UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K
(MARK ONE)

      |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934



                   FOR THE FISCAL YEAR ENDED - MARCH 31, 2005

                                       OR

          |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                 FOR THE TRANSITION PERIOD FROM ______ 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)

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



Securities registered pursuant                     Common Stock - $.01 par value
to Section 12(b) of the Act:                         The Common Stock is listed
                                                 on the American Stock  Exchange

Securities registered pursuant to Section                        None
12(g) of the Act:

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 Registrant was required
to file such reports)

<PAGE>

and (2) has been subject to such filing requirements for at least the past 90
days. Yes [X] No [_]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K. [_]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).               Yes [_] No [X]

The aggregate market value of the voting common equity held by non-affiliates of
the registrant as of June 20, 2005 was approximately  $51,126,066 based upon the
closing price of the  registrant's  Common Stock on the American Stock Exchange,
as of June 20, 2005. (For purposes of determining  this amount,  only directors,
executive  officers,  and  10% or  greater  stockholders  and  their  respective
affiliates have been deemed affiliates).

Registrant  had  18,178,167  shares of Common Stock,  par value $0.01 per share,
outstanding as of June 20, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

There are no documents  incorporated  by reference into the Annual Report or any
part of the report.



<PAGE>


                           FORWARD LOOKING STATEMENTS

THIS ANNUAL REPORT ON FORM 10-K CONTAIN "FORWARD-LOOKING  STATEMENTS" WITHIN THE
MEANING  OF  THE  PRIVATE  SECURITIES   LITIGATION  REFORM  ACT  OF  1995.  SUCH
FORWARD-LOOKING  STATEMENTS  INVOLVE KNOWN AND UNKNOWN RISKS,  UNCERTAINTIES AND
OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF
THE COMPANY,  OR INDUSTRY  RESULTS,  TO BE MATERIALLY  DIFFERENT FROM ANY FUTURE
RESULTS,   PERFORMANCE   OR   ACHIEVEMENTS   EXPRESSED   OR   IMPLIED   BY  SUCH
FORWARD-LOOKING STATEMENTS. WHEN USED IN THIS ANNUAL REPORT, STATEMENTS THAT ARE
NOT STATEMENTS OF CURRENT OR HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING
STATEMENTS.  WITHOUT LIMITING THE FOREGOING, THE WORDS "PLAN", "INTEND",  "MAY,"
"WILL," "EXPECT," "BELIEVE", "COULD," "ANTICIPATE," "ESTIMATE," OR "CONTINUE" OR
SIMILAR  EXPRESSIONS OR OTHER VARIATIONS OR COMPARABLE  TERMINOLOGY ARE INTENDED
TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS.  READERS ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE ON THESE FORWARD-LOOKING  STATEMENTS,  WHICH SPEAK ONLY AS OF THE
DATE HEREOF.  EXCEPT AS REQUIRED BY LAW, THE COMPANY UNDERTAKES NO OBLIGATION TO
UPDATE ANY FORWARD-LOOKING  STATEMENTS,  WHETHER AS A RESULT OF NEW INFORMATION,
FUTURE EVENTS OR OTHERWISE.



<PAGE>


                                TABLE OF CONTENTS

                                 Form 10-K Index

                                     PART I
                                                                            PAGE
Item 1.  Business.........................................................     2
Item 2.  Properties.......................................................    23
Item 3.  Legal Proceedings................................................    23
Item 4.  Submission of Matters to a Vote of Security Holders..............    24

                                  PART II

Item 5.  Market for the Registrant's Common Equity and
               Related Stockholder Matters................................    25

Item 6.  Selected Financial Data..........................................    28

Item 7.  Management's Discussion and Analysis of Financial................    28

Item 7A. Quantitative and Qualitative Disclosures
               About Market Risk..........................................    35
Item 8.  Financial Statements and Supplementary Data......................    35
Item 9.  Changes in and Disagreements with Accountants
               on Accounting and Financial Disclosure.....................    35
Item 9A. Controls and Procedures..........................................    36

                                 PART III

Item 10. Directors and Executive Officers of the Registrant...............    37
Item 11. Executive Compensation...........................................    42
Item 12. Security Ownership of Certain Beneficial Owners
               and Management and Related Stockholder Matters.............    48
Item 13. Certain Relationships and Related Transactions...................    49
Item 14. Principal Accountant Fees and Services...........................    50

                                  PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports
               on Form 8-K................................................    50
Signatures  ..............................................................    54



<PAGE>


                                     PART I

ITEM 1.  BUSINESS

         Elite Pharmaceuticals,  Inc. ("Elite Pharmaceuticals") was incorporated
on October 1, 1997 under the laws of the State of Delaware, and our wholly-owned
subsidiaries,  Elite Laboratories,  Inc. ("Elite Labs") and Elite Research, Inc.
("Elite  Research") were  incorporated on August 23, 1990 and December 20, 2002,
respectively,  under the laws of the State of Delaware.  Elite  Pharmaceuticals,
Elite Labs and Elite Research are referred to herein, collectively,  as "Elite",
"we", "us", "our" or the "Company".

         On October 24,  1997,  Elite  Pharmaceuticals  merged with and into our
predecessor company,  Prologica  International,  Inc.  ("Prologica") an inactive
publicly held corporation formed under the laws of the State of Pennsylvania. At
the same time,  Elite Labs merged with a  wholly-owned  subsidiary of Prologica.
Following  these mergers,  Elite  Pharmaceuticals  survived as the parent to its
wholly-owned subsidiary, Elite Labs.

         On September 30, 2002, we acquired from Elan Corporation,  plc and Elan
International  Services,  Ltd.  (together "Elan") Elan's 19.9% interest in Elite
Research,  Ltd. ("ERL"),  a joint venture formed between Elite and Elan in which
our initial  interest was 80.1% of the  outstanding  capital  stock (100% of the
outstanding  Common Stock). As a result of the termination of the joint venture,
we owned 100% of ERL's  capital  stock.  On December  31,  2002,  ERL (a Bermuda
Corporation) was merged into Elite Research, our wholly-owned subsidiary.

         The address of our  principal  executive  offices and our telephone and
facsimile numbers at that address are:

         Elite Pharmaceuticals,  Inc., 165 Ludlow Avenue,  Northvale, New Jersey
07647; Phone No.: (201) 750-2646; Facsimile No.: (201) 750-2755.

         We file registration  statements,  periodic and current reports,  proxy
statements and other materials with the Securities and Exchange Commission.  You
may read  and  copy any  materials  we file  with  the SEC at the  SEC's  Public
Reference Room at 450 Fifth Street,  NW,  Washington,  DC 20549.  You may obtain
information on the operation of the Public  Reference Room by calling the SEC at
1-800-SEC-0330.  The SEC  maintains  a web  site at  www.sec.gov  that  contains
reports,  proxy  and  information  statements  and other  information  regarding
issuers that file electronically with the SEC, including our filings.


                                       2
<PAGE>


BUSINESS OVERVIEW AND STRATEGY

         Elite is a specialty  pharmaceutical company principally engaged in the
development and manufacture of oral, controlled release products. Elite develops
controlled  release  products  using  proprietary  technology and licenses these
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. Elite's technology is applicable to develop delayed, sustained or
targeted release pellets, capsules, tablets, granules and powders. Elite has one
product  currently being sold  commercially  and a pipeline of six drug products
under  development in the therapeutic  areas that include  cardiovascular,  pain
management,  allergy and infection.  The addressable market for Elite's pipeline
of products  exceeds $2 billion.  Elite's  current  facility in  Northvale,  New
Jersey also is a Good Manufacturing  Practice (GMP) and DEA registered  facility
for research, development, and manufacturing.

         We have  concentrated  on  developing  orally  administered  controlled
release drug products. These products include drugs that cover therapeutic areas
for pain,  angina,  hypertension,  allergy and  infection.  One of our products,
24(R),   has  been   commercially   developed  and  is  being  marketed  by  ECR
Pharmaceuticals,  our partner for this product. An additional controlled release
product is under development for marketing by the same company.  A third product
is to be developed  pursuant to a recent  agreement with another  pharmaceutical
company.

         We are focusing our efforts on the following areas:  (i)  manufacturing
of  Lodrane  24(R)  and the  development  and  manufacture  of two of the  other
products with partners  referred to above;  (ii) commercial  exploitation of our
products  either by license  and the  collection  of  royalties,  or through the
manufacture  of  tablets  and  capsules  using  our   formulations,   and  (iii)
development of new products and the expansion of our licensing  agreements  with
other  pharmaceutical  companies,  including  contract  research and development
projects, joint ventures and other collaborations.

         In an effort to reduce costs and improve focus and enhance  efficiency,
we reduced the number of products that we are actively  developing  from fifteen
to seven. The seven products,  one of which had been commercially  developed and
six that are in  development,  were  deemed  by us to be the most  suitable  for
development given our limited resources.

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


                                       3
<PAGE>

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

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

RESEARCH AND DEVELOPMENT

         During each of the last three fiscal years, we have focused on research
and development  activities.  We spent $2,698,641 in the fiscal year ended March
31, 2005,  $2,075,074 in the fiscal year ended March 31, 2004 and  $2,013,579 in
the fiscal year ended March 31, 2003 on research and development activities.

         Of our  seven  controlled  release  products,  two  are for  pain  (the
Oxycodone CR and a related abuse  resistant  product),  one  (diltiazem)  is for
cardiovascular  indications,  two are  for  allergy  indications,  one is for an
anti-infective  indication and one is for an undisclosed indication.  One of the
allergy  products has been developed and is being  marketed by a  pharmaceutical
company which has the responsibility for regulatory matters and is to market the
second  drug  for  allergy   indications   upon  completion  of  its  commercial
development.  The drug for the  undisclosed  indication is to be developed by us
pursuant to a March 30,  2005  agreement.  See  "Manufacturing  and  Development
Contracts".

         It is our general  policy not to disclose  products in our  development
pipeline or the status of such products until a product  reaches a stage that we
determine,  for competitive  reasons,  in our discretion,  to be appropriate for
disclosure  and because the  disclosure  of such  information  might suggest the
occurrence of future matters or events that may not occur. In this instance,  we
believe that disclosure of the information in the following table is helpful for
the description of the general nature,  orientation and activity of the Company,
and the disclosures are made for such purpose. No inference should be made as to
the occurrence of matters or events not  specifically  described.  We may or may
not disclose such information in the future based on competitive  reasons and/or
contractual  obligations.  We  believe  that the  information  is  helpful  on a
one-time basis for the purpose described above.

         The following  table  provides  information  concerning  the controlled
release products that we are developing and to which we are devoting substantial
resources and attention. None of these products has been approved by the FDA and
all are in development  ("N/A" means not applicable  because there is no branded
product on the market).


                                       4
<PAGE>



--------------------------------------------------------------------------------
        PRODUCT            BRANDED       APPROX. U.S.     NDA/   INDICATION
                          PRODUCT(A)   SALES FOR BRANCD   ANDA
                                         AND/OR GENERIC
                                           PRODUCTS
                                           (2004)
                                              $MM(B)
--------------------------------------------------------------------------------
1   Oxycodone CR           OxyContin(R)      $2,000       NDA        Pain

    Once a day             twice a day
--------------------------------------------------------------------------------
2   Product using abuse       N/A              N/A        NDA        Pain
    resistant technology
    (ART) for use with
    Oxycodone (or other
    opioids)

    Once a day

    Twice a day(c)
--------------------------------------------------------------------------------
3   Diltiazem              Cardizem CD(R)     $300       ANDA     Cardiovascular

    Once a day
--------------------------------------------------------------------------------
4   Undisclosed product    Undisclosed         $80       ANDA       Undisclosed
    with a partner
--------------------------------------------------------------------------------
5   Undisclosed product       N/A              N/A   Undisclosed     Allergy
    with partner

--------------------------------------------------------------------------------
6   Undisclosed            Undisclosed        $100       ANDA       Infection

    Twice a day
--------------------------------------------------------------------------------


(a) The name of our competitor's branded product.

(b) Indicates the approximate  amount of sales of our  competitor's  product and
not the sales of any of our products.

(c) An IND was filed and accepted by the FDA with respect to the Twice a day.


         The table below presents information with respect to the development of
six of the products under  development.  For some of the products,  we intend to
make NDA filings  under  Sections  505(b)(1) or 505(b)(2) of the Drug Price Act.
Accordingly,  we  anticipate,  as to  which  there  is no  assurance,  that  the
development timetable for the products for which such NDA filings are made would
be shorter  and less  expensive.  Completion  of  development  of products by us
depends on a number of  factors,  however,  and there can be no  assurance  that
specific  time  frames  will be met during the  development  process or that the
development of any particular products will be continued.


                                       5
<PAGE>


         In the table,  Pilot Phase I studies for the NDA products are generally
preliminary   studies   done  in   healthy   human   subjects   to  assess   the
tolerance/safety and pharmacokinetics of the product.  Additional larger studies
in humans will be  required  prior to  submission  of the product to the FDA for
review.  Pilot  bioequivalence  studies are initial  studies  done in humans for
generic   products  and  are  used  to  assess  the   likelihood   of  achieving
bioequivalence for generic products.  Larger pivotal bioequivalence studies will
be required prior to submission of the product to the FDA for review.

--------------------------------------------------------------------------------
        DEVELOPMENT STAGE           NUMBER OF PRODUCTS             NDA/ANDA
--------------------------------------------------------------------------------
           Preclinical                      1                        ANDA
--------------------------------------------------------------------------------
       Pilot Phase I study                  2                         NDA
--------------------------------------------------------------------------------
    Pilot bioequivalence study              2                        ANDA
--------------------------------------------------------------------------------
           Pre-Clinical                     1                         (1)
--------------------------------------------------------------------------------

(1) The partner is handling the FDA and other  regulatory  filings in connection
with the product.

MANUFACTURING AND DEVELOPMENT CONTRACTS

         In September  1999 Elite entered into an agreement  with an undisclosed
partner to co-develop a chrono diltiazem product. A pilot  pharmacokinetic study
has been  conducted,  but until we have  additional  resources to devote to this
product and locate a partner, we will not perform further clinical studies.

         In June 2001,  we entered into two  development  contracts  pursuant to
which we agreed to commercially develop two products in exchange for development
fees, certain payments, royalties and manufacturing rights. One product, Lodrane
24(R),  was first  commercially  offered in November  2004, and our revenues for
manufacturing  the  product  and a royalty on sales for the year ended March 31,
2005 aggregated $150,030. Development of the second product continues.

         The payments  under the foregoing  agreements for the years ended March
31, 2004 and 2005 were not material.

         On March 30,  2005,  we entered  into a three  party  agreement  with a
marketing company and a formulation development company pursuant to which we are
to  commercially  develop  a drug  with the  marketing  company  to share in the
development  costs.  Upon its  development  and the securing of the required FDA
approval by the formulation  development company, we are to manufacture and sell
the commercially  developed drug to the marketing company for  distribution.  In
addition to the transfer  price to the  marketing  company,  we are to share the
profits, if any, realized upon sales.


                                       6
<PAGE>

JOINT VENTURE WITH ELAN

         A joint  research  venture with Elan (ERL) was funded  through  capital
contributions  from its partners  based on the  partners'  respective  ownership
percentage.

         The joint  venture  was  terminated  on  December  31, 2002 and ERL was
merged  into  a new  Delaware  corporation,  Elite  Research,  our  wholly-owned
subsidiary.

         Under  the  Termination   Agreement,   we  acquired  all   proprietary,
development  and  commercial  rights for the worldwide  markets for the products
developed by the joint venture.  In exchange for this  assignment,  we agreed to
pay Elan a royalty on certain  revenues  that may be realized in the future from
the once-a-day  Oxycodone  product that was in development by the joint venture,
if and  when  FDA  approval  is  obtained.  In the  future,  we will  be  solely
responsible for funding product development, which funding we anticipate will be
derived from internal resources or through loans or investment by third parties.
The joint venture had completed the initial Phase I study for its first product,
the  once-a-day  Oxycodone   formulation.   Currently  there  is  no  once-a-day
formulation  for this  compound  on the  market.  This  compound  is part of our
development pipeline.

         The joint venture had also performed work on a second,  related product
in the central nervous system  therapeutic area.  Initial  formulation work on a
third product combining Oxycodone with a narcotic antagonist has been performed.
We have the exclusive  rights to the  proprietary,  development  and  commercial
exploitation for the worldwide markets for these two products  developed by ERL.
We will not have to pay Elan  royalties  on revenues  that may be realized  from
these products.

         Under the joint venture, Elan had received 409,165 shares of our Common
Stock; warrants exercisable at $18.00 per share for 100,000 shares of our Common
Stock;  and  Series A and Series B  preferred  stock of Elite  Labs,  which were
convertible into 764,221 shares and 52,089 shares,  respectively,  of our Common
Stock. Under the Termination  Agreement,  Elan and its transferees  retained the
securities,  and the  shares  of  Series A and  Series B  preferred  stock  were
converted into our Common Stock under the preexisting  terms for conversion.  We
did not pay, nor did Elan receive,  any cash consideration under the Termination
Agreement.

PATENTS

         Since our  incorporation,  we have secured five United States  patents.
Two have been assigned for a fee to another pharmaceutical  company. In addition
one patent has been allowed, but not yet issued and we have pending applications
for three United States patents and five foreign patents.

         The  pending  patent  applications  relate to three  different  control
release  pharmaceutical  products on which we are working.  Included among these
patent  applications is an application for a U.S. patent for a narcotic  agonist
and  antagonist  product that we are  developing  to be used with  oxycodone and
other narcotics to

                                       7
<PAGE>

minimize the abuse potential for the narcotics. We intend to apply for patents
for other products in the future; however, there can be no assurance that any of
the pending applications or other applications which we may file will be
granted.

         Prior to the  enactment  in the  United  States  of new  laws  adopting
certain changes  mandated by the General  Agreement on Tariffs and Trade (GATT),
the  exclusive  rights  afforded by a U.S.  Patent were for a period of 17 years
measured from the date of grant. Under GAAT, the term of any U.S. Patent granted
on an application filed subsequent to June 8, 1995, terminates 20 years from the
date on which the patent application was filed in the United States or the first
priority date,  whichever occurs first. Future patents granted on an application
filed before June 8, 1995,  will have a term that  terminates 20 years from such
date, or 17 years from the date of grant, whichever date is later.

         Under the Drug Price Act,  a U.S.  Product  patent or use patent may be
extended for up to five years under  certain  circumstances  to  compensate  the
patent  holder for the time required for FDA  regulatory  review of the product.
The  benefits of this Act are  available  only to the first  approved use of the
active  ingredient in the drug product and may be applied only to one patent per
drug product.  There can be no assurance  that we will be able to take advantage
of this law.

         Also,  different  countries  have  different  procedures  for obtaining
patents,  and patents issued by different countries provide different degrees of
protection  against the use of a patented  invention by others.  There can be no
assurance,  therefore,  that  the  issuance  to us in one  country  of a  patent
covering an  invention  will be followed by the  issuance in other  countries of
patents covering the same invention,  or that any judicial interpretation of the
validity,  enforceability,  or scope of the  claims  in a patent  issued  in one
country will be similar to the judicial  interpretation given to a corresponding
patent  issued  in  another  country.  Furthermore,  even  if  our  patents  are
determined  to be  valid,  enforceable,  and  broad in  scope,  there  can be no
assurance  that  competitors  will not be able to design around such patents and
compete with us using the resulting alternative technology.

         We also rely upon unpatented  proprietary  and trade secret  technology
that we seek to  protect,  in  part,  by  confidentiality  agreements  with  our
collaborative    partners,    employees,    consultants,    outside   scientific
collaborators,  sponsored  researchers,  and  other  advisors.  There  can be no
assurance that these agreements provide meaningful  protection or that they will
not be breached,  that we will have  adequate  remedies for any such breach,  or
that our trade secrets,  proprietary know-how,  and technological  advances will
not  otherwise  become known to others.  In addition,  there can be no assurance
that,  despite  precautions  taken by us,  others  have not and will not  obtain
access to our proprietary technology.


                                       8
<PAGE>

TRADEMARKS

         We have  received  Notices  of  Allowance  from  the  U.S.  Patent  and
Trademark Office granting  trademark  protection for four  trademarks.  However,
since we currently plan to license our products to marketing partners and not to
sell under our brand name,  we do not  currently  intend to register or maintain
any trademarks.

GOVERNMENT REGULATION AND APPROVAL

         The design,  development and marketing of pharmaceutical  compounds, on
which our success depends,  are intensely  regulated by governmental  regulatory
agencies,  including the FDA.  Non-compliance  with applicable  requirements can
result  in fines and  other  judicially  imposed  sanctions,  including  product
seizures,  injunction  actions  and  criminal  prosecution  based on products or
manufacturing  practices  that  violate  statutory  requirements.  In  addition,
administrative remedies can involve voluntary withdrawal of products, as well as
the refusal of the FDA to approve ANDAs and NDAs. The FDA also has the authority
to  withdraw  approval  of  drugs  in  accordance  with  statutory  due  process
procedures.

         Before a drug may be marketed,  it must be approved by the FDA. The FDA
approval procedure for an ANDA relies on bioequivalency  tests which compare the
applicant's  drug with an already  approved  reference  drug,  rather  than with
clinical  studies.  Because  we  concentrated,  during  our  first  few years of
business   operations,   on  developing   products  which  are  intended  to  be
bioequivalent to existing controlled-release  formulations,  we expect that such
drug  products  will require  ANDA filings and not clinical  efficacy and safety
studies, which are generally more expensive and time-consuming.

         NDAS  AND  NDAS UNDER SECTION 505(B) OF THE DRUG PRICE ACT

         The FDA approval  procedure for an NDA is generally a two-step process.
During the  Initial  Product  Development  stage,  an  investigational  new drug
application  ("IND")  for each  product is filed with the FDA. A 30-day  waiting
period  after  the  filing  of each  IND is  required  by the FDA  prior  to the
commencement  of initial  clinical  testing.  If the FDA does not  comment on or
question the IND within such 30-day period,  initial clinical studies may begin.
If,  however,  the FDA has comments or  questions,  they must be answered to the
satisfaction  of the FDA before  initial  clinical  testing  can begin.  In some
instances  this process  could result in  substantial  delay and expense.  These
initial clinical studies generally constitute Phase I of the NDA process and are
conducted to demonstrate the product  tolerance/safety  and  pharmacokinetic  in
healthy subjects.  After Phase I testing,  extensive efficacy and safety studies
in  patients  must be  conducted.  After  completion  of the  required  clinical
testing,  an NDA is filed, and its approval,  which is required for marketing in
the United  States,  involves an  extensive  review  process by the FDA. The NDA
itself is a complicated and detailed application and must include the results of
extensive clinical and other testing, the cost of which is substantial. However,
the NDA filings contemplated by us on already marketed drugs


                                       9
<PAGE>

would be made  under  Sections  505  (b)(1) or 505 (b)(2) of the Drug Price Act,
which  do not  require  certain  studies  that  would  otherwise  be  necessary;
accordingly,  the  development  timetable  should be  shorter.  While the FDA is
required  to  review  applications  within a  certain  timeframe  in the  review
process,  the FDA frequently requests that additional  information be submitted.
The effect of such request and subsequent  submission can  significantly  extend
the time for the NDA review process.  Until an NDA is actually  approved,  there
can be no  assurance  that  the  information  requested  and  submitted  will be
considered  adequate by the FDA to justify approval.  The packaging and labeling
of our developed  products are also subject to FDA regulation.  It is impossible
to  anticipate  the amount of time that will be needed to obtain FDA approval to
market any product.

         Whether or not FDA approval has been obtained,  approval of the product
by comparable  regulatory  authorities  in any foreign  country must be obtained
prior to the  commencement  of  marketing  of the product in that  country.  The
Company  intends to conduct all marketing in  territories  other than the United
States through other  pharmaceutical  companies  based in those  countries.  The
approval  procedure  varies  from  country to country,  can  involve  additional
testing,  and the time  required may differ from that required for FDA approval.
Although  there are some  procedures  for unified  filings for certain  European
countries, in general each country has its own procedures and requirements, many
of which are time consuming and expensive. Thus, there can be substantial delays
in  obtaining  required  approvals  from  both  the FDA and  foreign  regulatory
authorities after the relevant  applications are filed. After such approvals are
obtained,   further  delays  may  be  encountered  before  the  products  become
commercially available.

         ANDAS

         Under the Generic Drug  Enforcement  Act,  ANDA  applicants  (including
officers,  directors  and  employees)  who are  convicted  of a crime  involving
dishonest or fraudulent  activity (even outside the FDA regulatory  context) are
subject  to  debarment.   Debarment  is  disqualification   from  submitting  or
participating  in the  submission  of  future  ANDAs  for a  period  of years or
permanently.  The Generic Drug Enforcement Act also authorizes the FDA to refuse
to accept  ANDAs  from any  company  which  employs  or uses the  services  of a
debarred  individual.  We do not believe that we receive any  services  from any
debarred person.

         CONTROLLED SUBSTANCES

         We are also  subject  to  federal,  state,  and local  laws of  general
applicability, such as laws relating to working conditions. We are also licensed
by,  registered  with, and subject to periodic  inspection and regulation by the
Drug Enforcement Agency (DEA) and New Jersey state agencies, pursuant to federal
and state  legislation  relating to drugs and  narcotics.  Certain drugs that we
currently  develop or may  develop  in the future may be subject to  regulations
under the Controlled Substances Act and related statutes. As we manufacture such
products,  we may become subject to the





                                       10
<PAGE>

Prescription  Drug Marketing  Act, which  regulates  wholesale  distributors  of
prescription drugs.

