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 SECURITIES
       EXCHANGE ACT OF 1934

For the quarterly period ended              June 30, 2007
                               -----------------------------------------------
                                       or

[  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

For the transition period ended                to

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

<TABLE>
<S>                                                             <C>
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)
</TABLE>

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 [ ]

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  [  ] Accelerated filer [  ]   Non-accelerated filer [x]

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

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports  required  to be filed by  Sections  12, 13 or 15 (d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.                                             Yes [ ] No [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares  outstanding of the common stock,  $.01 par value,
as of August 7, 2007: 21,348,373 (exclusive of 100,000 shares held in treasury).


<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                                      INDEX


                                                                        Page No.
PART I  - FINANCIAL INFORMATION

Item 1.   Financial Statements

            Consolidated Balance Sheets as of June 30, 2007 (unaudited)
            and March 31, 2007 (audited)                                  2 - 3

            Consolidated Statements of Operations for the three months
            ended June 30, 2007 and June 30, 2006 (unaudited)               4

            Consolidated Statement of Changes in Stockholders' Equity
            for the three months ended June 30, 2007 (unaudited)            5

            Consolidated Statements of Cash Flows for the three months
            ended June 30, 2007 and June 30, 2006 (unaudited)               6

            Notes to Consolidated Financial Statements                   7 - 23

Item 2.   Management's Discussion And Analysis of Financial
          Condition And Results Of Operations                           24 - 29

Item 3.   Quantitative And Qualitative Disclosures
          About Market Risk                                                29

Item 4.   Controls and Procedures                                          29


PART II - OTHER INFORMATION

Item 4.   Submission of Matters to a Vote of Security Holders              30

Item 6.   Exhibits                                                         30


SIGNATURES                                                                 31

                                       1

<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                           June 30,      March 31,
                                                                             2007          2007
                                                                         -------- --   -----------
                                                                         (Unaudited)     (Audited)
<S>                                                                      <C>           <C>
CURRENT ASSETS:
        Cash and cash equivalents                                        $14,441,073   $ 2,045,390
        Accounts receivable                                                  212,522       215,837
        Prepaid expenses and other current assets                          1,479,795     1,149,185
                                                                         -----------   -----------
              Total current assets                                        16,133,390     3,410,412
                                                                         -----------   -----------

PROPERTY AND EQUIPMENT, net of accumulated
        depreciation and amortization                                      5,787,783     5,454,026
                                                                         -----------   -----------

INTANGIBLE ASSETS - net of accumulated amortization                           40,919        42,809
                                                                         -----------   -----------

OTHER ASSETS:
        Accrued interest receivable                                              949           949
        Deposit on equipment                                                 120,925        32,880
        Security deposit                                                      13,488         6,980
        Restricted cash - debt service for EDA Bonds                         420,050       414,999
        EDA Bond offering costs, net of accumulated amortization
              of  $24,724 and $21,178, respectively                          329,728       333,274
                                                                         -----------   -----------
              Total other assets                                             885,140       789,082
                                                                         -----------   -----------
              Total assets                                               $22,847,232   $ 9,696,329
                                                                         ===========   ===========
</TABLE>


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


                                       2

<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS


                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                   June 30,         March 31,
                                                                                     2007             2007
                                                                                 ------------      ----------
                                                                                  (Unaudited)       (Audited)
<S>                                                                              <C>                  <C>
CURRENT LIABILITIES:
        Current portion of EDA Bonds                                             $    185,000         185,000
        Loan payable to bank                                                        3,000,000              --
        Accounts payable, accrued expenses and other current liabilities            1,729,159       2,205,781
                                                                                 ------------      ----------
              Total current liabilities                                             4,914,159       2,390,781
                                                                                 ------------      ----------

LONG TERM LIABILITIES:
        EDA bonds - net of current portion                                          3,795,000       3,795,000
                                                                                 ------------      ----------

              Total long-term liabilities                                           3,795,000       3,795,000
                                                                                 ------------      ----------

              Total liabilities                                                     8,709,159       6,185,781
                                                                                 ------------      ----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
        Preferred Stock -- $.01 par value;
             Authorized 4,483,442 shares (originally 5,000,000 shares of
             which 516,558 shares of Series A Convertible Preferred Stock were
             retired) and 0 shares outstanding as of June 30, 2007 and
             March 31, 2007
              Authorized 10,000 Series B Convertible Preferred Stock -
              issued and outstanding - 9,550 and 9,695 shares, respectively                95              97
              Authorized 20,000 Series C Convertible Preferred Stock
              issued and outstanding - 15,000 and 0 shares, respectively                  150              --
        Common Stock - $.01 par value;
              Authorized - 65,000,000 shares
              Issued and outstanding - 21,005,300 shares and 20,799,102
              shares respectively                                                     210,053         207,991
        Subscription receivable                                                       (75,000)        (75,000)
        Additional paid-in capital                                                 82,572,394      66,495,618
        Accumulated deficit                                                       (68,262,778)    (62,811,317)
                                                                                 ------------      ----------
                                                                                   14,444,914       3,817,389
        Treasury stock, at cost (100,000 shares)                                     (306,841)       (306,841)
                                                                                 ------------      ----------
              Total stockholders' equity                                           14,138,073       3,510,548
                                                                                 ------------      ----------

              Total liabilities and stockholders' equity                         $ 22,847,232      $9,696,329
                                                                                 ============      ==========
</TABLE>


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


                                       3
<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                                                     JUNE 30,
                                                                ------------------
                                                              2007             2006
                                                              ----             ----
                                                           (Unaudited)      (Unaudited)
<S>                                                      <C>              <C>
REVENUES
        Manufacturing Fees                               $    336,515     $    131,900
        Royalties                                              51,760           21,127
                                                         ------------     ------------

Total Revenues                                                388,275          153,027

Cost of Revenues                                              291,206               --
                                                         ------------     ------------
Gross Profit                                                   97,069          153,027
                                                         ------------     ------------

OPERATING EXPENSES:
        Research and development                            2,098,755        1,316,408
        General and administrative                            889,390          546,913
        Depreciation and amortization                         208,198          119,535
                                                         ------------     ------------
                                                            3,196,343        1,982,856
                                                         ------------     ------------

LOSS FROM OPERATIONS                                      (3,099,274)      (1,829,829)
                                                         ------------     ------------

OTHER INCOME (EXPENSES):
        Interest income                                       123,980          100,506
        Interest expense                                     (79,539)         (70,631)
        Non-cash compensation through issuance
              of stock options and warrants                 (924,263)        (300,000)
                                                         ------------     ------------
                                                            (879,822)        (270,125)
                                                         ------------     ------------

LOSS BEFORE PROVISION FOR INCOME TAXES                    (3,979,096)      (2,099,954)
                                                         ------------     ------------

Provision for Income Taxes                                      3,120            1,000
                                                         ------------     ------------

NET LOSS                                                  (3,982,216)      (2,100,954)
                                                         ===========      ============
Preferred Stock Dividends                                   (416,455)        (200,056)
                                                         ------------     ------------

NET LOSS ATTRIBUTABLE TO
        COMMON SHAREHOLDERS                               (4,398,671)      (2,301,010)
                                                         ===========      ============

BASIC AND DILUTED LOSS PER COMMON SHARE                  $     (.21)      $      (.12)
                                                         ===========      ============

WEIGHTED AVERAGE NUMBER OF
        COMMON SHARES OUTSTANDING                         20,908,289        19,239,331
                                                         ===========      ============
</TABLE>


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



                                       4


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                   Series B               Series C
                                                   --------               --------
                                                Preferred Stock        Preferred Stock           Common Stock       Subscription
                                                ---------------        ---------------           ------------       ------------
                                               Shares     Amount      Shares     Amount      Shares        Amount    Receivable
                                               ------     ------      ------     ------      ------        ------    ----------

<S>                                           <C>          <C>       <C>         <C>      <C>            <C>         <C>
BALANCE AT MARCH  31, 2007 (AUDITED)           9,695        97            --       --      20,799,102     207,991     (75,000)

Proceeds from Preferred Series C Offering        --         --        15,000      150              --          --          --

Conversion of Preferred to Common              (145)        (2)           --       --          64,490         645          --

Conversion of Warrants to Common                 --         --            --       --          15,456         154          --

Exercise of Stock Options                        --         --            --       --          41,000         410          --

Non-cash compensation through issuance
  of stock options and warrants                  --         --            --       --              --          --          --

Beneficial Conversion                            --         --            --       --              --          --          --

Costs associated with Raising Capital            --         --            --       --              --          --          --

Net loss for the three months ended
  June 30, 2007                                  --         --            --       --              --          --          --

Dividends
                                                 --         --            --       --          85,252         853          --
                                               -----        --        ------      ---      ----------     -------     -------

BALANCE AT JUNE 30, 2007                       9,550        95        15,000      150      21,005,300     210,053     (75,000)
                                               =====        ==        ======      ===      ==========     =======     =======


<CAPTION>
                                                Additional
                                                ----------
                                                 Paid-In          Treasury Stock         Accumulated      Stockholders'
                                                 -------          --------------         -----------      -------------
                                                 Capital       Shares        Amount        Deficit           Equity
                                                 -------       ------        ------        -------           ------

<S>                                           <C>            <C>          <C>           <C>                   <C>
BALANCE AT MARCH  31, 2007 (AUDITED)           66,495,618     (100,000)    (306,841)     (62,811,317)          3,510,548

Proceeds from Preferred Series C Offering      14,999,850           --           --               --          15,000,000

Conversion of Preferred to Common                    (643)          --           --               --                 --

Conversion of Warrants to Common                     (154)          --           --               --                 --

Exercise of Stock Options                          61,090           --           --               --              61,500

Non-cash compensation through issuance
  of stock options and warrants                   924,263           --           --               --             924,263

Beneficial Conversion                           1,052,790           --           --       (1,052,790)                 --

Costs associated with Raising Capital          (1,152,690)          --           --               --          (1,152,690)

Net loss for the three months ended
  June 30, 2007                                        --           --           --       (3,982,216)         (3,982,216)

Dividends                                         192,270           --           --         (416,455)           (223,332)
                                               ----------     --------     --------      -----------          ----------

BALANCE AT JUNE 30, 2007                       82,572,394     (100,000)    (306,841)     (68,262,778)         14,138,073
                                               ==========     ========     ========      ===========          ==========
</TABLE>


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



                                       5

<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                                       THREE MONTHS ENDED
                                                                                                            JUNE 30,
                                                                                                            --------
                                                                                                      2007            2006
                                                                                                      ----            ----
                                                                                                  (Unaudited)     (Unaudited)
<S>                                                                                              <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
       Net loss                                                                                  $ (3,982,216)   $ (2,100,954)
       Adjustments to reconcile net loss to cash used in operating activities:
           Depreciation and amortization                                                              208,198         122,535
           Non-cash compensation satisfied by issuance of common stock, options and warrants          924,263         300,000
           Changes in assets and liabilities:
                Accounts receivable                                                                     3,315              --
                Prepaid expenses and other current assets                                            (330,610)       (123,985)
                Security deposit                                                                       (6,508)           --
                Accounts payable, accrued expenses and other current liabilities                     (476,621)       (588,677)
                                                                                                 ------------    ------------
NET CASH USED IN OPERATING ACTIVITIES                                                              (3,660,179)     (2,391,081)
                                                                                                 ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
       Purchases of property and equipment                                                           (536,519)        (28,811)
       Payment of deposit for manufacturing equipment                                                 (88,045)             --
       Deposits to restricted cash                                                                     (5,051)             --
       Release of restricted cash                                                                          --          234,244
                                                                                                 ------------    ------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES                                                  (629,615)        205,433
                                                                                                 ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
       Dividends paid                                                                                (223,333)        (33,333)
       Proceeds - bank loans                                                                        3,000,000              --
       Proceeds from issuance of Series C 8% Convertible
           Stock and warrants                                                                      15,000,000              --
       Proceeds from exercise stock options                                                            61,500              --
       Costs associated with raising capital                                                       (1,152,690)             --
                                                                                                 ------------    ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                                16,685,477         (33,333)
                                                                                                 ------------    ------------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                                            12,395,683      (2,218,981)

