,857,143
|
|
Warrants
|
|
|
22,926,029
|
|
Stock Options
|
|
|
581,020
|
|
Weighted average shares outstanding - diluted
|
|
|
757,579,152
|
|
|
|
|
|
|
Fully Diluted Earnings (Loss) per Share
|
|
$
|
(0.02
|
)
|
NOTE 19
|
-
|
STOCK-BASED
COMPENSATION
|
Part
or all of the compensation paid by the Company to its Directors and employees consists of the issuance of Common Stock or via
the granting of options to purchase Common Stock
Stock-based
Director Compensation
The
Company’s Director compensation policy instituted in October 2009 includes provisions that Director’s fees are to
be paid via the issuance of shares of the Company’s Common Stock, in lieu of cash, with the valuation of such shares being
calculated on a quarterly basis and equal to the average closing price of the Company’s common stock for the quarter just
ended.
During
Fiscal 2016, the Company issued 408,892 shares of Common Stock to its Directors in payment of Director’s fees in the aggregate
amount of $100,071 and related to the calendar year ending on December 31, 2015. Please note that the shares issued during Fiscal
2016, include those shares owed and not yet issued at the end of Fiscal Year 2015.
During
Fiscal 2015, the Company issued 321,611 shares of Common Stock to its Directors in payment of Director’s fees in the aggregate
amount of $110,000 and related to the calendar year ending on December 31, 2014. Please note that the shares issued during Fiscal
2015, include those shares owed and not yet issued at the end of Fiscal Year 2014.
During
Fiscal 2014, the Company issued 1,210,583 shares of Common Stock to its Directors in payment of Director’s fees in the aggregate
amount of $110,000 and related to the calendar year ending on December 31, 2013. Please note that the shares issued during Fiscal
2014, include those shares owed and not yet issued at the end of Fiscal Year 2013.
As of
March 31, 2016, the Company owes its Directors a total of 46,125 shares of Common Stock in payment of Directors Fees totaling $15,000 for
the three months ended March 31, 2016. The Company anticipates that these shares of Common Stock will be issued during the fiscal
year ended March 31, 2017.
Stock-based
Employee Compensation
Employment
contracts with the Company’s President and Chief Executive Officer, Chief Financial Officer and certain other employees
includes provisions for a portion of each employee’s salaries to be paid via the issuance of shares of the Company’s
Common, 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 for the quarter just ended.
During
Fiscal Year 2016, the Company issued a total of 4,236,555 shares of Common Stock to its President and Chief Executive Officer,
Chief Financial Officer and certain other employees in payment of salaries in the aggregate amount of $1,039,000 and related to
the calendar year ended December 31, 2015. Please note that the shares issued during Fiscal 2016, include those shares owed and
not yet issued at the end of Fiscal 2015.
During
Fiscal Year 2015, the Company issued a total of 2,518,668 shares of Common Stock to its President and Chief Executive Officer,
Chief Financial Officer and certain other employees in payment of salaries in the aggregate amount of $849,737 and related to
the calendar year ended December 31, 2014. Please note that the shares issued during Fiscal 2015, include those shares owed and
not yet issued at the end of Fiscal 2014.
During
Fiscal Year 2014, the Company issued a total of 3,439,467 shares of Common Stock to its President and Chief Executive Officer,
Chief Financial Officer and certain other employees in payment of salaries in the aggregate amount of $368,233 and related to
the period calendar year ended December 31, 2013. Please note that the shares issued during Fiscal 2014, include those shares
owed and not yet issued at the end of Fiscal 2013.
As of
March 31, 2016, the Company owes its President and Chief Executive Officer, Chief Financial Officer and certain other employees
a total of 638,407 shares of Common Stock in payment of salaries totaling $207,500 for the three months ended March 31, 2016, with such amount
being recorded in accrued expenses. The Company anticipates that these shares of Common Stock will be issued during the fiscal
year ended March 31, 2017.
Stock
option based Employee Compensation
During
Fiscal 2016, the Company issued, to various employees, options to purchase a total of 360,000 shares Common Stock, in aggregate (the
“2016 Options”). The 2016 Options have exercise prices equal to the closing price of the Company’s common stock
on the grant date of each such option, such prices ranging from $0.23 per share to $0.415 per share. The 2016 Options vest in equal increments
over a three year period which commences one year from the date of grant. The 2016 Options expire ten years from the date of grant.
The fair value of the 2016 Options was $129,913 computed using the Black-Scholes options pricing model on the grant date. Such fair
value is being amortized by the Company, on a straight line basis, over the vesting period and recorded on the Company’s
Statement of Income as “Non-cash compensation through the issuance of stock options”.