         GMP

         All facilities and manufacturing techniques used for the manufacture of
products for clinical  use or for sale must be operated in  conformity  with GMP
regulations  issued  by the FDA.  The  Company  engages  in  manufacturing  on a
commercial  basis for  distribution of products,  and operates its facilities in
accordance with GMP regulations.  If we hire another company to perform contract
manufacturing for us, we must ensure that our contractor's facilities conform to
GMP regulations.

COMPLIANCE WITH ENVIRONMENTAL LAWS

         We are subject to comprehensive  federal, state and local environmental
laws and regulations that govern,  among other things, air polluting  emissions,
waste water discharges,  solid and hazardous waste disposal, and the remediation
of  contamination  associated  with  current  or past  generation  handling  and
disposal activities, including the past practices of corporations as to which we
are the successor  legally or in  possession.  We do not expect that  compliance
with  such  environmental  laws  will  have a  material  effect  on our  capital
expenditures,  earnings or competitive position in the foreseeable future. There
can be no  assurance,  however,  that future  changes in  environmental  laws or
regulations,  administrative  actions or  enforcement  actions,  or  remediation
obligations  arising under  environmental  laws will not have a material adverse
effect on our capital expenditures, earnings or competitive position.

COMPETITION

         We  have  competition  with  respect  to our  two  principal  areas  of
operation.  We develop and manufacture  products using  controlled-release  drug
technology for other pharmaceutical companies, and we develop and market (either
on our own or by  license  to other  companies)  proprietary  controlled-release
pharmaceutical  products.  In both  areas,  our  competition  consists  of those
companies which develop  controlled-release  drugs and alternative drug delivery
systems.

         In recent years, an increasing number of pharmaceutical  companies have
become  interested  in  the  development  and   commercialization   of  products
incorporating   advanced  or  novel  drug  delivery  systems.   We  expect  that
competition  in the field of drug  delivery will  significantly  increase in the
future  since  smaller  specialized  research  and  development   companies  are
beginning  to  concentrate  on this  aspect of the  business.  Some of the major
pharmaceutical  companies have invested and are continuing to invest significant
resources in the development of their own drug delivery systems and technologies
and some have invested funds in such specialized drug delivery  companies.  Many
of these  companies have greater  financial and other  resources as well as more
experience  than  we  do in  commercializing  pharmaceutical  products.  Certain
companies have a track record of success in developing controlled-

                                       11
<PAGE>

release drugs.  Significant among these are Alpharma,  Inc., Andrx  Corporation,
Mylan  Laboratories,  Inc.,  Par  Pharmaceuticals,  Inc.,  Teva  Pharmaceuticals
Industries   Ltd.,   Biovail   Corporation,   Ethypharm  S.A.,   Eurand,   Impax
Laboratories,  Inc.,  K-V  Pharmaceutical  Company and  Penwest  Pharmaceuticals
Company.  Each of these  companies has  developed  expertise in certain types of
drug delivery systems, although such expertise does not carry over to developing
a  controlled-release  version of all drugs. Such companies may develop new drug
formulations and products or may improve existing drug formulations and products
more  efficiently  than we can. In addition,  almost all of our competitors have
vastly greater resources than we do. While our product development  capabilities
and, if obtained,  patent protection may help us to maintain our market position
in the field of advanced drug  delivery,  there can be no assurance  that others
will  not be able to  develop  such  capabilities  or  alternative  technologies
outside the scope of our patents,  if any, or that even if patent  protection is
obtained, such patents will not be successfully challenged in the future.

SOURCES AND AVAILABILITY OF RAW MATERIALS; MANUFACTURING

         We manufacture for commercial sale by our partner, ECR Pharmaceuticals,
one product,  Lodrane  24(R) and for which to date we have  obtained  sufficient
amounts of the raw  materials  for its  production.  We are not currently in the
manufacturing  phase for any other  products and do not expect that  significant
amounts of raw  materials  will be required for their  production.  We currently
obtain the raw materials that we need from over twenty suppliers.

         We   have   acquired   pharmaceutical   manufacturing   equipment   for
manufacturing  our products.  We have registered our facilities with the FDA and
the DEA.

DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS

         Each year we have had one or a few customers  that have accounted for a
large  percentage of our limited sales  therefore the  termination of a contract
with a customer may result in the loss of substantially all of our revenues.  We
are  constantly  working to  develop  new  relationships  with  existing  or new
customers,  but  despite  these  efforts we may not, at the time that any of our
current  contracts  expire,  have other  contracts in place  generating  similar
revenue.

EMPLOYEES

         As of June 20,  2005,  we had 16  full-time  employees  and 2 part-time
employees. Both full-time and part-time employees are engaged in administration,
research and development.  None of our employees is represented by a labor union
and we have never experienced a work stoppage.  We believe our relationship with
our  employees to be good.  However,  our ability to achieve our  financial  and
operational  objectives  depends  in large part upon our  continuing  ability to
attract, integrate, retain and motivate highly qualified personnel, and upon the
continued service of our senior management and key personnel.

                                       12
<PAGE>

RISK FACTORS

         In addition to the other  information  contained  in this  report,  the
following  risk  factors  should  be  considered   carefully  in  evaluating  an
investment in Elite and in analyzing our forward-looking statements.

OUR CONTINUING  LOSSES ENDANGER OUR VIABILITY AS A GOING-CONCERN AND HAVE CAUSED
OUR AUDITORS TO ISSUE "GOING CONCERN" ANNUAL AUDIT REPORTS.

         We reported net losses of $5,906,890, $6,514,217 and $4,061,422 for the
fiscal years ended March 31,  2005,  2004 and 2003,  respectively.  At March 31,
2005, we had an accumulated deficit of approximately $41.1 million, consolidated
assets of approximately $9.2 million, stockholders' equity of approximately $5.7
million,  and working capital of approximately $3.3 million. Our products are in
the  development  and  early   deployment  stage  and  have  not  generated  any
significant  revenue to date.  Our  independent  auditors  have  issued a "going
concern" audit report for our financial  statements for each of the fiscal years
ended March 31, 2005, March 31, 2004 and March 31, 2003.

WE HAVE A  RELATIVELY  LIMITED  OPERATING  HISTORY,  WHICH MAKES IT DIFFICULT TO
EVALUATE OUR FUTURE PROSPECTS.

         Although we have been in  operation  since 1990,  we have a  relatively
short operating  history and limited  financial data upon which you may evaluate
our  business  and  prospects.  In  addition,  our  business  model is likely to
continue to evolve as we attempt to expand our product  offerings  and enter new
markets. As a result, our potential for future  profitability must be considered
in light of the  risks,  uncertainties,  expenses  and  difficulties  frequently
encountered  by  companies  that are  attempting  to move into new  markets  and
continuing to innovate with new and unproven  technologies.  Some of these risks
relate to our potential inability to:

          o    develop new products;

          o    obtain regulatory approval of our products;

          o    manage our  growth,  control  expenditures  and align  costs with
               revenues;

          o    attract, retain and motivate qualified personnel; and

          o    respond to competitive developments.

If we do not  effectively  address  the risks we face,  our  business  model may
become   unworkable  and  we  may  not  achieve  or  sustain   profitability  or
successfully develop any products.

                                       13
<PAGE>


WE HAVE NOT BEEN PROFITABLE AND EXPECT FUTURE LOSSES.

         To date, we have not been profitable,  and since our inception in 1990,
we have not generated any significant  revenues.  We may never be profitable or,
if we become  profitable,  we may be unable to  sustain  profitability.  We have
sustained  losses in each year since our  incorporation in 1990. We incurred net
losses of $5,906,890, $6,514,217, $4,061,422, and $1,774,527 for the years ended
March 31,  2005,  2004,  2003 and  2002,  respectively.  We  expect  to  realize
significant  losses for the current year of operation.  We expect to continue to
incur  losses until we are able to generate  sufficient  revenues to support our
operations and offset operating costs.

OUR FOUNDER AND FORMER  PRESIDENT AND CHIEF EXECUTIVE  OFFICER  RESIGNED IN JUNE
2003 ALL OF HIS POSITIONS WITH ELITE,  WHICH MAY HAVE A MATERIAL  ADVERSE EFFECT
ON US.

         On June 3, 2003,  Dr. Atul M. Mehta,  our founder and former  President
and Chief  Executive  Officer  resigned from all of his positions with Elite. In
the past,  we relied on Dr.  Mehta's  scientific  expertise  in  developing  our
products.  There  can be no  assurance  that we will  successfully  replace  Dr.
Mehta's expertise.  In addition,  the loss of Dr. Mehta's services may adversely
affect our relationships with our contract partners.

         Pursuant  to an  agreement  in April  2004 and a related  agreement  in
October  2004,  to settle a  litigation  initiated by Dr. Mehta in July 2003 for
alleged breach of his employment agreement,  the Company extended the expiration
dates to November 30, 2007 of options to purchase 670,000 shares of Common Stock
held by Dr. Mehta and reduced the  exercise  price of certain of the options and
he relinquished any rights to the Company's  intellectual property and agreed to
certain non-disclosure and non-competition  covenants. The Company also provided
him with  certain  "piggyback"  registration  rights with  respect to the shares
issuable  upon  exercise of the foregoing  options  granted by the Company.  Dr.
Mehta and members of his family sold in October  2004 an  aggregate of 1,362,200
shares of Common Stock  representing  all of his and his affiliates  holdings of
securities of the Company except for the foregoing options.

OUR RESEARCH  ACTIVITIES  ARE  CHARACTERIZED  BY INHERENT RISK AND WE MAY NOT BE
ABLE TO  SUCCESSFULLY  DEVELOP  PRODUCTS  FOR  COMMERCIAL  USE  THAT  ARE IN OUR
PIPELINE.

         Our research activities are characterized by the inherent risk that the
research  will not yield  results that will receive FDA approval or otherwise be
suitable for commercial exploitation.

         As of March 31, 2005, we have entered into  agreements  with respect to
the marketing upon development of three drugs.  Each agreement  provides that we
are to  commercially  develop  the  product  and upon  securing  by a partner or
partners having FDA approval or other regulatory approval,  if required, we will
manufacture  the  product  and sell it to a partner  or  marketing  partner  for
distribution.  The  commercial  development  of one of the three  drugs has been
completed  and the two other drugs are


                                       14
<PAGE>

under  development.  No  assurance  can be  given  that  sales,  if any,  by any
marketing partner will result in profit for Elite from the product.

         Of  the  four  additional   products  and  on  which  we  are  devoting
substantial attention, two are in pilot Phase I studies and two are in the pilot
bioequivalence stage. Additional studies including either pivotal bioequivalence
or   efficacy   studies   will   be   required   for   these   products   before
commercialization.

         In order for any of these four products to be  commercialized,  the FDA
requires successful completion of pivotal biostudies to file an ANDA followed by
successful  completion  of pivotal  clinical  trials before filing a ND. The FDA
next  requires  successful  completion  of  comparative  studies for drug listed
products  are  required.  ANDAs are filed with  respect to generic  versions  of
existing  FDA  approved  products  while  NDAs are  filed  with  respect  to new
products.

WE  COULD  EXPERIENCE   DIFFICULTY  IN  DEVELOPING  AND  INTEGRATING   STRATEGIC
ALLIANCES, CO-DEVELOPMENT OPPORTUNITIES AND OTHER RELATIONSHIPS.

         With  respect to products  that are  developed  and are  available  for
commercial  sale,  we  intend to pursue  product-specific  licensing,  marketing
agreements,  co-development  opportunities and other partnering  arrangements in
connection  with  the  distribution  of  the  product.   We  have  entered  into
partnership arrangements as to three products but no assurance can be given that
we will be able  to  locate  other  partners  or that  the  arrangement  will be
suitable.  In addition,  assuming we identify suitable partners,  the process of
effectively  entering  into  these  arrangements  involves  risks  such that our
management's  attention may be diverted from other business concerns and that we
may have difficulty integrating the new arrangements into our existing business.

OUR LIMITED EXPERIENCE IN CONDUCTING CLINICAL TRIALS AND SUBMITTING NDAS AND THE
UNCERTAINTIES  INHERENT IN  CLINICAL  TRIALS  COULD  RESULT IN DELAYS IN PRODUCT
DEVELOPMENT AND COMMERCIALIZATION.

         Prior to seeking FDA  approval for the  commercial  sale of any drug we
develop,   which  does  not  qualify  for  the  FDA's  abbreviated   application
procedures,  we or our partner must  demonstrate  through  clinical  trials that
these  products are safe and  effective  for use. We have limited  experience in
conducting and supervising  clinical trials. The process of completing  clinical
trials and  preparing  an NDA may take several  years and  requires  substantial
resources.  Our studies and filings may not result in FDA approval to market our
new drug products and, if the FDA grants approval,  we cannot predict the timing
of any approval.

IF OUR CLINICAL  TRIALS ARE NOT  SUCCESSFUL  OR TAKE LONGER TO COMPLETE  THAN WE
EXPECT, WE MAY NOT BE ABLE TO DEVELOP AND COMMERCIALIZE OUR PRODUCTS.

         In order to obtain regulatory  approvals for the commercial sale of our
potential products, we will be required to complete clinical trials in humans to
demonstrate  the


                                       15
<PAGE>

safety and efficacy of the products. We may not be able to obtain authority from
the FDA or other  regulatory  agencies to commence  or complete  these  clinical
trials.

         The  results  from  preclinical  testing  of a  product  that is  under
development  may not be  predictive  of results  that will be  obtained in human
clinical trials. In addition, the results of early human clinical trials may not
be  predictive of results that will be obtained in larger scale  advanced  stage
clinical trials.  Furthermore,  we or the FDA may suspend clinical trials at any
time  if the  subjects  participating  in  such  trials  are  being  exposed  to
unacceptable health risks, or for other reasons.

         The rate of completion of clinical trials is dependent in part upon the
rate of enrollment of subjects.  A favorable clinical trial result is a function
of many factors including the size of the subject  population,  the proximity of
subjects to  clinical  sites,  the  eligibility  criteria  for the study and the
existence of competitive  clinical trials.  Delays in planned subject enrollment
may result in increased costs and program delays.

         We may not be able to  successfully  complete any  clinical  trial of a
potential product within any specified time period. In some cases, we may not be
able to complete the trial at all.  Moreover,  clinical  trials may not show any
potential product to be safe or efficacious.  Thus, the FDA and other regulatory
authorities may not approve any of our potential products for any indication.

     Our  business,  financial  condition,  or  results of  operations  could be
materially adversely affected if:

o    we are  unable  to  complete  a  clinical  trial  of  one of our  potential
     products;

o    the results of any clinical trial are unfavorable; or

o    the time or cost of completing the trial exceeds our expectations.

WE ARE DEPENDENT ON A SMALL NUMBER OF SUPPLIERS FOR OUR RAW  MATERIALS,  AND ANY
DELAY OR  UNAVAILABILITY  OF RAW MATERIALS CAN MATERIALLY  ADVERSELY  AFFECT OUR
ABILITY TO PRODUCE PRODUCTS.

         The  FDA  requires   identification   of  raw  material   suppliers  in
applications  for approval of drug products.  If raw materials were  unavailable
from a  specified  supplier,  FDA  approval  of a new  supplier  could delay the
manufacture  of the drug  involved.  In  addition,  some  materials  used in our
products are currently  available  from only one supplier or a limited number of
suppliers.  Further, a significant portion of our raw materials may be available
only from foreign  sources.  Foreign sources can be subject to the special risks
of doing business abroad, including:

o    greater  possibility for disruption due to  transportation or communication
     problems;

o    the relative instability of some foreign governments and economies;


                                       16
<PAGE>


o    interim  price  volatility  based on labor  unrest,  materials or equipment
     shortages,  export  duties,  restrictions  on the  transfer  of  funds,  or
     fluctuations in currency exchange rates; and

o    uncertainty  regarding  recourse  to a  dependable  legal  system  for  the
     enforcement of contracts and other rights.

         In  addition,   recent  changes  in  patent  laws  in  certain  foreign
jurisdictions (primarily in Europe) may make it increasingly difficult to obtain
raw  materials  for research and  development  prior to expiration of applicable
United  States or foreign  patents.  Any  inability to obtain raw materials on a
timely basis,  or any  significant  price  increases that cannot be passed on to
customers, could have a material adverse effect on us.

         The delay or unavailability  of raw materials can materially  adversely
affect our ability to produce products. This can materially adversely affect our
business and operations.

IF WE NEED  ADDITIONAL  FINANCING  IN ORDER TO SATISFY OUR  SIGNIFICANT  CAPITAL
REQUIREMENTS AND ARE UNABLE TO OBTAIN ADDITIONAL FINANCING,  IT WOULD IMPAIR OUR
ABILITY TO CONTINUE TO DO BUSINESS.

         We  completed a  $6,600,000  private  placement  in October 2004 of (i)
516,558 shares of our Series A Preferred Stock convertible into shares of Common
Stock,  (ii)  warrants  ("Short Term  Warrants")  expiring  December 31, 2005 to
purchase an aggregate of 2,582,790 shares of Common Stock at prices ranging from
$1.54 to $1.84, (iii) warrants ("Long Term Warrants") expiring December 27, 2009
to purchase  2,582,790  shares of Common  Stock at prices  ranging from $1.54 to
$1.84 per share,  and (iv) additional Long Term Warrants issued to the Placement
Agent to purchase 494,931 shares of Common Stock at prices ranging from $1.23 to
$1.47 per share.  All of the shares of the  Series A  Preferred  Stock have been
converted  into an  aggregate  of 5,265,516  shares of Common  Stock,  including
26,961  shares of Common  Stock  issued as payment of the  accrued  dividend  on
December 1, 2004. Based on our currently proposed plans and assumptions relating
to our operations, we anticipate that we will have sufficient capital to satisfy
our contemplated cash  requirements  through March 31, 2006. After that time, we
may require additional financing.  In particular,  we expect to make substantial
expenditures as we further develop and seek to commercialize our products. As of
March  31,  2005,  our  cash  position  was  $3.9  million.   Based  on  current
expenditures, we are depleting cash at the rate of $300,000 per month. We expect
that our rate of spending will  accelerate as the result of increased  costs and
expenses  associated with seeking regulatory approval and  commercialization  of
products now in  development.  We have no current  arrangements  with respect to
additional  financings  other than the potential  exercise of the Short Term and
Long Term Warrants issued in the October 2004 private placement, the Class B and
Class C Warrants and other warrants and options that are currently  outstanding.
We have  no way of  knowing  whether  any of the  options  or  warrants  will be
exercised  and if so the extent by which  their  exercise  will be  pursuant  to
cashless  exercise  provisions.  We do not currently


                                       17
<PAGE>

have  commitments  for their  exercise  or other  financing,  and so do not know
whether additional  financing would be available to us on favorable terms, or at
all. Our inability to obtain  additional  financing when needed would impair our
ability to continue our business.

         If any future  financing  involves the further sale of our  securities,
our then-existing  stockholders'  equity could be substantially  diluted. On the
other hand, if we incurred  debt, we would be subject to risks  associated  with
indebtedness,  including the risk that interest  rates might  fluctuate and cash
flow would be insufficient  to pay principal and interest on such  indebtedness.
If our plans change, or our assumptions change or prove to be inaccurate, or our
cash flow proves to be insufficient to fund our operations due to  unanticipated
expenses or problems,  we would be required to seek additional  financing sooner
than anticipated.

IF WE ARE UNABLE TO PROTECT OUR  INTELLECTUAL  PROPERTY  RIGHTS AND AVOID CLAIMS
THAT WE INFRINGED ON THE INTELLECTUAL  PROPERTY RIGHTS OF OTHERS, OUR ABILITY TO
CONDUCT BUSINESS MAY BE IMPAIRED.

         Our success, competitive position and amount of royalty income, if any,
will  depend in part on our  ability  to obtain  patent  protection  in  various
jurisdictions related to our technologies,  processes and products. We intend to
file patent applications seeking such protection,  but we cannot be certain that
these  applications  will  result in the  issuance  of  patents.  If patents are
issued,  third  parties  may sue us to  challenge  such patent  protection,  and
although we know of no reason why they should prevail,  it is possible that they
could.  It is likewise  possible  that our patents may not prevent third parties
from developing similar or competing products. In addition,  although we are not
aware of any  threatened or pending  actions by third parties  asserting that we
have infringed on their patents,  and are not aware of any actions we have taken
that  would  lead to such a  claim,  it is  possible  that we  might be sued for
infringement.   The  cost  involved  in  bringing   suits  against   others  for
infringement  of our patents,  or in defending any suits brought against us, can
be substantial.  We may not possess sufficient funds to prosecute or defend such
suits. If our products were found to infringe upon patents issued to others,  we
would be prohibited from  manufacturing or selling such products and we could be
required to pay substantial damages.

         In addition, we may be required to obtain licenses to patents, or other
proprietary rights of third parties,  in connection with the development and use
of our products and technologies as they relate to other persons'  technologies.
At such time as we discover a need to obtain any such  license,  we will need to
establish  whether we will be able to obtain such a license on favorable  terms.
The failure to obtain the necessary  licenses or other rights could preclude the
sale, manufacture or distribution of our products.

We also rely upon trade  secrets and  proprietary  know-how.  We seek to protect
this know-how in part by confidentiality agreements. We consistently require our
employees and potential business partners to execute confidentiality  agreements
prior to doing business with us. However,  it is possible that an employee would
disclose confidential


                                       18
<PAGE>

information  in violation  of his or her  agreement,  or that our trade  secrets
would otherwise become known or be independently developed in such a manner that
we will have no practical recourse.

We are not engaged in any litigation,  nor  contemplating  any, with regard to a
claim that someone has infringed  one of our patents,  revealed any of our trade
secrets, or otherwise misused our confidential information.

THE  PHARMACEUTICAL  INDUSTRY IS SUBJECT TO EXTENSIVE FDA REGULATION AND FOREIGN
REGULATION, WHICH PRESENTS NUMEROUS RISKS TO US.

         The  manufacturing  and  marketing  of  pharmaceutical  products in the
United States and abroad are subject to stringent governmental  regulation.  The
sale of any of our products for use in humans in the United  States will require
the approval of the FDA. Similar  approvals by comparable  agencies are required
in most foreign  countries.  The FDA has  established  mandatory  procedures and
safety standards that apply to the clinical  testing,  manufacture and marketing
of pharmaceutical products. Obtaining FDA approval for a new therapeutic product
may take several years and involve  substantial  expenditures.  The six products
currently under development have not yet been approved for sale or use in humans
in the United States or elsewhere.

         If  we  or  our  licensees   fail  to  obtain  or  maintain   requisite
governmental  approvals  or fail to obtain or  maintain  approvals  of the scope
requested,  it will delay or preclude us or our licensees or marketing  partners
from  marketing  our  products.  It could also limit the  commercial  use of our
products.

THE  PHARMACEUTICAL  INDUSTRY  IS HIGHLY  COMPETITIVE  AND  SUBJECT TO RAPID AND
SIGNIFICANT  TECHNOLOGICAL  CHANGE,  WHICH COULD IMPAIR OUR ABILITY TO IMPLEMENT
OUR BUSINESS MODEL.

         The pharmaceutical industry is highly competitive, and we may be unable
to compete  effectively.  In addition,  it is undergoing  rapid and  significant
technological  change,  and we expect  competition  to  intensify  as  technical
advances  in each field are made and become  more widely  known.  An  increasing
number of pharmaceutical  companies have been or are becoming  interested in the
development and  commercialization of products  incorporating  advanced or novel
drug delivery systems.  We expect that competition in the field of drug delivery
will  increase  in the  future as other  specialized  research  and  development
companies begin to concentrate on this aspect of the business. Some of the major
pharmaceutical  companies have invested and are continuing to invest significant
resources in the development of their own drug delivery systems and technologies
and some have invested funds in such specialized drug delivery  companies.  Many
of our  competitors  have longer  operating  histories  and  greater  financial,
research  and  development,  marketing  and  other  resources  than we do.  Such
companies may develop new  formulations  and products,  or may improve  existing
ones, more efficiently than we can. Our success,  if any, will depend in part on
our ability to keep pace with the changing  technology in the fields in which we
operate.


                                       19
<PAGE>

IF KEY  PERSONNEL  WERE TO LEAVE ELITE OR IF WE ARE  UNSUCCESSFUL  IN ATTRACTING
QUALIFIED PERSONNEL, OUR ABILITY TO DEVELOP PRODUCTS COULD BE MATERIALLY HARMED.

         Our success  depends in large part on our ability to attract and retain
highly qualified scientific, technical and business personnel experienced in the
development,  manufacture  and  marketing of  controlled  release drug  delivery
systems and  products.  Our business and  financial  results could be materially
harmed by the inability to attract or retain qualified personnel.

IF WE WERE  SUED ON A  PRODUCT  LIABILITY  CLAIM,  AN  AWARD  COULD  EXCEED  OUR
INSURANCE COVERAGE AND COST US SIGNIFICANTLY.

         The design,  development  and  manufacture  of our products  involve an
inherent risk of product  liability  claims.  We have procured product liability
insurance  having a maximum limit of  $5,000,000;  however,  a successful  claim
against  us in  excess  of the  policy  limits  could be very  expensive  to us,
damaging our financial position. The amount of our insurance coverage, which has
been limited due to our limited financial resources, may be materially below the
coverage   maintained  by  many  of  the  other  companies  engaged  in  similar
activities.  To the best of our knowledge,  no product  liability claim has been
made against us as of March 31, 2005.

