What changed in this filing

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Item 1. Financial Statements

2023-08-14 compared with 2023-02-14 · 444 added, 428 removed, 536 unchanged (62% of the section changed)

FINANCIAL STATEMENTS

December 31, 2022

PHARMACEUTICALS, INC.

AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

June 30, 2023

March 31, 2023

Current assets:

Accounts receivable

Accounts receivable, net of allowance for expected credit losses of $ 100,000 and $ 0 as of June 30, 2023 and March 31, 2023, respectively

Prepaid expenses and other current assets

1 unchanged sentence

Property and equipment, net of accumulated depreciation of $ 14,914,617 and $ 14,586,335 , respectively

Intangible assets, net of accumulated amortization of $- 0 -, respectively

Intangible assets, net of accumulated amortization of $-0-

Operating lease - right-of-use asset

11 unchanged sentences

Loans payable, current portion

Related party loans payable (Note 7)

Lease obligation - operating lease, current portion

4 unchanged sentences

Loans payable, net of current portion and loan costs

Lease obligation - operating lease, net of current portion

Derivative financial instruments - warrants

Other long-term liabilities

Total long-term liabilities

1 unchanged sentence

Shareholders’ equity:

Series J convertible preferred stock;

par value of $ 0.01 ;

50 shares authorized;

0 issued and outstanding as of December 31, 2022 and March 31, 2022

Common stock;

1 unchanged sentence

1,445,000,000 shares authorized;

1,014,015,081 and 1,011,381,988 shares issued as of December 31, 2022 and March 31, 2022, respectively;

1,013,915,081 and 1,011,281,988 shares outstanding as of December 31, 2022 and March 31, 2022, respectively

1,014,015,081 shares issued and 1,013,915,081 shares outstanding as of June 30, 2023;

1,014,015,081 shares issued and 1,013,915,081 shares outstanding as of March 31, 2023

Additional paid-in capital

Treasury stock;

100,000 shares as of December 31, 2022 and March 31, 2022;

100,000 shares as of June 30, 2023 and March 31, 2023, respectively, at cost

Accumulated deficit

6 unchanged sentences

AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended December 31,

For the Nine Months Ended December 31,

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended

Manufacturing fees

12 unchanged sentences

Interest expense and amortization of debt issuance costs

Gain on sale of ANDA

Interest income

Other income, net

Other expense, net

Income before income taxes

Income tax expense

Net benefit for sale of state net operating losses and credits

Net income attributable to common shareholders

4 unchanged sentences

1,011,381,988

1,012,480,115

1,010,416,823

Diluted weighted average Common Stock outstanding

1 unchanged sentence

1,011,381,988

1,012,480,115

1,010,416,823

The accompanying notes are an integral part

of these unaudited condensed consolidated financial statements.

accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

PHARMACEUTICALS, INC.

AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Series J Preferred Stock

Additional Paid-In

Treasury Stock

Shareholders’

Balance as of March 31, 2022

Total Shareholders’

Balance as of April 1, 2023

1,013,915,081

3 unchanged sentences

Non-cash compensation through the issuance of employee stock options

Shares issued in payment of salaries

Balance at June 30, 2023

3 unchanged sentences

$ ( 135,356,089 )

Non-cash compensation through the issuance of employee stock options

Share issued in payment of director salaries

Shares issued in payment of consultants

Balance at September 30, 2022

1,014,015,081

$ 164,722,951

$ ( 306,841 )

$ ( 138,238,722 )

Non-cash compensation through the issuance of employee stock options

Balance at December 31, 2022

1,014,015,081

$ 164,735,980

$ ( 306,841 )

$ ( 135,268,644 )

accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

ELITE PHARMACEUTICALS, INC.

AND SUBSIDIARY

CONDENSED CONSOLIDATED

STATEMENTS OF SHAREHOLDERS’ EQUITY

Series J Preferred Stock

Additional Paid-In

Treasury Stock

Shareholders’

Balance as of March 31, 2021

Total Shareholders’

Balance as of April 1, 2022

1,011,381,988

3 unchanged sentences

Non-cash compensation through the issuance of employee stock options

Shares issued in payment of salaries

Balance at June 30, 2022

3 unchanged sentences

$ ( 139,753,861 )

Non-cash compensation through the issuance of employee stock options

Balance at September 30, 2021

1,011,381,988

$ 164,569,861

$ ( 306,841 )

$ ( 144,771,894 )

Non-cash compensation through the issuance of employee stock options

Balance at December 31, 2021

1,011,381,988

$ 164,573,491

$ ( 306,841 )

$ ( 142,488,481 )

accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1 unchanged sentence

AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization

Bad debt expense

Amortization of operating leases - right-of-use assets

Change in fair value of derivative financial instruments - warrants

( 1,523,394 )

Non-cash compensation accrued

Non-cash compensation through the issuance of employee stock options

4 unchanged sentences

( 1,617,715 )

( 1,681,168 )

Prepaid expenses and other current assets

2 unchanged sentences

Lease obligations - operating leases

Net cash provided by operating activities

Net cash used in operating activities

( 2,709,815 )

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment

( 5,200,407 )

Net cash used in investing activities

( 5,200,407 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Payment of bond principal

Proceeds from loans payable

Other loan payments

Net cash provided by (used in) financing activities

Proceeds from related party loans payable

Loan payments

Net cash provided by financing activities

Net change in cash and restricted cash

4 unchanged sentences

Cash paid for income taxes

Financing of equipment purchases and insurance renewal

Stock issued in payment of Directors fees, salaries and consulting expenses

Supplemental non-cash amounts of lease liabilities arising from obtaining right of use assets

accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

The accompanying notes are an integral part

of these unaudited condensed consolidated financial statements.