CASH AND CASH EQUIVALENTS - beginning of period                                                     2,045,390       8,919,354
                                                                                                 ------------    ------------

CASH AND CASH EQUIVALENTS - end of period                                                        $ 14,441,073    $  6,700,373
                                                                                                 ============    ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
       Cash paid for interest                                                                    $         14    $         18
       Cash paid for income taxes                                                                       3,120           1,000

SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
       Preferred stock dividends of $193,122 and $200,056 paid by issuance of 85,252 and
           91,266 shares of common stock in 2007 and 2006, respectively.                         $         --    $         --
       Beneficial conversion Dividend                                                               1,052,790              --
       Conversion of 145 shares of Series B Preferred Stock into 64,490 shares of common stock             --              --
       Cashless Conversion of 39,630 warrants into 15,456 shares of common stock                           --              --
       Accrued Dividends                                                                              102,480              --
</TABLE>


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


                                       6

<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    THREE MONTHS ENDED JUNE 30, 2007 AND 2006
                                   (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

         The  information  in this Form 10-Q  Report  includes  the  results  of
         operations  of  Elite   Pharmaceuticals,   Inc.  and  its  consolidated
         subsidiaries  (collectively  the "Company")  including its wholly-owned
         subsidiaries,   Elite  Laboratories,  Inc.  ("Elite  Labs")  and  Elite
         Research,   Inc.  ("ERI")  and  its  variable  interest  entity,  Novel
         Laboratories Inc.  ("Novel"),  for the three months ended June 30, 2007
         and June 30, 2006 As of June 30, 2007, the financial  statements of all
         wholly-owned entities and its variable interest entity are consolidated
         and  all   significant   intercompany   accounts  are  eliminated  upon
         consolidation.   The  accompanying   unaudited  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 for complete financial statements.  In the
         opinion of management,  all adjustments (consisting of normal recurring
         accruals)   considered   necessary  for  a  fair  presentation  of  the
         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 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,  2007.  There  have  been no  changes  in  significant
         accounting policies since March 31, 2007.

         The Company does not anticipate  being profitable for fiscal year 2008;
         therefore a current  provision for income tax was not  established  for
         the three months ended June 30, 2007. Only the minimum  corporation tax
         liability required for state purposes is reflected.

NOTE 2 - NJEDA REFINANCING

         On August 31, 2005,  the Company  successfully  completed a refinancing
         through the issuance of the  tax-exempt  bonds (the "Bonds") by the New
         Jersey   Economic   Development   Authority  (the   "Authority").   The
         refinancing  involved the borrowing of  $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 or will be used (i) to redeem the outstanding
         tax-exempt  Bonds  originally  issued by the  Authority on September 2,
         1999, (ii) refinance other former 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 Bonds  proceeds and $49,500  from the Series B Note  proceeds.
         $1,274,311  of  the  proceeds  had  been   deposited  in  a  short-term
         restricted  cash account to fund the future  purchase of  manufacturing
         equipment and  development  of the Company's  facility.  As of June 30,
         2007, all of these funds have been expended to fund the above.


                                       7

<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STAT EMENTS
                    THREE MONTHS ENDED JUNE 30, 2007 AND 2006
                                   (UNAUDITED)

NOTE 3 - BANK LOAN PAYABLE

         On June 7, 2007, the Company  borrowed  $3,000,000 at prime minus 1/2%,
         from a commercial bank to be used for working  capital.  Collateral was
         an  assignment  of  a  cash  collateral   account,  in  the  amount  of
         $3,000,000. The loan was prepaid on July 24, 2007. Interest expense was
         $28,417.

NOTE 4 - STOCKHOLDERS' EQUITY

         SERIES B 8% CONVERTIBLE PREFERRED STOCK

         On March 15,  2006,  the  Company  sold in a private  placement  10,000
         shares  of  Series B 8%  Convertible  Preferred  Stock  (the  "Series B
         Preferred  Stock"),  for gross  proceeds of  $10,000,000.  The Series B
         Preferred  Stock is  convertible  at $2.25 per  share,  into  4,444,444
         shares of common stock,  par value $0.1 per share (the "Common Stock").
         In connection  with the issuance of the Series B Preferred  Stock,  the
         Company also issued two classes of warrants which are exercisable for a
         period of five years and  represent  the right to purchase an aggregate
         of 1,111,111  shares of Common Stock at an exercise  price of $2.75 per
         share and the second class of warrants are  exercisable for a period of
         five  years  and  represent  the  right to  purchase  an  aggregate  of
         1,111,111  shares of  Common  Stock at an  exercise  price of $3.25 per
         share.  Based on the relative fair values,  the Company has  attributed
         $2,033,029  of the total  proceeds to the warrants and has recorded the
         warrants as additional  paid-in capital.  The remaining  portion of the
         proceeds of $7,966,971 was used to determine the value of the 4,444,444
         shares of the Company  Common Stock  underlying  the Series B Preferred
         Stock, or $1.7925 per share. Since the value was $0.4774 lower than the
         fair market value of the Company's  Common Stock on March 15, 2006, the
         $2,121,917  intrinsic  value of the conversion  option  resulted in the
         recognition of a preferred stock dividend and an increase to additional
         paid-in capital.

         The Series B Preferred  Stock  accrues  dividends at the rate of 8% per
         annum on their  purchase  price of $1,000 per share  (increasing to 15%
         per annum after March 15, 2008)  payable  quarterly on January 1, April
         1, July 1 and  October  1,  payable  in cash or shares of Common  Stock
         (each valued at 95% of the average of the value weighted  average price
         (VWAP) as defined in the Certificate of  Designations,  Preferences and
         Rights  of the  Series B  Preferred  Stock  (the  "Series  B  Preferred
         Certificate").

         Each share of Series B  Preferred  Stock is  entitled  to a  preference
         equal to the per share  purchase  price ($1,000  subject to adjustment)
         plus any  accrued  but unpaid  dividends  thereon and any other fees or
         liquidated  damages owing thereon upon the liquidation,  dissolution or
         winding-up  of the  Company,  which  preference  is senior to any other
         capital stock ranked junior to the Series B Preferred Stock.

         The holders of Series B Preferred  Stock do not have any voting rights,
         except as specifically  provided in the Series B Preferred  Certificate
         or  as  required  by  law.  The  Company  may  not  without  the  prior
         affirmative  vote of  holders  of at least 70% of the then  outstanding
         shares of Series B Preferred  Stock:  (i) alter or change adversely the
         powers,  preferences or rights given to the Series B Preferred Stock or
         alter or amend the Series B Preferred  Certificate,  (ii)  authorize or
         create  any  class of stock  ranking  as to  dividends,  redemption  or
         distribution  of assets upon a Liquidation  senior to or otherwise pari
         passu with the Series B Preferred Stock, (iii) amend its certificate of
         incorporation,  bylaws or other  charter  documents  in any manner that
         adversely  affects  any rights of the holders of the Series B Preferred
         Stock,  (iv)  increase  the  authorized  number  of  shares of Series B
         Preferred  Stock,  (v) enter into any agreement  with respect to any of
         the foregoing,  (vi) other than Permitted  Indebtedness  (as defined in
         the Series B Preferred  Certificate)  until March 15,  2009,  incur any
         indebtedness for borrowed money of any kind, (vii) other than Permitted
         Liens (as  defined in the Series B Preferred  Certificate)  until March
         15, 2009, incur any liens of any kind, (viii) repay or repurchase other
         than more  than a de  minimis  number  of  shares  of  Common  Stock or
         securities convertible or exchangeable into Common Stock, other than as
         permitted  by  the  Series  B  Preferred  Certificate,  (ix)  pay  cash
         dividends or  distributions  on any securities of the Company junior to
         the  Series B  Preferred  Stock or (x)  enter  into  any  agreement  or
         understanding  to effect the clauses  (iii),  (vi),  (vii),  or (viii).
         Actions notwithstanding the above, the Company may issue


                                       8


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STAT EMENTS
                    THREE MONTHS ENDED JUNE 30, 2007 AND 2006
                                   (UNAUDITED)

NOTE 4 - STOCKHOLDERS' EQUITY

         SERIES B 8% CONVERTIBLE PREFERRED STOCK (Continued)

         any security  issued in  connection  with a Strategic  Transaction  (as
         defined  in the  Series  B  Preferred  Certificate)  that  ranks  as to
         dividends, redemption or distribution of assets upon a Liquidation pari
         passu with or junior to the Series B Preferred  Stock without the prior
         affirmative  vote of  holders  of at least 70% of the then  outstanding
         shares of Series B Preferred Stock.

         If the  Company  does not meet its  share  delivery  requirements  with
         respect to conversion set forth in the Series B Preferred  Certificate,
         the holders of Preferred Stock are entitled to (i) liquidated  damages,
         payable  in cash,  and (ii)  cash  equal to the  amount  by which  such
         holder's  total  purchase  price for the shares of Common Stock exceeds
         the product of (1) the aggregate  number of shares of Common Stock that
         such  holder was  entitled  to  receive  from the  conversion  at issue
         multiplied  by (2) the actual sale price at which the sell order giving
         rise to such purchase obligation was executed.

         The Company may force conversion of the Series B Preferred Stock in the
         event  it  provides  written  notice  to the  holders  of the  Series B
         Preferred  Stock  that the VWAP for  each 20  consecutive  trading  day
         period during a Threshold  Period (as defined in the Series B Preferred
         Certificate) of Common Stock exceeded $5.38 (subject to adjustment) and
         the volume for each trading day during such Threshold  Period  exceeded
         50,000  shares  (subject to  adjustment  for forward and reverse  stock
         splits, recapitalizations, stock dividends and the like).

         Upon the  occurrence  of certain  Triggering  Events (as defined in the
         Series B Preferred Certificate), the Company is required to redeem each
         share of Series B Preferred  Stock for cash in an amount  equal to 130%
         of the stated value, all accrued but unpaid  dividends  thereon and all
         liquidated damages and other costs,  expenses or amounts due in respect
         of the Series B Preferred Stock (the "Triggering  Redemption  Amount").
         Upon certain  Triggering Events, the Company is required to redeem each
         share of Series B Preferred  Stock for shares of Common  Stock equal to
         the number of shares of Common Stock equal to the Triggering Redemption
         Amount divided by 85% of the average of the VWAP for the 10 consecutive
         trading days immediately prior to the date of the redemption.

         The Company may redeem all of the Series B Preferred Stock outstanding,
         at any time after March 15,  2008 for a  redemption  price,  payable in
         cash,  for each share of Series B Preferred  Stock equal to (i) 150% of
         the stated value,  (ii) accrued but unpaid dividends  thereon and (iii)
         all liquidated damages and other amounts due in respect of the Series B
         Preferred Stock.

         SERIES C 8% CONVERTIBLE PREFERRED STOCK

         On April 24, 2007,  the Company  sold 15,000  shares of its Series C 8%
         Convertible  Preferred  Stock, par value $0.01 (the "Series C Preferred
         Stock"), and 1,939,655 warrants for gross proceeds of $15,000,000.  The
         15,000  shares  of  Series  C  Preferred  Stock  are  convertible  into
         6,465,517 shares of Common Stock. The warrants are exercisable at $3.00
         per share and are exercisable  through April 27, 2012. The Company paid
         $1,050,000  in  commissions  to  the  placement  agent  and  others  in
         connection with the sale of the Series C Preferred  Stock. In addition,
         the Company granted the placement agent 193,965 warrants exercisable at
         $3.00 per share which were valued at  $129,627.  The gross  proceeds of
         the private placement were $15,000,000  before payment of $1,050,000 in
         commissions to the placement agent and selected  dealers.  In addition,
         the Company agreed to reimburse the placement  agent for all documented
         out-of-pocket  expenses  incurred by the placement  agent in connection
         with the private placement,  including  reasonable fees and expenses of
         its counsel, which the Company and placement agent agreed to be limited
         to  $25,000.  Based  on the  relative  fair  values,  the  Company  has
         attributed $1,182,101 of the total proceeds to the warrants and has


                                       9

<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STAT EMENTS
                    THREE MONTHS ENDED JUNE 30, 2007 AND 2006
                                   (UNAUDITED)

NOTE 4 - STOCKHOLDERS' EQUITY

         SERIES C 8% CONVERTIBLE PREFERRED STOCK (Continued)


         recorded the warrants as  additional  paid-in  capital.  The  remaining
         portion of the proceeds of $13,817,899  was used to determine the value
         of the  6,465,517  shares of the Company  Common Stock  underlying  the
         Series C Preferred  Stock,  or $2.1372  per share.  Since the value was
         $0.1628 lower than the fair market value of the Company's  Common Stock
         on April 24, 2007,  the  $1,052,790  intrinsic  value of the conversion
         option resulted in the recognition of a preferred stock dividend and an
         increase to additional paid-in capital.

