What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-02-14 compared with 2023-11-14 · 315 added, 162 removed, 244 unchanged (66% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

following discussion of our financial condition and results of operations for the Six Months Ended September 30, 2023 and 2022 should

following discussion of our financial condition and results of operations for the Nine Months Ended December 31, 2023 and 2022 should

be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those statements that are included

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commercial sale:

Phentermine HCl 37.5mg tablets

Phendimetrazine Tartrate 35mg tablets

November 2012

Phentermine HCl 15mg and 30mg capsules

Naltrexone HCl 50mg tablets

Addiction Treatment

September 2013

Isradipine 2.5mg and 5mg capsules

HCl 37.5mg tablets

Phendimetrazine

Tartrate 35mg tablets

HCl 15mg and 30mg capsules

HCl 50mg tablets

2.5mg and 5mg capsules

Cardiovascular

Trimipramine Maleate Immediate Release 25mg, 50mg and 100mg capsules

Maleate Immediate Release 25mg, 50mg and 100mg capsules

Antidepressant

Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate Immediate Release 5mg, 7.5mg, 10mg, 12.5mg, 15mg, 20mg and 30mg tablets

Central Nervous System Stimulant

Dantrolene Sodium Capsules 25mg, 50mg and 100mg

Muscle Relaxant

Dextroamphetamine Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate Extended Release 5mg, 10mg, 15mg, 20mg, 25mg, and 30mg capsules

Central Nervous System Stimulant

Loxapine Succinate 5mg, 10mg, 25mg and 50gm capsules

Dextroamphetamine

Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate Immediate Release 5mg, 7.5mg, 10mg, 12.5mg, 15mg,

20mg and 30mg tablets

Nervous System Stimulant

Sodium Capsules 25mg, 50mg and 100mg

Dextroamphetamine

Saccharate, Amphetamine Aspartate, Dextroamphetamine Sulfate, Amphetamine Sulfate Extended Release 5mg, 10mg, 15mg, 20mg, 25mg, and

30mg capsules

Nervous System Stimulant

Succinate 5mg, 10mg, 25mg and 50gm capsules

Antipsychotic

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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.

filing has been granted priority review by the FDA with a target action under the Prescription Drug User Fee Act of July 14, 2016.

July 15, 2016, the FDA issued a Complete Response Letter, or CRL, regarding the NDA.

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Products Filed

the Company has filed a generic antimetabolite ANDA and a generic dopamine agonist ANDA and these products are under review by the

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.

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.

On December 21, 2023, the FDA accepted for review an ANDA for an undisclosed generic drug product in a class

of medications known as central nervous stimulants.

Products Not Yet Commercialized

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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

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.

We have identified below the critical accounting policies, which

are assumptions made by management about matters that are highly uncertain and that are of critical importance in the presentation of

our financial position, results of operations and cash flows.

Due to the need to make estimates about the effect of matters that are

inherently uncertain, materially different amounts could be reported under different conditions or using different assumptions.

regular basis, we review our critical accounting policies and how they are applied in the preparation our financial statements.

of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United

States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and

disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses

during the reporting period.

Actual results could differ from those estimates.

Recognition - The Company generates revenue from manufacturing and licensing fees and sales of generic pharmaceuticals bearing the

Elite label 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.

Revenues earned from the sale of Elite label products are recorded at their net realizable value which

consists of gross amounts invoiced reduced by contractual reductions, including, without limitation, chargebacks, discounts and program

rebates, as applicable.

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

control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for

those goods or services.

The Company recognizes revenues following the five-step model prescribed under ASC 606:

(i) identify contract(s)

with a customer;

(ii) identify the performance obligation(s) in the contract;

(iii) determine the transaction price;

(iv) allocate the

transaction price to the performance obligation(s) in the contract;

and (v) recognize revenues when (or as) the Company satisfies a performance

The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration

it is entitled to in exchange for the goods or services it transfers to the customer.