During
Fiscal 2015, the Company issued, to various employees, options to purchase a total of 2,590,000 shares Common Stock, in aggregate
(the “2015 Options”). The 2015 Options have exercise prices equal to the closing price of the Company’s common
stock on the grant date of each such option, such prices ranging from $0.26 per share to $0.46 per share. The 2015 Options vest
in equal increments over a three year period which commences one year from the date of grant. The 2015 Options expire ten years
from the date of grant. The fair value of the 2015 Options was $769,400, computed using the Black-Scholes options pricing model
on the grant date. Such fair value is being amortized by the Company, on a straight line basis, over the vesting period and recorded
on the Company’s Statement of Income as “Non-cash compensation through the issuance of stock options”.
During
Fiscal 2014, the Company issued, to various employees, options to purchase a total of 3,000,000 shares Common Stock, in aggregate
(the “2014 Options”). The 2014 Options have exercise prices equal to the closing price of the Company’s common
stock on the grant date of each such option, such prices being $0.07 per share. The 2014 Options vest in equal increments over
a three year period which commences one year from the date of grant. The 2014 Options expire ten years from the date of grant.
The fair value of the 2015 Options was $202,497, computed using the Black-Scholes options pricing model on the grant date. Such
fair value is being amortized by the Company, on a straight line basis, over the vesting period and recorded on the Company’s
Statement of Income as “Non-cash compensation through the issuance of stock options”.
The Company measures stock-based
compensation cost for options using the Black-Scholes option pricing model. The following table presents a summary of the assumptions
used to estimate fair values of the stock options granted during Fiscal 2016, Fiscal 2015 and Fiscal 2014:
|
|
Fiscal
Year 2016
|
|
|
Fiscal
Year 2015
|
|
|
Fiscal
Year 2014
|
|
|
|
|
|
|
|
|
|
|
|
Exercise prices
|
|
|
$0.23 - $0.42
|
|
|
|
$0.27 - $0.46
|
|
|
$
|
0.07
|
|
Options Granted (shares)
|
|
|
360,000
|
|
|
|
2,590,000
|
|
|
|
3,000,000
|
|
Risk-free interest rate
|
|
|
2.1% - 2.2%
|
|
|
|
2.2% - 2.8%
|
|
|
|
2.5
|
%
|
Expected volatility
|
|
|
119% - 120%
|
|
|
|
120% - 121%
|
|
|
|
130
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Forfeiture rate
|
|
|
2.7
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected term (in years)
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
Fair value of options granted
|
|
$
|
129,913
|
|
|
$
|
769,421
|
|
|
$
|
202,497
|
|
Non-cash compensation through issuance of stock options
|
|
$
|
333,363
|
|
|
$
|
260,045
|
|
|
$
|
82,947
|
|
As of March 31, 2016, the total remaining unrecognized non-cash compensation costs related to stock options granted was $462,308.
This amount will be recognized as non-cash compensation over the course of the next three fiscal years.
NOTE 20
|
-
|
STOCK
OPTION PLANS
|
Under
its 2014 Stock Option Plan and prior options plans, the Company may grant stock options to officers, selected employees, as well
as members of the Board of Directors and advisory board members. All options have generally been granted at a price equal to or
greater than the fair market value of the Company’s Common Stock at the date of the grant. Generally, options are granted
with a vesting period of up to three years and expire ten years from the date of grant.
Transactions
under the plans for the years indicated were as follows:
|
|
Fiscal Year 2016
|
|
|
Fiscal Year 2015
|
|
|
Fiscal Year 2014
|
|
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at beginning of year
|
|
|
7,642,167
|
|
|
$
|
0.48
|
|
|
|
5,435,667
|
|
|
$
|
0.54
|
|
|
|
3,939,000
|
|
|
$
|
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
360,000
|
|
|
$
|
0.38
|
|
|
|
2,590,000
|
|
|
$
|
0.31
|
|
|
|
3,000,000
|
|
|
$
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercised
|
|
|
112,500
|
|
|
$
|
0.21
|
|
|
|
223,334
|
|
|
$
|
0.12
|
|
|
|
308,333
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Expired/Forfeited
|
|
|
280,000
|
|
|
$
|
0.60
|
|
|
|
160,166
|
|
|
$
|
0.18
|
|
|
|
1,195,000
|
|
|
$
|
1.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
7,609,667
|
|
|
$
|
0.48
|
|
|
|
7,642,167
|
|
|
$
|
0.48
|
|
|
|
5,435,667
|
|
|
$
|
0.54
|
|
The following table summarizes
information about stock options outstanding at March 31, 2016:
Range
|
|
Options
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Options
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
$ 0.01 – 0.25
|
|
|
3,766,667
|
|
|
|
6.9
|
|
|
$
|
0.08
|
|
|
|
2,766,668
|
|
|
$
|
0.09
|
|
$ 0.26 – 0.50
|
|
|
2,650,000
|
|
|
|
8.5
|
|
|
$
|
0.32
|
|
|
|
783,333
|
|
|
$
|
1.08
|
|
$ 0.51 – 1.00
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
$ 1.01 – 2.00
|
|
|
96,000
|
|
|
|
1.8
|
|
|
|
1.08
|
|
|
|
96,000
|
|
|
|
|
|
$ 2.01 – 3.00
|
|
|
1,097,000
|
|
|
|
0.7
|
|
|
$
|
2.16
|
|
|
|
847,000
|
|
|
$
|
2.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.01 – 3.00
|
|
|
7,609,667
|
|
|
|
6.5
|
|
|
$
|
0.48
|
|
|
|
4,493,001
|
|
|
$
|
0.54
|
|
As of
March 31, 2016, there were 5,595,066 options available for future grant under our Stock Option Plans.