         On April 24, 2007, pursuant to the authority of its Board of Directors,
         Company filed with the  Secretary of State of Delaware the  Certificate
         of  Designations,  Preferences and Rights of Series C Preferred  Stock.
         The Series C Preferred  Stock  accrues  dividends at the rate of 8% per
         annum on their  purchase  price of $1,000 per share  (increasing to 15%
         per annum after April 24, 2009)  payable  quarterly on January 1, April
         1, July 1 and  October  1,  payable  in cash or shares of Common  Stock
         (each valued at 95% of the average of the value weighted  average price
         (VWAP) as defined in the Certificate of  Designations,  Preferences and
         Rights  of the  Series C  Preferred  Stock  (the  "Series  C  Preferred
         Certificate").

         Each share of Series C  Preferred  Stock is  entitled  to a  preference
         equal to the per share  purchase  price ($1,000  subject to adjustment)
         plus any  accrued  but unpaid  dividends  thereon and any other fees or
         liquidated  damages owing thereon upon the liquidation,  dissolution or
         winding-up  of the  Company,  which  preference  is senior to any other
         capital stock ranked junior to the Series C Preferred Stock.

         The holders of Series C Preferred Stock will not have any voting rights
         except as specifically  provided in the Series C Preferred  Certificate
         or as  required  by law.  However,  as long as any  shares  of Series C
         Preferred Stock are outstanding, the Company will not without the prior
         affirmative  vote of  holders  of at least 70% of the then  outstanding
         shares  of the  Series C  Preferred  Stock and the  Company's  Series B
         Preferred  Stock (the Series B Preferred  Stock and  together  with the
         Series C Preferred  Stock,  the "Preferred  Stock")  collectively,  (i)
         alter or change  adversely the powers,  preferences  or rights given to
         the  Preferred   Stock  or  alter  or  amend  the  Series  C  Preferred
         Certificate;  (ii) authorize or create any class of stock ranking as to
         dividends,  redemption  or  distribution  of assets upon a  Liquidation
         senior to or otherwise pari passu with the Preferred Stock; (iii) amend
         its certificate of incorporation,  bylaws or other charter documents in
         any manner  that  adversely  affects  any rights of the  holders of the
         Preferred  Stock;  (iv)  increase  the  authorized  number of shares of
         Preferred Stock;  (v) other than Permitted  Indebtedness (as defined in
         the Series C  Preferred  Certificate)  until  April 24,  2010 incur any
         indebtedness  for borrowed money of any kind; (vi) other than Permitted
         Liens (as defined in the Preferred  Certificate)  until April 24, 2010,
         incur any liens of any kind;  (vii) repay or repurchase other than more
         than a de  minimis  number  of shares  of  Common  Stock or  securities
         convertible or exchangeable into Common Stock,  other than as permitted
         by  the   Preferred   Certificate;   (viii)  pay  cash   dividends   or
         distributions  on any securities of the Company junior to the Preferred
         Stock; or (ix) enter into any agreement or  understanding  with respect
         to the foregoing.  Notwithstanding the above, the Company may issue any
         security issued in connection with a Strategic  Transaction (as defined
         in the Series C  Preferred  Certificate)  that  ranks as to  dividends,
         redemption or distribution of assets upon a Liquidation pari passu with
         or junior to the Preferred Stock without the prior  affirmative vote of
         holders  of at least 70% of the then  outstanding  shares of  Preferred
         Stock.

         If the  Company  does not meet its  share  delivery  requirements  with
         respect to conversion set forth in the Series C Preferred  Certificate,
         the holders of Preferred Stock are entitled to (i) liquidated  damages,
         payable  in cash,  and (ii)  cash  equal to the  amount  by which  such
         holder's  total  purchase  price for the shares of Common Stock exceeds
         the product of (1) the aggregate  number of shares of Common Stock that
         such  holder was  entitled  to  receive  from the  conversion  at issue
         multiplied  by (2) the actual sale price at which the sell order giving
         rise to such purchase obligation was executed.



                                       10

<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STAT EMENTS
                    THREE MONTHS ENDED JUNE 30, 2007 AND 2006
                                   (UNAUDITED)

NOTE 4 - STOCKHOLDERS' EQUITY

         SERIES C 8% CONVERTIBLE PREFERRED STOCK (Continued)

         The Company may force conversion of the Series C Preferred Stock in the
         event  it  provides  written  notice  to the  holders  of the  Series C
         Preferred  Stock  that the VWAP for  each 20  consecutive  trading  day
         period during a Threshold  Period (as defined in the Series C Preferred
         Certificate) of Common Stock exceeded $5.38 (subject to adjustment) and
         the volume for each trading day during such Threshold  Period  exceeded
         50,000  shares  (subject to  adjustment  for forward and reverse  stock
         splits, recapitalizations, stock dividends and the like).

         Upon the  occurrence  of certain  Triggering  Events (as defined in the
         Series C Preferred Certificate), the Company is required to redeem each
         share of Series C Preferred  Stock for cash in an amount  equal to 130%
         of the stated value, all accrued but unpaid  dividends  thereon and all
         liquidated damages and other costs,  expenses or amounts due in respect
         of the Series C Preferred Stock (the "Triggering  Redemption  Amount").
         Upon certain  Triggering Events, the Company is required to redeem each
         share of Series C Preferred  Stock for shares of Common  Stock equal to
         the number of shares of Common Stock equal to the Triggering Redemption
         Amount divided by 85% of the average of the VWAP for the 10 consecutive
         trading days immediately prior to the date of the redemption.

         The Company may redeem all of the Series C Preferred Stock outstanding,
         at any time after April 24,  2009 for a  redemption  price,  payable in
         cash,  for each share of Series C Preferred  Stock equal to (i) 150% of
         the stated value,  (ii) accrued but unpaid dividends  thereon and (iii)
         all liquidated damages and other amounts due in respect of the Series C
         Preferred Stock.

         Pursuant to the Series B Certificate, filed with the Secretary of State
         of the State of  Delaware on March 15,  2006,  so long as shares of the
         Series B Preferred Stock are outstanding, the Company will not, without
         the  affirmative  vote  of the  holders  of at  least  70% of the  then
         outstanding Series B Preferred Stock, (i) authorize or create any class
         of stock ranking as to dividends,  redemption or distribution of assets
         upon a liquidation pari passu with the Series B Preferred  Stock;  (ii)
         alter or change  adversely the powers,  preferences  or rights given to
         the  Series  B  Preferred  Stock or to  alter  or  amend  the  Series B
         Certificate;  (iii) alter the Company's certificate of incorporation or
         other charter documents in any manner that adversely affects the rights
         of the holders of the Series B Preferred  Stock; or (iv) enter into any
         agreement or understanding  with respect to the foregoing.  The Company
         sought and  obtained  the consent of 70% of the holders of its Series B
         Preferred Stock (the "Series B Consent"), as a condition to the sale of
         the Series C Preferred Stock, to modify to the Series B Certificate and
         to the creation of the Series C Preferred Stock.

         The holders of the Series B Preferred Stock consented to (i) the filing
         of the Amended  Certificate of Designations of Preferences,  Rights and
         Limitations  of the Series B  Preferred  Stock (the  "Amended  Series B
         Preferred  Certificate")  with the  Secretary  of State of the State of
         Delaware, which, inter alia, (a) provides for group voting by and among
         the  holders of the  Series B  Preferred  Stock and the  holders of the
         Series C  Preferred  Stock,  and (b)  extends  the  date on  which  the
         cumulative  dividend rate  increases from 8% to 15% from March 16, 2008
         to April 24, 2009; and (ii) the authorization,  creation,  offering and
         issuance of the Series C Preferred  Stock. On April 24, 2007,  pursuant
         to the  authority  of its Board of  Directors,  Company  filed with the
         Secretary  of  State  of  Delaware  the  Amended   Series  B  Preferred
         Certificate.

         In  consideration  for the Series B Consent,  (i) the Company agreed to
         extend the expiration date of certain warrants issued to each holder of
         Series B Preferred  Stock at the time of the  original  issuance of the
         Series B  Preferred  Stock from March 16, 2011 to March 16,  2012;  and
         (ii) each of  Midsummer  Investment,  Ltd. and Bushido  Capital  Master
         Fund, LP (each,  a "Principal  Holder"),  as the holders of the largest
         number of the currently outstanding shares of Series B Preferred Stock,
         were  granted a covenant by the Company  pursuant to which,  so long as
         each  Principal  Holder  continues  to hold at  least  20% of the  then
         outstanding  Series B Preferred  Stock,  the Company  will not take any
         action which requires the consent of at least 70% of the holders of the
         Preferred Stock, unless each Principal Holder consents to such action.


                                       11

<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STAT EMENTS
                    THREE MONTHS ENDED JUNE 30, 2007 AND 2006
                                   (UNAUDITED)

NOTE 4 - STOCKHOLDERS' EQUITY (Continued)

         COMMON STOCK

         On April 3, 2007, a holder of 145 shares of Series B 8% Preferred Stock
         converted  his  shares  and  accrued  dividends  through  the  date  of
         conversion into 64,490 shares of Common Stock.

         On April 17, there was a cashless exercise of 39,630 warrants issued in
         our October, 2004 Private Placement,  which resulted in the issuance of
         15,456 shares of Common Stock.

         On April 20,  $61,500 was received  from the exercise of stock  options
         previously  granted to purchase  41,000 shares of Common Stock at $1.50
         per share.

         Dividends  accrued on Series B Preferred  Stock  through  June 30, 2007
         were satisfied by the issuance of 85,252 shares of Common Stock.

         Dividends  accrued on Series C Preferred  Stock  through June 30, 2007,
         amounting to $223,333, were paid in cash.

         OPTIONS AND WARRANTS

         At June 30, 2007, the Company had  outstanding  6,581,500  options with
         exercise  prices  ranging  from $1.50 to $3.00 per share and  8,734,435
         warrants  with exercise  prices  ranging from $1.23 to $4.20 per share;
         each option and warrant representing the right to purchase one share of
         Common Stock.

NOTE 5 - COMMITMENTS AND CONTINGENCIES

         COLLABORATIVE AGREEMENTS

         On March 30, 2005,  the Company  entered  into a three party  agreement
         with  Tish  Technologies,   Inc.  and  Harris   Pharmaceuticals,   Inc.
         ("Harris") for the  co-development  and license of a controlled release
         generic product.  Upon its development and the securing of the required
         FDA approval by the formulation  development company, the Company is to
         manufacture  the  product  and  Harris  is to sell and  distribute  the
         product.  In  addition  to the  transfer  price for  manufacturing  the
         product,  the Company is to share the profits,  if any,  realized  upon
         sales.  The  innovator's   reference   product  for  this  generic  was
         originally a capsule.  The innovator  has now received  approval for an
         alternative   dose  form  (a  tablet   rather  than  capsule)  and  has
         discontinued the original dose form. While a reference  product remains
         for the capsule,  the market  opportunity  has changes and this affects
         how we might  commercialize  the capsule dosage form. On June 19, 2006,
         the Company  received  written  notice from Harris of Harris' intent to
         terminate  the  agreement  in  accordance   with  Section  9.3  of  the
         agreement.  As the date hereof,  the Company has  received  $29,700 for
         this development work.


