U.S.
SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-Q











x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE
      ACT OF 1934





For the
quarterly period ended June 30,
2010





or





o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE
      ACT OF 1934





For the
transition period
ended                                            
to





Commission File Number:
      333-45241ELITE PHARMACEUTICALS,
  INC.(Exact
      name of registrant as specified in its
charter)





Delaware
              
              22-3542636(State
      or other jurisdiction of incorporation or organization)
              
              (I.R.S.
      Employer Identification No.)165 Ludlow Avenue, Northvale, New
      Jersey
              
              07647(Address
      of principal executive offices)
              
              (Zip
      Code)





(201) 750-2646(Registrant's
      telephone number, including area
code)





(Former
name, former address and former fiscal year, if changed since last
report)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes x No o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).


Yes x No o  The
registrant is not yet subject to this requirement.





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):





Large
Accelerated filer  o  Accelerated
Filer  o  Non-Accelerated
Filer  o   Smaller
Reporting Company  x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.  As of August 9, 2010 the
issuer had outstanding 87,352,981 shares of common stock, $0.001 par value
(exclusive of 100,000 shares held in treasury).





ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES





INDEX





Page No.PART
      I - FINANCIAL INFORMATIONItem
      1.
                        Financial
      StatementsCondensed
      Consolidated Balance Sheets as of June 30, 2010 (unaudited)
      andMarch
      31, 2009 (audited)
                        F-1
      – F-2Condensed
      Consolidated Statements of Operations for the three monthsended
      June 30, 2010 (unaudited) and June 30, 2009 (unaudited)
                        F-3Condensed
      Consolidated Statement of Changes in Stockholders’ Equityfor
      the three months ended June 30, 2010 (unaudited)
                        F-4Condensed
      Consolidated Statements of Cash Flows for the three monthsended
      June 30, 2010 (unaudited) and June 30, 2009 (unaudited)
                        F-5Notes
      to Condensed Consolidated Financial Statements
                        F-6Item
      2.
                        Management's
      Discussion and Analysis of FinancialCondition
      and Results of Operations
                        1Item
      3.
                        Quantitative
      and Qualitative Disclosures about Market Risk
                        6Item
      4
                        Controls
      and Procedures
                        7PART
      II - OTHER INFORMATIONItem
      1.
                        Legal
      Proceedings
                        7Item
      1A.
                        Risk
      Factors
                        10Item
      2
                        Unregistered
      Sales of Equity Securities and Use of Proceeds
                        10Item
      3.
                        Defaults
      upon Senior Securities
                        10Item
      4.
                        Removed
      and reserved
                        10Item
      5.
                        Other
      Information
                        11Item
      6.
                        Exhibits
                        11SIGNATURES
                        15







ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS





ASSETS


June 30, 2010
                            (Unaudited)
                          
                          
                          March 31, 2010
                            (Audited)CURRENT
      ASSETSCash
      and cash equivalents
                          
                          $
                          389,884
                          
                          
                          $
                          578,187Accounts
      receivable, (net of allowance for doubtful accounts of
    zero)
                          
                          
                          294,851
                          
                          
                          
                          404,961Inventories
      (net of allowance of $494,425 and $ 494,425, respectively)
                          
                          
                          1,296,444
                          
                          
                          
                          1,371,292Prepaid
      expenses and other current assets
                          
                          
                          87,339
                          
                          
                          
                          131,507Total
      current assets
                          
                          
                          2,068,517
                          
                          
                          
                          2,485,143PROPERTY
      AND EQUIPMENT, net of accumulated depreciation and amortization of
      $3,838,297 and $3,840,279, respectively
                          
                          
                          3,959,878
                          
                          
                          
                          4,095,814INTANGIBLE
      ASSETS – net of accumulated amortization of zero
                          
                          
                          338,119
                          
                          
                          
                          96,407OTHER
      ASSETSInvestment
      in Novel Laboratories Inc.
                          
                          
                          3,329,322
                          
                          
                          
                          3,329,322Security
      deposits
                          
                          
                          27,778
                          
                          
                          
                          14,652Restricted
      cash – debt service for EDA bonds
                          
                          
                          351,377
                          
                          
                          
                          294,836EDA
      Bond offering costs, net of accumulated amortization of $68,300 and
      $64,767, respectively
                          
                          
                          286,152
                          
                          
                          
                          289,685Total
      other assets
                          
                          
                          3,994,629
                          
                          
                          
                          4,024,902TOTAL
      ASSETS
                          
                          $
                          10,361,144
                          
                          
                          $
                          10,606,663





The
accompanying notes are an integral part of the condensed consolidated financial
statements


F -
1




ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS




LIABILITIES
AND STOCKHOLDERS  (DEFICIT) EQUITY


June
      30, 2010
                                  (Unaudited)
                                
                                
                                March
      31, 2010
                                  (Audited)CURRENT
      LIABILITIESEDA
      Bonds payable
                                
                                $
                                3,385,000
                                
                                
                                $
                                3,385,000Short
      term loans and current portion of long-term debt
                                
                                
                                12,061
                                
                                
                                
                                82,302Accounts
      payable and accrued expenses
                                
                                
                                954,096
                                
                                
                                
                                986,777Preferred
      share derivative interest payable
                                
                                
                                363,919
                                
                                
                                
                                306,440Total
      Current Liabilities
                                
                                
                                4,6715,076
                                
                                
                                
                                4,760,519LONG
      TERM LIABILITIESLong-term
      debt, less current portion
                                
                                
                                16,706
                                
                                
                                
                                19,823Derivative
      Liability – Preferred Shares
                                
                                
                                13,999,102
                                
                                
                                
                                7,924,763Derivative
      Liability – Warrants
                                
                                
                                6,675,722
                                
                                
                                
                                8,499,423Total
      Long-Term Liabilities
                                
                                
                                20,691,530
                                
                                
                                
                                16,444,009Total
      Liabilities
                                
                                
                                25,406,606
                                
                                
                                
                                21,204,528COMMITMENTS
      AND CONTINGENCIES:STOCKHOLDERS
      (DEFICIT) EQUITYCommon
      Stock – par value of $0.001, Authorized 355,516,558Issued
      and outstanding – 87,352,981 shares and 83,950,168 shares, as of June 30
      and March 31, 2010, respectively
                                
                                
                                87,353
                                
                                
                                
                                83,950Additional
      paid-in capital
                                
                                
                                91,222,292
                                
                                
                                
                                90,903,896Accumulated
      deficit
                                
                                
                                (106,048,266
                                )
                                
                                
                                (101,278,870
                                )Treasury
      stock, at cost (100,000 common shares)
                                
                                
                                (306,841
                                )
                                
                                
                                (306,841
                                )Total
      Stockholders (Deficit) / Equity
                                
                                
                                (15,045,462
                                )
                                
                                
                                (10,597,865
                                )TOTAL
      LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY
                                
                                $
                                10,361,144
                                
                                
                                $
                                10,606,663





The
accompanying notes are an integral part of the condensed consolidated financial
statements


F -
2


ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS





Three Months Ended
                          June 30,2010
                          (unaudited)
                        
                        
                        2009
                          (unaudited)REVENUES:Manufacturing
      Revenues
                        
                        $
                        567,069
                        
                        
                        $
                        665,064Lab
      Fee Revenues
                        
                        
                        83,817
                        
                        
                        
                        —Royalties
                        
                        
                        181,034
                        
                        
                        
                        148,811Total
      Revenues
                        
                        
                        831,920
                        
                        
                        
                        813,875Cost
      of Revenues
                        
                        
                        411,671
                        
                        
                        
                        862,000Gross
      Profit
                        
                        
                        420,249
                        
                        
                        
                        (48,125
                        )OPERATING
      EXPENSESResearch
      and Development
                        
                        
                        165,008
                        
                        
                        
                        251,092General
      and Administrative
                        
                        
                        258,321
                        
                        
                        
                        396,537Non-cash
      compensation through issuance of stock options and
warrants
                        
                        
                        15,358
                        
                        
                        
                        55,363Depreciation
      and amortization
                        
                        
                        78,331
                        
                        
                        
                        125,542Total
      Operating Expenses
                        
                        
                        517,018
                        
                        
                        
                        828,534LOSS
      FROM OPERATIONS
                        
                        
                        (96,769
                        )
                        
                        
                        (876,659
                        )OTHER
      INCOME / (EXPENSES):Interest
      expense
                        
                        
                        (58,069
                        )
                        
                        
                        (69,979
                        )Change
      in fair value of outstanding warrant derivatives
                        
                        
                        1,823,701
                        
                        
                        
                        154,326Change
      in fair value of preferred share derivatives
                        
                        
                        (6,074,338
                        )
                        
                        
                        2,561,527Interest
      expense attributable to dividends accrued to preferred share derivative
      liabilities
                        
                        
                        (363,919
                        )
                        
                        
                        (359,021
                        )Discount
      in Series E issuance attributable to beneficial conversion
      features
                        
                        
                        —
                        
                        
                        
                        (258,700
                        )Total
      Other Expense
                        
                        
                        (4,672,625
                        )
                        
                        
                        2,028,153INCOME
      / (LOSS) BEFORE PROVISION FOR INCOME TAXES
                        
                        
                        (4,769,394
                        )
                        
                        
                        1,151,494Provision
      for Income Taxes
                        
                        
                        —
                        
                        
                        
                        —NET
      INCOME / (LOSS)
                        
                        
                        (4,711,915
                        )
                        
                        
                        1,151,494NET
      INCOME / (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS
                        
                        $
                        (4,769,394
                        )
                        
                        $
                        1,151,494NET
      INCOME / (LOSS) PER SHAREBASIC
                        
                        $
                        (
      0.05
                        )
                        
                        $
                        0.02DILUTED
                        
                        $
                        (
      0.05
                        )
                        
                        $
                        0.01WEIGHTED
      AVERAGE NUMBER OF COMMON SHARES OUTSTANDINGSBASIC
                        
                        
                        87,094,071
                        
                        
                        
                        66,240,476DILUTED
                        
                        
                        
                        
                        
                        
                        128,304,240





The
accompanying notes are an integral part of the condensed consolidated financial
statements


F -
3


ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER’S (DEFICIT) EQUITY


(Unaudited)





Common Stock
                      
                      
                      
                      
                      
                      Treasury StockShares
                      
                      
                      Amount
                      
                      
                      Additional
                        Paid-In
                        Capital
                      
                      
                      Shares
                      
                      
                      Amount
                      
                      
                      Accumulated
                        Deficit
                      
                      
                      Stockholders
                        EquityBalance
      atMarch
      31, 2010
                      
                      
                      83,950,168
                      
                      
                      $
                      83,950
                      
                      
                      $
                      90,903,897
                      
                      
                      
                      100,000
                      
                      
                      $
                      (306,841
                      )
                      
                      $
                      (101,278,871
                      )
                      
                      $
                      (10,597,866
                      )Net
      Loss
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (4,769,395
                      )
                      
                      
                      (4,769,395
                      )Common
      shares issued in lieu of cash in payment of preferred share derivative
      interest expense
                      
                      
                      3,402,813
                      
                      
                      
                      3,403
                      
                      
                      
                      303,307
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      306,440Non-cash
      compensation through issuance of stock options
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      15,358
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      15,358Balance
      atJune
      30, 2010
                      