The aggregate intrinsic value of options outstanding as of March 31, 2016, calculated as the difference between the exercise
price and the closing price of the Company’s Common Stock on March 31, 2016 was $904,409. The aggregate intrinsic value of
vested options outstanding as of March 31, 2016 was $642,981.
The total intrinsic value of options exercised during the Fiscal
2016, 2015 and 2014 was $22,173, $31,513 and $101,962, respectively.
The
components of the credit for income taxes are as follows:
|
|
Year Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(4,048
|
)
|
|
$
|
(3,248
|
)
|
|
$
|
(3,099
|
)
|
Deferred
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of New Jersey Net Operating Losses
|
|
|
524,500
|
|
|
|
—
|
|
|
|
295,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Credit for Income Taxes
|
|
$
|
520,452
|
|
|
$
|
(3,248
|
)
|
|
$
|
292,611
|
|
The
Major components of deferred tax assets and liabilities at March 31, 2016 and 2015 are as follows (amounts in thousands of dollars):
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Operating Loss Carry forward
|
|
$
|
27,033
|
|
|
$
|
24,547
|
|
|
$
|
19,813
|
|
Valuation Allowance
|
|
|
(27,033
|
)
|
|
|
(24,547
|
)
|
|
|
(19,813
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Operating Loss Carryforwards
|
|
$
|
2,722
|
|
|
$
|
2,602
|
|
|
$
|
1,318
|
|
Valuation Allowance
|
|
|
(2,722
|
)
|
|
|
(2,602
|
)
|
|
|
(1,318
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
At March
31, 2016 and 2015, 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 carryforwards.
The company believes
that temporary timing differences between accrual and payment of income taxes are not material to the financial position of
the Company.
Revenue
Concentrations
Five
customers accounted for substantially all of the Company’s revenues for Fiscal 2016. Included in these customers are three
customers that accounted for approximately 37%, 28% and 27% of revenues each, respectively.
Seven
customers accounted for substantially all of the Company’s revenues for Fiscal 2015. Included in these customers are three
customers that accounted for approximately 55%, 24% and 11% of revenues each, respectively.
Ten
customers accounted for substantially all of the Company’s revenues for Fiscal 2014. Included in these customers are three
customers that accounted for approximately 88 percent of revenues for Fiscal 2014.
Accounts
Receivable Concentrations
Four
customers accounted for substantially all of the Company’s accounts receivable as of March 31, 2016. Included in these customers
are three customers that accounted for approximately 54%, 30% and 8% of revenues each, respectively.
Five
customers accounted for substantially all of the Company’s accounts receivable as of March 31, 2015. Included in these customers
are four customers that accounted for approximately 46%, 26%, 17% and 11% of revenues each, respectively.
Five
customers accounted for substantially all of the Company’s accounts receivable as of March 31, 2014. Included in these customers
are three customers that accounted for approximately 83% of accounts receivable as of March 31, 2014.
Purchasing
Concentrations
Seven
suppliers accounted for more than 80% of the Company’s purchases of raw materials for Fiscal 2016. Included in these seven
suppliers are three suppliers that accounted for approximately 44%, 20% and 10% of revenues each, respectively.
Seven
suppliers accounted for more than 80% of the Company’s purchases of raw materials for Fiscal 2015. Included in these seven
suppliers are four suppliers that accounted for approximately 38%, 11%, 10% and 10% of revenues each, respectively.
Seven
suppliers accounted for more than 80% of the Company’s purchases of raw materials for Fiscal 2014. Included in these seven
suppliers are two suppliers that accounted for approximately 52% of raw material purchases for Fiscal 2014.
