ELITE PHARMACEUTICALS INC /NV/ 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2023 at the reasonable assurance level. Management’s Report on Internal Control Over Financial Reporting Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Internal control over financial reporting may not prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are achieved. Further, the design of a control system must be balanced against resource constraints, and therefore the benefits of controls must be considered relative to their costs. Given the inherent limitations in all systems of controls, no evaluation of controls can provide absolute assurance all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Accordingly, given the inherent limitations in a cost-effective system of internal control, financial statement misstatements due to error or fraud may occur and may not be detected. Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance of achieving their objectives. We conduct periodic evaluations of our systems of controls to enhance, where necessary, our control policies and procedures. Management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting. Management has used the framework set forth in the report entitled “Internal Control—Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of our internal control over financial reporting. Based on its evaluation, management has concluded that our internal control over financial reporting was effective as of March 31, 2023 at the reasonable assurance level. Changes in internal control over financial reporting There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the fiscal quarter ended March 31, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION Effective as of June 28, 2023, Mark Pellegrino ceased to be employed by the Company. The Company has begun a search for a new chief financial officer. Nasrat Hakim, the Company’s President and Chief Executive Officer, will serve as the Company’s Principal Financial Officer and Principal Accounting Officer until a new chief financial officer is identified and hired. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. None. 59 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The following sets forth biographical information about each of our directors and executive officers as of the date of this report: Name Age Position Director/Officer Since Director Class Nasrat Hakim 62 President, Chief Executive Officer and Director August 2013 III Barry Dash, Ph. D. 92 Director April 2005 II Jeffrey Whitnell 67 Director October 2009 III Davis Caskey 75 Director April 2016 I Kirko Kirkov 55 Chief Commercial Officer September 2022 Douglas Plassche 59 Executive Vice President of Operations August 2013 The principal occupations and employment of each Director and executive officer during the past five years is set forth below. In each instance in which dates are not provided in connection with an individual’s business experience, such individual has held the position indicated for at least the past five years. Pursuant to our amended and restated bylaws, our Board of Directors is classified into three separate classes of directors. Each director currently holds office until the expiration of the term of his class (each for three years) and until his successor is duly elected and qualified, or until such director’s death, resignation, or removal. Nasrat Hakim Nasrat Hakim has served as a Director, President, and Chief Executive officer since August 2013. He has been a member of the Audit Committee, member and chairman of the nominating Committee and member of the Compensation Committee since September 2016. Mr. Hakim has more than 30 years of pharmaceutical and medical industry experience in Quality Assurance, Analytical Research and Development, Technical Services, and Regulatory Compliance. He brings with him proven management experience, in-depth knowledge of manufacturing systems, development knowledge in immediate and extended release formulations and extensive regulatory experience of GMP and FDA regulations. From 2004 to 2013, Mr. Hakim was employed by Actavis, Watson and Alpharma in various senior management positions. Most recently, Mr. Hakim served as International Vice President of Quality Assurance at Actavis, overseeing 25 sites with more than 3,000 employees under his leadership. Mr. Hakim also served as Corporate Vice President of Technical Services, Quality and Regulatory Compliance for Actavis U.S., Global Vice President, Quality, and Regulatory Compliance for Alpharma, as well as Executive Director of Quality Unit at TheraTech, overseeing manufacturing and research and development. In 2009, Mr. Hakim founded Mikah Pharma, LLC, a virtual, fully functional pharmaceutical company. Mr. Hakim holds a Bachelor in Chemistry/Bio-Chemistry and Masters of Science in Chemistry from California State University at Sacramento, Sacramento, CA; a Masters in Law with Graduate Certification in U.S. and International Taxation from St. Thomas University, School of Law, Miami, FL.; and a Graduate Certification in Regulatory Affairs (RAC) from California State University at San Diego, San Diego, CA. Mr. Hakim’s leadership experience (consisting of extensive experience in senior management positions, responsible for 25 global manufacturing/regulatory sites with more than 3,000 employees under his leadership), industry experience (comprising more than 30 years of pharmaceutical and medical industry experience served in various quality assurance, analytical research and development/technical services and compliance positions) and academic experience (including Bachelor degrees in Chemistry and Bio-Chemistry, Masters degrees in Chemistry and Law, with Graduate Certification in U.S. and International Taxation, and a Graduate Certification in Regulatory Affairs) led to the conclusion that he is qualified to serve as a director. 60 Barry Dash, Ph.D. Dr. Barry Dash has served as a Director since April 2005, member of the Audit Committee since April 2005, member of the Nominating Committee since April 2005 and member and Chairman of the Compensation Committee since June 2007. Dr. Dash has been, since 1995, President and Managing Member of Dash Associates, L.L.C., an independent consultant to the pharmaceutical and health industries. From 1983 to 1996 he was employed by Whitehall-Robins Healthcare, a division of American Home Products Corporation (now known as Wyeth), initially as Vice President of Scientific Affairs, then as Senior Vice President of Scientific Affairs and then as Senior Vice President of Advanced Technologies, during which time he personally supervised six separate departments: Medical and Clinical Affairs, Regulatory Affairs, Technical Affairs, Research and Development, Analytical R&D and Quality Management/Q.C. Dr. Dash had been employed by the Whitehall Robins Healthcare from 1960 to 1976, during which time he served as Director of Product Development Research, Assistant Vice President of Product Development and Vice President of Scientific Affairs. Dr. Dash had been employed by J.B. Williams Company (Nabisco Brands, Inc.) from 1978 to 1982. From 1976 to 1978 he was Vice President and Director of Laboratories of the Consumer Products Division of American Can Company. Dr. Dash holds a Ph.D. from the University of Florida and M.S. and B.S. degrees from Columbia University where he was Assistant Professor at the College of Pharmaceutical Sciences from 1956 to 1960. He is a member of the American Pharmaceutical Association, the American Association for the Advancement of Science and the Society of Cosmetic Chemist, American Association of Pharmaceutical Scientists, Drug Information Association, American Foundation for Pharmaceutical Education, and Diplomate American Board of Forensic Examiners. He is the author of scientific publications and patents in the pharmaceutical field. Dr. Dash’s extensive education in pharmaceutical sciences and his experience in the development of scientific products, including his experience in regulatory affairs, led to the conclusion that he is qualified to serve as a director. Jeffrey Whitnell Jeffrey Whitnell has served as a Director since October 23, 2009, Chairman of the Audit Committee, member of the Compensation Committee since October 2009 and designated by the Board as an “audit committee financial expert” as defined under applicable rules under the Exchange Act. Since April 2015, Mr. Whitnell has provided financial advisory services, primarily to the healthcare industry, including LifeWatch Services, where he served as the Vice President, Finance & Controller. From June 2010 to March 2015, Mr. Whitnell was the Chief Financial Officer for ReliefBand Medical Technologies, a medical device company. From June 2009 to June 2010, Mr. Whitnell provided financial advisory services to various healthcare companies, including ReliefBand Medical Technologies. From June 2004 to June 2009, Mr. Whitnell was Chief Financial Officer and Senior Vice President of Finance at Akorn, Inc. From June 2002 to June 2004, Mr. Whitnell was Vice President of Finance and Treasurer for Ovation Pharmaceuticals (acquired by Lundeck). From 1997 to 2001, Mr. Whitnell was Vice President of Finance and Treasurer for MediChem Research (acquired by deCODE genetics). Prior to 1997, Mr. Whitnell held various finance positions at Akzo Nobel and Motorola. Mr. Whitnell began his career as an auditor with Arthur Andersen & Co. He is a certified public accountant and holds an M.B.A. in Finance from the University of Chicago Booth School of Business and a B.S. in Accounting from the University of Illinois. Mr. Whitnell’s qualifications as an accounting and audit expert led to the conclusion that he is qualified to serve as a director. Davis Caskey Davis Caskey has served as a Director since April 2016, and a member of the Audit Committee, the nominating Committee and the Compensation Committee since September 2016. He brings more than 40 years of pharmaceutical industry experience to this position. Mr. Caskey is currently President & CEO of Caskey LLC, which he formed in 2013 to serve as an umbrella to manage his pharmaceutical consulting and other business interests. From 1990 to 2013, Davis served as the operating officer of ECR Pharmaceuticals, of which he was a founding member. HiTech Pharmacal acquired the privately held ECR in 2009 and Mr. Caskey continued in his role until retiring in 2013. At ECR, Mr. Caskey was credited with the establishment of the company’s sales and marketing structure, its product distribution format, and the development and management of the firm’s internal organization. His responsibilities included the oversight of drug development and regulatory filings, product acquisitions, and acquisition of other companies. A primary focus was to conceive and develop, with the assistance of key strategic partners, unique dosage forms and extended release formulations of products which enhance patient compliance and safety. Prior to ECR, Mr. Caskey was employed by A.H. Robins for 18 years in various field and home office management positions. His experience brings critical insight into the marketing and distribution of pharmaceutical products in a rapid and ever-changing competitive marketplace, and this experience led to the conclusion that he is qualified to serve as a director. Mr. Caskey attended the University of Texas (Austin) and Lamar University, and holds bachelor’s and master’s degrees. 