                      
                      87,352,981
                      
                      
                      $
                      87,353
                      
                      
                      $
                      91,222,292
                      
                      
                      
                      100,000
                      
                      
                      $
                      (306,841
                      )
                      
                      $
                      (106,048,266
                      )
                      
                      $
                      (15,045,462
                      )





The
accompanying notes are an integral part of the condensed consolidated financial
statements


F -
4


ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS





Three Months Ended
                  June 30,2010
                  (unaudited)
                
                
                2009
                  (unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Income / (Loss)
                
                $
                (4,769,394
                )
                
                $
                1,151,494Adjustments
      to reconcile net loss to cash used in operating
activities:Depreciation
      and amortization
                
                
                121,344
                
                
                
                125,542Inventory
      adjustment
                
                
                —
                
                
                
                311,986Change
      in fair value of warrant derivative liability
                
                
                (1,823,701
                )
                
                
                (154,326
                )Change
      in fair value of preferred shares derivative liability
                
                
                6,074,338
                
                
                
                (2,561,527
                )Discount
      in Series E issuance attributable to embedded beneficial conversion
      feature
                
                
                —
                
                
                
                258,700Preferred
      shares derivative interest satisfied by the issuance of common
      stock
                
                
                306,440
                
                
                
                359,021Non-cash
      compensation satisfied by the issuance of common stock, options and
      warrants
                
                
                15,358
                
                
                
                55,363Other
                
                
                208
                
                
                
                —Changes
      in assets and liabilities:Accounts
      and interest receivable
                
                
                140,111
                
                
                
                1,177Inventories
                
                
                74,849
                
                
                
                (47,163
                )Prepaid
      expenses and other current assets
                
                
                44,168
                
                
                
                (10,755
                )Security
      deposit
                
                
                (13,126
                )
                
                
                14,073Accounts
      payable, accrued expenses and other current liabilities
                
                
                (120,444
                )
                
                
                16,798NET
      CASH PROVIDED BY / (USED IN) OPERATING ACTIVITIES
                
                
                50,151
                
                
                
                (479,617
                )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of property and equipment
                
                
                (12,082
                )
                
                
                —Costs
      incurred for intellectual property assets
                
                
                (166,714
                )
                
                
                —(Deposits)
      to / Withdrawals from  restricted cash, net
                
                
                (56,541
                )
                
                
                (36,916
                )NET
      CASH USED IN INVESTING ACTIVITIES
                
                
                (235,337
                )
                
                
                (36,916
                )CASH
      FLOWS FROM FINANCING ACTIVITIESOther
      loan payments
                
                
                (3,117
                )
                
                
                (2,928
                )Proceeds
      from issuance of Series E Convertible Preferred Stock and
      Warrants
                
                
                —
                
                
                
                1,000,000NET
      CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES
                
                
                (3,117
                )
                
                
                997,072NET
      CHANGE IN CASH AND CASH EQUIVALENTS
                
                
                (188,303
                )
                
                
                480,539CASH
      AND CASH EQUIVALENTS – beginning of period
                
                
                578,187
                
                
                
                282,578CASH
      AND CASH EQUIVALENTS – end of period
                
                $
                389,884
                
                
                $
                763,117





The
accompanying notes are an integral part of the condensed consolidated financial
statements


F -
5


ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


THREE
MONTHS ENDED JUNE 30, 2010 AND 2009


(UNAUDITED)





NOTE 1    -
            BASIS OF PRESENTATION
      AND LIQUIDITY





The
      information in this quarterly report on Form 10-Q includes the results of
      operations of Elite Pharmaceuticals, Inc. and its consolidated
      subsidiaries (collectively the “Company”) for the three months ended June
      30, 2010 and 2009.  The accompanying unaudited condensed
      consolidated financial statements have been prepared pursuant to rules and
      regulations of the Securities and Exchange Commission in accordance with
      accounting principles generally accepted for interim financial statement
      presentation.  Accordingly, they do not include all of the
      information and footnotes required by accounting principles generally
      accepted in the United States of America (“GAAP”) for complete financial
      statements.  In the opinion of management, all adjustments
      (consisting of normal recurring accruals) considered necessary for a fair
      presentation of the condensed consolidated financial position, results of
      operations and cash flows of the Company for the periods presented have
      been included.





The
      financial results for the interim periods are not necessarily indicative
      of the results to be expected for the full year or future interim
      periods.





The
accompanying unaudited condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
included in the Company’s Annual Report on Form 10-K for the year ended March
31, 2010.  There have been no changes in significant accounting
policies since March 31, 2010.





The
Company does not anticipate being profitable for the fiscal year ending March
31, 2011; therefore a current provision for income tax was not established for
the three months ended June 30, 2010. Only the minimum liability required for
state corporation taxes was considered.





The
accompanying unaudited condensed consolidated financial statements were prepared
on the assumption that the Company will continue as a going
concern.  The Company continues to generate losses and negative cash
flow from operations and does not anticipate being profitable for fiscal year
2011.  As of June 30, 2010, we had cash and cash equivalents of $389,884.
We believe that our existing cash and cash equivalents plus revenues from the
sale of our Lodrane 24® and Lodrane 24D® products, will be sufficient to fund
our anticipated operating expenses and capital requirements through July
2011.  We will require additional funding in order to continue to
operate thereafter.   If the third closing of the transactions
contemplated by the Epic Strategic Alliance Agreement is not completed on a
timely basis, or if another financing or strategic alternative providing
sufficient resources to allow us to continue operations is not consummated upon
exhaustion of our current capital, we will be required to cease operations and
liquidate our assets. No assurance can be given that we will be able to
consummate the third closing under the Epic Strategic Alliance Agreement on a
timely basis, or consummate another financing or strategic alternative in the
time necessary to avoid the cessation of our operations and liquidation of our
assets. Moreover, even if we consummate the third closing under the Epic
Strategic Alliance Agreement, or another financing or strategic alternative, we
may be required to seek additional capital in the future and there can be no
assurances that the Company will be able to obtain such additional capital on
favorable terms, if at all.





NOTE 2     -
            CASH AND CASH
      EQUIVALENTS





The
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. Cash and cash equivalents consist
of cash on deposit with banks and money market instruments. The Company places
its cash and cash equivalents with high-quality, U.S. financial institutions
and, to date, has not experienced losses on any of its balances.





NOTE 3     -
            INVENTORIES





Inventories
are stated at the lower of cost (first-in, first-out basis) or market (net
realizable value).




F -
6




NOTE
      4     -
            INTANGIBLE
      ASSETS





Costs to
acquire intangible assets, such as asset purchases of Abbreviated New Drug
Applications (“ANDA’s”) which are approved by the FDA or costs incurred in the
application of patents are capitalized and amortized on the straight-line
method, based on their estimated useful lives ranging from five to fifteen
years, commencing upon approval of the patent or site transfers required for
commercialization of an acquired ANDA.  Such costs are charged to
expense if the patent application or ANDA site transfer is
unsuccessful.





As of
June 30, 2010, the following costs were recorded as intangible assets on the
Company’s balance sheet:





Intangible assets at March 31, 2010
      (audited)Patent
      application costs
                              
                              
                              96,407ANDA
      acquisitions
                              
                              
                              —Intangible asset costs capitalized during the
      quarter ended June 30, 2010Patent
      application costs
                              
                              
                              16,712ANDA
      acquisition costs
                              
                              
                              225,000Amortization of intangible assets during the
      quarter ended June 30, 2010Patent
      application costs
                              
                              
                              —ANDA
      acquisition costs
                              
                              
                              —Intangible assets at June 30, 2010
      (unaudited)Patent
      application costs
                              
                              
                              113,119ANDA
      acquisition costs
                              
                              
                              225,000Total
                              
                              $
                              338,119





The costs
incurred in patent applications totaling $16,712 for the quarter ended June 30,
2010 were all related to our abuse resistant and extended release opioid product
lines.  The Company is continuing its efforts to achieve approval of
such patents.  Additional costs incurred in relation to such patent
applications will be capitalized as intangible assets, with amortization of such
costs to commence upon approval of the patents.





The ANDA
acquisition costs of $225,000 during the quarter ended June 30, 2010, are
related to our acquisition of the Hydromorphone 8mg ANDA.  Please
refer to the current report on Form 8-K filed with the SEC on May 24, 2010, such
filing being herein incorporated by this reference, for further details on this
acquisition.  The Company is in the process of complying with all FDA
and DEA requirements which are a prerequisite to achieving our manufacture and
commercialization of the Hydromorphone 8mg ANDA.  Amortization of the
costs incurred to acquire the ANDA is to commence upon the Company’s
commercialization of such.




NOTE 5      -
                NJEDA
      BONDS




On August
31, 2005, the Company successfully completed a refinancing of a prior 1999 bond
issue through the issuance of new tax-exempt bonds (the “Bonds”). The
refinancing involved borrowing $4,155,000, evidenced by a 6.5% Series A Note in
the principal amount of $3,660,000 maturing on September 1, 2030 and a 9% Series
B Note in the principal amount of $495,000 maturing on September 1, 2012. The
net proceeds, after payment of issuance costs, were used (i) to redeem the
outstanding tax-exempt Bonds originally issued by the Authority on September 2,
1999, (ii) refinance other equipment financing and (iii) for the purchase of
certain equipment to be used in the manufacture of pharmaceutical
products.




Interest
is payable semiannually on March 1 and September 1 of each year. The 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 related Indenture
requires the maintenance of a $415,500 Debt Service Reserve Fund consisting of
$366,000 from the Series A Notes proceeds and $49,500 from the Series B Notes
proceeds. The Debt Service Reserve is maintained in restricted cash accounts
that are classified in Other Assets. $1,274,311 of the proceeds had been
deposited in a short-term restricted cash account to fund the purchase of
manufacturing equipment and development of the Company’s facility. As of June
30, 2010, all of these proceeds were utilized to upgrade the Company’s
manufacturing facilities and for the purchase of manufacturing and laboratory
equipment.





F -
7


Bond
issue costs of $354,000 were paid from the bond proceeds and are being amortized
over the life of the bonds. Amortization of bond issuance costs amounted to
$3,533 and $3,546 for the three months ended June 30, 2010 and 2009,
respectively.




The NJED
Bonds require the Company to make an annual principal payment on September
1st
of varying amounts as specified in the loan documents and semi-annual interest
payments on March 1st and
September 1st, equal
to interest due on the outstanding principal at the applicable rate for the
semi-annual period just ended.





The
principal payment due on September 1, 2009, totaling $210,000 and the interest
payments due on September 1, 2009 and March 1, 2010, totaling $120,775 and
$113,075, respectively were all paid from the debt service reserve held in the
restricted cash account, due to the Company not having sufficient available
funds to make such payments when due.  Pursuant to the terms of the
NJED Bonds, the Company is required to replenish any amounts withdrawn from the
debt service reserve and used to make principal or interest payments in six
monthly installments, each being equal to one-sixth of the amount withdrawn and
with the first installment due on the 15th of the
month in which the withdrawal from debt service reserve occurred and the
remaining five monthly payments being due on the 15th of the
five immediately subsequent months. The Company has, to date, made all payments
required in relation to the withdrawals made from the debt service reserve on
September 1, 2009 and March 1, 2010.  The Company is required to make
one additional payment of $18,846 on August 15, 2010, in order to fully
replenish the March 1, 2010 withdrawal from the debt service
reserve.