NOTE 23
|
-
|
COLLABORATIVE AGREEMENT
WITH EPIC PHARMA LLC
|
On
June 4, 2015, the Company entered into the 2015 Epic License Agreement, which provides for the exclusive right to market, sell
and distribute, by Epic Pharma LLC (“Epic”) of SequestOx™, an abuse deterrent opioid which employs the Company’s
proprietary pharmacological abuse-deterrent technology. Epic will be responsible for payment of product development and pharmacovigilance
costs, sales and marketing of SequestOx™, and Elite will be responsible for the manufacture of the product. Under the 2015
Epic License Agreement, Epic will pay Elite non-refundable payments totaling $15 million, with such amount representing the cost
of an exclusive license to ELI-200, the cost of developing the product and certain filings and a royalty based on an amount equal
to 50% of profits derived from net product sales as defined in the 2015 Epic License Agreement. The initial term of the exclusive
right to product development sales and distribution is five years (“Epic Exclusivity Period”); the license is renewable
upon mutual agreement at the end of the initial term.
In
June 2015, Elite received non-refundable payments totaling $5 million from Epic for the exclusive right to product
development sales and distribution of SequestOx™ pursuant to the Epic Collaborative Agreement, under which it agreed to
not permit marketing or selling of SequestOx™ within the United States of America to any other party. Such exclusive
rights are considered a significant deliverable element of the Epic Collaborative Agreement pursuant to ASC 605-25, Revenue
Recognition – Multiple Element Arrangements. These nonrefundable payments represent consideration for certain exclusive
rights to ELI-200 and will be recognized ratably over the Epic Exclusivity Period.
In
addition, in January 2016, a New Drug Application (“NDA”) for SequestOx™ was filed, thereby earning the
Company a non-refundable $2.5 million milestone, pursuant to the 2015 Epic License Agreement. The filing of this NDA
represents a significant deliverable element as defined within the Epic Collaborative pursuant to ASC 605-25, Revenue
Recognition – Multiple Element Arrangements. Accordingly, the Company has recognized the $2.5 million milestone, which
was paid by Epic and related to this deliverable as income during the year ended March 31, 2016.
In
total, during Fiscal 2016, the Company received payments totaling $7.5 million pursuant to the 2015 Epic License Agreement, with
all amounts being non-refundable. An additional $7.5 million is due upon approval by the FDA of the NDA filed for SequestOx™,
and license fees based on commercial sales of SequestOx™. Revenues relating to these additional amounts due under the 2015
Epic License Agreement will be recognized as the defined elements are completed and collectability is reasonably assured.
NOTE 24
|
-
|
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.
On June
4, 2015, the Company entered into the 2015 Epic License Agreement (please see Note 23 above)
The
2015 Epic License Agreement includes milestone payments totaling $10 million upon the filing with and approval of a New Drug Application
(“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.
|
After
marketing authorization is received from the FDA, Elite will receive a license fee which is based on profits achieved from the
commercial sales of ELI-200. On January 14, 2016, the Company filed an NDA with the FDA for SequestOx™, thereby earning
a $2.5 million milestone pursuant to the 2015 Epic License Agreement. The Company has received payment of this amount from Epic.
There can be no assurances of the Company receiving marketing authorization for SequestOx™, and accordingly, there can be
no assurances that the Company will earn and receive the additional $7.5 million or future license fees. If the Company does not
receive these payments or fees, it will materially and adversely affect our financial condition.
On October
2, 2013, Elite executed the Epic Pharma Manufacturing and License Agreement (the “Epic Generic Agreement”), which
granted rights to Epic to manufacture twelve generic products whose ANDA’s are owned by Elite, and to market, in the United
States and Puerto Rico, six of these products on an exclusive basis, and the remaining six products on a non-exclusive basis.
These products will be manufactured at Epic, with Epic being responsible for the manufacturing site transfer supplements that
are a prerequisite to each product being approved for commercial sale. In addition, Epic is responsible for all regulatory and
pharmacovigilance matters, as well as all marketing and distribution activities. Elite has no further obligations or deliverables
under the Epic Generic Agreement.
Pursuant
to the Epic Generic Agreement, Elite will receive $1.8 million, payable in increments that require the commercialization of all
six exclusive products if the full amount is to be received, plus license fees equal to a percentage that is not less than 50%
and not greater than 60% of profits achieved from commercial sales of the products, as defined in the Epic Generic Agreement.
While Epic has launched four of the six exclusive products and Elite has collected $1.0 million of the $1.8 million total fee,
collection of the remaining $800k is contingent upon Epic filing the required supplements with and receiving approval from the
FDA for the remaining exclusive generic products. There can be no assurances of Epic filing these supplements, or getting approval
of any supplements filed. Accordingly, there can be no assurances of Elite receiving the remaining $800k due under the Epic Generic
Agreement, or future license fees related thereto. Please also note that all commercialization, regulatory, manufacturing, marketing
and distribution activities are being conducted solely by Epic, without Elite’s participation.