61 Kirko Kirkov Mr. Kirkov joined Elite in September 2022, as an accomplished and multi-faceted leader with more than twenty years of in-depth business development skills across international pharmaceutical organizations. Before joining Elite, Mr. Kirkov served as General Manager of Vertice Pharma, a specialty generics pharmaceutical company, from February 2020 to present. From April 2008 to February 2020, Mr. Kirkov was employed by Sandoz and served in positions of increasing responsibilities beginning with Country Head & Managing Director of Bulgaria from 2008 to 2011. From 2011 to 2013, Mr. Kirkov served as Sandoz’s Business Unit Head, Branded Prescription Generics in Russia, and most recently, from January 2013 to February 2020, served as Sandoz’s Executive Director, Commercial Operations. Mr. Kirkov brings with him a broad range of experience in the areas of business development, operationalization of commercial strategy, and implementation of retail and wholesale channel sales operations, having overseen sales portfolios consisting of 400+ product families, and 1,500+ SKUs covering both generic and branded products. Mr.Kirkov has a Bachelor of Science in Mechanical Engineering/Engineering Management from the University of Ottawa, two Masters of Science degrees respectively in Naval Architecture and Ocean Systems Management from the Massachusetts Institute of Technology, a Master of Science in Applied Positive Psychology and Coaching from the University of East London, and an MBA from the University of Durham. Douglas Plassche Douglas Plassche has served as Executive Vice President of Operations since August 2013. Prior to joining the Company, from 2009 to 2013, Mr. Plassche served as the Managing Director of the New Jersey Solid Oral Dose Operations of Actavis, overseeing 450 employees and the production of more than 100 products. From 2007 to 2009, Mr. Plassche was the Senior Director of Manufacturing for PAR Pharmaceuticals, overseeing 200 employees and the production of more than 70 products. From 1990 – 2007, Mr. Plassche was employed by Schering-Plough, progressing steadily through multiple disciplines, locations, and technical operations sectors with increasing levels of responsibility. Mr. Plassche has a bachelor’s degree in Economics from Rochester University. There are no family relationships between any of our directors and executive officers. Committees of the Board The Board of Directors has an Audit Committee, a Compensation Committee, and a Nominating Committee. Audit Committee The members of the Audit Committee are Jeffrey Whitnell (Chairman of the Audit Committee), Dr. Barry Dash, Davis Caskey and Nasrat Hakim. The Board of Directors has determined that Messrs. Whitnell, Dash, and Caskey are independent and Mr. Whitnell is qualified as an audit committee financial expert. The Board of Directors has determined that Messrs. Whitnell, Dash and Caskey are independent directors as (i) defined in Rule 10A-3(b)(1)(ii) under the Exchange Act and (ii) under Sections 803A(2) and 803B(2)(a) of the NYSE American LLC Company Guide (although our securities are not listed on the NYSE American LLC or any other national exchange). Nominating Committee The members of the Nominating Committee are Nasrat Hakim (Chairman of the Nominating Committee), Dr. Barry Dash, and Davis Caskey. There were no material changes to the procedures by which security holders may recommend nominees to our Board of Directors since the filing of our last Annual Report on Form 10-K. Compensation Committee The members of the Compensation Committee are Dr. Barry Dash (Chairman of the Compensation Committee), Jeffrey Whitnell, Davis Caskey and Nasrat Hakim. Delinquent Section 16 Reports Section 16(a) of the Exchange Act requires the Company’s officers and directors, and persons who own more than ten percent of a registered class of the Company’s stock, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) reports they file. Based solely on its review of copies of such reports and upon written representations from each of the Company’s officers and directors, the Company believes that, for the year ended March 31, 2023, all Section 16(a) filing requirements applicable to the Company’s officers, directors and greater than ten percent stockholders were complied with on a timely basis, except for one Form 3 filed on June 3, 2022 by Robert Chen, which was late due to a filing code issue, and one Form 4 filed on June 26, 2023 to report an award of options to Doug Plassche on January 3, 2023, which was late due to an administrative error. Code of Conduct and Ethics At the first meeting of the Board of Directors following the annual meeting of stockholders held on June 22, 2004, and as further updated effective July 2009, the Board of Directors adopted a Code of Business Conduct and Ethics that is applicable to the Company’s directors, officers, and employees. A copy of the Code of Business Conduct and Ethics is available on our website at www.elitepharma.com, under Investor Relations. 62 ITEM 11. EXECUTIVE COMPENSATION Portions of the Proxy Statement for the registrant’s 2023 Annual Meeting of Shareholders which is to be filed subsequent to the date hereof are incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth certain information, as of June 23, 2023 (except as otherwise indicated), regarding beneficial ownership of our Common Stock by (i) each person who is known by us to own beneficially more than 5% of each such class, (ii) each of our directors, (iii) each of our executive officers and (iv) all our directors and executive officers as a group. As of June 23, 2023, we had 1,013,915,081 shares of Common Stock outstanding (exclusive of 0.1 million treasury shares). On any matter presented to the holders of our Common Stock for their action or consideration at any meeting of our Shareholders, each share of Common Stock entitles the holder to one vote. As used in the table below and elsewhere in this report, the term beneficial ownership with respect to a security consists of sole or shared voting power, including the power to vote or direct the vote, and/or sole or shared investment power, including the power to dispose or direct the disposition, with respect to the security through any contract, arrangement, understanding, relationship, or otherwise, including a right to acquire such power(s) during the 60 days immediately following June 23, 2023. Except as otherwise indicated, the Shareholders listed in the table have sole voting and investment powers with respect to the shares indicated. Name and Address of Beneficial Owner of Common Stock Common Stock Percent (%) of Voting Securities Beneficially Owned Nasrat Hakim, President, Chief Executive Officer and Chairman of the Board of Directors* 295,824,820 (1) 29.1 % Barry Dash, Director* 3,235,555 (2) ** % Jeffrey Whitnell, Director* 3,187,020 (3) ** % Davis Caskey, Director* 2,049,436 (4) ** % Douglas Plassche, Executive Vice President * 4,133,932 (5) ** % Robert Chen — ** % Mark Pellegrino — ** % All Directors and Officers as a group 308,430,763 (6) 30.4 % * The address is c/o Elite Pharmaceuticals Inc., 165 Ludlow Avenue, Northvale, NJ 07647. ** Less than 1% (1) Includes 167,114,882 shares of Common Stock held and 49,701,277 shares of Common Stock due and owing to Mr. Hakim as of March 31, 2023 (the latest practicable date) for compensation earned pursuant to Mr. Hakim’s employment agreement with the Company and 79,008,661 shares of Common Stock issuable upon cash exercise of the Series J Warrants with an exercise price of $0.1521 per share. (2) Includes 2,687,898 shares of Common Stock held and 547,657 shares of Common Stock due and owing to Dr. Dash as of March 31, 2023 (the latest practicable date) for Directors fees accrued as of such date. (3) Includes 2,639,363 shares of Common Stock held and 547,657 shares of Common Stock due and owing to Mr. Whitnell as of March 31, 2023 (the latest practicable date) for Directors fees accrued as of such date. (4) Includes 1,501,779 shares of Common Stock held and 547,657 shares of Common Stock due and owing to Mr. Caskey as of March 31, 2023 (the latest practicable date) Date for Directors fees accrued as of such date. (5) Includes 1,133,932 shares of Common Stock held and shares of Common Stock issuable upon cash exercise of vested options to purchase 3,000,000 shares of Common Stock and excludes 7,500,000 shares issuable upon exercise of options not vested or not exercisable within the next 60 days. (6) Relates only to current directors and officers. Includes 175,077,854 shares of Common Stock held, 51,344,248 shares of Common Stock due and owing as of March 31, 2023 (the latest practicable date) for director’s fees and salaries accrued as of such date, 3,000,000 shares of Common Stock issuable upon cash exercise of vested options and 79,008,661 shares of Common Stock issuable upon cash exercise of warrants at an exercise price of $0.1521 per share of Common Stock, and excludes 7,500,000 shares issuable upon exercise of options not vested or not exercisable within the next 60 days. 63 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Certain Related Person Transactions In May 2020, Praxgen, under an asset purchase agreement, assigned its rights and obligations under the Praxgen Agreement for Amphetamine IR and Amphetamine ER to Mikah. The ANDAs for Amphetamine IR and Amphetamine ER are now registered under Elite’s name. Mikah will now be Elite’s partner with respect to Amphetamine IR and ER and will assume all the rights and obligations for these products from Praxgen. Mikah was founded in 2009 by Nasrat Hakim. Director Independence All related person transactions are reviewed and, as appropriate, may be approved or ratified by the Board of Directors. If a Director is involved in the transaction, he or she may not participate in any review, approval, or ratification of such transaction. Related person transactions are approved by the Board of Directors only if, based on all of the facts and circumstances, they are in, or not inconsistent with, our best interests and the best interests of our stockholders, as the Board of Directors determines in good faith. The Board of Directors takes into account, among other factors it deems appropriate, whether the transaction is on terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related person’s interest in the transaction. The Board of Directors may also impose such conditions as it deems necessary and appropriate on us or the related person in connection with the transaction. In the case of a transaction presented to the Board of Directors for ratification, the Board of Directors may ratify the transaction or determine whether rescission of the transaction is appropriate. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The Company’s independent registered public accounting firm for the fiscal year ending March 31, 2023 is Buchbinder Tunick & Company LLP (“ Buchbinder ”). The following table presents fees, including reimbursements for expenses, for professional audit services rendered by Buchbinder, for the audits of our financial statements and interim reviews of our quarterly financial statements. Fiscal 2023 Fiscal 2022 Audit Fees $ 120,000 $ 120,000 Audit-Related Fees $ — $ — Tax Fees $ 10,000 $ 8,500 Audit Fees Represents fees for professional services provided for the audit of our annual financial statements, services that are performed to comply with generally accepted auditing standards, and review of our financial statements included in our quarterly reports and services in connection with statutory and regulatory filings. Audit-Related Fees Represents the fees for assurance and related services that were reasonably related to the performance of the audit or review of our financial statements. Tax Fees Represents preparation of Federal, State and Local income tax returns. The Audit Committee has determined that Buchbinder’s rendering of these audit-related services was compatible with maintaining auditor’s independence. The Board of Directors considered Buchbinder to be well qualified to serve as our independent public accountants. The Committee also pre-approved the charges for services performed in Fiscal 2023. Pre-Approval Procedures The Audit Committee pre-approves all audit related and tax services and the terms thereof (which may include providing comfort letters in connection with securities underwriting) and non-audit services (other than non-audit services prohibited under Section 10A(g) of the Exchange Act or the applicable rules of the SEC or the Public Company Accounting Oversight Board) to be provided to us by the independent auditor; provided, however, the pre-approval requirement is waived with respect to the provisions of non-audit services for us if the “de minimus” provisions of Section 10A (i)(1)(B) of the Exchange Act are satisfied. This authority to pre-approve non-audit services may be delegated to one or more members of the Audit Committee, who shall present all decisions to pre-approve an activity to the full Audit Committee at its first meeting following such decision. 64 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES (a) The following are filed as part of this Annual Report on Form 10-K (1) The financial statements and schedules required to be filed by Item 8 of this Annual Report on Form 10-K and listed in the Index to Consolidated Financial Statements. (2) The Exhibits required by Item 601 of Regulation S-K and listed below in the “Index to Exhibits required by Item 601 of Regulation S-K.” (b) The Exhibits are filed with or incorporated by reference in this Annual Report on Form 10-K (c) None Index to Exhibits required by Item 601 of Regulation S-K. Exhibit No. Description 3.1(a) Articles of Incorporation of Elite-Nevada, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on January 9, 2012. 