ELITE PHARMACEUTICALS INC /NV/ 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations for the Six Months Ended September 30, 2023 and 2022 should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended March 31, 2023. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. Unless expressly indicated or the context requires otherwise, the terms “Elite”, the “Company”, “we”, “us”, and “our” refer to Elite Pharmaceuticals, Inc. and subsidiary. Background Elite Pharmaceuticals, Inc., a Nevada corporation (the “Company”, “Elite”, “Elite Pharmaceuticals”, the “registrant”, “we”, “us” or “our”) was incorporated on October 1, 1997 under the laws of the State of Delaware, and its wholly-owned subsidiary, Elite Laboratories, Inc. (“Elite Labs”), was incorporated on August 23, 1990 under the laws of the State of Delaware. On January 5, 2012, Elite Pharmaceuticals was reincorporated under the laws of the State of Nevada. We are a specialty pharmaceutical company principally engaged in the development and manufacture of oral, controlled-release products, using proprietary know-how and technology for the manufacture of generic pharmaceuticals. Our strategy includes developing generic versions of controlled-release drug products with high barriers to entry. We occupy manufacturing, warehouse, laboratory and office space at 165 Ludlow Avenue and 135 Ludlow Avenue in Northvale, NJ (the “Northvale Facility”). The Northvale Facility operates under Current Good Manufacturing Practice and is a United States Drug Enforcement Agency registered facility for research, development and manufacturing. We are also party to an operating lease for office space at Pompano Beach, Florida (the “Pompano Office Lease”). Strategy We focus our efforts on the following areas: (i) manufacturing of a line of generic pharmaceutical products with approved Abbreviated New Drug Applications (“ANDAs”); (ii) development of additional generic pharmaceutical products; (iii) development of the other product candidates in our pipeline including the products with our partners; (iv) commercial exploitation of our products either by sales under our own label, by license and the collection of royalties, or through the manufacture of our formulations; and (v) development of new products and the expansion of our licensing agreements with other pharmaceutical companies, including co-development projects, joint ventures and other collaborations. Our focus is on the development of various types of drug products, including generic drug products which require ANDAs as well as branded drug products which require New Drug Applications (“NDAs”) under Section 505(b)(1) or 505(b)(2) of the Drug Price Competition and Patent Term Restoration Act of 1984. We believe that our business strategy enables us to reduce its risk by having a diverse product portfolio that includes generic products in various therapeutic categories and to build collaborations and establish licensing agreements with companies with greater resources thereby allowing us to share costs of development and improve cash-flow. 1 Commercial Products We own, license, contract manufacture or have contractual rights to receive royalties from the following products currently approved for commercial sale: Product Branded Product Equivalent Therapeutic Category Launch Date Phentermine HCl 37.5mg tablets Adipex-P® Bariatric April 2011 Phendimetrazine Tartrate 35mg tablets Bontril® Bariatric November 2012 Phentermine HCl 15mg and 30mg capsules Adipex-P® Bariatric April 2013 Naltrexone HCl 50mg tablets Revia® Addiction Treatment September 2013 Isradipine 2.5mg and 5mg capsules N/A Cardiovascular January 2015 Trimipramine Maleate Immediate Release 25mg, 50mg and 100mg capsules Surmontil® Antidepressant May 2017 Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate Immediate Release 5mg, 7.5mg, 10mg, 12.5mg, 15mg, 20mg and 30mg tablets Adderall® Central Nervous System Stimulant April 2019 Dantrolene Sodium Capsules 25mg, 50mg and 100mg Dantrium® Muscle Relaxant June 2019 Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate Extended Release 5mg, 10mg, 15mg, 20mg, 25mg, and 30mg capsules Adderall XR® Central Nervous System Stimulant March 2020 Loxapine Succinate 5mg, 10mg, 25mg and 50gm capsules Loxapine® Antipsychotic May 2021 Products Under FDA Review SequestOx™ - Immediate Release Oxycodone with sequestered Naltrexone SequestOx™ is our abuse-deterrent candidate for the management of moderate to severe pain where the use of an opioid analgesic is appropriate. SequestOx™ is an immediate-release Oxycodone Hydrochloride containing sequestered Naltrexone which incorporates 5mg, 10mg, 15mg, 20mg and 30mg doses of oxycodone