Principal
payments totaling $225,000 and interest payments totaling $113,075 are due on
September 1, 2010.  The Company does not expect to have sufficient
available funds to make such payments when due, and accordingly, expect such
payments to be made via the withdrawal of funds from the debt service reserve,
in the same manner as was done for the principal and interest payment of
September 1, 2009.





The
Company has received Notice of Default from the Trustee of the NJED Bonds in
relation to the withdrawals from the debt service reserve, and has requested a
postponement of principal payments due on September 1st of
2010, 2011 and 2012, with an aggregate of all such postponed principal payments
being added to the principal payments due on September 1,
2013.  Resolution of the Company’s default under the NJED Bonds and
our request for postponement of principal payments will have a significant
effect on our ability to operate in the future.





Due to
issuance of a Notice of Default being received from the Trustee of the NJED
Bonds, and until the event of default is waived or rescinded, the Company has
classified the entire principal due, an amount aggregating $3.385 million, as a
current liability.


F -
8


NOTE 6      -
            DERIVATIVE
      LIABILITIES





Accounting
Standard Codification “ASC” 815 – Derivatives and Hedging,
which provides guidance on determining what types of instruments or embedded
features in an instrument issued by a reporting entity can be considered indexed
to its own stock for the purpose of evaluating the first criteria of the scope
exception in the pronouncement on accounting for derivatives.  These
requirements can affect the accounting for warrants and convertible preferred
instruments issued by the Company.  As the conversion features within,
and the detachable warrants issued with the Company’s Series B, Series C, Series
D and Series E Preferred Stock, do not have fixed settlement provisions because
their conversion and exercise prices may be lowered if the Company issues
securities and lower prices in the future, we have concluded that the
instruments are not indexed the Company’s stock and are to be treated as
derivative liabilities.





Preferred Stock Derivative
Liabilities





Series
      B
                        
                        
                        Series
      C
                        
                        
                        Series
      D
                        
                        
                        Series
      E
                        
                        
                        TotalPreferred
      shares Outstanding
                        
                        
                        896
                        
                        
                        
                        5,418
                        
                        
                        
                        9,008
                        
                        
                        
                        2,000
                        
                        
                        
                        17,322Underlying
      common shares into which Preferred may convert
                        
                        
                        574,076
                        
                        
                        
                        3,365,217
                        
                        
                        
                        128,692,014
                        
                        
                        
                        73,237,823
                        
                        
                        
                        205,869,131Closing
      price on valuation date
                        
                        $
                        0.068
                        
                        
                        $
                        0.068
                        
                        
                        $
                        0.068
                        
                        
                        $
                        0.068
                        
                        
                        $
                        0.068Preferred
      stock derivative liability at June 30, 2010
                        
                        $
                        39,037
                        
                        
                        $
                        228,835
                        
                        
                        $
                        8,751,057
                        
                        
                        $
                        4,980,172
                        
                        
                        $
                        13,999,102Preferred
      stock derivative liability at March 31, 2010
                        
                        $
                        48,796
                        
                        
                        $
                        286,043
                        
                        
                        $
                        3,828,163
                        
                        
                        $
                        3,761,761
                        
                        
                        $
                        7,924,763Change
      in preferred stock derivative liability for the three months ended June
      30, 2010
                        
                        $
                        (9,759
                        )
                        
                        $
                        (57,209
                        )
                        
                        $
                        4,922,895
                        
                        
                        $
                        1,218,412
                        
                        
                        $
                        6,074,339





Warrant Derivative
Liabilities


The
portion of derivative liabilities related to outstanding warrants was valued
using the Black-Scholes option valuation model and the following assumptions on
the following dates:





Mar 31
                      2010
                    
                    
                    Jun 30
                      2010Risk-Free
      interest rate
                    
                    
                    2.4%
      - 3.3
                    %
                    
                    
                    0.3%
      - 2.4
                    %Expected
      volatility
                    
                    
                    126%
      - 214
                    %
                    
                    
                    120%
      - 210
                    %Expected
      life (in years)
                    
                    
                    0.5
      – 6.6
                    
                    
                    
                    0.3
      – 6.3Expected
      dividend yield
                    
                    
                    —
                    
                    
                    
                    —Number
      of warrants
                    
                    
                    125,299,740
                    
                    
                    
                    125,299,740Fair
      value – Warrant Derivative Liability
                    
                    $
                    8,499,423
                    
                    
                    $
                    6,675,722Change
      in warrant derivative liability for the quarter ended
                    
                    
                    
                    
                    
                    $
                    (1,823,701
                    )





The risk
free interest rate was based on rates established by the Federal
Reserve.  The expected volatility was based on the historical
volatility of the Company’s share price for periods equal to the expected life
of the outstanding warrants at each valuation date.  The expected
dividend rate was based on the fact that the Company has not historically paid
dividends on common stock and does not expect to pay dividends on common stock
in the future.




F -
9





NOTE 7     
-       PREFERRED
SHARE DERIVATIVE INTEREST PAYABLE





Preferred
share derivative interest payable as of June 30, 2010 consisted of $306,440 in
derivative interest accrued as of June 30, 2010.  The full amount of
derivative interest payable as of June 30, 2010 was paid via the issuance of
4,482,629 shares of common stock in July 2010.





NOTE
8     -        STOCKHOLDERS’
EQUITY





Common
Stock





During
the three months ended June 30, 2010, the Company issued 3,402,813 shares of
common stock in lieu of cash in payment of interest expense for the quarter
ended March 31, 2010, totaling $306,440 due to holders of the Company’s Series
B, Series C and Series D Preferred Share derivative instruments.





Options





At June
30, 2010, the Company had 2,272,000 options fully vested and outstanding with
exercise prices ranging from $0.06 to $3.00 per share; each option representing
the right to purchase one share of common stock.  In addition, there
are 850,000 options, issued to current employees pursuant to the Company’s 2004
Stock Option Plan which are outstanding and not vested, with an exercise price
of $0.10 per share.  These 850,000 options are scheduled to vest in
equal annual increments on January 18, 2011, 2012 and 2013 and require that the
employee awarded such options be employed by the Company on the vesting
date.





NOTE
9     -        PER SHARE
INFORMATION





Basic
earnings per share of common stock (“Basic EPS”) is computed by dividing the net
(loss) income by the weighted-average number of shares of common stock
outstanding.  Diluted earnings per share of common stock (“Diluted
EPS”) is computed by dividing the net (loss) income by the weighted-average
number of shares of common stock, and dilutive common stock equivalents and
convertible securities then outstanding.  GAAP requires the
presentation of both Basic and Diluted EPS, if such Diluted EPS is not
anti-dilutive, on the face of Company’s Condensed Statements of
Operations.  Diluted earnings per share is not presented for the three
months ended June 30, 2010, because the effect of the Company’s common stock
equivalents is anti-dilutive.





For the Three
                          Months Ended
                          June 30, 2010
                        
                        
                        For the Three
                          Months Ended
                          June 30, 2009NumeratorNet
      Income (loss) attributable to common shareholders
                        
                        $
                        (4,711,914
                        )
                        
                        $
                        1,154,494DenominatorWeighted-average
      shares of common stock outstanding
                        
                        
                        87,094,071
                        
                        
                        
                        66,240,476Dilutive
      effect of stock options, warrants and convertible
    securities
                        
                        
                        —
                        
                        
                        
                        62,063,764Net
      (loss) income per shareBasic
                        
                        $
                        ( 0.05
                        )
                        
                        $
                        0.02Diluted
                        
                        
                        —
                        
                        
                        $
                        0.01




F -
10


NOTE
10     -      SUBSEQUENT
EVENTS




The
Company has evaluated subsequent events from the balance sheet date through
August 16, 2010, the date the accompanying financial statements were
issued.  The following are material subsequent events:





Common shares issued in lieu
of cash in payment of derivative interest expense


Derivative
interest expense related to the Preferred Share derivatives due and payable as
of June 30, 2010 were paid during July 2010 through the issuance of 4,482,629
shares of common stock.





Common shares issued
pursuant to litigation settlement


Pursuant
to the Stipulation of Settlement and Release dated June 25, 2010 (the
“Settlement Agreement”) entered into by the Company with Midsummer Investments
Ltd (“Midsummer”) and Bushido Master Capital Fund LP (“Bushido”, and together
with Midsummer, the “Plaintiffs”), the Company agreed to issue certain shares of
common stock to the Plaintiffs and their respective affiliates in satisfaction
of the Company’s obligation pay certain previously accrued but unpaid dividends
through March 31, 2010 owing to the Plaintiffs and their respective
affiliates.  Accordingly 821,135 shares of common stock were issued in
July 2010 in satisfaction of this condition of the Settlement
Agreement.





For
further details on the Settlement Agreement, please refer to the current report
on Form 8-K issued on July 1, 2010, with such filing being herein incorporated
by this reference.





Lease Agreement for Facility
Expansion





We
entered into a lease for a portion of a one-story warehouse, located at 135
Ludlow Avenue, Northvale, New Jersey, consisting of approximately 15,000 square
feet of floor space. The lease term begins on July 1, 2010. The lease includes
an initial term of 5 years and 6 months and we have the option to renew the
lease for two additional terms, each of 5 years. The property related to this
lease will be used for the storage of pharmaceutical finished goods, raw
materials, equipment and documents as well as engaging in manufacturing,
packaging and distribution activities.





This
property requires significant leasehold improvements and qualification as a
prerequisite to achieving suitability for such intended future use. It is
expected that approximately 3,500 square feet of this property will be
constructed and qualified as suitable for use for storage of pharmaceutical
finished goods, raw materials, equipment and documents on or before the
expiration of the lease for the current warehouse at 80 Oak Street.





Leasehold
improvements and qualification as suitable for manufacturing, packaging and
distribution operations are expected to be achieved within two years from the
beginning of the lease term. These are estimates based on current project plans,
which are subject to change. There can be no assurance that the construction and
qualification will be accomplished during the estimated time frames, or that the
property located at 135 Ludlow Avenue, Northvale, New Jersey will ever achieve
qualification for intended future utilization.





Minimum 5
year payments* for the leasing of 15,000 square feet at 135 Ludlow are as
follows:





Fiscal
      year ended March 31, 2011
                  
                  $
                  19,689Fiscal
      year ended March 31, 2012
                  
                  
                  79,248Fiscal
      year ended March 31, 2013
                  
                  
                  81,228Fiscal
      year ended March 31, 2014
                  
                  
                  83,259Fiscal
      year ended March 31, 2015
                  
                  
                  85,344Total
      Minimum 5 year lease payments
                  
                  $
                  348,768





* Minimum
lease payments are exclusive of additional expenses related to certain expenses
incurred in the operation and maintenance of the premises, including, without
limitation, real estate taxes and common area charges which may be due under the
terms and conditions of the lease, but which are not quantifiable at the time of
filing of this quarterly report on Form 10-Q.