PHARMACEUTICALS, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

5 unchanged sentences

On January 5, 2012, Elite Pharmaceuticals was reincorporated under the laws of the State of

Elite Labs engages primarily in researching, developing, licensing and manufacture of generic, oral dose pharmaceuticals.

Company is equipped to manufacture controlled-release products on a contract basis for third parties and itself, if and when the product

candidates 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 product candidates that will secure marketing approvals

from the United States Food and Drug Administration (“FDA”), and thereafter, commercially exploiting such products.

of Consolidation

accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting

principles in the United States (“GAAP”).

The unaudited condensed consolidated financial statements include the accounts

of the Company and its wholly-owned subsidiary, Elite Labs.

All significant intercompany accounts and transactions have been eliminated

in consolidation.

The unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring items,

which are, in the opinion of management, necessary for a fair presentation of such statements.

The results of operations for the nine

months ended December 31, 2022 are not necessarily indicative of the results that may be expected for the entire year.

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

product candidates 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 product candidates that will secure

marketing approvals from the United States Food and Drug Administration (“FDA”), and thereafter, commercially exploiting

such products.

of Presentation

accompanying unaudited condensed consolidated financial statements of the Company are presented in conformity with accounting

principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary,

All significant intercompany accounts and transactions have been eliminated in consolidation.

Certain information or

footnote disclosures normally included in condensed financial statements prepared in accordance with GAAP have been condensed or

omitted, pursuant to the rules and regulations of the SEC for interim financial reporting.

Accordingly, they do not include all the

information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows.

the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments,

consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results

and cash flows for the periods presented.

The accompanying unaudited condensed consolidated financial statements should be read in

conjunction with the Company’s Form 10-K as filed with the SEC on June 29, 2023.

The interim results for the three months

ended June 30, 2023 are not necessarily indicative of the results to be expected for the fiscal year ending March 31, 2024 or for

any future periods.

Accounting Standards Board (“FASB”) Accounting Standards Codification 280 (“ASC 280”), Segment Reporting ,

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of the Company.

Company has determined that its reportable segments are products whose marketing approvals were secured via an Abbreviated New Drug Applications

Company has determined that its reportable segments are products whose marketing approvals were secured via an Abbreviated New Drug Application

(“ANDA”) and products whose marketing approvals were secured via a New Drug Application (“NDA”).

7 unchanged sentences

Please see Note 15 for further details.

Company generates revenue primarily from manufacturing and licensing fees.

Manufacturing fees include the development of pain management

products, manufacturing of a line of generic pharmaceutical products with approved ANDA, through the manufacture of formulations and

the development of new products.

Licensing fees include the commercialization of products either by license and the collection of royalties,

or the expansion of licensing agreements with other pharmaceutical companies, including co-development projects, joint ventures and other

collaborations.

PHARMACEUTICALS, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

ASC 606, Revenue from Contacts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains

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Company recognizes revenue when the customer obtains control of the Company’s product based on the contractual shipping terms of

the contract.

the contract, at which time the performance obligation is deemed to be completed.

The Company is primarily responsible for fulfilling the promise to provide the product, is responsible to ensure that the

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conditions and internally approved pricing guidelines related to the performance obligations.

PHARMACEUTICALS, INC.

AND SUBSIDIARY

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Company recognizes revenue from non-refundable upfront payments at a point in time, typically upon fulfilling the delivery of the associated

7 unchanged sentences

of a reversal of revenue, which typically occurs near or upon achievement of the event.

PHARMACEUTICALS, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

management judgment is required to determine the level of effort required under an arrangement and the period over which the Company

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None of the Company’s contracts contained a significant financing

component as of December 31, 2022.

component as of June 30, 2023.

accordance with ASC 606-10-55-65, royalties are recognized when the subsequent sale of the customer’s products occurs.

Company entered into a sales and distribution licensing agreement with Epic Pharma LLC, (“Epic”) dated June 4, 2015 (the

“2015 Epic License Agreement”), which has been determined to satisfy the criteria for consideration as a collaborative agreement,

and is accounted for accordingly.

The 2015 Epic License Agreement expired on June 4, 2020 without renewal.

Company entered into a Master Development and License Agreement with SunGen Pharma LLC dated August 24, 2016 (the “SunGen Agreement”),

which has been determined to satisfy the criteria for consideration as a collaborative agreement, and is accounted for accordingly.

April 3, 2020, Elite and SunGen mutually agreed to discontinue any further joint product development activities.

Company began direct sales of products under the Company’s own label 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

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:

The Company recognizes revenue at a point

in time for all performance obligations.

The table also includes a reconciliation of the disaggregated revenue with the reportable

OF DISAGGREGATION OF REVENUE

For the Three Months Ended December 31,

For the Nine Months Ended December 31,

Licensing fees

Total NDA revenue

For the Three Months Ended

Manufacturing fees

2 unchanged sentences

Total revenue

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.

information on reportable segments and reconciliation of operating income by segment to income from operations before income taxes

are disclosed within Note 15.

PHARMACEUTICALS, INC.

1 unchanged sentence

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

of December 31, 2022, and March 31, 2022, the Company had $ 405,164 and $ 405,039 , of restricted cash, respectively, related to debt service

Cash consists of cash on deposit with banks and money market instruments.

The Company places its cash with high-quality, U.S.

institutions and, to date has not experienced losses on any of its balances.

of June 30, 2023, and March 31, 2023, the Company had $ 415,430 and $ 412,434 , of restricted cash, respectively, related to debt service

reserve in regard to the New Jersey Economic Development Authority (“NJEDA”) bonds (see Note 5).

receivable are comprised of balances due from customers, net of estimated allowances for uncollectible accounts.