3.1(b) Certificate of Designations of the Series G Convertible Preferred Stock as filed with the Secretary of State of the State of Nevada on April 18, 2013, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, dated April 18, 2013 and filed with the SEC on April 22, 2013. 3.1(c) Certificate of Designation of the Series H Junior Participating Preferred Stock, incorporated by reference to Exhibit 2 (contained in Exhibit 1) to the Registration Statement on Form 8-A filed with the SEC on November 15, 2013. 3.1(d) Certificate of Designations of the Series I Convertible Preferred Stock as filed with the Secretary of State of the State of Nevada on February 6, 2014, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, dated February 6, 2014 and filed with the SEC on February 7, 2014. 3.1(e) Certificate of Designations of the Series J Convertible Preferred Stock as filed with the Secretary of State of the State of Nevada on May 3, 2017, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, dated April 28, 2017 and filed with the SEC on April 28, 2017. 3.1(f) Certificate of Amendment to Articles of Incorporation, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, dated June 29, 2020 and filed with the SEC on June 29, 2020. 3.2(a) Amended and Restated By-Laws of the Company, incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K dated April 23, 2020 and filed with the SEC on April 23, 2020. 4.1 Form of specimen certificate for Series G Convertible Preferred Stock of the Company, incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K, dated April 18, 2013 and filed with the SEC on April 22, 2013. 4.2 Form of specimen certificate for Series I Convertible Preferred Stock of the Company, incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K, dated February 6, 2014 and filed with the SEC on February 7, 2014. 4.3 Rights Agreement, dated as of November 15, 2013, between the Company and American Stock Transfer & Trust Company, LLC., incorporated by reference to Exhibit 1 to the Registration Statement on Form 8-A filed with the SEC on November 15, 2013. 4.4 Form of Series H Preferred Stock Certificate, incorporated by reference to Exhibit 1 to the Registration Statement on Form 8-A filed with the SEC on November 15, 2013. 4.5 Warrant to purchase shares of Common Stock issued to Nasrat Hakim dated April 28, 2017 incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, dated April 28, 2017, and filed with the SEC on April 28, 2017. 4.6 Description of Common Stock, incorporated by reference to Exhibit 4.6 to the Annual Report on Form 10-K, filed with the SEC on June 29, 2020 10.1 Elite Pharmaceuticals, Inc. 2014 Equity Incentive Plan, incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement for its Annual Meeting of Shareholders, filed with the SEC on April 3, 2014. 10.2 Form of Confidentiality Agreement (corporate), incorporated by reference to Exhibit 10.7 to the Form SB-2. 10.3 Form of Confidentiality Agreement (employee), incorporated by reference to Exhibit 10.8 to the Form SB-2. 10.4 Loan Agreement, dated as of August 15, 2005, between New Jersey Economic Development Authority (“NJEDA”) and the Company, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated August 31, 2005 and filed with the SEC on September 6, 2005. 65 10.5 Series A Note in the aggregate principal amount of $3,660,000.00 payable to the order of the NJEDA, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, dated August 31, 2005 and filed with the SEC on September 6, 2005. 10.19 August 1, 2013 Secured Convertible Note from the Company to Mikah Pharma LLC., incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, dated August 1, 2013 and filed with the SEC on August 5, 2013. 10.20 August 1, 2013 Security Agreement from the Company to Mikah Pharma LLC., incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, dated August 1, 2013 and filed with the SEC on August 5, 2013. 10.21 October 15, 2013 Hakim Credit Line Agreement, incorporated by reference to Exhibit 10.16 to the Quarterly Report on Form 10-Q for the period ended September 30, 2013. 10.22 October 2, 2013 Manufacturing and Licensing Agreement with Epic Pharma LLC, incorporated by reference to Exhibit 10.17 to the Amended Quarterly Report on Form 10-Q/A for the period ended September 30, 2013 and filed with the SEC on April 25, 2014. Confidential Treatment granted with respect to portions of the Agreement. 10.23 February 7, 2014 Amendment to Secured Convertible Note from the Company to Mikah, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated February 7, 2014 and filed with the SEC on February 7, 2014. 10.24 Employment Agreement with Dr. G. Kenneth Smith, dated October 20, 2014, incorporated by reference to Exhibit 10.82 to the Quarterly Report on Form 10-Q for the period ended September 30, 2014 and filed with the SEC on November 14, 2014. 10.25 January 28, 2015 First Amendment to the Loan Agreement between Nasrat Hakim and Elite Pharmaceuticals dated October 15, 2013, incorporated by reference to Exhibit 10.83 to the Quarterly Report on Form 10-Q for the period ended December 31, 2014 and filed with the SEC on February 17, 2015. 10.26 January 28, 2015 Termination of Development and License Agreement for Mikah-001 between Elite Pharmaceuticals, Inc. and Mikah Pharma LLC and Transfer of Payment, incorporated by reference to Exhibit 10.84 to the Quarterly Report on Form 10-Q for the period ended December 31, 2014 and filed with the SEC on February 17, 2015. 10.27 June 4, 2015 License Agreement with Epic Pharma LLC, incorporated by reference to Exhibit 10.85 to Amendment No. 1 to the Annual Report on Form 10-K for the fiscal year ended March 31, 2015 and filed with the SEC on July 11, 2016. (Confidential Treatment granted with respect to portions of the Agreement). 10.28 Amendment No. 1 to Hakim Employment Agreement, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on January 29, 2016. 10.29 August 24, 2016 Master Development and License Agreement between Elite and SunGen Pharma LLC. incorporated by reference to Exhibit 10.44 to the Quarterly Report on Form 10-Q for the period ended September 30, 2016 and filed with the SEC on November 9, 2016. (Confidential Treatment granted with respect to portions of the Agreement). 10.30 Purchase Agreement between the Company and Lincoln Park Capital LLC dated May 1, 2017, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated May 2, 2017 and filed with the SEC on May 2, 2017. 10.31 Registration Rights Agreement between the Company and Lincoln Park Capital LLC dated May 1, 2017, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, dated May 2, 2017 and filed with the SEC on May 2, 2017. 10.32 April 28, 2017 Exchange Agreement between the Company and Nasrat Hakim, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, dated April 28, 2017 and filed with the SEC on April 28. 2017. 10.33 May 2017 Trimipramine Acquisition Agreement from Mikah Pharma, incorporated by reference to Exhibit 10.50 to the Annual Report on Form 10-K, for the period ended March 31, 2017 and filed with the SEC on June 14, 2017. 10.34 May 2017 Secured Promissory Note from the Company to Mikah Pharma, incorporated by reference to Exhibit 10.51 to the Annual Report on Form 10-K, for the period ended March 31, 2017 and filed with the SEC on June 14, 2017. 10.35 May 2017 Security Agreement between the Company to Mikah Pharma, incorporated by reference to Exhibit 10.52 to the Annual Report on Form 10-K, for the period ended March 31, 2017 and filed with the SEC on June 14, 2017. 10.36 May 2017 Assignment of Supply and Distribution Agreement between Dr. Reddy’s Laboratories and Mikah Pharma, incorporated by reference to Exhibit 10.53 to the Annual Report on Form 10-K, for the period ended March 31, 2017 and filed with the SEC on June 14, 2017. 10.37 May 2017 Assignment of Manufacturing and Supply Agreement between Epic and Mikah Pharma, incorporated by reference to Exhibit 10.54 to the Annual Report on Form 10-K, for the period ended March 31, 2017 and filed with the SEC on June 14, 2017. 66 10.38 Supply and Distribution Agreement between Dr. Reddy’s Laboratories and Mikah Pharma, incorporated by reference to Exhibit 10.55 to the Annual Report on Form 10-K, for the period ended March 31, 2017 and filed with the SEC on June 14, 2017. (Confidential Treatment granted with respect to portions of the Agreement). 10.39 Manufacturing and Supply Agreement between Epic and Mikah Pharma, incorporated by reference to Exhibit 10.56 to the Annual Report on Form 10-K, for the period ended March 31, 2017 and filed with the SEC on June 14, 2017. (Confidential Treatment granted with respect to portions of the Agreement). 10.40 Master Development and License Agreement For Products Between Elite Pharmaceuticals, Inc. And SunGen dated July 6, 2017, incorporated by reference to Exhibit 10.57 to the Quarterly Report on Form 10-Q for the period ended June 30, 2017 and filed with the SEC on August 9, 2017. (Confidential Treatment granted with respect to portions of the Agreement). 10.41 First Amendment to Master Development And License Agreement For Products Between Elite Pharmaceuticals, Inc. and SunGen Pharma, LLC, incorporated by reference to Exhibit 10.59 to the Quarterly Report on Form 10-Q for the period ended June 30, 2017 and filed with the SEC on August 9, 2017. (Confidential Treatment granted with respect to portions of the Agreement). 10.42 Second Amendment to Master Development And License Agreement For Products Between Elite Pharmaceuticals, Inc. and SunGen Pharma, LLC, incorporated by reference to Exhibit 10.58 to the Quarterly Report on Form 10-Q for the period ended June 30, 2017 and filed with the SEC on August 9, 2017. (Confidential Treatment granted with respect to portions of the Agreement). 10.43 May 22, 2018 License, Manufacturing and Supply Agreement with Glenmark Pharmaceuticals Inc. USA, incorporated by reference to Exhibit 10.60 to the Annual Report on Form 10-K for the fiscal year ended March 31, 2018 and filed with the SEC on June 14, 2018. (Confidential treatment granted with respect to portions of the Agreement). 10.44 August 1, 2018 Amendment to the Glenmark Pharmaceuticals Inc. USA License, Supply and Distribution Agreement, incorporated by reference to Exhibit 10.44 to the Quarterly Report on Form 10-Q, for the period ended December 31, 2019 and filed with the SEC on February 10, 2020. (Portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10)).of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10)). 10.45 Development Agreement effective December 3, 2018 by and between Mikah Pharma LLC and Elite Laboratories, Inc., incorporated by reference to Exhibit 10.51 to the Annual Report on Form 10-K for the period ended March 31, 2019 and filed with the SEC on June 21, 2019 (portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10)). 10.46 Asset Purchase Agreement dated November 13, 2019 by and between the Company and Nostrum Laboratories Inc., incorporated by reference to Exhibit 10.49 to the Quarterly Report on Form 10-Q, for the period ended December 31, 2019 and filed with the SEC on February 10, 2020. 10.47 January 2, 2020 Amendment to the Glenmark Pharmaceuticals Inc. USA License, Supply and Distribution Agreement, incorporated by reference to Exhibit 10.50 to the Quarterly Report on Form 10-Q, for the period ended December 31, 2019 and filed with the SEC on February 10, 2020. (Portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10)). 10.48 Asset Purchase Agreement executed January 16, 2020 by and between the Company and Nostrum Laboratories Inc., incorporated by reference to Exhibit 10.49 to the Quarterly Report on Form 10-Q, for the period ended December 31, 2019 and filed with the SEC on February 10, 2020. 10.49 Employment Agreement with Douglas Plassche, incorporated by reference to Exhibit 10.52 to the Annual Report on Form 10-K, filed with the SEC on June 14, 2021. 67 10.50 Master Development and License Agreement for Products Between Elite Pharmaceuticals, Inc. and Mikah Pharma LLC, effective as of June 10, 2021.(Portions of this Agreement have been redacted in compliance with Regulation S-K Item 601(b)(10), incorporated by reference to the 10-Q for the period ended June 30, 2021 and filed with the SEC on August 16, 2021. 10.51 License and Distribution Agreement by and between Elite Pharmaceuticals, Inc. and Dexcel Ltd. (Or Akiva, Israel), dated December 6, 2021, incorporated by reference to Exhibit 10.57 to the Annual Report on Form 10-K for the period ended March 31, 2022, filed with the SEC on June 29, 2022. 10.52 February 18, 2022 Retention Agreement with Douglas Plassche, incorporated by reference to Exhibit 10.58 to the Annual Report on Form 10-K for the period ended March 31, 2022, filed with the SEC on June 29, 2022. 