                                       12


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    THREE MONTHS ENDED JUNE 30, 2007 AND 2006
                                   (UNAUDITED)

NOTE 5 - COMMITMENTS AND CONTINGENCIES

         COLLABORATIVE AGREEMENTS (Continued)

         On June 21, 2005, Elite and IntelliPharmaCeutics Corp. ("IPC"), entered
         into  an  agreement  for the  development  and  commercialization  of a
         controlled release generic drug for certain anti-infective  diseases by
         the parties.  We estimate that the product had an addressable market in
         the U.S. of  approximately  $4 billion in 2004.  We are to share in the
         profits,  if any, from the sales of the drug. On December 12, 2005, the
         agreement   was   amended   with   respect  to  the   development   and
         commercialization  of the  controlled  release  drug product in Canada.
         Since IPC intended to enter into an agreement  with a Canadian  company
         with  respect  to the  development,  distribution  and sale of the drug
         product in Canada,  the  parties  agreed to suspend  their  obligations
         under   the   agreement   with   respect   to   the   development   and
         commercialization of the controlled release drug product in Canada. IPC
         agreed to pay us a certain  percentage of any payments  received by IPC
         with respect to the  commercialization  of the controlled  release drug
         product by such Canadian company.

         On June 22,  2005,  Elite and  PLIVA,  Inc.  ("PLIVA")  entered  into a
         Product Development and License Agreement providing for the development
         and  license  of a  controlled  released  generic  anti-infective  drug
         formulated by us. We are to manufacture  and PLIVA will market and sell
         the  product.  Under the  agreement,  the partner is to make  milestone
         payments to us and the  development  costs are to be paid both by PLIVA
         and us, and the profits  are to be shared  equally.  On June 28,  2007,
         Elite  and  PLIVA  terminated  the  Product   Development  and  License
         Agreement,  effective  January 31, 2007, and entered into a termination
         agreement  according  to  which  it was  agreed  that  Elite  owns  all
         intellectual  property  rights  relating  to  the  controlled  released
         generic  product  under  development  and  PLIVA  agreed  to pay  Elite
         $100,000  in  discharge  of  outstanding  payments  under  the  Product
         Development and License Agreement.

         On January 10,  2006,  Elite  entered  into a Product  Development  and
         Commercialization   Agreement  with  Orit   Laboratories  LLC  ("ORIT")
         providing  that  we and  Orit  will  co-develop  and  commercialize  an
         extended  release  drug  product for  treatment  of  anxiety,  and upon
         completion of  development,  the possible  licensing of the product for
         manufacture  and sale. The parties intend to develop all dose strengths
         of the product.  We are to share in the profits,  if any from the sales
         of the  drug.  The term of the  agreement  is for the  longer of (i) 15
         years from the date the product is first  commercially  sold to a third
         party,  or (ii)  the  life of the  applicable  patent(s),  if any.  The
         agreement  is   automatically   renewable  for  3-year  periods  unless
         terminated  by either  party by  providing  the other party with twelve
         (12) months written notice prior to any renewal period.

         On November 10, 2006, the Company entered into a product  collaboration
         agreement  with  The  PharmaNetwork,  LLC  for the  development  of the
         generic equivalent of a synthetic narcotic analgesic drug product.  TPN
         is to perform development  services and prepare and file an ANDA in the
         name of TPN with the FDA. The Company is to provide development support
         including  the  purchase  of  active  pharmaceutical   ingredients  and
         materials  and  supplies to  manufacture  the batch,  provide  adequate
         facilities to TPN for use in its  development  work and following  ANDA
         approval, The Company will manufacture the drug product developed.  The
         Company is to pay TPN for the  development  services  rendered upon the
         attainment of certain  milestones.  The  out-of-pocket  costs are to be
         shared by TPN and the Company, with TPN's obligation to be payable from
         its royalty  compensation.  Formulation  development  work is currently
         underway.

         In January 2006,  the FDA accepted our IND for ELI-154,  its once-a-day
         oxycodone painkiller. Under the new drug application, we will begin our
         development  program  with an early stage  study to evaluate  ELI-154's
         sustained release formation. Currently there is no once-daily oxycodone
         available;


                                       13

<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    THREE MONTHS ENDED JUNE 30, 2007 AND 2006
                                   (UNAUDITED)

NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)

         COLLABORATIVE AGREEMENTS (Continued)

         The aforementioned agreements are in their infancy stages.

         The Company is a party to two  separate and  distinct  development  and
         license agreements with ECR  Pharmaceuticals  ("ECR").  Pursuant to the
         agreements,  the Company agreed to  commercially  develop two products,
         Lodrane  24(R) and Lodrane  24D(R) in exchange  for  development  fees,
         certain payments,  royalties and manufacturing rights. The products are
         currently being marketed by ECR which also has the  responsibility  for
         regulatory  matters.  In addition to receiving revenues for manufacture
         of these  products,  the Company  also  receives a royalty on in-market
         sales.

         CONSULTING AGREEMENTS

         On June 1, 2006,  the Company  entered into a one year  agreement  with
         David  Filer,  for him to provide  financial  advisory  services to the
         Company.  In  consideration,  Dr. Filer  received three year options to
         purchase 10,000 shares of Common Stock, at a price of $3.00 per share.

         ALLIANCE AGREEMENT

         On December  6, 2006,  the Company  entered  into a Strategic  Alliance
         Agreement (the "Alliance  Agreement") with Dr. Veerappan S. Subramanian
         ("VS")  and VGS  Pharma,  LLC,  a Delaware  limited  liability  company
         ("VGS"),  under which (i) VS was  appointed to the  Company's  Board of
         Directors, (ii) VGS made a $2,000,000 equity investment in the Company,
         (iii) VS was  engaged to serve as  strategic  advisor on the  research,
         development and  commercialization  of the Company's existing pipeline,
         (iv) the Company and VGS formed  Novel  Laboratories  Inc.,  a Delaware
         corporation ("Novel"),  as a separate specialty  pharmaceutical company
         for the research, development, manufacturing, licensing and acquisition
         of specialty generic  pharmaceuticals,  and (v) the Company contributed
         $2,000,000 to Novel and agreed to make additional contributions.

         Pursuant to the Alliance  Agreement,  Novel  entered into an employment
         agreement  with  VS and  the  Company  entered  into  (i)  an  Advisory
         Agreement  with VS, (ii) a Registration  Rights  Agreement with VGS and
         VS, and (iii) a Stockholders Agreement with VS, VGS and Novel.


                                       14

<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    THREE MONTHS ENDED JUNE 30, 2007 AND 2006
                                   (UNAUDITED)

NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)

         ALLIANCE AGREEMENT (Continued)

         The  specialty  pharmaceutical  product  initiative  of  the  strategic
         alliance  between  the Company  and VS is to be  conducted  by Novel of
         which the  Company  acquired  49% and VGS  acquired  51% of its Class A
         Voting  Common Stock for $9,800 and $10,200  respectively.  Pursuant to
         the Alliance Agreement, VGS acquired for $2,000,000: (i) 957,396 shares
         of Company's  Common Stock (the "Acquired  Company  Shares")  valued at
         approximately $2.089 per share (the average closing price of the Common
         Stock  during  the ten  trading  days on the  American  Stock  Exchange
         immediately preceding December 6, 2006) and (ii) a five year Warrant to
         purchase 478,698 additional shares (the "Warrant Shares"), for cash, at
         a price of $3.00 per share.

         The  Company  initially  contributed   $2,000,000  to  Novel  and  made
         additional  contributions  of  $5,000,000  through June 15,  2007.  The
         remaining  contributions  to be made by the Company  shall be funded in
         the amounts and upon the  occurrence  of the following  milestones  (i)
         $10,000,000  upon the  submission  to the FDA of three ANDAs related to
         three  different  prospective  products  developed  by  Novel  and (ii)
         $10,000,000 upon the submission to the FDA of three ANDAs related to at
         least three  additional  different  prospective  products  developed by
         Novel;  provided  that the  aggregate  contributions  to be made by the
         Company shall not exceed (i)  $15,000,000  prior to November 1, 2007 or
         (ii) $25,000,000  prior to May 1, 2008. The remaining  contributions of
         the Company are not monetary  obligations  but rather  conditions  that
         must be met in order for the Company to maintain its equity interest in
         Novel.

         In the  event  that (i) the  Company  defers  for more than 90 days the
         payment of a contribution installment due to Novel's failure to achieve
         a  Performance  Milestone,  (ii) the Company  fails to make a requisite
         contribution  following  Novel's  achieving a Performance  Milestone or
         (iii) Novel requires  additional  financing  beyond amounts provided in
         the  Business  Plan or the  additional  contributions  the  Company has
         agreed to provide, Novel may seek such financing through a subscription
         offering  to its Class A  Stockholders  and,  to the  extent  not fully
         subscribed, from third parties.

         The Company  agreed to use its best efforts to elect VS a member of its
         Board  of  Directors  as  long  as  the  Company  and  its   "permitted
         transferees" own at least 40% of Novel's  outstanding capital stock and
         VS is Chairman of the Board and Chief Executive Officer of Novel.

         Pursuant to an employment  agreement,  Novel has agreed to employ VS to
         perform  his  duties  three  full  business  days a week  as its  Chief
         Executive  Officer at a salary of $220,000 per annum,  with bonuses and
         options  to  purchase  Novel's  Common  Stock  to  be  granted  at  the
         discretion of Novel's Board of Directors.

         VS's  employment  may be  terminated  for  "Cause"  or by VS for  "Good
         Reason",  with both such terms defined in the VS employment  agreement.
         Either party may terminate the employment upon  30-business  days prior
         written notice to the other.


                                       15

<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    THREE MONTHS ENDED JUNE 30, 2007 AND 2006
                                   (UNAUDITED)

NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)

         ALLIANCE AGREEMENT (Continued)

         The stockholders  agreement provides that as long as each owns at least
         10% of the shares of Class A Voting  Common Stock of Novel,  each shall
         designate  one of the two  Directors to  constitute  the Novel Board of
         Directors, with the VGS designee to be VS, unless otherwise approved by
         the  Company.  It  prohibits  the  taking of  certain  actions  without
         approval  of  the  two  designees,   including,  but  not  limited  to,
         amendments  of  charter,   by-laws  and  other  governance  agreements,
         spin-offs or public  offerings of equity  securities,  a liquidation or
         dissolution,   dividends,   authorization  or  issuance  of  additional
         securities or options, bankruptcy, a material change of the business or
         a Business Plan,  approval of a Business Plan and the yearly  operating
         budget, creation of a security interest, capital expenditures in excess
         of 110% of the amount  provided in the Business  Plan,  investments  in
         excess of the amounts  approved in the  Business  Plan,  an increase or
         decrease of the Board;  and any  investments by VS in any  "Competitive
         Company" or its affiliate.

         It further  provides that  determination of "Cause" or the "Disability"
         of VS  under  his  employment  agreement  shall be made  solely  in the
         reasonable discretion of the Company designee.

         Except for certain  enumerated  permitted  transfers,  the stockholders
         agreement  provides that no transfer of Novel stock may be made without
         the consent of the other stockholders.

         In  the  event  the   Company   fails  to  make   required   additional
         contributions,  VGS has the right to  purchase  from the Company at its
         original  purchase price that proportion of the shares of Novel Class A
         Common Stock  originally  acquired by it equal to the proportion of the
         required additional contributions not made by the Company.

         In the event of VS's resignation from Novel for other than Good Reason,
         his  termination  by Novel for  Cause,  or his death or  disability  as
         defined  in the  Employment  Agreement,  the  Company  has the right to
         acquire  from VGS up to 75% of the  shares  of Class A Common  Stock of
         Novel originally  acquired by it at the original  purchase price;  such
         percentage  to be  reduced  to 50% and 25% upon the  first  and  second
         anniversary of the agreement and no reduction on the third anniversary,
         with a pro rata portion of such reduction to be effected upon the death
         or disability of VS during the applicable  period.  Each of the Company
         and VGS has a right to acquire  from the other at the then fair  value,
         its shares of Novel upon the bankruptcy,  dissolution or liquidation, a
         change of control of the other or, if as a result of such  purchases at
         the original  purchase  price,  the  percentage  of Novel owned by such
         party is less than 10%.