F -
11





ITEM
      2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIALCONDITION
      AND RESULTS OF OPERATIONSTHREE
      MONTH PERIOD ENDED JUNE 30, 2010 COMPARED TO THETHREE
      MONTH PERIOD ENDED JUNE 30, 2009(UNAUDITED)





The
following discussion and analysis should be read with the financial statements
and accompanying notes included elsewhere in this Form 10-Q and in the Annual
Report. It is intended to assist the reader in understanding and evaluating our
financial position.





This
Quarterly Report on Form 10-Q and the documents incorporated herein contain
“forward-looking statements”.   Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. When used
in this Form 10-Q, statements that are not statements of current or historical
fact may be deemed to be forward-looking statements.  Without limiting
the foregoing, the words “plan”, “intend”, “may,” “will,” “expect,” “believe”,
“could,” “anticipate,” “estimate,” or “continue” or similar expressions or other
variations or comparable terminology are intended to identify such
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date
hereof.  Except as required by law, the Company undertakes no
obligation to update any forward-looking statements, whether as a result of new
information, future events or otherwise.





Any
reference to “Elite”, the “Company”, “we”, “us”, “our” or the “Registrant”
refers to Elite Pharmaceuticals Inc. and its subsidiaries.





Overview





We are a
specialty pharmaceutical company principally engaged in the development and
manufacture of oral, controlled-release products, using proprietary technology.
Our strategy includes improving off-patent drug products for life cycle
management and developing generic versions of controlled-release drug products
with high barriers to entry. Our technology is applicable to the development of
delayed-, sustained- or targeted-release pellets, capsules, tablets, granules
and powders.





We have
two products, Lodrane 24® and Lodrane 24D®, currently being sold
commercially.  We also have an approved generic methadone product
developed with our partner, The PharmaNetwork.  Elite is preparing for
a commercial launch of this product. We are currently negotiating a sales and
distribution agreement for this product.  A sales and distribution
agreement is a prerequisite for the launch of this product.  Elite
also purchased an approved generic to Dilaudid® (a product owned and sold by
Purdue Pharma).  The transfer of the process from the previous ANDA
holder, Mikah Pharma, to our manufacturing facilities is currently in
progress.  The Company also has a pipeline of additional generic drug
candidates under active development and the Company is developing ELI-216, an
abuse resistant oxycodone product, and ELI-154, a once-a-day oxycodone product.
Elite’s facility in Northvale, New Jersey (the “Facility”) operates under Good
Manufacturing Practice (“GMP”) and is a United States Drug Enforcement Agency
(“DEA”) registered facility for research, development and
manufacturing.





Strategy





Elite is
focusing its efforts on the following areas: (i) development of Elite’s pain
management products, (ii) manufacturing of Lodrane 24® and Lodrane 24D®
products; (iii) set up and launch of the methadone generic and hydromorphone
generic products; (iv) the development of the other products in our pipeline
including the eight products pursuant to the Epic Strategic Alliance Agreement;
(v) commercial exploitation of our products either by license and the collection
of royalties, or through the manufacture of our formulations, and (vi)
development of new products and the expansion of our licensing agreements with
other pharmaceutical companies, including co-development projects, joint
ventures and other collaborations.





Elite is
focusing on the development of various types of drug products, including branded
drug products which require new drug applications (“NDAs”) under Section
505(b)(1) or 505(b)(2) of the Drug Price Competition and Patent Term Restoration
Act of 1984 (the “Drug Price Competition Act”) as well as generic drug products
which require abbreviated new drug applications (“ANDAs”).





Elite
believes that its business strategy enables it to reduce risk by having a
diverse product portfolio that includes both branded and generic products in
various therapeutic categories and to build collaborations and establish
licensing agreements with companies with greater resources thereby allowing us
to share costs of development and improve cash-flow.


1




FDA
Approval for generic Methadone tablets




On
December 2, 2009, the Company and ThePharmaNetwork, LLC (“TPN”) announced the
approval of an Abbreviated New Drug Application for methadone hydrochloride 10mg
tablets by the U.S. Food and Drug Administration (“FDA”).  Elite and
TPN co-developed the product and the ANDA was filed under the TPN
name.




A current
report on form 8-K was filed on December 2, 2009 in relation to this
announcement, such filing being incorporated herein by this
reference.




Elite
Purchased A Generic Hydromorphone HCl Product





On May
18, 2010, Elite executed an asset purchase agreement with Mikah Pharma LLC.
Under that agreement we completed the acquisition from Mikah of an Abbreviated
New Drug Application (Hydromorphone Hydrochloride Tablets USP, 8 mg) for
aggregate consideration of $225,000, comprised of an initial payment of
$150,000, which was made on May 18, 2010.  A second payment of $75,000
was due to be paid to Mikah on June 15, 2010 and is recorded in accounts payable
as of June 30, 2010.  The Company may, at its election, make this
payment in cash or by issuing to Mikah 937,500 shares of the Company’s common
stock.  Elite is transferring the process to the Facility in
Northvale, NJ where it intends to manufacture the product.  Elite will
engage a third party to distribute and sell the product.





A current
report on form 8-K was filed on May 24, 2010 in relation to this announcement,
such filing being incorporated herein by this reference.





Commercial
Products





Elite
manufactures two once-daily allergy products, Lodrane 24® and Lodrane 24D®, that
were co-developed with our partner, ECR Pharmaceuticals (“ECR”).  Elite
entered into development agreements for these two products with ECR in June 2001
whereby Elite agreed to commercially develop two products in exchange for
development fees, certain payments, royalties and manufacturing rights. The
products are being marketed by ECR which also has the responsibility for
regulatory matters.  In addition to receiving revenues for the
manufacture of these products, Elite receives a royalty on in-market
sales.





Lodrane
24®, was first commercially offered in November 2004 and Lodrane 24D® was first
commercially offered in December 2006.  Elite’s revenues for
manufacturing these products and a royalty on sales for the quarters ended June
30, 2010 and 2009 aggregated $748,103 and, $813,875, respectively.





Approved
Products





Elite
co-developed a generic methadone product that was approved in November
2009.  Elite and its partner, The PharmaNetwork, are in discussions to
complete a marketing and distribution arrangement for this
product.  Elite is also preparing for the manufacture of this product
at the Facility.  Elite intends to launch this product as soon as
these steps have been completed.





Elite
purchased a generic hydromorphone product (equivalent to 8 mg Dilaudid®) in May
2010.  Elite is transferring this product to the
Facility.  Elite will also complete a sales and distribution agreement
with a third party for the product.  Elite expects to launch this
product after these steps have been completed.





Products
Under Development





It is our
general policy not to disclose products in our development pipeline or the
status of such products until a product reaches a stage that we determine, for
competitive reasons, in our discretion, to be appropriate for disclosure and
because the disclosure of such information might suggest the occurrence of
future matters or events that may not occur.


2


ELI-154
and ELI-216





For
ELI-154, Elite has developed a once-daily oxycodone formulation using its
proprietary technology. An investigational new drug application, or IND, has
been filed and Elite has completed two pharmacokinetic studies in healthy
subjects that compared blood levels of oxycodone from dosing ELI-154 and the
twice-a-day product that is on the market currently, OxyContin® marketed in the
U.S. by Purdue Pharma LP.  These studies confirmed that ELI-154, when
compared to twice-daily delivery, demonstrated an equivalent onset, more
constant blood levels of the drug over the 24 hour period and equivalent blood
levels to the twice-a-day product at the end of 24 hours.  Elite has
successfully manufactured multiple batches on commercial scale equipment and we
have discussions ongoing in Europe for this product.  We are looking
for a partner who can complete the clinical studies required for Europe and who
can sell and distribute the product in key European
territories.  .





ELI-216
utilizes our patent-pending abuse-deterrent technology that is based on a
pharmacological approach. ELI-216 is a combination of a narcotic agonist,
oxycodone hydrochloride, in a sustained-release formulation intended for use in
patients with moderate to severe chronic pain, and an antagonist, naltrexone
hydrochloride, formulated to deter abuse of the drug.  Both of these
compounds, oxycodone hydrochloride and naltrexone hydrochloride, have been on
the market for a number of years and sold separately in various dose
strengths.  Elite has filed an IND for the product and has tested the
product in a series of pharmacokinetic studies.  In single-dose
studies for ELI-216, it was demonstrated that no quantifiable blood levels of
naltrexone hydrochloride were released at a limit of quantification (“LOQ”) of 7.5
pg/ml.  As described below, when crushed, naltrexone hydrochloride was
released at levels that would be expected to eliminate the euphoria from the
crushed oxycodone hydrochloride.  This data is consistent with the
premise of Elite’s abuse resistant technology, or ART, that essentially no
naltrexone is released and absorbed when administered as
intended.  Products utilizing the pharmacological approach to deter
abuse such as Suboxone®, a product marketed in the United States by Reckitt
Benckiser Pharmaceuticals, Inc., and Embeda®, a product marketed in the United
States by King Pharmaceuticals, have been approved by the FDA and are being
marketed in the United States.





ELI-216
demonstrates a euphoria-blocking effect when the product is
crushed.   A study completed in 2007 was designed to determine
the optimal ratio of oxycodone hydrochloride and the opioid antagonist,
naltrexone hydrochloride, to significantly block the euphoric effect of the
opioid if the product is abused by physically altering it (i.e., crushing).
 The study also helped determine the appropriate levels of naltrexone
hydrochloride required to reduce or eliminate the euphoria experienced by
subjects who might take crushed product to achieve a “high”.





Elite met
with the FDA for a Type C clinical guidance meeting regarding the NDA
development program for ELI-216.  Elite has incorporated the FDA’s guidance
into its developmental plan.  Elite has obtained a special protocol
assessment, or SPA, with the FDA for the ELI-216 Phase III protocol. Elite will
conduct additional Phase I studies including, but not limited to, food effect,
ascending dose and multi-dose studies.





Elite has
developed ELI-154 and ELI-216 and retains the rights to these
products.  Elite has currently chosen to develop these products itself
but expects to license these products at a later date to a third party who could
provide funding for the remaining clinical studies, including a Phase III study,
and who could provide sales and distribution for the product. The drug delivery
technology underlying ELI-154 was originally developed under a joint venture
with Elan which terminated in 2002.





According
to the Elan Termination Agreement, Elite acquired all proprietary, development
and commercial rights for the worldwide markets for the products developed by
the joint venture, including ELI-154. Upon licensing or commercialization of
ELI-154, Elite will pay a royalty to Elan pursuant to the Termination
Agreement.  If Elite were to sell the product itself, Elite will pay a
1% royalty to Elan based on the product’s net sales, and if Elite enters into an
agreement with another party to sell the product, Elite will pay a 9% royalty to
Elan based on Elite’s net revenues from this product. (Elite’s net product
revenues would include license fees, royalties, manufacturing profits and
milestones) Elite is allowed to recoup all development costs including research,
process development, analytical development, clinical development and regulatory
costs before payment of any royalties to Elan.





Epic
Strategic Alliance Agreement





On March
18, 2009, Elite and Epic Pharma, LLC and Epic Investments, LLC, a subsidiary of
Epic Pharma LLC (collectively, “Epic”) entered into the Epic Strategic Alliance
Agreement (amended on April 30, 2009, June 1, 2009 and July 28, 2009). Epic is a
pharmaceutical company that operates a business synergistic to that of Elite in
the research and development, manufacturing and sales and marketing of oral
immediate release and controlled-release drug products.