At contract inception, once the contract is determined

to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that

are performance obligations and assesses whether each promised good or service is distinct.

The Company then recognizes as revenue the

amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is

Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue.

of goods and services

following is a description of the Company’s goods and services from which the Company generates revenue, as well as the nature,

timing of satisfaction of performance obligations, and significant payment terms for each, as applicable:

Manufacturing Fees

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

These products include products using controlled-release drug technology.

The Company also develops and markets (either on

its own or by license to other companies) generic and proprietary controlled-release pharmaceutical products.

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

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 product is produced in accordance with the related supply agreement

and bears risk of loss while the inventory is in-transit to the commercial partner.

Revenue is measured as the amount of consideration

the Company expects to receive in exchange for transferring products to a customer.

Company enters into licensing and development agreements, which may include multiple revenue generating activities, including milestones

payments, licensing fees, product sales and services.

The Company analyzes each element of its licensing and development agreements in

accordance with ASC 606 to determine appropriate revenue recognition.

The terms of the license agreement may include payment to the Company

of licensing fees, non-refundable upfront license fees, milestone payments if specified objectives are achieved, and/or royalties on

product sales.

the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.

Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative

standalone selling prices of the promised products or services underlying each performance obligation.

The Company determines standalone

selling prices based on the price at which the performance obligation is sold separately.

If the standalone selling price is not observable

through past transactions, the Company estimates the standalone selling price taking into account available information such as market

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

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

intellectual property to the customer.

For those milestone payments which are contingent on the occurrence of particular future events

(for example, payments due upon a product receiving FDA approval), the Company determined that these need to be considered for inclusion

in the calculation of total consideration from the contract as a component of variable consideration using the most-likely amount method.

As such, the Company assesses each milestone to determine the probability and substance behind achieving each milestone.

Given the inherent

uncertainty of the occurrence of future events, the Company will recognize revenue from the milestone when there is not a high probability

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

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

expects to complete its performance obligations under the arrangement.

If the Company cannot reasonably estimate when its performance

obligations either are completed or become inconsequential, then revenue recognition is deferred until the Company can reasonably make

such estimates.

Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method.

determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before

or significantly after performance, resulting in a significant financing component.

Applying the practical expedient in ASC 606-10-32-18,

the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations

under the contract and when the customer pays is one year or less.

None of the Company’s contracts contained a significant financing

component as of December 31, 2023.

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

Sale of product under the Elite label

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 sales of Elite labeled pharmaceutical products to distributors for pharmacies and institutions.

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

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

The Company is primarily responsible for fulfilling the promise to

deliver the product and bears risk of loss while the inventory is in-transit to the purchaser.

Revenue is measured as the amount of consideration

earned from the sale of Elite labeled pharmaceutical products are recorded at their net realizable value which consists of gross amounts

invoiced reduced by contractual reductions, including, without limitation, chargebacks, discounts and program rebates, as applicable.

Receivable and Allowance for Expected Credit Losses - Accounts receivable are comprised of balances due from customers, net of estimated

allowances for expected credit losses, and other contractual deductions, including, without limitation, chargebacks, discounts and program

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 April 1, 2023, as discussed below within Recently Adopted Accounting

Pronouncements.

Under the 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.

Taxes - Income taxes are accounted for under the asset and liability method.

Deferred tax assets and liabilities are recognized for

the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets

and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using enacted tax rates in effect for

the year in which those temporary differences are expected to be recovered or settled.

Where applicable, the Company records a valuation

allowance to reduce any deferred tax assets that it determines will not be realizable in the future.

Company recognizes the benefit of an uncertain tax position that it has taken or expects to take on income tax returns it files if such

tax position is more likely than not to be sustained on examination by the taxing authorities, based on the technical merits of the position.

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

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

The Company remains subject to examination in all

tax jurisdiction until the applicable statutes of limitation expire.

As of December 31, 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, 2023.

Accounting Pronouncements

a description of recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our financial

statements, see “Note 1.