OUR STOCK PRICE HAS BEEN VOLATILE AND MAY FLUCTUATE IN THE FUTURE.

         There has been significant volatility in the market prices for publicly
traded shares of pharmaceutical companies, including ours. For the twelve months
ended March 31, 2005,  the closing sale price on the American  Stock Exchange of
our Common Stock fluctuated from a high of $4.79 per share to a low of $1.05 per
share.  The per share  price of our  Common  Stock  may not  remain at or exceed
current  levels.  The market  price for our Common  Stock,  and for the stock of
pharmaceutical  companies generally,  has been highly volatile. The market price
of our Common Stock may be affected by:

     o    Results of our clinical trials;

     o    Approval or disapproval of abbreviated  new drug  applications  or new
          drug applications;

     o    Announcements of innovations,  new products or new patents by us or by
          our competitors;

     o    Governmental regulation;

     o    Patent or proprietary rights developments;

     o    Proxy contests or litigation;


                                       20
<PAGE>

     o    News  regarding the efficacy of, safety of or demand for drugs or drug
          technologies;

     o    Economic  and  market   conditions,   generally  and  related  to  the
          pharmaceutical industry;

     o    Healthcare legislation;

     o    Changes in third-party reimbursement policies for drugs; and

     o    Fluctuations in our operating results.

All of the 516,558 shares of Series A Preferred Stock  originally  issued in the
private  placement  of October  2004 have been  converted  into an  aggregate of
5,238,555  shares of Common Stock and have been registered  under the Securities
Act of 1933 for resale. In addition, we have registered under the Securities Act
of 1933, as amended for reoffering 5,660,511 shares of Common Stock which may be
acquired  upon exercise of the Short Term  Warrants,  Long Term Warrants and the
Placement  Agent  Warrants as well as 670,000  shares which may be acquired upon
exercise of options at prices  ranging from $1.00 to $3.00 per share  granted to
Dr. Atul Mehta. As of this date sales of substantial amounts of the Common Stock
in the public market are eligible for sale by these  holders.  Perceptions  that
substantial  sales may take place in the  future  may lower the  Common  Stock's
market price.

THE FAILURE TO MAINTAIN THE AMERICAN STOCK EXCHANGE  LISTING OF THE COMMON STOCK
WOULD HAVE A MATERIAL  ADVERSE EFFECT ON THE MARKET FOR THE COMMON STOCK AND ITS
MARKET PRICE.

         One of the  requirements  for the continued  listing of Common Stock on
the American  Stock Exchange for a company that has net losses for its five most
recent  fiscal  years  is  that  it  have a  stockholders'  equity  of at  least
$6,000,000.  The Company has  sustained a net loss for the year ending March 31,
2005,  and as a result  will have  sustained  net losses in its five most recent
fiscal  years.  As of March 31,  2005,  the Company had  stockholders  equity of
approximately $5.7 million. The related provision of the American Stock Exchange
guide  provides  that the Exchange will not normally  consider  removing a stock
from listing if the total value of the Company's market capitalization as of the
end of its most recent fiscal year is at least $50,000,000 as well as satisfying
other  conditions  which the Company  meets and expects to meet.  The failure to
maintain listing of the Common Stock on the Exchange will have an adverse effect
on the market and the market price for the Common Stock.


                                       21
<PAGE>


THE ISSUANCE OF  ADDITIONAL  SHARES OF OUR COMMON STOCK OR OUR  PREFERRED  STOCK
COULD MAKE A CHANGE OF CONTROL MORE DIFFICULT TO ACHIEVE.

         The issuance of additional  shares of the Company's Common Stock or the
issuance of shares of an additional  series of Preferred  Stock could be used to
make a change of control of the Company  more  difficult  and  expensive.  Under
certain  circumstances,  such shares could be used to create  impediments  to or
frustrate persons seeking to cause a takeover or to gain control of the Company.
Such  shares  could be sold to  purchasers  who  might  side  with the  Board in
opposing  a  takeover  bid  that  the  Board  determines  not to be in the  best
interests of its stockholders.  It might also have the effect of discouraging an
attempt by another  person or entity  through the  acquisition  of a substantial
number of shares of the Company's Common Stock to acquire control of the Company
with a view to  consummating  a  merger,  sale  of all or part of the  Company's
assets, or a similar transaction, since the issuance of new shares could be used
to dilute the stock ownership of such person or entity.

IF PENNY  STOCK  REGULATIONS  BECOME  APPLICABLE  TO OUR COMMON  STOCK THEY WILL
IMPOSE  RESTRICTIONS ON THE MARKETABILITY OF OUR COMMON STOCK AND THE ABILITY OF
OUR STOCKHOLDERS TO SELL SHARES OF OUR STOCK COULD BE IMPAIRED.

         The SEC has adopted  regulations  that generally define a "penny stock"
to be an equity security that has a market price of less than $5.00 per share or
an exercise  price of less than $5.00 per share  subject to certain  exceptions.
Exceptions  include  equity  securities  issued  by an  issuer  that has (i) net
tangible  assets of at least  $2,000,000,  if such issuer has been in continuous
operation  for more than three years,  or (ii) net  tangible  assets of at least
$5,000,000,  if such issuer has been in continuous operation for less than three
years, or (iii) average  revenue of at least  $6,000,000 for the preceding three
years.  Unless an exception is available,  the regulations require that prior to
any transaction  involving a penny stock, a risk of disclosure  schedule must be
delivered  to the buyer  explaining  the penny stock  market and its risks.  Our
Common  Stock is  currently  trading  at under  $5.00  per  share.  Although  we
currently fall under one of the  exceptions,  if at a later time we fail to meet
one of the  exceptions,  our Common Stock will be  considered a penny stock.  As
such the market liquidity for our Common Stock will be limited to the ability of
broker-dealers  to sell it in  compliance  with the  above-mentioned  disclosure
requirements.

         You should be aware that,  according  to the SEC,  the market for penny
stocks has  suffered  in recent  years from  patterns  of fraud and abuse.  Such
patterns include:


     o    Control of the market for the security by one or a few broker-dealers;

     o    "Boiler room" practices involving high-pressure sales tactics;

     o    Manipulation of prices through  prearranged  matching of purchases and
          sales;

     o    The release of misleading information;


                                       22
<PAGE>


     o    Excessive and undisclosed bid-ask differentials and markups by selling
          broker-dealers; and

     o    Dumping  of  securities  by  broker-dealers  after  prices  have  been
          manipulated to a desired level, which hurts the price of the stock and
          causes investors to suffer loss.

     We are aware of the abuses that have  occurred  in the penny stock  market.
Although  we do not expect to be in a position  to dictate  the  behavior of the
market or of broker-dealers who participate in the market, we will strive within
the confines of practical limitations to prevent such abuses with respect to our
Common Stock.

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW MAY DETER A THIRD PARTY FROM
ACQUIRING US.

         Section 203 of the Delaware General  Corporation Law prohibits a merger
with a 15% shareholder within three years of the date such shareholder  acquired
15%, unless the merger meets one of several exceptions.  The exceptions include,
for example,  approval by the holders of  two-thirds of the  outstanding  shares
(not  counting the 15%  shareholder),  or approval by the Board prior to the 15%
shareholder acquiring its 15% ownership. This provision makes it difficult for a
potential acquirer to force a merger with or takeover of the Company,  and could
thus  limit the price  that  certain  investors  might be  willing to pay in the
future for shares of our Common Stock.

ITEM 2.  PROPERTIES

         Our facility, which we own, is located at 165 Ludlow Avenue, Northvale,
New Jersey, and contains  approximately  20,000 square feet of floor space. This
real property and the improvements thereon are encumbered by a mortgage in favor
of the New Jersey Economic Development  Authority (NJEDA) as security for a loan
through tax-exempt bonds from the NJEDA to Elite. The mortgage document contains
certain customary provisions including,  without limitation,  the right of NJEDA
to foreclose upon a default by Elite.

         We are currently  using our  facilities as a laboratory,  manufacturing
and office space.  Properties used in our operations are considered suitable for
the purposes for which they are used and are believed to be adequate to meet our
needs for the reasonably foreseeable future.


ITEM 3.  LEGAL PROCEEDINGS

            In the ordinary  course of business,  we may be party to  litigation
from time to time.


                                       23
<PAGE>

         The Company and Dr.  Mehta,  the Company's  former  President and Chief
Executive  Officer  entered  into a  settlement  agreement  in April  2004 and a
related agreement in October 2004, to settle a litigation initiated by Dr. Mehta
in July 2003 for alleged  breach of his  employment  agreement.  The  agreements
provide  for the  extension  of the  expiration  dates to  December  31, 2007 of
options  to  purchase  670,000  shares of Common  Stock held by Dr.  Mehta,  the
reduction  of the  exercise  price of 170,000  options  from $10.00 to $2.34 per
share  and  his  relinquishment  of any  rights  to the  Company's  intellectual
property and agreement to certain non-disclosure and non-competition  covenants.
The Company also provided him with certain "piggyback"  registration rights with
respect to the shares issuable upon exercise of the foregoing options granted by
the  Company.  Dr.  Mehta and  members  of his family  sold in  October  2004 an
aggregate of 1,362,200  shares of Common Stock  representing  all of his and his
affiliates  holdings  of  Common  Stock  of the  Company  and  the  Company  has
registered  for resale the  670,000  shares of Common  Stock which may be issued
upon exercise of the options.

         We are not currently a party to any material legal proceedings.

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

         No matter was  submitted  to a vote of  stockholders  during the fourth
quarter of our fiscal year ended March 31, 2005.  However at the Annual  Meeting
of Stockholders  held on April 15, 2005 the stockholders (i) elected as its four
Directors Mr. Bernard Berk, Mr. Edward Neugeboren,  Dr. Melvin Van Woert and Mr.
Barry Dash,  Ph. D; (ii)  approved an  amendment  to our 2004 Stock  Option Plan
increasing the number of shares subject to the Plan to 4,000,000  shares;  (iii)
ratified the actions of the Board of Director's  amending an option granted to a
former officer and director and the issuance of warrants granted to a consultant
and (iv)  ratified the  engagement  of Miller Ellin & Co., LLP as the  Company's
independent auditors for the year ending March 31, 2005.


                                       24
<PAGE>

                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Our Common Stock is quoted on the  American  Stock  Exchange  under the
symbol "ELI". The following table shows, for the periods indicated, the high and
low sales prices per share of our Common Stock as reported by the American Stock
Exchange.

                                  COMMON STOCK

QUARTER ENDED                                             HIGH          LOW

FISCAL YEAR
ENDING MARCH 31, 2005:
March 31, 2005.............................................$4.79       $1.15
December 31, 2004..........................................$4.01       $1.20
September 30, 2004.........................................$2.35       $1.05
June 30, 2004 .............................................$4.31       $2.15

FISCAL YEAR
ENDING MARCH 31, 2004:
March 31, 2004.............................................$3.80       $2.40
December 30, 2003..........................................$3.30       $2.70
September 30, 2003.........................................$3.49       $2.05
June 30, 2003 .............................................$3.49       $1.25

FISCAL YEAR
ENDING MARCH 31, 2003:
March 31, 2003.............................................$2.20       $1.45
December 31, 2002..........................................$3.15       $1.80
September 30, 2002.........................................$5.25       $2.41
June 30, 2002..............................................$7.75       $4.50

FISCAL YEAR
ENDING MARCH 31, 2002:
March 31, 2002.............................................$8.30       $5.65
December 31, 2001..........................................$7.75       $5.90
September 30, 2001........................................$11.50       $5.10
June 30, 2001.............................................$11.45       $4.85

         On June 20, 2005, the last reported sale price of our Common Stock,  as
reported by the American Stock Exchange, was $2.84 per share.


                                       25
<PAGE>

         As of June 20, 2005, there were approximately 122 holders of record and
approximately  1,650 beneficial  owners of our Common Stock. We are informed and
believe  that as of June 20,  2005,  Cede & Co.  held  15,846,250  shares of our
Common Stock as nominee for Depository Trust Company, 55 Water Street, New York,
New York 10004.  It is our  understanding  that Cede & Co. and Depository  Trust
Company both disclaim any beneficial  ownership therein and that such shares are
held for the account of numerous other persons.

         We have never paid cash  dividends on our capital  stock.  We currently
anticipate  that we will retain all available funds for use in the operation and
expansion of our business,  and do not  anticipate  paying any cash dividends in
the foreseeable future.

         Please  see our  Quarterly  Report  on Form  10-Q for the  three  month
periods  ending June 30, 2004,  September 30, 2004 and December 31, 2004 and our
Current Reports on Form 8-K dated October 6, 2004,  October 12, 2004 and October
26, 2004 for  information  concerning our issuances of  unregistered  securities
during the 12 months ended March 31, 2005.

EQUITY COMPENSATION PLAN INFORMATION

          As of March 31,  2005,  we had  authorized  the  issuance of 1,500,000
shares of Common  Stock upon  exercise of options  pursuant to our Stock  Option
Plan (which was approved by our stockholders on June 22, 2004 and amended by our
stockholders  on April 15, 2005 to increase  to  4,000,000  the number of shares
subject to our Stock Option  Plan).  As of March 31, 2005,  under the 2004 Stock
Option Plan,  there was an aggregate of 93,300  shares of Common Stock  issuable
upon exercise of outstanding options having a weighted average exercise price of
$2.34. In addition,  there was an aggregate of 2,005,000  shares of Common Stock
issuable upon  exercise of other  outstanding  options  granted to employees and
directors having a weighted average exercise price of $2.16.

         If options granted under the Plan lapse without being exercised,  other
options  may be granted  covering  the shares not  purchased  under such  lapsed
options.  Options may be granted  pursuant to the Plan to  employees,  officers,
Directors  of and  consultants  to Elite.  The Plan permits the Company to grant
both incentive  stock options  ("Incentive  Stock Options" or "ISOs") within the
meaning of Section 422 of the Code,  and other  options  which do not qualify as
Incentive Stock Options (the "Non-Qualified Options").

         Of the incentive stock options  outstanding,  options for 93,300 shares
with an  exercise  price of $2.34 per share  were  granted  on June 22,  2004 to
employee holders of outstanding options previously granted by the Company having
on the date of the grant a higher  exercise  price;  such grants  subject to the
cancellation of the previously granted options. To the extent that stock options
previously granted are not surrendered for cancellation then options exercisable
for that same number of shares of Common Stock will be available for grant under
the Plan. Such grants may be deemed


                                       26
<PAGE>

repricing of the  outstanding  options and will result in charges to earnings of
the  Company  equal to the  difference  between (i) the fair value of the vested
portion of the new options granted,  utilizing the Black-Scholes options pricing
model on each grant date and (ii) the charges to earnings  previously  made as a
result of the grants of the options being  replaced,  which will have a dilutive
effect on the earnings  per share and, as a result,  will likely have an adverse
effect on the market price of the Common Stock of the Company.

         Options to purchase  30,000  shares of Common Stock were granted  under
the Plan on June 22, 2004 to each of Bernard Berk, our Chief  Executive  Officer
and a Director,  and Mr.  John A. Moore,  Mr.  Harmon  Aronson,  and Dr. Eric L.
Sichel,  each of whom was then a Director of the Company,  exercisable  at $2.34
per share.

         Unless earlier terminated by the Board of Directors,  the Plan (but not
outstanding  options) terminates on March 1, 2014, after which no further awards
may be granted  under the Plan.  The Plan is  administered  by the full Board of
Directors or, at the Board's discretion,  by a committee of the Board consisting
of at least two  persons  who are  "disinterested  persons"  defined  under Rule
16b-2(c)(ii)  under  the  Securities  Exchange  Act of  1934,  as  amended  (the
"Committee").  As of March 31, 2005, the full Board of Directors administers the
Plan and no Committee has been appointed.

         Recipients of options under the Plan  ("Optionees") are selected by the
Board or the  Committee.  The Board or  Committee  determines  the terms of each
option grant including (1) the purchase price of shares subject to options,  (2)
the dates on which options become  exercisable  and (3) the  expiration  date of
each option (which may not exceed ten years from the date of grant). The minimum
per share purchase price of options  granted under the Plan for Incentive  Stock
Options is the fair market  value (as  defined in the Plan) or for  Nonqualified
Options is 85% of Fair Market Value of one share of the Common Stock on the date
the option is granted.

         Optionees will have no voting, dividend or other rights as stockholders
with respect to shares of Common Stock  covered by options prior to becoming the
holders  of record of such  shares.  The  purchase  price upon the  exercise  of
options may be paid in cash, by certified bank or cashier's  check, by tendering
stock held by the Optionee,  as well as by cashless  exercise either through the
surrender of other shares  subject to the option or through a broker.  The total
number of shares of Common  Stock  available  under the Plan,  and the number of
shares  and  per  share  exercise  price  under  outstanding   options  will  be
appropriately  adjusted  in the  event of any  stock  dividend,  reorganization,
merger or recapitalization of the Company or similar corporate event.

         The Board of Directors may at any time  terminate the Plan or from time
to time  make  such  modifications  or  amendments  to the  Plan as it may  deem
advisable and the Board or Committee may adjust,  reduce,  cancel and regrant an
unexercised  option if the fair market value  declines  below the exercise price
except as may be  required by any  national  stock  exchange or national  market
association on which the Common Stock is then listed. In no event may the Board,
without the  approval of  stockholders,


                                       27
<PAGE>

amend the Plan to  increase  the  maximum  number of shares of Common  Stock for
which  options  may be  granted  under the Plan or change  the class of  persons
eligible to receive options under the Plan.

         Subject  to  limitations  set  forth in the  Plan,  the terms of option
agreements will be determined by the Board or Committee, and need not be uniform
among Optionees.

ITEM 6. SELECTED FINANCIAL DATA

         The following  consolidated  selected financial data, at the end of and
for  the  last  five  fiscal  years,  should  be read in  conjunction  with  our
Consolidated  Financial Statements and related Notes thereto appearing elsewhere
in this Annual Report on Form 10-K. The consolidated selected financial data are
derived from our  consolidated  financial  statements  that have been audited by
Miller, Ellin & Company,  LLP, our independent  auditors,  as indicated in their
report  included  herein.  The selected  financial  data  provided  below is not
necessarily  indicative  of  our  future  results  of  operations  or  financial
performance.

<TABLE>
<CAPTION>

                             2005             2004              2003               2002                 2001
                             ----             ----              ----               ----                 ----
<S>                    <C>               <C>              <C>                <C>                <C>

Net Revenues           $301,480          $    258,250     $   630,310        $  1,197,507       $     95,246
Net (loss)             $(5,906,890)      $(6,514,217)     $(4,061,422)       $(1,774,527)       $(13,964,981)
Net (loss) per             $(0.47)           $(0.58)           $(0.40)            $(0.19)             $(1.53)
common share
Total Assets           $9,245,292        $7,853,434       $8,696,222         $12,724,498        $12,350,301
Long-term obligations  $2,367,128        $2,495,000       $2,720,000         $3,788,148         $2,765,000
Weighted average       12,869,924        11,168,618       10,069,991         9,561,299          9,135,369
number of shares
outstanding

</TABLE>


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

GENERAL

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

OVERVIEW

         Elite Pharmaceuticals is a specialty pharmaceutical company principally
engaged in the development and manufacture of oral, controlled release products.
Elite


                                       28
<PAGE>

develops  controlled  release  products using  proprietary  technology and
licenses these 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.  Elite's  technology is applicable to develop delayed,
sustained or targeted release pellets, capsules,  tablets, granules and powders.
Elite has one product  currently being sold  commercially  and a pipeline of six
drug  products  under   development  in  the  therapeutic   areas  that  include
cardiovascular,  pain management,  allergy and infection. The addressable market
for Elite's pipeline of products exceeds $2 billion. Elite's current facility in
Northvale,  New Jersey also is a GMP and DEA  registered  facility for research,
development, and manufacturing.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

         Management believes the following critical accounting  policies,  among
others,  affect  its  more  significant  judgments  and  estimates  used  in the
preparation  of  its  consolidated  financial  statements.   Our  most  critical
accounting  policies  include the  recognition  of revenue  upon  completion  of
certain phases of projects under research and development contracts. The Company
also  assesses a need for an  allowance to reduce its deferred tax assets to the
amount that it believes  is more  likely  than not to be  realized.  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 asset
may not be recoverable. The Company assesses its exposure to current commitments
and contingencies.  It should be noted that actual results may differ from these
estimates under different assumptions or conditions.

         During  the year ended  March 31,  2003,  we  elected to  prospectively
recognize  the fair value of stock  options  granted to employees and members of
the Board of Directors,  effective as of the beginning of the fiscal year, which
resulted in our taking a charge of $20,550,  $1,166,601 and $370,108  during the
years ended March 31, 2003, 2004 and 2005, respectively. The fair value of stock
options held by employees and


                                       29
<PAGE>

members of the Board of Directors which have been granted or repriced subsequent
to March 31, 2005 is expected to continue to affect the results of operations of
future  periods,  as we continue to grant or reprice stock options to reward our
management team.

YEAR ENDED MARCH 31, 2005 VS. YEAR ENDED MARCH 31, 2004

         Our Auditor's  Report on the  accompanying  financial  statements state
that such financial statements have been prepared assuming that we will continue
as a going concern. We have incurred  significant losses during our fiscal years
ended March 31, 2005 and March 31, 2004.  Although  proceeds  were raised during
our latest private placement,  our Auditor's  continued to state in their report
that conditions raise substantial doubt about our ability to continue as a going
concern.  The financial statements do not include any adjustments to reflect the
possible future effects on the  recoverability  and classification of the assets
or the  amounts  and  classification  of  liabilities  that may result  from the
outcome of this uncertainty.  Management  believes that cost reductions  already
implemented  will reduce  losses in the future,  and with our  existing  working
capital  levels,  anticipate  that we will be able to continue our operations at
least through the end of our current fiscal year.

         Our  revenues  for the year  ended  March 31,  2005 were  $301,480,  an
increase of $43,230 or  approximately  17%, over the comparable  prior year. For
the year ended March 31, 2005,  revenues consisted of a $150,000  non-refundable
payment  received  from  Purdue  Pharma  L.P.  granting it the right to evaluate
certain abuse resistant drug formulation  technology,  $125,739 in manufacturing
fees, $24,291 in royalty fees and $1,450 in testing fees.  Revenues for the year
ended  March 31,  2004  consisted  of research  and  development  fees earned in
conjunction with our distinct development, license and manufacturing agreements.

         Research and development  costs for the year ended March 31, 2005, were
$2,698,641 an increase of $623,567 or approximately  30% from $2,075,074 for the
comparable  period of the  prior  year,  primarily  the  result  of an  increase
relating to wages,  raw  materials,  laboratory and  manufacturing  supplies and
consulting  fees.  We expect our research and  development  costs to continue to
increase in future  periods as a result of the ERL joint venture  termination as
we will be solely responsible to fund product development, which we will do from
the internal resources or through loans or investment by third parties.

         General and administrative  expenses for the year ended March 31, 2005,
were $2,159,670,  a decrease of $390,176,  or  approximately  18% from the prior
year.  The decrease was  attributable  to a decrease in litigation  costs offset
somewhat by increases in salaries and staff,  consulting  fees and the write-off
of a bad debt relating to accounts receivable.

         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


                                       30
<PAGE>


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 as described in this report.

         Depreciation  and  amortization  increased by $23,602 from  $332,836 to
$356,438.

         Other  expenses  for the year ended  March 31,  2005 were  $992,621,  a
decrease of $821,090,  or approximately  45% from $1,813,711 for the prior year.
The  decrease  was due to a reduction by  $1,143,466  in charges  related to the
issuances  of stock  options and  warrants and a charge of $172,324 in the prior
year related to the warrant exchange offer,  offset partially by a charge in the
year ended March 31,  2005  relating to the  repricing  of stock  options in the
amount of  $397,732.  Additional  interest  income,  due to higher  compensating
balances  as a result of the  private  placement,  was  offset by  increases  in
interest expense resulting from the equipment financing.

         As a result of the foregoing, the Company's net loss for the year ended
March 31, 2005 was  $5,906,890  compared to $6,514,217  for the year ended March
31, 2004. Increases in operating expenses of $256,993,  were more than offset by
decreases in other expenses of $821,090.

YEAR ENDED MARCH 31, 2004 VS. YEAR ENDED MARCH 31, 2003

         Our Auditor's Report on the accompanying  financial  statements for the
years ended March 31, 2005 and 2004 and a prior  Report for the year ended March
2003 states that such financial  statements have been prepared  assuming that we
will continue as a going  concern.  We incurred a significant  loss and negative
cash flow  during  our  fiscal  year ended  March 31,  2004 which  significantly
decreased our working capital and increased our accumulated deficit.

         Our  revenues  for the year  ended  March  31,  2004 were  $258,250,  a
decrease of $372,060 or  approximately  59% from the comparable  prior year. For
the year ended March 31, 2004 our revenues consisted of research and development
fees  earned  in  conjunction  with  our  distinct   development,   license  and
manufacturing agreements.  For the year ended March 31, 2003, revenues consisted
of product  formulation  fees of $187,810  earned in conjunction  with our joint
venture in ERL which  terminated  on September 30, 2002. Of our revenues for the
years  ended  March  31,  2004  and  March  31,  2003,  $108,500  and  $442,500,
respectively,   were  research  and  development  and  testing  fees  earned  in
conjunction with our distinct development, license and manufacturing agreements.