         The   agreement   subjects  VS  to  a   confidentiality   covenant,   a
         non-competition  covenant terminating one year following the end of the
         term and a  non-solicitation  covenant  terminating two years following
         the end of the term,  provided his termination by Novel was not without
         "Cause" or by VS was with "Good Reason".

         ADVISORY AGREEMENT - VS

         The Advisory Agreement obligates VS to provide advisory services to the
         Company,  including but not limited, to assist in the implementation of
         current and new drug  product  development  projects of the Company and
         assisting in the Company's recruitment of additional R&D staff members.
         As an inducement to enter into the agreement,  the Company granted VS a
         non-qualified stock option to purchase up to 1,750,000 shares of Common
         Stock (the "Option  Shares") at a price of $2.13 per share.  The option
         vests in 250,000 share installments,  the first immediately, the second
         on May 6, 2007,  the third on  December  6, 2007,  the fourth  upon the
         Company's  acceptance of the Initial  Business  Plan of Novel,  and the
         other installments  vesting on the accomplishment of certain milestones
         with respect to the


                                       16

<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    THREE MONTHS ENDED JUNE 30, 2007 AND 2006
                                   (UNAUDITED)

NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)

         ADVISORY AGREEMENT (Continued)

         first or second drug product  developed by the Company  (excluding drug
         products  of Novel) on or after  February 4, 2007,  under the  advisory
         services provided to the Company.  The option terminates on December 6,
         2016, or 90 days  following a termination  of his advisory  services to
         the Company or his employment by Novel other than a termination without
         Cause or by VS for Good Reason or 48 months  after the  termination  of
         his advisory  services  under the Advisory  Agreement or his employment
         under the employment agreement as a result of: (i) a termination by the
         Company  of the  Advisory  Agreement  or by  Novel  of  the  employment
         agreement  without  Cause  or by VS  without  Good  Reason  or (ii) the
         post-December  6,  2007,  termination  of  the  term  of  the  Advisory
         Agreement or of the Novel employment agreement.

         All unvested  options  terminate  upon the  termination of the Advisory
         Agreement  (other than a termination by the Company without Cause or by
         VS for Good  Reason) or at such time as the Company  and its  permitted
         transferees  own in the  aggregate  less  than  20% of the  outstanding
         capital  stock of Novel,  except to the extent the  Company at its sole
         discretion has determined that VS has provided substantial contribution
         to the  development of any drug product which would  otherwise  trigger
         the  vesting  of options  notwithstanding  the  failure to satisfy  the
         foregoing 20% threshold.

         The Company has granted  certain  rights to have the  Acquired  Company
         Shares,  the Option Shares and Warrant Shares registered for reoffering
         under the Securities Act of 1933, as amended (the "Act"), including the
         provision of one  Registration  Statement upon the demand of holders of
         75% of the Acquired  Company  Shares,  Warrant Shares and Option Shares
         and the rights to have  registered as part of a registration  statement
         related to an offering of Common Stock by the Company or other security
         holders.  The  Company is to bear all  reasonable  expenses  other than
         underwriting   discounts  and   commissions  in  connection   with  the
         registration and qualification under applicable state securities law.

         AMENDMENT OF FINANCIAL ADVISORY AGREEMENT - INDIGO VENTURES, LLC

         On February 13, 2007, the Financial  Advisory  Agreement (the "Advisory
         Agreement") between the Company and Indigo Ventures,  LLC, of which one
         of the  Company's  non-employee  Directors is an officer,  was amended.
         Under the Advisory Agreement, the Company paid Indigo $45,000 initially
         and  $15,000  per  month  during  the  term  through  the  date  of the
         amendment.  Additionally,  Indigo  acquired a warrant to purchase up to
         600,000  shares of Common  Stock of the Company at $3.00 per share,  of
         which the warrant had previously  vested as to 100,000 shares of Common
         Stock.  Indigo  purchased  the warrant  from the Company for  $150,000,
         payment  of which  was made by a  promissory  note.  As a result of the
         amendment  of the  Advisory  Agreement,  the warrant  was reduced  from
         600,000 to 300,000 shares,  the warrant  remains  exercisable as to the
         remaining  300,000  shares of Common  Stock  (200,000  of which  remain
         subject to vesting), the monthly cash fees payable to Indigo terminated
         as of February 13, 2007 and the  outstanding  amount of the  promissory
         note was reduced to $75,000.

         CHIEF SCIENTIFIC OFFICER

         On February 9, 2007, VS, a recently  appointed director of the Company,
         agreed to become the acting  Chief  Scientific  Officer of the  Company
         and, as such, will oversee all scientific activities and employees.  On
         the same date,  the Company and Dr. Charan Behl entered into an Amended
         and Restated  Employment  Agreement under which Dr. Behl's position was
         changed from Chief Scientific  Officer to Head of Technical Affairs and
         Dr. Behl reports to the Chief Executive  Officer,  the Chief Scientific
         Officer and any additional  executive officer  designated by the Board.
         In addition,  the  definition  of "cause" has been amended to include a
         determination by the Board, in its sole discretion, that the employment
         of Dr. Behl should  terminate,  provided that such  termination will be
         effective on the 30th day after the written  notice to Dr. Behl of such
         determination.


                                       17

<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    THREE MONTHS ENDED JUNE 30, 2007 AND 2006
                                   (UNAUDITED)

NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)

         EMPLOYMENT AGREEMENTS

         On September 2, 2005, the Company  entered into an amended and restated
         employment  agreement  with Bernard J. Berk,  providing for Mr. Berk to
         continue to serve as the  Company's  Chief  Executive  Officer  through
         August 31, 2009. The  Employment  Agreement also provides for an annual
         bonus as  determined  by the  Compensation  Committee of the  Company's
         Board of Directors. Pursuant to the agreement:

         -    Mr. Berk waived his rights to 75,000 of 300,000  options  granted
              to  him on  July  23,  2003.  The  Company  determined  that  the
              remaining 225,000 options are fully vested.

         -    Mr.  Berk's  salary was  increased to $330,140,  effective May 1,
              2005.

         -    Mr. Berk was granted under the Company's  2004 Stock Option Plan,
              ten-year  options to purchase  600,000  shares of Common Stock at
              $2.69,  the fair market  value of Common  Stock as of the time of
              grant.

         -    Mr. Berk will be entitled to receive severance in accordance with
              the  employment  agreement if he is  terminated  without cause or
              because of his death or permanent  disability or if he terminates
              his  employment  for good  reason or as a result of a "change  of
              control" (as defined in the employment agreement).

         On November 13, 2006,  the Company  entered into (i) the Second Amended
         and Restated  Employment  Agreement with Mr. Berk  ("Berk"),  its Chief
         Executive  Officer and  Chairman of the Board of  Directors  (the "Berk
         Agreement");  (ii) an  employment  agreement  with Dr. Behl ("Behl") as
         Executive Vice  President and Chief  Scientific  Officer;  and (iii) an
         employment  agreement  with Mr. Chris Dick  ("Dick") as Executive  Vice
         President of Corporate Development.

         The  employment  agreement with Dr. Behl was  subsequently  amended and
         restated on  February 9, 2007,  under  which Dr.  Behl's  position  was
         changed from Chief Scientific Officer to Head of Technical Affairs. Dr.
         Behl is to report  to the  Company's  Chief  Executive  Officer,  Chief
         Scientific  Officer and any additional  executive officer designated by
         the Board of Directors.

         The Berk  Agreement  provides for a base annual salary of $330,140 (his
         current  salary) which may at the  discretion of the Board of Directors
         be  increased  in light of factors  including  the  existing  financial
         condition of the Company and his success in implementing  the Company's
         business  plan  and  achieving  its  strategic  alternatives.  He is to
         continue to receive an automobile allowance of $800 per month. The Behl
         and Dick  Agreements  provide  for an  initial  base  annual  salary of
         $250,000 and  $200,000,  respectively,  a  guaranteed  bonus of $25,000
         payable on January  1, 2007 and within 30  calendar  days of the end of
         each  fiscal  year  during  the term and a $700  per  month  automobile
         allowance.

         Each of the three  agreements  provides for payment of a  discretionary
         bonus  following  the  end  of  each  fiscal  year  of up to 50% of the
         executive's  then  annual  base  salary.  The  amount,  if any,  of the
         discretionary bonus will be determined by the Compensation Committee as
         to Berk and by the Board of Directors or a Compensation Committee as to
         Behl and Dick. Berk's bonus is to be based on any  commercialization of
         products,    merger   or   acquisition,    business    combination   or
         collaborations,  growth in revenues and earnings, additional financings
         or other strategic  business  transaction  that inure to the benefit of
         the Company's  stockholders.  The bonus, if any, may be paid in cash or
         shares of Common Stock, valued at the closing price of the Common Stock
         on the immediately preceding trading day. The discretionary bonus which
         may be paid to Behl or Dick is to be based on the achievement of goals


                                       18

<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    THREE MONTHS ENDED JUNE 30, 2007 AND 2006
                                   (UNAUDITED)

NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)

         EMPLOYMENT AGREEMENTS (Continued)

         discussed with the executive in good faith and within a reasonable time
         following the  commencement of each fiscal year and may be paid in cash
         or shares of the  Company's  Common  Stock valued at the average of the
         closing  price per  share  during  the five  trading  days  immediately
         preceding the date of issuance of the shares.

         Each of Behl's and Dick's  agreement  provides  for the grant under the
         2004  Stock  Option  Plan  (the  "2004  Plan") to the  executive  at an
         exercise  price of $2.25 of options to  purchase  250,000  shares.  The
         Berk,  Behl and  Dick  Agreements  each  provide  for the  grant to the
         executive of options at the foregoing  exercise price to purchase up to
         300,000  additional  shares (the "Opioid Product Options") which are to
         vest in two 150,000  share  tranches  upon the closing of an  exclusive
         product  license  for the United  States  national  market,  the entire
         European Union Market or the Japan market or a product sale transaction
         of all the Company's  ownership  rights in the United States (only once
         for each product) for the Company's first drug developed by the Company
         for which the United  States Food and Drug  Administration  (the "FDA")
         approval will be sought under a NDA (including a 505(b)(2) application)
         for  oxycodone,  hydrocone,  hydromorphone,  oxymorphone,  or  morphine
         ("Non-Generic  Opioid  Product") as to the first  tranche and as to the
         Company's second  Non-Generic  Opioid Drug for the second tranche.  The
         Berk Agreement  provides for the amendment of the vesting of options as
         to 400,000  shares  which had been granted on September 2, 2005 to Berk
         at an exercise  price of $2.69 per share  ("Berk's  Previous  Milestone
         Options")  and the Behl and Dick  Agreements  provides for the grant of
         options at the  exercise  price of $2.25 per share for each of Behl and
         Dick as to 200,000  shares  (collectively  along with  Berk's  Previous
         Milestone Options,  the "Milestone Options") with the Milestone Options
         of each of the three executives to vest (A) as to not more than 125,000
         shares and 75,000 shares,  respectively,  upon the  commencement of the
         first  Phase  III  clinical  trial  relating  to the first and then the
         second  Non-Generic  Opioid Drug  developed by the Company;  (B) 50,000
         shares  upon the  closing  of each  product  license  or  product  sale
         transaction  (on a  product  by  product  basis  and only once for each
         product)  other than  Non-Generic  Opioid Drugs for which  options were
         granted above; (C) 10,000 shares upon the filing by the Company (in the
         Company's  name) with the FDA of either an ANDA or an NDA (including an
         application  filed with the FDA under Section 505(b)(2) of the Federal,
         Food,   Drug,  and  Cosmetic  Act,   21U.S.C.   Section  301  et  seq.)
         (collectively,  a "NDA"),  for a product not covered by a previous  FDA
         application; (D) 40,000 shares upon the approval by the FDA of any ANDA
         or NDA  (filed in the  Company's  name) for a  product  not  previously
         approved  by  the  FDA;  (E)  25,000  shares  upon  the  filing  of  an
         application for a U.S.  patent by the Company (in the Company's  name);
         and (F)  25,000  shares  upon  the  granting  by the  U.S.  Patent  and
         Trademark  Office (the  "PTO") of a patent to the Company  filed in the
         Company's name or an approval of an ANDA or NDA; provided,  however the
         foregoing  options  terminate  upon  the  executive's   termination  of
         employment  except that options under (D) and (F) nevertheless  vest if
         the filing was made during the initial term but prior to termination of
         the  executive's  employment  by the  Company  without  cause  and  the
         approval  was made  within 540 days of the  filing of the ANDA,  NDA or
         patent application.