Summary of Significant Accounting Polices:

Recently Issued Accounting Pronouncements” in Part II,

Item 1 of this Form 10-Q.

of Operations

2 unchanged sentences

necessarily indicative of future results.

months ended September 30, 2023 compared to the three months ended September 30, 2022

months ended December 31, 2023 compared to the three months ended December 31, 2022

Cost of revenue and Gross profit:

For the Three Months Ended

September 30,

Manufacturing fees

3 unchanged sentences

Gross profit - percentage

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.

revenues for the three months ended December 31, 2023 increased by $6.3 million or 68%, to $15.5 million, as compared to $9.3 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 December 31, 2023, as compared to the comparable quarter of the prior year, which did not include

any sales of Elite label products.

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.

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.

fees revenue increased by $7.0 million, or 90%, primarily due to the launch of the Elite label during the current fiscal year which

achieved increased sales for the quarter ended December 31, 2023, as compared to the comparable quarter of the prior year, which did

not include any sales of Elite label products.

fees revenue decreased by $0.7 million, or 49%.

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.

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.

of revenue consists of manufacturing and assembly costs.

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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.

gross profit margin was 46% during the three months ended September 30, 2023 as compared to 45% during the comparable period of the prior

The increase in gross profit margin is due to manufacturing efficiencies achieved in relation to increased production volumes.

during the three months ended December 31, 2023, as compared to the comparable period of the prior fiscal year, as noted above.

gross profit margin was 45% during the three months ended December 31, 2023 as compared to 53% during the comparable period of the prior

The decrease is due to total revenues consisting of a greater proportion of manufacturing revenues, as compared to the comparable

period of the prior year, with the associated increase in costs of manufacturing resulting in lower gross profit margins as compared

to the comparable period of the prior year which included a greater proportion of license fees that does not have a cost of manufacturing.

For the Three Months Ended

September 30,

Operating expenses:

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expenses consist of research and development costs, general and administrative costs, non-cash compensation and depreciation and amortization

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

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

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.

compensation expense for the three months ended September 30, 2023 and 2022 was less than $0.1 million.

and amortization expenses from the three months ended September 30, 2023 were $0.3 million, which was virtually unchanged from $0.3 million

Operating expenses for the three months ended December 31, 2023 increased by $0.5 million, or 19%, to $3.5 million as compared

to $3.0 million for the corresponding period in the prior fiscal year, largely due to an increase in general and administrative costs

of $0.5 million.

and development costs during the three months ended December 31, 2023 were $1.4 million, a decrease of less than $0.1 million, or 3%,

from approximately $1.4 million of such costs for the comparable period of the prior year.

and administrative expenses for the three months ended December 31, 2023 were $1.7 million, an increase of $0.5 million or approximately

44% from the comparable period of the prior fiscal year, largely due to an increased human resource headcount and costs as compared to

the comparable period of the prior year.

compensation expense for the three months ended December 31, 2023 and 2022 was less than $0.1 million.

and amortization expenses from the three months ended December 31, 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.

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.

a result of the foregoing, our income from operations during the three months ended December 31, 2023 was $3.5 million, compared to income

from operations of $2.0 million for the comparable period of the prior fiscal year.

income (expense):

For the Three Months Ended

September 30,

Other income (expense):

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Interest expense and amortization of debt issuance costs

Gain on sale of fixed assets

Gain from settlement agreements

Gain on sale of ANDA

3 unchanged sentences

$ (4,677,143 )

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

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.

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.

months ended September 30, 2023 compared to the six months ended September 30, 2022

income (expense) for the three months ended December 31, 2023 was an other expense of $3.6 million, a decrease of $4.7 million from an

other income of $1.1 million for the comparable period of the prior fiscal year.

The decrease was primarily due to net increases of other

expenses of $2.9 million relating to the change in fair value of stock-based liabilities and $2.8 million relating to the change in fair

value of derivative financial instruments, a decrease in other income of $1.0 million from Gain on sale of ANDA that occurred in the

prior year only, offset by a decrease in other expenses of $0.2 million relating to the decrease in interest expense and amortization

of debt issuance costs in the current fiscal year 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.

