ELITE PHARMACEUTICALS INC /NV/ 10-Q

ITEM 1. FINANCIAL STATEMENTS ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) December 31, 2024 March 31, 2024 ASSETS Current assets: Cash $ 8,293,068 $ 7,106,262 Accounts receivable, net of allowance for expected credit losses of $ 220,000 and $ 236,000 respectively 18,454,012 19,453,301 Inventory 20,157,890 12,930,464 Prepaid expenses and other current assets 1,144,707 524,162 Total current assets 48,049,677 40,014,189 Property and equipment, net of accumulated depreciation of $ 16,738,308 and $ 15,906,853 respectively 9,863,527 10,175,293 Intangible assets 7,241,228 6,341,228 Finance lease - right-of-use asset 1,890,967 2,079,658 Operating lease - right-of-use asset 2,110,917 2,355,201 Deferred income tax asset 20,689,381 22,160,895 Other assets: Restricted cash - debt service for NJEDA bonds 449,216 432,832 Security deposits 461,551 94,240 Total other assets 910,767 527,072 Total assets $ 90,756,464 $ 83,653,536 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 5,840,356 $ 2,714,306 Accrued expenses 3,719,013 5,301,747 Deferred revenue, current portion 8,889 13,333 Bonds payable, current portion, net of bond issuance costs 125,822 115,822 Loans payable, current portion 164,177 180,399 Related party loans payable (Note 7) 4,000,000 4,000,000 Lease obligation - finance lease, current portion 373,178 312,739 Lease obligation - operating lease, current portion 457,397 411,418 Total current liabilities 14,688,832 13,049,764 Long-term liabilities: Deferred revenue, net of current portion — 5,556 Bonds payable, net of current portion and bond issuance costs 783,836 913,203 Loans payable, net of current portion and loan costs 2,268,612 2,366,487 Lease obligation - finance lease, net of current portion 1,327,602 1,480,317 Lease obligation - operating lease, net of current portion 1,676,900 1,957,383 Derivative financial instruments - warrants 33,565,024 6,298,008 Total long-term liabilities 39,621,974 13,020,954 Total liabilities 54,310,806 26,070,718 Commitments and Contingencies (Note 8) - - Shareholders’ equity: Common Stock; par value $ 0.001 ; 1,445,000,000 shares authorized; 1,068,373,108 shares issued as of both December 31, 2024 and March 31, 2024; 1,068,273,108 shares outstanding as of both December 31, 2024 and March 31, 2024 1,068,377 1,068,377 Additional paid-in capital 173,385,785 173,210,549 Treasury stock; 100,000 shares as of both December 31, 2024 and March 31, 2024, at cost ( 306,841 ) ( 306,841 ) Accumulated deficit ( 137,701,663 ) ( 116,389,267 ) Total shareholders’ equity 36,445,658 57,582,818 Total liabilities and shareholders’ equity $ 90,756,464 $ 83,653,536 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F- 1 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) 2024 2023 2024 2023 For the Three Months Ended December 31, For the Nine Months Ended December 31, 2024 2023 2024 2023 Revenue: Manufacturing fees $ 13,738,131 $ 14,791,110 $ 50,407,239 $ 36,208,217 Licensing fees 626,117 747,690 1,640,417 2,467,844 Total revenue 14,364,248 15,538,800 52,047,656 38,676,061 Cost of manufacturing 8,244,907 8,497,727 29,256,109 20,437,354 Gross profit 6,119,341 7,041,073 22,791,547 18,238,707 Operating expenses: Research and development 1,793,803 1,403,790 5,923,424 5,165,684 General and administrative 2,724,616 1,711,275 6,967,514 4,906,187 Non-cash compensation through issuance of stock options 70,578 49,815 175,236 107,592 Depreciation and amortization 432,534 343,537 1,278,564 999,059 Total operating expenses 5,021,531 3,508,417 14,344,738 11,178,522 Income from operations 1,097,810 3,532,656 8,446,809 7,060,185 Other (expense) income: Change in fair value of derivative financial instruments - warrants ( 11,729,368 ) ( 2,417,772 ) ( 27,267,016 ) ( 5,075,489 ) Change in fair value of stock-based liabilities — ( 2,854,556 ) — ( 4,921,376 ) Interest expense and amortization of debt issuance costs ( 77,607 ) ( 121,628 ) ( 583,524 ) ( 371,478 ) Gain from settlement agreements — 1,761,792 — 1,761,792 Interest income 5,092 5,249 16,384 16,085 Other income 51,308 — 63,308 — Other expense, net ( 11,750,575 ) ( 3,626,915 ) ( 27,770,848 ) ( 8,590,466 ) Loss before income taxes ( 10,652,765 ) ( 94,259 ) ( 19,324,039 ) ( 1,530,281 ) Income tax (expense) benefit ( 239,175 ) 800,613 ( 1,988,357 ) 18,313,045 Net (loss) income $ ( 10,891,940 ) $ 706,354 $ ( 21,312,396 ) $ 16,782,764 Basic net (loss) income per share $ ( 0.01 ) $ 0.00 $ ( 0.02 ) $ 0.02 Diluted net (loss) income per share $ ( 0.01 ) $ 0.00 $ ( 0.02 ) $ 0.02 Basic weighted average common stock outstanding 1,068,273,108 1,014,768,071 1,068,273,108 1,014,265,162 Diluted weighted average common stock outstanding 1,068,273,108 1,024,448,445 1,068,273,108 1,019,511,813 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F- 2 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED) Shares Amount Shares Amount Capital Shares Amount Deficit Equity Series J Preferred Stock Common Stock Additional Paid-In Treasury Stock Accumulated Total Shareholders’ Shares Amount Shares Amount Capital Shares Amount Deficit Equity Balance as of March 31, 2024 — $ — 1,068,373,108 $ 1,068,377 $ 173,210,549 100,000 $ ( 306,841 ) $ ( 116,389,267 ) $ 57,582,818 Net income — — — — — — — 615,773 615,773 Non-cash compensation through the issuance of employee stock options — — — — 52,329 — — — 52,329 Balance at June 30, 2024 — $ — 1,068,373,108 $ 1,068,377 $ 173,262,878 100,000 $ ( 306,841 ) $ ( 115,773,494 ) $ 58,250,920 Net loss — — — — — — — ( 11,036,229 ) ( 11,036,229 ) Non-cash compensation through the issuance of employee stock options — — — — 52,329 — — — 52,329 Balance at September 30, 2024 — $ — 1,068,373,108 $ 1,068,377 $ 173,315,207 100,000 $ ( 306,841 ) $ ( 126,809,723 ) $ 47,267,020 Net loss — — — — — — — ( 10,891,940 ) ( 10,891,940 ) Non-cash compensation through the issuance of employee stock options — — — — 70,578 — — — 70,578 Balance at December 31, 2024 — $ — 1,068,373,108 $ 1,068,377 $ 173,385,785 100,000 $ ( 306,841 ) $ ( 137,701,663 ) $ 36,445,658 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F- 3 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED) Series J Preferred Stock Common Stock Additional Paid-In Treasury Stock Accumulated Total Shareholders’ Shares Amount Shares Amount Capital Shares Amount Deficit Equity Balance as of March 31, 2023 — — 1,013,915,081 $ 1,014,019 $ 164,750,980 100,000 $ ( 306,841 ) $ ( 136,497,898 ) $ 28,960,260 Net income — — — — — — — 1,141,809 1,141,809 Non-cash compensation through the issuance of employee stock options — — — — 15,000 — — — 15,000 Balance at June 30, 2023 — $ — 1,013,915,081 $ 1,014,019 $ 164,765,980 100,000 $ ( 306,841 ) $ ( 135,356,089 ) $ 30,117,069 Net income — — — — — — — 14,934,601 14,934,601 Non-cash compensation through the issuance of employee stock options — — — — 42,777 — — — 42,777 Balance at September 30, 2023 — $ — 1,013,915,081 $ 1,014,019 $ 164,808,757 100,000 $ ( 306,841 ) $ ( 120,421,488 ) $ 45,094,447 Balance — $ — 1,013,915,081 $ 1,014,019 $ 164,808,757 100,000 $ ( 306,841 ) $ ( 120,421,488 ) $ 45,094,447 Shares issued in satisfaction of accrued director salaries — — 1,642,971 1,643 250,224 — — — 251,867 Shares issued in satisfaction of accrued consultant fees — — 2,223,147 2,223 309,015 — — — 311,238 Net income — — — — — — — 706,354 706,354 Net income (loss) — — — — — — — 706,354 706,354 Non-cash compensation through the issuance of employee stock options — — — — 49,815 — — — 49,815 Balance at December 31, 2023 — $ — 1,017,781,199 $ 1,017,885 $ 165,417,811 100,000 $ ( 306,841 ) $ ( 119,715,134 ) $ 46,413,721 Balance — $ — 1,017,781,199 $ 1,017,885 $ 165,417,811 100,000 $ ( 306,841 ) $ ( 119,715,134 ) $ 46,413,721 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F- 4 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 2024 2023 For the Nine Months Ended December 31, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ ( 21,312,396 ) $ 16,782,764 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Depreciation and amortization 936,007 992,136 Provision for losses on accounts receivable ( 15,943 ) 194,600 Amortization of operating