                                       31
<PAGE>

         General and  administrative  expenses for the year ended March 31, 2004
were $2,549,846,  an increase of $691,777,  or approximately  37% from the prior
year.  The increase was  substantially  due to increases in legal and consulting
fees as well as  approximately  $550,000  in  expenses,  including  $400,000  as
compensation, resulting from a settlement of litigation instituted by our former
President with respect to the termination of his employment agreement.

         Research and development  costs for the year ended March 31, 2004, were
$2,075,074,  an  increase  of $61,495 or  approximately  3% from the prior year,
primarily due to increased research and development wages,  laboratory  supplies
and raw materials used in our research and development  processes and additional
biostudies.

         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 as described in this report.

         Other  expenses for the year ended March 31, 2004 were  $1,813,711,  an
increase of $1,304,903,  or approximately 256% from the prior year. The increase
was primarily due to charges related to the modification of the warrant exchange
offer,  the issuance of stock  options and  warrants  valued at  $1,926,908  (an
increase of $1,664,020)  and the reduction in interest income due to lower rates
and  compensating  balances  in the  amount  of  $72,927,  partially  offset  by
increases  in sale of New Jersey,  tax losses of $79,353 and the  settlement  of
vendor litigation for $150,000.

         Our net  loss for the year  ended  March  31,  2004 was  $6,514,217  as
compared to $4,061,422 in the prior year,  or an increase of  approximately  60%
from  the  prior  year,  primarily  due to the  decrease  in net  revenues,  and
increases in research and development  and  administrative  expenses,  including
increased  charges of $1,664,020 due to the issuance of stock options,  warrants
and the modification of warrant exchange offer.

MATERIAL CHANGES IN FINANCIAL CONDITION

         The Company's  working capital (total current assets less total current
liabilities), which was $1,289,764 as of March 31, 2004, increased to $3,328,583
as of March 31, 2005,  primarily due to net proceeds of $5,791,600 received from
the  sale of  Series  A  Preferred  Stock  partially  offset  by the net loss of
$4,883,302 from operations, exclusive of non-cash charges of $1,423,588.


                                       32
<PAGE>

         The  Company  experienced   negative  cash  flows  from  operations  of
($4,883,503)  for the year ended March 31, 2005,  primarily due to the Company's
net loss from  operations of  $5,906,890,  less non-cash  charges of $1,423,588,
which  included,  but were not limited to, the charges of $397,732 in connection
with the repricing of stock options, $370,108 in connection with the issuance of
stock options, and $241,010 in connection with the issuance of stock warrants.

         The Company recently completed a Good  Manufacturing  Practices ("GMP")
batch for a product  currently  licensed with a  pharmaceutical  company under s
development and license  agreement  entered into June 2001. The Company received
$30,000 in  November  2003 under the  Agreement  and  expects  to  complete  two
additional  GMP  batches  in the near  future  under the terms of the  licensing
agreement. On November 15, 2004, Elite's partner, ECR, launched LODRANE 24, once
a day allergy product,  utilizing Elite's extended release technology to provide
for once  daily  dosing.  Under  its  agreement  with  ECR,  Elite is  currently
manufacturing  commercial  batches of LODRANE 24 in exchange  for  royalties  on
product revenues. The Company expects these royalties to provide additional cash
to help fund its operations.

         The Company recently entered into a development  agreement with Pivotal
Development,  L.L.C. pursuant to which the Company is to receive an aggregate of
$750,000 upon attaining certain milestones. The Company anticipates that some of
the milestones will be achieved the first quarter of the year March 2006.

         The Company in April 2005  announced the entry into an agreement with a
specialty marketing company and a boutique formulation  development company, for
the  manufacture  and  distribution  of a controlled  release drug product.  The
product is a generic  equivalent to a branded drug which has addressable  market
revenues of approximately  $80 million per year. The agreement  provides for (1)
the  development  of the drug by Elite with costs of development to be shared by
Elite and the marketing  company,  (2) the  manufacture by Elite and its sale to
the marketing company for distribution and (3) the boutique  development company
to be  responsible  for any  requisite  submissions  to the FDA  relating to the
product.  Elite  is to  share  in the  profits  generated  from  the sale of the
product.

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

LIQUIDITY AND CAPITAL RESOURCES

         For the year ended March 31, 2005, the Company  recorded  positive cash
flow and financed its  operations  through  utilization of its existing cash. In
October  2004,  the  Company  raised  net cash of  $5,791,000  from its  private
placement of its Series A Preferred  Stock.  The  Company's  working  capital at
March 31, 2005 was $3.3 million compared with working capital of $1.3 million at
March 31, 2004.  Cash and cash


                                       33
<PAGE>

equivalents  at March 31, 2005 were $3.9  million,  an increase of $1.8  million
from the $2.1 million at March 31, 2004.

         The  Company's  purchase of machinery  and  equipment of  approximately
$426,000  during the year ending  March 31, 2005 was fully  financed  except for
minor  expenditures.  No capital  expenditures  were made  during the year ended
March 31, 2004.

         The Company had bonds of $2,345,000  outstanding  as of March 31, 2005.
The bonds  bear  interest  at a rate of 7.75%  per annum and are due on  various
dates between 2005 and thereafter.  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.  Bonds proceeds were utilized for the refinancing of the
land  and  building  the  Company   currently   own,  the  purchase  of  certain
manufacturing equipment and related building improvements and the maintenance of
a $300,000 debt service reserve. All of the restricted cash, other than the debt
service  reserve,  is  expected  to be  expended  within  twelve  months  and is
therefore  categorized as a current asset on the Company's  consolidated balance
sheet as of March 31, 2005.  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 March 31, 2005
the Company was in compliance with the covenants contained in the bond indenture
agreement.

         On July 8, 2004, Elite Labs entered into a loan and financing agreement
in order to finance the purchase of certain machinery and equipment.  Elite Labs
borrowed $400,000 payable in 36 monthly installments each of $13,671,  including
principal  and  interest  at 14% per  annum.  The first  four and the last three
months of scheduled payments are being held by the lender and were and are to be
applied to the principal  balance when due. The loan is secured by two pieces of
equipment and the guaranty of the Company.  In addition,  the Company  issued to
designees of the lender 50,000  warrants,  which vest  immediately,  to purchase
50,000  shares of the  Company's  Common  Stock at $4.20 per share.  A charge of
$41,252 for the cost of these  warrants is reflected in the year ended March 31,
2005.

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

         In October 2004,  the Company  effected a private  placement of 516,558
shares of its Series A Convertible  Preferred  Stock and the short and long term
warrants for gross  proceeds of  $6,600,000,  before  payment of  commission  of
$623,520 and other expenses.  The Series A Preferred  Shareholders were entitled
to a preferential dividend


                                       34
<PAGE>

of 8% per annum of the  original  issue  price of $12.30  per share  payable  on
December 1 and June 1 of each year and at the time of conversion.  Dividends are
payable in cash or shares of Common  Stock  valued at their fair market value as
defined.  The  December 1, 2004  dividend of $75,076 was paid by the issuance of
26,961 shares of Common Stock.  As of March 7, 2005, all of the shares have been
converted at the holder's  option or by mandatory  conversion  pursuant to their
terms.  An  aggregate  of  5,265,516  shares of Common  Stock have been  issued,
including  26,961  shares of Common Stock  issued to satisfy  payment of $75,076
accrued dividend on December 1, 2004. The Company believes that the net proceeds
of the placement have provided sufficient cash to fund the Company's  operations
and capital requirements through at least March 31, 2006.

         As  of  March  31,  2005,   our  principal   source  of  liquidity  was
approximately $3,900,000 of cash and cash equivalents. Additionally, we may have
access to funds through the exercise of  outstanding  stock options and warrants
in addition to funds that may be generated from the potential sale of New Jersey
tax losses.  There can be no  assurance  that the sale of tax losses or that any
proceeds  generated  by the  exercise of  outstanding  warrants or options  will
provide sufficient cash.

         The following  table depicts our  obligations  and  commitments to make
future payments under existing contracts or contingent commitments.

<TABLE>
<CAPTION>

                                                                PAYMENTS DUE BY PERIOD
                                                    LESS THAN 1                                      AFTER 5
CONTRACTUAL OBLIGATIONS               TOTAL             YEAR          1-3 YEARS       4-5 YEARS      YEARS
                                      -----
<S>                                    <C>           <C>               <C>            <C>          <C>

Equipment note payable               315,074         127,946           187,128               -             -

EDA Bonds payable                  2,345,000         165,000           570,000         460,000     1,150,000

</TABLE>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         We do not  invest  in or own  any  market  risk  sensitive  instruments
entered into for trading  purposes or for purposes other than trading  purposes.
All loans to us have been made at fixed  interest  rates and;  accordingly,  the
market risk to us prior to maturity is minimal.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Attached  hereto and filed as a part of this Annual Report on Form 10-K
are our Consolidated Financial Statements, beginning on page F-1.

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

         None.

                                       35
<PAGE>


ITEM 9A. CONTROLS AND PROCEDURES

         Within  the 90 days  prior  to the  date of 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 have concluded that
the Company's disclosure controls and procedures are effective for ensuring 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. The Company also concluded that
information  required  to be  disclosed  in  such  reports  is  accumulated  and
communicated to the Company's management,  including its principal executive and
principal  financial officer, as appropriate to allow timely decisions regarding
required disclosure. There was no change in the Company's internal controls over
financial  reporting  that occurred  during the most recent fiscal  quarter that
materially  affected or is reasonably  likely to materially affect the Company's
internal controls over financial reporting. The Company's management has not yet
completed,  and is not yet required to have have  completed,  its  assessment of
internal control over financial reporting.



                                       36
<PAGE>


                                    PART III



ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

Our  directors  and  executive  officers,   as  of  June  22,  2005,  and  their
biographical information are set forth below:

-------------------------------------- --------- -------------------------------
NAME                                   AGE       POSITION
-------------------------------------- --------- -------------------------------
Bernard Berk                           56        Chairman of the Board, Chief
                                                 Executive Officer
-------------------------------------- --------- -------------------------------
Edward Neugeboren                      36        Director
-------------------------------------- --------- -------------------------------
Barry Dash, Ph.D                       73        Director
-------------------------------------- --------- -------------------------------
Dr. Melvin Van Woert                   74        Director
-------------------------------------- --------- -------------------------------
Mark I. Gittelman                      44        Chief Financial Officer,
                                                 Secretary and Treasurer
-------------------------------------- --------- -------------------------------


         The principal  occupations and employment of each such person during at
least the past five years is set forth  below.  In each  instance in which dates
are not provided in connection  with the person's  business  experience,  he has
held the position indicated for at least the past five years.

         Bernard Berk was appointed the Chief  Executive  Officer of the Company
in June 2003,  a Director in February  2004 and Chairman of the Board on May 12,
2004.  Mr. Berk has been the  President and Chief  Executive  Officer of Michael
Andrews Corporation,  a pharmaceutical  management  consultant firm, since 1996.
Mr. Berk devotes and is to devote during his employment substantially all of his
time to the  operations  of the  Company.  From 1994 until  1996,  Mr.  Berk was
President and Chief Executive Officer of Nale Pharmaceutical  Corporation.  From
1989 until 1994, he was Senior Vice  President of Sales,  Marketing and Business
Development  of Par  Pharmaceuticals,  Inc. Mr. Berk holds a B.S.  from New York
University.

            Mr. Edward Neugeboren has been a Managing Partner of IndiGo Ventures
LLC, a boutique  investment-banking  firm based in New York since  January 2003.
From April  2001 to  January  2004,  he was a  Managing  Partner of Third  Ridge
Capital  Management,  LLC, a U.S.  equity hedge fund. From October 2000 to April
2001, he was Chief Administrative  Officer of Soceron, an emerging Silicon Alley
based media software company,  responsible for managing corporate operations. He
aided in capital  raising,  business  development  and  strategic  planning  and
tactical operations. Mr. Neugeboren as Chief Administrative Officer and Director
of Equity Research  Operations at Lehman Brothers from 1998 to 2000 was a senior
member of the management team responsible for department  operations,  including
technology,  finance, editorial and production, human resources, and compliance.
He managed the equity  research  business of Lehman's  strategic  alliance  with
Fidelity  Investments.  He also managed the hard dollar  broker-dealer  research
business with P&L responsibility.  Additionally,  he was the  investment-banking
liaison.  He was from 1996 to 1998 Deputy  Director of



                                       37
<PAGE>

Equity Research and from 1995 to 1996 Director of Equity Research  Operations at
UBS  Warburg,  formerly  Warburg,  Dillon  Read.  He was a senior  member of the
management team as well as the Investment Policy & Equity Commitment Committees.
Mr.  Neugeboren  began his career in 1992 as an equity research analyst covering
the  Specialty  Pharmaceuticals  industry,  including  generic  drugs  and  drug
delivery,  at Dillon Read & Co., Kidder,  Peabody & Co. and Furman Selz, Inc. He
was a member of top ranked Greenwich Associates Mid-Cap Pharmaceuticals Team. He
graduated with a B. S. in Economics  from Union College in 1992. Mr.  Neugeboren
serves  on the Board of  Directors  of  KineMed,  Inc.  a  platform  based  drug
development  and  advanced  medical  diagnostics  company  based in  Emeryville,
California.

            Barry Dash Ph.D. has been since 1995  President and Managing  Member
of Dash Associates,  L.L.C., an independent consultant to the pharmaceutical and
health and beauty aid industries.  From 1983 to 1996 he was employed by American
Home Products Corporation,  its Whitehall-Robins Healthcare Division,  initially
as  Vice  President  of  Scientific  Affairs,  then  Senior  Vice  President  of
Scientific  Affairs  and then  Senior Vice  President  of Advanced  Technologies
during which time he personally supervised six separate departments: Medical and
Clinical  Affairs,   Regulatory   Affairs,   Technical  Affairs,   Research  and
Development,  Analytical R&D and Quality Management/Q.C.  He had previously been
employed by the Whitehall Robins  Healthcare  Division from 1960 to 1976, during
which time he served as Director of Product Development Research, Assistant Vice
President of Product Development and Vice President of Scientific  Affairs.  Dr.
Dash had been employed by J.B. Williams Company (Nabisco Brands, Inc.) from 1978
to1982,  during  which time he helped  introduce  more than 14 national and test
market brands. From 1976 to1978 he was Vice President,  Director of Laboratories
of the Consumer Products  Division of American Can Company.  He is a director of
GeoPharma,  Inc. He holds a Ph.D.  from the  University  of Florida and M.S. and
B.S. degrees from Columbia University at which he was Assistant Professor at the
College of  Pharmaceutical  Sciences from 1956 to 1960.  Dr. Dash is a member of
the  American  Pharmaceutical  Association,  The  American  Association  for the
Advancement of Science and the Society of Cosmetic Chemist.

            Dr. Melvin Van Woert, a  neurologist,  has been since 1974, a member
of the staff of Mount Sinai Medical  Center where he has been a Professor of the
Department of Neurology and Pharmacology at Mount Sinai School of Medicine since
1978. Dr. Van Woert had been a consultant for Neuropharmacological Drug Products
to the Food and Drug  Administration  from 1974 to 1980;  Associate  Editor  for
Journal of the Neurological  Sciences;  Member of the Editorial Board of Journal
of Clinical  Neurphamacology;  and Medical Director of National Organization for
Rare Disorders for which he received in 1993 the  Humanitarian  Award. His other
awards include the U.S. Public Health Service Award for Exceptional  Achievement
in Orphan Products  Development and the National Myoclonus  Foundation Award. He
has   authored   and   co-authored   more  than  150   articles   appearing   in
pharmacological, medical and other professional journals or publications.


                                       38
<PAGE>


         Mark I.  Gittelman,  CPA, our Chief  Financial  Officer,  Secretary and
Treasurer,  is the President of Gittelman & Co., P.C., an accounting firm. Prior
to forming  Gittelman  & Co.,  P.C.  in 1984,  he worked as a  certified  public
accountant with the international accounting firm of KPMG Peat Marwick, LLP. Mr.
Gittelman  holds a B.S. in accounting  from New York University and a Masters of
Science in Taxation from Farleigh Dickinson University. He is a Certified Public
Accountant  licensed in New Jersey and New York, and is a member of the American
Institute of Certified Public  Accountants  ("AICPA") and the New Jersey and New
York States Societies of CPAs.

         Each  director  holds office  (subject to our  By-Laws)  until the next
annual  meeting of  shareholders  and until such  director's  successor has been
elected and qualified.  All of our executive officers are serving until the next
annual  meeting of directors and until their  successors  have been duly elected
and qualified.  There are no family  relationships  between any of our directors
and executive officers.

AUDIT COMMITTEE

         Our Board of Directors has an Audit  Committee and, since March 2004, a
Nominating  Committee.  The Board has no other standing committees.  The current
Audit Committee, appointed on April 15, 2005, consists of Edward Neugeboren, Dr.
Melvin Van Woert and Barry Dash,  Ph.D. The prior Audit  Committee  members were
John A. Moore,  Harmon Aronson and Eric L. Sichel.  The Audit  Committee had one
meeting  during the fiscal year ended March 31,  2005.  The  Company's  Board of
Directors has adopted a written charter for the Audit Committee, a copy of which
was  included  as  an  appendix  to  the  Company's   proxy  statement  sent  to
stockholders in connection with the annual meeting of stockholders  held October
11, 2001.

         Other  than Mr.  Moore,  and each of the  current  members of the Audit
Committee,  we deem the members of the prior and the current Audit Committees to
be  independent  as  independence  is defined in Section  121(A) of the American
Stock Exchange Listing  Standards,  as amended  effective  December 1, 2003. The
Board determined that Mr. Sichel, an independent  director,  with respect to the
prior  Committee  and Mr.  Edward  Neugeboren  with respect to the current Audit
Committee  qualified as the Audit Committee  Financial Expert within the meaning
of that term under the applicable  regulations under the Securities Exchange Act
of 1934.

         Audit Committee  Report:  The following is the Audit  Committee  Report
made by all its members.

         The Audit  Committee  reviewed  and  discussed  the  audited  financial
statements with management.  The Audit Committee  discussed with the independent
auditors  of  the  Company  the  matters  required  to be  discussed  by  SAS 61
(Codification  of  Statements  on Auditing  Standards,  AU 380),  as modified or
supplemented.  The Audit  Committee  received  the written  disclosures  and the
letter from the independent accountants required by Independence Standards Board
Standard  No. 1  (Independence  Standards  Board  Standard  No. 1,  Independence
Discussions  with Audit  Committees),  as  modified or  supplemented.  The Audit
Committee discussed with the independent accountant the


                                       39
<PAGE>

independent  accountant's  independence.  Based  upon the  foregoing  review and
discussions,  the Audit  Committee  recommended to the Board of Directors of the
Company that the audited financial  statements of the Company be included in the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2005 as
filed with the Commission.

                                Edward Neugeboren
                              Dr. Melvin Van Woert
                                Barry Dash, Ph.D.

NOMINATING COMMITTEE

         The  Nominating  Committee,  initially  appointed on June 22, 2004,  is
authorized  to select the  nominees of the Board of  Directors  for  election as
directors.  The members were John A. Moore, Harmon Aronson and Bernard Berk with
Barry Dash and Melvin Van Woert replacing Messrs.  Aronson and Moore as of April
15, 2005.  In selecting  nominees the  Committee  identifies  and  evaluates the
current  Directors  and their  commitment  to the policy of the Company and each
individual's  qualifications  and  availability.  The Committee  believes that a
nominee  for  director  of the  Company  should  have an  appropriate  level  of
sophistication,  knowledge  and  understanding  of the Company and the industry,
stockholder  relations and finance and accounting  for publicly held  companies.
The  Committee  also  considers  the  need  to  select  a  nominee  who  has the
appropriate  experience and financial  background who could qualify as an "audit
committee financial expert" within the meaning of the rules under the Securities
Exchange Act of 1934 and of the  American  Stock  Exchange.  The Company has not
engaged any third party to assist in the process of  identifying  or  evaluating
candidates.

         The  Company   currently  does  not  have  a  process  for  considering
candidates put forward by stockholders other than those who are directors of the
Company.  In view of the  recent  effectiveness  of the  requirements  under the
Securities Exchange Act of 1934 as to a policy with respect to the consideration
of candidates put forward by stockholders  other than those who are directors of
the Company,  the adoption of such policy and the procedures for stockholders to
submit candidates is under consideration by the recently elected Board.

MEETINGS

         During the fiscal year ended  March 31,  2005,  our Board of  Directors
held four meetings and acted by unanimous  written  consent on other  occasions.
Each director  attended 75 percent or more of the  aggregate  number of meetings
and  committees of which he was a member that were held during the period of his
service as a director.

         The  Company  does not have a formal  policy  regarding  attendance  by
members  of  the  Board  of  Directors  at  the  Company's   annual  meeting  of
stockholders,   although  it  does   encourage   attendance  by  the  directors.
Historically,  more than a majority of the  directors  have  attended the annual
meeting.


                                       40
<PAGE>

CODE OF CONDUCT

         At the first  meeting of the Board of  Directors  following  the Annual
Meeting of  Stockholders  held on June 22,  2004 it  adopted a Code of  Business
Conduct and Ethics for its directors,  officers and employees  which it believes
complies  with the  requirements  for a  company  code of ethics  for  financial
officers that were promulgated by the SEC pursuant to the  Sarbanes-Oxley Act of
2002  (the  "Sarbanes-Oxley  Act") as well as for the  members  of our  Board of
Directors.  The directors will be surveyed  annually  regarding their compliance
with the policies as set forth in the Code of Conduct for  Directors.  A copy of
the  Code  of  Business   Conduct  and  Ethics  is   available  on  our  website
www.elitepharma.com.  We intend to disclose  any  amendment  to, or waiver of, a
provision  of the  Business  Conduct and Ethics for  Directors in a report filed
under the  Securities  Exchange  Act of 1934  within five  business  days of the
amendment or waiver.

STOCKHOLDER COMMUNICATIONS

         Stockholders who wish to send  communications to the Board of Directors
should address their  communication  to Elite  Pharmaceuticals  Inc., 165 Ludlow
Avenue, Northvale, New Jersey 07647, attention Mark I. Gittelman, Secretary. Mr.
Gittelman has been instructed to collect and organize stockholder communications
and forward copies to each of the Directors.  If a communication  relates to the
Secretary,  such  communication  should be sent to the same  address,  attention
Bernard Berk, Chairman.

         Typically,  we do not forward to our directors  communications from our
stockholders  or other  communications  which  are of a  personal  nature or not
related to the duties and responsibilities of the Board, including:

     o    Junk mail and mass mailings

     o    New product suggestions

     o    Resumes and other forms of job inquiries

     o    Opinion surveys and polls

     o    Business solicitations or advertisements

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

         Section  16(a) of the  Securities  Exchange  Act of 1934,  as  amended,
requires our directors and executive  officers and persons who own more than ten
percent of a registered class of our equity securities (collectively, "Reporting
Persons")  to file with the SEC  initial  reports of  ownership  and  reports of
changes in ownership of our Common Stock and other equity  securities  of Elite.
Reporting Persons are required by SEC regulation to furnish Elite with copies of
all Section  16(a) forms that they file.  To our  knowledge,  based  solely on a
review of the copies of such  reports  furnished  to us,


                                       41
<PAGE>

we believe that during  fiscal year ended March 31, 2005 all  Reporting  Persons
complied with all applicable filing  requirements  other than Mr. Neugeboren who
did not timely file his Form 3.

Section 16(b) of the  Securities  Exchange Act of 1934, as amended,  requires an
insider,  as defined, to disgorge any gain on the purchase and sale, or sale and
purchase of an issuer's equity  securities  within any six month period.  During
fiscal 2005, the former Chairman of our Board of Directors  remitted $117,740 to
Elite to return his gain based on the applicable provisions of law.

ITEM 11.  EXECUTIVE COMPENSATION

EXECUTIVE OFFICER COMPENSATION

         The Company entered into a three-year  employment  agreement  effective
July 23, 2003 with Mr. Berk providing for (i) his full time  employment as Chief
Executive Officer at an annual base salary of $200,000, (ii) the grant to him of
options which vest  immediately to purchase  300,000 shares of Common Stock at a
price of $2.01 per share price,  the closing  share price on the American  Stock
Exchange  on the date of grant and (iii) the grant of  options  to  purchase  an
additional  300,000 shares at the $2.01 per share to vest on  consummation  of a
"strategic  transaction"  while he is employed as Chief Executive  Officer.  The
consummation of such  transaction will result in the increase of his base annual
salary to $310,140 effective with the consummation.  A strategic  transaction is
defined as any one of the following  transactions provided that the net value of
the consideration to the Company or its stockholders determined in good faith by
the  Board  of  Directors  is at  least  $10,000,000:  (i)  the  sale  of all or
substantially  all of the assets of the Company,  (ii) a merger or consolidation
or  business  combination,  or (iii) the sale by the  Company  of debt or equity
securities.

         Either party upon notice may  terminate Mr.  Berk's  employment  except
that a  termination  by the Company  without  cause or because of his  permanent
disability or a termination by him for cause will result in severance pay in the
form of the  continuation  of his base salary for the balance of the term or two
years,  whichever  is longer,  less in the event of  termination  for  permanent
disability the amount of payments under a disability insurance policy maintained
by the  Company.  The Company is also to  continue  to pay during the  foregoing
period the premiums for life and disability insurance policies.  Furthermore, in
the event  that Mr.  Berk  terminates  his  employment  following  a "change  of
control" event he is to receive,  payable in 24 monthly installments,  an amount
which will  depend on the fair  value of the  consideration  determined  in good
faith by the Board of Directors received by the Company or stockholders from the
"change of control"  event less related  expenses ("Net Fair Value") -- $500,000
if the Net Fair Value is $10  million or less;  the greater of $500,000 or twice
his then base annual  salary,  if the Net Fair Value is greater than $10 million
but not more than $20 million,  or  $1,000,000  if the Net Fair Value is greater
than $20 million.  A "change of control" event is (i) a merger or  consolidation
in which  securities  possessing  more than 50% of the voting power is issued to
persons other than the holders of voting  securities of the Company  immediately
prior  to  the  event,  (ii)  the  sale,  transfer  or



                                       42
<PAGE>

disposition of all or substantially all the assets of the Company,  or (iii) the
sale by the Company of securities to a third party.