10.53 Agreement for Sale and Purchase of Real Estate, dated April 8, 2022, by and between Clyde Wesp and Margaret Wesp as trustees of the Wesp Family Joint Living Trust UTD November 19, 2015 and the Company, incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q, for the period ended June 30, 2022 and filed with the SEC on August 15, 2022. 10.54 Loan and Security Agreement, dated April 1, 2022, by and among East West Bank, Elite Pharmaceuticals, Inc. and Elite Laboratories, Inc., incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q, for the period ended June 30, 2022 and filed with the SEC on August 15, 2022. 10.55 Employment Agreement, dated September 5, 2022, between Elite Pharmaceuticals, Inc. and Kirko Kirkov, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on September 7, 2022. 21 Subsidiaries of the Company, incorporated by reference to Exhibit 21 to the Annual Report on Form 10-K, for the period ended March 31, 2019 and filed with the SEC on June 21, 2019. 23.1 Consent of Buchbinder Tunick & Company LLP, Independent Registered Public Accounting Firm* 31.1 Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) and Rule 15d-14(a)* 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** 101.INS* Inline XBRL Instance Document 101.SCH* Inline XBRL Taxonomy Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) * Filed herewith. ** Furnished herewith. ITEM 16. FORM 10-K SUMMARY None. 68 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ELITE PHARMACEUTICALS, INC. By: /s/ Nasrat Hakim Nasrat Hakim Chief Executive Officer Dated: June 29, 2023 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Nasrat Hakim Chief Executive Officer, President and Chairman of the June 29, 2023 Board of Directors (Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer) /s/ Barry Dash Director June 29, 2023 /s/ Jeffrey Whitnell Director June 29, 2023 /s/ Davis Caskey Director June 29, 2023 69 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 2023 AND 2022 TABLE OF CONTENTS PAGE REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Buchbinder Tunick & Company #6189) F-1 CONSOLIDATED BALANCE SHEETS F-2 CONSOLIDATED STATEMENTS OF OPERATIONS F-4 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 70 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Elite Pharmaceuticals, Inc., and Subsidiary Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Elite Pharmaceuticals, Inc. and Subsidiary (the “Company”) as of March 31, 2023 and 2022, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two year period ended March 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 2023 and 2022 and the results of its operations and its cash flows for each of the years in the two year period ended March 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate. Intangible Assets — Refer to Notes 1 and 4 to the consolidated financial statements Critical Audit Matter Description As described in Note 1 and 4 to the consolidated financial statements, the Company has capitalized costs of $6,052,189 for ANDAs and $289,039 for patents. The Company evaluates its intangible assets for impairment annually during the fourth quarter in accordance with ASC Topic 350, Intangibles, Goodwill and Other, and whenever events or circumstances change that indicate impairment may have occurred. Management performs a qualitative assessment of each intangible asset prior to performing a quantitative impairment test. Qualitative factors management considers include, the current revenue, cost factors of raw material and labor, current cash flows, legal and regulatory factors and industry and market considerations. If the qualitative assessment indicates the fair value is more likely than not less than the carrying value a quantitative test is performed. Management performed a quantitative test on certain intangible assets using a discounted cash flow methodology. The methods used to estimate the fair value of intangible assets involve significant assumptions. The significant assumptions applied by management in estimating the fair value of intangible assets included income projections and discount rates. Due to the significant estimates and assumptions management is required to make, we identified the fair value of intangible assets as a critical audit matter. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort. How We Addressed the Matter in Our Audit The primary procedures we performed to address this critical audit matter included: We obtained an understanding and evaluated the design and implementation of controls over the intangible valuation process. This included management’s review over the assessment of the methodology, significant inputs and assumptions included in the fair value estimate, as well as management’s review around the completeness, accuracy and reasonableness of the data used in this estimate. Our audit procedures assessed whether the valuation methodology used was appropriate and tested the mathematical accuracy of the valuation model. We evaluated whether the assumptions used were reasonable by considering the historical revenue, current customer contracts, gross profit percentage and cost of debt discount rates, and whether such assumptions were consistent with evidence obtained in other areas of the audit. /s/ Buchbinder Tunick & Company LLP Buchbinder Tunick & Company LLP We have served as the Company’s auditor since 2010. Little Falls, New Jersey 07424 June 29, 2023 PCAOB ID: 6189 F- 1 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (AUDITED) March 31, 2023 March 31, 2022 ASSETS Current assets: Cash $ 7,832,247 $ 8,535,357 Accounts receivable, net of allowance for doubtful accounts of $- 0 -, respectively 3,094,549 3,057,913 Inventory 9,550,716 6,741,170 Prepaid expenses and other current assets 1,032,785 526,949 Total current assets 21,510,297 18,861,389 Property and equipment, net of accumulated depreciation of $ 14,586,335 and $ 13,348,565 , respectively 10,426,158 5,952,992 Intangible assets 6,341,228 6,634,035 Operating lease - right-of-use asset 13,062 1,031,884 Deferred income tax benefit 2,171,821 2,171,821 Other assets: Restricted cash - debt service for NJEDA bonds 412,434 405,039 Security deposits 21,018 91,738 Total other assets 433,452 496,777 Total assets $ 40,896,018 $ 35,148,898 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 2,446,810 $ 1,430,985 Accrued expenses 5,047,726 4,693,142 Deferred revenue, current portion 13,333 13,333 Bonds payable, current portion, net of bond issuance costs 110,822 100,822 Loans payable, current portion 200,032 253,006 Lease obligation - operating lease, current portion 14,914 202,953 Total current liabilities 7,833,637 6,694,241 Long-term liabilities: Deferred revenue, net of current portion 18,890 32,226 Bonds payable, net of current portion and bond issuance costs 1,029,018 1,139,848 Loans payable, net of current portion 2,532,502 249,046 Lease obligation - operating lease, net of current portion — 835,893 Derivative financial instruments - warrants 521,711 936,837 Other long-term liabilities — 38,780 Total long-term liabilities 4,102,121 3,232,630 Total liabilities 11,935,758 9,926,871 The accompanying notes are an integral part of these consolidated financial statements. F- 2 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (AUDITED) (continued) March 31, 2023 March 31, 2022 Shareholders’ equity: Common stock; par value $ 0.001 ; 1,445,000,000 shares authorized; 1,014,015,081 shares issued and 1,013,915,081 shares outstanding as of March 31, 2023; 1,011,381,988 shares issued and 1,011,281,988 shares outstanding as of March 31, 2022 1,014,019 1,011,385 Additional paid-in capital 164,750,980 164,577,227 Treasury stock; 100,000 shares as of March 31, 2023 and March 31, 2022; at cost ( 306,841 ) ( 306,841 ) Accumulated deficit ( 136,497,898 ) ( 140,059,744 ) Total shareholders’ equity 28,960,260 25,222,027 Total liabilities and shareholders’ equity $ 40,896,018 $ 35,148,898 The accompanying notes are an integral part of these consolidated financial statements. F- 3 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (AUDITED) 2023 2022 For the Years Ended March 31, 2023 2022 Revenue: Manufacturing fees $ 29,187,573 $ 26,951,863 Licensing fees 4,967,541 5,310,254 Total revenue 34,155,114 32,262,117 Cost of manufacturing 17,561,093 17,466,763 Gross profit 16,594,021 14,795,354 Operating expenses: Research and development 6,200,163 4,051,349 General and administrative 5,122,272 4,464,003 Non-cash compensation through issuance of stock options 39,325 14,353 Impairment of intangible assets 292,807 — Depreciation and amortization 1,263,452 1,194,939 Total operating expenses 12,918,019 9,724,644 Income from operations 3,676,002 5,070,710 Other income, net: Change in fair value of derivative instruments 415,126 1,425,409 Interest expense and amortization of debt issuance costs ( 1,112,707 ) ( 191,816 ) Gain on sale of ANDA 1,000,000 — Interest income 7,453 126 Other income, net 309,872 1,233,719 Income before income taxes 3,985,874 6,304,429 Income tax (expense) benefit ( 424,028 ) 1,736,437 Net benefit for sale of state net operating losses and credits — 857,379 Net income attributable to common shareholders $ 3,561,846 $ 8,898,245 Basic net income per share attributable to common shareholders $ 0.00 $ 0.01 Diluted net income per share attributable to common shareholders $ 0.00 $ 0.01 Basic weighted average Common Stock outstanding 1,012,911,346 1,010,607,713 Diluted weighted average Common Stock outstanding 1,012,911,346 1,010,607,713 The accompanying notes are an integral part of these consolidated financial statements. F- 4 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (AUDITED) Shares Amount Shares Amount Capital Shares Amount Deficit Equity Series J Preferred Stock Common Stock Additional Paid-In Treasury Stock Accumulated Total Shareholders’ Shares Amount Shares Amount Capital Shares Amount Deficit Equity Balance as of March 31, 2021 — — 1,009,276,752 $ 1,009,279 $ 164,407,480 100,000 $ ( 306,841 ) $ ( 148,957,989 ) $ 16,151,929 Net income — — — — — — — 8,898,245 8,898,245 Non-cash compensation through the issuance of employee stock options — — — — 14,353 — — — 14,353 Shares issued in payment of salaries — — 2,105,236 2,106 155,394 — — — 157,500 Balance as of March 31, 2022 — $ — 1,011,381,988 $ 1,011,385 $ 164,577,227 100,000 $ ( 306,841 ) $ ( 140,059,744 ) $ 25,222,027 Beginning balance — $ — 1,011,381,988 $ 1,011,385 $ 164,577,227 100,000 $ ( 306,841 ) $ ( 140,059,744 ) $ 25,222,027 Net income — — — — — — — 3,561,846 3,561,846 Non-cash compensation through the issuance of employee stock options — — — — 39,325 — — — 39,325 Shares issued in payment of salaries — — 1,378,608 1,379 58,621 — — — 60,000 Shares issued in payment of consultants — — 1,254,485 1,255 75,807 — — — 77,062 Balance at March 31, 2023 — $ — 1,014,015,081 $ 1,014,019 $ 164,750,980 100,000 $ ( 306,841 ) $ ( 136,497,898 ) $ 28,960,260 Ending balance — $ — 1,014,015,081 $ 1,014,019 $ 164,750,980 100,000 $ ( 306,841 ) $ ( 136,497,898 ) $ 28,960,260 The accompanying notes are an integral part of these consolidated financial statements. F- 5 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (AUDITED) 2023 2022 For the Years Ended March 31, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,561,846 $ 8,898,245 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,277,622 1,209,119 Amortization of operating leases - right-of-use assets 67,061 225,590 Impairment of intangible assets 292,807 — Change in fair value of derivative financial instruments - warrants ( 415,126 ) ( 1,425,409 ) Deferred income tax benefit — ( 2,171,821 ) Non-cash compensation accrued 540,000 767,122 Non-cash compensation through the issuance of employee stock options 39,325 14,353 Non-cash rent expense and lease accretion 803 1,152 Change in operating assets and liabilities: Accounts receivable ( 36,636 ) 438,463 Inventory ( 2,809,546 ) ( 1,728,268 ) Prepaid expenses and other current assets ( 435,116 ) 209,796 Accounts payable, accrued expenses and other current liabilities 1,336,566 314,214 Deferred revenue and customer deposits ( 13,336 ) ( 13,332 ) Lease obligations - operating leases ( 67,566 ) ( 230,910 ) Net cash provided by operating activities 3,338,704 6,508,314 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 5,736,618 ) ( 498,566 ) Net cash used in investing activities ( 5,736,618 ) ( 498,566 ) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of bond principal ( 115,000 ) ( 110,000 ) Payments of loans and mortgage payable ( 12,240,111 ) — Proceeds from loans and mortgage payable, net of transaction costs 14,438,985 — Other loan payments ( 381,675 ) ( 557,133 ) Net cash provided by (used in) financing activities 1,702,199 ( 667,133 ) Net change in cash and restricted cash ( 695,715 ) 5,342,615 Cash and restricted