Receivable and Allowance for Expected Credit Losses

receivable are comprised of balances due from customers, net of estimated allowances for expected credit losses.

In determining collectability,

historical trends are evaluated, and specific customer issues are reviewed on a periodic basis to arrive at appropriate allowances.

allowance for expected credit losses is based on the probability of future collection under the current expected credited loss (“CECL”)

impairment model under Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Assets,

which was adopted by the Company on February 1, 2023, as discussed below within Recently Adopted Accounting Pronouncements.

CECL impairment model, the Company determines its allowance by applying a loss-rate method based on an aging schedule using the Company’s

historical loss rate.

The Company also considers reasonable and supportable current information in determining its estimated loss rates,

such as external forecasts, macroeconomic trends or other factors including customers’ credit risk and historical loss experience.

The adequacy of the allowance is evaluated on a regular basis.

Account balances are written off after all means of collection are exhausted

and the balance is deemed uncollectible.

Subsequent recoveries are credited to the allowance.

Changes in the allowance are recorded as

adjustments to credit losses in the period incurred.

to April 1, 2023, trade receivables were presented net of allowance for expected credit losses based on the credit risk of specific clients,

past collection history, and management’s evaluation of other risks.

Expected credit losses stemming from unbilled receivables

expected to be billed between March 31, 2024 and March 31, 2028 include additional risk premiums estimated based on factors such as projected

inflation, projected decreases in GDP, and projected unemployment.

is recorded at the lower of cost or net realizable value on specific identification by lot number basis.

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ANDAs are capitalized accordingly.

PHARMACEUTICALS, INC.

AND SUBSIDIARY

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Company tests its intangible assets for impairment at least annually (as of March 31st) and whenever events or circumstances change that

8 unchanged sentences

and slower growth rates.

of December 31, 2022, the Company did not identify any indicators of impairment.

also see Note 4 for further details on intangible assets.

the year ended March 31, 2023, the Company determined indicators of impairment occurred and recorded impairment expense of $ 292,807

on its ANDAs and patents.

There were no such impairment recorded during the period ended June 30, 2023.

following table summarizes the Company’s intangible assets as of and for the periods ended June 30, 2023 and March 31,

OF INTANGIBLE ASSETS

June 30, 2023

Patent application costs

ANDA acquisition costs

March 31, 2023

Patent application costs

$ ( 176,645 )

ANDA acquisition costs

$ ( 292,807 )

and Development

and development expenditures are charged to expense as incurred.

and development expenditures are charged to expenses as incurred.

Contingencies

7 unchanged sentences

of complex judgments about future events and can rely heavily on estimates and assumptions.

PHARMACEUTICALS, INC.

AND SUBSIDIARY

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

taxes are accounted for under the asset and liability method.

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These tax benefits are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution .

PHARMACEUTICALS, INC.

AND SUBSIDIARY

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Company operates in multiple tax jurisdictions within the United States of America.

1 unchanged sentence

tax jurisdiction until the applicable statutes of limitation expire.

As of December 31, 2022, a summary of the tax years that remain

subject to examination in our major tax jurisdictions are:

As of June 30, 2023, a summary of the tax years that remain subject

to examination in our major tax jurisdictions are:

United States – Federal, 2016 and forward.

The Company did not record

unrecognized tax positions for the nine months ended December 31, 2022.

The Company did not record unrecognized

tax positions for the three months ended June 30, 2023.

and Preferred Shares

5 unchanged sentences

with determinations made regarding the proper classification in the Company’s financial statements.

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.

Company accounts for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation .

9 unchanged sentences

Company’s Common Stock.

the nine months ended December 31, 2022, the Company entered into an agreement with Pyros Pharmaceuticals, Inc.

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 its rights to Pyros for $ 1,000,000 , which was recorded as gain on sale of ANDA during the

nine months ended December 31, 2022.

There is no further action required by the Company regarding the rights which would affect future

Company records earned but unissued stock-based compensation in accrued expenses.

the quarter ended December 31, 2022, 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 its 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.

conjunction with the sale of its Product to Pyros, the Company executed a Manufacturing and Supply agreement (the “Pyros Agreement”)

13 unchanged sentences

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

following is the computation of earnings per share applicable to common shareholders for the periods indicated:

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following is the computation

of earnings per share applicable to common shareholders for the periods indicated:

OF EARNINGS (LOSS) PER SHARE APPLICABLE TO COMMON SHAREHOLDERS

For the Three Months Ended December 31,

For the Nine Months Ended December 31,

For the Three Months Ended

Net income - basic 1

Effect of dilutive instrument on net income

( 1,523,394 )

Net income - diluted

Net income - basic and diluted

Weighted average shares of Common Stock outstanding - basic

1 unchanged sentence

1,011,381,988

1,012,480,115

1,010,416,823

Dilutive effect of stock options and convertible securities

2 unchanged sentences

1,011,381,988

1,012,480,115

1,010,416,823

Net income per share

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3 – Inputs that are unobservable for the asset or liability.

PHARMACEUTICALS, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

on a Recurring Basis

2 unchanged sentences

OF LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS

Fair Value Measurement Using

Fair Value Measurement

Amount at Fair Value

Balance as of March 31, 2022

Balance as of April 1, 2023

Change in fair value of derivative instruments

Balance as of December 31, 2022

Balance as of June 30, 2023

Fair Value Measurement

Amount at Fair Value

Balance as of April 1, 2022

Change in fair value of derivative instruments

Balance as of June 30, 2022

No amounts are included in the calculation because their effects are anti-dilutive

PHARMACEUTICALS, INC.