         The agreement contains Mr. Berk's non-competition covenant for a period
of one year from termination.

         The Company is a party to an agreement  dated February 26, 1998 whereby
fees  are  paid  to  Gittelman  & Co.,  P.C.,  a firm  wholly-owned  by  Mark I.
Gittelman,  the Company's Chief Financial Officer,  Secretary and Treasurer,  in
consideration  for  services  rendered  by the firm as internal  accountant  and
financial and management  consultant.  The firm's services  include the services
rendered by Mr. Gittelman in his capacity as Chief Financial Officer,  Secretary
and  Treasurer.  For the fiscal years ended March 31, 2005,  2004 and 2003,  the
fees paid by the  Company  under  the  agreement  were  $111,312,  $168,750  and
$167,544 respectively. The services rendered by the firm to the Company averaged
84, 128 and 127 hours per month,  respectively,  of which an average of 30 hours
per month were  services  rendered  by him in his  capacity as an officer of the
Company.

         The following  table sets forth the annual and  long-term  compensation
for  services in all  capacities  to the Company for the three years ended March
31, 2005, awarded or paid to, or earned by Bernard Berk, our President and Chief
Executive  Officer since June 2003 and our former  President and Chief Executive
Officer,  Dr. Atul M. Mehta. Dr. Mehta resigned as an employee and as a director
of Elite as of June 3, 2003. No other executive  officer of the Company received
compensation exceeding $100,000 during those periods.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

----------------------------------------------------------------------- ---------------------------------------------------------
                        ANNUAL COMPENSATION                                           LONG TERM COMPENSATION
----------------------------------------------------------------------- ---------------------------------------------------------
     (a)             (b)         (c)          (d)          (e)             (f)          (g)           (h)         (i)
  Name and         Fiscal       SALARY       BONUS        Other         Restricted   Securities      LTIP        All Other
   Principal        YEAR(1)                               Annual          Stock      Underlying     PAYOUTS    COMPENSATION
    POSITION                                            COMPENSATION(3)   AWARDS       OPTIONS
----------------- ------------ ------------ ----------- --------------- ------------ -------------- ---------- ---------------
<S>               <C>          <C>           <C>          <C>              <C>        <C>              <C>           <C>
Bernard Berk,     2004-05      $200,000      $50,000        --             --           30,000         --            --
President and     2003-04      $166,667         --          --             --         300,000(4)       --            --
Chief Executive
Officer
----------------- ------------ ------------ ----------- ------------ --------------- -------------- ---------- ---------------
Atul M. Mehta,    2004-05          --           --          --             --            --(5)         --            --
Ph.D. former      2003-04      $  53,684        --        $ 3,040          --             --           --            --
President and     2002-03      $330,140         --        $ 3,040          --             --           --            --
Chief executive
Officer(2)
----------------- ------------ ------------ ----------- ------------ --------------- -------------- ---------- ---------------
</TABLE>

                                       43
<PAGE>

(1) The  Company's  fiscal  year  begins  on April 1 and ends on March  31.  The
information is provided for each fiscal year beginning April 1.

(2) Dr.  Mehta  resigned as an employee and as a director of Elite as of June 3,
2003.

(3) Other Annual Compensation  represents use of a company car, premiums paid by
the Company for life  insurance on Dr.  Mehta's life for the benefit of his wife
and the purchase price of $80,856 for options acquired from Dr. Mehta.

(4) Does not include 300,000 options which are exercisable  only upon occurrence
of a "strategic transaction".

(5) See "Item 3 - Legal  Proceedings"  for settlement of a litigation  providing
for extension of expiration  dates of options  granted prior to April 1, 2001 to
him to purchase 670,000 shares and a reduction of the exercise prices of certain
of the options..


OPTION GRANTS TO AND EXERCISED BY EXECUTIVE OFFICERS IN LAST FISCAL YEAR

                        OPTION GRANTS IN LAST FISCAL YEAR

         Options  granted to  Executive  Officers  of the  Company  named in the
Summary  Compensation  Table during the fiscal year ended March 31, 2005 were as
follows:

<TABLE>
<CAPTION>
                                                                                           POTENTIAL REALIZED VALUE AT
                           NUMBER OF        % OF TOTAL                                       ASSUMED ANNUAL RATES OF
                            SHARES        OPTIONS GRANTED     EXERCISE      EXPIRATION      STOCK PRICE APPRECIATION
                          UNDERLYING      TO EMPLOYEES IN       PRICE           DATE             FOR OPTION TERM
         NAME               OPTIONS         FISCAL YEAR       --------       ---------     ----------------------------
         ----               GRANTED       ---------------
                          ----------
                                                                                                5%            10%
                                                                                                --            ---
<S>                          <C>                <C>             <C>           <C>            <C>            <C>
Bernard Berk                 30,000             50%             $2.34         6/22/14        $45,966.96     $121,721.58
</TABLE>


         No options were exercised by executive  officers during the fiscal year
ended March 31, 2005.


<TABLE>
<CAPTION>

                 SHARES        VALUE        NUMBER OF SHARES UNDERLYING      VALUE OF UNEXERCISED IN-THE-MONEY
     NAME       EXERCISED     REALIZED    UNEXERCISED OPTIONS AT YEAR-END         OPTIONS AT YEAR-END (1)
     ----       ---------     --------    -------------------------------    ---------------------------------

                                          EXERCISABLE     UNEXERCISABLE      EXERCISABLE     UNEXERCISABLE
                                          -----------     -------------      -----------     -------------
<S>                <C>          <C>         <C>              <C>               <C>                <C>

Atul M. Mehta      -0-          -0-         170,000            -0-             $350,200              --
(2)                -0-          -0-         100,000            -0-             $340,000              --
                   -0-          -0-         100,000            -0-             $290,000              --
                   -0-          -0-         100,000            -0-             $240,000              --
                   -0-          -0-         100,000            -0-             $190,000              --
                   -0-          -0-         100,000            -0-             $140,000              --

Bernard            -0-          -0-          30,000            -0-             $ 61,800              --
Berk (3)           -0-          -0-         300,000          300,000           $717,000           $717,000
</TABLE>


                                       44
<PAGE>

(1) The dollar values are calculated by determining the difference between $4.40
per share,  the fair market value of the Common Stock at March 31, 2005, and the
exercise price of the respective options.

(2) Dr. Mehta resigned as an officer/employee and director as of June 3, 2003.

(3) Mr. Berk entered the employ of the Company in June 2003.

COMPENSATION OF DIRECTORS

         Each  non-affiliated  director receives $2,000 as compensation for each
meeting attended.

         On February 6, 2004, the Board of Directors authorized the payment of a
fee of $125,000  per annum  retroactive  to January 1, 2004 to Mr. Moore who was
then a Director,  as compensation for his services as Chairman of the Board. The
fee is based on the substantial duties the Board assigned to him, principally to
assist  the  Chief  Executive   Officer  in  the  management  of  the  Company's
operations,  and the time  required to perform  such  duties.  Mr.  Moore earned
$46,875 under the authorization for the period through May 12, 2004, the date of
his resignation as Chairman.

OPTIONS AND WARRANTS

         In October 2003, the American  Stock Exchange (the "Amex")  amended its
Rules to require  stockholder  approval of material amendments to a stock option
plan or other  equity  compensation  arrangements  pursuant to which  options or
stock may be acquired by  officers,  director or  employees,  subject to certain
limited exceptions.

         Our  stockholders  approved  at its  meeting  held on June 22, 2004 the
following  amendments by our Board of Directors of the provisions of outstanding
options  and  warrants  issued  to  officers,  directors  or  employees  of,  or
consultants to, the Company.

         On June 6, 2003 our Board of Directors  reduced the  exercise  price of
options to purchase  30,000  shares of the  Company's  Common  Stock  granted on
January  31,  2003 to each of the  following  persons,  each of whom  was then a
Director: Messrs. Harmon Aronson, Richard A. Brown, John P. deNeufville, John A.
Moore, Donald S. Pearson and Eric L. Sichel from $6.50 to $2.21 per share, which
was 110% of the closing per share sale price of the Common Stock on the American
Stock  Exchange on the date of the  amendment.  These  options  vest as follows:
10,000  shares on December  12,  2003,  10,000  shares on December  12, 2004 and
10,000 shares on December 12, 2005.  The options  expire at the earlier to occur
of: (1) January 31, 2013; or (2) the date one year after the optionee  ceases to
be a director of or a consultant or advisor of the Company. On February 6, 2004,
the Board of Directors authorized a further amendment to all the options held by
Messrs.  Brown (30,000 shares),  deNeufville (55,000 shares) and Pearson (90,000
shares) to extend their  expiration  date to a date two years following the June
22, 2004 Annual Meeting.  On March 8, 2004 our Board of Directors  amended those
options held by then  Directors


                                       45
<PAGE>

which  contained an exercise  price greater than $2.21 to reduce their  exercise
price to $2.21 per share.

<TABLE>
<CAPTION>

         NAME                 Shares Subject              Date of              Original             Expiration
         ----                TO AMENDED OPTIONS            GRANT             EXERCISE PRICE            DATE
                             ------------------           -------            --------------         ----------
<S>                               <C>                      <C>                    <C>                <C>
Donald Pearson                    30,000                   7/1/99                  $6.00             6/22/06
                                  30,000                   1/2/01                  $6.50             6/22/06
Harmon Aronson                    30,000                   7/1/99                  $6.00              9/1/09
                                  30,000                   1/2/01                  $6.50              1/1/11
Eric Sichel                       30,000                   8/2/01                 $10.00              8/2/11
</TABLE>

         On May 12, 2004 our Board of Directors also  authorized an amendment to
the expiration dates of options to purchase 330,000 shares held by Mr. Moore, of
which 30,000  options  granted in January 2003 and  exercisable at $2.21 have an
expiration date of January 13, 2003 and 300,000 options granted in June 2003 and
exercisable at $2.01 per share have an expiration date of June 13, 2013. Similar
to the above  amendment  of the  options  held by Messrs  Pearson,  Aronson  and
Sichel,  the options will  terminate on the earlier of their current  expiration
date or a date two years after Mr. Moore ceases to be a director of the Company.

         On March 8, 2004,  the Board of Directors  confirmed  the  reduction to
$2.21 per share of the $3.31 per share  exercise  price of options  of  purchase
30,000 shares granted on June 13, 2003 to each of three employees.  Such options
vest in three equal annual installments commencing with the date of grant.

         On February 6, 2004 the Board of Directors  authorized the extension of
the expiration  date from June 30, 2004 to November 30, 2005 of the  outstanding
Class B Warrants to purchase an aggregate of 681,002  shares of our Common Stock
at a price of $5.00 per share.  The Class B Warrants were  originally  issued as
part of units of  shares  of Common  Stock  and  Class B  Warrants  in a private
placement  to a group of  investors.  Included  among the holders of the Class B
Warrants are Richard A. Brown, a Director at the time, who holds, along with his
son and an affiliated trust, an aggregate of 156,250 Class B Warrants and Bridge
Ventures  Inc., a consultant to the Company since  December,  2003,  which holds
25,000 Class B Warrants.

         The Board of Directors  authorized  the  foregoing  amendments  for the
purposes of hopefully  generating  additional  funds through the exercise of the
options or  warrants,  and  restoring  a  principal  purpose or  purposes of the
original grants of the options or warrants to officers, directors and employees,
namely a  reasonable  opportunity  for the  holder  to  acquire  or  increase  a
proprietary  interest in the Company and to restore a meaningful form of noncash
compensation.

         As  described  under "Item 3 - Legal  Proceedings"  a  settlement  of a
litigation  with Dr. Atul Mehta,  includes  provisions  for the extension of the
expiration dates to December 31, 2007 of options  previously issued to Dr. Mehta
to purchase  670,000 shares of Common Stock,  including  options with respect to
70,000 shares which had previously  expired.  The number and exercise prices are
as follows:


                                       46
<PAGE>

         NUMBER OF OPTIONS                      EXERCISE PRICE
         -----------------                      --------------
              100,000                              $3.00
              100,000                              $2.50
              170,000*                             $2.34
              100,000                              $2.00
              100,000                              $1.50
              100,000                              $1.00
-------------------------------------
*  Includes the 70,000 which had expired



                                       47
<PAGE>


ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The  following  table  sets  forth  certain  information   regarding  beneficial
ownership of our Common Stock as of March 31 2005 by (i) each director and named
executive officer,  (ii) all executive officers and current directors as a group
and  (iii)  the  persons  known to us to own  beneficially  more  than 5% of the
outstanding  shares of our Common Stock. On such date, we had 18,022,183  shares
of Common Stock  outstanding.  Shares not  outstanding  but deemed  beneficially
owned by virtue of the right of any  individual to acquire shares within 60 days
are treated as outstanding  only when  determining  the amount and percentage of
Common  Stock  owned  by such  individual.  Each  person  has  sole  voting  and
investment  power  with  respect to the shares  shown,  except as noted.  Unless
otherwise   indicated,   the   address  of  the   person   named  is  c/o  Elite
Pharmaceuticals, Inc., 165 Ludlow Avenue, Northvale, New Jersey 07647.

                      NAME AND ADDRESS                     COMMON STOCK
                      ----------------                     ------------
                                                        AMOUNT           % *
                                                        ------          ----

Bernard Berk, Director and Chief Executive Officer   765,300 (1)         4.2
c/o Elite Pharmaceuticals Inc.
165 Ludlow Avenue
Northvale, NJ 07647

Edward Neugeboren                                    188,094 (2)         1.0
282 New Norwalk Road,
New Canaan, CT 06840

Barry Dash                                                --              --
168 Wood Road
Englewood Cliffs, NJ 07632

Melvin Van Woert                                          --              --
Mount Sinai Medical Center, P.O. Box 1137
One Gustave L. Levy Place
New York, NY 10029-6576

SAC Capital Associates LLC                         1,152,838 (3)         6.1%
P.O. Box 58
Victoria House, The Valley
Antigua, BVI

Jerome Belson                                        969,000 (4)         5.4%
495 Broadway
New York, New York 10012

All Directors and Officers as a group (5)          1,105,625 (5)         5.9

(1) Includes options to purchase 630,000 shares of Common Stock of which options
to purchase 300,000 shares are not exercisable  until occurrence of a "strategic
event". See "Executive Officers"

(2) Includes 147,363 shares issuable upon exercise of outstanding warrants;  but
does not include  40,650 shares  issuable upon exercise of warrants owned by his
father.

                                       48
<PAGE>

(3) Includes 813,010 shares issuable upon exercise of warrants.

(4) Based on  information  provided by Mr. Belson for inclusion in the Company's
Prospectus  dated December 28, 2004.  Includes (i) 281,000 shares  issuable upon
exercise of warrants,  (ii) 53,900 shares held by Maxine Belson,  wife of Jerome
Belson, (iii) 63,300 shares held by other members of his family, and (iv) 50,000
shares held by the Jerome Belson  Foundation.  (5)  Represents  shares of Common
Stock issuable upon exercise of options.

(5) Includes options and warrants to purchase an aggregate of 940,000 shares.


         Except as otherwise set forth,  information  on the stock  ownership of
each person was provided to the Company by such person.

         Other than our 2004 Stock Option Plan, we do not have any  compensation
plans or arrangements  benefiting  employees or non-employees under which equity
securities  of  the  Company  are   authorized  for  issuance  in  exchange  for
consideration in the form of goods or services.

         The Company is informed and believes  that as of June 20, 2005,  Cede &
Co.  held  15,846,250  shares  of the  Company's  Common  Stock as  nominee  for
Depository Trust Company,  55 Water Street,  New York, New York 10004. It is our
understanding  that Cede & Co. and  Depository  Trust  Company both disclaim any
beneficial  ownership  therein  and that such shares are held for the account of
numerous  other  persons,  no one of whom is believed to  beneficially  own five
percent or more of the Common Stock of the Company.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         We  had a  contractual  relationship  with  Donald  Pearson,  a  former
Director,  which expired on November 30, 2003,  providing for Mr. Pearson to (i)
refer potential  customers who will license or collaborate in the development or
purchase of the technology of the Company and (ii) render  financial  consulting
services to the Company. Under the arrangement,  Mr. Pearson received consulting
fees  aggregating  $28,800 and $38,400 for fiscal years ended March 31, 2004 and
2003, respectively. The referral fees were to be a percentage ranging from 5% to
1% of  the  first  $5,000,000  of  revenues  generated  by his  referrals  after
deducting  expenses  and a credit for the  consulting  fees.  No  revenues  were
generated  under  the  arrangement.  The  Company  also has a  similar  customer
referral  arrangement with Mr. Harmon Aronson,  a former Director,  to pay him a
percentage of net revenues  generated by customers referred by him. No fees have
been earned under his arrangement.

         See "Item 10 - Directors  and  Executive  Officers of  Registrant"  for
information as to employment or engagement  agreements  with Bernard Berk and an
affiliate of Mark I. Gittelman.


                                       49
<PAGE>

ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES

         The  following  is a  description  of the fees paid by the  Company  to
Miller,  Ellin & Company,  LLP  ("Miller  Ellin")  during the fiscal years ended
March 31, 2005, March 31, 2004 and March 31, 2003:

         Audit Fees: The Company paid fees of approximately  $123,000,  $150,000
and  $119,000  to Miller  Ellin in  connection  with its audit of the  Company's
financial  statements for the fiscal years ended March 31, 2005,  March 31, 2004
and March 31,  2003,  respectively,  and its  review  of the  Company's  interim
financial  statements  included in the Company's  Quarterly Reports on Form 10-Q
during each of the fiscal years ended March 31,  2005,  March 31, 2004 and March
31, 2003.

         Financial  Information  Systems  Design and  Implementation  Fees:  The
Company  did not engage  Miller  Ellin  during any of the years  ended March 31,
2005,  2004  and 2003 to  provide  advice  to the  Company  regarding  financial
information systems design and implementation.

         Other fees:  The Company did not pay any fee to Miller Ellin to perform
non-audit  services  during either of the years ended March 31, 2005,  March 31,
2004 and March 31, 2003.

PART IV

ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Documents filed as part of this Report

          (1) Financial Statements - See Financial Statements included after the
signature page beginning at page F-1.

          (2) Financial  statement schedules - All schedules are omitted because
they are not applicable or the required information is shown in the consolidated
financial statements or the notes thereto.

          (3) List of Exhibits - See Index to Exhibits in paragraph (c) below.

(b) REPORTS ON FORM 8-K. We filed the following Current Reports on Form 8-K with
the  Securities and Exchange  Commission  during the period from January 1, 2005
through the date of the filing of this Annual Report on Form 10-K.

         Form 8-K filed  January 26,  2005  relating to items 5.02 and 9.01
         Form 8-K filed March 10, 2005 relating to items 3.03 and 9.01
         Form 8-K filed  April 5, 2005,  Form 8-K/A  filed May 10, 2005 and Form
         8-K/A filed June 13, 2005 relating to items 1.01 and 9.01


                                       50
<PAGE>

         Form 8-K filed April 29, 2005 relating to item 7.01 and 8.01
         Form 8-K filed May 31, 2005 relating to items 8.01 and 9.01
         Form 8-K filed June 27, 2005 relating to items 1.01 and 9.01
         Form 8-K filed June 28, 2005 relating to items 1.01 and 9.01

(c)  EXHIBITS  REQUIRED BY ITEM 601 OF  REGULATION  S-K. We will  furnish to our
stockholders a copy of any of the exhibits listed below upon payment of $.25 per
page to cover the costs of the Company of furnishing the exhibits.

Exhibit No.   Description

    3.2       By-Laws of the Company,  as amended,  incorporated by reference to
              Exhibit 3.2 to the Company's  Registration  Statement on Form SB-2
              (Reg.  No.  333-90633)  made  effective  on February 28, 2000 (the
              "Form SB-2").

    4.1       Certificate  of  incorporation  of the Company,  together with all
              other amendments  thereto, as filed with the Secretary of State of
              the State of  Delaware,  incorporated  by reference to (a) Exhibit
              4.1  to  the   Registration   Statement  on  Form  S-4  (Reg.  No.
              333-101686),  filed  with the SEC on  December  6, 2002 (the "Form
              S-4")  and (b)  Exhibit  4.1 to the  Company's  Report on Form 8-K
              dated July 28, 2004.

  4.1(a)      Form of  specimen  certificate  for Common  Stock of the  Company,
              incorporated by reference to Exhibit 4.1 to the Form SB-2.

    4.2       Form  of  Class  C  Common  Stock  Purchase  Warrant  Certificate,
              incorporated  by reference as Exhibit 4.2 to the Form 10-K for the
              period ended March 31, 2004, filed with the SEC on June 29, 2004.

    4.3       Form  of  Class  B  Common  Stock  Purchase  Warrant  Certificate,
              incorporated  by reference as Exhibit 4.3 to the Form 10-K for the
              period ended March 31, 2004, filed with the SEC on June 29, 2004.

    4.4       Warrant to purchase  100,000  shares of Common  Stock issued to DH
              Blair  Investment  Banking  Corp.,  incorporated  by  reference to
              Exhibit 10.2 to the Form 10-Q for the period ended  September  30,
              2004.

    4.5       Warrant to purchase  50,000 shares of Common Stock issued to Jason
              Lyons  incorporated  by reference to Exhibit 10.3 to the Form 10-Q
              for the period ended June 30, 2004.

    4.6       Form of Warrant  issued to  designees  of lender  with  respect to
              financing  of an  equipment  loan  incorporated  by  reference  to
              Exhibit 10.2 to the Form 10-Q for the period ended June 30, 2004.


                                       51
<PAGE>


   10.2       Commercial  Lease made  between  Serex,  Inc.  and Elite  executed
              September  7, 1993,  incorporated  by reference to Exhibit 10.4 to
              the Form SB-2.

   10.3       2004 Employee Stock Option Plan approved by  stockholders  on June
              22,  2004,  incorporated  by  reference  to Exhibit A to the Proxy
              Statement filed on Schedule 14A with respect to the Annual Meeting
              of Stockholders held on June 22, 2004.

   10.3       (a)   Amendment  to  2004  Stock  Option  Plan   approved  by  the
              stockholders  on April 15, 2005  incorporated  by reference to the
              Proxy  Statement  filed on Schedule 14A with respect to the Annual
              Meeting of the Stockholders held on April 15, 2005.

   10.4       Form of  Confidentiality  Agreement  (corporate),  incorporated by
              reference to Exhibit 10.7 to the Form SB-2.

   10.5       Form of  Confidentiality  Agreement  (employee),  incorporated  by
              reference to Exhibit 10.8 to the Form SB-2.

   10.6       Employment  Agreement  dated as of July 23, 2003  between  Bernard
              Berk and the Company  incorporated by reference to Exhibit 10.6 to
              Report on Form  10-Q for three  months  ended  June 30,  2003 (the
              "June 30, 2003 10Q Report")

   10.7       Option Agreement  between Bernard Berk and the Company dated as of
              July 23, 2003  incorporated  by  reference  to Exhibit 10.7 to the
              June 30, 2003 10Q Report.

   10.8       Option Agreement  between Bernard Berk and the Company dated as of
              July 23, 2003  incorporated  by  reference  to Exhibit 10.8 to the
              June 30, 2003 10Q Report.

   10.9       Engagement letter dated February 26, 1998, between Gittelman & Co.
              P.C. and the Company incorporated by reference to Exhibit 10.10 to
              the Form 10-K for the period  ended  March 31, 2004 filed with the
              SEC on June 29, 2004.

   10.11      Product  Development  Manufacturing  and  Distribution  Agreement,
              dated as of March 30, 2005,  incorporated  by reference as Exhibit
              10.1 to the Form 8-K originally filed April 5, 2005, as amended on
              the Form 8-K/A filed May 10, 2005, as further  amended by the Form
              8-K/A  filed June 13,  2005  (Confidential  Treatment  Sought with
              respect to portions of the Agreement)

   10.12      Product Development and Commercialization  Agreement,  dated as of
              June 21,  2005,  incorporated  by reference as Exhibit 10.1 to the
              Form 8-K filed June 27, 2005  (Confidential  Treatment Sought with
              respect to portions of the


                                       52
<PAGE>

              Agreement)

   10.13      Product  Development and License  Agreement,  dated as of June 22,
              2005,  incorporated  by  reference as Exhibit 10.1 to the Form 8-K
              filed June 28, 2005 (Confidential Treatment Sought with respect to
              portions of the Agreement)

    21        Subsidiaries of the Company.*

   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  of Chief Financial  Officer pursuant to Section 906
              of the Sarbanes-Oxley Act of 2002.*

----------------------
* Filed herewith

** As contemplated by SEC Release No. 33-8212, these exhibits are furnished with
this Annual Report on Form 10-K and are not deemed filed with the Securities and
Exchange Commission and are not incorporated by reference in any filing of Elite
Pharmaceuticals,  Inc.  under  the  Securities  Act of  1933  or the  Securities
Exchange  Act of 1934,  whether  made  before  or  after  the  date  hereof  and
irrespective of any general incorporation language in any such filings.