cash, beginning of period 8,940,396 3,597,781 Cash and restricted cash, end of period $ 8,244,681 $ 8,940,396 Supplemental disclosure of cash and non-cash transactions: Cash paid for interest $ 1,098,537 $ 177,636 Cash paid for income taxes $ 424,028 $ — Financing of equipment purchases and insurance renewal $ — $ 244,124 Stock issued in payment of Directors fees, salaries and consulting expenses $ 137,062 $ 157,500 Supplemental non-cash amounts of lease liabilities arising from obtaining right of use assets $ — $ 1,042,800 Reconciliation of cash and restricted cash Cash $ 7,832,247 $ 8,535,357 Restricted cash - debt service for NJEDA bonds 412,434 405,039 Total cash and restricted cash shown in statement of cash flows $ 8,244,681 $ 8,940,396 The accompanying notes are an integral part of these consolidated financial statements. F- 6 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Overview Elite Pharmaceuticals, Inc. (the “Company” or “Elite”) was incorporated on October 1, 1997 under the laws of the State of Delaware, and its wholly-owned subsidiary Elite Laboratories, Inc. (“Elite Labs”) was incorporated on August 23, 1990 under the laws of the State of Delaware. On January 5, 2012, Elite Pharmaceuticals was reincorporated under the laws of the State of Nevada. Elite Labs engages primarily in researching, developing, licensing, manufacturing, and sales of generic, oral dose pharmaceuticals. The Company is equipped to manufacture controlled-release products on a contract basis for third parties and itself, if and when the products are approved. These products include drugs that cover therapeutic areas for allergy, bariatric, attention deficit and infection. Research and development activities are performed with an objective of developing products that will secure marketing approvals from the United States Food and Drug Administration (“FDA”), and thereafter, commercially exploiting such products. Principles of Consolidation The accompanying audited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The audited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Elite Labs. All significant intercompany accounts and transactions have been eliminated in consolidation. Segment Information Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 280 (“ASC 280”), Segment Reporting , establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the Chief Executive Officer, who reviews the financial performance and the results of operations of the segments prepared in accordance with GAAP when making decisions about allocating resources and assessing performance of the Company. The Company has determined that its reportable segments are products whose marketing approvals were secured via an Abbreviated New Drug Applications (“ANDA”) and products whose marketing approvals were secured via a New Drug Application (“NDA”). ANDA products are referred to as generic pharmaceuticals and NDA products are referred to as branded pharmaceuticals. There are currently no intersegment revenues. Asset information by operating segment is not presented below since the chief operating decision maker does not review this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s audited consolidated financial statements. Please see Note 15 for further details. Revenue Recognition The Company generates revenue from manufacturing and licensing fees and direct sales to pharmaceutical distributors for pharmacies and institutions. Manufacturing fees include the development of pain management products, manufacturing of a line of generic pharmaceutical products with approved ANDA, through the manufacture of formulations and the development of new products. Licensing fees include the commercialization of products either by license and the collection of royalties, or the expansion of licensing agreements with other pharmaceutical companies, including co-development projects, joint ventures and other collaborations. F- 7 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Under ASC 606, Revenue from Contacts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenues following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue. Nature of goods and services The following is a description of the Company’s goods and services from which the Company generates revenue, as well as the nature, timing of satisfaction of performance obligations, and significant payment terms for each, as applicable: a) Manufacturing Fees The Company is equipped to manufacture controlled-release products on a contract basis for third parties, if, and when, the products are approved. These products include products using controlled-release drug technology. The Company also develops and markets (either on its own or by license to other companies) generic and proprietary controlled-release pharmaceutical products. The Company recognizes revenue when the customer obtains control of the Company’s product based on the contractual shipping terms of the contract. The Company is primarily responsible for fulfilling the promise to provide the product, is responsible to ensure that the product is produced in accordance with the related supply agreement and bears risk of loss while the inventory is in-transit to the commercial partner. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to a customer. b) License Fees The Company enters into licensing and development agreements, which may include multiple revenue generating activities, including milestones payments, licensing fees, product sales and services. The Company analyzes each element of its licensing and development agreements in accordance with ASC 606 to determine appropriate revenue recognition. The terms of the license agreement may include payment to the Company of licensing fees, non-refundable upfront license fees, milestone payments if specified objectives are achieved, and/or royalties on product sales. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. The Company recognizes revenue from non-refundable upfront payments at a point in time, typically upon fulfilling the delivery of the associated intellectual property to the customer. For those milestone payments which are contingent on the occurrence of particular future events (for example, payments due upon a product receiving FDA approval), the Company determined that these need to be considered for inclusion in the calculation of total consideration from the contract as a component of variable consideration using the most-likely amount method. As such, the Company assesses each milestone to determine the probability and substance behind achieving each milestone. Given the inherent uncertainty of the occurrence of future events, the Company will recognize revenue from the milestone when there is not a high probability of a reversal of revenue, which typically occurs near or upon achievement of the event. F- 8 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Significant management judgment is required to determine the level of effort required under an arrangement and the period over which the Company expects to complete its performance obligations under the arrangement. If the Company cannot reasonably estimate when its performance obligations either are completed or become inconsequential, then revenue recognition is deferred until the Company can reasonably make such estimates. Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method. When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in ASC 606-10-32-18, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component as of March 31, 2023. In accordance with ASC 606-10-55-65, royalties are recognized when the subsequent sale of the customer’s products occurs. c) Direct Sales The Company will begin direct sales of products under the Company’s own label beginning on April 1, 2023. License agreements will remain in place for select products. With this transition, however, a large portion of the manufacturing and license fees now reported will be replaced with revenues from direct sales of pharmaceutical products to distributors for pharmacies and institutions. Disaggregation of revenue In the following table, revenue is disaggregated by type of revenue generated by the Company. The table also includes a reconciliation of the disaggregated revenue with the reportable segments: SCHEDULE OF DISAGGREGATION OF REVENUE For the Years Ended March 31, 2023 2022 NDA: Licensing fees $ — $ — Total NDA revenue — — ANDA: Manufacturing fees $ 29,187,573 $ 26,951,863 Licensing fees 4,967,541 5,310,254 Total ANDA revenue 34,155,114 32,262,117 Total revenue $ 34,155,114 $ 32,262,117 Selected information on reportable segments and reconciliation of operating income by segment to income (loss) from operations before income taxes are disclosed within Note 15. Cash The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks and money market instruments. The Company places its cash and cash equivalents with high-quality, U.S. financial institutions and, to date has not experienced losses on any of its balances. Restricted Cash As of March 31, 2023, and March 31, 2022, the Company had $ 412,434 and $ 405,039 , of restricted cash, respectively, related to debt service reserve in regard to the New Jersey Economic Development Authority (“NJEDA”) bonds (see Note 5). F- 9 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Accounts Receivable Accounts receivable are comprised of balances due from customers, net of estimated allowances for uncollectible accounts. In determining collectability, historical trends are evaluated, and specific customer issues are reviewed on a periodic basis to arrive at appropriate allowances. Inventory Inventory is recorded at the lower of cost or net realizable value on specific identification by lot number basis. Long-Lived Assets The Company periodically evaluates the fair value of long-lived assets, which include property and equipment and intangibles, whenever events or changes in circumstances indicate that its carrying amounts may not be recoverable. Property and equipment are stated at cost. Depreciation is provided on the straight-line method based on the estimated useful lives of the respective assets which range from three to forty years. Major repairs or improvements are capitalized. Minor replacements and maintenance and repairs which do not improve or extend asset lives are expensed currently. Upon retirement or other disposition of assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss, if any, is recognized in income. Intangible Assets The Company capitalizes certain costs to acquire intangible assets; if such assets are determined to have a finite useful life they are amortized on a straight-line basis over the estimated useful life. Costs to acquire indefinite lived intangible assets, such as costs related to ANDAs and patents 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. For the year ended March 31, 2023, the Company determined indicators of impairment have occurred and recorded impairment expense of $ 292,807 on its ANDAs and patents. Please also see Note 4 for further details on intangible assets. Research and Development Research and development expenditures are charged to expense as incurred. Contingencies Occasionally, the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s condensed consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. F- 10 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2023, a summary of the tax years that remain subject to examination in our major tax jurisdictions are: United States – Federal, 2019 and forward, and State, 2016 and forward. The Company did not record unrecognized tax positions for the years ended March 31, 2023 and 2022. F- 11 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Warrants and Preferred Shares The accounting treatment of warrants and preferred share series issued is determined pursuant to the guidance provided by ASC 470, Debt , ASC 480, Distinguishing Liabilities from Equity , and ASC 815, Derivatives and Hedging , as applicable. Each feature of a freestanding financial instrument including, without limitation, any rights relating to subsequent dilutive issuances, dividend issuances, equity sales, rights offerings, forced conversions, optional redemptions, automatic monthly conversions, dividends and exercise is assessed with determinations made regarding the proper classification in the Company’s financial statements. Stock-Based Compensation The Company accounts for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation . Under the fair value recognition provisions, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, based on the terms of the awards. The cost of the stock-based payments to nonemployees that are fully vested and non-forfeitable