Elite Pharmaceuticals Inc (ELTP)

[no2koolaid]

I had not forgotten the request. I wanted to see the FY 2021 results which offers more clarity on how to value the company in myriad ways. But let me begin with this...

Let me take the long version of the short way around providing a valuation analysis for Elite TODAY, but we have to begin with their poison pill.

November 2013 Poison Pill
https://elite.irpass.com/profiles/investor/SecFilings.asp?BzID=2258&c=0001053369&p=15

Date: 11/15/2013 Form: 8-A12G - Registration of securities [Section 12(g)]
United States
Securities and Exchange Commission
Washington, DC 20549

Form 8-A

For Registration of Certain Classes of Securities
Pursuant to Section 12(b) or 12(g) of The
Securities Exchange Act of 1934

ELITE PHARMACEUTICALS, INC.

Why was the poison pill mentioned in the 2020 Annual Report and has not been mentioned in any others?

It was mentioned in this annual report because it offers a clear explanation that shows neither Nasrat nor LPC could leverage a hostile takeover. It was mentioned in the 2014 Annual Report, where it reveals that there is a provision for shareholders prior to October 2013 who would be able to receive shares at a price of $2.10 for each share they hold.

Why is that important to note?

Well, the poison pill expires in November 2023 and, while Elite could renew, it would require some additional steps.

Like what?

Another valuation analysis.

If you note the $2.10 it should be obvious that it is the mid-point of the valuation analysis done in 2013 exactly for this reason. No poison pill if there is no valuation analysis in place. To be clear, a poison pill DOES NOT PREVENT a hostile takeover, it is put in place to make it onerous. Still, anyone could overpay if they wanted and that is the purpose...TO MAKE THE EFFORT TOO EXPENSIVE.

Okay, because Elite would be valued differently today, a new valuation analysis would be necessary; with factors affecting the valuation including Elite's increased revenues (and profitability) and very different product portfolio, as well as the additional total diluted shares outstanding.

What does that all look like?

Great question. Okay, we know that today’s Elite will be valued differently. And we know about dilution making shareholders unhappy (which does raise the point about Elite's low debt ratio mentioned on the CC). So, let’s look at the real influence of dilution and begin by considering the old valuation mid-point of $2.10 was based on the issued shares of 494,811,263 (in November 2013), when the company posted a net loss of $9.7M and its current ratio was 0.28. To be crystal clear, anything less than 1.0 means the company cannot pay its short-term financial obligations and, in 2013, Elite had sufficient assets to pay slightly more than a quarter for every dollar it owed. Which shows how close Elite was to BK! A point worth noting is that, as of their 2021 FY, Elite’s current ratio is 2.10. (And is there any more compelling reason for me to believe that Elite’s business today is firmly grounded in fundamentals? I think not!)

Okay, let’s return to the valuation using the 2013 mid-point of $2.10…

Let's use the $2.10 as a baseline, adjusted for the currently diluted shares outstanding of 1,009,276,752. Now a little math…494,811,263 divided by 1,009,276,752 = 0.49 or 49%. Now, what is 49% of $2.10? It is $1.03. That means, based on the current diluted share count and holding steady the old valuation midpoint of $2.10, Elite’s shares would be valued at $1.03…TODAY! NO argument…this is a correct valuation based on the poison pill. Again, let me repeat…Elite today would be valued differently given its profitability reflected in its ROA and lack of debt, reflected by its current ratio of 2.10.

I have another way to value Elite but will address that another time.

N2K

P.S. The facts and the numbers are clear and IRREFUTABLE. PERIOD!