Both
the 2015 Epic License Agreement and the Epic Generic Agreement contain license fees that will be earned and payable to the Company,
after the FDA has issued marketing authorization(s) for the related product(s). License fees are based on commercial sales of
the products achieved by Epic and calculated as a percentage of net sales dollars realized from such commercial sales. 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 each 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 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 abuse deterrent opioids and the other
generic products to which the underlying contracts are relevant;
|
|
·
|
Assessment
of various avenues for monetizing SequestOx™ and the twelve ANDA’s owned
by the Company, including the various combinations of sites of manufacture and marketing
options;
|
|
·
|
Elite’s
resources and capabilities with regards to the concurrent development of abuse deterrent
opioids and expansion of its generic business segment, including financial and operational
resources required to achieve manufacturing site transfers for twelve approved ANDA’s;
|
|
·
|
Capabilities
of each party with regards to various factors, including, one or more of the following:
manufacturing, marketing, regulatory and financial resources, distribution capabilities,
ownership structure, personnel, assessments of operational efficiencies and entity stability,
company culture and image;
|
|
·
|
Stage
of development of SequestOx™ and manufacturing site transfer and regulatory requirements
relating to the commercialization of the generic products at the time of the discussions/negotiations,
and an assessment of the risks, probability and time frames for achieving marketing authorizations
from the FDA for each product.
|
|
·
|
Assessment
of consideration offered; and
|
|
·
|
Comparison
of the above factors among the various entities with whom the Company was engaged in
discussions relating to the commercialization of SequestOx™ and the manufacture/marketing
of the twelve generics related to the Epic Generic Agreement.
|
Please note that this transaction is not to be considered as an arms-length transaction.
NOTE 25
|
-
|
TRANSACTIONS
WITH RELATED PARTIES – NASRAT HAKIM AND MIKAH PHARMA LLC
|
On August
1, 2013, Elite Laboratories Inc. (“Elite Labs”), our wholly owned subsidiary, executed an asset purchase agreement
(the “Mikah Purchase Agreement”) with Mikah Pharma LLC (“Mikah”), an entity that is wholly owned by Mr.
Nasrat Hakim, who, in conjunction with this transaction, was appointed as our Chief Executive Officer, President and a Director
on August 2, 2012, and acquired from Mikah a total of 13 Abbreviated New Drug Applications (“ANDAs”) consisting of
12 ANDAs approved by the FDA and one ANDA under active review with the FDA, and all amendments thereto (the “Acquisition”)
for aggregate consideration of $10,000,000, inclusive of imputed interest payable pursuant to a non-interest bearing, secured
convertible note due in August 2016 (the “Mikah Note”). The Mikah Note was amended on February 7, 2014 to make it
convertible into shares of the Company’s Series I Convertible Preferred Stock.
The Mikah
Note, as amended, was interest free and due and payable on the third anniversary of its issuance. Subject to certain limitations,
the principal amount of the Mikah Note was convertible at the option of Mikah into shares of Common Stock at a rate of $0.07 (approximately
14,286 shares per $1,000 in principal amount), the closing market price of the Company’s Common Stock on the date that the
asset purchase agreement and Note were executed and/or into shares of the Company’s Series I Convertible Preferred Stock
at the rate of 1 share of Series I Preferred Stock for each $100,000 of principal owed on the Mikah Note. The conversion rate
was adjustable for customary corporate actions such as stock splits and, subject to certain exclusions, includes weighted average
anti-dilution for common stock transactions at prices below the then applicable conversion rate. Pursuant to a security agreement
(the “Security Agreement”), repayment of the Mikah Note was secured by the ANDAs acquired in the Acquisition.
On February
7, 2014, Mikah converted the principal amount of $10,000,000, representing the entire principal balance due under the Mikah Note,
into 100 shares of the Company’s Series I Preferred Stock.
On August
27, 2010, Elite executed an asset purchase with Mikah (the “Naltrexone Agreement”). Pursuant to the Naltrexone Agreement,
Elite acquired from Mikah the Abbreviated New Drug Application number 75-274 (Naltrexone Hydrochloride Tablets USP, 50 mg), and
all amendments thereto (the “ANDA”), that have to date been filed with the FDA seeking authorization and approval
to manufacture, package, ship and sell the products described in the ANDA within the United States and its territories (including
Puerto Rico) for aggregate consideration of $200,000. In lieu of cash, Mikah agreed to accept from Elite product development services
to be performed by Elite, and entered into a Development and License Agreement dated August 27, 2010 between the Company and Mikah
(the “Mikah Development Agreement”).