Under the
Epic Strategic Alliance Agreement (i) at least eight additional generic drug
products will be developed by Epic at the Facility with the intent of filing
abbreviated new drug applications for obtaining FDA approval of such generic
drugs, (ii) Elite will be entitled to 15% of the profits generated from the
sales of such additional generic drug products upon approval by the FDA, and
(iii) Epic and Elite will share certain resources, technology and know-how in
the development of drug products, which Elite believes will benefit the
continued development of its current drug products.


3


For
additional information regarding the Epic Strategic Alliance Agreement, please
see our disclosures under “Epic Strategic Alliance Agreement” in Item 7 of Part
II of this Annual Report on Form 10-K, and in our Current Reports on Form 8-K,
filed with the SEC on March 23, 2009, May 6, 2009 and June 5, 2009, which are
incorporated herein by reference.





Novel
Labs Investment





At the
end of 2006, Elite entered into an agreement with VGS Pharma, LLC (“VGS”) and created Novel
Laboratories, Inc. (“Novel”), a privately-held
company specializing in pharmaceutical research, development, manufacturing,
licensing, acquisition and marketing of specialty generic pharmaceuticals.
Novel's business strategy is to focus on its core strength in identifying and
timely executing niche business opportunities in the generic pharmaceutical
area. Elite owns approximately 10% of the outstanding shares of Class A Voting
Common Stock of Novel.  To date, Elite has received no distributions
or dividends from this investment.





Critical
Accounting Policies and Estimates





Management’s
discussion addresses our Consolidated Financial Statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of financial statements and the reported amounts of revenues and
expenses during the reporting period. On an ongoing basis, management evaluates
its estimates and judgment, including those related to bad debts, intangible
assets, income taxes, workers compensation, and contingencies and litigation.
Management bases its estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.





Management
believes the following critical accounting policies, among others, affect its
more significant judgments and estimates used in the preparation of its
Consolidated Financial Statements. Our most critical accounting policies include
the recognition of revenue upon completion of certain phases of projects under
research and development contracts. We also assess a need for an allowance to
reduce our deferred tax assets to the amount that we believe is more likely than
not to be realized. We assess the recoverability of long-lived assets and
intangible assets whenever events or changes in circumstances indicate that the
carrying value of the asset may not be recoverable. We assess our exposure to
current commitments and contingencies. It should be noted that actual results
may differ from these estimates under different assumptions or
conditions.





Results
of Consolidated Operations





Three
Months Ended June 30, 2010 Compared to Three Months Ended June 30,
2009





Our
revenues for the three months ended June 30, 2010 were $831,920 an increase of
$18,045 or approximately 2% over revenues for the comparable period of the prior
year, and consisted of $567,069 in manufacturing fees, 83,817 in lab fees and
$181,034 in royalty fees. Revenues for the three months ended June 30, 2009,
consisted of $665,064 in manufacturing fees and $148,811 in royalty
fees.  Manufacturing fees decreased by approximately 15% due in large
part to timing of orders and shipments.  Royalties increased by
approximately 22% due to the growth of product sales.




Research
and development costs for the three months ended June 30, 2010 were $165,008, a
decrease of $86,084 or approximately 34% from $251,092 of such costs for the
comparable period of the prior year.  Decreases were attributed to
decreases in employee costs and consulting fees associated with the development
of products and lower active pharmaceutical ingredient costs for product
development.




General
and administrative expenses for the three months ended June 30, 2010, were
$258,321, a decrease of $138,216, or approximately 35% from $396,537 of general
and administrative expenses for the comparable period of the prior
year.  The decrease was primarily due to continued cost reduction
initiatives throughout all aspects of our operations.




Depreciation
and amortization for the three months ended June 30, 2010 was $78,331, a
decrease of $47,211, or approximately 38%, from $125,542 for the comparable
period of the prior year. The decrease was due to the implementation of a
manufacturing cost accounting system as of July 1, 2009 which more accurately
allocates depreciation expense among manufacturing and other
operations.




Non-cash
compensation through the issuance of stock options and warrants for the three
months ended June 30, 2010 was $15,358, a decrease of $40,005, or approximately
72% from $55,363 for the comparable period of the prior year.  The
decrease was due to the timing of the amortization schedule established at the
time of issuance of the related stock options and warrants.




4


Other
income/(expenses) for the three months ended June 30, 2010 were $(4,615,146), a
decrease in other income of $6,643,298 from the net other income
of  $2,028,152 for the comparable period of the prior
year.  The decrease in other income/(expenses) was due to derivative
expenses related to changes in the fair value of our preferred shares and
outstanding warrants of $(4,250,637), and derivative interest expense of
$(306,440)




As a
result of the foregoing, our net loss for the three months ended June 30, 2010
was $4,711,915 compared to a net income of $1,151,494 for the three months ended
June 30, 2009.




Material
Changes in Financial Condition




Our
working capital (total current assets less total current liabilities), decreased
to a deficit of $2,589,078 as of June 30, 2010 from a working capital deficit of
$2,274,572 as of March 31, 2010, primarily due to our net loss from operations,
exclusive of non-cash charges.




We
experienced a positive cash flow from operations of $95,151 for the three months
ended June 30, 2010, primarily due to our net loss from continuing operations
of  $4,711,915,  increased by non cash charges totaling
$4,807,066, which included depreciation and amortization of
$121,344,  change in fair value of warrant derivative liabilities of
$(1,823,701), change in fair value of preferred share derivative liabilities of
$6,074,338, dividends accruing to preferred share derivative liabilities of
$306,440, non cash compensation satisfied by the issuance of common stock,
options and warrants of $15,358.




On
November 15, 2004 and on December 18, 2006, our partner, ECR Pharmaceuticals,
launched Lodrane 24® and Lodrane 24D®, respectively. Under our agreement with
ECR, we are currently manufacturing commercial batches of Lodrane 24® and
Lodrane 24D® in exchange for manufacturing margins and royalties on product
revenues. Manufacturing revenues and royalty income earned for the three months
ended June 30, 2010 and June 30, 2009 were $748,103 and $813,875, respectively.
We expect future cash flows from manufacturing fees and royalties to provide
additional cash to help fund our operations. However, no assurance can be given
that we will generate any material revenues from the manufacturing fees and
royalties of the Lodrane products.




Liquidity
and Capital Resources




Going
concern considerations





As of
June 30, 2010, after giving effect to the initial and second closings of the
Epic Strategic Alliance Agreement, we had cash reserves of $389,884 which
permits us to continue at our anticipated level of operations, including, but
not limited to, the continued development of our pipeline products, through July
2011. The
completion of all transactions contemplated by the Epic Strategic Alliance
Agreement, including the consummation of the third closing thereof, is expected
to provide additional funds to permit us to continue development of our product
pipeline for more than two years.  Beyond two years, we anticipate
that, with growth of Lodrane and the launch of the generic methadone product
co-developed with The Pharma Network and recently approved by the FDA, and
Hydromorphone 8mg recently acquired pursuant to an asset purchase agreement with
Mikah Pharma LLC, Elite could be profitable.In addition, the
commercialization of the products developed at the Facility under the Epic
Strategic Alliance Agreement is expected to add a new revenue source for Elite.
However, there can be no assurances as to the growth, success of development or
commercialization of these products.





Despite
the successful completion of the initial and second closings of the Epic
Strategic Alliance Agreement, there can be no assurances that we will be able to
consummate the third closing pursuant to the terms and conditions of the Epic
Strategic Alliance Agreement.  If such transactions are consummated,
we will receive additional cash proceeds of $1.6875 million (which will include
quarterly payments of $62,500 for a period of 11 quarters).  Even if
we were able to successfully complete the third closing of the Epic Strategic
Alliance Agreement, we still may be required to seek additional capital in the
future and there can be no assurances that we will be able to obtain such
additional capital on favorable terms, if at all. For additional information
regarding the Epic Strategic Alliance Agreement, please see our disclosures
under “Epic Strategic Alliance Agreement” in Item 7 of Part II of our Annual
Report on Form 10-K, and in our Current Reports on Form 8-K, filed with the SEC
on March 23, 2009, May 6, 2009, June 5, 2009 and July 1, 2010, which disclosures
are incorporated herein by reference.





As of
June 30, 2010, we had approximately 13 months of cash available based on our
current operations





Based
upon our current cash position, management has undertaken a review of our
operations and implemented cost-cutting measures in an effort to eliminate any
expenses which are not deemed critical to our current strategic
objectives.  We will continue this process without impeding our
ability to proceed with our critical strategic goals, which, as noted above,
include developing our pain management and other products and manufacturing our
current products.





For the
three months ended June 30, 2010, we realized approximately $0.1 million
positive cash flow from operating activities.  Our working capital
deficit at June 30, 2010 was approximately $2.6 million compared with working
capital surplus of approximately $0.7 million at June 30, 2009.  Cash
and cash equivalents at June 30, 2010, were approximately $0.4 million, a
decrease of approximately $0.4 million from the approximately $0.8 million at
June 30, 2009.


5


As of
June 30, 2010, our principal source of liquidity was approximately $0.4
million of cash and cash equivalents.   Additionally, we may
have access to funds through the exercise of outstanding stock options and
warrants. There can be no assurance that the exercise of outstanding warrants or
options will generate or provide sufficient cash.




We had
outstanding, as of June 30, 2010, bonds in the aggregate principal amount of
$3,385,000 consisting of $3,140,000 of 6.5% tax exempt bonds with an outside
maturity of September 1, 2030 and $245,000 of  9.0% bonds with an
outside maturity of September 1, 2012.  The bonds are secured by a
first lien on our facility in Northvale, New Jersey.  Pursuant to the
terms of the bonds, a restricted cash account has been established for the
payment of bond principal and interest.  Bond proceeds were utilized
(i) for the redemption of previously issued tax exempt bonds issued by the New
Jersey Economic Development Authority in September 1999, (ii) to refinance
equipment financing, (iii) to as provide approximately $1,000,000 of capital for
the purchase of additional equipment for the manufacture and development of
pharmaceutical products and (iv) for the maintenance of a $415,500 debt service
reserve.  All of the restricted cash, other than the debt service, was
expended within the year ended March 31, 2008.  Pursuant to the terms
of the related bond indenture agreement, the Company is required to observe
certain covenants, including covenants relating to incurring additional
indebtedness, granting liens and maintaining certain financial
covenants.  As of June 30, 2010, the Company had received a notice of
default from the Trustee  of the NJEDA Bonds, which was not waived or
rescinded.  For further details, please refer to Note 5 of the
financial statements and below in this section.





The
principal payment due on September 1, 2009, totaling $210,000 and the interest
payments due on September 1, 2009 and March 1, 2010, totaling $120,775 and
$113,075, respectively were all paid from the debt service reserve held in the
restricted cash account, because of  the Company not having sufficient
available funds to make the payments when due.  Pursuant to the terms
of the NJED Bonds, the Company is required to replenish any amounts withdrawn
from the debt service reserve and used to make principal or interest payments in
six monthly installments, each being equal to one-sixth of the amount withdrawn
and with the first installment due on the 15th of the
month in which the withdrawal from debt service reserve occurred and the
remaining five monthly payments being due on the 15th of the
five immediately subsequent months. The Company has, to date, made all payments
required in relation to the withdrawals made from the debt service reserve on
September 1, 2009 and March 1, 2010.  The Company is required to make
one additional payment of $18,846 on August 15, 2010, in order to fully
replenish the March 1, 2010 withdrawal from the debt service
reserve.