                                       53
<PAGE>


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) 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.

                                              By:      /s/ Bernard Berk
                                                 -------------------------------
                                                     Bernard Berk
                                                     Chief Executive Officer

                                              Dated: June 28, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following  persons on behalf of the registrant and in the
capacities and on the dates indicated.

SIGNATURE                                   TITLE                       DATE
---------                                   -----                       ----

/s/  Bernard Berk                   Chief Executive Officer        June 28, 2005
--------------------------          (Principal Executive
Bernard Berk                        Officer)



/s/  Mark Gittelman                 Chief Financial Officer        June 28, 2005
--------------------------          and Treasurer (Principal
Mark I. Gittelman                   Financial and Accounting
                                    Officer)

/s/  Edward Neugeboren              Director                       June 28, 2005
--------------------------
Edward Neugeboren


/s/  Barry Dash                     Director                       June 28, 2005
--------------------------
Barry Dash


/s/  Melvin Van Woert               Director                       June 28, 2005
--------------------------
Melvin Van Woert


                                       54
<PAGE>




                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                FOR THE YEARS ENDED MARCH 31, 2005, 2004 AND 2003



                                    CONTENTS






                                                                            PAGE
                                                                            ----


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                    F - 2

CONSOLIDATED BALANCE SHEETS                                                F - 3

CONSOLIDATED STATEMENTS OF OPERATIONS                                      F - 5

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)                  F - 6

CONSOLIDATED STATEMENTS OF CASH FLOWS                                      F - 9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                F - 10



                                      F-1
<PAGE>



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To Elite Pharmaceuticals, Inc.

We  have  audited  the  accompanying   consolidated   balance  sheets  of  Elite
Pharmaceuticals,  Inc. and Subsidiaries (the "Company") as of March 31, 2005 and
2004,  and the related  consolidated  statements  of  operations,  stockholders'
equity  (deficit)  and cash flows for the years ended March 31,  2005,  2004 and
2003.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We conducted  our audits in  accordance  with  standards  of the Public  Company
Oversight  Board  (United  States).  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,   in  all   material   respects,   the   financial   position  of  Elite
Pharmaceuticals,  Inc. and  Subsidiaries  as of March 31, 2005 and 2004, and the
results of their  operations  and their  cash flows for each of the three  years
ended March 31, 2005,  2004 and 2003 in conformity  with  accounting  principles
generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will  continue as a going  concern.  As shown in the  financial
statements,  the Company has  experienced  significant  losses and negative cash
flows,  resulting in decreased working capital and accumulated  deficits.  These
conditions  raise  substantial  doubt  about its  ability to continue as a going
concern. Management's plans regarding those matters are described in Note 2.




                                                /s/ MILLER, ELLIN & COMPANY, LLP
                                                CERTIFIED PUBLIC ACCOUNTANTS


New York, New York
May 19, 2005



                                      F-2
<PAGE>



                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES


                           CONSOLIDATED BALANCE SHEETS

                             MARCH 31, 2005 AND 2004


                                     ASSETS


<TABLE>
<CAPTION>


                                                                                       2005                2004
                                                                                       ----                ----
<S>                                                                                <C>                 <C>
CURRENT ASSETS:
       Cash and cash equivalents                                                   $  3,902,003        $  2,104,869
       Accounts receivable, net of allowance for doubtful accounts of
           $153,250 and $0, respectively                                                142,113             153,250
       Current portion of restricted cash - debt service                                113,425             203,995
       Prepaid expenses and other current assets                                        346,905             137,89
                                                                                   ------------        ------------
           Total current assets                                                       4,504,446           2,600,006



PROPERTY AND EQUIPMENT- net of accumulated
       depreciation and amortization                                                  4,194,437           4,090,250



INTANGIBLE ASSETS - net of accumulated amortization                                      81,184             102,196


OTHER ASSETS:

       Deferred charges                                                                  41,013                  --
       Deposit on equipment                                                                  --             398,580
       Restricted cash - debt service                                                   300,000             300,000
       Restricted cash - note payable                                                        --             225,000
       EDA bond offering costs, net of accumulated
           amortization of $73,648 and $60,458, respectively.
                                                                                        124,212             137,402
                                                                                   ------------        ------------

           Total other assets
                                                                                        465,225           1,060,982
                                                                                   ------------        ------------

           TOTAL ASSETS                                                            $  9,245,292        $  7,853,434
                                                                                   ============        ============
</TABLE>

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





                                      F-3
<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES


                           CONSOLIDATED BALANCE SHEETS

                             MARCH 31, 2005 AND 2004
                                   (CONTINUED)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>


                                                                                       2005                2004
                                                                                       ----                ----
<S>                                                                                <C>                 <C>
CURRENT LIABILITIES:
       Current portion - note payable
                                                                                   $    127,946        $     75,000
       Current portion of EDA bonds                                                     165,000             150,000
       Accounts payable and accrued expenses                                            882,917           1,085,242
                                                                                   ------------        ------------
            Total current liabilities                                                 1,175,863           1,310,242
                                                                                   ------------        ------------

LONG TERM LIABILITIES:
       Note payable - net of current portion                                            187,128             150,000
       EDA bonds - net of current portion

                                                                                      2,180,000           2,345,000
                                                                                   ------------        ------------
            Total long-term liabilities                                               2,367,128           2,495,000
                                                                                   ------------        ------------


            Total liabilities                                                         3,542,991           3,805,242
                                                                                   ------------        ------------


COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:

       Preferred stock - $.01 par value;
            Authorized - 5,000,000 and 0 shares at
            March 31, 2005 and 2004, respectively                                            --                  --
       Common Stock - $.01 par value;
            Authorized - 65,000,000 and 25,000,000
                 shares, respectively
            Issued and outstanding - 18,022,183 and 12,204,423 in
                 2005 and 2004, respectively.                                           180,222             122,044

       Additional paid-in capital                                                    47,006,379          39,338,140
       Accumulated deficit                                                          (41,177,459)        (35,105,151)
                                                                                   ------------        ------------

                                                                                      6,009,142           4,355,033

            Treasury stock, at cost (100,000 shares)                                   (306,841)           (306,841)
                                                                                   ------------        ------------
            Total stockholders' equity                                                5,702,301           4,048,192
                                                                                   ------------        ------------

            TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                             $  9,245,292        $  7,853,434
                                                                                   ============        ============

</TABLE>






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


                                      F-4
<PAGE>



                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>


                                                                                YEARS ENDED MARCH 31,
                                                                                ---------------------
                                                                     2005               2004               2003
                                                                     -----              -----              ----
<S>                                                                <C>                 <C>               <C>
REVENUES:
       Licensing fees                                             $   150,000        $        --        $        --
       Manufacturing fees                                             125,739                 --                 --
       Royalties                                                       24,291                 --                 --
       Research and development                                            --            258,250            442,500
       Product formulation fees                                            --                 --            187,810
       Consulting and test fees                                         1,450                 --                 --
                                                                  -----------        -----------        -----------
                    Total revenues                                    301,480            258,250            630,310
                                                                  -----------        -----------        -----------


COST OF OPERATIONS:
       Research and development                                     2,698,641          2,075,074          2,013,579
       General and administrative                                   2,159,670          2,549,846          1,858,069
       Depreciation and amortization                                  356,438            332,836            310,876
                                                                  -----------        -----------        -----------
                                                                    5,214,749          4,957,756          4,182,524
                                                                  -----------        -----------        -----------

LOSS FROM OPERATIONS                                               (4,913,269)        (4,699,506)        (3,552,214)
                                                                  -----------        -----------        -----------



OTHER INCOME (EXPENSES):
       Interest income                                                 39,932             23,765             96,692
       Litigation settlement                                               --            150,000                 --
       Sale of New Jersey tax losses                                  205,792            151,027             71,674
       Interest expense                                              (229,495)          (211,595)          (227,907)
       Equity in loss of joint venture                                     --                 --           (186,379)
       Compensation satisfied by issuance of
          stock, options and warrants                              (1,008,850)        (1,754,584)           (20,550)
       Expenses relating to warrant exchange offer                         --           (172,324)          (242,338)
                                                                  -----------        -----------        -----------
                                                                     (992,621)        (1,813,711)          (508,808)
                                                                  -----------        -----------        -----------

LOSS BEFORE PROVISION FOR INCOME
       TAXES                                                       (5,905,890)        (6,513,217)        (4,061,022)

PROVISION FOR INCOME TAXES

                                                                        1,000              1,000                400
                                                                  -----------        -----------        -----------

NET LOSS                                                           (5,906,890)        (6,514,217)        (4,061,422)

Preferred Stock Dividends                                            (165,418)                --                 --
                                                                  -----------        -----------        -----------
NET LOSS ATTRIBUTABLE TO COMMON
       SHAREHOLDERS                                               $(6,072,308)       $(6,514,217)       $(4,061,422)
                                                                  ===========        ===========        ===========

BASIC AND DILUTED LOSS PER COMMON
       SHARE                                                      $     (0.47)       $     (0.58)       $     (0.40)
                                                                  ===========        ===========        ===========


WEIGHTED AVERAGE NUMBER OF
       COMMON SHARES OUTSTANDING                                   12,869,924         11,168,618         10,069,991
                                                                  ===========        ===========        ===========

</TABLE>

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




                                      F-5
<PAGE>
                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                              PREFERRED STOCK                 COMMON STOCK
                                              ---------------                 ------------
                                                                                                      ADDITIONAL
                                                                                                        PAID-IN
                                          SHARES         AMOUNT           SHARES         AMOUNT         CAPITAL
                                          ------         ------           ------         ------         -------
<S>                                       <C>        <C>                <C>          <C>             <C>
BALANCES AT APRIL 1, 2002                  200,000   $  200,000          9,710,840   $   97,108      $19,469,464

Issuance of shares through
exercise of warrants                            --          --             2,603           26           13,004

Issuance of shares and warrants
through exercise of placement
agent warrants                                  --           --             14,670          147           52,666

Issuance of convertible
exchangeable preferred stock               559,000      559,000                  -            -                -

Dividends - declared - Series B
preferred stock
                                                 -            -                  -            -                -
Dividends - declared - Series A
preferred stock                                  -            -                  -            -                -

Preferred stock issued to satisfy
accrued dividends                           14,000       14,000                  -            -                -

Conversion of convertible
exchangeable preferred stock into

Common Stock                              (773,000)    (773,000)           816,310        8,163       14,520,810
Purchase of treasury stock                       -            -                  -            -                -

Expenses relating to exchange of
warrants                                         -            -                  -            -          242,338

Expenses relating to issuance of
stock options                                    -            -                  -            -           20,550

Expenses relating to Warrant
Exchange Offer                                   -            -                  -            -         (100,000)


Net loss                                         -            -                  -            -                -
                                          --------   ----------         ----------   ----------      -----------

BALANCES AT MARCH 31, 2003                       -   $        -         10,544,423   $  105,444      $34,218,832
                                          ========   ==========         ==========   ==========      ===========

<CAPTION>
                                              TREASURY STOCK
                                              --------------                             STOCKHOLDERS'
                                                                         ACCUMULATED        EQUITY
                                          SHARES         AMOUNT            DEFICIT         (DEFICIT)
                                          ------         ------            -------         ---------
<S>                                       <C>        <C>                <C>              <C>
BALANCES AT APRIL 1, 2002                        -   $        -         $ (23,627,688)   $ (3,861,116)

Issuance of shares through
exercise of warrants                                                                -          13,030

Issuance of shares and warrants
through exercise of placement
agent warrants                                                                      -          52,813

Issuance of convertible
exchangeable preferred stock                                                        -         559,000

Dividends - declared - Series B
preferred stock                                                               (14,000)        (14,000)

Dividends - declared - Series A
preferred stock                                  -            -              (887,824)       (887,824)

Preferred stock issued to satisfy
accrued dividends
                                                                                    -          14,000
Conversion of convertible
exchangeable preferred stock into
Common Stock                                     -            -                     -      13,755,973

Purchase of treasury stock                (100,000)    (306,841)                    -        (306,841)
Expenses relating to exchange of
warrants                                         -            -                     -         242,338

Expenses relating to issuance of
stock options                                    -            -                     -          20,550

Expenses relating to Warrant

Exchange Offer                                   -            -                     -        (100,000)

Net loss                                         -            -            (4,061,422)     (4,061,422)
                                          --------   ----------         -------------    ------------

BALANCES AT MARCH 31, 2003                (100,000)  $ (306,841)        $ (28,590,934)   $  5,426,501
                                          ========   ==========         =============    ============
</TABLE>

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



                                      F-6
<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)




<TABLE>
<CAPTION>
                                              PREFERRED STOCK                 COMMON STOCK
                                              ---------------                 ------------
                                                                                                      ADDITIONAL
                                                                                                        PAID-IN
                                          SHARES         AMOUNT           SHARES         AMOUNT         CAPITAL
                                          ------         ------           ------         ------         -------
<S>                                       <C>        <C>                <C>          <C>             <C>


BALANCES AT APRIL 1, 2003
                                                 -   $        -         10,544,423   $  105,444      $34,218,832

Expenses relating to modification
of warrant exchange offer                        -            -                  -            -          172,324

Expenses relating to issuance of
stock options                                    -            -                  -            -        1,166,601

Expenses relating to issuance of
stock warrants                                   -            -                  -            -          587,983

Proceeds from exercising stock
options                                          -            -             15,000          150           29,850

Net proceeds from private placement              -            -          1,645,000       16,450        3,162,550

Net loss                                         -            -                  -            -                -
                                          --------   ----------         ----------   ----------      -----------

BALANCES AT MARCH 31, 2004                       -   $        -         12,204,423   $  122,044      $39,338,140
                                          ========   ==========         ==========   ==========      ===========

<CAPTION>
                                              TREASURY STOCK
                                              --------------                             STOCKHOLDERS'
                                                                         ACCUMULATED        EQUITY
                                          SHARES         AMOUNT            DEFICIT         (DEFICIT)
                                          ------         ------            -------         ---------
<S>                                       <C>        <C>                <C>              <C>
BALANCES AT APRIL 1, 2003                 (100,000)  $ (306,841)        $ (28,590,934)   $  5,426,501

Expenses relating to modification
of warrant exchange offer                        -            -                     -         172,324

Expenses relating to issuance of
stock options                                    -            -                     -       1,166,601

Expenses relating to issuance of
stock warrants                                   -            -                     -         587,983

Proceeds from exercising stock
options                                          -            -                     -          30,000

Net proceeds from private placement              -            -                     -       3,179,000

Net loss                                         -            -            (6,514,217)     (6,514,217)
                                          --------   ----------         -------------    ------------

BALANCES AT MARCH 31, 2004                (100,000)  $ (306,841)        $ (35,105,151)   $  4,048,192
                                          ========   ==========         =============    ============


</TABLE>

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





                                      F-7
<PAGE>



                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)


<TABLE>
<CAPTION>
                                              PREFERRED STOCK                 COMMON STOCK
                                              ---------------                 ------------
                                                                                                      ADDITIONAL
                                                                                                        PAID-IN
                                          SHARES         AMOUNT           SHARES         AMOUNT         CAPITAL
                                          ------         ------           ------         ------         -------
<S>                                       <C>        <C>                <C>          <C>             <C>


BALANCES AT APRIL 1, 2004                        -   $        -         12,204,423   $  122,044      $39,338,140

Net proceeds from issuance of
  Series A  8% Convertible
  Preferred Stock and warrants             516,558        5,166                ---          ---        5,786,436

Issuance of Common Stock for
  consulting services                          ---          ---             26,500          265           58,035

Issuance of Common Stock upon
  conversion of Series A 8%
  Convertible Preferred Stock             (516,558)      (5,166)         5,165,580       51,656          (46,490)

Compensation satisfied by the
  issuance of stock, options
  and warrants                                                                                         1,008,850

Common Stock issued as dividend on
  Series A 8% Convertible
  Preferred Stock                              ---          ---             99,936        1,000          164,418

Exercise of stock options and
  warrants                                     ---          ---            525,744        5,257          579,250

Proceeds - Short  swing profits                ---          ---                ---          ---          117,740

Net loss

                                               ---          ---                ---          ---              ---
                                          --------   ----------         ----------   ----------      -----------

BALANCES AT MARCH 31, 2005                     ---   $        -         18,022,183   $  180,222       47,006,379
                                          ========   ==========         ==========   ==========      ===========




<CAPTION>
                                              TREASURY STOCK
                                              --------------                             STOCKHOLDERS'
                                                                         ACCUMULATED        EQUITY
                                          SHARES         AMOUNT            DEFICIT         (DEFICIT)
                                          ------         ------            -------         ---------
<S>                                       <C>        <C>                <C>              <C>

BALANCES AT APRIL 1, 2004                 (100,000)  $ (306,841)        $ (35,105,151)   $  4,048,192

Net proceeds from issuance of
  Series A  8% Convertible
  Preferred Stock and warrants                 ---          ---                   ---            ---

Issuance of Common Stock for
  consulting services                          ---          ---                   ---          58,300

Issuance of Common Stock upon
  conversion of Series A 8%
  Convertible Preferred Stock                  ---          ---                   ---             ---

Compensation satisfied by the
  issuance of stock, options
  and warrants                                                                              1,008,850

Common Stock issued as dividend on
  Series A 8% Convertible
  Preferred Stock                              ---           ---             (165,418)            ---

Exercise of stock options and
  warrants                                     ---          ---                   ---         584,507

Proceeds - Short  swing profits                ---          ---                   ---         117,740

Net loss

                                               ---          ---            (5,906,890)     (5,906,890)
                                          --------   ----------         -------------    ------------

BALANCES AT MARCH 31, 2005                (100,000)  $ (306,841)        $ (41,177,459)   $  5,702,301
                                          ========   ==========         =============    ============

</TABLE>



                                      F-8
<PAGE>



                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                                                 YEARS ENDED MARCH 31,
                                                                                                 ---------------------
                                                                                        2005              2004             2003
                                                                                        ----              ----             ----
<S>                                                                                 <C>               <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss                                                                      $ (5,906,890)     $ (6,514,217)    $ (4,061,422)
      Adjustments to reconcile net loss to cash used in operating activities:
            Provision for doubtful accounts                                              153,250               ---             ---
            Depreciation and amortization                                                356,438           332,836          310,876
            Non-cash compensation satisfied by issuance of stock,
                  options and warrants                                                 1,067,150         1,926,908          262,888
            Equity in loss of joint venture                                                  ---               ---          186,379
            Changes in assets and liabilities:
                 Accounts receivable                                                   (142,113)          (148,569)          35,307
                 Prepaid expenses and other current assets                             (209,013)            (5,800)         (26,010)
                 Amount receivable from Joint Venture                                        ---               ---          525,259
                 Accounts   payable,   accrued  expenses  and  other  current           (202,325)          750,521          193,009
                                                                                    ------------      ------------     ------------
NET CASH USED IN OPERATING ACTIVITIES                                                 (4,883,503)       (3,658,321)      (2,573,714)
                                                                                    ------------      ------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Redemptions of short-term investments                                                  ---               ---          100,000
      Purchase of patent                                                                     ---           (16,696)         (69,517)
      Released from restrictions                                                         315,570           (79,615)         114,284
      Receivable from sale of New Jersey tax losses                                          ---               ---           66,077
      Payment of deposit for manufacturing equipment                                         ---          (398,580)             ---
      Purchases of equipment                                                             (27,843)              ---         (679,485)
                                                                                    ------------      ------------     -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                                      287,727          (494,891)        (486,641)
                                                                                    ------------      ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Fees relating to Warrant Exchange Offer                                                ---               ---         (100,000)
      Principal bank note payments                                                      (225,000)          (75,000)         (75,000)
      Purchase of treasury stock                                                             ---               ---         (306,841)
      Proceeds from issuance of Common Stock and warrants                                    ---         3,209,000           65,843
      Principal repayments of EDA bonds                                                 (150,000)         (140,000)        (130,000)
      Net proceeds from issuance of Series A 8% Convertible Preferred
         stock and warrants                                                            5,791,602               ---              ---
      Proceeds from equipment loan                                                       400,000               ---              ---
      Principal equipment note payments                                                  (84,926)              ---              ---
      Prepaid interest                                                                   (41,013)              ---              ---
      Proceeds from exercise of stock options                                            100,000               ---              ---
      Proceeds from exercise of stock warrants
                                                                                         484,507               ---              ---
      Proceeds from short swing profits                                                  117,740               ---              ---
                                                                                    ------------      ------------     ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                    6,392,910         2,994,000         (545,998)
                                                                                    ------------      ------------     ------------


NET CHANGE IN CASH AND CASH EQUIVALENTS                                                1,797,134        (1,159,212)      (3,588,353)

CASH AND CASH EQUIVALENTS - beginning of period

                                                                                       2,104,869         3,264,081        6,852,434
                                                                                    ------------      ------------     ------------

CASH AND CASH EQUIVALENTS - end of period                                           $  3,902,003      $  2,104,869     $  3,264,081
                                                                                    ============      ============     ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
      Cash paid for interest                                                        $    230,464      $    214,199     $    228,938
      Cash received for income taxes                                                    (204,792)         (150,027)         (71,274)

SCHEDULES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
      Preferred Stock dividends of $120,675 paid by issuance of
         64,033 shares of Common Stock                                              $    165,418      $        ---     $        ---
      Utilization of equipment deposit towards purchase of equipment                     398,580               ---          123,396
      Issuance of Preferred Stock  (including  stock dividend payable of $14,000
         and subscription receivable of $67,000) for interest in
            joint venture                                                                    ---               ---          573,000
      Conversion of preferred stock to Common Stock                                          ---               ---       14,528,973
      Satisfaction of amounts due to joint venture                                           ---               ---          622,133
      Reduction in investment in joint venture                                               ---               ---           63,381
      Dividends accrued on preferred stock                                                   ---               ---          899,923
</TABLE>

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


                                      F-9
<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003



NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          PRINCIPLES OF CONSOLIDATION

          The consolidated  financial  statements  include the accounts of Elite
          Pharmaceuticals,   Inc.  and  its  wholly-owned   subsidiaries,   (the
          "Company").  All significant  intercompany  accounts and  transactions
          have been eliminated in consolidation.

          The Company  consolidates  all entities that it controls.  The Company
          did not consolidate companies it did not control. The Company used the
          equity method to account for its  investments in companies in which it
          did not  have the  ability  to  exercise  significant  influence  over
          operating and financial policies.

          NATURE OF BUSINESS

          Elite  Pharmaceuticals,  Inc. ("Elite") was incorporated on October 1,
          1997  under the laws of the State of  Delaware,  and its  wholly-owned
          subsidiary Elite Laboratories, Inc. ("Elite Labs") was incorporated on
          August 23,  1990 under the laws of the State of  Delaware.  Elite Labs
          engages primarily in researching, developing and licensing proprietary
          controlled release drug delivery systems and products.  The Company is
          also equipped to manufacture controlled release products on a contract
          basis for  third  parties  and  itself  if and when the  products  are
          approved,  however the Company has recently concentrated on developing
          orally  administered  controlled  release  products.   These  products
          include  drugs  that  cover  therapeutic   areas  for  pain,   angina,
          hypertension,  allergy  and  infection.  The Company  also  engages in
          research and development  activities for the purpose of obtaining Food
          and  Drug  Administration  approval,  and,  thereafter,   commercially
          exploiting generic and new controlled-release pharmaceutical products.
          The Company  also  engages in contract  research  and  development  on
          behalf of other pharmaceutical companies.

          On October 24, 1997, Elite merged with Prologica  International,  Inc.
          ("Prologica") a Pennsylvania  Corporation,  a publicly traded inactive
          corporation,  with Elite surviving the merger. In addition, Elite Labs
          merged with a wholly-owned subsidiary of Prologica, with the Company's
          subsidiary  surviving  this  merger.  The former  shareholders  of the
          Company's  subsidiary  exchanged all of their shares of Class A voting
          Common Stock for shares of the Company's  voting Common Stock in a tax
          free  reorganization  under  Internal  Revenue  Code  Section 368. The
          result of the merger activity qualified as a reverse  acquisition.  In
          connection  with the  reverse  acquisition,  options  exercisable  for
          shares of Class A voting  and Class B  nonvoting  Common  Stock of the
          Company's subsidiary were exchanged for options exercisable for shares
          of the Company's voting Common Stock.

          On September 30, 2002, the Company acquired from Elan Corporation, plc
          and Elan International  Services,  Ltd. (together "Elan") Elan's 19.9%
          interest in Elite  Research,  Ltd.  ("ERL"),  a joint  venture  formed
          between the Company and Elan where the Company's  interest  originally
          was 80.1%.

          On December 31, 2002, the Company  entered into an agreement of merger
          whereby ERL (a Bermuda  Corporation)  was merged  into a new  Delaware
          Corporation,  Elite Research,  Inc. ("ERI"), a wholly-owned subsidiary
          of the Company. As a result of the merger, ERI became the owner of all
          of the assets and  liabilities of ERL. The merger was accounted for as
          a tax free reorganization.



                                      F-10
<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003

NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          CASH AND CASH EQUIVALENTS

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

          PROPERTY AND EQUIPMENT

          Property and equipment are stated at cost. Depreciation is provided on
          the  straight-line  method based on the estimated  useful lives of the
          respective assets which range from five to forty years.  Major repairs
          or improvements  are capitalized.  Minor  replacements and maintenance
          and repairs  which do not improve or extend  asset lives are  expensed
          currently.