AND SUBSIDIARY

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 11 for specific inputs used in determining fair value.

7 unchanged sentences

Company did not record an impairment charge related to these assets in the periods presented.

Instruments — Credit Losses (ASU 2016-13)

June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (“CECL”).

The amendments in this update introduce

a new accounting model to measure credit losses for financial assets measured at amortized cost.

The FASB has also issued additional

ASUs to clarify the scope and provide additional guidance for ASU 2016-13.

Credit losses for financial assets measured at amortized cost

should be determined based on the total current expected credit losses over the life of the financial asset or group of financial assets.

In effect, the financial asset or group of financial assets should be presented at the net amount expected to be collected.

Credit losses

will no longer be recorded under the current incurred loss model for financial assets measured at amortized cost.

The amendments also

modify the accounting for available-for-sale debt securities whereby credit losses will be recorded through an allowance for credit losses

rather than a write-down to the security’s cost basis, which allows for reversals of credit losses when estimated credit losses

Credit losses for available-for-sale debt securities should be measured in a manner similar to current GAAP.

amendments were effective on April 1, 2023 for the Company, and must be applied using a modified retrospective approach with a cumulative-effect

adjustment through retained earnings as of the beginning of the fiscal year upon adoption as required.

While the standard modifies the

measurement of the allowance for credit losses, it does not alter the credit risk of our trade or unbilled receivables.

impact of applying the CECL methodology upon adoption effective on April 1, 2023 was immaterial to the Company’s consolidated financial

Company’s quantitative allowance for credit loss estimates under CECL was determined using the loss rate method, which is impacted

by certain forecasted economic factors.

In addition to the Company’s quantitative allowance for credit losses, the Company also

incorporates qualitative adjustments that may relate to unique risks, changes in current economic conditions that may not be reflected

in quantitatively derived results, or other relevant factors to further inform the Company’s estimate of the allowance for credit

Additionally,

due to the expansion of the time horizon over which the Company is required to estimate future credit losses, the Company may experience

increased volatility in its future provisions for credit losses.

Factors that could contribute to such volatility include, but are not

limited to, changes in the composition and credit quality of customer base, economic conditions and forecasts, the allowance for credit

loss models that are used, the data that is included in the models, the associated qualitative allowance framework, and the Company’s

estimation techniques.

Company has historical collections of customer payments averaging approximately 99.96 % as of June 30, 2023.

The Company recorded revenue

during the three months ended June 30, 2023 of approximately $ 9.0 million and recorded an estimated allowance of $ 100,000 , which is approximately

1.2 % of total revenues during the three months ended June 30, 2023.

The Company estimated the allowance using considerations such as

customer collections, and estimated credit losses.

The Company believes the 1.2 % credit allowance is appropriate given its historical

customer collections.

PHARMACEUTICALS, INC.

AND SUBSIDIARY

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Company records treasury stock at the cost to acquire it and includes treasury stock as a component of shareholders’ equity.

Issued Accounting Pronouncements

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.

has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant

has evaluated 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.

consisted of the following:

December 31, 2022

June 30, 2023

March 31, 2023

2 unchanged sentences

Raw materials

Inventory, net

PHARMACEUTICALS, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PROPERTY AND EQUIPMENT, NET

1 unchanged sentence

OF PROPERTY AND EQUIPMENT

December 31, 2022

June 30, 2023

March 31, 2023

8 unchanged sentences

Property and equipment, net

expense was $ 314,610 and $ 293,014 for the three months ended December 31, 2022 and 2021, respectively, and $ 923,365 and $ 897,662 for

the nine months ended December 31, 2022 and 2021, respectively.

INTANGIBLE ASSETS

following table summarizes the Company’s intangible assets:

SCHEDULE OF INTANGIBLE ASSETS

December 31, 2022

Patent application costs

ANDA acquisition costs

March 31, 2022

Patent application costs *

ANDA acquisition costs

application costs were incurred in relation to the Company’s abuse deterrent opioid

Amortization of the patent costs will begin upon the issuance of marketing authorization

Amortization will then be calculated on a straight-line basis through the expiry

of the related patent(s).

expense was $ 328,282 and $ 292,748 for the three months ended June 30, 2023 and 2022, respectively.

PHARMACEUTICALS, INC.

2 unchanged sentences

ACCRUED EXPENSES

of December 31, 2022 and March 31, 2022, the Company’s accrued expenses consisted of the following:

of June 30, 2023 and March 31, 2023, the Company’s accrued expenses consisted of the following:

OF ACCRUED EXPENSES

December 31, 2022

June 30, 2023

March 31, 2023

2 unchanged sentences

Director dues

EWB loan interest

Legal and professional expense

Employee bonuses

1 unchanged sentence

Total accrued expenses

August 2005, the Company issued NJEDA tax exempt Bonds with Series A Notes outstanding.

The Company is required to maintain a debt service

The debt service reserve is classified as restricted cash on the accompanying unaudited condensed consolidated balance sheets.

The NJEDA Bonds require the Company to make an annual principal payment on September 1st based on the amount specified in the loan documents

and semi-annual interest payments on March 1st and September 1st, equal to interest due on the outstanding principal.

The annual interest

rate on the Series A Note is 6.5 %.

The NJEDA Bonds are collateralized by a first lien on the Company’s facility and equipment acquired

with the proceeds of the original and refinanced bonds.

relation to the Series A Notes, the Company is required to maintain a debt service reserve.