into capsules. In January 2016, the Company submitted a 505(b)(2) New Drug Application for SequestOx™, after receiving a waiver of the $2.3 million filing fee from the FDA. In March 2016, the Company received notification of the FDA’s acceptance of this filing and that such filing has been granted priority review by the FDA with a target action under the Prescription Drug User Fee Act (“PDUFA”) of July 14, 2016. On July 15, 2016, the FDA issued a Complete Response Letter, or CRL, regarding the NDA. The CRL stated that the review cycle for the SequestOx™ NDA is complete and the application is not ready for approval in its present form. On July 7, 2017, the Company reported topline results from a pivotal bioequivalence fed study for or SequestOx™. The mean Tmax (the amount of time that a drug is present at the maximum concentration in serum) of SequestOx™ was 4.6 hr. with a range of 0.5 hr. to 12 hr. and the mean Tmax of the comparator, Roxicodone®, was 3.4 hr. with a range of 0.5 hr. to 12 hr. A key objective for the study was to determine if the reformulated SequestOx™ had a similar Tmax to the comparator when taken with a high fat meal. Based on these results, the Company paused clinical trials for this formulation of SequestOx™. On January 30, 2018, the Company reported positive topline results from a pilot study conducted for a modified SequestOx™ wherein, based on the results of this pilot study, the modified SequestOx™ formulation is expected to achieve bioequivalence with a Tmax range equivalent to the reference product when conducted in a pivotal trial under fed conditions. The Company has provided the pilot data to the FDA, requesting clarification as to the requirements for resubmission of the NDA. The FDA has provided guidance for repeated bio-equivalence studies in order to bridge the new formulation to the original SequestOx™ studies and also extended our filing fee waiver until July 2023. Due to the prohibitive cost of such repeated bio-equivalence studies and the uncertain commercial viability given the regulatory and competitive landscape, the Company has paused development of this product candidate. 2 There can be no assurances of the Company conducting future clinical trials, or if such trials are conducted, there can be no assurances of the success of any future clinical trials, or if such trials are successful, there can be no assurances that an intended future resubmission of the NDA product filing, if made, will be accepted by or receive marketing approval from the FDA. In addition, even if marketing authorization is received, there can be no assurances that there will be future revenues or profits, or that any such future revenues or profits would be in amounts that provide adequate return on the significant investments made to secure this marketing authorization. Generic Products Filed Currently the Company has filed a generic antimetabolite ANDA and a generic dopamine agonist ANDA and these products are under review by the FDA. On August 17, 2023, the Company also submitted an ANDA for an opiate analgesic for pain management and it was accepted for review by FDA on September 19, 2023. Approved Products Not Yet Commercialized Acetaminophen and Codeine Phosphate The Company received approval on September 10, 2019 from the FDA of an ANDA for a generic version of Tylenol® with Codeine (acetaminophen and codeine phosphate) 300mg/7.5mg, 300mg/15mg, 300mg/30mg and 300mg/60mg tablets. Acetaminophen with codeine is a combination medication indicated for the management of mild to moderate pain, where treatment with an opioid is appropriate and for which alternative treatments are inadequate. Acetaminophen with codeine products have annual U.S. sales of approximately $45 million according to IQVIA (formerly QuintilesIMS Health Data). The Company is not pursuing licensing deals for any opioids at this time until the market changes. The Company will wait for the market to stabilize before pursuing these opportunities. Doxycycline Hyclate Tablets The Company received approval in April 2022 from the FDA of an ANDA for a generic version of an antibiotic product. According to QVIA (formerly QuintilesIMS Health) data, the branded product for this antibiotic and its equivalents had total annual U.S. sales of approximately $85 million for the twelve months ending September 30, 2019. The product is jointly owned by Elite and Praxgen Pharmaceuticals LLC, formerly SunGen Pharma LLC, (“Praxgen”). There can be no assurances in relation to any of the above approved products not yet commercialized, that there will be future revenues of profits, or that any such future revenues or profits would be in amounts that provide