as at the grant date is measured and recognized at that date, unless there is a contractual term for services in which case such compensation would be amortized over the contractual term. In accordance with the Company’s Director compensation policy and certain employment contracts, director’s fees and a portion of employee’s salaries are to be paid via the issuance of shares of the Company’s Common Stock (“Common Stock”), in lieu of cash, with the valuation of such share being calculated on a quarterly basis and equal to the average closing price of the Company’s Common Stock. Sale of ANDA During the year ended March 31, 2023, the Company entered into an agreement with Pyros Pharmaceuticals, Inc. (“Pyros”) pursuant to which the Company sold to Pyros its rights in and to the Company’s approved abbreviated new drug applications (ANDAs) for its generic Sabril drug. The Company sold such rights to Pyros for $ 1,000,000 , which was recorded as gain on sale of ANDA during the year ended March 31, 2023. There is no further action required by the Company regarding the rights which would affect future periods. In conjunction with the sale of its Product to Pyros, the Company executed a Manufacturing and Supply agreement (the “Pyros Agreement”) with Pyros. Under the terms of the Pyros Agreement, the Company will receive an agreed-upon price per drug for the manufacturing and packaging of Sabril over a term of three years. Revenue per the Pyros Agreement will be recognized as control of the manufactured and supplied drugs is transferred to Pyros (at the time of delivery). Earnings Per Share Attributable to Common Shareholders ’ The Company follows ASC 260, Earnings Per Share, which requires presentation of basic and diluted earnings per share (“EPS”) on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying financial statements, basic earnings per share is computed by dividing net income by the weighted average number of shares of Common Stock outstanding during the period. The computation of diluted net income per share does not include the conversion of securities that would have an antidilutive effect. F- 12 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following is the computation of earnings per share applicable to common shareholders for the periods indicated: SCHEDULE OF EARNINGS (LOSS) PER SHARE APPLICABLE TO COMMON SHAREHOLDERS 2023 2022 For the Years Ended March 31, 2023 2022 Numerator Net income attributable to common shareholders - basic $ 3,561,846 $ 8,898,245 Effect of dilutive instrument on net income ( 415,126 ) ( 1,425,409 ) Net income - diluted $ 3,146,720 $ 7,472,836 Denominator Weighted average shares of Common Stock outstanding - basic 1,012,911,346 1,010,607,713 Dilutive effect of stock options and convertible securities — — Weighted average shares of Common Stock outstanding - diluted 1,012,911,346 1,010,607,713 Net income per share Basic $ 0.00 $ 0.01 Diluted $ 0.00 $ 0.01 Fair Value of Financial Instruments ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) provides a framework for measuring fair value in accordance with generally accepted accounting principles. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820 are described as follows: ● Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. ● Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. ● Level 3 – Inputs that are unobservable for the asset or liability. F- 13 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Measured on a Recurring Basis The following table presents information about our liabilities measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fell: SCHEDULE OF LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS Fair Value Measurement Using Amount at Fair Value Level 1 Level 2 Level 3 March 31, 2023 Liabilities Derivative financial instruments - warrants $ 521,711 $ — $ — $ 521,711 March 31, 2022 Liabilities Derivative financial instruments - warrants $ 936,837 $ — $ — $ 936,837 See Note 11 for specific inputs used in determining fair value. The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses, approximate their fair values because of the short maturity of these instruments. Based upon current borrowing rates with similar maturities the carrying value of long-term debt approximates fair value. Non-Financial Assets that are Measured at Fair Value on a Non-Recurring Basis Non-financial assets such as intangible assets, and property and equipment are measured at fair value only when an impairment loss is recognized. The Company did not record an impairment charge related to these assets in the periods presented. Treasury Stock The Company records treasury stock at the cost to acquire it and includes treasury stock as a component of shareholders’ equity. Recently Issued Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . This update requires immediate recognition of management’s estimates of current expected credit losses (“CECL”). Under the prior model, losses were recognized only as they were incurred. The new model is applicable to all financial instruments that are not accounted for at fair value through net income. The standard is effective for fiscal years beginning after December 15, 2022 for public entities qualifying as smaller reporting companies. Early adoption is permitted. The Company is currently assessing the impact of this update on the consolidated financial statements and does not expect a material impact on the consolidated financial statements. Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures. NOTE 2. INVENTORY Inventory consisted of the following: SCHEDULE OF INVENTORY March 31, 2023 March 31, 2022 Finished goods $ 2,352,330 $ 159,808 Work-in-progress 1,791,311 1,203,204 Raw materials 5,407,075 5,378,158 Inventory, net $ 9,550,716 $ 6,741,170 F- 14 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3. PROPERTY AND EQUIPMENT, NET Property and equipment consisted of the following: SCHEDULE OF PROPERTY AND EQUIPMENT March 31, 2023 March 31, 2022 Land, building and improvements $ 10,768,181 $ 5,456,524 Laboratory, manufacturing, warehouse and transportation equipment 13,364,512 13,017,731 Office equipment and software 395,563 373,601 Furniture and fixtures 484,237 453,701 Property and equipment, gross 25,012,493 19,301,557 Less: Accumulated depreciation ( 14,586,335 ) ( 13,348,565 ) Property and equipment, net $ 10,426,158 $ 5,952,992 Depreciation expense was $ 1,237,770 and $ 1,194,939 for the years ended March 31, 2023 and 2022, respectively. NOTE 4. INTANGIBLE ASSETS The following table summarizes the Company’s intangible assets: SCHEDULE OF INTANGIBLE ASSETS March 31, 2023 Estimated Useful Life Gross Carrying Amount Additions Impairment Accumulated Amortization Net Book Value Patent application costs * $ 465,684 $ — $ ( 176,645 ) $ — $ 289,039 ANDA acquisition costs Indefinite 6,168,351 — ( 116,162 ) — 6,052,189 $ 6,634,035 $ — $ ( 292,807 ) $ — $ 6,341,228 March 31, 2022 Estimated Useful Life Gross Carrying Amount Additions Reductions Accumulated Amortization Net Book Value Patent application costs * * $ 465,684 $ — $ — $ — $ 465,684 ANDA acquisition costs Indefinite 6,168,351 — — — 6,168,351 $ 6,634,035 $ — $ — $ — $ 6,634,035 * Patent application costs were incurred in relation to the Company’s abuse deterrent opioid technology. Amortization of the patent costs will begin upon the issuance of marketing authorization by the FDA. Amortization will then be calculated on a straight-line basis through the expiry of the related patent(s). F- 15 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5. ACCRUED EXPENSES As of March 31, 2023 and 2022, the Company’s accrued expenses consisted of the following: SUMMARY OF ACCRUED EXPENSES March 31, 2023 March 31, 2022 Salaries and fees payable in common stock $ 4,125,000 $ 3,625,000 Income tax 414,989 414,989 Consultant contract fees 193,333 153,333 Audit fees 125,000 140,000 Director dues 70,000 90,000 Employee bonuses — 143,000 Other accrued expenses 119,404 126,820 Total accrued expenses $ 5,047,726 $ 4,693,142 NOTE 6. NJEDA BONDS During August 2005, the Company refinanced a bond issue occurring in 1999 through the issuance of Series A and B Notes tax-exempt bonds (the “NJEDA Bonds” and/or “Bonds”). During July 2014, the Company retired all outstanding Series B Notes, at par, along with all accrued interest due and owed. In relation to the Series A Notes, the Company is required to maintain a debt service reserve. The debt service reserve is classified as restricted cash on the accompanying audited consolidated balance sheets. The NJEDA Bonds require the Company to make an annual principal payment on September 1st based on the amount specified in the loan documents and semi-annual interest payments on March 1st and September 1st, equal to interest due on the outstanding principal. The annual interest rate on the Series A Note is 6.5 %. The NJEDA Bonds are collateralized by a first lien on the Company’s facility and equipment acquired with the proceeds of the original and refinanced bonds. The following tables summarize the Company’s bonds payable liability: SCHEDULE OF BONDS PAYABLE LIABILITY March 31, 2023 March 31, 2022 Gross bonds payable NJEDA Bonds - Series A Notes $ 1,245,000 $ 1,360,000 Less: Current portion of bonds payable (prior to deduction of bond offering costs) ( 125,000 ) ( 115,000 ) Long-term portion of bonds payable (prior to deduction of bond offering costs) $ 1,120,000 $ 1,245,000 Bond offering costs $ 354,454 $ 354,454 Less: Accumulated amortization ( 249,294 ) ( 235,124 ) Bond offering costs, net $ 105,160 $ 119,330 Current portion of bonds payable - net of bond offering costs Current portions of bonds payable $ 125,000 $ 115,000 Less: Bonds offering costs to be amortized in the next 12 months ( 14,178 ) ( 14,178 ) Current portion of bonds payable, net of bond offering costs $ 110,822 $ 100,822 Long term portion of bonds payable - net of bond offering costs Long term portion of bonds payable 1,120,000 $ 1,245,000 Less: Bond offering costs to be amortized subsequent to the next 12 months ( 90,982 ) ( 105,152 ) Long term portion of bonds payable, net of bond offering costs $ 1,029,018 $ 1,139,848 Amortization expense was $ 14,178 for the years ended March 31, 2023 and 2022, respectively. As of March 31, 2023 and March 31, 2022, interest payable was $ 6,744 and $ 7,367 , respectively. Interest expense was $ 6,744 and $ 7,367 for the years ended March 31, 2023 and 2022, respectively. F- 16 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Maturities of bonds for the next five years are as follows: SCHEDULE OF MATURITIES OF BONDS Years ending March 31, Amount 2024 125,000 2025 130,000 2026 140,000 2027 150,000 Thereafter 700,000 Total $ 1,245,000 NOTE 7. LOANS PAYABLE On April 2, 2022, the Company and Elite Labs entered into a Loan and Security Agreement (the “EWB Loan Agreement”) with East West Bank (“EWB”). Pursuant to the EWB Loan Agreement, the Company and Elite Labs received one term loan for a principal amount of $ 12,000,000 (the “EWB Term Loan”) and a revolving line of credit up to $ 2,000,000 (the “EWB Revolver,” together with the “EWB Term Loan,” the EWB Loans”), each of which shall be used for working capital. The EWB Term Loan bears interest at a rate of 9.73 % ( 1.73 % plus the prime rate (“Prime”)) and is repayable over five years , maturing on May 1, 2027 . The EWB Revolver bears interest at a rate of ( 8.87 % ( 0.87 % plus Prime)) and matures on May 1, 2027 . The total transaction costs associated with the EWB Term Loan incurred as of March 31, 2023, were $ 40,120 , which are being amortized on a monthly basis over five years, beginning in April 2022. The EWB Loans are secured by a security interest in the personal property of the Company and Elite Labs. The EWB Loan Agreement contains customary representations, warranties and covenants. These covenants include, but are not limited to, maintaining maximum leverage ratios of 3.50 to 1.00, minimum liquidity of $5,000,000, minimum cash of $1,000,000, a fixed charge coverage ratio of 1.25 to 1.00 and restrictions on mergers or sales of assets and debt borrowings. As of March 31, 2023, the principal and interest on the EWB Term Loan has been paid in full by the Company and the EWB Loan Agreement is terminated. In place of the EWB Term Loan, the Company has entered into a collateralized promissory note with individual lenders with rates comparable to the EWB Term Loan but with less restrictive covenants (a “Promissory Note”). As of June 2, 2023, a Promissory Note was placed with Nasrat Hakim, CEO and Chairman of the Board of Directors, for $ 3,000,000 . The Promissory Note has an interest rate of 9% for the first year and 10% for an optional second year and the proceeds will