Principal
payments totaling $225,000 and interest payments totaling $113,075 are due on
September 1, 2010.  The Company does not expect to have sufficient
available funds to make such payments when due, and accordingly, expects such
payments to be made via the withdrawal of funds from the debt service reserve,
in the same manner as was done for the principal and interest payment of
September 1, 2009.





The
Company has received Notice of Default from the Trustee of the NJED Bonds in
relation to the withdrawals from the debt service reserve, and has requested a
postponement of principal payments due on September 1st of
2010, 2011 and 2012, with an aggregate of all such postponed principal payments
being added to the principal payments due on September 1,
2013.  Resolution of the Company’s default under the NJED Bonds and
our request for postponement of principal payments will have a significant
effect on our ability to operate in the future.





Due to
issuance of a Notice of Default being received from the Trustee of the NJED
Bonds, and until the event of default is resolved, the Company has classified
the entire principal due, an amount aggregating $3.385 million, as a current
liability.





Off-Balance
Sheet Arrangements





We have
not entered into any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures, or capital resources that would be considered material to
investors.





Effects
of Inflation





We are
subject to price risks arising from price fluctuations in the market prices of
the products that we sell.  Management does not believe that inflation
risk is material to our business or our consolidated financial position, results
of operations, or cash flows.





ITEM
3.                                QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not
applicable


6





ITEM
4.                                CONTROLS
AND PROCEDURES




Evaluation
of Disclosure Controls and Procedures




Under the
supervision and with the participation of our management, including the Chief
Executive and Chief Financial Officers, we evaluated the effectiveness of the
design and operation of our disclosure controls and procedures, as defined in
Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
“Exchange Act”), as of the end of the period covered by this Quarterly Report on
Form 10-Q.  Based upon that evaluation, our Chief Executive and Chief
Financial Officers concluded that our disclosure controls and procedures as of
the end of the period covered by this report were not effective so that that the
information required to be disclosed by us in reports filed under the Exchange
Act is (i) recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms and (ii) accumulated and communicated to
our management in order to allow for timely decisions regarding
disclosure.  A controls system cannot provide absolute assurance,
however, that the objectives of the controls system are met, and no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within a company have been detected.




Management
has determined that, as of June 30, 2010, there were material weaknesses in both
the design and effectiveness of our internal control over financial
reporting.  A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of our annual or interim
financial statements will not be prevented or detected on a timely
basis.




The
deficiencies in our internal controls over financial reporting and disclosure
controls and procedures are related to the lack of segregation of duties due to
the size of our accounting department, which replaced an outside accounting firm
and non-employee Chief Financial Officer on July 1, 2009, and limited enterprise
resource planning systems.  When our financial position improves, we
intend to hire additional personnel and implement enterprise resource planning
systems required to remedy such deficiencies.




Changes
in Internal Controls




There
have been no changes in our internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15 (f) under the Exchange Act) during
the quarter ended June 30, 2010 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.




PART
II.                      OTHER
INFORMATION





ITEM
1.                      LEGAL
PROCEEDINGS





In the
ordinary course of business we may be subject to litigation from time to time.
Except as follows, there is no past, pending or, to our knowledge, threatened
litigation or administrative action to which we are a party or of which our
property is the subject (including litigation or actions involving our officers,
directors, affiliates, or other key personnel, or holders of record or
beneficially of more than 5% of any class of our voting securities, or any
associate of any such party) which in our opinion has, or is expected to have, a
material adverse effect upon our business, prospects, financial condition or
operations.





Midsummer Investments, Ltd., et al.
v. Elite Pharmaceuticals, Inc.– On or about September 22, 2009,
Midsummer Investments, Ltd. (“Midsummer”) and
Bushido Capital Master Fund, LP (“Bushido”, and
together with Midsummer, the “Plaintiffs”) filed a
complaint against Elite Pharmaceuticals, Inc., a Delaware corporation (the
“Company”), in
the United States District Court, Southern District of New York (Case No. 09 CIV
8074) (the “Action”).  The
Plaintiffs asserted claims for breach of contract (injunctive relief and
damages), anticipatory breach of contract (injunctive relief), conversion
(injunctive relief and damages), and attorneys’ fees, arising out of a
Securities Purchase Agreement, dated September 15, 2008, by and among the
Company and certain purchasers of the Company’s securities (including the
Plaintiffs) and the Certificate of Designation of Preferences, Rights and
Limitations of Series D 8% Convertible Preferred Stock, filed with the Secretary
of State of the State of Delaware on September 15, 2009 (the “Series D
Certificate”).  Plaintiffs claimed that they were entitled to a
reduced conversion price for their Series D 8% Convertible Preferred Stock, par
value US$0.01 per share (the “Series D Preferred
Stock”), as a result of the Strategic Alliance Agreement, dated
March 18, 2009, as amended (the “Epic SAA”), by and
among the Company, on the one hand, and Epic Pharma, LLC (“Epic”) and Epic
Investments, LLC (“Epic Investments”,
and together with Epic, the “Epic
Parties”).  With their complaint, the Plaintiffs
concurrently filed a request for preliminary injunction.  Pursuant to
an order of the Court entered into on October 16, 2009, the Plaintiffs’ request
for a preliminary injunction was denied.  Thereafter, Plaintiffs filed
an amended complaint (the “Complaint”),
asserting claims for breach of contract (injunctive relief and damages),
anticipatory breach of contract (injunctive relief), conversion (damages) and
attorneys’ fees, seeking compensatory damages of $7,455,363.00, delivery of
1,000,000 shares of the Company’s common stock, par value $0.001 per share (the
“Common Stock”), a declaration that all future conversions of the Series D
Preferred Stock, held by Plaintiffs is at a conversion price of $0.05,
attorneys’ fees, interest and costs.


7


The
Company disputed the claims in the Complaint, believing the lawsuit to be
without merit, and vigorously defended against them.  The Company
moved for summary judgment on the Complaint and the judge in the case did not
issue an order on such motion.  The Company proceeded with extensive,
time-consuming and costly discovery.  The court scheduled the trial to
commence on June 28, 2010.





In order
to avoid the delays, expense and risks inherent in litigation, after extensive
negotiations, the Company entered into (i) a Stipulation of Settlement and
Release, dated June 25, 2010 (the “Settlement
Agreement”), with the Plaintiffs and the Epic Parties, (ii) an Amendment
Agreement, dated June 25, 2010 (the “Series D Amendment
Agreement”), with the Plaintiffs and (iii) an Amendment Agreement, dated
June 25, 2010 (the “Series E Amendment
Agreement”) with the Epic Parties. As part of the Settlement Agreement,
the Action will be dismissed with prejudice.





Series D Amendment
Agreement





Pursuant
to the Series D Amendment Agreement, the Company and Plaintiffs agreed to amend
the Series D Certificate.  The holders of at least 50.1%, in the
aggregate, of the Company’s outstanding Series B Preferred 8% Convertible
Preferred Stock, par value US$0.01 per share, Series C 8% Convertible Preferred
Stock, par value US$0.01 per share, and Series D Preferred Stock, voting as one
class, consented to the filing of the Amended Certificate of Designations of the
Series D 8% Convertible Preferred Stock (the “Amended Series D Certificate”)
with the Secretary of State of the State of Delaware.  On June 29,
2010, pursuant to the authority of its Board of Directors, the Company filed
with the Secretary of State of the State of Delaware the Amended Series D
Certificate.





Pursuant to the terms of the
Amended Series D Certificate, the terms of the Series D Preferred Stock have
been amended as follows:





·
            Dividends:  The
      Series D Preferred Stock will continue to accrue dividends at the rate of
      8% per annum on their stated value of US$1,000 per share, payable
      quarterly on January 1, April 1, July 1 and October 1 and such rate shall
      not increase to 15% per annum as previously provided prior to giving
      effect to the Series D Amendment Agreement.  In addition to
      being payable in cash and shares of Common Stock, as provided in the
      Series D Certificate, such dividends may also be paid in shares of Series
      D Preferred Stock (the “Dividend Payment Preferred Stock”) or a
      combination of cash, Common Stock and Dividend Payment Preferred
      Stock.  Dividend Payment Preferred Stock will have the same
      rights, privileges and preferences as the Series D Preferred Stock, except
      that such Dividend Payment Preferred Stock will not be entitled to, nor
      accrue, any dividends pursuant to the Amended Series D
      Certificate.





·
            Conversion
      Price:  The conversion price of the Series D Preferred Stock
      shall be reduced from US$0.20 per share to US$0.07 per share (subject to
      adjustment as provided in the Amended Series D
    Certificate).





·
            Automatic
      Monthly Conversion:  On each Monthly Conversion Date (as defined
      below), a number of shares of Series D Preferred Stock equal to each
      holder’s pro-rata portion (based on the shares of Series D Preferred Stock
      held by each Holder on June 25, 2010) of the Monthly Conversion Amount (as
      defined below) will automatically convert into shares of Common Stock at
      the then-effective conversion price (each such conversion, a “Monthly
      Conversion”).  Notwithstanding the foregoing, the Company will
      not be permitted to effect a Monthly Conversion on a Monthly Conversion
      Date unless (i) the Common Stock shall be listed or quoted for trading on
      a trading market, (ii) there is a sufficient number of authorized shares
      of Common Stock for issuance of all Common Stock to be issued upon such
      Monthly Conversion, (iii) as to any holder of Series D Preferred Stock,
      the issuance of the shares will not cause a breach of the beneficial
      ownership limitations set forth in the Amended Series D Certificate, (iv)
      if requested by a holder of Series D Preferred Stock and a customary Rule
      144 representation letter relating to all shares of Common Stock to be
      issued upon each Monthly Conversion is provided by such holder after
      request from the Company, the shares of Common Stock issued upon such
      Monthly Conversion are delivered electronically through the Depository
      Trust Company or another established clearing corporation performing
      similar functions (“DTC”), may be resold by such holder pursuant to an
      exemption under the Securities Act and are otherwise free of restrictive
      legends and trading restrictions on such Holder, (v) there has been
      no public announcement of a pending or proposed Fundamental Transaction or
      Change of Control Transaction (as such terms are defined in the Amended
      Series D Certificate) that has not been consummated, (vi) the applicable
      holder of Series D Preferred Stock is not in possession of any information
      provided to such holder by the Company that constitutes material
      non-public information,and (vii) the average VWAP (as defined in the Amended Series D
      Certificate) for the 20 trading days immediately prior to the applicable
      Monthly Conversion Date equals or exceeds the then-effective conversion
      price of the Series D Preferred Stock.  Shares of the Series D
      Preferred Stock issued to the holders of Series D Preferred Stock as
      Dividend Payment Preferred Stock shall be the last shares of Series D
      Preferred Stock to be subject to Monthly Conversion.  As used
      herein, the following terms have the following meanings:  (i)
      “Monthly Conversion Date” means the first day of each month, commencing on
      August 1, 2010, and terminating on the date the Series D Preferred Stock
      is no longer outstanding; (ii) “Monthly Conversion Amount” means an
      aggregate Stated Value of Series D Preferred Stock among all Holders that
      is equal to 25% of aggregate dollar trading volume of the Common Stock
      during the 20 trading days immediately prior to the applicable Monthly
      Conversion Date (such 20 trading day period, the “Measurement Period”),
      increasing to 35% of the aggregate dollar trading volume during the
      Measurement Period if the average VWAP during such Measurement Period
      equals or exceeds $0.12 (subject to adjustment for forward and reverse
      stock splits and the like that occur after June 25, 2010) and further
      increasing to 50% of the aggregate dollar trading volume during such
      Measurement Period if the average VWAP during such Measurement Period
      equals or exceeds $0.16 (subject to adjustment for forward and reverse
      stock splits and the like that occur after June 25,
  2010).


