ELITE PHARMACEUTICALS INC /NV/ 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is intended to provide a reader of our consolidated financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial data included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review Item 1A of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Results of Operations: Years ended March 31, 2022 compared to March 31, 2021 Revenue, Cost of revenue and Gross profit: For the Years Ended March 31, Change 2022 2021 Dollars Percentage Manufacturing fees $ 26,951,863 $ 20,997,310 $ 5,954,553 28 % Licensing fees 5,310,254 4,383,439 926,815 21 % Total revenue 32,262,117 25,380,749 6,881,368 27 % Cost of manufacturing 17,466,763 13,513,611 3,953,152 29 % Gross profit $ 14,795,354 $ 11,867,138 $ 2,928,216 25 % Gross profit - percentage 46 % 47 % Total revenues for the year ended March 31, 2022 increased by $6.9 million or 27%, to $32.3 million, as compared to $25.4 million for the prior year, primarily due to increased revenues from Amphetamine ER Capsules, which were launched during the prior fiscal year, and increased revenue from the sales of Amphetamine Tablets, Naltrexone Tablets, and Loxapine Capsules as compared to prior year. The Amphetamine ER was launched during the prior fiscal year ended March 31, 2021. Manufacturing fees increased by $6.0 million, or 28%, primarily due to manufacturing revenues increased from Amphetamine ER Capsules, as compared to the fiscal year ended March 31, 2021. Licensing fees increased by $0.9 million, or 21%. This increase was primarily due to licensing fees increased from the sale of Amphetamine IR Tablets and Naltrexone Tablets as compared to the fiscal year ended March 31, 2021. Costs of revenue consists of manufacturing and assembly costs. Our costs of revenue increased by $4.0 million or 29%, to $17.5 million as compared to $13.5 million for the prior fiscal year. This increase was due in large part to the increased manufacturing activities and related manufacturing revenues during the year ended March 31, 2022, as compared to the prior year, and also due to there being a strong positive correlation of costs of revenue to manufacturing revenues. Our gross profit margin was 46% during the year ended March 31, 2022 as compared to 47% during the comparable prior fiscal year. 51 Operating expenses: For the Years Ended March 31, Change 2022 2021 Dollars Percentage Operating expenses: Research and development $ 4,051,349 $ 5,112,542 $ (1,061,193 ) (21 )% General and administrative 4,464,003 3,323,045 1,140,958 34 % Non-cash compensation 14,353 13,181 1,172 9 % Depreciation and amortization 1,194,939 1,313,847 (118,908 ) (9 )% Total operating expenses $ 9,724,644 $ 9,762,615 $ (37,971 ) — % Operating expenses consist of research and development costs, general and administrative, non-cash compensation and depreciation and amortization expenses. Operating expenses totaled for $9.7 million the year ended March 31, 2022, which remained relatively unchanged as compared to the prior year. Research and development costs for the year ended March 31, 2022 were $4.1 million, a decrease of $1.1 million, or 21%, from $5.1 million of such costs for the prior year. The decrease was a result of the timing and nature of product development activities during the year ended March 31, 2022 as compared to the prior year. General and administrative expenses for the year ended March 31, 2022 were $4.5 million, an increase of $1.1 million or 34%, from $3.3 million of such costs for the prior year. The increase was due in large part to the increase in payroll-related expense and professional expense. Non-cash compensation expense for the years ended March 31, 2022 and 2021 was less than $0.1 million. Depreciation and amortization expenses for the year ended March 31, 2022 were $1.2 million, and remained relatively unchanged from $1.3 million of such costs for the prior year. As a result of the foregoing, our income from operations for the year ended March 31, 2022 was $5.1 million, compared to income from operations of $2.1 million for the prior year. Other income (expense): For the Years Ended March 31, Change 2022 2021 Dollars Percentage Other income, net: Change in fair value of derivative instruments $ 1,425,409 $ 1,237,132 $ 188,277 15 % Interest expense and amortization of debt issuance costs (191,816 ) (259,598 ) 67,782 (26 )% Gain on sale of fixed assets — 48,463 (48,463 ) (100 )% Interest income 126 514 (388 ) (75 )% PPP loan forgiveness — 1,013,480 (1,013,480 ) (100 )% Other income, net $ 1,233,719 $ 2,039,991 $ (806,272 ) (40 )% Other income, net for the year ended the year ended March 31, 2022 was $1.2 million, a reduction of $0.8 million from the prior year. The decrease in other income, net was due to PPP loan forgiveness which occurred during the prior fiscal year, offset by increased gains on the fair value of derivative instruments. As a result of the foregoing, our income before income taxes for the year ended March 31, 2022 was $6.3 million, compared to $4.1 million for the prior year. 52 Liquidity and Capital Resources Capital Resources March 31, 2022 March 31, 2021 Change Current assets $ 18,861,389 $ 12,194,667 $ 6,666,722 Current liabilities $ 6,694,241 $ 