          Upon retirement or other  disposition of assets,  the cost and related
          accumulated  depreciation  are  removed  from  the  accounts  and  the
          resulting gain or loss, if any, is recorded.

          IMPAIRMENT OF LONG-LIVED ASSETS

          The Company periodically evaluates the fair value of long-lived assets
          whenever events or changes in circumstances indicate that its carrying
          amounts may not be recoverable.  Accordingly,  any impairment of value
          will be  recognized  when the carrying  amount of a  long-lived  asset
          exceeds  its fair value in  accordance  with  Statement  of  Financial
          Accounting  Standards  No.  144,  "Accounting  for the  Impairment  or
          Disposal of Long-Lived  Assets."  Management  has  determined  that no
          impairment of long-lived assets has occurred.

          RESEARCH AND DEVELOPMENT

          Research  and  development  expenditures  are  charged  to  expense as
          incurred.

          PATENTS AND TRADEMARKS

          Effective  April 1, 2002,  the Company  adopted the provisions of SFAS
          No. 142, "Goodwill and Other Intangible  Assets." The adoption of SFAS
          No.  142  required  an  initial  impairment   assessment  involving  a
          comparison  of the fair value of  patents  and  trademarks  to current
          carrying  value.  No impairment was  determined to exist.  The Company
          reviews such trademarks and patents with definite lives for impairment
          to ensure they are  appropriately  valued if conditions exist that may
          indicate the carrying value may not be  recoverable.  Such  conditions
          may include an  economic  downturn  or a change in the  assessment  of
          future operations.

          Costs  incurred  for the  application  of patents and  trademarks  are
          capitalized and amortized on the straight-line  method, based on their
          estimated useful lives ranging from five to fifteen years,  commencing
          upon approval of the patent and trademarks. These costs are charged to
          expense if the patent or trademark is unsuccessful.


                                      F-11
<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003


NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          CONCENTRATION OF CREDIT RISK

          The Company derives  substantially  all of its revenues from contracts
          with other pharmaceutical companies, subject to licensing and research
          and development agreements.

          The Company  maintains cash balances in its bank, which, at times, may
          exceed the limits of the Federal Deposit Insurance Corp.

          The Company extends credit to its customers pursuant to contract terms
          in  the  normal  course  of  business  and  performs   ongoing  credit
          evaluations.   An  allowance  for  doubtful  accounts  was  considered
          necessary at March 31, 2005,  due to  uncertainty  of  collectibility.
          Amounts are written off when they are deemed uncollectible.

          USE OF ESTIMATES

          The  preparation of financial  statements in conformity with generally
          accepted  accounting  principles requires management to make estimates
          and  assumptions  that  affect  the  reported  amounts  of assets  and
          liabilities and disclosure of contingent assets and liabilities at the
          date of the financial  statements and the reported amounts of revenues
          and expenses during the reporting period.  Actual results could differ
          from  those  estimates.   Significant  estimates  made  by  management
          include, but are not limited to, the recognition of revenue, allowance
          for doubtful accounts receivable,  the fair value of intangible assets
          and stock-based awards.

          INCOME TAXES

          The Company adopted SFAS No. 109, "Accounting for Income Taxes," which
          requires  the use of the  liability  method of  accounting  for income
          taxes. The liability method measures deferred income taxes by applying
          enacted  statutory  rates in effect at the  balance  sheet date to the
          differences  between the tax bases of assets and liabilities and their
          reported amounts in the financial  statements.  The resulting deferred
          tax assets or liabilities  are adjusted to reflect changes in tax laws
          as they occur.  Valuation  allowances are used to reduce  deferred tax
          assets to the amount considered likely to be realized.

          LOSS PER COMMON SHARE

          Net loss per common  share is  calculated  by dividing net loss by the
          weighted  average  number of shares  outstanding  during  each  period
          presented.  Common Stock equivalents,  consisting of options, warrants
          and convertible  securities,  have not been included,  as their effect
          would be  antidilutive.  For the  three  years  ended  March  31,  the
          following  potentially  dilutive  securities  were not included in the
          computation of diluted loss per share:

<TABLE>
<CAPTION>

                                     2005                          2004                          2003
                                          WEIGHTED-                      WEIGHTED-                      WEIGHTED-
                                           AVERAGE                        AVERAGE                        AVERAGE
                                           EXERCISE                       EXERCISE                       EXERCISE
                            SHARES          PRICE           SHARES         PRICE          SHARES          PRICE
<S>                        <C>           <C>               <C>          <C>              <C>           <C>
         Stock options     2,277,050     $       2.16      2,417,050    $       3.70     2,266,850     $       5.74
         Warrants          8,035,875     $       2.69      2,654,239    $       4.72       733,752     $      12.33
                          ----------                      ----------                    ----------
                          10,312,925                       5,071,289                     3,000,602
                          ==========                      ==========                    ==========

</TABLE>



                                      F-12
<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                          MARCH 31, 2005, 2004 AND 2003


NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          REVENUE RECOGNITION

          Revenues  derived from  providing  research and  development  services
          under  contracts  with other  pharmaceutical  companies are recognized
          when earned.  These contracts provide for  non-refundable  upfront and
          milestone  payments.  Because no discrete  earnings event has occurred
          when the upfront  payment is received,  that amount is deferred  until
          the achievement of a defined milestone.  Each nonrefundable  milestone
          payment is  recognized  as revenue when the  performance  criteria for
          that milestone has been met.  Under each contract,  the milestones are
          defined,  substantive effort is required to achieve the milestone, the
          amount  of  the   non-refundable   milestone  payment  is  reasonable,
          commensurate  with  the  effort  expended,   and  achievement  of  the
          milestone is reasonably assured.

          Revenues earned by licensing certain pharmaceutical products developed
          by Elite  are  recognized  at the  beginning  of a  license  term when
          Elite's  customer has legal right to the use of the product.  To date,
          no revenues  have been earned by  licensing  products and there are no
          continuing obligations under any licensing agreements.

          Revenues  derived  from  royalties  to the extent  that they cannot be
          reasonably estimated are recognized when the cash is received.

          Revenues   earned   under   manufacturing    agreements   with   other
          pharmaceutical companies are recognized when product is shipped.

          INVESTMENT IN JOINT VENTURE

          The equity method of accounting  was used to account for the Company's
          investment  in its joint venture with Elan.  Under the equity  method,
          the Company  recognized its share in the net earnings or losses of the
          joint  venture  as  they  occurred.  While  Elite  owned  100%  of the
          outstanding Common Stock of ERL, Elite's equity in the loss of ERL was
          based on 100% of ERL's losses,  less the amounts funded by Elan.  Elan
          funded 19.9% of ERL's losses.  Once Elite's  investment was reduced to
          zero,  further  losses  were  recognized  to  the  extent  of  Elite's
          commitment  to fund the  losses.  The  joint  venture  was  terminated
          effective September 30, 2002, as further discussed in Note 7.


                                      F-13
<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003


NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          TREASURY STOCK

          The Company  records  common shares  purchased and held in treasury at
          cost.

          STOCK-BASED COMPENSATION

          Under various qualified and non-qualified plans, the Company may grant
          stock options to officers,  selected employees,  as well as members of
          the board of  directors,  as further  described in Note 11.  Effective
          April  1,  2002,  the  Company  adopted  the  fair  value  recognition
          provisions of SFAS No. 123, "Accounting for Stock-Based  Compensation"
          and selected the prospective  method of adoption described in SFAS No.
          148,  "Accounting  for  Stock-Based   Compensation  -  Transition  and
          Disclosure  - an  amendment  of SFAS No. 123." Prior to April 1, 2002,
          the  Company  measured  stock-based   compensation  for  its  employee
          compensation  plans using the  intrinsic  value method  prescribed  by
          Accounting  Principles  Board Opinion No. 25 (APB25),  "Accounting for
          Stock Issued to Employees" and related interpretations.

          During  the years  ended  March 31,  2003,  2004 and 2005 the  Company
          issued 210,000 1,024,000 and 120,000, respectively options to purchase
          Common  Stock to employees  and to members of the board of  directors.
          The options  have an exercise  price  ranging  from $2.01 to $5.00 per
          share and all vest over three years except  610,000  options issued in
          2004 and 120,000  issued for year ended  March 31,  2005 which  vested
          upon grant date.  The options  expire  between five and ten years from
          the date of grant.  The Company has recorded  compensation  expense of
          $20,550,  $1,166,601  and $370,108 for the years ended March 31, 2003,
          2004 and 2005 which  represents  the fair value of the options  vested
          computed using the  Black-Scholes  options pricing model on each grant
          date.

          On June 22, 2004 the  Company's  stockholders  approved the 2004 Stock
          Option  Plan and  ratified  amendments  of the  terms  of  outstanding
          options and  warrants,  including  the repricing of options to certain
          Directors  and  employees.  The  Company  will  record  a  significant
          compensation  expense in the future  periods in which the options vest
          based on the fair value of the options after  reflecting the repricing
          and amendments to the terms of the options.

          The following  table  illustrates  the effect on net loss and loss per
          share  as if the  Company  had  applied  the  fair  value  recognition
          provisions of SFAS No. 123 to all  outstanding  and unvested awards in
          each year presented:
<TABLE>
<CAPTION>
                                                                      2005                   2004                    2003
                                                                      ----                   ----                    ----
<S>                                                               <C>                    <C>                     <C>
         Net loss as reported                                     $ (5,906,890)          $(6,514,217)            $ (4,061,422
         Add:  Stock-based compensation expense
         included in reported net loss, net of related
         tax effects                                                 1,008,850             1,754,584                   20,550
         Deduct:  Total stock-based compensation
         expense determined under fair value method
         for all awards, net of related tax effect                     (68,880)             (865,255)              (1,070,651)
                                                                  ------------           -----------             ------------
         Pro forma net loss                                         (4,966,920)           (5,624,888)              (5,111,523)
                                                                  ============           ===========             ============
         Loss per share as reported                                      (0.46)                (0.58)                   (0.40)
         Pro-forma loss per share                                        (0.39)                (0.50)                   (0.51)

</TABLE>


                                      F-14
<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003


NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

          FAIR VALUE OF FINANCIAL INSTRUMENTS

          The carrying  amounts of current  assets and  liabilities  approximate
          fair  value due to the  short-term  nature of these  instruments.  The
          carrying  amounts of  noncurrent  assets are  reasonable  estimates of
          their fair  values  based on  management's  evaluation  of future cash
          flows.   The  long-term   liabilities  are  carried  at  amounts  that
          approximate  fair value  based on  borrowing  rates  available  to the
          Company  for  obligations  with  similar  terms,  degrees  of risk and
          remaining maturities.

          RECLASSIFICATIONS

          Certain  accounts and amounts in the 2003  financial  statements  have
          been  reclassified  in order to  conform  with the 2005  presentation.
          These reclassifications have no effect on net income.

NOTE 2 -  MANAGEMENT'S LIQUIDITY PLANS

          The  Company  reported  net  losses  of  $5,906,890,   $6,514,217  and
          $4,061,422  for the fiscal years ended March 31, 2005,  2004 and 2003,
          respectively.  At March  31,  2005,  the  Company  had an  accumulated
          deficit  of  approximately  $41.1  million,   consolidated  assets  of
          approximately $9.2 million, stockholders' equity of approximately $5.7
          million,  and  working  capital of  approximately  $3.3  million.  The
          Company has not generated any significant revenue to date.

          In an effort to reduce costs in fiscal  2003,  the Company has reduced
          the number of products  being actively  developed  from  approximately
          fifteen to six. The six products  that  continue in  development  were
          deemed by management to be the most suitable for continued development
          given the Company's  limited  resources.  The Company has also settled
          certain litigation with its former CEO which will significantly reduce
          its legal fees.

          The primary  strategy  remains to develop the  Company's  oral control
          release  pharmaceutical  products,  with  emphasis in the area of pain
          management,  for FDA approval,  and once  developed,  to  commercially
          exploit these products  either by licensing or through the development
          of collaborations with strategic partners.


          The Company also retained an investment banking firm in fiscal 2003 to
          assist   the   Company  in   connection   with   potential   strategic
          transactions,   including   acquisitions.   The  Company  may  receive
          additional cash proceeds from the exercise of outstanding  options and
          warrants,  as well as  through  the  continued  sale of its New Jersey
          State tax losses.  However,  there is no assurance that any options or
          warrants  will be  exercised,  that  any  sale of tax  losses  will be
          completed  or that  the  Company  will be  able  to  raise  additional
          capital.


          There  is  also no  assurance  that  the  Company's  current  business
          strategies will be successfully  implemented or that it will raise the
          necessary  funds to allow it to continue  its  operations.  Management
          believes that cost reductions  already  implemented will reduce losses
          in the future, and with the Company's existing working capital levels,
          anticipates  that the Company will be able to continue its  operations
          at  least  through  the  end  of  fiscal  year  2006,  assuming  it is
          successful in consummating the transactions discussed above.


                                      F-15
<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003

NOTE 3 -  PROPERTY AND EQUIPMENT

          Property  and  equipment  at March 31,  2005 and 2004  consists of the
          following:

<TABLE>
<CAPTION>
                                                                             2005                2004
                                                                             ----                ----
<S>                                                                      <C>                 <C>
          Laboratory manufacturing, and warehouse equipment              $  3,566,674        $  3,140,250
          Office equipment                                                     32,981              32,981
          Furniture and fixtures                                               51,781              51,781
          Land, building and improvements                                   2,097,668           2,097,668
          Equipment under capital lease                                       168,179             168,179
                                                                         ------------        ------------
                                                                            5,917,283           5,490,859
          Less: Accumulated depreciation and amortization                   1,722,846           1,400,609
                                                                         ------------        ------------
                                                                         $  4,194,437        $  4,090,250
                                                                         ============        ============
</TABLE>


          Depreciation and amortization  expense amounted to $322,237,  $300,303
          and  $278,348  for the  years  ended  March 31,  2005,  2004 and 2003,
          respectively.  The Company's  obligations  under  capital  leases were
          satisfied prior to March 31, 2004.

NOTE 4 -  INTANGIBLE ASSETS

          Intangible  assets  at  March  31,  2005  and  2004,  consist  of  the
          following:

<TABLE>
<CAPTION>
                                                                              2005                2004
                                                                              ----                ----
<S>                                                                       <C>                 <C>

          Patents                                                         $    145,830        $    145,830
          Trademarks                                                             8,120               8,120

                                                                               153,950             153,950
          Less: Accumulated amortization
                                                                                72,766              51,754
                                                                          ------------        ------------
                                                                          $     81,184        $    102,196
                                                                          ============        ============
</TABLE>


          Amortization  of intangible  assets  amounted to $21,012,  $19,342 and
          $19,344  for  the  years  ended  March  31,   2005,   2004  and  2003,
          respectively.

          Aggregate  amortization expense of intangible assets for the next five
          fiscal years is estimated to be as follows:

         YEARS ENDING MARCH 31,
         ----------------------

                     2006                                    $   21,012
                     2007                                        21,012
                     2008                                        21,012
                     2009                                         8,140
                     2010                                         8,140


                                      F-16
<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003

NOTE 5 -  NOTE PAYABLE

          During the year ended March 31, 2005, the unpaid portion of a $375,000
          5.90% bank note was  satisfied by the proceeds of a $225,000  maturing
          certificate of deposit.

          On  July  8,  2004,  Elite  Labs  entered  into a loan  and  financing
          agreement  in order to finance the purchase of certain  machinery  and
          equipment.  Elite  Labs  borrowed  $  400,000  payable  in 36  monthly
          installments of $13,671, each, including principal and interest at 14%
          annum. The loan is secured by two pieces of equipment and the guaranty
          of the Company.

          The notes payable consisted of the following at March 31:

<TABLE>
<CAPTION>
                                                                               2005                2004
                                                                               ----                ----
<S>                                                                        <C>                 <C>

          Note payable                                                     $    315,074        $    225,000
          Current portion                                                      (127,946)            (75,000)
                                                                           ------------        ------------
          Long-term portion, net of current maturities                         $187,128        $    150,000
                                                                           ============        ============
</TABLE>


          Future principal maturities under this loan are as follows:

          YEARS ENDING MARCH 31,
          ----------------------

                  2005                                  $   127,946
                  2006                                      147,054
                  2007
                                                             40,074
                                                        -----------
                                                        $   315,074
                                                        ===========

NOTE 6 -  BOND FINANCING OFFERING

          On September 2, 1999, the Company completed the issuance of tax exempt
          bonds by the New Jersey Economic Development Authority.  The aggregate
          principal  proceeds  of the fifteen  year term bonds were  $3,000,000.
          Interest on the bonds accrues at 7.75% per annum. The net proceeds are
          being  used by the  Company  to  refinance  the land and  building  it
          currently  owns,  and  for  the  purchase  of  certain   manufacturing
          equipment and related building improvements.

          Offering costs in connection with the bond issuance  totaling $197,860
          were paid from bond  proceeds  and  underwriter  fees equal to $90,000
          (three  percent  (3%)  of the  par  amount  of the  bonds)  are  being
          amortized over the term of the bonds. Amortization expense was $13,190
          in each of the three years ended March 31, 2005.

          The bonds are  collateralized  by a first lien on the building,  which
          includes property and equipment.

          Several restricted cash accounts are maintained in connection with the
          issuance of these bonds.  These include amounts restricted for payment
          of bond  principal and interest,  for the  refinancing of the land and
          building  the  Company  currently  owns,  for the  purchase of certain
          manufacturing  equipment and related building  improvements as well as
          the maintenance of a $300,000 Debt Service Reserve.


                                      F-17
<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003


NOTE 6 -  BOND FINANCING OFFERING (CONTINUED)

          All restricted  accounts other than the $300,000 Debt Service  Reserve
          are expected to be expended  within  twelve  months and are  therefore
          categorized  as  current  assets.  Bond  financing  consisted  of  the
          following at March 31:

 <TABLE>
<CAPTION>
                                                                               2005                2004
                                                                               ----                ----
<S>                                                                        <C>                 <C>
            EDA Bonds                                                      $  2,345,000        $  2,495,000
            Current portion

                                                                               (165,000)           (150,000)
                                                                           ------------        ------------

            Long term portion, net of current maturities                      2,180,000           2,345,000
                                                                           ============        ============
</TABLE>

           Future principal maturities required under the bond agreement are
           as follows:

              YEARS ENDING MARCH 31,
              ----------------------

                      2006                                  $   165,000
                      2007                                      175,000
                      2008                                      190,000
                      2009                                      205,000
                      2010                                      220,000
                      Thereafter                              1,390,000
                                                           ------------
                                                           $  2,345,000
                                                           ============


                                      F-18
<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003


NOTE 7 -  JOINT VENTURE ACTIVITIES

          In October  2000,  the Company  entered into a joint  development  and
          operating agreement with Elan Corporation, plc, and Elan International
          Services,  Ltd.  (together  "Elan")  to  develop  products  using drug
          delivery  technologies  and  expertise of both  companies.  This joint
          venture,  Elite Research,  Ltd. ("ERL"),  a Bermuda  corporation,  was
          initially  owned 80.1% by the  Company  and 19.9% by Elan.  ERL was to
          fund its  research  through  capital  contributions  from its partners
          based  on  the  partners'   respective   ownership   percentage.   ERL
          subcontracted  research and development  efforts to the Company,  Elan
          and others.  It was anticipated that the Company would provide most of
          the formulation  and development  work. The Company had commenced work
          for three products. The joint venture terminated on September 30,2002.
          For the years  ended  March 31,  2003 and 2002,  the  Company  charged
          $187,810 and  $601,057,  respectively,  to ERL which was  reflected in
          product  formulation  fees.   Intercompany  profits  and  losses  were
          eliminated.

          ERL was initially  capitalized  with  $15,000,000  which  included the
          issuance of 6,000 voting common shares, par value $1.00 per share, and
          6,000 non-voting  convertible  preferred  shares,  par value $1.00 per
          share.  All of the voting  shares were held by the  Company,  with the
          non-voting  convertible  preferred shares held by both the Company and
          Elan, being split 3,612 shares and 2,388 shares, respectively. Elite's
          and Elan's respective  ownership in ERL did not change during the term
          of the joint venture.

          While the Company  initially  owned 80.1% of the  outstanding  capital
          stock (100% of the  outstanding  Common Stock) of ERL until  September
          30, 2002,  Elan and its  subsidiaries  retained  significant  minority
          investor rights that were considered "participating rights" as defined
          in the Emerging  Issues Task Force  Consensus No. 96-16.  Accordingly,
          the Company did not consolidate the financial  statements of ERL until
          September  30, 2002 but instead  accounted  for its  investment in ERL
          under the equity  method of  accounting  until the Joint  Venture  was
          terminated, effective September 30, 2002.

          For the year ended  March 31, 2002 and the period  beginning  April 1,
          2002 through September 30, 2002, ERL recognized net losses of $633,642
          and $232,742,  respectively, and the Company recognized 80.1% of these
          losses,   or  $507,640  and   $186,379,   respectively.   The  product
          formulation  fees of $187,810 and  $601,057  earned by the Company for
          services  rendered to ERL for the years ended March 31, 2003 and 2002,
          respectively, are included in ERL's expenses. During fiscal year 2001,
          ERL paid $15,000,000 to Elan for a license providing ERL non-exclusive
          rights to use certain Elan in-process drug delivery technologies.  The
          Elan technology  rights acquired relate to very early stage technology
          that,  in the opinion of  management,  have not reached  technological
          feasibility and have no future  alternative uses.  Through the date of
          its termination,  ERL completed  in-vivo (pilot clinical trial) on the
          first product and began  formulation and development of two additional
          products.

          During  fiscal  year  2003,  the  Company  consummated  a  termination
          agreement (the  "Termination  Agreement")  with Elan to acquire all of
          Elan's  interest  in ERL. As further  discussed  in Note 10, the joint
          venture was terminated effective September 30, 2002.


                                      F-19
<PAGE>

              ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003


NOTE 7 -  JOINT VENTURE ACTIVITIES (CONTINUED)

          Under the  Termination  Agreement,  among  other  things,  the Company
          acquired all  proprietary,  development and commercial  rights for the
          worldwide  markets for the products  developed by ERL. In exchange for
          the assignment,  ERL agreed to pay Elan a royalty on certain  revenues
          that may be realized from the  once-a-day  Oxycodone  product that has
          been  developed  by ERL.  Effective  October 1, 2002,  the  Company is
          solely responsible to fund ERL's product development.

          The Company did not pay, nor did Elan  receive any cash  consideration
          under the  Termination  Agreement.  Furthermore,  the  Company has the
          exclusive rights to the proprietary, development and commercial rights
          for the worldwide markets for two other products developed by ERL. The
          Company is not required to pay Elan  royalties on revenues that may be
          realized from these two other products.

          The Company  accounted for this acquisition by consolidating  ERL as a
          wholly-owned subsidiary as of September 30, 2002. As more specifically
          described  in Note 10,  Elan  converted  773,000  shares  of  Series B
          Preferred Stock,  according to their terms,  into 52,089 shares of the
          Company's  Common Stock.  This resulted in an increase in Common Stock
          of $521 and an increase in additional paid in capital of $772,479.  As
          a result, the Series B Preferred Stock was eliminated.

          As further  disclosed  in Note 10,  the  acquisition  resulted  in the
          conversion of 13,756  shares of Series A Preferred  Stock into 764,221
          shares of Elite's  Common Stock in  accordance  with their terms.  The
          Company  accounted for this  conversion by increasing  Common Stock in
          the amount of $7,642 and by a  corresponding  increase  in  additional
          paid in capital of  $13,748,332.  As a result,  the Series A Preferred
          Stock was eliminated.

          As a result of the  Termination  Agreement,  ERL became a wholly-owned
          subsidiary  of the Company as of  September  30, 2002.  Elan  retained
          certain  securities of Elite that it had obtained in  connection  with
          the  joint  venture  and  transferred   other  such  securities  to  a
          third-party, as further discussed in Note 10.

          The  following  is  unaudited   pro-forma   consolidated   results  of
          operations for the year ended March 31, 2003, assuming the acquisition
          was completed on April 1, 2002.

                                                              2003
                                                              ----
                                                           (Unaudited)

          Revenue                                          $      442,500

          Proforma net (loss) available to common
                shareholders                               $   (4,107,785)

          Proforma net (loss) available to common
                shareholders per share -
                basic and diluted                          $        (0.40)


          Unaudited  pro-forma  data may not be  indicative  of the results that
          would have been  obtained  had these events  actually  occurred at the
          beginning  of the  periods  presented,  nor  does  it  intend  to be a
          projection of future results.


                                      F-20
<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003

NOTE 8 -  INCOME TAXES

          The components of the provision for income taxes are as follows:


                                              YEAR ENDED MARCH 31,

                                2005               2004                2003
                                ----               ----                ----
          Federal:
             Current         $        --         $       --           $       --
             Deferred                 --                 --                   --
                             -----------         ----------           ----------
                                      --                 --                   --
                             -----------         ----------           ----------

          State:
             Current               1,000              1,000                  400
             Deferred                 --                 --                   --
                             -----------         ----------           ----------
                                   1,000              1,000                  400
                             -----------         ----------           ----------
                             $     1,000         $    1,000           $      400
                             ===========         ==========           ==========

          During the year ended March 31, 2003,  the Company  received  approval
          for the sale of  $1,822,989 of New Jersey  net-operating  losses under
          the Technology Tax Certificate  Transfer Program  sponsored by the New
          Jersey Economic  Development  Authority (NJEDA). The total tax benefit
          approved  for receipt by the  Company  during the year ended March 31,
          2003 was $137,818, of which $71,741 was received in November 2002. The
          remaining balance of $66,077 was received in 2003.