be used for working capital and other business purposes . On July 1, 2022, the EWB provided a mortgage loan (“EWB Mortgage Loan”) in the amount of $ 2.55 million for the purchase of the property at 135-137 Ludlow Avenue, which was formerly a lease held by the Company. The EWB Mortgage Loan matures in 10 years and bears interest at a rate of 4.75% fixed for 5 years then adjustable at WSJP plus 0.5% with floor rate of 4.5% . The total transaction costs associated with the EWB Mortgage Loan incurred as of March 31, 2023, were $ 13,251 , which are being amortized on a monthly basis over ten years, beginning in July 2022. The EWB Mortgage Loan contains customary representations, warranties and covenants. These covenants include maintaining a minimum debt coverage ratio of 1.50 to 1.00 tested annually and a minimum trailing 12-month debt coverage ratio of 1.50 to 1.00. As of March 31, 2023, the Company was in compliance with each financial covenant. Loans payable consisted of the following: SCHEDULE OF LOANS PAYABLE March 31, 2023 March 31, 2022 Mortgage loan payable 4.75% interest and maturing June 2032 $ 2,472,923 $ — Equipment and insurance financing loans payable, between 7.10 % and 12.02 % interest and maturing between September 2023 and October 2025 259,611 502,052 Less: Current portion of loans payable ( 200,032 ) ( 253,006 ) Long-term portion of loans payable $ 2,532,502 $ 249,046 The interest expense associated with the loans and mortgage payable was $ 1,013,874 and $ 62,845 for the years ended March 31, 2023 and 2022, respectively. F- 17 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Loan and mortgage principal payments for the next five years are as follows: SCHEDULE OF LOAN PRINCIPAL PAYMENTS Years ending March 31, Amount 2024 200,032 2025 182,181 2026 115,330 2027 86,064 2028 and thereafter 2,148,927 Total $ 2,732,534 NOTE 8. DEFERRED REVENUE Deferred revenues in the aggregate amount of $ 32,223 as of March 31, 2023, were comprised of a current component of $ 13,333 and a long-term component of $ 18,890 . Deferred revenues in the aggregate amount of $ 45,559 as of March 31, 2022, were comprised of a current component of $ 13,333 and a long-term component of $ 32,226 . These line items represent the unamortized amounts of a $ 200,000 advance payment received for a TAGI Pharma (“TAGI”) licensing agreement with a fifteen-year term beginning in September 2010 and ending in August 2025 . These advance payments were recorded as deferred revenue when received and are earned, on a straight-line basis over the life of the licenses. The current component is equal to the amount of revenue to be earned during the 12-month period immediately subsequent to the balance sheet date and the long-term component is equal to the amount of revenue to be earned thereafter. NOTE 9. COMMITMENTS AND CONTINGENCIES Occasionally, the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s condensed consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. Operating Leases The Company entered into an operating lease for a portion of a one-story warehouse, located at 135 Ludlow Avenue, Northvale, New Jersey (the “135 Ludlow Ave. lease”). The 135 Ludlow Ave. lease is for approximately 15,000 square feet of floor space and began on July 1, 2010. During July 2014, the Company modified the 135 Ludlow Ave. lease in which the Company was permitted to occupy the entire 35,000 square feet of floor space in the building (“135 Ludlow Ave. modified lease”). The 135 Ludlow Ave. modified lease includes an initial term, which expired on December 31, 2016 with two tenant renewal options of five years each, at the sole discretion of the Company. On June 22, 2016, the Company exercised the first of these renewal options, with such option including a term that begins on January 1, 2017 and expires on December 31, 2021. On June 30, 2021, the Company exercised the second of the renewal options, with such option including a term that begins on January 1, 2022 and expires on December 31, 2026. The 135 Ludlow Ave. modified lease property required significant leasehold improvements and qualifications, as a prerequisite, for its intended future use. Manufacturing, packaging, warehousing and regulatory activities are currently conducted at this location. The Ludlow Ave. lease was terminated on July 1, 2022, when the Company purchased the underlying property. In October 2020, the Company entered into an operating lease for office space in Pompano Beach, Florida (the “Pompano Office Lease”). The Pompano Office Lease is for approximately 1,275 square feet of office space, with Elite taking occupancy on November 1, 2020. The Pompano Office includes a 3 month abatement from November 2020 through February 2021 and has a term of three years, ending on October 31, 2023 . The Company assesses whether an arrangement is a lease or contains a lease at inception. For arrangements considered leases or that contain a lease that is accounted for separately, the Company determines the classification and initial measurement of the right-of-use asset and lease liability at the lease commencement date, which is the date that the underlying asset becomes available for use. The Company has elected to account for non-lease components associated with its leases and lease components as a single lease component. F- 18 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company recognizes a right-of-use asset, which represents the Company’s right to use the underlying asset for the lease term, and a lease liability, which represents the present value of the Company’s obligation to make payments arising over the lease term. The present value of the lease payments is calculated using either the implicit interest rate in the lease or an incremental borrowing rate. Lease assets and liabilities are classified as follows on the condensed consolidated balance sheet: SCHEDULE OF LEASE ASSETS AND LIABILITIES Lease Classification As of March 31, 2023 Assets Operating Operating lease – right-of-use asset $ 13,062 Total leased assets $ 13,062 Liabilities Current Operating Lease obligation – operating lease $ 14,914 Long-term Operating Lease obligation – operating lease, net of current portion — Total lease liabilities $ 14,914 Rent expense is recorded on the straight-line basis. Rent expense under the 135 Ludlow Ave. modified lease for the years ended March 31, 2023 and 2022 was $ 58,248 and $ 229,563 , respectively. Rent expense under the Pompano Office Lease for the years ended March 31, 2023 and 2022 was $ 25,638 and $ 23,430 , respectively. Rent expense is recorded in general and administrative expense in the audited consolidated statements of operations. The table below shows the future minimum rental payments, exclusive of taxes, insurance and other costs, under the Pompano Office Lease: SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS Years ending March 31, Amount 2024 15,214 2025 — 2026 — 2027 — Thereafter — Total future minimum lease payments 15,214 Less: interest ( 300 ) Present value of lease payments $ 14,914 The weighted-average remaining lease term and the weighted-average discount rate of our lease was as follows: SCHEDULE OF WEIGHTED-AVERAGE REMAINING LEASE TERM AND THE WEIGHTED-AVERAGE DISCOUNT RATE Lease Term and Discount Rate March 31, 2023 Remaining lease term (years) Operating leases 0.6 Discount rate Operating leases 6 % The Company has an obligation for the restoration of its leased facility and the removal or dismantlement of certain property and equipment as a result of its business operation in accordance with ASC 410, Asset Retirement and Environmental Obligations – Asset Retirement Obligations . The Company records the fair value of the asset retirement obligation in the period in which it is incurred. The Company increases, annually, the liability related to this obligation. The liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the Company records either a gain or loss. As of March 31, 2023, and March 31, 2022, the Company had a liability of $ 0 and $ 38,780 , respectively, recorded as a component of other long-term liabilities. F- 19 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10. PREFERRED STOCK Series J convertible preferred stock On April 28, 2017, the Company created the Series J Convertible Preferred Stock (“Series J Preferred”) in conjunction with the Certificate of Designations (“Series J COD”). A total of 50 shares of Series J Preferred were authorized, zero shares are issued and outstanding, with a stated value of $ 1,000,000 per share and a par value of $ 0.01 as of March 31, 2023. On April 27, 2017, a total of 24.0344 shares of Series J Preferred were issued pursuant to an exchange agreement (the “Exchange Agreement”) with Hakim, a related party and the Company’s President, Chief Executive Officer and Chairman of the Board of Directors. The Exchange Agreement provided for Hakim to exchange 158,017,321 shares of Common Stock for 24.0344 shares of Series J Preferred and warrants to purchase 79,008,661 shares of Common Stock at $ 0.1521 per share. The aggregate stated value of the Series J Preferred issued was equal to the aggregate value of the shares of Common Stock exchanged, with such value of each share of Common Stock exchanged being equal to the closing price of the Common Stock on April 27, 2017. In connection with the Exchange Agreement, the Company also issued warrants to purchase 79,008,661 shares of Common Stock at $ 0.1521 per share, and such warrants are classified as liabilities on the accompanying audited consolidated balance sheet as of March 31, 2023 (See Note 11). An amendment to the Company’s Articles of Incorporation to increase the number of shares of Common Stock the Company is authorized to issue from 995,000,000 shares to 1,445,000,000 shares was approved at the Company’s Annual Meeting of Shareholders held on December 4, 2019. Prior to the approval of the increase in the number of authorized shares, there were insufficient authorized shares if the Series J Preferred Stock were converted. As a result, the shares were classified in mezzanine equity. After the approval of the increase in the number of authorized shares, there are now sufficient authorized shares in the event of a full conversion of Series J Preferred Stock. With the approval of the increase in the number of authorized shares, there is no longer the presumption that a cash settlement will be required. Therefore, the Series J Preferred was reclassified from mezzanine equity to permanent equity at its carrying amount of $ 13,903,960 on the consolidated balance sheets as of March 31, 2023 and 2022. On June 23, 2020, the Company held a Special Meeting of Shareholders, with such including a proposal for shareholders to again vote on the above referenced amendment to the Company’s Articles of Incorporation. This proposal was also passed by shareholder vote. On August 24, 2020, Hakim converted the 24.0344 shares of Series J Preferred into 158,017,321 shares of Common Stock at a conversion price of $ 0.1521 per share. NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS – WARRANTS The Company evaluates and accounts for its freestanding instruments in accordance with ASC 815, Accounting for Derivative Instruments and Hedging Activities . The Company issued warrants, with a term of ten years, to affiliates in connection with an exchange agreement dated April 28, 2017, as further described in this note below. The Company has 79,008,661 total warrant shares outstanding with a weighted average exercise price of $ 0.1521 as of March 31, 2023 and 2022. On April 28, 2017, the Company entered into an Exchange Agreement with Hakim, the Chairman of the Board, President, and Chief Executive Officer of the Company, pursuant to which the Company issued to Hakim 24.0344 shares of its Series J Preferred and warrants to purchase an aggregate of 79,008,661 shares of its Common Stock (the “Series J Warrants” and, along with the Series J Preferred issued to Hakim, the “Securities”) in exchange for 158,017,321 shares of Common Stock owned by Hakim. The fair value of the Series J Warrants was determined to be $ 6,474,674 upon issuance at April 28, 2017. F- 20 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Series J Warrants are exercisable for a period of 10 years from the date of issuance, commencing April 28, 2020. The initial exercise price is $ 0.1521 per share and the Series J Warrants can be exercised for cash or on a cashless basis. The exercise price is subject to adjustment for any issuances or deemed issuances of Common Stock or Common Stock equivalents at an effective price below the then exercise price. Such exercise price adjustment feature prohibits the Company from being able to conclude