         The  Company  also  agreed that in the event that as to Berk all of the
         options to purchase the full 400,000 Berk's Previous  Milestone Options
         has fully  vested  during the initial term of the  agreement  and as to
         each of Behl and Dick all 200,000  Milestone  Options have fully vested
         during the initial term of his agreement,  the Company will grant under
         the Plan to the executive at the end of the first  current  fiscal year
         in which the following event occurs fully vested additional  options to
         purchase the  following  shares at the fair market value on the date of
         grant  (the  "Additional  Milestone  Options"):  (a) to the  extent not
         previously vested with respect to his comparable Milestone Options: (i)
         up to  125,000  shares  upon the  commencement  of the first  Phase III
         clinical trial relating to the first Non-Generic Opioid Drug


                                       19

<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    THREE MONTHS ENDED JUNE 30, 2007 AND 2006
                                   (UNAUDITED)

NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)

         EMPLOYMENT AGREEMENTS (Continued)

         developed by the Company and (ii) up to an additional 125,000 shares as
         to such trial relating to the second  Non-Generic  Opiod Drug developed
         by the  Company,  (b) 50,000  shares upon the closing of each p product
         license  for  the  United  States   national  market  or  product  sale
         transaction of all ownership  rights (on a product by product basis and
         only once for each  product);  (c) 10,000 shares upon the filing by the
         Company (in the  Company's  name) with the FDA of either an ANDA or NDA
         for a product not covered by a previous FDA  application  for each drug
         product of the  Company,  other than the  Non-Generic  Opioid Drugs for
         which any Opioid  Option was granted  under the  Agreement;  (d) 40,000
         shares  upon the  approval  by the FDA of any  ANDA,  NDA or  505(b)(2)
         application  filed in the Company's  name for a product not  previously
         approved by the FDA; (e) 25,000 shares in the event of the filing of an
         application of an additional  U.S.  patent by the Company (filed in the
         Company's  name); and (f) 25,000 shares in the event of the granting by
         the PTO of the foregoing  additional patent applications to the Company
         (filed in the Company's name).

         The Berk  Agreement  acknowledges  that Berk holds  previously  granted
         fully vested  incentive stock options to purchase  725,000  shares,  of
         which  300,000  vested  options  are  exercisable  at $2.01 per  share,
         225,000 vested  options are  exercisable at $2.15 per share and 100,000
         vested options are  exercisable  at $2.69 per share,  and the remaining
         100,000  options,  which vest on September 2, 2007, are  exercisable at
         $2.69 per share.

         Each employment agreement allows the Company at its discretion to grant
         to the  executive  additional  options under the 2004 Plan and provides
         each  executive  the right to  register  at the  Company's  expense for
         reoffering  shares  issued  upon  exercise  of the  options  under  the
         Securities Act of 1933, as amended, in certain registration  statements
         filed by the Company with respect to  offerings  of  securities  by the
         Company.

         Berk's Agreement, as did his Amended and Restated Employment Agreement,
         provides  that if the  Company  terminates  his  employment  due to his
         permanent disability, without cause or he terminates his employment for
         good reason, Berk shall be entitled to the following severance: (i) any
         earned but unpaid base salary plus any unpaid reimbursable  expenses as
         of the  effective  date of  termination  of his  employment,  (ii)  the
         then-current  base salary and  reimbursement of the cost to replace the
         life and  disability  insurance  coverages  afforded  to Berk under the
         Company's benefit plans with substantially similar coverages, following
         the effective date of termination of his employment, for a period equal
         to the greater of (x) the  remainder of the  then-current  term, or (y)
         two years following the effective date of termination and (iii) payment
         by the Company of premiums for health  insurance  for the period during
         which Berk is  entitled  to  continued  health  insurance  coverage  as
         specified in the Comprehensive  Omnibus Budget  Reconciliation  Act. In
         the event that the Company  terminates Berk's employment because of his
         permanent disability, Berk is to be entitled to the severance specified
         above,  less any amounts actually  received by him under any disability
         insurance  coverage provided for and paid by the Company.  In the event
         that  the  Company  terminates  Berk's  employment  for  cause  or Berk
         terminates his employment  with the Company  without good reason,  Berk
         shall be  entitled to any earned but unpaid base salary plus any unpaid
         reimbursable  expenses as of the effective  date of  termination of his
         employment.

         Berk's  Agreement,  as did his prior  agreement,  provides  that in the
         event  of a  change  of  control  in lieu  of any  severance  that  may
         otherwise be payable to him if Berk elects to terminate his  employment
         for any  reason  within  90 days  thereof,  or the  Company  elects  to
         terminate his employment within 180 days thereof, other than for cause,
         he is to be entitled to the  following:  (i) any earned but unpaid base
         salary plus any unpaid  reimbursable  expenses as of the effective date
         of  termination  of  his  employment,   (ii)   $1,000,000,   (iii)  the
         then-current base salary for a period of 12 months


                                       20

<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    THREE MONTHS ENDED JUNE 30, 2007 AND 2006
                                   (UNAUDITED)

NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)

         EMPLOYMENT AGREEMENTS (Continued)

         following the effective date of termination,  (iv) reimbursement of the
         cost,  for a period equal to 12 months  following the effective date of
         termination,  of replacing the life and disability  insurance  coverage
         afforded to Berk under the Company's  benefit plans with  substantially
         similar  coverage and (v) payment by the Company of premiums for health
         insurance  for the period  during  which Berk is entitled to  continued
         health  insurance  coverage as specified in the  Comprehensive  Omnibus
         Budget Reconciliation Act.

         Each of Behl's  and  Dick's  Agreements  provide  that in the event the
         Company  terminates  his  employment  for  "Cause"  as  defined  in the
         agreement or the executive  terminates  employment without good reason,
         he is to receive salary through date of termination,  reimbursement for
         expenses  incurred  prior to  termination,  all  unvested  options will
         terminate  as of the date of  termination  and vested  options  will be
         governed  by  the  terms  of the  2004  Plan  and  the  related  option
         agreement. In the event of a termination due to death, disability or by
         the  Company  without  cause or by Behl or Dick for  good  reason,  the
         Company is to pay him or his  estate  subject  to his  compliance  with
         certain   covenants,   including   non-competition,   non-solicitation,
         confidentiality  and  assignment  of  intellectual  property,  his base
         salary for the longer of the  balance of the  initial  term or one year
         from date of  termination,  continue health  insurance  coverage for 12
         months from  termination  and his vested  options are to be exercisable
         for 90 days from date of  termination.  Dr.  Behl's  amended  agreement
         provides  that the  definition of "cause" has been amended to include a
         determination by the Board of Directors,  in its sole discretion,  that
         the  employment  of Dr.  Behl  should  terminate,  provided  that  such
         termination  will be effective on the 30th day after the written notice
         to Dr. Behl of such determination.  In the event the employment of Behl
         or Dick is terminated by the Company following a "Change of Control" of
         the Company,  he will be entitled to the amounts payable as a result of
         termination  by the  Company  without  cause plus a lump sum payment of
         $500,000 and all unvested options shall immediately vest and along with
         unexercised  vested options be exercisable within 90 days from the date
         of  termination.  "Change  of  control"  is  defined  in each of  their
         agreements as the  acquisition  of the Company  pursuant to a merger or
         consolidation  which  results in the  reduction to less than 50% of the
         shares  outstanding upon consummation of the holders of its outstanding
         shares  immediately  prior  thereto  or sale of  substantially  all the
         assets or  capital  stock of the  Company  to  another  person,  or the
         acquisition by a person or a related group in a single transaction or a
         series of related  transaction of more than 50% of the combined  voting
         power of the Company's outstanding voting securities.

         Berk's Agreement contains his non-solicitation covenant for a period of
         one year  from  termination.  Each of Behl and  Dick  has  agreed  to a
         one-year following termination  non-competition covenant and a two year
         following termination non-solicitation covenant.

         The executives are to be reimbursed for expenses  (including  business,
         travel and entertainment) reasonably incurred in the performance of his
         duties, with Behl's and Dick's agreements  providing that reimbursement
         of expenses  in excess of $2,000 per month are subject to the  approval
         of the Company's  Chief  Executive  Officer.  Each of the executives is
         entitled to participate in such employee  benefit and welfare plans and
         programs,  which may be offered  to senior  executives  of the  Company
         including  life,  health  and  accident  insurance,  medical  plans and
         programs and profit sharing and retirement plans.

         Each  employment  agreement is for an initial term ending  November 13,
         2009,  subject to automatic  one-year renewals unless terminated by the
         executive  or the Company upon at least 60 days notice prior to the end
         of the then  scheduled  expiration  date.  The Company has the right to
         terminate  Berk's  employment  in the event of his inability to perform
         work due to physical or mental illness or injury for


                                       21

<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        NOTES TO CONSOLIDATED FINANCIAL
              STATEMENTS THREE MONTHS ENDED JUNE 30, 2007 AND 2006
                                  (UNAUDITED)

NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)

         EMPLOYMENT AGREEMENTS (Continued)

         nine full calendar months during any eight consecutive calendar months.
         It has the  right to  terminate  Behl's  or  Dick's  employment  due to
         disability  as  defined  in a  long-term  disability  insurance  policy
         reasonably  satisfactory to him or, in the absence of such policy,  due
         to his inability  for 120 days in any 12 month period to  substantially
         perform his duties as a result of a physical or mental illness.

         LEASE

         On July 15,  2005,  the  Company  entered  into a lease  for two  years
         commencing on July 1, 2005 for part of a one-story warehouse to be used
         for the storage of finished and raw material of pharmaceutical products
         and  equipment.  The lease had a renewal  option which was exercised to
         rent the property through July 1, 2008.

NOTE 6 - SUBSEQUENT EVENTS

         On July 2, 2007, a holder of 168 shares of Series B 8% Preferred  Stock
         converted  his  shares  and  accrued   dividends  though  the  date  of
         conversion into 74,700 shares of Common Stock.

         On July 6, 2007, 50,000 warrants issued in 2004 expired.

         On July 8, 2007, a holder of 100 shares of Series B 8% Preferred  Stock
         converted  his  shares  and  accrued  dividends  through  the  date  of
         conversion into 44,521 shares of Common Stock.

         On July 9, 2007, a holder of 250 shares of Series B 8% Preferred  Stock
         converted  his  shares  and  accrued  dividends  through  the  date  of
         conversion into 111,325 shares of Common Stock.

         On July 10, 2007, a holder of 232 shares of Series C 8% Preferred Stock
         converted his shares into 100,000 shares of Common Stock.  Accrued cash
         dividends were paid through date of conversion.

         On July 11, 2007, a holder of 100 shares of Series C 8% Preferred Stock
         converted his shares into 43,103  shares of Common Stock.  Accrued cash
         dividends were paid through the date of conversion.

         On July 17, 2007,  Novel purchased  substantially  all of the assets of
         Jayson Pharma,  Inc. for $270,000.  Jayson Pharma, Inc. is wholly owned
         by Muthusamy Shanmugam, an employee of Novel.