The manufacturing
of Naltrexone 50mg was successfully transferred to the Company’s Northvale facility, and the first commercial shipment of
this product was made in September 2013.
On January
28, 2015, the Mikah Development Agreement was terminated by mutual agreement of the parties thereto. Pursuant to the Mikah Development
Agreement, Mikah made advance consideration payments to the Company totaling $200,000 in exchange for product development services
to be provided at a future date. Subsequent to the execution of the Mikah Development Agreement, and before any development milestones
were achieved, the sole owner of Mikah, Mr. Nasrat Hakim, became the President and Chief Executive Officer of the Company. Mikah
has accordingly ceased operating and is in the process of winding down and liquidating its assets.
Any further
development of the product related to the Mikah Development Agreement will belong to the Company, although there can be no assurances
that such development will occur or be successful.
The Mikah
Development Agreement requires that the consideration paid in advance to the Company be refunded in the event of no milestones
being achieved. Mr. Hakim, as owner of Mikah, has directed that the $200,000 refund due to Mikah not be paid currently, but rather
be added to the amounts due under the Hakim Credit Line.
Please note that this transaction is not to be considered as an arms-length transaction.
NOTE 26
|
-
|
MANUFACTURING,
LICENSE AND DEVELOPMENT AGREEMENTS
|
The
Company has entered into the following active agreements:
|
·
|
License
agreement with Precision Dose, dated September 10, 2010 (the “Precision Dose License
Agreement”)
|
|
·
|
Manufacturing
and Supply Agreement with Ascend Laboratories Inc., dated June 23, 2011 and as amended
on September 24, 2012 and January 19, 2015 (the “Ascend Manufacturing Agreement”) and
|
|
·
|
Development
agreement with Akorn Pharmaceuticals, dated January 10, 2011 (the “Akorn Agreement”).
|
The Precision
Dose Agreement 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), Hydromorphone 8mg tablets (launched in March 2012), 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, 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 products, 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 Ascend
Manufacturing Agreement provides for the manufacturing by Elite of Methadone 10mg for supply to Ascend Laboratories LLC (“Ascend”).
Ascend is the owner of the approved ANDA for Methadone 10mg, and the Northvale Facility is an approved manufacturing site for
this ANDA. There are no license fees or milestones relating to this agreement. All revenues earned are recognized as manufacturing
revenues on the date of shipment of the product, when title for the goods is transferred, and for which the price is agreed to
and it has been determined that collectability is reasonably assured. The initial shipment of Methadone 10mg pursuant to the Ascend
Manufacturing Agreement occurred in January 2012.
The Akorn
Agreement was executed on January 10, 2011 between Hi-Tech Pharmacal Inc. (subsequently acquired by Akorn Pharmaceuticals) and
provides for Elite to develop an intermediate product which will be incorporated into the finished formulation of a generic version
of a prescription product for Akorn Pharmaceuticals (“Akorn”). There is currently no development activity being conducted
pursuant to this agreement and there was no activity during the last fiscal year as well. There can be no assurances that development
activities will resume or that a resumption of development activities will result in the successful development of the relevant
product.
NOTE 27
|
-
|
CONVERSIONS
OF PREFERRED STOCK MEZZANINE EQUITY TO COMMON STOCK
|
The Certificate
of Designations of the Series I Convertible Preferred Stock Mezzanine Equity (the “Series I Mezzanine Equity”), includes
provisions entitling its rights to convert shares of the Series I Mezzanine Equity into shares of Common Stock.
Conversions
of Series I Mezzanine Equity to Common Stock during Fiscal 2016 and Fiscal 2015 are summarized as follows:
|
|
Fiscal 2016
|
|
|
Fiscal 2015
|
|
Series I Preferred Derivatives
|
|
|
|
|
|
|
|
|
Number of Derivative Shares Converted
|
|
|
—
|
|
|
|
4.242
|
|
Number of Common Shares issued pursuant to conversion
|
|
|
—
|
|
|
|
6,060,000
|
|
Value of Preferred Derivative shares at time of conversion (represents decrease in derivative liability resulting from conversions)
|
|
|
—
|
|
|
|
2,272,500
|
|
Change in value of preferred share derivative liability recorded at time of conversion
|
|
|
—
|
|
|
|
(303,000
|
)
|
Par value of Common Shares issued
|
|
|
—
|
|
|
|
6,060
|
|
Additional paid in capital recorded as a result of the conversions
|
|
|
—
|
|
|
|
2,266,440
|
|
Please
also see Note 15 for further details on the Series I Mezzanine Equity.