the warrants are indexed to its own stock and thus such warrants are classified as liabilities and measured initially and subsequently at fair value. The Series J Warrants also provide for other standard adjustments upon the happening of certain customary events. The fair value of the Series J Warrants was calculated using a Black-Scholes model instead of a Monte Carlo Simulation because the probability with the shareholder approval provisions was no longer a factor. The following assumptions were used in the Black-Scholes model to calculate the fair value of the Series J Warrants: SCHEDULE OF FAIR VALUE OF WARRANTS ISSUED March 31, 2023 March 31, 2022 Fair value of the Company’s Common Stock $ 0.0290 $ 0.0350 Volatility 74.37 % 76.55 % Initial exercise price $ 0.1521 $ 0.1521 Warrant term (in years) 4.1 5.1 Risk free rate 3.55 % 2.40 % The changes in warrants (Level 3 financial instruments) measured at fair value on a recurring basis for the year ended March 31, 2023 were as follows: SCHEDULE OF CHANGES IN WARRANTS MEASURED AT FAIR VALUE ON A RECURRING BASIS Balance at March 31, 2021 $ 2,362,246 Change in fair value of derivative financial instruments - warrants ( 1,425,409 ) Balance at March 31, 2022 $ 936,837 Change in fair value of derivative financial instruments - warrants ( 415,126 ) Balance at March 31, 2023 $ 521,711 NOTE 12. SHAREHOLDERS’ EQUITY Lincoln Park Capital Transaction - July 8, 2020 Purchase Agreement On July 8, 2020, the Company entered into a purchase agreement (the “2020 LPC Purchase Agreement”), and a registration rights agreement (the “2020 LPC Registration Rights Agreement”), with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park has committed to purchase up to $ 25.0 million of the Company’s Common Stock, $ 0.001 par value per share, from time to time over the term of the 2020 LPC Purchase Agreement, at the Company’s direction. The Company did not issue any shares of its Common Stock pursuant to the 2020 LPC Purchase Agreement during the years ended March 31, 2023 and 2022. In addition, there were no shares issued to Lincoln Park as additional commitment shares, pursuant to the 2020 LPC Agreement. The 2020 LPC Purchase Agreement will expire on August 1, 2023. F- 21 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Summary of Common Stock Activity During the years ended March 31, 2023 and 2022, the Company issued 2,633,093 and 2,105,236 shares of Common Stock, respectively, with such issuances of Common Stock being summarized as follows: SCHEDULE OF COMMON STOCK ACTIVITY 2023 2022 March 31, 2023 2022 Common Stock issued as of March 31, 2022 and 2021, respectively 1,011,381,988 1,009,276,752 Common Stock issued in payment of Directors fees, salaries and consulting fees 2,633,093 2,105,236 Common Stock issued during the fiscal year 2,633,093 2,105,236 Common Stock issued as of March 31, 2023 and 2022, respectively 1,014,015,081 1,011,381,988 NOTE 13. STOCK-BASED COMPENSATION Part of the compensation paid by the Company to its Directors and employees consists of the issuance of Common Stock or via the granting of options to purchase Common Stock. Stock-based Director Compensation The Company’s Director compensation policy, instituted in October 2009 and further revised in January 2016, includes provisions that a portion of director’s fees are to be paid via the issuance of shares of the Company’s Common Stock, in lieu of cash, with the valuation of such shares being calculated on quarterly basis and equal to the average closing price of the Company’s Common Stock. During the year ended March 31, 2023, the Company accrued director’s fees totaling $ 90,000 , which will be paid via cash payments totaling $ 30,000 and the issuance of 1,753,686 shares of Common Stock. Stock-based Employee/Consultant Compensation Employment contracts with the Company’s President and Chief Executive Officer and certain other employees and engagement contracts with certain consultants include provisions for a portion of each employee’s salaries or consultant’s fees to be paid via the issuance of shares of the Company’s Common Stock, in lieu of cash, with the valuation of such shares being calculated on a quarterly basis and equal to the average closing price of the Company’s Common Stock. During the year ended March 31, 2023, the Company accrued salaries totaling $ 540,000 owed to the Company’s President, Chief Executive Officer and certain other employees which will be paid via the issuance of 14,956,851 shares of Common Stock. As of March 31, 2023, the Company owed its President, Chief Executive Officer and certain other employees’ salaries totaling $ 4,335,000 which will be paid via the issuance of 68,264,667 shares of Common Stock. F- 22 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Options Under its 2014 Stock Option Plan and prior options plans, the Company may grant stock options to officers, selected employees, as well as members of the Board of Directors and advisory board members. All options have generally been granted at a price equal to or greater than the fair market value of the Company’s Common Stock at the date of the grant. Generally, options are granted with a vesting period of up to three years and expire ten years from the date of grant. A summary of the activity of Company’s 2014 Stock Option Plan for the years ended March 31, 2023 and 2022 is as follows: SCHEDULE OF STOCK OPTION PLAN Shares Underlying Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding at March 31, 2021 5,900,000 $ 0.13 3.7 $ 6,000 Granted 500,000 $ 0.05 — $ — Forfeited and expired ( 750,000 ) $ — — $ — Outstanding at March 31, 2022 5,650,000 $ 0.14 2.8 $ — Granted 15,530,000 $ 0.03 10.0 $ — Forfeited and expired (5,810,000 ) $ — — $ — Outstanding at March 31, 2023 15,370,000 $ 0.07 7.4 $ — Exercisable at March 31, 2023 4,182,000 $ 0.14 2.2 $ — The aggregate intrinsic value for outstanding options is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s Common Stock as of March 31, 2023 and March 31, 2022 of $ 0.03 and $ 0.03 , respectively. As of March 31, 2023, there was $ 205,340 in unrecognized stock-based compensation expense that will be recognized over a 1.5 year period. NOTE 14. CONCENTRATIONS AND CREDIT RISK Revenues Two customers accounted for approximately 96 % of the Company’s revenues for the year ended March 31, 2023. These two customers accounted for approximately 85 % and 11 % of revenues each, respectively. Two customers accounted for approximately 95 % of the Company’s revenues for the year ended March 31, 2022. These two customers accounted for approximately 84 % and 11 % of revenues each, respectively. Accounts Receivable One customer accounted for approximately 96 % of the Company’s accounts receivable as of March 31, 2023. Two customers accounted for approximately 91 % of the Company’s accounts receivable as of March 31, 2022. These two customers accounted for approximately 78 % and 13 % of accounts receivable each, respectively. Purchasing One supplier accounted for approximately 34 % of the Company’s purchases of raw materials for the year ended March 31, 2023. Four suppliers accounted for more than 69 % of the Company’s purchases of raw materials for the year ended March 31, 2022. These four suppliers accounted for approximately 51 %, 7 %, 6 %, and 5 % of purchases each, respectively. F- 23 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15. SEGMENT RESULTS FASB ASC 280-10-50 requires use of the “management approach” model for segment reporting. The management approach is based on the way a company’s management organized segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. The Company has determined that its reportable segments are ANDAs for generic products and NDAs for branded products. The Company identified its reporting segments based on the marketing authorization relating to each and the financial information used by its chief operating decision maker to make decisions regarding the allocation of resources to and the financial performance of the reporting segments. Asset information by operating segment is not presented below since the chief operating decision maker does not review this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s audited consolidated financial statements. The following represents selected information for the Company’s reportable segments: SCHEDULE OF SELECTED INFORMATION FOR REPORTABLE SEGMENTS 2023 2022 For the Years Ended March 31, 2023 2022 Operating Income by Segment ANDA 10,393,857 10,744,005 NDA — — Operating Income by Segment $ 10,393,857 $ 10,744,005 The table below reconciles the Company’s operating income by segment to income from operations before provision for income taxes as reported in the Company’s audited consolidated statement of operations: SCHEDULE OF OPERATING INCOME BY SEGMENT TO INCOME FROM OPERATIONS 2023 2022 For the Years Ended March 31, 2023 2022 Operating income by segment $ 10,393,857 $ 10,744,005 Corporate unallocated costs ( 3,581,468 ) ( 3,696,881 ) Interest income 7,453 126 Interest expense and amortization of debt issuance costs ( 1,112,707 ) ( 191,816 ) Impairment of intangible assets ( 292,807 ) — Depreciation and amortization expense ( 1,263,452 ) ( 1,194,939 ) Significant non-cash items ( 580,128 ) ( 781,475 ) Change in fair value of derivative instruments 415,126 1,425,409 Income before income taxes $ 3,985,874 $ 6,304,429 NOTE 16. RELATED PARTY AGREEMENTS WITH MIKAH PHARMA, LLC In May 2020, Praxgen, pursuant to an asset purchase agreement, assigned its rights and obligations under the Praxgen Agreement for Amphetamine IR and Amphetamine ER to Mikah Pharma LLC (“Mikah”). The ANDAs for Amphetamine IR and Amphetamine ER are now registered under Elite’s name. Mikah will now be Elite’s partner with respect to Amphetamine IR and ER and will assume all the rights and obligations for these products from Praxgen. Mikah was founded in 2009 by Nasrat Hakim, a related party and the Company’s President, Chief Executive Officer and Chairman of the Board. In June 2021, the Company entered into a development and license agreement with Mikah, pursuant to which Mikah will engage in the research, development, sales and licensing of generic pharmaceutical products. In addition, Mikah will collaborate to develop and commercialize generic products including formulation development, analytical method development, manufacturing, sales and marketing of generic products. Initially two generic products were identified for the parties to develop. F- 24 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17. INCOME TAXES The components of the income taxes benefit (expense) are as follows: SCHEDULE OF COMPONENTS OF INCOME TAXES BENEFIT (EXPENSE) 2023 2022 Year Ended March 31, 2023 2022 Federal Current $ 784,577 $ 1,160,715 Deferred — 2,171,821 Benefit of net operating loss carryforward ( 784,577 ) ( 1,160,715 ) State Current ( 424,028 ) ( 435,384 ) Deferred — — Income tax (expense) benefit $ ( 424,028 ) $ 1,736,437 Benefit from sale of state net operating loss credits $ — $ 857,379 Net benefit from sale of state net operating loss credits $ — $ 857,379 The major components of deferred tax assets and liabilities as of March 31, 2023 and 2022 are as follows (amounts in thousands of dollars): SCHEDULE OF COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES 2023 2022 Year Ended March 31, 2023 2022 Federal Net operating loss carry forward $ 17,613 $ 21,180 Tax credits 4,993 4,764 Valuation allowance ( 20,434 ) ( 23,772 ) Deferred tax assets and liabilities $ 2,172 $ 2,172 State Net operating loss carry forward $ — $ 747 Valuation Allowance — ( 747 ) Deferred tax assets and liabilities $ — $ — At March 31, 2023 and 2022, a 90 % and 90 % valuation allowance is provided, respectively, as it is uncertain if the deferred tax assets will provide total future benefits because of the uncertainty about the Company’s ability to generate the future taxable income necessary to use the net operating loss carry forwards. The company believes that temporary timing differences between accrual and payment of income taxes are not material to the financial position of the Company. As of March 31, 2023, Elite has a federal net operating loss carry forward of $ 83.9 million, which have not expired. During 2022, the Company was able to release a portion of its valuation allowance as it determined future profits will offset a portion of its valuation allowance. During 2022, the Company recorded a tax benefit of $ 2.2 million as a result of this change in judgment. There is no change in the net deferred tax asset for 2023. Absent the above mentioned allowance, at March 31, 2023, the Company’s federal and state income taxes due were $ 0.0 million and $ 0.4 million, respectively. F- 25