The debt service reserve is classified as

restricted cash on the accompanying unaudited 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.

following tables summarize the Company’s bonds payable liability:

OF BONDS PAYABLE LIABILITY

December 31, 2022

June 30, 2023

March 31, 2023

14 unchanged sentences

Long term portion of bonds payable, net of bond offering costs

expense was $ 3,544 and $ 3,545 for the three months ended December 31, 2022 and 2021, and $ 10,629 and $ 10,635 for the nine months ended

December 31, 2022 and 2021, respectively.

As of December 31, 2022 and March 31, 2022, interest payable was $ 6,744 and $ 7,367 , respectively.

expense was $ 3,548 and $ 3,546 for the three months ended June 30, 2023 and 2022, respectively.

Interest payable was $ 6,744 as of June

30, 2023 and March 31, 2023.

Interest expense was $ 20,232 and $ 22,101 for the three months ended June 30, 2023 and 2022, respectively.

PHARMACEUTICALS, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

of bonds for the next five years are as follows:

SCHEDULE OF MATURITIES OF BONDS FOR THE NEXT FIVE YEARS

OF MATURITIES OF BONDS

Years ending March 31,

LOANS PAYABLE

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 9.23 % ( 1.73 % plus the prime rate (“Prime”)) and is repayable over five years , maturing on May

The EWB Revolver bears interest at a rate of ( 8.37 % ( 0.87 % plus Prime)) and matures on May 1, 2027 .

The total transaction costs

associated with the EWB Loans incurred as of December 31, 2022, 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 December 31, 2022, the Company is in

compliance with each financial covenant and the Company has not used any of the Revolving line of credit.

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 December 31, 2022, were $ 34,952 , 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 December 31, 2022, the Company was in compliance with each financial covenant.

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 %

plus the prime rate (“Prime”)) and is repayable over five

years , maturing on May

The EWB Revolver bears interest at a rate of ( 8.87 %

plus Prime)) and matures on May

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.

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

payable consisted of the following:

OF LOANS PAYABLE

December 31, 2022

June 30, 2023

March 31, 2023

Equipment and insurance financing and mortgage loans payable, between 4.75 % and 12.02 % interest and maturing between March 2023 and June 2032

Mortgage loan payable 4.75% interest and maturing June 2032

Equipment and insurance financing loans payable, between 7.10 % and 12.02 % interest and maturing between September 2023 and October 2025

Current portion of loans payable

Long-term portion of loans payable

interest expense associated with the loans payable was $ 317,844 and $ 14,692 for the three months ended December 31, 2022 and 2021, respectively,

and $ 579,109 and $ 50,290 for the nine months ended December 31, 2022 and 2021, respectively.

PHARMACEUTICALS, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

principal payments for the next five years are as follows:

SCHEDULE OF LOAN PRINCIPAL PAYMENTS

interest expense associated with the loans and mortgage payable was $ 77,238 and $ 177,579 for the three months ended June 30, 2023 and

2022, respectively.

and mortgage principal payments for the next five years are as follows:

OF LOAN PRINCIPAL PAYMENTS

Years ending March 31,

2023 (excluding the nine months ended December 31, 2022)

2024 (excluding the three months ended June 30, 2023)

2029 and thereafter

Total remaining principal balance

RELATED PARTY LOANS

The Company has entered into a collateralized promissory note with individual lenders with rates

comparable to the EWB Term Loan but with less covenants (the “Hakim Promissory Note”).

These covenants include

filing timely tax returns and financial statements, and an agreement not to sell, lease, or transfer a substantial portion of the Company’s

assets during the term of the Hakim Promissory Note.

On June 2, 2023, the Company entered into a Promissory Note with Nasrat Hakim, CEO and Chairman

of the Board of Directors, pursuant to which the Company borrowed funds in the aggregate principal amount of $ 3,000,000 .

The Hakim 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.

The original maturity date of the Hakim Promissory

Note is June 2, 2024, with an optional second year extension.

The second year extension must be exercised by both parties 60 days prior

to the original maturity date.

As of the date of this filing, the Company does not expect to exercise the second year extension.

PHARMACEUTICALS, INC.

AND SUBSIDIARY

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 the Wall Street Journal Prime Rate (“WSJP”) plus 0.5% with floor rate of 4.5%.

The total transaction costs

associated with the EWB Mortgage Loan incurred as of June 30, 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

As of the date of this filing, the Company was in compliance with each financial covenant.

June 30, 2023, the Company entered into a collateralized promissory note with Davis Caskey (the “Caskey Promissory

The Caskey Promissory Note has a principal balance of $ 1,000,000

and an interest rate of 9 %

for the first year and 10 %

for an optional second year.

The Caskey Promissory Note is subject to the same covenants as are contained in the Hakim Promissory

The proceeds will be used for working capital and other

business purposes.

The original maturity date of the Caskey Promissory Note is June 30, 2024, with an optional second year

The second year extension must be exercised by both parties 60 days prior to the original maturity date.

As of the date of this filing, the Company does not expect to exercise the second year extension.

DEFERRED REVENUE

revenues in the aggregate amount of $ 35,556 as of December 31, 2022, were comprised of a current component of $ 13,333 and a long-term

component of $ 22,223 .

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

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.

revenues in the aggregate amount of $ 28,889 as of June 30, 2023, were comprised of a current component of $ 13,333 and a long-term component

of $ 15,556 .

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 .

These line items represent the unamortized amounts of a $ 200,000 advance payment received for a

TAGI Pharma 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

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.

COMMITMENTS AND CONTINGENCIES

Company entered into an operating lease for a portion of a one-story warehouse, located at 135 Ludlow Avenue, Northvale, New Jersey (the

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.

Company entered into an operating lease for a portion of a one-story warehouse, located at 135 Ludlow Avenue, Northvale, New Jersey

(the “Ludlow Ave.

lease”) which began in 2010.