leases - right-of-use assets 323,281 18,153 Amortization of finance leases - right-of-use assets 342,557 6,923 Amortization of debt discount - bonds offering costs 10,633 — Loss on asset disposal 121,481 — Change in fair value of derivative financial instruments - warrants 27,267,016 5,075,489 Non-cash compensation accrued — 563,105 Gain on settlement of Common Stock to consultant — ( 1,761,792 ) Change in fair value of stock-based liabilities — 4,921,376 Deferred tax expense (benefit) 1,471,514 ( 18,061,782 ) Non-cash compensation through the issuance of employee stock options 175,236 107,592 Change in operating assets and liabilities: Accounts receivable 1,015,232 ( 13,109,665 ) Inventory ( 7,227,426 ) ( 4,774,325 ) Prepaid expenses and other current assets ( 422,088 ) 27,149 Security deposits ( 367,311 ) 13,759 Accounts payable 3,126,050 25,490 Accrued expenses ( 1,582,734 ) 3,677,335 Deferred revenue ( 10,000 ) ( 10,001 ) Lease obligations - operating leases ( 313,501 ) ( 20,005 ) Interest expense on finance lease liability — ( 2,915 ) Net cash provided by (used in) operating activities 3,537,608 ( 5,334,614 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 870,972 ) ( 406,007 ) Purchase of intangible assets ( 900,000 ) — Proceeds from disposition of property and equipment 125,250 — Net cash used in investing activities ( 1,645,722 ) ( 406,007 ) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of bond principal ( 130,000 ) ( 125,000 ) Proceeds from related party loans payable — 4,000,000 Payments on principal on finance lease obligations ( 246,142 ) — Loan payments ( 312,554 ) ( 134,850 ) Net cash (used in) provided by financing activities ( 688,696 ) 3,740,150 Net change in cash and restricted cash 1,203,190 ( 2,000,471 ) Cash and restricted cash, beginning of period 7,539,094 8,244,681 Cash and restricted cash, end of period $ 8,742,284 $ 6,244,210 Supplemental disclosure of cash and non-cash transactions: Cash paid for interest $ 503,593 $ 119,412 Cash paid for income taxes $ 740,262 $ 292,000 Finance directors and officers insurance premium $ 198,457 $ — Recognition of finance lease right of use asset and lease liabilities entered into $ 153,870 $ 272,620 Recognition of operating lease right of use asset and lease liabilities entered into $ 78,997 $ — Stock issued in satisfaction of accrued directors salaries and consultant fees $ — $ 563,105 Reconciliation of cash and restricted cash Cash $ 8,293,068 $ 5,816,211 Restricted cash - debt service for NJEDA bonds 449,216 427,999 Total cash and restricted cash shown in statement of cash flows $ 8,742,284 $ 6,244,210 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. F- 5 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Overview Elite Pharmaceuticals, Inc. (the “Company” or “Elite”) was incorporated on October 1, 1997 under the laws of the State of Delaware, and its wholly-owned subsidiary Elite Laboratories, Inc. (“Elite Labs”) was incorporated on August 23, 1990 under the laws of the State of Delaware. On January 5, 2012, Elite Pharmaceuticals was reincorporated under the laws of the State of Nevada. Elite Labs engages primarily in researching, developing, licensing, manufacturing, and sales of generic, oral dose pharmaceuticals. The Company is equipped to manufacture controlled-release products on a contract basis for third parties and itself, if and when the 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. Basis of Presentation The 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 SEC. 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. 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. In 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 July 1, 2024. The interim results for the nine months ended December 31, 2024 are not necessarily indicative of the results to be expected for the fiscal year ending March 31, 2025 or for any future periods. Reclassification Certain items in prior condensed consolidated financial statements have been reclassified to conform to the current presentation. The presentation of the condensed consolidated statements of cash flows has been modified to separately present the change in the security deposits for the nine months ended December 31, 2023. Additionally, the presentation of Note 4 has been modified to separately disclose accrued interest related to the Company’s related party loan. These reclassifications had no effect on the reported results of operations. Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as reported amounts of revenues and expenses during the reporting period. Such management estimates and assumptions include, but are not limited to, standalone selling price for each distinct performance obligation included in customer contracts with multiple performance obligations, the period of benefit for deferred commissions, valuation of intangible assets, the useful life of property and equipment and identifiable intangible assets, stock-based compensation expense and income taxes. Actual results could differ from those estimates. Segment Information Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 280 (“ASC 280”), Segment Reporting, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the Chief Executive Officer, who reviews the financial performance and the results of operations of the segments prepared in accordance with GAAP when making decisions about allocating resources and assessing performance of the Company. F- 6 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The 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”). ANDA products are referred to as generic pharmaceuticals and NDA products are referred to as branded pharmaceuticals. The Company paused further development of NDAs and has not engaged in business activities. Accordingly, during the three and nine months ended December 31, 2024 and 2023, the Company has only engaged in business activities in a single operating segment. There are currently no intersegment revenues. Asset information by operating segment is not presented below since the chief operating decision maker does not review this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s condensed consolidated financial statements. Please see Note 13 for further details. Revenue Recognition The Company generates revenue from manufacturing and licensing fees and direct sales to pharmaceutical distributors for pharmacies and institutions. Manufacturing fees include the development of pain management products, manufacturing of a line of generic pharmaceutical products with approved ANDA, through the manufacture of formulations and the development of new products. Licensing fees include the commercialization of products either by license and the collection of royalties, or the expansion of licensing agreements with other pharmaceutical companies, including co-development projects, joint ventures and other collaborations. Under ASC 606, Revenue from Contacts with Customers (“ASC 606”), the Company recognizes revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which is expected to be received in exchange for those goods or services. The Company recognizes revenues following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenues when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue. Nature of goods and services The following is a description of the Company’s goods and services from which the Company generates revenue, as well as the nature, timing of satisfaction of performance obligations, and significant payment terms for each, as applicable: a) Manufacturing Fees The Company is equipped to manufacture controlled-release products on a contract basis for third parties, if, and when, the products are approved. These products include products using controlled-release drug technology. The Company also develops and markets (either on its own or by license to other companies) generic and proprietary controlled-release pharmaceutical products. The Company recognizes revenue when the customer obtains control of the Company’s product based on the contractual shipping terms of the contract, 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. b) License Fees The Company enters into licensing and development agreements, which may include multiple revenue generating activities, including milestones payments, licensing fees, product sales and services. The Company analyzes each element of its licensing and development agreements in accordance with ASC 606 to determine appropriate revenue recognition. The terms of the license agreement may include payment to the Company of licensing fees, non-refundable upfront license fees, milestone payments if specified objectives are achieved, and/or royalties on product sales. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. F- 7 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The Company recognizes revenue from non-refundable upfront payments at a point in time, typically upon fulfilling the delivery of the associated intellectual property to the customer. For those milestone payments which are contingent on the occurrence of particular future events (for example, payments due upon a product receiving FDA approval), the Company determined that these need to be considered for inclusion in the calculation of total consideration from the contract as a component of variable consideration using the most-likely amount method. As such, the Company assesses each milestone to determine the probability and substance behind achieving each milestone. Given the inherent uncertainty of the occurrence of future events, the Company will recognize revenue from the milestone when there is not a high probability of a reversal of revenue, which typically occurs near or upon achievement of the event. Significant management judgment is required to determine the level of effort required under an arrangement and the period over which the Company expects to complete its performance obligations under the arrangement. If the Company cannot reasonably estimate when its performance obligations either are completed or become inconsequential, then revenue recognition is deferred until the Company can reasonably make such estimates. Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method. When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in ASC 606-10-32-18, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component as of December 31, 2024. In accordance with ASC 606-10-55-65, royalties are recognized when the subsequent sale of the customer’s products occurs. c) Sale of product under the Elite label The 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 have been replaced with revenues from sales of Elite labeled pharmaceutical products to distributors for pharmacies and institutions. The 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. The Company provides for chargebacks to wholesalers for sales to various end-customers to include, but not limited to, hospitals, group purchasing organizations, and pharmacies. Chargebacks represent the difference between the price the wholesaler pays and the price that the end-customer pays for a product. The company’s estimate for chargebacks is developed based upon management’s assumption of anticipated product returns, other rebates, as well as historical information. Disaggregation of revenue In the following table, revenue is disaggregated by type of revenue generated by the Company. The Company recognizes revenue at a point in time for all performance obligations. During the nine months ended December 31, 2024 and 2023, the Company had paused further development of NDAs and has not engaged in business activities in that segment. Accordingly, during the nine months ended December 31, 2024 and 2023, the Company has only engaged in business activities in a single operating segment. The table also includes a reconciliation of the disaggregated revenue with the reportable segment: SCHEDULE OF DISAGGREGATION OF REVENUE For the Three Months Ended December 31, For the Nine Months Ended December 31, 2024 2023 2024 2023 ANDA: Manufacturing fees $ 13,738,131 $ 14,791,110 $ 50,407,239 $ 36,208,217 Licensing fees 626,117 747,690 1,640,417 2,467,844 Total revenue $ 14,364,248 $ 15,538,800 $ 52,047,656 $ 38,676,061 Selected information on reportable segments and reconciliation of operating income by segment to income from operations before income taxes are disclosed within Note 13. F- 8 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Restricted Cash As of December 31, 2024, and March 31, 2024, the Company had $ 449,216 and $ 432,832 , of restricted cash, respectively, related to debt service reserve in regard to the New Jersey Economic Development Authority (“NJEDA”) bonds (see Note 5). Long-Lived Assets The Company periodically evaluates the fair value of long-lived assets, which include property and equipment and intangibles, whenever events or changes in circumstances indicate that its carrying amounts may not be recoverable. Property and equipment are stated at cost. Depreciation is provided on the straight-line method based on the estimated useful lives of the respective assets which range from three to forty years . Major repairs or improvements are capitalized. Minor replacements and maintenance and repairs which do not improve or extend asset lives are expensed currently. Upon retirement or other disposition of assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss, if any, is recognized in income. Intangible Assets The Company capitalizes certain costs to acquire intangible assets; if such assets are determined to have a finite useful life they are amortized on a straight-line basis over the estimated useful life. Costs to acquire indefinite lived intangible assets, such as costs related to ANDAs are capitalized accordingly. The Company tests its intangible assets for impairment at least annually (as of March 31st) and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others and without limitation: a significant decline in the Company’s expected future cash flows; a sustained, significant decline in the Company’s stock price and market capitalization; a significant adverse change in legal factors or in the business climate of the Company’s segments; unanticipated competition; and slower growth rates. There were no such impairments recorded during the nine months ended December 31, 2024 and 2023. The Company notes that none of its patents relate to any of the Company’s revenue producing activities. On June 17, 2024, the Company and Nostrum Laboratories Inc. (“Nostrum”) entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”), pursuant to which Nostrum was obligated to (i) sell to the Company all of its rights in and to the approved abbreviated new drug applications (ANDAs) for generic Norco® (Hydrocodone Bitartrate and Acetaminophen tablets, USP CII), generic Percocet® (Oxycodone Hydrochloride and Acetaminophen, USP CII), and generic Dolophine® (Methadone Hydrochloride tablets), each a “Product”, and (ii) grant to the Company a royalty-free, non-exclusive perpetual license to use the manufacturing technology, proprietary information, processes, techniques, protocols, methods, know-how, and improvements necessary or used to manufacture each Product in accordance with the applicable ANDA, in exchange for $ 900,000 in cash (the “Transaction”). The Asset Purchase Agreement includes customary representations and warranties and various customary covenants. The closing of the Transaction occurred on June 21, 2024. F- 9 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The following table summarizes the Company’s intangible assets as of December 31, 2024 and March 31, 2024: SCHEDULE OF INTANGIBLE ASSETS December 31, 2024 Estimated Useful Life Gross Carrying Amount Additions Impairment losses Accumulated Amortization Net Book Value Patent application costs - * $ 289,039 $ — $ — $ — $ 289,039 ANDA acquisition costs Indefinite 6,052,189 900,000 — — 6,952,189 $ 6,341,228 $ 900,000 $ — $ — $ 7,241,228 March 31, 2024 Estimated Useful Life Gross Carrying Amount Additions Impairment losses Accumulated Amortization Net Book Value Patent application costs - * $ 289,039 $ — $ — $ — $ 289,039 ANDA acquisition costs Indefinite 6,052,189 — — — 6,052,189 $ 6,341,228 $ — $ — $ — $ 6,341,228 * Patent application costs were incurred in relation to the Company’s abuse deterrent opioid technology. Amortization of the patent costs will begin upon the issuance of marketing authorization by the FDA. Amortization will then be calculated on a straight-line basis through the expiry of the related patent(s). Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Due to temporary differences in the timing of recognition of items included in income for accounting and tax purposes, deferred tax assets or liabilities are recorded to reflect the impact arising from these differences on future tax payments. Where applicable, the Company records a valuation allowance to reduce any deferred tax assets that it determines will not be realizable in the future. The Company recognizes the benefit of an uncertain tax position that it has taken or expects to take on income tax returns it files if such tax position is more likely than not to be sustained on examination by the taxing authorities, based on the technical merits of the position. These tax benefits are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company operates in multiple tax jurisdictions within the United States of America. The Company remains subject to examination in all tax jurisdiction until the applicable statutes of limitation expire. As of December 31, 2024, a summary of the tax years that remain subject to examination in our major tax jurisdictions are: United States – Federal, 2020 and forward. The Company did not record unrecognized tax positions for the nine months ended December 31, 2024. (Loss) Income Per Share Attributable to Common Shareholders’ The Company follows ASC 260, Earnings Per Share , which requires presentation of basic and diluted (loss) income per share (“EPS”) on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. In the accompanying financial statements, basic (loss) income per share is computed by dividing net (loss) income by the weighted average number of shares of Common Stock outstanding during the period. F- 10 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) As the Company was in a net loss position for the three and nine months ended December 31, 2024, the potential dilution from the warrants converting into 79,008,661 shares of Common Stock and the stock options converting into 15,760,000 shares of Common Stock for these periods have been excluded from the number of shares used in calculating diluted net (loss) income per share as their inclusion would have been antidilutive. The following is the computation of earnings per share applicable to common shareholders for the periods indicated: SCHEDULE OF EARNINGS (LOSS) PER SHARE APPLICABLE TO COMMON SHAREHOLDERS 2024 2023 2024 2023 For the Three Months Ended December 31, For the Nine Months Ended December 31, 2024 2023 2024 2023 Numerator Net (loss) income - basic $ ( 10,891,940 ) $ 706,354 $ ( 21,312,396 ) $ 16,782,764 Effect of dilutive instrument on net income — — — — Net (loss) income - diluted $ ( 10,891,940 ) $ 706,354 $ ( 21,312,396 ) $ 16,782,764 Denominator Weighted average shares of common stock outstanding - basic 1,068,273,108 1,014,768,071 1,068,273,108 1,014,265,162 Dilutive effect of stock options and convertible securities — 9,680,374 — 5,246,651 Weighted average shares of common stock outstanding - diluted 1,068,273,108 1,024,448,445 1,068,273,108 1,019,511,813 Net (loss) income per share Basic $ ( 0.01 ) $ 0.00 $ ( 0.02 ) $ 0.02 Diluted $ ( 0.01 ) $ 0.00 $ ( 0.02 ) $ 0.02 Fair Value of Financial Instruments ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) provides a framework for measuring fair value in accordance with generally accepted accounting principles. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820 are described as follows: ● Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. ● Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. ● Level 3 – Inputs that are unobservable for the asset or liability. F- 11 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Measured on a Recurring Basis The following table presents information about the Company’s liabilities measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fell: SCHEDULE OF LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS Fair Value Measurement Amount at Fair Value Level 1 Level 2 Level 3 Balance as of March 31, 2024 $ 6,298,008 $ — $ — $ 6,298,008 Change in fair value of derivative financial instruments - warrants 27,267,016 — — 27,267,016 Balance as of December 31, 2024 $ 33,565,024 $ — $ — $ 33,565,024 Fair Value Measurement Amount at Fair Value Level 1 Level 2 Level 3 Balance as of March 31, 2023 $ 521,711 $ — $ — $ 521,711 Change in fair value of derivative financial instruments - warrants 5,075,489 — — 5,075,489 Balance as of December 31, 2023 $ 5,597,200 $ — $ — $ 5,597,200 See Note 10 for specific inputs used in determining fair value. The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses, approximate their fair values because of the short maturity of these instruments. Based upon current borrowing rates with similar maturities the carrying value of long-term debt, and related party loans payable approximates fair value. Non-Financial Assets that are Measured at Fair Value on a Non-Recurring Basis Non-financial assets such as intangible assets, and property and equipment are measured at fair value only when an impairment loss is recognized. The Company did not record an impairment charge related to these assets in the periods presented. Recently Issued Accounting Pronouncements In December 2023, the FASB issued ASU 2023-09 (Topic 740), Improvements to income tax disclosures, which enhances the disclosure requirements for the income tax rate reconciliation, domestic and foreign income taxes paid, requiring disclosure of disaggregated income taxes paid by jurisdiction, unrecognized tax benefits, and modifies other income tax-related disclosures. The amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted and should be applied prospectively. The Company is currently evaluating the effect of adopting this guidance on its condensed consolidated financial statements. In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segments,” which aims to improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses. Currently, Topic 280 requires that a public entity disclose certain information about its reportable segments. Topic 280 also requires other specified segment items and amounts to be disclosed under certain circumstances. The amendments in this ASU do not change or remove those disclosure requirements and do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company does not expect that the requirements of ASU 2023 – 07 will have a material impact on its condensed consolidated financial statements. In November 2024, the FASB issued ASU No. 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses”, that requires public companies to disclose, in interim and reporting periods, additional information about certain expenses in the financial statements. For public business entities, it is effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted and is effective on either a prospective basis or retrospective basis. The Company is currently evaluating the impact that the updated standard will have on the Company’s disclosures within the condensed consolidated financial statements. F- 12 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Management has evaluated recently issued accounting pronouncements outside of those mentioned above and does not believe that any of these pronouncements will have a significant impact on the Company’s condensed consolidated financial statements and related disclosures. NOTE 2. INVENTORY Inventory consisted of the following: SCHEDULE OF INVENTORY December 31, 2024 March 31, 2024 Finished goods $ 7,310,110 $ 4,465,970 Work-in-progress 2,700,935 1,804,426 Raw materials 10,146,845 6,660,068 Inventory $ 20,157,890 $ 12,930,464 NOTE 3. PROPERTY AND EQUIPMENT, NET Property and equipment consisted of the following: SCHEDULE OF PROPERTY AND EQUIPMENT December 31, 2024 March 31, 2024 Land, building