         On July 17,  2007,  the Company  sold the  remaining  5,000  authorized
         shares  of its  Series  C  Preferred  Stock.  Each  share  of  Series C
         Preferred  Stock  was  sold at a  price  of  $1,000  per  share  and is
         initially  convertible  at $2.32 into 431.0345  shares of the Company's
         Common Stock, or an aggregate of 2,155,172 shares of Common Stock. Each
         purchaser  of Series C  Preferred  Stock  also  received  a warrant  to
         purchase shares of the Company's Common Stock in an amount equal to 30%
         of the aggregate number of shares of Common Stock into which the shares
         of  Series  C  Preferred  Stock  purchased  by  such  purchaser  may be
         converted.  The warrants are exercisable on or before July 17, 2012 and
         represent  the right to  purchase  an  aggregate  of 646,554  shares of
         Common  Stock,  at an  exercise  price of  $3.00  per  share.  The lead
         placement  agent for the offering was  Oppenheimer & Company,  Inc. The
         gross proceeds of the private  placement were $5,000,000 before payment
         of $350,000 in  commissions  to the  placement  agent and its  selected
         dealers and $18,000 in expenses incurred by the placement agent and its
         selected  dealers.  Pursuant  to the  placement  agent  agreement,  the
         Company issued to the placement agent and its


                                       22

<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    THREE MONTHS ENDED JUNE 30, 2007 AND 2006
                                   (UNAUDITED)


NOTE 6 - Subsequent Events (Continued)

         designees warrants (the "Placement Warrants") to purchase 64,655 shares
         of Common Stock.  Such  Placement  Warrants are at an exercise price of
         $3.00 per share,  exercisable on or prior to July 17, 2012. The Company
         received net proceeds from the sale of the Series C 8% Preferred  Stock
         of  $4,631,500.  Based on the  relative  fair  values,  the Company has
         attributed  $534,407  of the total  proceeds  to the  warrants  and has
         recorded the warrants as  additional  paid-in  capital.  The  remaining
         portion of the proceeds of  $4,465,593  was used to determine the value
         of the  2,155,172  shares of the Company  Common Stock  underlying  the
         Series C Preferred  Stock,  or $2.0720  per share.  Since the value was
         $0.6180 lower than the fair market value of the Company's  Common Stock
         on July 17, 2007,  the  $1,331,819  intrinsic  value of the  conversion
         option  resulted in the  recognition of a preferred stock dividend and
         an increase to additional paid-in capital.

         On July 24,  2007,  the  $3,000,000  bank loan,  including  all accrued
         interest, was paid off.

         On July 26, 2007, a holder of 13 shares of Series C 8% Preferred  Stock
         converted  his shares into 5,603 shares of Common  Stock.  Accrued cash
         dividends were paid through the date of conversion.

         On July 31, 2007, the Board of Directors  approved a discretionary cash
         bonus of $165,070 to Bernard Berk for fiscal year ended March 31, 2007.
         Such bonus was paid in full by the Company.

         On August 1,  2007,  a holder  of 100  shares of Series C 8%  Preferred
         Stock converted his shares into 43,103 shares of Common Stock.  Accrued
         cash dividends were paid through the date of conversion.

         On August 8, 2007, Bernard Berk paid the Company $79,995.47 for expense
         reimbursements originally requested by Mr. Berk for which documentation
         was not received by the Company.


                                       23

<PAGE>


ITEM 2.   MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

               THREE MONTH PERIODS ENDED JUNE 30, 2007 COMPARED TO
             THE THREE MONTH PERIODS ENDED JUNE 30, 2006 (UNAUDITED)

         The following  discussion  and analysis  should be read in  conjunction
with the Consolidated  Financial  Statements,  the related Notes to Consolidated
Financial  Statements  and  Management's  Discussion  and  Analysis of Financial
Condition and Results of Operations  included in the Company's  Annual Report on
Form 10-K for the  fiscal  year  ended  March  31,  2007  (the  "10-K")  and the
Unaudited  Consolidated  Financial  Statements and related Notes to Consolidated
Financial  Statements  included in Item 1 of Part I of this Quarterly  Report on
Form 10-Q.

         The   Company   has   included  in  this   Quarterly   Report   certain
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation Reform Act of 1995 concerning the Company's business,  operations and
financial condition.  "Forward-looking statements" consist of all non-historical
information,   and  the  analysis  of  historical  information,   including  the
references in this  Quarterly  Report to future revenue  growth,  future expense
growth, future credit exposure,  earnings before interest,  taxes,  depreciation
and amortization, future profitability,  anticipated cash resources, anticipated
capital expenditures,  capital requirements,  and the Company's plans for future
periods. In addition, the words "could", "expects", "anticipates",  "objective",
"plan",  "may affect",  "may depend",  "believes",  "estimates",  "projects" and
similar  words and phrases are also  intended to identify  such  forward-looking
statements.

         Actual  results  could differ  materially  from those  projected in the
Company's forward-looking statements due to numerous known and unknown risks and
uncertainties,   including,  among  other  things,  unanticipated  technological
difficulties,  the  volatile  and  competitive  environment  for  drug  delivery
products,  changes in  domestic  and  foreign  economic,  market and  regulatory
conditions, the results of development agreements with pharmaceutical companies,
the  inherent   uncertainty  of  financial   estimates  and   projections,   the
uncertainties involved in certain legal proceedings,  instabilities arising from
terrorist actions and responses thereto, and other  considerations  described as
"Risk Factors" in other filings by the Company with the SEC including its Annual
Report on Form 10-K. Such factors may also cause  substantial  volatility in the
market price of the Company's Common Stock. All such forward-looking  statements
are current only as of the date on which such  statements were made. The Company
does not  undertake  any  obligation  to  publicly  update  any  forward-looking
statement to reflect  events or  circumstances  after the date on which any such
statement is made or to reflect the occurrence of unanticipated events.

OVERVIEW

         We are a specialty  pharmaceutical  company  principally engaged in the
development and manufacture of oral,  controlled  release  products.  We develop
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 develop delayed, sustained or
targeted release pellets, capsules, tablets, granules and powders.

         We have two products, Lodrane 24(R) and Lodrane 24D(R), currently being
sold commercially,  and a pipeline of seven drug candidates under development in
the therapeutic  areas that include pain management,  allergy and infection.  Of
the products under development,  ELI-216,  an abuse deterrent oxycodone product,
and ELI-154, a once daily oxycodone product,  are in clinical trials and we have
completed  pilot  studies  on  two  of  our  generic  product  candidates.   The
addressable market for the pipeline of products exceeds $6 billion. Our facility
in Northvale,  New Jersey also is a Good Manufacturing  Practice ("GMP") and DEA
registered facility for research, development and manufacturing.


                                       24

<PAGE>


         At the end of 2006,  we entered  into a joint  venture with VGS Pharma,
LLC 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.

STRATEGY

         We are focusing our efforts on the following  areas: (i) development of
our pain management  products,  (ii)  manufacturing of Lodrane 24(R) and Lodrane
24D(R) products; (ii) the development of the other products in our pipeline; and
(iii)  commercial  exploitation  of our  products  either  by  license  and  the
collection of royalties,  or through the  manufacture of our  formulations,  and
(iv)  development of new products and the expansion of our licensing  agreements
with other pharmaceutical  companies,  including  co-development projects, joint
ventures and other collaborations, including Novel.

         We are focusing on the  development  of various types of drug products,
including  branded drug products  (which require new drug  applications  ("NDA")
under Section  505(b)(1) or 505(b)(2) of the Drug Price  Competition  and Patent
Term  Restoration  Act of 1984 as well as generic drug products  (which  require
abbreviated new drug applications ("ANDA")).

         We intend to continue to collaborate  in the  development of additional
products  with  our  current   partners.   We  also  plan  to  seek   additional
collaborations to develop more drug products.

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

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.


                                       25

<PAGE>


RESULTS OF CONSOLIDATED OPERATIONS

THREE MONTHS ENDED JUNE 30, 2007 COMPARED TO THREE MONTHS ENDED JUNE 30, 2006

         Our revenues for the three months ended June 30, 2007 were $388,275, an
increase of $235,248 or  approximately  154%,  over revenues for the  comparable
period of the prior year,  and consisted of $336,515 in  manufacturing  fees and
$51,760 in royalty  fees.  Revenues  for the three  months  ended June 30, 2006,
consisted of $131,900 in  manufacturing  fees and $21,127 in royalty  fees.  The
increase in manufacturing  fees and royalties was primarily due to the launch of
our second product, Lodrane 24D(R).

         Research  and  development  costs for the three  months  ended June 30,
2007,  were  $2,098,755,  an increase of  $782,347 or  approximately  59.4% from
$1,316,408 of such costs for the comparable period of the prior year,  primarily
the result of increased  wages,  raw  materials,  laboratory  and  manufacturing
supplies.  Elite now has 41 employees,  an increase of 58% from 26 employees one
year ago. The  increase in employees is primarily  for the scale up work for the
pain  products  and includes  manufacturing,  analytical  and quality  assurance
people.  Elite has also  increased its spending on raw materials  which are also
primarily  for scale up of the pain  products.  Research and  development  costs
associated with Novel's  activities also contributed to the increase.  We expect
our research  and  development  costs to continue to increase in future  periods
primarily  due to  clinical  costs for Phase III and other  clinical  trials for
ELI-216 and ELI-154.

         General and  administrative  expenses  (G&A) for the three months ended
June 30, 2007, were $899,390,  an increase of $342,477,  or approximately  62.6%
from $546,913 of G&A for the  comparable  period of the prior year. The increase
was  attributable  to increases  in salaries and fringe  benefits as a result of
increases in staff and costs associated with our Novel activities.

         We are in the  initial  stages  of  breaking  down the  specific  costs
associated with the research and development of each product on which we devoted
resources  through the use of detailed  time sheets and general  ledger  account
classifications.  In the past, we have not historically allocated these expenses
to any particular  product. We cannot estimate the additional costs and expenses
that may be incurred in order to  potentially  complete the  development  of any
product,  nor can we estimate  the amount of time that might be involved in such
development  because of the  uncertainties  associated  with the  development of
controlled release drug delivery products as described in this report.

         Depreciation  and  amortization  increased by $88,663 from $119,535 for
the comparable period of the prior year to $208,198. The increase was due to the
acquisition  of new  machinery  and  equipment by Novel and the upgrading of the
corporate and warehouse facilities.

         Other income  (expenses)  for the three months ended June 30, 2007 were
$(879,822),  an increase of $609,697, or approximately 225%, from $(270,125) for
the  comparable  period of the prior  year due to an  increase  of  $624,263  in
charges  related to the issuances of stock options and warrants and increases in
interest  expense of $8,908 due to the borrowing of bank debt.  These  increases
were somewhat  offset by additional  interest  income of $23,474,  due to higher
compensating  balances as a result of the private  placement  of our Series C 8%
Convertible Preferred Stock.

         As a result of the  foregoing,  our net loss for the three months ended
June 30, 2007 was  $3,982,216  compared to $2,100,954 for the three months ended
June 30, 2006.

MATERIAL CHANGES IN FINANCIAL CONDITION

         Our  working   capital   (total   current  assets  less  total  current
liabilities), increased to $11,219,231 as of June 30, 2007 from $1,019,631 as of
March  31,  2007,  primarily  due to net  proceeds  received  as a result of our
private placement of Series C 8% Convertible  Preferred Stock, offset by the net
loss of $2,849,755 from operations, exclusive of non-cash charges of $1,132,461.

         We experienced  negative cash flows from operations of $(3,660,179) for
the  three  months  ended  June 30,  2007,  primarily  due to our net loss  from
operations  of  $3,982,216,  an  increase in prepaid  expenses  of $330,610  and
reductions  of  $476,621  in  accounts  payable,   accrued  expenses  and  other
liabilities, offset by


                                       26

<PAGE>


non-cash charges of $1,142,461,  which included  $924,263 in connection with the
issuance of stock  options  and  warrants,  and  $208,198  in  depreciation  and
amortization expenses.

         On November 15, 2004 and on December 18, 2006,  Elite's  partner,  ECR,
launched  Lodrane 24(R) and Lodrane  24D(R),  respectively.  Under its agreement
with ECR, Elite is currently  manufacturing  commercial batches of Lodrane 24(R)
and Lodrane  24D(R) in exchange  for  manufacturing  margins  and  royalties  on
product  revenues .  Manufacturing  revenues and royalty  income  earned for the
three months ended June 30, 2007 was  $336,515  and  $51,760,  respectively.  We
expect  future  cash  flows from  manufacturing  fees and  royalties  to provide
additional cash to help fund our operations.

         On March 30, 2005, Elite entered into a three party agreement with Tish
Technologies,   Inc.  and  Harris  Pharmaceuticals,   Inc.  ("Harris")  for  the
co-development  and license of a controlled  release generic  product.  Upon its
development  and the  securing  of the  required  Food and Drug  Adminisatration
("FDA") approval by the formulation development company, Elite is to manufacture
the product and Harris is to sell and distribute the product. In addition to the
transfer price for manufacturing the product,  Elite is to share the profits, if
any, realized upon sales. The innovator's reference product for this generic was
originally a capsule. The innovator has now received approval for an alternative
dose form (a tablet rather than capsule) and has  discontinued the original dose
form. While a reference product remains for the capsule,  the market opportunity
has changed and this affects how we might commercialize the capsule dosage form.
On June 19, 2006, we received  written notice from Harris of Harris's  intent to
terminate the agreement in accordance with Section 9.3 of the agreement.  As the
date hereof, Elite has received $29,700 for this development work.

         On  June  21,  2005,  Elite  entered  into a  product  development  and
commercialization agreement with IntelliPharmaCeutics Corp. ("IPC"), a privately
held, specialty pharmaceutical Canadian company that develops generic controlled
release drug  products.  It is affiliated  with  IntelliPharmaCeutics,  Ltd. The
agreement provides for the co-development and  commercialization of a controlled
released generic product.  IntelliPharmaCeutics  has taken a formulation for the
product into a pilot bioequivalence  biostudy. Upon commercialization,  Elite is
to share the profits, if any, realized upon sales. A successful pivotal biostudy
and an  approved  ANDA  filing is required to  commercialize  this  product.  On
December 12, 2005,  Elite and IPC amended  their  obligations  to suspend  their
obligations  under  the  IPC  Agreement  with  respect  to the  development  and
commercialization  of the  controlled  release drug  product in Canada.  IPC, in
turn, entered into an agreement with ratiopharm,  inc., a Canadian company,  for
the  development  and  commercialization  for the product in Canada and will pay
Elite a certain  percentage of any payments  received by IPC with respect to the
commercial sale of this product by ratiopharm, inc. in Canada.

         On June 22, 2005, Elite entered into a Product  Development and License
Agreement with PLIVA, Inc. ("PLIVA"),  now a subsidiary of Barr  Pharmaceuticals
Inc.,  providing,  for the  development  and  license of a  controlled  released
generic  product.  Under the  agreement,  PLIVA is to make upfront and milestone
payments in the  aggregate  of $550,000 to Elite.  Elite is to  manufacture  and
PLIVA is to market and sell the product.  The development  costs will be paid by
PLIVA and Elite and the profits will be shared  equally.  As of the date hereof,
Elite has not  received any of the payments  from PLIVA.  Elite has  developed a
formulation that matches the branded product and has tested it in a pilot study.
A  successful  pivotal  biostudy  and an  approved  ANDA  filing is  required to
commercialize  this product.  On June 28, 2007,  Elite and Pliva  terminated the
Product  Development  and  License  Agreement  and  entered  into a  termination
agreement  according  to which it was agreed  that  Elite owns all  intellectual
property  rights  relating to the  controlled  released  generic  product  under
development  and Pliva agreed to pay Elite  $100,000 in discharge of outstanding
payments under the Product Development and License Agreement.

         On  January  10,  2006,  Elite  entered  into an  agreement  with  Orit
Laboratories LLC ("Orit"), an affiliate of Tish Technologies LLC, providing that
Elite and Orit will  co-develop  and  commercialize  an  extended  release  drug
product for treatment of anxiety,  and,  upon  completion  of  development,  may
license it for  manufacture  and sale.  The  parties  intend to develop all dose
strengths of the product.  Orit has been  providing  formulation  and analytical
resources  for  the  development  work.  Elite's  facility  has  been  used  for
manufacture of  development  batches.  Elite is to share in the profits,  if any
from the sales of the drug. A


                                       27

<PAGE>


formulation  has been  developed that matches the  innovator's  product using IN
VITRO testing and next steps will be scale up and pilot testing.

         On  November  10,  2006,  Elite  entered  into a product  collaboration
agreement with The PharmaNetwork, LLC ("TPN") for the development of the generic
product  equivalent of a synthetic  narcotic  analgesic drug product.  TPN is to
perform  development  services  and  prepare and file an ANDA in the name of TPN
with the FDA. Elite is to provide development support, including the purchase of
active pharmaceutical  ingredients and materials and supplies to manufacture the
batch,  provide  adequate  facilities to TPN for use in its development work and
following  ANDA approval,  Elite will  manufacture  the drug product  developed.
Elite is to pay TPN for the development services rendered upon the attainment of
certain  milestones.  The out-of-pocket costs are to be shared by TPN and Elite,
with TPN's obligation to be payable from the royalty  compensation.  Formulation
development work is currently underway.

         In January 2006,  the FDA accepted our IND for ELI-154,  its once-a-day
oxycodone  painkiller.  Under  the  new  drug  application,  we will  begin  our
development  program with an early stage study to evaluate  ELI-154's  sustained
release  formation.  Currently there is no once-daily  oxycodone  available;  we
estimate that the U.S. market for sustained release,  twice-daily  oxycodone was
about $2 billion as of September, 2005.

         No  assurance  can  be  given  that  we  will  consummate  any  of  the
transactions discussed above or that any material revenues will be generated for
us therefrom.

LIQUIDITY AND CAPITAL RESOURCES

         For the three  months ended June 30, 2007,  we recorded  positive  cash
flow and financed our  operations  through  utilization of our existing cash and
cash raised through our private  placement of Series C 8% Preferred  Stock.  Our
working capital at June 30, 2007 was $11.2 million compared with working capital
of $6.9 million at June 30,  2006.  Cash and cash  equivalents  at June 30, 2007
were $14.4  million,  an increase of $7.7  million from the $6.7 million at June
30, 2006.

         We spent  approximately  $536,519 on  improvements  and  machinery  and
equipment during the three months ended June 30, 2007.

         On April 24, 2007, we sold in a private placement through Oppenheimer &
Company, Inc., the placement agent (the "placement agent"), 15,000 shares of our
Series C 8%  Preferred  Stock,  at a price  of  $1,000  per  share,  each  share
convertible  (at $2.32 per share) into 431.0345  shares of Common  Stock,  or an
aggregate of 6,465,504  shares of Common  Stock.  The  investors  also  acquired
warrants to purchase  shares of Common Stock,  exercisable  on or prior to April
24, 2012. The warrants represent the right to purchase an aggregate of 1,939,641
shares of  Common  Stock at an  exercise  price of $3.00  per  share.  The gross
proceeds  of  the  sale  were  $15,000,000   before  payment  of  $1,050,000  in
commissions to the Placement  Agent and selected  dealers.  We also paid certain
legal fees and  expenses  of counsel to the  Placement  Agent.  We issued to the
Placement Agent and its designees five year warrants to purchase  193,965 shares
of Common Stock with similar terms to the warrants  issued to the Investors with
an  exercise  price of $3.00  per  share.  The  approximate  $13,900,000  of net
proceeds will  contribute  materially to our efforts to advance our portfolio of
pain products  through the clinic as well as accelerate  the  development of our
other  controlled  release  products  which  utilize our  proprietary  oral drug
delivery systems and abuse resistant technology.

         From time to time we will  consider  potential  strategic  transactions
including  acquisitions,  strategic  alliances,  joint  ventures  and  licensing
arrangements  with other  pharmaceutical  companies.  We retained an  investment
banking firm to assist with our efforts. There can be no assurance that any such
transaction will be available or consummated in the future.

         As  of  June  30,  2007,   our   principal   source  of  liquidity  was
approximately $14,441,000 of cash and cash equivalents. In July 2007 we sold the
remaining 5,000 authorized shares of Series C 8% Preferred Stock,  together with
warrants to purchase shares of our Common Stock,  which resulted in net proceeds
of  approximately  $4,600,000.  After the closing of the sale of the  additional
Series C 8% Preferred Stock our principal source of liquidity was  approximately
$18,541,000 of cash and cash  equivalents.  Additionally,  we may have access to
funds through the exercise of outstanding stock options and warrants in addition
to funds


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<PAGE>


that may be generated  from the potential  sale of New Jersey tax losses.  There
can  be no  assurance  that  the  sale  of tax  losses  or by  the  exercise  of
outstanding warrants or options will generate or provide sufficient cash.

         The  Company  had  outstanding,  as of  June  30,  2007,  bonds  in the
aggregate  principal amount of $3,980,000,  consisting of $3,540,000 of 6.5% tax
exempt Bonds with an outside  maturity of September 1, 2030 and $440,000 of 9.0%
Bonds with an outside  maturity of September 1, 2012. The bonds are secured by a
first lien on the Company's facility in Northvale,  New Jersey.  Pursuant to the
terms of the bonds,  several  restricted cash accounts have been established for
the payment of bond principal and interest.  Bond proceeds were utilized for the
redemption  of  previously  issued tax exempt bonds  issued by the  Authority in
September  1999  and to  refinance  equipment  financing,  as  well  as  provide
approximately $1,000,000 of capital for the purchase of additional equipment for
the  manufacture  and  development at the Company's  facility of  pharmaceutical
products and 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, 2007.  Pursuant to the terms of the related bond indenture  agreement,
the  Company is  required  to observe  certain  covenants,  including  covenants
relating to the incurrence of additional indebtedness, the granting of liens and
the maintenance of certain financial covenants. As of June 30, 2007, the Company
was in compliance with the bond covenants.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company had no investments in marketable  securities as of June 30,
2007 or assets and  liabilities  which are  denominated in a currency other than
U.S. dollars or involve commodity price risks.


ITEM 4.  CONTROLS AND PROCEDURES

         As of the  end of the  period  covered  by  this  report,  based  on an
evaluation of the Company's  disclosure  controls and  procedures (as defined in
Rules  13a-15(e) and 15d-15(e) under the Securities  Exchange Act of 1934),  the
Chief  Executive and Chief Financial  Officer of the Company  concluded that the
Company's  disclosure  controls  and  procedures  are  effective  to ensure that
information  required to be disclosed by the Company in its Exchange Act reports
is recorded,  processed,  summarized  and reported  within the  applicable  time
periods specified by the SEC's rules and forms.

         There was no change in the Company's  internal  controls over financial
reporting  that  occurred  during the fiscal  quarter  ended June 30,  2007 that
materially  affected or is reasonably  likely to materially affect the Company's
internal controls over financial reporting.


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<PAGE>


PART II. OTHER INFORMATION

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Stockholders at the Company's  Annual Meeting of  Stockholders  held on June 26,
2007 took the following actions:

         1. Elected its four Directors.

                                    No. of Votes For       No. of Votes Against
         Bernard Berk               16,410,451             851,436
         Barry Dash                 17,099,533             162,354
         Robert Levensen            17,099,533             162,354
         Veerappan Subramanian      17,071,661             190,226
         Melvin Van Woert           17,099,533             162,354

         2.   Approved the proposal to ratify the Company's Series C Financing,
              which involved the sale of the Company's Series C Preferred Stock
              and common  stock  purchase  warrants  pursuant  to a  Securities
              Purchase  Agreement,  dated  as of  April  24,  2007 by a vote of
              3,467,954   for,   237,152   shares  against  and  15,712  shares
              abstaining.

         3.   Approved  the  engagement  of Miller,  Ellin & Company LLP as the
              Company's  independent auditors for the year ended March 31, 2007
              by a vote of 16,421,486  shares for,  67,383  shares  against and
              7,208 shares abstaining.


ITEM 6.  EXHIBITS

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

Exhibit
Number    Description
--------------------------------------------------------------------------------
31.1     Certification of Chief Executive Officer pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002.

31.2     Certification of Chief Financial Officer pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002.

32.1     Certification of Chief Executive Officer pursuant to Section 906 of the
         Sarbanes-Oxley Act of 2002.

32.2     Certification by Chief Financial Officer pursuant to Section 906 of the
         Sarbanes-Oxley Act of 2002.


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<PAGE>


                                   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 10, 2007            By: /s/ Bernard Berk
                                    --------------------------------------------
                                    Bernard Berk
                                    Chief Executive Officer
                                    (Principal Executive Officer)


Date:    August 10, 2007            By:  /s/ Mark I. Gittelman
                                    --------------------------------------------
                                    Mark I. Gittelman
                                    Chief Financial Officer and Treasurer
                                    (Principal Financial and Accounting Officer)



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