On June 30, 2021, the Company exercised a renewal option, with such option including

a term that begins on January 1, 2022 and expires on December 31, 2026.

On June 30, 2021, the Company exercised a renewal

option, with such option including a term that begins on January 1, 2022 and expires on December 31, 2026.

The Ludlow Ave.

lease was terminated on July 1, 2022, when the

Company purchased the underlying property.

was terminated on July 1, 2022, when the Company purchased the underlying property.

PHARMACEUTICALS, INC.

AND SUBSIDIARY

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

October 2020, the Company entered into an operating lease for office space in Pompano Beach, Florida (the “Pompano Office Lease”).

9 unchanged sentences

The present value of the lease payments is calculated using either the implicit interest rate in the lease or an incremental borrowing

PHARMACEUTICALS, INC.

AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

assets and liabilities are classified as follows on the condensed consolidated balance sheet:

OF LEASE ASSETS AND LIABILITIES

Classification

June 30, 2022

Operating lease – right-of-use asset

Total leased assets

Lease obligation – operating lease

Lease obligation – operating lease, net of current portion

Total lease liabilities

expense is recorded on the straight-line basis.

Rent expense under the leases for the three months ended December 31, 2022 and 2021 was

$ 6,330 and $ 63,249 , respectively, and $ 77,238 and $ 189,003 for the nine months ended December 31, 2022 and 2021, respectively.

is recorded in general and administrative expense in the unaudited condensed consolidated statements of operations.

table below shows the future minimum rental payments, exclusive of taxes, insurance and other costs, under the Ludlow Ave.

modified lease

and the Pompano Office Lease:

Rent expense under the 135 Ludlow Ave.

modified lease for the three months ended June

30, 2023 and 2022 was $0 and $ 58,248 , respectively.

Rent expense under the Pompano Office Lease for the three months ended June

30, 2023 and 2022 was $ 6,519 and $ 6,330 , respectively.

Rent expense is recorded in general and administrative expense in the unaudited

condensed consolidated statements of operations.

table below shows the future minimum rental payments, exclusive of taxes, insurance and other costs, under the Pompano Office Lease:

OF FUTURE MINIMUM RENTAL PAYMENTS

Years ending March 31,

2023 (excluding the nine months ended December 31, 2022)

2024 (excluding the three months ended June 30, 2023)

Total future minimum lease payments

Present value of lease payments

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.

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

As of December 31, 2022, and March 31, 2022, the Company had a liability of $ 0 and $ 38,780 , respectively, recorded as other long-term

PHARMACEUTICALS, INC.

AND SUBSIDIARY

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

weighted-average remaining lease term and the weighted-average discount rate of our lease was as follows:

OF WEIGHTED -AVERAGE REMAINING TERM AND THE WEIGHTED-AVERAGE DISCOUNT RATE

Lease Term and Discount Rate

June 30, 2023

Remaining lease term (years)

Operating leases

Discount rate

Operating leases

PREFERRED STOCK

J convertible preferred stock

April 28, 2017, the Company created the Series J Convertible Preferred Stock (“Series J Preferred”) in conjunction with the

Certificate of Designations.

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 .

PHARMACEUTICALS, INC.

AND SUBSIDIARY

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DERIVATIVE FINANCIAL INSTRUMENTS – WARRANTS

3 unchanged sentences

described in this note below.

The warrant share balance is 79,008,661 as of December 31, 2022, and March 31, 2022 with a weighted average

exercise price of $ 0.1521 as of December 31, 2022, and March 31, 2022.

April 28, 2017, the Company entered into an Exchange Agreement with Nasrat Hakim (“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.

value of the Series J Warrants was determined to be $ 6,474,674 upon issuance at April 28, 2017.

Company has 79,008,661 total warrants to purchase shares of common stock outstanding with a weighted average exercise price of $ 0.1521 as of June 30, 2023 and March

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.

Series J Warrants are exercisable for a period of 10 years from the date of issuance, commencing April 28, 2020.

6 unchanged sentences

its own stock and thus such warrants are classified as liabilities and measured initially and subsequently at fair value.

J Warrants also provide for other standard adjustments upon the occurrence of certain customary events.

PHARMACEUTICALS, INC.

AND SUBSIDIARY

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

fair value of the Series J Warrants was calculated using a Black-Scholes model.

The following assumptions were used in the Black-Scholes

model to calculate the fair value of the Series J Warrants:

J Warrants also provide for other standard adjustments upon the happening of certain customary events.

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:

OF FAIR VALUE OF WARRANTS ISSUED

December 31, 2022

June 30, 2023

March 31, 2023

3 unchanged sentences

Risk free rate

changes in warrants (Level 3 financial instruments) measured at fair value on a recurring basis for the nine months ended December 31,

changes in warrants (Level 3 financial instruments) measured at fair value on a recurring basis for the three months ended June 30, 2023

were as follows:

2 unchanged sentences

Change in fair value of derivative financial instruments - warrants

Balance at December 31, 2022

Balance at June 30, 2023

SHAREHOLDERS’ EQUITY

1 unchanged sentence

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”),

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.

Company did not issue any shares of its Common Stock pursuant to the 2020 LPC Purchase Agreement during the nine months ended December

PHARMACEUTICALS, INC.

AND SUBSIDIARY

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Company did not issue any shares of its Common Stock pursuant to the 2020 LPC Purchase Agreement during the three months ended June 30,

2023 and 2022.

In addition, there were no shares issued to Lincoln Park as additional commitment shares, pursuant to the 2020 LPC Agreement.

of December 31, 2022, the Company has issued an aggregate of 5,975,857 shares of Common Stock for net proceeds of $ 469,105 to Lincoln

Park as initial commitment shares.