and improvements $ 11,649,918 $ 11,061,149 Laboratory, manufacturing, warehouse and transportation equipment 14,021,898 14,090,978 Office equipment and software 373,601 373,601 Furniture and fixtures 556,418 556,418 Property and equipment, gross 26,601,835 26,082,146 Less: Accumulated depreciation ( 16,738,308 ) ( 15,906,853 ) Property and equipment, net $ 9,863,527 $ 10,175,293 Depreciation expense was $ 313,060 and $ 336,614 for the three months ended December 31, 2024 and 2023, respectively, and $ 936,007 and $ 992,136 for the nine months ended December 31, 2024 and 2023, respectively. NOTE 4. ACCRUED EXPENSES As of December 31, 2024 and March 31, 2024, the Company’s accrued expenses consisted of the following: SCHEDULE OF ACCRUED EXPENSES December 31, 2024 March 31, 2024 Co-development profit split $ 1,858,629 $ 3,684,587 Employee bonuses 619,374 206,225 Income tax 505,908 485,327 Legal and professional expense 73,510 90,000 Audit fees 50,000 125,000 Director dues 22,500 22,500 Consultant contract fees — 20,000 Salaries and fees payable 170,579 — Accrued interest - related parties 100,000 90,000 Other accrued expenses 318,513 578,108 Total accrued expenses $ 3,719,013 $ 5,301,747 F- 13 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 5. NJEDA BONDS During August 2005, the Company refinanced a bond issue occurring in 1999 through the issuance of Series A and B Notes tax-exempt bonds (the “NJEDA Bonds” and/or “Bonds”). During July 2014, the Company retired all outstanding Series B Notes, at par, along with all accrued interest due and owed. In relation to the Series A Notes, the Company is required to maintain a debt service reserve. The debt service reserve is classified as restricted cash on the accompanying 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. The following tables summarize the Company’s bonds payable liability: SCHEDULE OF BONDS PAYABLE LIABILITY December 31, 2024 March 31, 2024 Gross bonds payable NJEDA Bonds - Series A Notes $ 990,000 $ 1,120,000 Less: Current portion of bonds payable (prior to deduction of bond offering costs) ( 140,000 ) ( 130,000 ) Long-term portion of bonds payable (prior to deduction of bond offering costs) $ 850,000 $ 990,000 Bond offering costs $ 354,454 $ 354,454 Less: Accumulated amortization ( 274,112 ) ( 263,479 ) Bond offering costs, net $ 80,342 $ 90,975 Current portion of bonds payable - net of bond offering costs Current portions of bonds payable $ 140,000 $ 130,000 Less: Bonds offering costs to be amortized in the next 12 months ( 14,178 ) ( 14,178 ) Current portion of bonds payable, net of bond offering costs $ 125,822 $ 115,822 Long term portion of bonds payable - net of bond offering costs Long term portion of bonds payable $ 850,000 $ 990,000 Less: Bond offering costs to be amortized subsequent to the next 12 months ( 66,164 ) ( 76,797 ) Long term portion of bonds payable, net of bond offering costs $ 783,836 $ 913,203 Amortization expense was $ 3,544 and $ 3,540 for the three months ended December 31, 2024 and 2023, respectively, and $ 10,633 and $ 10,636 for the nine months ended December 31, 2024 and 2023, respectively. Interest payable was $ 21,450 and $ 6,067 as of December 31, 2024 and March 31, 2024, respectively. Interest expense was $ 16,088 and $ 18,200 for the three months ended December 31, 2024 and 2023, respectively, and $ 51,783 and $ 57,985 for the nine months ended December 31, 2024 and 2023, respectively. Maturities of bonds for the next five years are as follows: SCHEDULE OF MATURITIES OF BONDS Years ending March 31, Amount Remainder of 2025 $ — 2026 140,000 2027 150,000 2028 160,000 2029 170,000 Thereafter 370,000 Total $ 990,000 NOTE 6. LOANS PAYABLE Loans payable consisted of the following: SCHEDULE OF LOANS PAYABLE December 31, 2024 March 31, 2024 Mortgage loan payable 4.75 % interest and maturing June 2032 $ 2,355,991 $ 2,418,426 Equipment and insurance financing loans payable, between 5.99 % and 12.02 % interest and maturing between April 2025 and October 2025 76,798 128,460 Less: Current portion of loans payable ( 164,177 ) ( 180,399 ) Long-term portion of loans payable $ 2,268,612 $ 2,366,487 The interest expense associated with the loans payable was $ 31,089 and $ 30,384 for the three months ended December 31, 2024 and 2023, respectively, and $ 99,104 and $ 101,478 for the nine months ended December 31, 2024 and 2023, respectively. F- 14 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Loan principal payments for the next five years are as follows: SCHEDULE OF LOAN PRINCIPAL PAYMENTS Future principal balances Years ending March 31, Amount Remainder of 2025 $ 66,306 2026 120,747 2027 92,772 2028 94,433 2029 98,447 Thereafter 1,960,084 Total remaining principal balance $ 2,432,789 NOTE 7. RELATED PARTY LOANS PAYABLE The Company has entered into a collateralized promissory note with individual lenders with rates comparable to the EWB Term Loan but with fewer 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 were used for working capital and other business purposes. The original maturity date of the Hakim Promissory Note was June 2, 2024, with an optional second year extension. The second year extension was exercised pursuant to the terms of the Hakim Promissory Note. For the three and nine months ended December 31, 2024, interest expense on the Hakim Promissory Note totaled $ 75,000 and $ 217,500 respectively, and is recorded on the Condensed Consolidated Balance Sheets in accrued expenses and on the Condensed Consolidated Statements of Operations in interest expense and amortization of debt issuance costs. For the three and nine months ended December 31, 2023, interest expense totaled $ 67,500 , and $ 202,500 , respectively, and is recorded on the Condensed Consolidated Balance Sheets in accrued expenses and on the Condensed Consolidated Statements of Operations in interest expense and amortization of debt issuance costs. 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 was June 30, 2024, with an optional second year extension. The second year extension was exercised pursuant to the terms of the Caskey Promissory Note. For the three and nine months ended December 31, 2024, interest expense on the Caskey Promissory Note totaled $ 25,000 and $ 72,500 respectively, and is recorded on the Condensed Consolidated Balance Sheets in accrued expenses and on the Condensed Consolidated Statements of Operations in interest expense and amortization of debt issuance costs. For the three and nine months ended December 31, 2023, interest expense totaled $ 22,500 , and $ 67,500 , respectively, and is recorded on the Condensed Consolidated Balance Sheets in accrued expenses and on the Condensed Consolidated Statements of Operations in interest expense and amortization of debt issuance costs. NOTE 8. COMMITMENTS AND CONTINGENCIES Occasionally, the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s condensed consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. F- 15 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) On August 17, 2023, Elite filed a paragraph IV certification with its ANDA to generic Oxycontin and after Elite got acceptance of the ANDA by the FDA on September 19, 2023, Elite sent the patentee and NDA holder a Notice Letter as required under the Hatch-Waxman Act. On November 14, 2023, a patent infringement suit was filed in the District Court of New Jersey by Purdue Pharma. Elite has obtained several agreements with Purdue to stay the litigation, with the latest being a stipulation and proposed order submitted by the participants on January 30, 2025 staying the proceedings for 30 days. Elite’s launch of a generic Oxycontin will depend on the approval by the FDA and the outcome of various litigation involving Purdue or the expiry of the patents listed on the Orange Book. As of December 31, 2024, the results of such proceedings cannot be predicted with certainty and are neither probable nor estimable. Operating Leases In October 2020, the Company entered into an operating lease for office space in Pompano Beach, Florida (the “Pompano Office Lease”). The Pompano Office Lease is for approximately 