8


·
            Change
      of Control Transaction:  Epic and its affiliates were expressly
      excluded from any event which would otherwise constitute a “Change of
      Control Transaction” due to the acquisition in excess of 40% of the
      Company’s voting securities.





Pursuant
to the Series D Amendment Agreement, the exercise price of the Warrants (the
“Series D Warrants”) to purchase shares of Common Stock issued to the holders of
Series D Preferred Stock pursuant to the Securities Purchase Agreement, dated as
of September 15, 2008, by and among the Company and the purchasers of Series D
Preferred Stock will be reduced from $0.25 per share to US$0.125.  In
addition, the exercise price of the Series D Warrants may be reduced as
follows:





(i) by 20%,
if on September 15, 2011, the holder of such Warrant still beneficially owns
more than 50% of the Series D Preferred Stock beneficially owned by such holder
as of June 25, 2010 (“Base Ownership”); and





(ii) by 20%,
if (a) on September 15, 2011, such holder then beneficially owns more than 25%
of the Base Ownership and 50% or less of the Base Ownership and (b) on September
15, 2012, such holder then beneficially owns more than 25% of the Base
Ownership.





Notwithstanding
the foregoing, (x) in no event will the exercise price of the Series D Warrants
be reduced more than once as a result of the amendments to such Series D
Warrants, and (y) in the event that on September 15, 2011 or, if the condition
of clause (ii)(a) above is met, on September 15, 2012, the Holder beneficially
owns 25% or less of the Base Ownership, then no adjustment shall occur pursuant
to the Series D Warrants, as amended by the Series D Amendment
Agreement.  Additionally, there will be no corresponding increase in
the number of shares of Common Stock issuable upon exercise of the Warrants
solely as a result of the foregoing adjustments.





To the
extent such issuance does not cause the breach of the beneficial ownership
limitations set forth in the Amended Series D Certificate (any excess shares
will be issued to the affected holder of Series D Preferred Stock upon written
notice from such holder when such holder’s beneficial ownership is below 9.9% to
the extent that such issuance does not cause such holder to exceed such amount),
the Company agreed to issue certain shares of Common Stock to the Plaintiffs and
their respective affiliates in satisfaction of the Company’s obligation to pay
certain previously accrued but unpaid dividends through March 31, 2010 owing to
the Plaintiffs and their respective affiliates.





Series E
Amendment Agreement





Pursuant
to the Series E Amendment Agreement, the Company agreed to amend the Certificate
of Designation of Preferences, Rights and Limitations of the Series E
Convertible Preferred Stock, filed with Secretary of State of the State of
Delaware on June 3, 2009 (the “Series E Certificate”).  The Epic
Parties, constituting all holders of Series E Preferred Stock, consented to the
filing of the Amended Certificate of Designations of the Series E Convertible
Preferred Stock (the “Amended Series E Certificate”) with the Secretary of State
of the State of Delaware.  On June 29, 2010, pursuant to the authority
of its Board of Directors, Company filed with the Secretary of State of the
State of Delaware the Amended Series E Certificate.  Pursuant to the
terms of the Amended Series E Certificate, the conversion price of the Series E
Preferred Stock will be adjusted downward to reflect, on a pro rata basis, the
reduction in the conversion price of the Series D Preferred Stock as the result
of the Series D Amendment Agreement, to the extent shares of Series D Preferred
Stock are converted at the reduced conversion price set forth in the Amended
Series D Certificate.





Pursuant
to the Series E Amendment Agreement, the Epic SAA was amended so that the
purchase of the 750 Additional Shares of Series E Preferred Stock described
therein for an aggregate purchase price of $750,000 would occur in 12
installments of 62.5 shares (for a purchase price of $62,500) (i) on or prior to
November 1, 2009 (which has been satisfied) and (ii) within 10 business days
following the last day of each calendar quarter, beginning with the first
calendar quarter ending on September 30, 2010 and continuing for each of the 10
calendar quarters thereafter.





In
addition, under the Series E Amendment Agreement, the third closing date is
scheduled to occur on or before December 31, 2010, subject to certain conditions
set forth in the Epic SAA (as amended by the Series E Amendment
Agreement).





Under
each of the Series D Amendment Agreement and the Series E Amendment Agreement,
the Company agreed that at its next meeting of shareholders it will seek
shareholder approval to amend its certificate of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least
760,000,000.


9


Settlement
Agreement





Pursuant
to the Settlement Agreement, Elite and the Epic Parties, individually and on
behalf of each of their respective officers, directors, agents, representatives,
successors, affiliated entities, subsidiaries, heirs, employees, administrators
and assigns (the “Elite Releasors”) agreed to release and discharge each of the
Plaintiffs, BCMF Trustees LLC, an affiliate of Bushido (“BCMF”), their
respective owners, officers, directors, investors, agents, representatives,
successors, affiliated entities, subsidiaries, heirs, employees, administrators
and assigns (the “Plaintiffs’ Releasees”) from any and all actions, causes of
action, claims, liens, suits, debts, accounts, liabilities, expenses, attorneys’
fees, agreements, promises, charges, complaints and demands (collectively,
“Loses”) which the Elite Releasors have or may have against the Plaintiffs’
Releasees that could have been asserted in the Action or any other court action,
based upon any conduct up to and including the date of the Settlement
Agreement.  Notwithstanding the foregoing, the Elite Releasors will
not release any claim of breach of the terms of the Settlement Agreement, breach
of the terms of the Series D Amendment Agreement, or any cause of action arising
from future conduct by the Plaintiffs’ Releasees.





Pursuant
to the Settlement Agreement, the Plaintiffs and BCMF, individually and on behalf
of each of their respective owners, officers, directors, investors, agents,
representatives, successors, affiliated entities, subsidiaries, heirs,
employees, administrators and assigns (the “Plaintiffs’ Releasors”) agreed to
release and discharge Elite and the Epic Parties and each of their respective
officers, directors, agents, representatives, successors, affiliated entities,
subsidiaries, heirs, employees, administrators and assigns (the “Elite
Releasees”), from any and all Losses which the Plaintiffs’ Releasors have or may
have against the Elite Releasees that could have been asserted in the Action or
any other court action, based upon any conduct up to and including the date of
the Settlement Agreement.  Notwithstanding the foregoing, the
Plaintiffs’ Releasors did not release any claim of breach of the terms of the
Settlement Agreement, breach of the terms of the Series D Amendment Agreement or
any cause of action arising from future conduct by the Elite
Releasees.





In
addition, concurrently with the execution of the Settlement Agreement, legal
counsel for both the Company and the Plaintiffs executed a Stipulation of
Discontinuance of the Action, which such counsel will file once all conditions
precedent to the effectiveness of the Settlement Agreement have been
satisfied.





The
foregoing description of the Amended Series D Certificate, Amended Series E
Certificate, Settlement Agreement, Series D Amendment Agreement and Series E
Amendment Agreement does not purport to be complete and is qualified in its
entirety by reference to the complete text of such documents which are filed
herewith and incorporated herein by reference.





On July
1, 2010, the Company filed with the SEC a Current Report on Form 8-K announcing
the settlement of the litigation with the Plaintiffs, with such filing being
incorporated by reference herein.





ITEM
1A.            RISK
FACTORS





There
have been no material changes from the Risk Factors described in our Annual
Report on Form 10-K for the fiscal year ended March 31, 2010.





ITEM
2.               UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS





During
the quarter ended June 30, 2010, we issued 3,402,813 shares of our common stock
to the holders of our Series B, C and D Preferred Stock.  The shares
were issued in satisfaction of our obligation to pay $306,440 in dividends
earned and/or accrued during the quarter ended March 31, 2010.  We did
not receive any proceeds in exchange for the issuance of these
securities.  We relied on the exemption provided by Section 4(2) of
the Securities Act of 1933 to issue the common stock   The securities were
offered and sold without any form of general solicitation or general advertising
and the offerees made representations that they were accredited
investors.




ITEM
3.               DEFAULTS
UPON SENIOR SECURITIES





Please see the discussion in Note 5
to our financial statements titled “NJEDA Bonds” which is incorporated herein by
this reference.





ITEM
4.               REMOVED
AND RESERVED


10


ITEM
5.               OTHER
INFORMATION





None.




ITEM
6.                            EXHIBITS




The
exhibits listed in the index below are filed as part of this
report.




Exhibit
              Number
            
            Description3.1(a)
            
            Certificate
      of Incorporation of the Company, together with all other amendments
      thereto, as filed with the Secretary of State of the State of Delaware,
      incorporated by reference to (a) Exhibit 4.1 to the Registration Statement
      on Form S-4 (Reg. No. 333-101686), filed with the SEC on December 6, 2002
      (the “Form S-4”), (b) Exhibit 3.1 to the Company’s Current Report on Form
      8-K dated July 28, 2004 and filed with the SEC on July 29, 2004, (c)
      Exhibit 3.1 to the Company’s Current Report on Form 8-K dated June 26,
      2008 and filed with the SEC on July 2, 2008, and (d) Exhibit 3.1 to the
      Company’s Current Report on Form 8-K dated December 19, 2008 and filed
      with the SEC on December 23, 2008.3.1(b)
            
            Certificate
      of Designations, Preferences and Rights of Series A Preferred Stock, as
      filed with the Secretary of the State of Delaware, incorporated by
      reference to Exhibit 4.5 to the Current Report on Form 8-K dated October
      6, 2004, and filed with the SEC on October 12, 2004.3.1(c)
            
            Certificate
      of Retirement with the Secretary of the State of the Delaware to retire
      516,558 shares of the Series A Preferred Stock, as filed with the
      Secretary of State of Delaware, incorporated by reference to Exhibit 3.1
      to the Current Report on Form 8-K dated March 10, 2006, and filed with the
      SEC on March 14, 2006.3.1(d)
            
            Certificate
      of Designations, Preferences and Rights of Series B 8% Convertible
      Preferred Stock, as filed with the Secretary of the State of Delaware,
      incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K
      dated March 15, 2006, and filed with the SEC on March 16,
      2006.3.1(e)
            
            Amended
      Certificate of Designations of Preferences, Rights and Limitations of
      Series B 8% Convertible Preferred Stock, as filed with the Secretary of
      State of the State of Delaware, incorporated by reference to Exhibit 3.1
      to the Current Report on Form 8-K dated April 24, 2007, and filed with the
      SEC on April 25, 2007.3.1(f)
            