The 2020 LPC Purchase Agreement will expire on August 1, 2023.

of Common Stock Activity

the three months ended June 30, 2023 and 2022, the Company did not issue any shares of Common Stock.

STOCK-BASED COMPENSATION

5 unchanged sentences

the valuation of such shares being calculated on quarterly basis and equal to the average closing price of the Company’s Common

of December 31, 2022, the Company accrued director’s fees totaling $ 67,500 , which will be paid via cash payments totaling $ 22,500

the three months ended June 30, 2023, the Company accrued director’s fees totaling $ 37,500 ,

which will be paid via cash payments totaling $ 7,500

and the issuance of shares of Common Stock.

The Company anticipates that these shares of Common Stock will be issued prior

to the end of the current fiscal year.

Employee/Consultant Compensation

3 unchanged sentences

and equal to the average closing price of the Company’s Common Stock.

the nine months ended December 31, 2022, the Company accrued salaries totaling $ 375,000 owed to the Company’s President and Chief

Executive Officer which will be paid via the issuance of 10,000,176 shares of Common Stock.

of December 31, 2022, the Company owed its President and Chief Executive Officer and certain other employees’ salaries totaling

$ 4,000,000 which will be paid via the issuance of 60,190,955 shares of Common Stock.

PHARMACEUTICALS, INC.

AND SUBSIDIARY

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the three months ended June 30, 2023, the Company accrued salaries totaling $ 170,000

owed to the Company’s President, Chief

Executive Officer and certain other employees which will be paid via the issuance of shares of Common Stock.

As of June 30, 2023, the

total obligation of $ 4,725,000

is outstanding.

its 2014 Stock Option Plan and prior options plans, the Company may grant stock options to officers, selected employees, as well as members

5 unchanged sentences

A summary of the activity of Company’s 2014 Stock Option Plan

for the nine months ended December 31, 2022 is as follows:

for the three months ended June 30, 2023 is as follows:

OF STOCK OPTION PLAN

Shares Underlying Options

Weighted Average Exercise Price

Weighted Average Remaining

Contractual Term (in years)

Exercise Price

Weighted Average

Remaining Contractual

Aggregate Intrinsic

Outstanding at March 31, 2023

Outstanding at December 31, 2022

Exercisable at December 31, 2022

granted during the nine months ended December 31, 2022 were valued using the Black Scholes model with the following assumptions:

OF OPTIONS GRANTED

December 31, 2022

Exercise Price

Dividend Yield

Expected Volatility

Risk Free Rate

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 December 31, 2022 and March 31, 2022 of $ 0.03 and $ 0.03 , respectively.

of December 31, 2022, there was $ 95,888 in unrecognized stock based compensation expense that will be recognized over 2.3 years.

CONCENTRATIONS AND CREDIT RISK

customers accounted for approximately 96 %

of the Company’s revenues for the nine months ended December 31, 2022.

These two customers accounted for approximately 85 %

of revenues each, respectively.

The same two customers accounted for 85 % and 12 % of revenues each, respectively, for the three months ended December

customers accounted for approximately 96 % of the Company’s revenues for the nine months ended December 31, 2021.

These two customers

accounted for approximately 85 % and 11 % of revenues each, respectively.

The same two customers accounted for 84 % and 9 % of revenues each,

respectively, for the three months ended December 31, 2021.

customer accounted for approximately 89 % of the Company’s accounts receivable as of December 31, 2022.

Outstanding at June 30, 2023

Exercisable at June 30, 2023

PHARMACEUTICALS, INC.

1 unchanged sentence

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

customers accounted for approximately 91 % the Company’s accounts receivable as of March 31, 2022.

These two customers accounted

aggregate intrinsic value for outstanding options is calculated as the difference between the exercise price of the underlying awards

and the quoted price of the Company’s Common Stock as of June 30, 2023 and March 31, 2023 of $ 0.04 and $ 0.03 , respectively.

of June 30, 2023, there was $ 184,722 in unrecognized stock based compensation expense that will be recognized over a 1.3 year period.

CONCENTRATIONS AND CREDIT RISK

customers accounted for approximately 76 % of the Company’s revenues for the three months ended June 30, 2023.

These five customers

accounted for approximately 21 %, 16 %, 15 %, 14 %, and 10 % of revenues each, respectively.

customer accounted for approximately 85 % of the Company’s revenues for the three months ended June 30, 2022.

customers accounted for approximately 56 % of the Company’s accounts receivable as of June 30, 2023.

These three customers accounted

for approximately 22 %, 21 %, and 13 % of accounts receivable each, respectively.

supplier accounted for approximately 62 % of the Company’s purchases of raw materials for the nine months ended December 31, 2022.

supplier accounted for approximately 55 % of the Company’s purchases of raw materials for the nine months ended December 31, 2021.

customer accounted for approximately 96 % the Company’s accounts receivable as of March 31, 2023.

supplier accounted for approximately 39 % of the Company’s purchases of raw materials for the three months ended June 30, 2023.

suppliers accounted for approximately 66 % of the Company’s purchases of raw materials for the three months ended June 30, 2022.

These two suppliers accounted for approximately 56 % and 10 % of purchases each, respectively.

SEGMENT RESULTS

13 unchanged sentences

OF SELECTED INFORMATION FOR REPORTABLE SEGMENTS

For the Three Months Ended December 31,

For the Nine Months Ended

For the Three Months Ended

Operating Income by Segment

Operating income by Segment

PHARMACEUTICALS, INC.

AND SUBSIDIARY

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

table below reconciles the Company’s operating income by segment to income before income taxes as reported in the Company’s

unaudited condensed consolidated statements of operations.