adequate return on the significant investments made to secure these marketing authorizations. Critical Accounting Policies and Estimates The preparation of the unaudited condensed consolidated financial statements and related disclosures in conformity with GAAP, and our discussion and analysis of the Company’s financial condition and operating results require our management to make judgments, assumptions and estimates that affect the amounts reported in the Company’s unaudited condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and such differences may be material. Note 1, “Summary of Significant Accounting Policies” to this quarterly report on Form 10-Q includes policies relating to the revenue recognition, nature of goods and services and accounts receivable and allowance for expected credit losses from the sale of products bearing the Elite label, which were not included in Note 1 “Summary of Significant Accounting Policies” to the Company’s financial statements as contained the Company’s Annual Report on Form 10-K for the fiscal year ended on March 31, 2013. Except for the foregoing, there were no significant changes during the six months ended September 30, 2023 to the items that we disclosed as our significant accounting policies and estimates described in “Note 1, Summary of Significant Accounting Policies” to the Company’s financial statements as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2023. 3 Results of Operations The following set forth our results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results. Three months ended September 30, 2023 compared to the three months ended September 30, 2022 Revenue, Cost of revenue and Gross profit: For the Three Months Ended September 30, Change 2023 2022 Dollars Percentage Manufacturing fees $ 13,507,870 $ 7,187,363 $ 6,320,507 88 % Licensing fees 649,315 1,398,400 (749,085 ) (54 )% Total revenue 14,157,185 8,585,763 5,571,422 65 % Cost of manufacturing 7,710,106 4,761,329 2,948,777 62 % Gross profit $ 6,447,079 $ 3,824,434 $ 2,622,645 69 % Gross profit - percentage 46 % 45 % Total revenues for the three months ended September 30, 2023 increased by $5.6 million or 65%, to $14.2 million, as compared to $8.6 million, for the corresponding period of the prior year, primarily due to the launch of the Elite label during the current fiscal year which achieved increased sales for the quarter ended September 30, 2023, as compared to the comparable quarter of the prior year, especially in sales of Amphetamine ER Capsules and Amphetamine IR Capsules. Manufacturing fees increased by $6.3 million, or 88%, primarily due to the launch of the Elite label during the current fiscal year which achieved increased sales for the quarter ended September 30, 2023, as compared to the comparable quarter of the prior year, especially in sales of Amphetamine ER Capsules and Amphetamine IR Capsules. Licensing fees decreased by $0.7 million, or 54%. This decrease is primarily due to the expiration of the marketing alliance agreements between the Company and Lannett Company, Inc. dated March 6, 2019 and April 9, 2019 (the “Lannett Agreements”) on March 31, 2023. The revenue streams that were generated during periods ending on or prior to March 31, 2023 and attributed to the Lannett Agreements, included profit splits on the sale by Lannett of Amphetamine IR and Amphetamine ER. Since April 1, 2023, these products are now sold by the Company under its own label, with revenues being recorded as manufacturing revenues instead of licensing fees going forward. Cost of revenue consists of manufacturing and assembly costs. Our cost of revenue increased by $2.9 million or 62%, to $7.7 million as compared to $4.8 million for the corresponding period in the prior fiscal year. This increase was due to an increased volume of products sold during the three months ended September 30, 2023, as compared to the comparable period of the prior fiscal year, as well as a decrease in licensing fees revenues as noted. Our gross profit margin was 46% during the three months ended September 30, 2023 as compared to 45% during the comparable period of the prior fiscal year. The increase in gross profit margin is due to manufacturing efficiencies achieved in relation to increased production volumes. Operating expenses: For the Three Months Ended September 30, Change 2023 2022 Dollars Percentage Operating expenses: Research and development $ 2,618,349 $ 1,227,269 $ 1,391,080 113 % General and administrative 1,533,208 1,190,523 342,685 29 % Non-cash compensation 42,777 5,973 36,804 616 % Depreciation and amortization 327,240 319,552 7,688 2 % Total operating expenses $ 4,521,574 $ 2,743,317 $ 1,778,257 65 % Operating