5,812,531 $ 881,710 Working capital $ 12,167,148 $ 6,382,136 $ 5,785,012 The Company considers cash and working capital balances as several of the factors the Company uses in evaluating its performance. As of March 31, 2022, the Company had cash on hand of $8.5 million and accounts receivable to be collected within expected operating cycles of $3.1 million. The Company believes that such resources, combined with the working capital surplus of $12.2 million and the continuation of ongoing operations are sufficient to fund operations through the current operating cycle. For the year ended March 31, 2022, the Company had income from operations totaling $5.1 million, net other income totaling $1.2 million and a net income of $8.9 million. The Company’s other income and net income (loss) available to common shareholders are significantly influenced by the fluctuations in the fair value of warrant derivatives with such fair value bearing a strong inverse correlation to the market share price of the Company’s Common Stock. Our working capital (total current assets less total current liabilities) increased by $5.8 million from $6.4 million as of March 31, 2021 to $12.2 million as of March 31, 2022, with such increase being primarily related to the net income of $8.9 million and a net positive operating cash flows of $6.5 million achieved during the year ended March 31, 2022. Summary of Cash Flows: For the Years Ended March 31, 2022 2021 Net cash provided by operating activities $ 6,508,314 $ 3,193,861 Net cash used in investing activities $ (498,566 ) $ (262,781 ) Net cash used in financing activities $ (667,133 ) $ (869,829 ) Net cash provided by operating activities for the year ended March 31, 2022 was $6.5 million, which included net income of $8.9 million, offset by non-cash (income) expenses totaling $1.4 million and net increases in assets and decreases in liabilities totaling $1.0 million. Net cash provided by operating activities for the year ended March 31, 2021 was $3.2 million, which included net income of $5.1 million and increases in non-cash expenses totaling $0.2 million, offset by net increases in assets and decreases in liabilities totaling $2.1 million. Net cash used in investing activities for the year ended March 31, 2022 was comprised of purchases of property and equipment of $0.5 million. Net cash used in investing activities for the year ended March 31, 2021 was comprised of purchases of purchases of property and equipment of $0.3 million offset by proceeds from the sale of property and equipment of less than $0.1 million. Net cash used in financing activities was $0.7 million for the year ended March 31, 2022 which was offset primarily by loan payments. Net cash used in financing activities was $0.9 million for the year ended March 31, 2021 which consisted primarily of proceeds from the payroll protection program loan offset by loan payments. 53 Lincoln Park Capital July 8, 2020 Purchase Agreement On July 8, 2020, the Company entered into a purchase agreement (the “2020 LPC Purchase Agreement”), and a registration rights agreement (the “2020 LPC Registration Rights Agreement”), with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park has committed to purchase up to $25.0 million of the Company’s Common Stock, $0.001 par value per share, from time to time over the term of the 2020 LPC Purchase Agreement, at the Company’s direction. During the year ended March 31, 2022, the Company did not issue any shares of Common Stock to Lincoln Park. During the year ended March 31, 2021 the Company issued an aggregate of 5,975,857 shares of Common Stock in the amount of $469,105 to Lincoln Park as initial commitment shares. The Company sold 640,543 shares of its Common Stock pursuant to the 2020 LPC Purchase Agreement during the year ended March 31, 2021 for net proceeds totaling $42,223. In addition, 10,094 shares were issued to Lincoln Park as additional commitment shares, pursuant to the 2020 LPC Agreement. NJEDA Bonds On August 31, 2005, the Company successfully completed a refinancing of a prior 1999 bond issue through the issuance of new tax-exempt bonds (the “Bonds”). The refinancing involved borrowing $4,155,000, evidenced by a 6.5% Series A Note in the principal amount of $3,660,000 maturing on September 1, 2030 and a 9% Series B Note in the principal amount of $495,000 maturing on September 1, 2012. The net proceeds, after payment of issuance costs, were used (i) to redeem the outstanding tax-exempt Bonds originally issued by the Authority on September 2, 1999, (ii) refinance other equipment financing and (iii) for the purchase of certain equipment to be used in the manufacture of pharmaceutical products. As of March 31, 2016, all of the proceeds were utilized by the Company for such stated purposes. Interest is payable semi-annually on March 1 and September 1 of each year. The Bonds are collateralized by a first lien on the Company’s facility and equipment acquired with the proceeds of the original and refinanced Bonds. The related Indenture requires the maintenance of a Debt Service Reserve Fund of $366,000 in relation to the Series A Notes. Bond issue costs of $354,454 were paid from the bond proceeds and are being amortized over the life of the