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 December 31, 2023.

a result of the foregoing, our net loss before income taxes for the three months ended December 31, 2023 was $0.1 million, compared

to net income before income taxes of $3.0 million for the comparable period of the prior fiscal year.

months ended December 31, 2023 compared to the nine months ended December 31, 2022

Cost of revenue and Gross profit:

For the Six Months Ended

September 30,

For the Nine Months Ended

Manufacturing fees

3 unchanged sentences

Gross profit - percentage

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.

revenues for the nine months ended December 31, 2023 increased by $13.2 million or 52%, to $38.7 million, as compared to $25.5 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 nine months ended December 31, 2023, as compared to the comparable quarter of the prior year, which did not include

any sales of Elite label products.

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.

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.

fees revenue increased by $14.9 million, or 70%, primarily due to the launch of the Elite label during the current fiscal year which

achieved increased sales for the nine months ended December 31, 2023, as compared to the comparable quarter of the prior year, which

did not include any sales of Elite label products.

fees revenue decreased by $1.7 million, or 41%.

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.

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.

of revenue consists of manufacturing and assembly costs.

2 unchanged sentences

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.

gross profit margin was 48% during the six months ended September 30, 2023 as compared to 48% during the comparable period of the prior

The increase in gross profit margin is due to manufacturing efficiencies achieved in relation to increased production volumes.

For the Six Months Ended

September 30,

during the nine months ended December 31, 2023, as compared to the comparable period of the prior fiscal year, as noted above.

gross profit margin was 47% during the nine months ended December 31, 2023 as compared to 52% during the comparable period of the prior

The decrease is due to total revenues consisting of a greater proportion of manufacturing revenues, as compared to the comparable

period of the prior year, with the associated increase in costs of manufacturing resulting in lower gross profit margins as compared

to the comparable period of the prior year which included a greater proportion of license fees that does not have a cost of manufacturing.

For the Nine Months Ended

Operating expenses:

5 unchanged sentences

expenses consist of research and development costs, general and administrative costs, non-cash compensation and depreciation and amortization

Operating expenses for the six months ended September 30, 2023 increased by $2.0 million, or 34%, to $7.7 million as compared

Operating expenses for the nine months ended December 31, 2023 increased by $2.1 million, or 23%, to $11.2 million as compared

to $9.1 million for the corresponding period in the prior fiscal year, largely due to an increase in research and development of $1.4

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

million and general and administrative expenses of $0.5 million.

and development costs during the nine months ended December 31, 2023 were $5.2 million, an increase of $1.4 million, or 37%, from approximately

$3.8 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.

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.

compensation expense for the six months ended September 30, 2023 was less than $0.1 million.

and amortization expenses from the six months ended September 30, 2023 were $0.7 million, which was virtually unchanged from $0.6 million

development activities during the nine months ended December 31, 2023 as compared to the comparable period of the prior fiscal year.

and administrative expenses for the nine months ended December 31, 2023 were $4.9 million as compared to $4.4 million for the corresponding

period in the prior fiscal year, an increase of $0.5 million or approximately 13%, largely due to an increased human resource headcount

and costs as compared to the comparable period of the prior fiscal year.

compensation expense for the nine months ended December 31, 2023 was $0.1 million as compared to $0.02 million for the comparable period

of the prior fiscal year, an increase of $0.1 million or approximately 342%, with such increase being attributed to the issuance to employees

of options to purchase Common Stock during the current fiscal year.

and amortization expenses from the nine months ended December 31, 2023 were $1.0 million, which was virtually unchanged from $0.9 million

in such costs for the comparable period of the prior fiscal year.

a result of the foregoing, our income from operations during the six months ended September 30, 2023 was $3.5 million, compared to income

a result of the foregoing, our income from operations during the nine months ended December 31, 2023 was $7.1 million, compared to income

from operations of $4.1 million for the comparable period of the prior fiscal year.

income (expense):

For the Six Months Ended

September 30,

For the Nine Months Ended

Other income (expense):

4 unchanged sentences

Interest expense and amortization of debt issuance costs

Gain on sale of fixed assets

Gain from settlement agreements

Gain on sale of ANDA

3 unchanged sentences

$ (9,369,502 )

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.