expenses consist of research and development costs, general and administrative costs, non-cash compensation and depreciation and amortization expenses. Operating expenses for the three months ended September 30, 2023 increased by $1.8 million, or 65%, to $4.5 million as compared to $2.7 million for the corresponding period in the prior fiscal year, largely due to an increase in research and development of $1.4 million. Research and development costs during the three months ended September 30, 2023 were $2.6 million, an increase of $1.4 million, or 113%, from approximately $1.2 million of such costs for the comparable period of the prior year. The increase was a result of the timing and nature of product development activities during the three months ended September 30, 2023 as compared to the comparable period of the prior fiscal year. General and administrative expenses for the three months ended September 30, 2023 were $1.5 million, which was virtually unchanged from $1.2 million in such costs for the comparable period of the prior fiscal year. 4 Non-cash compensation expense for the three months ended September 30, 2023 and 2022 was less than $0.1 million. Depreciation and amortization expenses from the three months ended September 30, 2023 were $0.3 million, which was virtually unchanged from $0.3 million in such costs for the comparable period of the prior fiscal year. As a result of the foregoing, our income from operations during the three months ended September 30, 2023 was $1.9 million, compared to income from operations of $1.1 million for the comparable period of the prior fiscal year. Other income (expense): For the Three Months Ended September 30, Change 2023 2022 Dollars Percentage Other income (expense): Change in fair value of derivative financial instruments - warrants $ (2,468,350 ) $ 688,319 $ (3,156,669 ) (459 )% Change in fair value of stock-based liabilities (2,066,820 ) — (2,066,820 ) — % Interest expense and amortization of debt issuance costs (130,438 ) (242,753 ) 112,315 (46 )% Gain on sale of fixed assets — — — — % Gain on sale of ANDA — — — — % Interest income 7,320 43 7,277 16,923 % Other (expense) income, net $ (4,658,288 ) $ 445,609 $ (5,103,897 ) (1,145 )% Other income (expense) for the three months ended September 30, 2023 was an other expense of $4.7 million, a decrease of $5.1 million from an other income of $0.4 million for the comparable period of the prior fiscal year. The decrease was primarily due to a net increase of other expenses of $5.2 million relating to the change in fair value of derivative instruments and stock-based liabilities totaling $4.5 million, as compared to net other income of $0.7 million for the comparable period of the prior fiscal year and a net decrease of other expenses of $0.1 million relating to decreased interest expense and amortization of debt issuance costs during the three months ended September 30, 2023 as compared to the comparable period of the prior fiscal year. The change in the fair value of derivative instruments and stock-based liabilities is determined in large part by the change in the closing price of the Company’s Common Stock as of the end of the period, as compared to the closing price at the beginning of the period, with a strong inverse relationship between the fair value of our derivatives instruments and stock-based liabilities and decreases in the closing price of the Company’s Common Stock. Please see Note 12 to the Unaudited Condensed Consolidated Financial Statements above. The decrease in interest expense associated with the loans payable is due in large part to the Company paying off the principal balance of the EWB loan during the fiscal year ended March 31, 2023, resulting in no interest on the EWB loan incurred for the three months ended September 30, 2023. As a result of the foregoing, our net loss before the net benefit from sale of net operating loss credits for the three months ended September 30, 2023 was $2.7 million, compared to net income of $1.5 million for the comparable period of the prior fiscal year. 5 Six months ended September 30, 2023 compared to the six months ended September 30, 2022 Revenue, Cost of revenue and Gross profit: For the Six Months Ended September 30, Change 2023 2022 Dollars Percentage Manufacturing fees $ 21,417,107 $ 13,514,504 $ 7,902,603 58 % Licensing fees 1,720,154 2,744,167 (1,024,013 ) (37 )% Total revenue 23,137,261 16,258,671 6,878,590 42 % Cost of manufacturing 11,939,627 8,436,390 3,503,237 42 % Gross profit $ 11,197,634 $ 7,822,281 $ 3,375,353 43 % Gross profit - percentage 48 % 48 % Total revenues for the six months ended September 30, 2023 increased by $6.9 million or 42%, to $23.1 million, as compared to $16.3 million, for the corresponding period of the prior year, primarily due to the launch of the Elite label during the current fiscal year which achieved increased sales for the quarter ended September 30, 2023, as compared to the comparable quarter of the prior year, especially in sales of Amphetamine ER Capsules and Amphetamine IR Capsules. Manufacturing fees increased by $7.9 million, or 58%, primarily due to the launch of the Elite label during the current fiscal year which achieved increased sales for the quarter ended September 30, 2023, as compared to the comparable quarter of the prior year, especially in sales of Amphetamine ER Capsules and Amphetamine IR Capsules. Licensing fees decreased by $1.0 million, or 37%. This decrease is primarily due to the expiration of the marketing alliance agreements between the Company and Lannett Company, Inc. dated March 6, 2019 and April 9, 2019 (the “Lannett Agreements”) on March 31, 2023. The revenue streams that were generated during periods ending on or prior to March 31, 2023 and attributed to the Lannett Agreements, included profit splits on the sale by Lannett of Amphetamine IR and Amphetamine ER. Since April 1, 2023, these products are now sold by the Company under its own label, with revenues being recorded as manufacturing revenues instead of licensing fees going forward. Cost of revenue consists of manufacturing and assembly costs. Our cost of revenue increased by $3.5 million or 42%, to $11.9 million as compared to $8.4 million for the corresponding period in the prior fiscal year. This increase was due to an increased volume of products sold during the six months ended September 30, 2023, as compared to the comparable period of the prior fiscal year, as well as a decrease in licensing fees revenues as noted. Our gross profit margin was 48% during the six months ended September 30, 2023 as compared to 48% during the comparable period of the prior fiscal year. The increase in gross profit margin is due to manufacturing efficiencies achieved in relation to increased production volumes. Operating expenses: For the Six Months Ended September 30, Change 2023 2022 Dollars Percentage Operating expenses: Research and development $ 3,761,894 $ 2,182,712 $ 1,579,182 72 % General and administrative 3,194,912 2,908,627 286,285 10 % Non-cash compensation 57,777 11,295 46,482 412 % Depreciation and amortization 655,522 615,846 39,676 6 % Total operating expenses $ 7,670,105 $ 5,718,480 $ 1,951,625 34 % Operating expenses consist of research and development costs, general and administrative costs, non-cash compensation and depreciation and amortization expenses. Operating expenses for the six months ended September 30, 2023 increased by $2.0 million, or 34%, to $7.7 million as compared to $5.7 million for the corresponding period in the prior fiscal year, largely due to an increase in research and development of $1.6 million. Research and development costs during the six months ended September 30, 2023 were $3.8 million, an increase of $1.6 million, or 72%, from approximately $2.2 million of such costs for the comparable period of the prior year. The increase was a result of the timing and nature of product development activities during the six months ended September 30, 2023 as compared to the comparable period of the prior fiscal year. General and administrative expenses for the six months ended September 30, 2023 were $3.2 million, which was virtually unchanged from $2.9 million in such costs for the comparable period of the prior fiscal year. 6 Non-cash compensation expense for the six months ended September 30, 2023 was less than $0.1 million. Depreciation and amortization expenses from the six months ended September 30, 2023 were $0.7 million, which was virtually unchanged from $0.6 million in such costs for the comparable period of the prior fiscal year. As a result of the foregoing, our income from operations during the six months ended September 30, 2023 was $3.5 million, compared to income from operations of $2.1 million for the comparable period of the prior fiscal year. Other income (expense): For the Six Months Ended September 30, Change 2023 2022 Dollars Percentage Other income (expense): Change in fair value of derivative financial instruments - warrants $ (2,657,717 ) $ 188,176 $ (2,845,893 ) (1,512 )% Change in fair value of stock-based liabilities (2,066,820 ) — (2,066,820 ) 100 % Interest expense and amortization of debt issuance costs (249,850 ) (459,540 ) 209,690 (46 )% Gain on sale of fixed assets — — — — % Gain on sale of ANDA — — — — % Interest income 10,836 172 10,664 6,200 % Other (expense) income, net $ (4,963,551 ) $ (271,192 ) $ (4,692,359 ) 1,730 % Other income (expense) for the six months ended September 30, 2023 was an other expense of $5.0 million, a decrease of $4.7 million from an other expense of $0.3 million for the comparable period of the prior fiscal year. The decrease was primarily due to a net increase of other expenses of $4.9 million relating to the change in fair value of derivative instruments and stock-based liabilities totaling $4.7 million, as compared to net other income of $0.2 million for the comparable period of the prior fiscal year and a net decrease of other expenses of $0.2 million relating to decreased interest expense and amortization of debt issuance costs during the six months ended September 30, 2023 as compared to the comparable period of the prior fiscal year. Please note that the change in the fair value of derivative instruments and stock-based liabilities is determined in large part by the change in the closing price of the Company’s Common Stock as of the end of the period, as compared to the closing price at the beginning of the period, with a strong inverse relationship between the fair value of our derivatives instruments and stock-based liabilities and decreases in the closing price of the Company’s Common Stock. Please see Note 12 to the Unaudited Condensed Consolidated Financial Statements above. The decrease in interest expense associated with the loans payable is due in large part to the Company paying off the principal balance of the EWB loan during the fiscal year ended March 31, 2023, resulting in no interest on the EWB loan incurred for the six months ended September 30, 2023. As a result of the foregoing, our net loss before the net benefit from the sale of net operating loss credits for the six months ended September 30, 2023 was $1.4 million, compared to net income of $1.8 million for the comparable period of the prior fiscal year. Liquidity and Capital Resources Capital Resources September 30, 2023 March 31, 2023 Change Current assets $ 34,728,909 $ 21,510,297 $ 13,218,612 Current liabilities $ 19,077,904 $ 7,833,637 $ 11,244,267 Working capital $ 15,651,005 $ 13,676,660 $ 1,974,345 Our working capital (total current assets less total current liabilities) increased by $2.0 million from $13.7 million as of March 31, 2023 to $15.7 million as of September 30, 2023, with such increase being primarily related to the increase in finished goods inventory and accounts receivable, associated with increased customer orders during the three months ended September 30, 2023. 7 Summary of Cash Flows: For the Six Months Ended September 30, 2023 2022 Net cash (used in) provided by operating activities $ (2,945,753 ) $ 937,898 Net cash used in investing activities $ — $ (5,199,696 ) Net cash provided by financing activities $ 3,777,725 $ 14,281,600 Net cash used in operating activities for the three months ended September 30, 2023 was $2.9 million, which included, without limitation, net income of $16.1 million, increased by depreciation and other non-cash expenses totaling $5.5 million and reduced by increases in accounts receivable and inventory totaling $13.1 million. Net cash provided by financing activities was $3.8 million for the three months ended September 30, 2023 which consisted primarily of proceeds from related party loans payable totaling $4.0 million. Caskey Promissory Note On June 30, 2023, the Company entered into a collateralized promissory note with Davis Caskey (the “Caskey Promissory Note”). 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 Note. 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 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. Hakim Promissory Note 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 (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. East West Bank 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. 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. 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 September 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 to 1.00. As of September 30, 2023, the Company was in compliance with each financial covenant. Lincoln Park Capital – July 8, 2020 Purchase Agreement On July 8, 2020, the Company entered into a purchase agreement (the “2020 LPC Purchase Agreement”), and a registration rights agreement, 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 2020 LPC Purchase Agreement expired on August 1, 2023. During the three and six months ended September 30, 2023 and 2022, the Company did not issue any shares of Common Stock to Lincoln Park. 8 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, we are not required to provide the information required by this Item.