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, the Board of Directors passed a resolution whereby, in the event of a change
in control of the ownership of the Company, 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 managers fees
or salaries, as applicable. In addition, the resolution passed provided for the immediate vesting of outstanding options, in the
event of a change of control.
On
November 15, 2013, 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 stockholders
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, par value $0.01 per
share (the “H 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. The description and terms of the Rights are set
forth in a Rights Agreement (“Rights Agreement”) between the Company and American Stock Transfer & Trust Company,
LLC, as Rights Agent.
NOTE 30
|
-
|
LEGAL
PROCEEDINGS
|
In the
ordinary course of business, we may be subject to litigation from time to time. Except as discussed below, 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 such party) which in our
opinion has, or is expected to have, a material adverse effect upon our business, prospects, financial condition or operations.
Arbitration
with Precision Dose Inc.
On May 9, 2014, Precision Dose Inc,
the parent company of TAGI Pharmaceuticals, Inc., commenced an arbitration against the Company alleging that the Company failed
to properly supply, price and satisfy gross profit minimums regarding Phentermine 37.5mg tablets, as required by the parties'
agreements. Elite denied Precision Dose's allegations and has counterclaimed that Precision Dose is no longer entitled to exclusivity
rights with respect to Phentermine 37.5mg tablets, and is responsible for certain costs, expenses, price increases and lost profits
relating to Phentermine 37.5mg tablets and the parties' agreements. The parties have reached agreement in settlement of these
issues, with Precision Dose agreeing to pay certain amounts to the Company in exchange for Elite agreeing to restore exclusivity
rights with respect to Phentermine 37.5mg tablets, subject to certain defined conditions. Both parties have been complying with
the agreed settlement terms and the Company has notified the Arbitrator of this settlement, requesting the issuance of proceeding
termination documents.
Generally
Accepted Accounting Principles require that a contingency loss may only be recognized if the event is (i) probable and (ii) the
amount of the loss can be reasonably estimated. There were no liabilities meeting this criteria at March 31, 2016.
NOTE 31
|
-
|
QUARTERLY
FINANCIAL INFORMATION (UNADITED)
|
The Company’s
consolidated results of operations are shown below:
(In thousands, except per share data)
|
|
Fourth
Quarter
|
|
|
Third
Quarter
|
|
|
Second
Quarter
(restated)
|
|
|
First
Quarter
(restated)
|
|
Fiscal year ended March 31, 2016
|
Total revenues
|
|
$
|
5,195
|
|
|
$
|
2,194
|
|
|
$
|
2,947
|
|
|
$
|
2,163
|
|
Costs of revenues
|
|
|
1,036
|
|
|
|
836
|
|
|
|
1,415
|
|
|
|
1,197
|
|
Gross Profit
|
|
|
4,159
|
|
|
|
1,358
|
|
|
|
1,532
|
|
|
|
966
|
|
Operating Expenses
|
|
|
3,588
|
|
|
|
4,071
|
|
|
|
5,299
|
|
|
|
3,373
|
|
Income (Loss) from Operations
|
|
|
571
|
|
|
|
(2,713
|
)
|
|
|
(3,767
|
)
|
|
|
(2,407
|
)
|
Other income (expense)
|
|
|
7,408
|
|
|
|
(9,520
|
)
|
|
|
2,086
|
|
|
|
7,139
|
|
Income tax (credit) expense
|
|
|
(520
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net Income
|
|
|
8,499
|
|
|
|
(12,233
|
)
|
|
|
(1,681
|
)
|
|
|
4,732
|
|
Change in carrying value of convertible preferred mezzanine equity
|
|
|
14,142
|
|
|
|
(24,786
|
)
|
|
|
(5,071
|
)
|
|
|
6,429
|
|
Net income attributable to common shareholders
|
|
|
22,641
|
|
|
|
(37,019
|
)
|
|
|
(6,753
|
)
|
|
|
11,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share – basic
|
|
$
|
0.03
|
|
|
$
|
(0.05
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
Earnings per share - Diluted
|
|
$
|
0.00
|
|
|
$
|
(0.05
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
(In thousands, except per share data)
|
|