1,275 square feet of office space, with the Company taking occupancy on November 1, 2020. The Pompano Office Lease had a term of three years , ending on October 31, 2023. The Pompano Office Lease was extended for one additional year to October 31, 2024. Accordingly, the Pompano Office Lease expired at the end of the renewal term on October 31, 2024. The Company entered into an operating lease for new office space in North Bay Village, Pompano FL (the “NBV Pompano Office Lease”). The Company took occupancy on October 1, 2024. The NBV Pompano Office Lease has a term of three years, ending on September 30, 2027. The Company entered into a lease agreement for a portion of a one-story warehouse, located at 144 Ludlow Avenue, Northvale, New Jersey (the “144 Ludlow Ave. lease”). The lease agreement began on January 22, 2024, and has a term of five years . The 144 Ludlow Ave. lease will expire on December 31, 2028. The Company assesses whether an arrangement is a lease or contains a lease at inception. For arrangements considered leases or that contain a lease that is accounted for separately, the Company determines the classification and initial measurement of the right-of-use asset and lease liability at the lease commencement date, which is the date that the underlying asset becomes available for use. The Company has elected to account for non-lease components associated with its leases and lease components as a single lease component. The Company recognizes a right-of-use asset, which represents the Company’s right to use the underlying asset for the lease term, and a lease liability, which represents the present value of the Company’s obligation to make payments arising over the lease term. The present value of the lease payments is calculated using either the implicit interest rate in the lease or an incremental borrowing rate. Finance Leases In November 2023, the Company entered into a finance lease for equipment (the “Waters Equipment Lease”). The Waters Equipment Lease is related to lab equipment with an acquisition cost of $ 499,775 , with the Company taking ownership of the asset on December 1, 2023. The Waters equipment lease has a term of five years , ending on November 29, 2028. The Company also has the option to purchase the asset at the end of the lease term for the amount of $ 1 , which is probable to be exercised. In February 2024, the Company entered into a finance lease for warehouse equipment (the “Warehouse Equipment Lease”). The Warehouse Equipment Lease is related to warehouse equipment with an acquisition cost of $ 37,500 , with the Company taking ownership of the asset during February 2024. The Warehouse Equipment Lease has a term of two years , ending in February 2026. The Company also has the option to purchase the asset at the end of the lease term for the amount of $ 1 , which is probable to be exercised. In February 2024, the Company entered into a finance lease for equipment (the “February 2024 Equipment Lease”). The February 2024 Equipment Lease is related to manufacturing equipment with an acquisition cost of $ 455,000 , with the Company taking ownership of the asset during February 2024. The February 2024 Equipment Lease has a term of five years , ending in February 2029. The Company will retain ownership of the equipment at lease termination . In March 2024, the Company entered into three separate finance leases for manufacturing assets (the “March 2024 Equipment Leases”). The March 2024 Equipment Leases are related to manufacturing equipment and vault installed at the Company’s facility located at 144 Ludlow Avenue, Northvale NJ with an aggregate acquisition cost of $ 1,100,000 . Each of the separate leases included in the March 2024 Equipment Leases have a term of five years , ending in March 2029. The Company will retain ownership of all related assets at lease termination. In July 2024, the Company entered into two separate finance leases for manufacturing assets (the “July 2024 Equipment Leases”). The July 2024 Equipment Leases are related related warehouse and laboratory equipment with an aggregate acquisition cost of $ 153,745 . Each of the separate leases included in the July 2024 Equipment Lease have a term of five years , ending in July 2029. The Company will retain ownership of all related assets at lease terminations. A lease is classified as a finance lease if any of the following criteria are met: (i) ownership of the underlying asset transfers to the Company by the end of the lease term; (ii) the lease contains an option to purchase the underlying asset that the Company is reasonably expected to exercise; (iii) the lease term is for a major part of the remaining economic life of the underlying asset; (iv) the present value of the sum of lease payments and any residual value guaranteed by the Company equals or exceeds substantially all of the fair value of the underlying asset; or (v) the underlying asset is of a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease that does not meet any of the criteria to be classified as a finance lease is classified as an operating lease. As the Company expects to exercise the option to purchase the asset at the end of the lease term, the Waters equipment lease was determined to be a finance lease. The finance lease is included on the condensed consolidated balance sheets as Finance lease - right-of-use asset and Lease obligation - finance lease. The finance lease costs are split between Depreciation and amortization expense related to the asset and Interest expense and amortization of debt issuance costs on the lease liability, using the effective rate charged by the lessor. The Company has elected to account for lease and non-lease components separately. F- 16 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Lease assets and liabilities are classified as follows on the condensed consolidated balance sheet: SCHEDULE OF LEASE ASSETS AND LIABILITIES Lease Classification December 31, 2024 March 31, 2024 Assets Finance Finance lease – right-of-use asset $ 1,890,967 $ 2,079,658 Operating Operating lease – right-of-use asset 2,110,917 2,355,201 Total leased assets $ 4,001,884 $ 4,434,859 Liabilities Current Finance Lease obligation – finance lease $ 373,178 $ 312,739 Operating Lease obligation – operating lease 457,397 411,418 Long-term Finance Lease obligation – finance lease, net of current portion 1,327,602 1,480,317 Operating Lease obligation – operating lease, net of current portion 1,676,900 1,957,383 Total lease liabilities $ 3,835,077 $ 4,161,857 Rent expense is recorded on the straight-line basis and is recorded in general and administrative expense in the unaudited condensed consolidated statements of operations. Rent expense is as follows: SCHEDULE OF RENT EXPENSE STRAIGHT-LINE BASIS Lease 2024 2023 2024 2023 For the Three Months Ended December 31, For the Nine Months Ended December 31, Lease 2024 2023 2024 2023 Ludlow-144 $ 152,602 $ — $ 455,632 $ — Pompano-2311 2,696 7,565 18,870 20,603 NBV-610 7,303 — 7,303 — Rent expense 7,303 — 7,303 — The table below shows the future minimum rental payments, exclusive of taxes, insurance and other costs, under the Pompano Office Lease and Waters Equipment Lease: SCHEDULE OF FUTURE MINIMUM RENTAL PAYMENTS Years ending March 31, Operating Lease Amount Financing Lease Amount Total Remainder of 2025 $ 162,079 $ 129,734 $ 291,813 2026 653,092 517,241 1,170,333 2027 667,307 484,151 1,151,458 2028 666,207 479,337 1,145,544 2029 440,159 438,045 878,204 Thereafter — 13,740 13,740 Less: interest ( 454,547 ) ( 361,468 ) ( 816,015 ) Present value of lease payments $ 2,134,297 $ 1,700,780 $ 3,835,077 The weighted-average remaining lease term and the weighted-average discount rate of our leases were as follows: SCHEDULE OF WEIGHTED -AVERAGE REMAINING TERM AND THE WEIGHTED-AVERAGE DISCOUNT RATE For the Nine Months Ended December 31, Lease Term and Discount Rate 2024 2023 Remaining lease term (years) Operating leases 3.9 0.8 Finance leases 4.1 4.9 Discount rate Operating leases 10.0 % 6.0 % Finance leases 9.5 % 12.5 % F- 17 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 9. PREFERRED STOCK Series J convertible preferred stock On April 28, 2017, the Company created the Series J Convertible Preferred Stock (“Series J Preferred”) in conjunction with the Certificate of Designations. 