bonds. Amortization of bond issuance costs amounted to $14,180 for the fiscal year ended March 31, 2022. The NJEDA Bonds require the Company to make an annual principal payment on September 1st of varying amounts as specified in the loan documents and semi-annual interest payments on March 1st and September 1st, equal to interest due on the outstanding principal at the applicable rate for the semi-annual period just ended. As of the date of filing of this Annual Report on Form 10-K, there are no interest or principal amounts in arrears. The Series B Notes were retired, at par in July 2014. Off-Balance Sheet Arrangements We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures, or capital resources that would be considered material to investors. Effects of Inflation We are subject to price risks arising from price fluctuations in the market prices of the products that we sell. Management does not believe that inflation risk is material to our business or our consolidated financial position, results of operations, or cash flows. Critical Accounting Policies and Estimates Our significant accounting policies are disclosed in Note 1 of our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. The following discussion addresses our most critical accounting policies, which are those that are both important to the portrayal of our financial condition and results of operations and that require significant judgment or use of complex estimates. 54 Segment Information Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the Chief Executive Officer, who reviews the financial performance and the results of operations of the segments prepared in accordance with U.S. GAAP when making decisions about allocating resources and assessing performance of the Company. The Company has determined that its reportable segments are products whose marketing approvals were secured via an Abbreviated New Drug Applications (“ANDA”) and products whose marketing approvals were secured via a New Drug Application (“NDA”). ANDA products are referred to as generic pharmaceuticals and NDA products are referred to as branded pharmaceuticals. There are currently no intersegment revenues. Asset information by operating segment is not presented since the chief operating decision maker does not review this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s audited consolidated financial statements. Please see note 15 for further details. Revenue Recognition The Company generates revenue from the development of pain management products, manufacturing of a line of generic pharmaceutical products with approved ANDA, commercialization of products either by license and the collection of royalties, or through the manufacture of formulations and the development of new products and the expansion of licensing agreements with other pharmaceutical companies, including co-development projects, joint ventures and other collaborations. The Company also generates revenue through its focus on the development of various types of drug products, including branded drug products which require NDAs. Under ASC 606, Revenue from Contacts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenues following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue. Nature of goods and services The following is a description of the Company’s goods and services from which the Company generates revenue, as well as the nature, timing of satisfaction of performance obligations, and significant payment terms for each, as applicable: a) Manufacturing Fees The Company is equipped to manufacture controlled-release products on a contract basis for third parties, if and when the products are approved. These products include products using controlled-release drug technology and products utilizing abuse deterrent technologies. The Company also develops and markets (either on its own or by license to other companies) generic and proprietary controlled-release and abuse deterrent pharmaceutical products. 55 The Company recognizes revenue when the customer obtains control of the Company’s product based on the contractual shipping terms of the contract. Revenue on product are presented gross because the Company is primarily responsible for fulfilling the promise to provide the product, is responsible to ensure that the product is produced in accordance with the related supply agreement and bears risk of loss while the inventory is in-transit to the commercial partner. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to a customer. b) License Fees The Company enters into licensing and development agreements, which may include multiple revenue generating activities, including milestones payments, licensing fees, product sales and services. The Company analyzes each element of its licensing and development agreements in accordance with ASC 606 to determine appropriate revenue recognition. The terms of the license agreement may include payment to the Company of licensing fees, non-refundable upfront license fees, milestone payments if specified objectives are achieved, and/or royalties on product sales. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. The Company recognizes revenue from non-refundable upfront payments at a point in time, typically upon fulfilling the delivery of the associated intellectual property to the customer. For those milestone payments which are contingent on the occurrence of particular future events (for example, payments due upon a product receiving FDA approval), the Company determined that these need to be considered for inclusion in the calculation of total consideration from the contract as a component of variable consideration using the most-likely amount method. As such, the Company assesses each milestone to determine the probability and substance behind achieving each milestone. Given the inherent uncertainty of the occurrence of future events, the Company will not recognize revenue from the milestone until there is not a high probability of a reversal of revenue, which typically occurs near or upon achievement of the event. Significant management judgment is required to determine the level of effort required under an arrangement and the period over which the Company expects to complete its performance obligations under the arrangement. If the Company cannot reasonably estimate when its performance obligations either are completed or become inconsequential, then revenue recognition is deferred until the Company can reasonably make such estimates. Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method. When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in ASC 606-10-32-18, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component as of March 31, 2022. In accordance with ASC 606-10-55-65, royalties are recognized when the subsequent sale of the customer’s products occurs. 56 Collaborative Arrangements Contracts are considered to be collaborative arrangements when they satisfy the following criteria defined in ASC 808, Collaborative Arrangements: ● The parties to the contract must actively participate in the joint operating activity; and, ● The joint operating activity must expose the parties to the possibility of significant risk and rewards, based on whether or not the activity is successful. Cash The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks and money market instruments. The Company places its cash and cash equivalents with high-quality, U.S. financial institutions and, to date has not experienced losses on any of its balances. Accounts Receivable Accounts receivable are comprised of balances due from customers, net of estimated allowances for uncollectible accounts, if any. In determining collectability, historical trends are evaluated, and specific customer issues are reviewed on a periodic basis to arrive at appropriate allowances. Inventory Inventory is recorded at the lower of cost or market on a specific identification by lot number basis. Long-Lived Assets The Company periodically evaluates the fair value of long-lived assets, which include property and equipment and intangibles, whenever events or changes in circumstances indicate that its carrying amounts may not be recoverable. Property and equipment are stated at cost. Depreciation is provided on the straight-line method based on the estimated useful lives of the respective assets which range from three to forty years. Major repairs or improvements are capitalized. Minor replacements and maintenance and repairs which do not improve or extend asset lives are expensed currently. Upon retirement or other disposition of assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss, if any, is recognized in income. Intangible Assets The Company capitalizes certain costs to acquire intangible assets; if such assets are determined to have a finite useful life they are amortized on a straight-line basis over the estimated useful life. Costs to acquire indefinite lived intangible assets, such as costs related to ANDAs are capitalized accordingly. The Company tests its intangible assets for impairment at least annually (as of March 31st) and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others and without limitation: a significant decline in the Company’s expected future cash flows; a sustained, significant decline in the Company’s stock price and market capitalization; a significant adverse change in legal factors or in the business climate of the Company’s segments; unanticipated competition; and slower growth rates. Research and Development Research and development expenditures are charged to expense as incurred. 57 Leases The Company assesses whether an arrangement is a lease or contains a lease at inception. For arrangements considered leases or that contain a lease that is accounted for separately, the Company determines the classification and initial measurement of the right-of-use asset and lease liability at the lease commencement date, which is the date that the underlying asset becomes available for use. The Company has elected to account for non-lease components associated with its leases and lease components as a single lease component. The Company recognizes a right-of-use asset, which represents the Company’s right to use the underlying asset for the lease term, and a lease liability, which represents the present value of the Company’s obligation to make payments arising over the lease term. The present value of the lease payments is calculated using either the implicit interest rate