Fourth
Quarter
(restated)
|
|
|
Third
Quarter
(restated)
|
|
|
Second
Quarter
(restated)
|
|
|
First
Quarter
(restated)
|
|
Fiscal year ended March 31, 2015
|
Total revenues
|
|
|
1,234
|
|
|
|
1,363
|
|
|
|
1,256
|
|
|
|
1,162
|
|
Costs of revenues
|
|
|
904
|
|
|
|
700
|
|
|
|
682
|
|
|
|
729
|
|
Gross Profit
|
|
|
331
|
|
|
|
663
|
|
|
|
575
|
|
|
|
433
|
|
Operating Expenses
|
|
|
5,788
|
|
|
|
3,221
|
|
|
|
4,636
|
|
|
|
4,864
|
|
Income (Loss) from Operations
|
|
|
(5,457
|
)
|
|
|
(2,557
|
)
|
|
|
(4,061
|
)
|
|
|
(4,431
|
)
|
Other income (expense)
|
|
|
(898
|
)
|
|
|
9,974
|
|
|
|
10,310
|
|
|
|
2,338
|
|
Income tax (credit) expense
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net Income
|
|
|
(6,350
|
)
|
|
|
7,417
|
|
|
|
6,248
|
|
|
|
(2,094
|
)
|
Change in carrying value of convertible preferred mezzanine equity
|
|
|
(2,715
|
)
|
|
|
13,600
|
|
|
|
15,132
|
|
|
|
(2,308
|
)
|
Net income attributable to common shareholders
|
|
|
(9,065
|
)
|
|
|
21,017
|
|
|
|
21,380
|
|
|
|
(4,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) per share – basic
|
|
$
|
(0.01
|
)
|
|
$
|
0.03
|
|
|
$
|
0.04
|
|
|
$
|
(0.01
|
)
|
Earnings (Loss) per share - diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
(In thousands, except per share data)
|
|
Fourth
Quarter
(restated)
|
|
|
Third
Quarter
(restated)
|
|
|
Second
Quarter
(restated)
|
|
|
First
Quarter
(restated)
|
|
Fiscal year ended March 31, 2014
|
Total revenues
|
|
|
1,028
|
|
|
|
1,693
|
|
|
|
1,159
|
|
|
|
722
|
|
Costs of revenues
|
|
|
1,046
|
|
|
|
995
|
|
|
|
617
|
|
|
|
579
|
|
Gross Profit
|
|
|
(18
|
)
|
|
|
699
|
|
|
|
542
|
|
|
|
143
|
|
Operating Expenses
|
|
|
2,365
|
|
|
|
1,936
|
|
|
|
1,229
|
|
|
|
1,118
|
|
Income (Loss) from Operations
|
|
|
(2,384
|
)
|
|
|
(1,237
|
)
|
|
|
(687
|
)
|
|
|
(976
|
)
|
Other income (expense)
|
|
|
(31,652
|
)
|
|
|
175
|
|
|
|
(6,887
|
)
|
|
|
2,095
|
|
Income tax (credit) expense
|
|
|
(295
|
)
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
Net Income
|
|
|
(33,741
|
)
|
|
|
(1,061
|
)
|
|
|
(7,576
|
)
|
|
|
1,119
|
|
Change in carrying value of convertible preferred mezzanine equity
|
|
|
(53,056
|
)
|
|
|
1
|
|
|
|
(2,061
|
)
|
|
|
(197
|
)
|
Net income attributable to common shareholders
|
|
|
(86,798
|
)
|
|
|
(1,062
|
)
|
|
|
(9,638
|
)
|
|
|
922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) per share – basic
|
|
$
|
(0.16
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
0.00
|
|
Earnings (Loss) per share - diluted
|
|
$
|
(0.16
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.00
|
)
|
NOTE 32
|
-
|
ADVERTISING
COSTS
|
The Company's advertising costs for Fiscal 2016, Fiscal 2015 and
Fiscal 2014 were immaterial.
NOTE 33
|
-
|
SUBSEQUENT
EVENTS
|
The Company
has evaluated subsequent events from the balance sheet date through June 15, 2016, the date the accompanying financial statements
were issued. The following are material subsequent events:
Common
Stock sold pursuant to the LPC-40 Purchase Agreement
Subsequent
to March 31, 2016 and up to June 7, 2016 (the latest practicable date), a total of 5.5 million shares of Common Stock were sold and
0.1 million additional commitment shares were issued, pursuant to the LPC-40 Purchase Agreement. Proceeds received from such
transactions totaled $1.7 million.
Common
Stock issued pursuant to the exercise of cash warrants
Subsequent
to March 31, 2016 and up to June 7, 2016 (the latest practicable date), a total of 9.3 million shares of Common Stock were issued
pursuant to the exercise of cash warrants. Proceeds received from such warrant exercises totaled $0.6 million.
Repayment
of Hakim Credit Line
On May 24, 2016 all amounts due and owing pursuant to the Hakim Credit Line, which expired on March 31, 2016, were paid in
full. These payments, which totaled $798,227 consisted of principal due of $718,309 plus accrued interest totaling $79,918.
As of May 24, 2016 there are no amounts due and owing under the Hakim Loan Agreement and the Hakim Loan Agreement is expired.
Please also see Note 10 above.