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

income (expense) for the nine months ended December 31, 2023 was an other expense of $8.6 million, a decrease of $9.4 million from an

other income of $0.8 million for the comparable period of the prior fiscal year.

The decrease was primarily due to a net increases in

other expenses of $5.6 million relating to the change in fair value of derivative instruments, and $4.9 million in change in fair value

of stock-based liabilities, net decrease in other income of $1.0 million relating to a gain on sale of ANDA in the comparable period

of the prior fiscal year that did not occur in the current fiscal year, offset by $1.8 million in gain from settlement agreements in

the current year that did not occur in the comparable period of the prior fiscal year, and an increase in other income resulting from

a net $0.4 million decrease in interest expense and amortization of debt issuance costs as compared to the comparable period of the prior

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.

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 nine months ended December 31, 2023.

a result of the foregoing, our net loss before income taxes for the nine months ended December 31, 2023 was $1.5 million, compared

to net income before income taxes of $4.8 million for the comparable period of the prior fiscal year.

and Capital Resources

September 30, 2023

December 31, 2023

March 31, 2023

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working capital (total current assets less total current liabilities) increased by $4.3 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.

to $18.0 million as of December 31, 2023, with such increase being primarily related to the increase in finished goods inventory and

accounts receivable, associated with increased customer orders during the nine months ended December 31, 2023.

of Cash Flows:

For the Six Months Ended September 30,

For the Nine Months Ended December 31,

Net cash (used in) provided by operating activities

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Net cash provided by financing activities

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.

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.

cash used in operating activities for the nine months ended December 31, 2023 was $5.3 million, which included, without limitation,

net income of $16.8 million, increased by depreciation and other non-cash expenses totaling $10.1 million and reduced by increases in

accounts receivable and inventory totaling $17.9 million.

cash used in investing activities for the nine months

ended December 31, 2023 was comprised of purchases of property and equipment of approximately $0.4 million.

cash provided by financing activities was $3.7 million for the nine months ended December 31, 2023 which consisted primarily of

proceeds from related party loans payable totaling $4.0 million offset by payments of bond and loan principal totaling $0.3

Promissory Note

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

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

Promissory Note

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”).

fewer restrictive covenants (the “Hakim Promissory Note”).

These covenants include filing timely tax returns and financial

8 unchanged sentences

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.

April 2, 2022, the Company and Elite Labs entered into a Loan and Security Agreement (the “EWB Loan Agreement”) with East

5 unchanged sentences

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.

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.

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, 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.

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, 2023, and through the date of filing of this quarterly report on Form 10-Q,

the Company was not aware of the existence of any violations of financial covenants included in the EWB Mortgage Loan.

Park Capital – July 8, 2020 Purchase Agreement

4 unchanged sentences

The 2020 LPC Purchase Agreement expired on August 1, 2023.

the three and six months ended September 30, 2023 and 2022, the Company did not issue any shares of Common Stock to Lincoln

the three and nine months ended December 31, 2023 and 2022, the Company did not issue any shares of Common Stock to Lincoln Park.

December 12, 2023, the Company announced the first shipment of generic Adderall XR® to its distribution and marketing partner Prasco,

LLC (“Prasco”).

The Company has a non-exclusive Manufacturing, Supply and Distribution Agreement with Prasco, and Burel Pharmaceuticals,

LLC to market Elite’s generic version of Adderall® XR in the United States.

Elite’s product is co-owned with Mikah Pharma.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

1 unchanged sentence

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 2. Management’s Discussion and Analysis