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 . NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS – WARRANTS The Company evaluates and accounts for its freestanding instruments in accordance with ASC 815, Accounting for Derivative Instruments and Hedging Activities . The Company issued warrants, with a term of ten years , to affiliates in connection with an exchange agreement dated April 28, 2017, as further described in this note below. The Company has 79,008,661 total warrants to purchase shares of Common Stock outstanding with a weighted average exercise price of $ 0.1521 as of December 31, 2024 and March 31, 2024. On April 28, 2017, the Company entered into an Exchange Agreement with Hakim, the Chairman of the Board, President, and Chief Executive Officer of the Company, pursuant to which the Company issued to Hakim 24.0344 shares of its Series J Preferred and warrants to purchase an aggregate of 79,008,661 shares of its Common Stock (the “Series J Warrants” and, along with the Series J Preferred issued to Hakim, the “Securities”) in exchange for 158,017,321 shares of Common Stock owned by Hakim. The fair value of the Series J Warrants was determined to be $ 6,474,674 upon issuance at April 28, 2017. The Series J Warrants are exercisable for a period of 10 years from the date of issuance, commencing April 28, 2020. The initial exercise price is $ 0.1521 per share and the Series J Warrants can be exercised for cash or on a cashless basis, including a provision within that provides the holder a choice of net cash settlement or settlement in shares upon a cashless exercise. The net cash settlement amount is the cash value obtained by subtracting the then exercise price from the closing price of the Company’s Common Stock (provided such closing price is higher than the exercise price) and multiplying the difference by the number of shares exercised. As this event is at the holder’s option, it is considered outside of the Company’s control. As a result of the net cash settlement at the option of the holder, such warrants are classified as liabilities and measured initially and subsequently at fair value. The exercise price is subject to adjustment for any issuances or deemed issuances of Common Stock or Common Stock equivalents at an effective price below the then exercise price. The Series J Warrants also provide for other standard adjustments upon the happening of certain customary events. The fair value of the Series J Warrants was calculated using a Black-Scholes model. The following assumptions were used in the Black-Scholes model to calculate the fair value of the Series J Warrants: SCHEDULE OF FAIR VALUE OF WARRANTS ISSUED December 31, 2024 March 31, 2024 Fair value of the Company’s Common Stock $ 0.5411 $ 0.1543 Volatility 82.90 % 72.90 % Initial exercise price $ 0.1521 $ 0.1521 Warrant term (in years) 2.3 3.1 Risk free rate 4.25 % 4.40 % The changes in warrants (Level 3 financial instruments) measured at fair value on a recurring basis were as follows: SCHEDULE OF CHANGES IN WARRANTS MEASURED AT FAIR VALUE ON A RECURRING BASIS Balance at March 31, 2023 $ 521,711 Change in fair value of derivative financial instruments - warrants 5,776,297 Balance at March 31, 2024 $ 6,298,008 Change in fair value of derivative financial instruments - warrants 27,267,016 Balance at December 31, 2024 $ 33,565,024 NOTE 11. STOCK-BASED COMPENSATION Part of the compensation paid by the Company to employees consists of the granting of options to purchase Common Stock. Stock-based Director Compensation The Company’s Director compensation policy, instituted in October 2009, further revised in January 2016, and ceased issuance in November 2023, includes provisions that a portion of director’s fees are to be paid via the issuance of shares of the Company’s Common Stock, in lieu of cash, with the valuation of such shares being calculated on quarterly basis and equal to the average closing price of the Company’s Common Stock. F- 18 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) As of December 31, 2024, there was no common stock owed to Directors as the amount outstanding was paid during fiscal year 2024. As of December 31, 2023, the Company accrued director’s fees totaling $ 22,500 , which will be paid via cash payments totaling $ 22,500 and the issuance of shares of Common Stock, with the valuation of such shares being calculated on a quarterly basis and equal to the average closing price of the Company’s Common Stock. SCHEDULE OF STOCK BASED COMPENSATION Balance of common stock owed at April 1, 2023 $ 60,000 Awarded shares — Change in fair value of stock-based liabilities 191,867 Issuance of common stock on November 22, 2023 ( 251,867 ) Balance of common stock owed at December 31, 2023 $ — Stock-based Employee/Consultant Compensation Employment contracts with the Company’s President and Chief Executive Officer and certain other employees and engagement contracts with certain consultants include provisions for a portion of each employee’s salaries or consultant’s fees to be paid via the issuance of shares of the Company’s Common Stock, in lieu of cash, with the valuation of such shares being calculated on a quarterly basis and equal to the average closing price of the Company’s Common Stock. As of December 31, 2024, the Company accrued no additional salaries owed to the Company’s President, Chief Executive Officer and certain other employees. SCHEDULE OF STOCK BASED COMPENSATION Balance of common stock owed at April 1, 2023 $ 4,278,333 Awarded shares — Change in fair value of stock-based liabilities 4,729,509 Common stock issued ( 311,238 ) Settlement of non-cash liability ( 1,761,792 ) Balance of common stock owed at December 31, 2023 $ 6,934,812 On November 6, 2023, the Company entered into a Settlement Agreement with a former executive who was terminated on February 7, 2022. The employment agreement with the former executive included annual compensation of $ 250,000 which was to be paid via the issuance of shares of Common Stock. At the date of the former executive’s termination an aggregate of 14,892,580 shares of Common Stock (the “Deferred Shares”) were due to the former executive, with such number of shares representing an aggregate of $ 1,000,000 in compensation earned pursuant to the relevant employment agreement at an annual rate of $ 250,000 . Pursuant to the Settlement Agreement, the former executive irrevocably elected to relinquish all rights and claims to the Deferred Shares. The Company is released of any obligation to issue the Deferred Shares and further acknowledges that no Deferred Shares will be issued to or received by the former employee. The price of the Company’s Common Stock on November 6, 2023 was $ 0.1183 per share and the value of the Deferred Shares on this date was $ 1,761,792 . The Company recorded other income from gain on settlement agreement for this amount on the unaudited Condensed Consolidated Statements of Operations. On December 29, 2023, the Company issued 2,223,147 shares of Common Stock in satisfaction of accrued consultant fees. Options Under its 2014 Equity Incentive Plan and its 2024 Equity Incentive Plan, the Company did grant and may grant stock options to officers, selected employees, as well as members of the Board of Directors and advisory board members. On July 1, 2024 the Company restated the 2014 Equity Incentive Plan to increase the shares reserved under the option plan by 12,730,000 . Under the 2024 Equity Incentive Plan, 80,000,000 options are available for grant. All options have generally been granted at a price equal to or greater than the fair market value of the Company’s Common Stock at the date of the grant. Generally, options are granted with a vesting period of up to three years and expire ten years from the date of grant. The fair value of option awards is estimated on the date of grant using the Black-Scholes option-pricing model. The exercise price of each award is generally not less than the per share fair value in effect as of that award date. The determination of fair value using the Black-Scholes model is affected by the Company’s share fair value as well as assumptions regarding a number of complex and subjective variables, including expected price volatility, risk-free interest rate and projected employee share option exercise behaviors. The Company estimates its expected volatility by using a combination of historical share price volatilities of similar companies within our industry. The expected term of the Company’s stock options for employees has been determined utilizing the “simplified” method for awards, since the Company does not have sufficient exercise history to estimate term of its historical option awards. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. The grant date fair value of option awards is determined using the Black Scholes option-pricing model. No options were issued the nine months ended December 31, 2024 and 2023. F- 19 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A summary of the activity of Company’s 2024 Equity Incentive plan and prior equity incentive plans for the nine months ended December 31, 2024 is as follows: SCHEDULE OF STOCK OPTION PLAN Weighted Average Shares Underlying Weighted Average Remaining Contractual Aggregate Intrinsic Options Exercise Price Term (in years) Value Outstanding at March 31, 2024 15,730,000 $ 0.05 8.8 $ 1,626,748 Granted 90,000 0.21 — $ — Expired and Forfeited ( 60,000 ) 0.09 — $ — Outstanding at December 31, 2024 15,760,000 $ 0.05 8.0 $ 7,696,223 Exercisable at December 31, 2024 6,546,668 $ 0.06 7.7 $ 3,177,814 The aggregate intrinsic value for outstanding options is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s Common Stock as of December 31, 2024 of $ 0.54 for those awards with strike prices lower than the quoted price of the Company’s Common Stock as of December 31, 2024. As of December 31, 2024, there was $ 280,495 in unrecognized stock based compensation expense that will be recognized over a weighted average 1.48 year period. NOTE 12. CONCENTRATIONS AND CREDIT RISK Revenues Two customers accounted for approximately 64 % of the Company’s revenues for the nine months ended December 31, 2024. These two customers accounted for approximately 41 % and 23 %, of revenues each, respectively. Two customers accounted for approximately 57 % of the Company’s revenues for the nine months ended December 31, 2023. These two customers accounted for approximately 30 % and 27 %, of revenues each, respectively. Accounts Receivable Two customers accounted for approximately 76 % of the Company’s accounts receivable as of December 31, 2024. These two customers accounted for approximately 47 % and 29 % of accounts receivable each, respectively. Two customers accounted for approximately 77 % of the Company’s accounts receivable as of December 31, 2023. These two customers accounted for approximately 45 % and 32 % of accounts receivable each, respectively. Purchasing Three suppliers accounted for approximately 71 % of the Company’s purchases of raw materials for the nine months ended December 31, 2024. These three suppliers accounted for approximately 39 %, 16 %, and 16 %, of purchasing each, respectively. Two supplier accounted for approximately 43 % of the Company’s purchases of raw materials for the nine months ended December 31, 2023. These two customers accounted for approximately 30 % and 13 %, of purchasing each, respectively. NOTE 13. SEGMENT RESULTS FASB ASC 280-10-50 requires use of the “management approach” model for segment reporting. The management approach is based on the way a company’s management organized segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. The Company has historically determined that its reportable segments are ANDAs for generic products and NDAs for branded products. The Company identified its reporting segments based on the marketing authorization relating to each and the financial information used by its chief operating decision maker to make decisions regarding the allocation of resources to and the financial performance of the reporting segments. During fiscal years ended March 31, 2024 and 2023, the Company had paused further development of NDAs and has not engaged in business activities in that segment. Accordingly, during the nine months ended December 31, 2024 and 2023, the Company has only engaged in business activities in a single operating segment. Asset information by operating segment is not presented below since the chief operating decision maker does not review this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s condensed consolidated financial statements. F- 20 ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The following represents selected information for the Company’s reportable segments: SCHEDULE OF SELECTED INFORMATION FOR REPORTABLE SEGMENTS 2024 2023 2024 2023 For the Three Months Ended December 31, For the Nine Months Ended December 31, 2024 2023 2024 2023 Operating Income by Segment ANDA $ 4,325,538 $ 5,637,283 $ 16,868,123 $ 13,073,023 Operating income by Segment $ 4,325,538 $ 5,637,283 $ 16,868,123 $ 13,073,023 The Company notes that there was no revenue related to the NDA segment for the three and nine months ended December 31, 2024 and 2023. The table below reconciles the Company’s operating income by segment to income before income taxes as reported in the Company’s condensed consolidated statements of operations: SCHEDULE OF OPERATING INCOME BY SEGMENT TO INCOME FROM OPERATIONS 2024 2023 2024 2023 For the Three Months Ended December 31, For the Nine Months Ended December 31, 2024 2023 2024 2023 Operating income by segment $ 4,325,538 $ 5,637,283 $ 16,868,123 $ 13,073,023 Corporate unallocated costs ( 2,724,616 ) ( 1,711,275 ) ( 6,967,514 ) ( 4,906,187 ) Interest income 5,092 5,249 16,384 16,085 Interest expense and amortization of debt issuance costs ( 77,607 ) ( 121,628 ) ( 583,524 ) ( 371,478 ) Depreciation and amortization expense ( 432,534 ) ( 343,537 ) ( 1,278,564 ) ( 999,059 ) Significant non-cash items ( 70,578 ) ( 49,815 ) ( 175,236 ) ( 107,592 ) Change in fair value of derivative instruments ( 11,729,368 ) ( 2,417,772 ) ( 27,267,016 ) ( 5,075,489 ) Change in fair value of stock-based liabilities — ( 2,854,556 ) — ( 4,921,376 ) Gain from settlement agreements — 1,761,792 — 1,761,792 Other income 51,308 — 63,308 — Loss before income taxes $ ( 10,652,765 ) $ ( 94,259 ) $ ( 19,324,039 ) $ ( 1,530,281 ) NOTE 14. RELATED PARTY AGREEMENTS Mikah Pharma, LLC Agreements In 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. In June 2021, the Company entered into a development and license agreement with Mikah, pursuant to which Mikah will engage in the research, development, sales and licensing of generic pharmaceutical products. In addition, Mikah will collaborate to develop and commercialize generic products including formulation development, analytical method development, manufacturing, sales and marketing of generic products. Initially two generic products were identified for the parties to develop. As of December 31, 2024, the Company owes an aggregate of $ 1,858,629 to Mikah in accordance with the agreements, with such amount being recorded as an accrued expense on the unaudited condensed consolidated balance sheets. NOTE 15. INCOME TAXES The determination of income tax expense in the accompanying unaudited condensed consolidated statements of income is based on the effective tax rate for the year, adjusted for the impact of any discrete items which are accounted for in the period in which they occur. The Company’s income tax (expense)/benefit was $ ( 239,175 ) and $ 800,613 for the three months ended December 31, 2024 and 2023, respectively. The Company’s income tax (expense)/benefit was $ ( 1,988,357 ) and $ 18,313,045 for the nine months ended December 31, 2024 and 2023, respectively. NOTE 16. SUBSEQUENT EVENTS On February 9, 2025, the FDA notified the Company of its approval of the Company’s newly constructed facility at 144 Ludlow Avenue, Northvale NJ as a commercial packaging site. F- 21