in the lease or an incremental borrowing rate. Contingencies Occasionally, the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Where applicable, the Company records a valuation allowance to reduce any deferred tax assets that it determines will not be realizable in the future. The Company recognizes the benefit of an uncertain tax position that it has taken or expects to take on income tax returns it files if such tax position is more likely than not to be sustained on examination by the taxing authorities, based on the technical merits of the position. These tax benefits are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company operates in multiple tax jurisdictions within the United States of America. The Company remains subject to examination in all tax jurisdiction until the applicable statutes of limitation expire. As of March 31, 2022, a summary of the tax years that remain subject to examination in our major tax jurisdictions are: United States – Federal, 2014 and forward, and State, 2010 and forward. The Company did not have any unrecognized tax positions for the years ended March 31, 2022 and 2021. Warrants and Preferred Shares The accounting treatment of warrants and preferred share series issued is determined pursuant to the guidance provided by ASC 470, Debt, ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging, as applicable. Each feature of a freestanding financial instruments including, without limitation, any rights relating to subsequent dilutive issuances, dividend issuances, equity sales, rights offerings, forced conversions, optional redemptions, automatic monthly conversions, dividends and exercise are assessed with determinations made regarding the proper classification in the Company’s financial statements. 58 Stock-Based Compensation The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation. Under the fair value recognition provisions of this topic, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, based on the terms of the awards. The cost of the stock-based payments to nonemployees that are fully vested and non-forfeitable as at the grant date is measured and recognized at that date, unless there is a contractual term for services in which case such compensation would be amortized over the contractual term. In accordance with the Company’s Director compensation policy and certain employment contracts, director’s fees and a portion of employee’s salaries are to be paid via the issuance of shares of the Company’s common stock, in lieu of cash, with the valuation of such share being calculated on a quarterly basis and equal to the simple average closing price of the Company’s common stock. Earnings (Loss) Per Share Applicable to Common Shareholders’ The Company follows ASC 260, Earnings Per Share, which requires presentation of basic and diluted earnings (loss) per share (“EPS”) on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying financial statements, basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted EPS excluded all dilutive potential shares if their effect was anti-dilutive. Fair Value of Financial Instruments ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”) provides a framework for measuring fair value in accordance with generally accepted accounting principles. ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC Topic 820 are described as follows: ● Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. ● Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. ● Level 3 Inputs that are unobservable for the asset or liability. The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses, approximate their fair values because of the short maturity of these instruments. Based upon current borrowing rates with similar maturities the carrying value of long-term debt approximates fair value. 59 Non-Financial Assets that are Measured at Fair Value on a Non-Recurring Basis Non-financial assets such as intangible assets, and property and equipment are measured at fair value only when an impairment loss is recognized. The Company did not record an impairment charge related to these assets in the periods presented. Treasury Stock The Company records treasury stock at the cost to acquire it and includes treasury stock as a component of shareholders’ equity (deficit). Recently Issued Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This update requires immediate recognition of management’s estimates of current expected credit losses (“CECL”). Under the prior model, losses were recognized only as they were incurred. The new model is applicable to all financial instruments that are not accounted for at fair value through net income. The standard is effective for fiscal years beginning after December 15, 2022 for public entities qualifying as smaller reporting companies. Early adoption is permitted. The Company is currently assessing the impact of this update on the consolidated financial statements and does not expect a material impact on the consolidated financial statements. Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Attached hereto and filed as a part of this Annual Report on Form 10-K are our Consolidated Financial Statements, beginning on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 60