            Certificate
      of Designations, Preferences and Rights of Series C 8% Convertible
      Preferred Stock, as filed with the Secretary of the State of Delaware,
      incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K
      dated April 24, 2007, and filed with the SEC on April 25,
      2007.3.1(g)
            
            Amended
      Certificate of Designations, Preferences and Rights of Series C 8%
      Convertible Preferred Stock, as filed with the Secretary of the State of
      Delaware, incorporated by reference to Exhibit 3.1 to the Current Report
      on Form 8-K dated April 24, 2007, and filed with the SEC on April 25,
      20073.1(h)
            
            Amended
      Certificate of Designations of Preferences, Rights and Limitations of
      Series B 8% Convertible Preferred Stock, as filed with the Secretary of
      State of the State of Delaware, incorporated by reference to Exhibit 3.1
      to the Current Report on Form 8-K dated September 15, 2008, and filed with
      the SEC on September 16, 2008.3.1(i)
            
            Amended
      Certificate of Designations, Preferences and Rights of Series C 8%
      Convertible Preferred Stock, as filed with the Secretary of the State of
      Delaware, incorporated by reference to Exhibit 3.2 to the Current Report
      on Form 8-K dated September 15, 2008, and filed with the SEC on September
      16, 2008.3.1(j)
            
            Amended
      Certificate of Designations of Preferences, Rights and Limitations of
      Series D 8% Convertible Preferred Stock, as filed with the Secretary of
      State of the State of Delaware, incorporated by reference to Exhibit 3.3
      to the Current Report on Form 8-K dated September 15, 2008, and filed with
      the SEC on September 16, 2008.3.1(k)
            
            Certificate
      of Designation of Preferences, Rights and Limitations of Series E
      Convertible Preferred Stock, as filed with the Secretary of State of the
      State of Delaware, incorporated by reference to Exhibit 3.1 to the Current
      Report on Form 8-K dated June 1, 2009, and filed with the SEC on June 5,
      2009.





11





3.1(l)
            
            Amended
      Certificate of Designations of the Series D 8% Convertible Preferred Stock
      as filed with the Secretary of State of the State of Delaware on June 29,
      2010, incorporated by reference to Exhibit 3.1 to the Current Report on
      Form 8-K, dated July 1, 2010 and filed with the SEC on July 1,
      20103.1(m)
            
            Amended
      Certificate of Designations of the Series E Convertible Preferred Stock as
      filed with the Secretary of State of the State of Delaware on June 29,
      2010, incorporated by reference to Exhibit 3.2 to the Current Report on
      Form 8-K, dated July 1, 2010 and filed with the SEC on July1,
      20103.2
            
            By-Laws
      of the Company, as amended, incorporated by reference to Exhibit 3.2 to
      the Company’s Registration Statement on Form SB-2 (Reg. No. 333-90633)
      made effective on February 28, 2000 (the “Form SB-2”).4.1
            
            Form
      of specimen certificate for Common Stock of the Company, incorporated by
      reference to Exhibit 4.1 to the Form SB-2.4.2
            
            Form
      of specimen certificate for Series A 8% Convertible Preferred Stock of the
      Company, incorporated by reference to Exhibit 4.5 to the Current Report on
      Form 8-K, dated October 6, 2004, and filed with the SEC on October 12,
      2004.4.3
            
            Form
      of specimen certificate for Series B 8% Convertible Preferred Stock of the
      Company, incorporated by reference to Exhibit 4.1 to the Current Report on
      Form 8-K, dated March 15, 2006 and filed with the SEC on March 16,
      2006.4.4
            
            Form
      of specimen certificate for Series C 8% Convertible Preferred Stock of the
      Company, incorporated by reference to Exhibit 4.1 to the Current Report on
      Form 8-K, dated April 24, 2007 and filed with the SEC on April 25,
      2007.4.5
            
            Warrant
      to purchase 100,000 shares of Common Stock issued to DH Blair Investment
      Banking Corp., incorporated by reference to Exhibit 10.2 to the Quarterly
      Report on Form 10-Q for the period ended September 30,
    2004.4.6
            
            Warrant
      to purchase 50,000 shares of Common Stock issued to Jason Lyons
      incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form
      10-Q for the period ended June 30, 2004.4.7
            
            Form
      of Warrant to purchase shares of Common Stock issued to designees of
      lender with respect to financing of an equipment loan incorporated by
      reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the
      period ended June 30, 2004.4.8
            
            Form
      of Short Term Warrant to purchase shares of Common Stock issued to
      purchasers in the private placement which initially closed on October 6,
      2004 (the “Series A Financing”), incorporated by reference to Exhibit 4.6
      to the Current Report on Form 8-K, dated October 6, 2004, and filed with
      the SEC on October 12, 20044.9
            
            Form
      of Long Term Warrant to purchase shares of Common Stock issued to
      purchasers in the Series A Financing, incorporated by reference to Exhibit
      4.7 to the Current Report on Form 8-K, dated October 6, 2004, and filed
      with the SEC on October 12, 2004.4.10
            
            Form
      of Warrant to purchase shares of Common Stock issued to the Placement
      Agent, in connection with the Series A Financing, incorporated by
      reference to Exhibit 4.8 to the Current Report on Form 8-K, dated October
      6, 2004, and filed with the SEC on October 12, 2004.4.11
            
            Form
      of Replacement Warrant to purchase shares of Common Stock in connection
      with the offer to holders of Warrants in the Series A Financing (the
      “Warrant Exchange”), incorporated by reference to Exhibit 4.1 to the
      Current Report on Form 8-K, dated December 14, 2005, and filed with the
      SEC on December 20, 2005.4.12
            
            Form
      of Warrant to purchase shares of Common Stock to the Placement Agent, in
      connection with the Warrant Exchange, incorporated by reference to Exhibit
      4.2 to the Current Report on Form 8-K, dated December 14, 2005, and filed
      with the SEC on December 20, 2005.





12





4.13
            
            Form
      of Warrant to purchase shares of Common Stock issued to purchasers in the
      private placement which closed on March 15, 2006 (the “Series B
      Financing”), incorporated by reference to Exhibit 4.2 to the Current
      Report on Form 8-K, dated March 15, 2006 and filed with the SEC on March
      16, 2006.4.14
            
            Form
      of Warrant to purchase shares of Common Stock issued to purchasers in the
      Series B Financing, incorporated by reference to Exhibit 4.3 to the
      Current Report on Form 8-K, dated March 15, 2006 and filed with the SEC on
      March 16, 2006.4.15
            
            Form
      of Warrant to purchase shares of Common Stock issued to the Placement
      Agent, in connection with the Series B Financing, incorporated by
      reference to Exhibit 4.4 to the Current Report on Form 8-K, dated March
      15, 2006 and filed with the SEC on March 16, 2006.4.16
            
            Form
      of Warrant to purchase 600,000 shares of Common Stock issued to Indigo
      Ventures, LLC, incorporated by reference to Exhibit 4.1 to the Current
      Report on Form 8-K, dated July 12, 2006 and filed with the SEC on July 18,
      2006.4.17
            
            Form
      of Warrant to purchase up to 478,698 shares of Common Stock issued to
      VGS  PHARMA,  LLC, incorporated by reference to
      Exhibit 3(a) to the Current Report on Form 8-K, dated December 6, 2006 and
      filed with the SEC on December 12, 2006.4.18
            
            Form
      of Non-Qualified Stock Option Agreement for 1,750,000 shares of Common
      Stock granted to Veerappan Subramanian, incorporated by reference to
      Exhibit 3(b) to the Current Report on Form 8-K, dated December 6, 2006 and
      filed with the SEC on December 12, 2006.4.19
            
            Form
      of Warrant to purchase shares of Common Stock issued to purchasers in the
      private placement which closed on April 24, 2007 (the “Series C
      Financing”), incorporated by reference to Exhibit 4.2 to the Current
      Report on Form 8-K, dated April 24, 2007 and filed with the SEC on April
      25, 2007.4.20
            
            Form
      of Warrant to purchase shares of Common Stock issued to the placement
      agent in the Series C Financing, incorporated by reference to Exhibit 4.3
      to the Current Report on Form 8-K, dated April 24, 2007 and filed with the
      SEC on April 25, 2007.4.21
            
            Form
      of specimen certificate for Series D 8% Convertible Preferred Stock of the
      Company, incorporated by reference to Exhibit 4.1 to the Current Report on
      Form 8-K, dated September 15, 2008 and filed with the SEC on September 16,
      2008.4.22
            
            Form
      of Warrant to purchase shares of Common Stock issued to purchasers in the
      private placement which closed on September 15, 2008 (the “Series D
      Financing”), incorporated by reference to Exhibit 4.2 to the Current
      Report on Form 8-K, dated September 15, 2008 and filed with the SEC on
      September 16, 2008.4.23
            
            Form
      of Warrant to purchase shares of Common Stock issued to the placement
      agent in the Series D Financing, incorporated by reference to Exhibit 4.3
      to the Current Report on Form 8-K, dated September 15, 2008 and filed with
      the SEC on September 16, 2008.4.24
            
            Form
      of specimen certificate for Series E Convertible Preferred Stock of the
      Company, incorporated by reference to Exhibit 4.1 to the Current Report on
      Form 8-K, dated June 1, 2009, and filed with the SEC on June 5,
      2009.4.25
            
            Warrant
      to purchase shares of Common Stock issued to Epic Investments, LLC in the
      initial closing of the Strategic Alliance Agreement, dated as of March 18,
      2009, by and among the Company, Epic Pharma, LLC and Epic Investments,
      LLC, incorporated by reference to Exhibit 4.2 to the Current Report on
      Form 8-K, dated June 1, 2009, and filed with the SEC on June 5,
      2009.10.1
            
            Stipulation
      of Settlement and Release, dated as of June 25, 2010, by and among the
      Company, Midsummer Investment, Ltd., Bushido Capital Master Fund, LP, BCMF
      Trustees, LLC, Epic Pharma, LLC and Epic Investments, LLC, incorporated by
      reference to Exhibit 10.1 to the Current Report on Form 8-K, dated July 1,
      2010 and filed with the SEC on July 1, 201010.2
            
            Amendment
      Agreement, dated as of June 25, 2010, by and among the Company, and the
      investors signatory thereto,incorporated
      by reference to Exhibit 10.2 to the Current Report on Form 8-K, dated July
      1, 2010 and filed with the SEC on July 1,
2010





13





10.3
            
            Amendment
      Agreement, dated as of June 2010, by and among the Company, Epic Pharma,
      LLC and Epic Investments,LLC,
      incorporated by reference to Exhibit 10.3 to the Current Report on Form
      8-K, dated July 1, 2010 and filed with the SEC on July 1,
    201031.1
            
            Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2
            
            Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232.1
            
            Certification
      of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 200232.2
            
            Certification
      of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002





14




SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.





ELITE
      PHARMACEUTICALS, INC.Date:
              August 16, 2010
              
              /s/ Jerry TreppelJerry
      TreppelChief
      Executive Officer(Principal
      Executive Officer)Date:
              August 16, 2010
              
              /s/ Carter J. WardCarter
      J. WardChief
      Financial Officer(Principal
      Financial and Accounting Officer)


15