OF OPERATING LOSS BY SEGMENT TO (LOSS) INCOME FROM OPERATIONS

For the Three Months Ended December 31,

For the Nine Months Ended December 31,

OF OPERATING INCOME BY SEGMENT TO INCOME FROM OPERATIONS

For the Three Months Ended

Operating income by segment

8 unchanged sentences

Income before income taxes

PHARMACEUTICALS, INC.

AND SUBSIDIARY

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

RELATED PARTY AGREEMENTS WITH MIKAH PHARMA, LLC

December 3, 2018, the Company executed a development agreement with Mikah Pharma LLC (“Mikah”), pursuant to which Mikah and

the Company will collaborate to develop and commercialize generic products including formulation development, analytical method development,

bioequivalence studies and manufacture of development batches of generic products.

Mikah was founded in 2009 by Hakim, a related party

and the Company’s President, Chief Executive Officer and Chairman of the Board.

As of March 31, 2021, the Company has incurred

costs which are $ 238,451 in excess of advanced payments received to date from Mikah.

This balance due from Mikah was offset, in full,

against accrued interest due and owing to Mikah pursuant to the Secured Promissory Note, dated May 15, 2017, issued by the Company to

May 2020, SunGen Pharma LLC (“SunGen”), pursuant to an asset purchase agreement, assigned its rights and obligations under

the SunGen Agreement for Amphetamine IR and Amphetamine ER to Mikah Pharmaceuticals.

The ANDAs for Amphetamine IR and Amphetamine ER

are now registered under Elite’s name.

Mikah will now be Elite’s partner with respect to Amphetamine IR and ER and will assume

all the rights and obligations for these products from SunGen.

Mikah Pharmaceuticals was founded in 2009 by Nasrat Hakim, a related party

and the Company’s President, Chief Executive Officer and Chairman of the Board.

June 2021, the Company entered into a development and license agreement with Mikah Pharma LLC, pursuant to which Mikah Pharma LLC will

engage in the research, development, sales and licensing of generic pharmaceutical products.

In addition, Mikah Pharma LLC will collaborate

to develop and commercialize generic products including formulation development, analytical method development, manufacturing, sales

and marketing of generic products.

May 2020, Praxgen (formerly known as SunGen Pharma LLC), 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.

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.

Company’s effective tax rate was 11.5 % and income tax expense for the nine months ended December 31, 2022 was $ 50,837 .

Company’s effective tax rate was 11.5 % and income tax expense for the three months ended June 30, 2023 was $ 154,952 .

The Company’s

effective tax rate was 10.75 % and income tax expense was $ 4,000 for the nine months ended December 31, 2021.

The Company has evaluated its

deferred tax assets, specifically its net operating loss carryovers, for realizability and has provided a valuation allowance on the

majority of its deferred tax assets.

The valuation allowance is the reason that the effective tax rate and income tax expense are different

than the statutory rate of 21 %.

COVID-19 UPDATE

December 2019, the Novel Corona Virus, COVID-19 was reported to have emerged in Wuhan, China.

In March 2020, the World Health Organization

(“WHO”) declared the COVID-19 outbreak a global pandemic.

Governments at the national, state and local level in the United

States, and globally, have implemented aggressive actions to reduce the spread of the virus, with such actions including, without limitation,

lockdown and shelter in place orders, limitations on non-essential gatherings of people, suspension of all non-essential travel, and

ordering certain businesses and governmental agencies to cease non-essential operations at physical locations.

Under current and applicable

laws and regulations, the Company’s business is deemed essential and it has continued to operate in all aspects of its pharmaceutical

manufacturing, distribution, product development, regulatory compliance and other activities.

The Company’s management has developed

and implemented a range of measures to address the risks, uncertainties, and operational challenges associated with operating in a COVID-19

The Company is closely monitoring the rapidly evolving and changing situation and are implementing plans intended to limit

the impact of COVID-19 on our business so that the Company can continue to manufacture those medicines used by end user patients.

the Company has taken to date are, without limitation, further described below.

PHARMACEUTICALS, INC.

AND SUBSIDIARY

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Company has taken and will continue to take, proactive measures to provide for the well-being of its workforce while continuing to safely

produce pharmaceutical products.

The Company has implemented alternative working practices, which include, without limitation, modified

schedules, shift rotation and work at home abilities for appropriate employees to best ensure adequate social distancing.

the Company increased its already thorough cleaning protocols throughout its facilities and has prohibited visits from non-essential

Certain of these measures have resulted in increased costs.

Manufacturing

and Supply Chain

the nine months ended December 31, 2022, and as of the date of this Quarterly Report on Form 10-Q, the Company has not experienced material,

detrimental issues related to COVID-19 in its manufacturing, supply chain, quality assurance and regulatory compliance activities, and

has been able to operate without interruption.

The Company has taken, and plans to continue to take, commercially practical measures

to keep its facilities open.

The Company’s supply chains remain intact and operational, and the Company is in regular communications

with its suppliers and third-party partners.

A prolonging of the current situation relating to COVID-19 may result in an increased risk

of interruption in the Company supply chain in the future, with no assurances given as the materiality of such future interruption on

the Company’s business, financial condition, results of operations and cash flows.

effective tax rate was 0.00 % and income tax expense was $— for the three months ended June 30, 2022.

The Company has evaluated

its deferred tax assets, specifically its net operating loss carryovers, for realizability and has provided a valuation allowance on

the majority of its deferred tax assets.

The change in valuation allowance is the reason that the effective tax rate and income tax expense are

different than the statutory rate of 21 %.

SUBSEQUENT EVENTS

through filing]

The Company has evaluated subsequent events from the balance sheet date through August 14, 2023 and note no material subsequent events were identified.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements