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                  December 31, 2006
                                 -----------------------------------------------

                                           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)

Delaware                                                  22-3542636
-----------------------------------------   ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)


165 Ludlow Avenue, Northvale, New Jersey                       07647
---------------------------------------------    -------------------------------
(Address of principal executive offices)                  (Zip Code)


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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.
                                                                  Yes [x] No [ ]

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  February  10,  2007:  20,706,443  (exclusive  of 100,000  shares  held in
treasury).

<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                                      INDEX


<TABLE>
<CAPTION>
                                                                                                 Page No.
<S>      <C>                                                                                      <C>
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

           Consolidated Balance Sheets as of December 31, 2006 (unaudited) and
            March 31, 2006 (audited)                                                               2 - 3

           Consolidated Statements of Operations for the three and nine months
           ended December 31, 2006 and December 31, 2005 (unaudited)                                 4

           Consolidated Statement of Changes in Stockholders' Equity
           for the nine months ended December 31, 2006 (unaudited)                                   5

           Consolidated Statements of Cash Flows for the nine months
           ended December 31, 2006 and December 31, 2005 (unaudited)                                 6

           Notes to Consolidated Financial Statements                                             7 - 17

Item 2.  Management's Discussion And Analysis of Financial
         Condition And Results Of Operations                                                      18 - 23

Item 3.  Quantitative And Qualitative Disclosures
         About Market Risk                                                                          23

Item 4.  Controls and Procedures                                                                    23


PART II  OTHER INFORMATION

Item 5.  Other Information                                                                        24 - 27

Item 6.  Exhibits                                                                                 28 - 29


SIGNATURES                                                                                          30
</TABLE>

                                       1
<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS



<TABLE>
<CAPTION>
                                                      ASSETS

                                                                                                    DECEMBER 31,          MARCH 31,
                                                                                                       2006                 2006
                                                                                                    (Unaudited)           (Audited)
<S>                                                                                                 <C>                  <C>
CURRENT ASSETS:
       Cash and cash equivalents                                                                    $ 5,085,002          $ 8,919,354
       Accounts receivable, net of allowance for doubtful accounts of
           $0 as of December 31, 2006 and $153,250 as March 31, 2006                                    120,000                   --
       Current portion of restricted cash - capital project fund                                        593,931            1,173,896
       Prepaid expenses and other current assets
                                                                                                                         -----------
                                                                                                        789,002              470,633
                                                                                                    -----------          -----------

           Total current assets                                                                       6,587,935           10,563,883
                                                                                                    -----------          -----------


PROPERTY AND EQUIPMENT, net of accumulated
       depreciation and amortization                                                                  4,646,976            4,308,969
                                                                                                    -----------          -----------


INTANGIBLE ASSETS - net of accumulated amortization                                                      48,322               59,457
                                                                                                    -----------          -----------


OTHER ASSETS:
       Security deposit                                                                                   6,980                6,980
       Restricted cash - debt service for EDA Bonds                                                     415,500              415,500
       EDA Bond offering costs, net of accumulated amortization
           of  $16,000 and $7,000, respectively                                                         338,452              347,452
                                                                                                    -----------          -----------

           Total other assets                                                                           760,932              769,932
                                                                                                    -----------          -----------

           Total assets                                                                             $12,044,165          $15,702,241
                                                                                                    ===========          ===========
</TABLE>




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

                                       2
<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS



<TABLE>
<CAPTION>
                                       LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                                                   DECEMBER 31,         MARCH 31,
                                                                                                      2006                2006
                                                                                                   (Unaudited)          (Audited)
<S>                                                                                                <C>                 <C>
CURRENT LIABILITIES:
       Current portion of EDA Bonds                                                                $    185,000        $    175,000
       Accounts payable and accrued expenses                                                          1,510,112           1,740,263
       Dividends payable                                                                                     --              33,333
                                                                                                   ------------        ------------
           Total current liabilities                                                                  1,695,112           1,948,596
                                                                                                   ------------        ------------

LONG TERM LIABILITIES:
       EDA bonds - net of current portion                                                             3,795,000           3,980,000
                                                                                                   ------------        ------------

           Total liabilities                                                                          5,490,112           5,928,596
                                                                                                   ------------        ------------

       Minority Interest                                                                                  4,702                  --
                                                                                                   ------------        ------------

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 December 31, 2006  and March 31, 2006
           Authorized 10,000 Series B Convertible Preferred Stock -
           issued and outstanding - 9,695 and 10,000 shares, respectively                                    97                 100
       Common Stock - $.01 par value;
           Authorized - 65,000,000 shares
           Issued and outstanding - 20,706,443 shares and 19,190,159
           shares respectively                                                                          207,064             191,902
       Additional paid-in capital                                                                    65,213,110          60,105,107
       Accumulated deficit                                                                          (58,564,079)        (50,216,623)
                                                                                                   ------------        ------------
                                                                                                      6,856,192          10,080,486
       Treasury stock, at cost (100,000 shares)                                                        (306,841)           (306,841)
                                                                                                   ------------        ------------
           Total stockholders' equity                                                                 6,549,351           9,773,645
                                                                                                   ------------        ------------

           Total liabilities and stockholders' equity                                              $ 12,044,165        $ 15,702,241
                                                                                                   ============        ============
</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                 NINE MONTHS ENDED
                                                                          DECEMBER 31,                       DECEMBER 31,
                                                                          ------------                       ------------
                                                                      2006             2005           2006             2005
                                                                      ----             ----           ----             ----
                                                                   (Unaudited)     (Unaudited)     (Unaudited)      (Unaudited)
<S>                                                                <C>             <C>             <C>             <C>
REVENUES
       Manufacturing Fees                                          $    209,139    $         --    $    476,598    $    369,173
       Royalties                                                         22,295          15,635          66,939          33,405
                                                                   ------------    ------------    ------------    ------------

TOTAL REVENUES                                                          231,434          15,635         543,537         402,578
                                                                   ------------    ------------    ------------    ------------

COST OF OPERATIONS:
       Research and development                                       1,691,861       1,124,581       4,317,151       2,862,908
       General and administrative                                       510,569         379,893       1,600,287       1,241,108
       Depreciation and amortization                                    127,035          96,450         366,105         405,562
                                                                   ------------    ------------    ------------    ------------
                                                                      2,329,465       1,600,924       6,283,543       4,509,578
                                                                   ------------    ------------    ------------    ------------

LOSS FROM OPERATIONS                                                 (2,098,031)     (1,585,289)     (5,740,006)     (4,107,000)
                                                                   ------------    ------------    ------------    ------------

OTHER INCOME (EXPENSES):
       Interest income                                                   66,602          22,562         253,867          59,028
       Sale of New Jersey tax losses                                    377,259         219,121         377,259         219,121
       Interest expense                                                 (67,423)        (70,612)       (207,604)       (200,118)
       Non-cash compensation through issuance
           of stock options and warrants                             (1,848,876)       (287,303)     (2,438,188)       (618,580)
                                                                   ------------    ------------    ------------    ------------

                                                                    (1, 472,438)       (116,232)     (2,014,666)       (540,549)
                                                                   ------------    ------------    ------------    ------------

LOSS BEFORE PROVISION FOR INCOME TAXES                               (3,570,469)     (1,701,521)     (7,754,672)     (4,647,549)
                                                                   ------------    ------------    ------------    ------------

Provision for Income Taxes                                                   --              --          (1,000)         (1,000)
Minority Interest in Loss of Novel Laboratories, Inc.                     5,498              --           5,498              --
                                                                   ------------    ------------    ------------    ------------

NET LOSS                                                           $ (3,564,971)   $ (1,701,521)   $ (7,750,174)   $ (4,648,549)

Preferred Stock Dividends                                              (198,209)             --        (597,282)             --
                                                                   ------------    ------------    ------------    ------------

NET LOSS ATTRIBUTABLE TO
       COMMON SHAREHOLDERS                                         $ (3,763,180)   $ (1,701,521)   $ (8,347,456)   $ (4,648,549)
                                                                   ============    ============    ============    ============

BASIC AND DILUTED LOSS PER COMMON SHARE                            $       (.19)   $       (.09)   $       (.43)   $       (.25)
                                                                   ============    ============    ============    ============

WEIGHTED AVERAGE NUMBER OF
       COMMON SHARES OUTSTANDING                                     19,881,677      18,426,960      19,520,884      18,229,658
                                                                   ============    ============    ============    ============
</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>
                                                                                                        ADDITIONAL
                                                                                                        ----------
                                                 PREFERRED STOCK                  COMMON STOCK            PAID-IN
                                                 ---------------                  ------------            -------
                                              SHARES         AMOUNT           SHARES         AMOUNT       CAPITAL
                                              ------         ------           ------         ------       -------
<S>                                             <C>       <C>               <C>          <C>            <C>
BALANCE AT MARCH 31, 2006 (AUDITED)             10,000    $        100      19,190,159   $    191,902   $ 60,105,107

Nine Months ended December 31, 2006:
(Unaudited)

Sale of Common Shares                               --              --         957,396          9,574      1,990,426

Conversion of Preferred to Common                 (305)             (3)        135,555          1,356         (1,353)

Non-Cash Conversion of Common Stock                 --              --          84,430            844           (844)
Warrants

Exercise of Stock Options                           --              --          59,000            590         87,910

Non-cash compensation through issuance
      of stock options and warrants                 --              --              --             --      2,438,188

Net loss for nine months ended December             --              --              --             --             --
31, 2006

Dividends                                           --              --         279,903          2,798        593,676
                                          ------------    ------------    ------------   ------------   ------------

BALANCE AT DECEMBER 31, 2006
      (UNAUDITED)                                9,695    $         97      20,706,443   $    207,064   $ 65,213,110
                                          ============    ============    ============   ============   ============
</TABLE>


<TABLE>
<CAPTION>


                                                 TREASURY STOCK           ACCUMULATED     STOCKHOLDERS'
                                                 --------------           -----------     -------------
                                              SHARES        AMOUNT          DEFICIT          EQUITY
                                              ------        ------          -------          ------
<S>                                           <C>         <C>             <C>             <C>
BALANCE AT MARCH 31, 2006 (AUDITED)           (100,000)   $   (306,841)   $(50,216,623)   $  9,773,645

Nine Months ended December 31, 2006:
(Unaudited)

Sale of Common Shares                               --              --              --       2,000,000

Conversion of Preferred to Common                   --              --              --              --

Non-Cash Conversion of Common Stock                 --              --              --              --
Warrants

Exercise of Stock Options                           --              --              --          88,500

Non-cash compensation through issuance
      of stock options and warrants                 --              --              --       2,438,188

Net loss for nine months ended December             --              --      (7,750,174)     (7,750,174)
31, 2006

Dividends                                           --              --        (597,282)           (808)
                                          ------------    ------------    ------------    ------------

BALANCE AT DECEMBER 31, 2006
      (UNAUDITED)                             (100,000)   $   (306,841)   $(58,564,079)   $  6,549,351
                                          ============    ============    ============    ============
</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>
                                                                                                             NINE MONTHS ENDED
                                                                                                                DECEMBER 31,
                                                                                                                ------------
                                                                                                          2006              2005
                                                                                                          ----              ----
                                                                                                       (UNAUDITED)       (UNAUDITED)
<S>                                                                                                    <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss                                                                                         $(7,750,174)     $(4,648,549)
      Adjustments to reconcile net loss to cash used in operating activities:
         Depreciation and amortization                                                                     366,105          405,562
         Minority Interest in loss of subsidiary                                                             4,702               --
         Non-cash compensation satisfied by issuance of common stock, options and warrants               2,438,188          618,580
         Changes in assets and liabilities:
            Accounts receivable                                                                           (120,000)         142,113
            Prepaid expenses and other current assets                                                     (318,369)         (77,527)
            Security deposit                                                                                    --           (6,980)
            Accounts payable, accrued expenses and other current liabilities                              (230,151)         320,518
                                                                                                       -----------      -----------
NET CASH USED IN OPERATING ACTIVITIES                                                                   (5,609,699)      (3,246,283)
                                                                                                       -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of property and equipment                                                                 (678,507)        (205,625)
      (Increase) in restricted cash                                                                             --       (1,689,811)
      Release of restricted cash                                                                           579,965          413,425
      Increase in intangible assets due to patent costs                                                     (5,470)              --
                                                                                                       -----------      -----------
NET CASH USED IN INVESTING ACTIVITIES                                                                     (104,012)      (1,482,011)
                                                                                                       -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Dividends paid                                                                                       (34,141)              --
      Proceeds - NJEDA tax exempt bonds                                                                         --        4,155,000
      Payment - EDA bond offering costs                                                                         --         (354,452)
      Principal repayments NJEDA bonds                                                                    (175,000)      (2,345,000)
      Principal equipment note payments                                                                         --         (274,061)
      Proceeds from exercise of stock options                                                               88,500           40,000
      Proceeds from exercise of stock warrants                                                                  --        1,252,995
      Proceeds from sale of common stock                                                                 2,000,000               --
                                                                                                       -----------      -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                                                1,879,359        2,474,482
                                                                                                       -----------      -----------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                                                 (3,834,352)      (2,253,812)

CASH AND CASH EQUIVALENTS - beginning of period                                                          8,919,354        3,902,003
                                                                                                       -----------      -----------

CASH AND CASH EQUIVALENTS - end of period                                                              $ 5,085,002      $ 1,648,191
                                                                                                       ===========      ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
      Cash paid for interest                                                                           $   207,605      $   121,113
      Cash paid for income taxes                                                                             1,000            1,000

SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
      Preferred stock dividends of $596,474 paid by issuance of 279,903
         shares of common stock in 2006                                                                $        --      $        --
</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 AND NINE MONTHS ENDED DECEMBER 31, 2006 AND 2005
                                   (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 and nine months  ended  December 31, 2006 and December 31,
                2005. As of December 31, 2006,  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, 2006.  There have been no
                changes in significant accounting policies since March 31, 2006.

                The Company does not anticipate being profitable for fiscal year
                2007;  therefore  a current  provision  for  income  tax was not
                established  for the three or nine  months  ended  December  31,
                2006. Only the minimum  corporation  tax liability  required for
                state purposes is reflected.

                On August 16,  2006,  the Company  announced  that the  American
                Stock  Exchange  ("AMEX")  confirmed  the Company  has  regained
                compliance with continued listing standards of AMEX.


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 December 31,
                2006, there is $593,931  remaining in the short-term  restricted
                cash account.

                                       7
<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STAT EMENTS
             THREE AND NINE MONTHS ENDED DECEMBER 31, 2006 AND 2005
                                   (UNAUDITED)

NOTE 3 -        STOCKHOLDERS' EQUITY

                WARRANTS AND OPTIONS

                During the nine months ended  December  31, 2006,  305 shares of
                Series B Preferred  Stock were  converted into 135,555 shares of
                Common Stock.

                Dividends accrued on Series B Preferred Stock through conversion
                date and  December  31, 2006 were  satisfied  by the issuance of
                1,318 and 278,585 shares of Common Stock, respectively.

                During the nine months ended  December 31, 2006,  3,750  options
                expired, 65,500 were forfeited and 59,000 options were exercised
                for gross proceeds of $88,500.

                During the nine  months  ended  December  31,  2006,  there were
                cashless  exercises of 217,452  warrants  issued in our October,
                2004 Private Placement, which resulted in the issuance of 84,430
                shares of Common Stock.

                On December 6, 2006,  the  Company  issued to VGS Pharma,  LLC a
                five year warrant to purchase 478,698 shares of Common Stock for
                cash at a price of $3.00 per share,  subject to adjustment  upon
                the occurrence of certain  events.  The per share weighted value
                of the warrant to  purchase  478,698  shares of Common  Stock at
                $3.00 per share is  $0.77.  The  warrant  was  valued  using the
                Black-Scholes  option pricing model with the following  weighted
                average assumptions:  no dividend yield;  expected volatility of
                46.12%;  risk free  interest  rate of 5%; and expected life of 5
                years.  As a result,  a charge of $366,396 is  reflected  in the
                consolidated statement of operations.

                In  addition,  on  December  6,  2006,  the  Company  granted to
                Veerappan  Subramanian  ("VS")  an  option  to  purchase  up  to
                1,750,000  shares  of the  Common  Stock at  $2.13 a share.  The
                option vests as to 250,000 shares  immediately and in subsequent
                250,000  share  installments,  with one  vesting on May 6, 2007,
                another on  December  6, 2007,  a third upon  acceptance  of the
                initial  business  plan of  Novel,  and the  other  installments
                vesting on the accomplishment of certain milestones with respect
                to the first or second  drug  product  developed  by the Company
                (excluding  drug  products  of  Novel)  on or after the 60th day
                after December 6, 2006, under the advisory  services provided to
                the Company.  The per share  weighted-average  fair value of the
                option to  purchase  up to  1,750,000  shares  of  Common  Stock
                granted  to  VS is  $1.36  a  share  for  an  actual  charge  of
                $2,380,000  which will be recognized  over the vesting period of
                the  instrument.  The option was valued using the  Black-Scholes
                option  pricing  model  with  the  following   weighted  average
                assumptions:  no dividend yield;  expected volatility of 46.12%;
                risk free interest rate of 5%; and expected life of 10 years.

                VGS is a wholly owned subsidiary of Kali Capital, L.P., which is
                controlled  by  Kali  Management,   LLC  ("KALI"),  its  general
                partner, and Kali is controlled by Anu Subramanian, its managing
                member and daughter of VS. VS was subsequently  appointed to the
                Board of Directors of the Company and became the Company's Chief
                Scientific Officer. See "Item 5. Other Information."

                On July 12,  2006,  the  Company  sold to Indigo  Ventures,  LLC
                ("Indigo")  for  $150,000  a warrant to  purchase  up to 600,000
                shares  of  Common  Stock at $3.00  per  share  pursuant  to the
                Financial   Advisory   Agreement   with  Indigo  (the  "Advisory
                Agreement"),  of which  100,000  shares  of  Common  Stock  have
                vested.  The Advisory Agreement has been amended and the warrant
                reduced  from  600,000 to 300,000  shares of Common  Stock.  See
                "Note 5. Subsequent Events."

                The following  grants were made under the  Company's  2004 Stock
                Option Plan in the nine months ended December 31, 2006:

                On November 21,  2006,  the Company  granted  options to sixteen
                employees to purchase an  aggregate  of 66,500  shares of Common
                Stock with an  exercise  price of $2.26 to vest over a period of
                three years from grant date.

                                       8
<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STAT EMENTS
             THREE AND NINE MONTHS ENDED DECEMBER 31, 2006 AND 2005
                                   (UNAUDITED)

NOTE 3 -        STOCKHOLDERS' EQUITY (Continued)

                WARRANTS AND OPTIONS (Continued)

                On November 13, 2006,  the Company  granted to Bernard Berk, the
                Company's  Chief  Executive  Officer,  according to terms of the
                Second  Amended and  Restated  Employment  Agreement  additional
                stock options to purchase up to 300,000  shares of the Company's
                Common Stock at $3.00 a share. See "Item 5, Other Information".

                Additionally,  under  employment  agreements  with  each  of Dr.
                Charan  Behl,  Executive  Vice  President  and Chief  Scientific
                Officer,  and Chris Dick,  Executive Vice President of Corporate
                Development, the Company granted to each, options to purchase up
                to 750,000 shares of Common Stock at $2.25 a share. See "Item 5.
                Other Information".

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

                On May 3, 2006, the Company  granted  options to purchase 70,000
                shares  of  Common  Stock at a price of $2.26  per share to Mark
                Gittelman, its Chief Financial Officer. One-third of the options
                vest on each of May 3, 2007, May 3, 2008 and May 3, 2009.

                Additionally,  between  February and October  2006,  the Company
                granted  ten year  options to twelve  employees  to  purchase an
                aggregate of 83,000 shares of Common Stock with exercise  prices
                ranging  from $2.25 to $2.30 per share and to vest over a period
                of three years from grant date.

                The per share  weighted  average of the stock option grants made
                under the  Company's  2004 Stock  Option Plan in the nine months
                ended  December 31,  2006,  ranged from $1.36 to $1.69 using the
                Black-Scholes  options pricing model with the following weighted
                average  assumptions:  no dividend  yield;  expected  volatility
                ranging from 46.12% to 57.95%;  risk free interest rate of 5.00%
                and expected lives of ten years.

                The following  grants were made under the  Company's  2004 Stock
                Option Plan in the nine months ended December 31, 2005.

                On September 2, 2005,  the Chief  Executive  Officer  waived his
                rights to 75,000 of 300,000  options  granted to him on July 23,
                2003  and the  Company  determined  that the  remaining  225,000
                options are fully vested.  In addition,  the Company granted him
                under its 2004 Stock Option Plan ten year options to purchase an
                additional  600,000  shares of Common  Stock at a price of $2.69
                per share of which 100,000 vested on September 2, 2006,  100,000
                are to vest on  September  2, 2007 and up to 400,000  options to
                vest as follows:

                        a)      50,000  options upon the closing of each product
                                license or product  sales  transaction  in which
                                the Company  receives an  aggregate  of at least
                                $5,000,000 in net cash

                        b)      10,000  options  upon  filing  with  the  United
                                States Food and Drug  Administration (the "FDA")
                                of each  abbreviated  new drug  application  (an
                                "ANDA") or new drug application (an "NDA"); and

                        c)      40,000  options upon  approval by the FDA of any
                                ANDA  or  NDA  for  a  product  not   previously
                                approved by the FDA.

                                       9
<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STAT EMENTS
             THREE AND NINE MONTHS ENDED DECEMBER 31, 2006 AND 2005
                                   (UNAUDITED)

NOTE 3 -        STOCKHOLDERS' EQUITY (Continued)

                WARRANTS AND OPTIONS (Continued)

                The per share weighted  value of the option to purchase  600,000
                shares of Common  Stock at $2.69 per share is $2.42.  The option
                was valued using the Black-Scholes option pricing model with the
                following  weighted  average  assumptions:  no  dividend  yield;
                expected volatility of 97.84%; risk free interest rate of 4.18%;
                and expected lives of 10 years.

                On August 30, 2005,  the Company  granted to the  Directors  ten
                year  options to  purchase  an  aggregate  of 120,000  shares of
                Common  Stock at a price of $2.75 per share to vest over a three
                year period from date of grant.  The per share  weighted-average
                fair value of the  120,000  options  amounted to $2.48 using the
                Black-Scholes  options pricing model with the following weighted
                average assumptions:  no dividend yield;  expected volatility of
                97.84%;  risk free interest rate of 4.18%; and expected lives of
                ten years.

                On August 24,  2005,  the Company  granted  ten year  options to
                purchase in the  aggregate  2,000 shares at a price of $2.81 per
                share to  employees  of the  Company  vesting  over a three year
                period from date of grant. The per share  weighted-average  fair
                value  of  the  2000   options   amounted  to  $2.53  using  the
                Black-Scholes  options pricing model with the following weighted
                average assumptions:  no dividend yield;  expected volatility of
                97.84%;  risk free interest rate of 4.18%; and expected lives of
                ten years.

                On July 14,  2005,  the  Company  granted  ten year  options  to
                purchase at a price of $2.80 per share an  aggregate  of 152,200
                shares of Common Stock to employees of the Company.  The options
                provided  vesting  periods ranging from immediate to a period of
                five  years from date to grant.  The per share  weighted-average
                fair value of the  152,500  options  amounted to $2.52 using the
                Black-Scholes  options pricing model with the following weighted
                average assumptions:  no dividend yield;  expected volatility of
                97.84%;  risk free interest rate of 4.18%; and expected lives of
                ten years.

                Additionally,  on July 14,  2005,  the Company  granted ten year
                options to purchase  20,000 shares of Common stock at a price of
                $2.80 per share to its Chief Financial Officer. The option vests
                over a  three-year  period  from  date of  grant.  The per share
                weighted-average  fair value of the 20,000  options  amounted to
                $2.52 using the  Black-Scholes  options  pricing  model with the
                following  weighted  average  assumptions:  no  dividend  yield;
                expected volatility of 97.84%; risk free interest rate of 4.18%;
                and expected lives of ten years.

                The  Company,  in  May  2005,  revoked  180,000  of  outstanding
                unexercised  options  granted  prior to the adoption of the 2004
                Stock  Option  Plan  originally  earmarked  to  members  of  the
                abandoned Scientific Advisory Board.

                The Company took charges of $2,438,188 and $618,580 for the nine
                months  ended  December  31,  2006 and 2005,  respectively,  and
                $1,848,876  and $287,303 for the three months ended December 31,
                2006 and 2005, respectively,  which represents the fair value of
                the vested options,  utilizing the Black-Scholes options pricing
                model on the grant date.

                At December  31,  2006,  the Company had  outstanding  6,622,500
                options  with  exercise  prices  ranging from $1.50 to $3.00 per
                share and 6,940,445  warrants with exercise  prices ranging from
                $1.50 to $4.20 per share;  each option and warrant  representing
                the right to purchase one share of Common Stock.

                                       10
<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             THREE AND NINE MONTHS ENDED DECEMBER 31, 2006 AND 2005
                                   (UNAUDITED)

NOTE 4 -        COMMITMENTS AND CONTINGENCIES

                COLLABORATIVE AGREEMENTS

                On June 21,  2005,  the Company and  IntelliPharmaCeutics  Corp.
                ("IPC"),  entered  into an  agreement  for the  development  and
                commercialization  of a  controlled  released  generic  drug for
                certain gastric diseases by the parties. The Company is to share
                in the  profits,  if  any,  from  the  sales  of the  drug.  The
                agreement  was amended on  December  12,  2005,  whereby IPC and
                another company with marketing and distribution  capabilities in
                Canada, have agreed to develop and commercialize the product for
                Canada.  The  Company  and IPC  will  share  their  proceeds  of
                commercialization in Canada on the same terms as in the June 21,
                2005 Agreement.

                On June 22, 2005, the Company 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 the Company. The Company is to
                manufacture  and Pliva is to market  and sell the  product.  The
                development  costs are to be paid by Pliva and the  Company  and
                the profits are to be shared equally. Pliva is to make milestone
                payments to the  Company.  As of  December  31, 2006 no revenues
                have been generated under the agreement.

                On November  10,  2006,  the Company and  ThePharmaNetwork,  LLC
                ("TPN") entered into a Product  Collaboration  Agreement for the
                development  of a specific  synthetic  narcotic  analgesic  drug
                product from which a generic equivalent is to be developed.  TPN
                is to  perform  development  services  and  prepare  and file an
                Abbreviated New Drug Application  (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 is to  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.  As of December  31, 2006,  no revenues  have been
                generated under the agreement.

                The aforementioned agreements are in their early stages.

                On June 19,  2006,  the  Company  received  written  notice from
                Harris  Pharmaceutical,  Inc.  ("Harris")  of Harris'  intent to
                terminate a Product Development,  Manufacturing and Distribution
                Agreement,  dated as of March  30,  2005  with  Harris  and Tish
                Technologies  LLC ("Tish") with respect to a controlled  release
                generic anti-infective drug. The product is a generic equivalent
                to a  branded  drug.  The  agreement  provides  for (i) the drug
                development  by the  Company  with  costs of  development  to be
                shared by the Company and Harris,  (ii) the  manufacture  of the
                product by the Company and its sale to Harris for  distribution,
                and (iii) Tish to be responsible  for any requisite  submissions
                to the FDA relating to the  product.  The Company is to share in
                the profits,  if any, generated from the sale of the product. As
                of December  31,  2006,  no revenues  had been earned  under the
                agreement and Harris owes the Company  $394,637 for its share of
                the development costs.

                CONSULTING AGREEMENTS

                On May 23, 2006, the Company entered into a consulting agreement
                with Oppenheimer & Co., Inc. ("Oppenheimer") to render financial
                advisory  services to the Company in connection  with  potential
                acquisitions  by the  Company,  strategic  alliances  with other
                pharmaceutical   companies,   advice  with   respect  to  future
                financings to be undertaken by the Company and  introductions to
                key parties in the capital markets. In consideration the Company
                paid Oppenheimer a cash fee of $60,000.

                                       11
<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             THREE AND NINE MONTHS ENDED DECEMBER 31, 2006 AND 2005
                                   (UNAUDITED)

NOTE 4 -        COMMITMENTS AND CONTINGENCIES (Continued)

                CONSULTING AGREEMENTS (Continued)

                On November 8, 2005, the Company  entered into an agreement with
                an investor relations firm to provide investor relation services
                including,  but  not  limited  to,  overall  management  of  the
                Company's  corporate  communications  program,   securing  group
                appointments,  assistance with mass targeted mailings, compiling
                promotional materials, editing news releases and other corporate
                functions.  The agreement provided that consultant is to receive
                $10,000 a month  beginning  November  1, 2005 and  non-qualified
                options to purchase 75,000 shares of the Company's Common Stock,
                vesting  pro-rata over a nine month period,  at a price of $2.26
                per share,  the fair market  value of a share of Common Stock on
                the date of the grant. The per share weighted average fair value
                of the above-mentioned options was $1.70 using the Black-Scholes
                option pricing model.

                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.

                For  the  three  and  nine  months  ended   December  31,  2006,
                consulting  expenses  under  these  agreements  amounted  to  an
                aggregate of $75,000 and $225,000, respectively.

                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.

                                       12
<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             THREE AND NINE MONTHS ENDED DECEMBER 31, 2006 AND 2005
                                   (UNAUDITED)

NOTE 4 -        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  contributed  $2,000,000  to Novel  and  agreed  to
                provide   additional   contributions   within  30  days  of  the
                achievement  of  certain   performance   milestones   (e.g.  the
                initiation of  development  programs for  prospective  products,
                commencement and/or completion of clinical and/or bioequivalence
                studies for  prospective  products,  filings with the FDA of new
                drug or abbreviated new drug applications related to prospective
                products)  which are  mutually  agreed to by the Company and VS,
                who is employed as Chief Executive  Officer of Novel, in Novel's
                Initial  Business  Plan,  which may be modified in a  subsequent
                Business  Plan, to occur during the initial 30 months  following
                December 6, 2006 (collectively,  the "Performance  Milestones").
                The agreement  provides  contributions,  subject to acceleration
                with unanimous  approval of the Board of Directors of Novel, are
                to be in amounts  mutually  agreed to by the  Company  and VS as
                provided in the Initial Business Plan and each subsequent annual
                Business  Plan during the initial 30 month period and are not to
                exceed  $25,000,000 in the aggregate,  without the prior consent
                of  the  Company.  The  Company  has  agreed  to  provide  Novel
                personnel  staff,  facility,   supplies  and  equipment  pending
                Novel's becoming fully operational with its own staff, facility,
                equipment and supplies.

                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.

                                       13
<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             THREE AND NINE MONTHS ENDED DECEMBER 31, 2006 AND 2005
                                   (UNAUDITED)

NOTE 4 -        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".

                                       14
<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             THREE AND NINE MONTHS ENDED DECEMBER 31, 2006 AND 2005
                                   (UNAUDITED)

NOTE 4 -        COMMITMENTS AND CONTINGENCIES (Continued)

                ADVISORY AGREEMENT

                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 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.

                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.

                                       15
<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             THREE AND NINE MONTHS ENDED DECEMBER 31, 2006 AND 2005
                                   (UNAUDITED)

NOTE 4 -        COMMITMENTS AND CONTINGENCIES (Continued)

                EMPLOYMENT AGREEMENTS (Continued)

                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 and accrued but not payable  until  November
                        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.  See  "Note 3 -
                        Warrants and Options".

            -           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 a second amended
                and  restated  employment  agreement  with Bernard Berk as Chief
                Executive  Officer and  employment  agreements  with each of Dr.
                Charan Behl as Executive  Vice  President  and Chief  Scientific
                Officer and Chris Dick as Executive  Vice President of Corporate
                Development. Each agreement is for an additional or initial term
                of three years subject to annual  extensions,  unless terminated
                by notice by either  the  Company or the  executive  at least 60
                days before the period of extension.

                Mr. Berk's agreement continues his annual salary of $330,140.

                Dr.  Behl's and Mr.  Dick's  agreements  provide for annual base
                salaries of $250,000 and $200,000  respectively,  plus an annual
                bonus for each of $25,000. The Compensation  Committee as to Mr.
                Berk and the Board of Directors or Compensation  Committee as to
                Dr. Behl and Mr. Dick may authorize the payment to the executive
                of a  discretionary  bonus of up to 50% of his then  annual base
                salary,  based on various factors.  Each agreement  provides for
                severance pay in the event of  termination by the Company due to
                disability,  or  without  cause,  or by the  executive  for good
                reason.

                The agreements provide for the grant to each of Dr. Behl and Mr.
                Dick under the Company's 2004 Stock Option Plan incentive  stock
                options to purchase 250,000 shares of the Company's Common Stock
                at $2.25 per share, the market price on the date of grant. Based
                on the  occurrence  within the initial term of  employment  of a
                specified  transaction  or event  (including  a  market  product
                license or product  sale or  completion  of the first  Phase III
                clinical  trial of a  specified  drug under  development  or the
                filing or granting of an ANDA or NDA or U.S. patent  application
                not previously  filed or granted) up to 500,000  incentive stock
                options  granted  to each of Dr.  Behl and Mr.  Dick will  vest.
                Subject to the full vesting of his foregoing  options during the
                initial term of his  agreement,  each  executive will be granted
                additional  incentive  stock  options at the market price on the
                date of grant at the end of the first  fiscal  year in which the
                event or transaction occurs. See "Item 5. Other Information".

                                       16
<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             THREE AND NINE MONTHS ENDED DECEMBER 31, 2006 AND 2005
                                   (UNAUDITED)

NOTE 4 -        COMMITMENTS AND CONTINGENCIES (Continued)

                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 has a renewal
                option for a five-year period.

                Future  minimum  lease  payments  for the twelve  months  ending
                December 31, 2007 are $17,682.

NOTE 5 -        SUBSEQUENT EVENTS

                The  Company  entered  into the  following  material  definitive
                agreements subsequent to December 31, 2006:


                AMENDMENT OF FINANCIAL  ADVISORY AGREEMENT

                On February 13, 2007,  the  Financial  Advisory  Agreement  (the
                "Advisory  Agreement")  between the Company and Indigo Ventures,
                LLC,  ("Indigo")  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 right to exercise  the warrant was reduced  from  600,000 to
                300,000 shares of common stock 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.

                                       17
<PAGE>

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

        THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 2006 COMPARED TO
      THE THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 2005 (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,  2006  (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

         The Company is a specialty  pharmaceutical  company principally engaged
in the development and manufacturing of oral  controlled-release  products.  The
Company's  strategy includes  developing  generic versions of controlled release
drug products with high barriers to entry and assisting partner companies in the
life cycle  management  of products to improve  off-patent  drug  products.  The
Company's  technology is applicable  to develop  delayed,  sustained or targeted
release  capsules or tablets.  The Company has one product  currently being sold
commercially  and a pipeline of eight drug  products  under  development  in the
therapeutic  areas that include  pain  management,  cardiovascular,  allergy and
infection.  The addressable  market for the Elite's current  products exceeds $6
billion in the aggregate. The Company also has a GMP and DEA registered facility
for research, development, and manufacturing located in Northvale, New Jersey.

         In December, 2006, the Company contributed $2,000,000 to a newly formed
corporation to carry out the  initiatives of an Alliance  Agreement  between the
Company and Dr.  Veerappan S.  Subramanian  including  but not  limited,  to the
commercialization   of  the  Company's   existing  pipeline  and  the  research,
development

                                       18
<PAGE>

manufacturing licensing and acquisition of specialty generic pharmaceuticals.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         Management's  discussion addresses the Company's 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 long-lived  assets,  intangible  assets,  income taxes,  equity-based
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.

         The Company's most critical accounting policies include the recognition
of revenue upon  completion  of certain  phases of projects  under  research and
development  contracts.  Revenues  from  these  contracts  are  recognized  when
management determines the Company has completed its obligation under each phase.
The Company  also  assesses a need for an  allowance  to reduce its deferred tax
assets to the amount that it believes  are more likely than not to be  realized.
Management  estimates its net operating  losses will probably not be utilized in
the near future,  and has not  recognized  a tax benefit from this  deferred tax
asset. If management anticipated being profitable,  a deferred tax benefit would
be  recognized  and such  estimate  would reduce net loss and net loss per share
accordingly.  The Company assesses the  recoverability  of long-lived assets and
intangible assets whenever events or changes in circumstances  indicate that the
carrying value of the assets may not be  recoverable.  Management  estimates the
Company's  patents and property and equipment are not impaired.  If these assets
were considered  impaired,  the Company would recognize an impairment loss which
would  increase the  Company's net loss and net loss per share  accordingly.  It
should be noted that  actual  results  may differ  from  these  estimates  under
different assumptions or conditions.

RESULTS OF CONSOLIDATED OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 2006 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
2005

         The $231,434 of revenues  consisted of  manufacturing  fees of $209,139
and  royalties  of $22,295 for the three months  ended  December  31, 2006.  The
manufacturing  fees arose from the manufacture of commercial  batches or Lodrane
24(R) and Lodrane  24D(R).  All of the $15,635 of revenues  for the three months
ended December 31, 2005 were royalties.

         Research and development  costs for the three months ended December 31,
2006 were  $1,691,861,  an increase of $567,280,  or approximately  50.4%,  from
$1,124,581  for the  comparable  period  of the prior  year.  The  increase  was
primarily the result of increases in wages and related  payroll taxes and fringe
benefits, raw materials,  and laboratory and manufacturing  supplies,  including
costs associated with the  manufacturing of batches of Lodrane 24(R) and Lodrane
24D(R), the work completed on newly signed development  agreements,  the advance
of our abuse resistant oxycodone into Phase II and completion of a Phase I study
as to the ELI 154 once daily oxycodone drug.

         General and  administrative  expenses  (G&A) for the three months ended
December  31, 2006 were  $510,569,  an increase of  $130,676,  or  approximately
34.4%,  from G&A for the  comparable  period of the prior year. The increase was
substantially  due to higher  consulting  fees and wages and salaries  partially
offset by a

                                       19
<PAGE>

decrease in legal and accounting fees.

         We are in the process of implementing a cost accounting system to allow
for the  capturing  and  reporting  of  costs of goods  sold  and  research  and
development  costs by product.  However since the cost accounting system has not
been fully  implemented,  we are unable to provide a break-down  of the specific
costs  associated  with the research and development of each product on which we
devoted  resources  because a  significant  portion  of the costs are  generally
associated  with salaries,  laboratory  supplies,  laboratory and  manufacturing
expenses,  utilities and similar  expenses.  We have not historically  allocated
these expenses to any particular  product.  In addition,  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.

         Depreciation  and  amortization for the three months ended December 31,
2006  increased  by $30,585,  or 31.7%,  to $127,035  from  $96,450 for the year
earlier   comparable  period;  the  result  of  increases  in  depreciation  and
amortization  on acquired  new  machinery  and  equipment  and  upgrading of the
corporate  and  warehouse  facilities,   partially  offset  by  a  reduction  in
amortization of financing costs.

         Other  expenses,  net for the three months ended December 31, 2006 were
$1,472,438,  an increase  of  $1,356,206,  or  approximately  1166.8%,  from the
comparable  period of the prior  year.  The  increase  was  primarily  due to an
increase in non-cash  compensation  of $1,561,573  of options  granted under new
employment  agreements,  slightly  offset by an  increase of $44,040 in interest
income due to higher  compensating  balances arising from the private  placement
and NJEDA refinancing.

         As a result  of the  foregoing,  the  Company's  net loss for the three
months ended  December 31, 2006  increased  to  $3,564,971  from the net loss of
$1,701,521 for the comparable period of the prior year.

NINE MONTHS ENDED  DECEMBER 31, 2006 COMPARED TO NINE MONTHS ENDED  DECEMBER 31,
2005

         The $543,537 of revenues  for the nine months  ended  December 31, 2006
consisted  of  manufacturing  fees of $476,598  and  royalties  of $66,939.  The
manufacturing  fees arose from the manufacture of commercial  batches or Lodrane
24(R) and Lodrane  24D(R).  The  $402,578 of revenues  for the nine months ended
December 31, 2005 consisted of  manufacturing  fees of $369,173 and royalties of
$33,405.

         Research and  development  costs for the nine months ended December 31,
2006 were $4,317,151,  an increase of $1,454,243,  or approximately  50.8%, from
$2,862,908 for the comparable period of the prior year,  primarily the result of
increased wages and related payroll taxes and fringe benefits, testing fees, lab
and  manufacturing  supplies and raw  materials  due largely to  manufacture  of
commercial  batches of Lodrane  24(R) and Lodrane  24D(R) and work  completed on
newly signed  development  agreements,  largely  associated  with advance of our
abuse resistant  oxycodone into Phase II and completion of a Phase I study as to
the ELI 154 once daily oxycodone drug.

         For the nine months ended December 31, 2006, general and administrative
expenses were $1,600,287, an increase of $359,179, or 28.9%, from $1,241,108 for
the comparable period of the prior year, substantially due to increases in wages
and related payroll taxes,  consulting fees,  hiring expenses and temporary help
resulting in part from the expansion of staff and employee salaries.

         Depreciation  and  amortization  for the nine months ended December 31,
2006 was $366,105,  a decrease of $39,457,  or approximately 9.7%, from $405,562
for the comparable  period of the prior year. This was the result of the Company
taking  in 2005  the full  write-off  of  financing  costs  associated  with the
redemption of tax exempt bonds,  originally issued by the Authority on September
2, 1999,  partially  offset by increases in depreciation in 2006 due to acquired
new  machinery  and  equipment  and  upgrading of the  corporate  and  warehouse
facilities.

                                       20
<PAGE>

         Other  expenses,  net for the nine months ended  December 31, 2006 were
$2,014,666,  an increase of $1,474,117,  or approximately  272.7%, from $540,549
for the  comparable  period of the prior year,  primarily  due to an increase of
$1,819,608  arising from grants and vesting of stock options partially offset by
additional  interest income due to higher  compensating  balances as a result of
the private  placement  and NJEDA  refinancing  and higher sale  proceeds of New
Jersey tax losses.

         As a  result  of the  foregoing,  the  Company's  net loss for the nine
months ended  December 31, 2006  increased  to  $7,750,174  from the net loss of
$4,648,549 for the comparable period of the prior year.

MATERIAL CHANGES IN FINANCIAL CONDITION

         The Company's  working capital (total current assets less total current
liabilities), decreased to $4,892,823 as of December 31, 2006 from $8,615,287 as
of March 31, 2006,  primarily  due to the use of cash in funding the net loss of
$5,740,006 from operations.

         The  Company   experienced   negative  cash  flow  from  operations  of
$5,609,699 for the nine months ended December 31, 2006,  primarily the result of
the Company's net loss from  operations  caused by small  revenues and increased
research and development activities for the drug products in its pipeline.

         On November 15, 2004,  the Company's  partner,  ECR,  launched  Lodrane
24(R),  once a day allergy  product,  utilizing the Company's  extended  release
technology to provide for once daily dosing. Under its agreement with ECR, Elite
is currently  manufacturing  commercial batches of Lodrane 24(R) in exchange for
manufacturing  fees and royalties on product  revenues.  Manufacturing  fees and
royalty  income earned for the nine months ended  December 31, 2006 was $476,598
and  $66,939,   respectively.   The  Company  expects  future  cash  flows  from
manufacturing  fees and royalties to provide additional cash to help to fund its
operations.

         On June 21, 2005, the Company and  IntelliPharmaCeutics  Corp. ("IPC"),
entered  into  an  agreement  for the  development  and  commercialization  of a
controlled  released  generic  drug for certain  anti-infective  diseases by the
parties. The Company estimated that the product had an addressable market in the
U.S.  of  approximately  $4  billion  in 2004.  The  Company  is to share in the
profits,  if any,  from the sales of the drug.  The  agreement  was  amended  on
December  12,  2005,   whereby  IPC  and  another  company  with  marketing  and
distribution  capabilities  in  Canada,  have  agreed  to  the  development  and
commercialization  of the  product for Canada with Elite and IPC to share in the
proceeds of commercialization in Canada.

         On June 22, 2005, the Company 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 the
Company.  The  Company  is to  manufacture  and Pliva is to market  and sell the
product.  Under  the  agreement,  Pliva  is to make  milestone  payments  to the
Company.  The development costs are to be paid both by Pliva and the Company and
the profits are to be shared.

         No  assurance  can be given  that  any of the  above  products  will be
successfully  developed  or that  individually  or in the  aggregate  they  will
generate any material revenues for the Company.

LIQUIDITY AND CAPITAL RESOURCES

         For the nine months ended  December 31, 2006,  the Company  experienced
negative cash flow and financed its operations  primarily through utilization of
its existing cash. As of December 31, 2006, the Company had  approximately  $5.1
million of cash and cash equivalents,  a decrease of approximately  $3.8 million
from $8.9  million at March 31,  2006 and had working  capital of  approximately
$4.9 million.

         Net  cash  used in  operating  activities  for the  nine  months  ended
December 31, 2006, was $5,609,699

                                       21
<PAGE>

compared to $3,246,283 for the nine months ended December 31, 2005. The increase
was the result of the Company's net loss of $7,750,174  and increases in prepaid
expenses  and other  current  assets,  offset  in part by  non-cash  charges  of
$2,438,188  with  respect to stock  option  grants and vesting  and  $366,105 in
depreciation and amortization expense. The net cash used in operating activities
during the nine months ended December 31, 2005 arose from the Company's net loss
of $4,648,549 offset in part by non-cash charges of $618,580 of stock option and
warrant charges and $405,562 of depreciation and amortization expense.

         Investing  activities  used net cash of $104,012 during the nine months
ended December 31, 2006, which resulted  primarily from $678,507 of property and
equipment  purchases  partially  offset by the  release  of  restricted  cash of
$579,965.

         During the nine months ended  December 31, 2006, net cash of $1,879,359
provided by financing activities was primarily the result of a $2,000,000 equity
infusion and $88,500 generated from the exercise of stock options offset in part
by $34,141 in dividends  and $175,000 in principal  payments on the NJEDA Bonds.
During the nine months ended December 31, 2005,  financing  activities  provided
net cash of  $2,474,482  derived from the exercise of stock options and warrants
for $1,292,995  and net proceeds of $3,800,548  derived from  refinancing  NJEDA
Bonds, partially offset by $2,619,061 in principal note payments.

         The  Company   anticipates  that  the  cash  and  cash  equivalents  of
approximately  $5 million as of December 31,  2006,  are adequate to finance its
operations  through June 30, 2007 but  thereafter  additional  financing  may be
required,  particularly in view of the Company's  expenditures  required for the
further development and  commercialization  of its products.  The Company has no
current arrangements with respect to additional financings.  The Company intends
to seek additional funds through the additional debt or equity funding;  however
no  assurance  can be given that the Company will be able to obtain the required
additional financing or if obtained it will be on favorable terms. The Company's
inability to obtain additional financing when needed would impair its ability to
continue  to meet its  business  objectives.  Other  possible  sources  for such
additional financings are revenue derived from product licensing, cash exercises
of the long term  warrants  issued in the October  2004 private  placement,  the
replacement  warrants  issued in the December 2005 private  placement,  warrants
issued in the March 2006 private  placement and other  warrants and options that
are currently outstanding.

         The Company had  outstanding,  as of December  31,  2006,  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%
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 reserve, is expected to be expended
within the year ended March 31, 2007 and is therefore  categorized  as a current
asset on the  Company's  consolidated  balance  sheet as of December  31,  2006.
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 December 31,  2006,  the Company was in
compliance with the bond covenants.

         The  Company  from  time  to  time  may  consider  potential  strategic
transactions  including  acquisitions,  strategic alliances,  joint ventures and
licensing  arrangements  with other  pharmaceutical  companies.  There can be no
assurance that any such transaction will be available or consummated.

         As of December 31, 2006,  the Company's  principal  source of liquidity
was cash and cash equivalents of approximately $5 million.  The Company also may
receive funds through the exercise of outstanding stock

                                       22
<PAGE>

options  and  warrants  in  addition  to funds  that may be  generated  from the
potential sale of New Jersey tax losses. There can be no assurance that proceeds
from  the sale of tax  losses  and from the  exercise,  if any,  of  outstanding
warrants or options will be material.


ITEM 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company had no investments in marketable  securities as of December
31, 2006 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 December 31, 2006 that
materially  affected or is reasonably  likely to materially affect the Company's
internal controls over financial reporting.

                                       23
<PAGE>

PART II.          OTHER INFORMATION

ITEM 5.           OTHER INFORMATION.

EXECUTIVE EMPLOYMENT AGREEMENTS.

         The Company on November 13, 2006  entered  into (i) the Second  Amended
and Restated  Employment  Agreement with Mr.  Bernard Berk  ("Berk"),  its Chief
Executive Officer and Chairman of the Board of Directors (the "Berk Agreement");
(ii) an employment  agreement  with Dr.  Charan 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 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 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

                                       24
<PAGE>

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,  21  U.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 developed by the Company and (ii)
up to an  additional  125,000  shares as to such  trial  relating  to the second
Non-Generic  Opioid Drug  developed by the Company,  (b) 50,000  shares upon the
closing of each 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

                                       25
<PAGE>

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 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.

         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 insurance, health and accident, medical
plans and programs and profit sharing and retirement plans.

                                       26
<PAGE>

         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 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.

STRATEGIC ALLIANCE

         See  "Note  4.  Alliance  Agreement"  of  the  Company's   Consolidated
Financial Statements for information concerning the 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) the  Company  engaged VS to serve as
strategic   advisor  to  the   Company   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   contributes   $2,000,000  to  Novel  and  agreed  to  make  additional
contributions.

         VS  is  a  highly  accomplished  formulator  and  experienced  business
executive in the generic  pharmaceutical  industry.  VS has been responsible for
the  development  and FDA  approval  of over  150  specialty  and  generic  drug
products.  VGS is a  wholly-owned  subsidiary  of Kali Capital,  L.P.,  which is
controlled by Kali Management,  LLC ("Kali"),  its general partner,  and Kali is
controlled by Anu Subramanian, its managing member and daughter of VS.

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. 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 who is to report to
the Chief Executive  Officer,  the Chief  Scientific  Officer and any additional
executive  officer  designated  by the Board of  Directors  of the Company  (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.

         In July 2006,  Dr.  Charan  Behl,  its then Chief  Scientific  Officer,
consented to an injunction  entered by the United States  District Court for the
District of Columbia  and agreed to pay  penalties  for  alleged  violations  of
Section 17(a) of the  Securities  Act of 1933, as amended,  and Section 10(b) of
the Securities  Exchange Act of 1934, as amended (the "Exchange  Act"), and Rule
10b-5  promulgated  under the Exchange  Act. The United  States  Securities  and
Exchange  Commission (the "SEC") alleged that, in May 2004, Dr. Behl sold shares
of another public company subject to the reporting  requirements of the Exchange
Act, based on information received from a then employee of such company relating
to a FDA notification regarding a New Drug Application filed by such company. In
August  2006,  a final  judgment  was  entered  against  Dr. Behl based upon his
consent (the "Final  Judgment").  The events described above did not involve the
Company nor any  securities of the Company.  Prior to December 2006, the Company
had no knowledge of the alleged  events,  the SEC complaint or the related Final
Judgment.

                                       27
<PAGE>

ITEM 6.           EXHIBITS

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

Exhibit
Number     Description
--------------------------------------------------------------------------------

10.1       Product Collaboration  Agreement with ThePharmaNetwork,  LLC dated as
           of November 10, 2006 filed as an exhibit to Company's  Current Report
           on Form 8-K dated  November  15, 2006 and  incorporated  by reference
           thereto.

10.2       Second Amended and Restated  Employment  Agreement with Bernard Berk,
           dated November 13, 2006,  filed as an exhibit to Company's  Quarterly
           Report on Form 10-Q  dated  November  14,  2006 and  incorporated  by
           reference thereto.

10.3       Employment  Agreement with Chris Dick, dated November 13, 2006, filed
           as an exhibit to  Company's  Current  Report on  Company's  Quarterly
           Report on Form 10-Q  dated  November  14,  2006 and  incorporated  by
           reference thereto.

10.4       Employment Agreement with Charan Behl, dated November 13, 2006, filed
           as an exhibit to  Company's  Current  Report on  Company's  Quarterly
           Report on Form 10-Q  dated  November  14,  2006 and  incorporated  by
           reference thereto.

10.5       Strategic Alliance Agreement between Company, VGS Pharma, LLC ("VGS")
           and Veerappan  Subramainian ("VS") dated as of December 6, 2006 filed
           as an exhibit to Company's  Current  Report on Form 8K dated December
           12, 2006 and incorporated by reference thereto.

10.6       Advisory  Agreement  between  Company  and VS filed as an  exhibit to
           Company's  Current  Report  on Form 8K dated  December  12,  2006 and
           incorporated by reference thereto.

10.7       Registration Rights Agreement between Company, VGS and VS filed as an
           exhibit to  Company's  Current  Report on Form 8K dated  December 12,
           2006 and incorporated by reference thereto.

10.8       Employment Agreement between Novel Laboratories, Inc. and VS filed as
           an exhibit to Company's  Current Report on Form 8K dated December 12,
           2006 and incorporated by reference thereto.

10.9       Stockholders'  Agreement between Company,  VGS, VS and Novel filed as
           an exhibit to Company's  Current Report on Form 8K dated December 12,
           2006 and incorporated by reference thereto.

10.10      Warrant issued to VGS filed as an exhibit to Company's Current Report
           on Form 8K dated  December  12, 2006 and  incorporated  by  reference
           thereto.

10.11      Nonqualified  Stock  Option  granted  to VS  filed as an  exhibit  to
           Company's  Current  Report  on Form 8K dated  December  12,  2006 and
           incorporated by reference thereto.

10.12      Amended and Restated  Employment  Agreement  with Charan Behl,  dated
           February 9, 2007, filed as an exhibit to Company's  Current Report on
           Form 8-K dated  February  14,  2007 and  incorporated  by reference
           thereto.

                                       28
<PAGE>

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.




                                       29
<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:  February 14, 2007            By: /s/ Bernard Berk

                                    ----------------------------
                                    Bernard Berk
                                    Chief Executive Officer
                                    (Principal Executive Officer)


Date:  February 14, 2007            By:  /s/ Mark I. Gittelman

                                    ----------------------------
                                    Mark I. Gittelman
                                    Chief Financial Officer and Treasurer
                                    (Principal Financial and Accounting Officer)


                                       30