          During the year ended March 31, 2004,  the Company  received  approval
          for the sale of an additional  $1,928,817 of New Jersey  net-operating
          losses under the Technology Tax Certificate Transfer Program sponsored
          by the New Jersey Economic  Development  Authority (NJEDA).  The total
          tax benefit received during the year ended March 31, 2004 was $151,027
          and  is  recorded  as  other  income  in  the  accompanying  financial
          statements.

          During the year ended March 31, 2005,  the Company  received  approval
          for the sale of an additional  $2,628,257 of New Jersey  net-operating
          losses under the Technology Tax Certificate Transfer Program sponsored
          by the New Jersey Economic  Development  Authority (NJEDA).  The total
          tax benefit received during the year ended March 31, 2005 was $205,792
          and  is  recorded  as  other  income  in  the  accompanying  financial
          statements.


                                      F-21
<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003


NOTE 8 -  INCOME TAXES (CONTINUED)


          The major components of deferred tax assets at March 31, 2005 and 2004
          are as follows:

                                                         2005             2004
                                                         ----            ----
          Net operating loss carry forwards          $  8,422,225   $ 6,736,336
          Valuation allowance                          (8,422,225)   (6,736,336)
                                                     ------------   -----------

                                                     $         --   $        --
                                                     ============   ===========

          At March 31, 2005 and 2004, a 100% valuation allowance is provided, as
          it is  uncertain  if the deferred tax assets will provide any benefits
          because of the  uncertainty  of generating  the future  taxable income
          necessary to use the net operating loss  carryforwards.  The valuation
          allowance   increased  during  2005,  2004  and  2003  by  $1,685,889,
          $2,250,169, and $1,357,792, respectively.


          At March 31, 2005,  for federal  income tax purposes,  the Company has
          unused net operating loss  carryforwards of approximately  $23,192,444
          expiring in 2007 through 2025. For state tax purposes, the Company has
          $10,360,986  of  unused  net  operating  losses,  which are net of the
          $12,167,760 of the New Jersey  net-operating losses sold, as discussed
          above.

NOTE 9 -  COMMITMENTS AND CONTINGENCIES

          EMPLOYMENT AGREEMENTS

          The Company had an employment agreement ("Employment  Agreement") with
          its former President/CEO, Atul M. Mehta.

          On June 3, 2003,  Dr. Mehta  resigned from all positions  that he held
          with the Company,  while  reserving  his rights  under his  Employment
          Agreement and under common law. On July 3, 2003, Dr. Mehta  instituted
          litigation  against  Elite and one of its  directors,  in the Superior
          Court of New Jersey,  for,  among other things,  the alleged breach of
          his Employment  Agreement and for defamation.  He also claimed that he
          was entitled to receive his salary  through June 6, 2006.  The Company
          made certain counter claims against Mehta.

          Under a settlement agreement, dated April 21, 2004, Mehta relinquished
          any rights to the Company's  patents and  intellectual  properties and
          agreed to certain  non-disclosure and certain limited  non-competition
          covenants.  The  Company  paid  Mehta  $400,000  and  certain  expense
          reimbursements,  and received a  short-term  option for the Company or
          its  designees to acquire all of the shares of the Common Stock of the
          Company  held by Mehta  and his  affiliates  at $2.00 per  share.  The
          Company paid  $100,000 into escrow which was released to Mehta because
          the option was not exercised in full. As part of the  settlement,  the
          Company  extended  expiration  dates of certain  options  to  purchase
          770,000  shares of Common Stock at prices ranging from $1.00 to $10.00
          per share held by Mehta and also provided him with certain "piggyback"
          registration rights with respect to shares underlying his options. The
          Company  entered  into an agreement  dated  October 7, 2004 with Mehta
          pursuant to which 100,000 of the $10.00 options were  terminated,  the
          expiration  dates of the other 670,000 options were extended from June
          13,  2005 to  December  31,  2007 and the  exercise  price of  170,000
          options  were reduced  from $10.00 to $2.34 per share.  The  agreement
          also  obligates the Company to bear Mehta's  legal and other  expenses
          not to exceed  $50,000  for the two year  period  from the  litigation
          settlement.




                                      F-22
<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003



NOTE 9 -  COMMITMENTS AND CONTINGENCIES (CONTINUED)


          EMPLOYMENT AGREEMENTS

          On July 23, 2003,  the Company  entered into an agreement with its new
          Chief  Executive  Officer,  Bernard  Berk.  The initial  terms of this
          agreement is three years. Pursuant to this agreement:

          -  Mr.  Berk is  entitled  to receive a base  salary of  $200,000  per
             annum,  subject to  increase  to  $330,140  if and when the Company
             consummates a Strategic  Transaction  (as defined in the employment
             agreement);

          -  The  Company  confirmed  its  grant to Mr.  Berk on June 3, 2003 of
             options to purchase 300,000 shares of the Company's Common Stock at
             $2.01 per share. All of these options are vested.

          -  The  Company  granted Mr.  Berk  options to purchase an  additional
             300,000 shares of its Common Stock, with an exercise price equal to
             $2.15,  the closing price of the Company's Common Stock on the date
             of grant.  These  options will vest solely upon  consummation  of a
             Strategic Transaction.

           - 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 following a  "change-of-control".
             The severance  will be payable in accordance  with the terms of his
             employment agreement.

          CONSULTING AGREEMENTS

          The Company entered into one year  consulting  agreements with each of
          Saggi Capital Corp. and Bridge  Ventures Inc. on November 4, 2003. The
          consultants'  services  include,  but are not limited to,  advice with
          respect  to  overall  strategic  planning,   financing  opportunities,
          acquisition  policy,  commercial and investment banking  relationships
          and  stockholders  matters.  In  consideration  of  each  consultant's
          services, the Company agreed to pay each consultant $75,000 payable in
          monthly  installments  of  $6,250  and to issue to each  consultant  a
          warrant to purchase  100,000  shares of the  Company's  Common  Stock.
          Consulting expenses under both agreements aggregated $165,000 for year
          ended  March  31,  2005  and  $30,000  plus   approximately   $470,000
          attributable  to the issuance of the warrants for the year ended March
          31,  2004.  These  agreements  were  extended  as to the  consultants'
          services for an additional year at $75,000 each.

          On July 3, 2003,  the Company  entered into an agreement  with Leerink
          Swann & Company to provide a Valuation and a Fairness Opinion in order
          for the  Company  to  complete  a  proposed  acquisition  for which it
          received a  non-refundable  retainer  fee of $50,000.  If and when the
          Board of Directors requests a Fairness Opinion, Leerink's compensation
          shall be  $50,000.  For the  year  ended  March  31,  2005  and  2004,
          consulting  expenses  under this  agreement  amounted  to the  $50,000
          non-refundable retainer fee.


                                      F-23
<PAGE>






                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003


NOTE 9 -  COMMITMENTS AND CONTINGENCIES (CONTINUED)

          REFERRAL AGREEMENTS

          On January 29, 2002,  the Company  entered  into a Referral  Agreement
          with a Director (Referring Party) whereby Elite will pay the Referring
          Party a fee  based  upon  payments  received  by Elite  from  sales of
          products,  development fees, licensing fees and royalties generated as
          a direct  result of the  Referring  Party  identifying  customers  for
          Elite.  These  amounts  are to be  reduced  by the cost of goods  sold
          directly  incurred in the  manufacturing or development of products as
          well  as any  direct  expenses  associated  with  these  efforts.  The
          referral fee each year is to equal:


          PERCENTAGE OF REFERRAL
                   BASE                    FROM                           TO
                   ----                    ----                           --

                    5%                 $         0                    $1,000,000
                    4%                   1,000,000                     2,000,000
                    3%                   2,000,000                     3,000,000
                    2%                   3,000,000                     4,000,000
                    1%                   4,000,000                     5,000,000

          No amounts had been earned through March 31, 2005.

          On August 1, 1998,  the Company  entered into a  consulting  agreement
          (the "1998 Agreement") with a company owned by a then Director for the
          purpose of providing  management,  marketing and financial  consulting
          services for an unspecified term. Terms of the agreement  provided for
          a nonrefundable  monthly fee of $2,000.  This compensation was applied
          against amounts due pursuant to a business referral  agreement entered
          into on April 8, 1997 (the "1997 Agreement") with the same party.

          Terms of the 1997 Agreement provided for payments by the Company based
          upon a formula,  as defined,  for an unspecified term. On November 14,
          2000,  the  Company  amended  its 1997  Agreement  to provide  certain
          consulting  services for the period beginning November 1, 2000 through
          October 31, 2003. The Company  previously  advanced  $20,000 under the
          1997  Agreement  in addition  to a payment of $50,000  made during the
          year ended March 31, 2001. The 1997 Agreement  provided for 25 monthly
          installments of $3,200 beginning on December 1, 2001.

          Consulting  expense  under the 1997 and 1998  Agreements  amounted  to
          $28,800 for the year ended March 31, 2004 and no expense  incurred for
          the year ended March 31, 2003.  The  agreement  terminated on November
          30, 2003.


                                      F-24
<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003


NOTE 9 -  COMMITMENTS AND CONTINGENCIES (CONTINUED)

          COLLABORATIVE AGREEMENTS

          On March 30, 2005,  the Company  entered into a product,  development,
          manufacturing and distribution  agreement with Harris  Pharmaceutical,
          Inc. and Tish  Technologies  LLC with respect to a generic  controlled
          release drug delivery system in an undisclosed  area. The product is a
          generic  equivalent to a branded drug with addressable market revenues
          of approximately $80 million per year. The agreement  provides for (i)
          the drug  development  by Elite with costs of development to be shared
          by Elite and the marketing company,  (ii) the manufacture by Elite and
          its sale to the  marketing  company for  distribution,  and (iii) Tish
          Technologies  LLC to be responsible  for any requisite  submissions to
          the FDA relating to the product.  Elite is to share in the profits, if
          any, generated from the sale of the product.

          On December  18,  2003,  the Company and Pivotal  Development,  L.L.C.
          entered  into an agreement  to develop a  controlled  release  product
          utilizing Elite's proprietary drug delivery technology. The product is
          a  generic  equivalent  to  a  drug  losing  patent  exclusivity  with
          addressable  market revenues of  approximately  $150 million per year.
          The  agreement  also  provides a future option to develop a controlled
          release NDA product.

          Under the collaboration agreement,  Pivotal Development is responsible
          for taking the Elite formulation through clinical  development and the
          FDA  regulatory  approval  process.  The partners  will seek a license
          during the development  cycle from a pharmaceutical  company which has
          the resources to effectively  market the product and share the cost of
          defining the product against any lawsuits.

          Elite  and  Pivotal  are to bear  costs in their  respective  areas of
          responsibility.  In addition,  Pivotal is to pay Elite  $750,000  upon
          attainment of certain milestones outlined in the agreement.

          Pivotal has not raised the capital  required to move  forward with the
          development  agreement  and did not go forward  under the terms of the
          agreement.  Elite is  attempting to identify  other  partners for this
          project.

          In June 2001,  the Company  entered  into two  separate  and  distinct
          development and license  agreements with ECR,  another  pharmaceutical
          company.  The  Company is  developing  two drug  compounds  for ECR in
          exchange for certain payments and royalties. The Company also reserves
          the right to manufacture the compounds.  The Company received $250,000
          and $300,000, respectively, on these two agreements, which were earned
          during  the year  ended  March 31,  2002.  The  Company  is  currently
          proceeding  with the  development and formulation for both products as
          specified  in the  development  agreements.  The Company is  currently
          manufacturing  commercial batches for promotion by ECR for which Elite
          will  receive a royalty on product  revenues.  Manufacturing  fees and
          royalties amounted to $125,739 and $24,291, respectively, for the year
          ended March 31, 2005.

          On September  13,  2002,  the  Company,  entered into a  manufacturing
          agreement with Ethypharm S.A.  ("Ethypharm").  Under the terms of this
          agreement,   the  Company   initiated  the   manufacturing  of  a  new
          prescription  drug  product for  Ethypharm.  The  Company  received an
          upfront  manufacturing  fee  for the  first  phase  of the  technology
          transfer and billed an  additional  amount upon the  completion of the
          first  phase of  manufacturing.  The  Company is  entitled  to receive
          additional  fees in advance for the final phase of the  manufacturing.
          In addition,  if and when FDA approval is obtained and if requested by
          Ethypharm,  the Company is to  manufacture  commercial  batches of the
          product on terms to be agreed upon.  There were no amounts  earned for
          years ended March 31, 2005 and 2004.


                                      F-25
<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003


NOTE 10 - STOCKHOLDERS' EQUITY (DEFICIT)

          The  shareholders at the Annual Meeting of  Stockholders  adjourned to
          July  21,  2004,   approved  the  amendment  to  the   Certificate  of
          Incorporation  increasing  the number of authorized  shares of capital
          stock from  25,000,000 of Common Stock to 65,000,000  shares of Common
          Stock and 5,000,000 shares of Preferred  Stock,  each with a par value
          of $.01 per share.

          SERIES A 8% CONVERTIBLE PREFERRED STOCK TRANSACTION

          In October 2004,  the Company  completed a private  placement  through
          Indigo  Securities  LLC, the  Placement  Agent,  for  aggregate  gross
          proceeds of $6,600,000 of 516,558 shares of Series A Preferred  Stock,
          par value  $0.01  per  share  ("Preferred  Shares")  convertible  into
          5,165,580   shares  of  Common  Stock.   The  Preferred   Shares  were
          accompanied  by warrants to purchase an aggregate of 5,165,580  shares
          of Common  Stock at exercise  prices  ranging  from $1.54 to $1.84 per
          share.  The Company paid commissions  aggregating  $633,510 and issued
          five year warrants to purchase  494,931  shares of Common Stock to the
          Placement  Agent. The Company also paid legal fees and expenses of the
          Agent's  counsel of $75,000 and legal fees and expenses of one counsel
          for the investors in the private placement of $25,000.

          The holders of the Preferred  Shares were entitled to dividends at the
          rate of 8% of the original  issue price of $12.30 per share payable on
          December 1 and June 1 of each year in cash or shares of Common  Stock.
          Holders  were  entitled to elect one  Director,  were  entitled to ten
          votes per share, and vote with the Common Stockholders as one class on
          all other matters. Each Preferred Share is convertible into ten shares
          of  Common  Stock.   The  purchaser  of  the  Preferred   Shares  (the
          "INVESTORS")  received for each  Preferred  Share  acquired two Common
          Stock Purchase  Warrants,  one exercisable on or prior to December 31,
          2005 ("SHORT-TERM  WARRANTS") and the other exercisable on or prior to
          December 28, 2009 ("LONG-TERM WARRANTS").  Each warrant represents the
          right to purchase five shares of Common Stock.

          The  private  placement  was  effected  in three  tranches.  The first
          tranche  involved  the sale on October  6, 2004 of  379,122  Preferred
          Shares at a price of $12.30 per share convertible into an aggregate of
          3,791,220  shares of Common Stock  accompanied by Short-Term  Warrants
          and Long-Term  Warrants to purchase at $1.54 per share an aggregate of
          3,791,220 shares of Common Stock. The second tranche involved the sale
          on October 12, 2004 of 119,286  Preferred  Shares at a price of $14.00
          per  share   convertible   into  1,192,860   shares  of  Common  Stock
          accompanied  by  Short-Term  and  Long-Term  Warrants  to  purchase an
          aggregate of 1,192,860  shares of Common Stock at a price of $1.75 per
          share.  The third  tranche  involved  the sale on October  26, 2004 of
          18,150 Preferred Shares at a price of $14.70 per share  convertible in
          to 181, 500 shares of Common Stock  accompanied by Short Term and Long
          Term  Warrants to purchase at a price of $1.84 per share an  aggregate
          of 181,500 shares of Common Stock.

          Pursuant to the Placement Agent  Agreement,  the Company issued to the
          Placement  Agent and its  designees  Long Term  Warrants  to  purchase
          357,495  shares of Common Stock at $1.23 per share,  119,286 shares of
          Common  Stock at a price of $1.40  per  share,  and  18,150  shares of
          Common Stock at a price of $1.47 per share, respectively.


                                      F-26
<PAGE>



                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003


NOTE 10 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

          SERIES A 8% CONVERTIBLE PREFERRED STOCK TRANSACTION (Continued)

          Holders of the Preferred  Shares were provided  demand and  piggy-back
          registration  rights at the Company's expense.  The Company registered
          under the  Securities Act of 1933 (the "ACT") for resale the shares of
          Common  Stock  issuable  upon  conversion  of  the  Preferred  Shares,
          exercise of the warrants  (including the Placement  Agent's  warrants)
          and as payment of dividends on the Preferred Shares.

          Each of the purchasers of the Preferred  Shares has  represented  that
          the  purchaser  is an  "accredited  investor"  and has agreed that the
          securities  issued in the private  placement are to bear a restrictive
          legend  against  resale  without   registration  under  the  Act.  The
          Preferred Shares and warrants were sold by Registrant  pursuant to the
          exemption  from  registration  afforded by Section 4(2) of the Act and
          Registration D thereunder.

          Dr. Charan Behl, the Company's Chief Scientific Advisor,  purchased at
          $12.30 per share  20,000  Preferred  Shares and  received  warrants to
          purchase  200,000  shares of Common  Stock.  His payment  consisted of
          $16,675  in cash  and  the  release  of the  Company's  obligation  of
          $229,325  due to Dr.  Charan  Behl for  consulting  fees for  services
          rendered through September 30, 2004.

          Under the  Certificate of Designation of the Series A Preferred  Stock
          of  the  Corporation,   all  outstanding  shares  of  Preferred  Stock
          automatically  convert  into shares of Common  Stock,  par value $0.01
          upon the Corporation  providing written notice to holders of Preferred
          Stock certifying that the Current Market Price of the Common Stock for
          30  consecutive  Trading  Days  exceeded  $3.69 and the average  daily
          trading  volume of the Common  Stock for such 30  consecutive  Trading
          Days equaled or exceeded 50,000 shares per day.

          On March 3, 2005,  the  Corporation  certified that the Current Market
          Price  of  the  Common  Stock  for  each  Trading  Day  during  the 30
          consecutive  Trading Days from January 18, 2005 through and  including
          March 1, 2005 exceeded $3.69,  which  represented  300% of the Initial
          Conversion  Price of $1.23 per share,  and the average daily volume of
          the Common  Stock  during the 30 Day Trading  Period  exceeded  50,000
          shares.

          As a  result  of  the  above,  the  remaining  outstanding  shares  of
          convertible Series A Preferred Stock (21,922 shares),  par value $0.01
          per  share  were  converted  into  219,220  shares  of  Common  of the
          Corporation  as of March 7, 2005.  Accordingly,  the  Corporation  has
          issued an aggregate  of 5,265,516  shares of Common Stock with respect
          to the issuance of conversion shares and dividend shares.

          COMMON STOCK TRANSACTION

          On July 6, 2004,  the Company  issued  26,500  shares of Common  Stock
          valued at $58,300 and agreed to pay $10,000 per month to a corporation
          in consideration  for the rendering for a six-month period of investor
          relation  consulting  services,  including  the  distribution  of  the
          Company's press releases,  the provision of related  strategic  advice
          and the  inclusion  of the Company on the  consultant's  website.  The
          Company  agreed to provide the holder with  "piggy-back"  registration
          rights with respect to the shares.


                                      F-27
<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003


NOTE 10 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

          INSIDER TRADING

          Under  Section  16(b)  of the  Securities  Exchange  Act of  1934,  an
          insider,  as defined, is required to disgorge any gain on the purchase
          and sale, or sale and purchase of an issuer's equity securities within
          any period of six months.  During fiscal 2005, the former  Chairman of
          the Board remitted $117,740 to the Company to return his gain based on
          the applicable provisions of law.

          DECEMBER 2003 PRIVATE PLACEMENT

          The  Company  completed  in  December  2003  a  private  placement  of
          1,645,000  shares of its Common Stock at $2.00 per share,  exempt from
          registration  pursuant to Section 4(2) and Regulation D under the Act.
          In connection with the offering, the Company paid a cash commission of
          $75,000 to First Montauk Group Inc., as Placement  Agent and issued to
          the agent a five year warrant to purchase  50,000  shares of Company's
          Common Stock at a price of $2.00 per share.  Legal fees  approximating
          $36,000 were also incurred in connection with this private  placement.
          Pursuant  to its  agreement  with the  purchasers,  the Company at its
          expense  registered  the shares  issued and the shares  issuable  upon
          exercise of the warrant under the Act

          TREASURY STOCK TRANSACTIONS

          During fiscal 2003,  the Company  purchased  100,000  shares of Common
          Stock  in the  open  market  for a  total  consideration  of  $306,841
          pursuant to the  authorization  by the Board of  Directors on June 27,
          2002.

          PUBLIC OFFERINGS

          A registration  statement on Form SB-2,  declared effective on July 6,
          2004 under the  Securities  Act of 1933,  as amended,  registered  the
          following:

            1) 1,530,000  shares  acquired  in a private  placement  and  50,000
               shares to be offered  upon  exercise  of  warrants  issued to the
               Placement Agent and its associates.

            2) Shares to be offered  upon  exercise of stock  options  held by a
               former Chief Executive Officer at the exercise price of $1.00 per
               share.


          A registration statement on Form SB-2, declared effective December 28,
          2004,  under the  Securities  Act of 1933, as amended,  registered the
          following securities:


                                      F-28
<PAGE>



                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003


NOTE 10 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

          PUBLIC OFFERINGS (Continued)

            1) 5,165,580  Shares  of Common  Stock  which  may be  offered  upon
               conversion  of  the  outstanding   516,558  shares  of  Series  A
               Preferred Stock (a current conversion rate of 10 shares of Common
               Stock for each  Series A Preferred  share) plus 26,961  shares of
               Common Stock issued as the December 1, 2004 dividend and up to an
               additional 765,455 shares of Common Stock, which may be issued as
               subsequent  dividends  or  pursuant  to the  conversion  rate  on
               outstanding shares of Series A Preferred Stock;

            2) 2,582,790  shares  of Common  Stock  which  may be  offered  upon
               exercise of Common Stock Purchase  Warrants expiring December 31,
               2005 issued in a private placement by the Company.

            3) 3,077,721  shares  of Common  Stock  which  may be  offered  upon
               exercise of Common Stock Purchase  Warrants expiring December 27,
               2009 issued in the foregoing private placement;

            4) 1,362,200  shares of Common Stock which have been  acquired  from
               Dr. Atul Mehta and his family by the stockholders.

            5) 670,000  shares of  Common  Stock  which  may be  issued  upon an
               exercise  of  outstanding  options  held by Dr.  Mehta and 50,000
               shares of Common  Stock  which may be  issued  upon  exercise  of
               Common Stock Purchase Warrants held by Mr. Jason Lyons;

            6) 26,500  outstanding  shares of Common Stock which had been issued
               to CEOcast, Inc.



                                      F-29
<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003


NOTE 10 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

          PREFERRED STOCK

          As further  discussed  in Note 7, on October 16, 2000,  Elite  entered
          into  an  agreement   (the  "Joint  Venture   Agreement")   with  Elan
          International  Services,  Ltd. and Elan  Corporation,  plc.  (together
          "Elan"),  under  which  the  parties  formed  a joint  venture,  Elite
          Research,   Ltd.  ("ERL").  Under  the  terms  of  the  Joint  Venture
          Agreement,  409,165  shares of the  Company's  Common Stock and 12,015
          shares of a newly created Series A Convertible  Exchangeable Preferred
          Stock   ("Series  A  Preferred   Stock")   were  issued  to  Elan  for
          consideration  of $5,000,000 and $12,015,000,  respectively.  Proceeds
          from the sale of the  Series A  Preferred  Stock were used to fund the
          Company's 80.1% share of ERL, as further discussed in Note 7.

          The  Series A  Preferred  Stock  accrued a  dividend  of 7% per annum,
          compounded annually and payable in shares of Series A Preferred Stock.
          Dividends  accrued and  compounded  annually  beginning on October 16,
          2001.  As of  September  30, 2002 (the  termination  date of the Joint
          Venture),  dividends of $1,740,973 on the Series A Preferred Stock had
          accrued.  During the year ended March 31,  2003,  the  Company  issued
          Series A Preferred Stock to satisfy the accrued dividends.

          On October 17, 2000, the Company authorized  7,250,000 shares of newly
          created Series B Preferred Stock of which 4,806,000 was designated for
          issuance to Elan for a total consideration of $4,806,000. These shares
          were issuable from time to time to fund the Company's 80.1% portion of
          capital  contributions  to ERL and for  funding  of the  research  and
          development activities for ERL.

          The Series B Preferred Stock accrued  dividends of 7% per annum of the
          original  issue  price,  compounded  on each  succeeding  twelve month
          anniversary  of the first  issuance and payable solely by the issuance
          of additional shares of Series B Preferred Stock, at a price per share
          equal  to  the  original  issue  price.  Dividends  were  accrued  and
          compounded  commencing  one year after  issuance.  As of September 30,
          2002 (the termination date of the joint venture), dividends of $14,000
          on the Series B  Preferred  Stock had  accrued.  During the year ended
          March 31, 2003, the Company issued Series B Preferred Stock to satisfy
          accrued dividends.

          During the fiscal year ended March 31, 2003,  the Company made capital
          contributions  to ERL in the amount of $573,000.  These  contributions
          were  financed by the  proceeds  from the  issuance to Elan of 573,000
          shares  of  Series B  Preferred  Stock.  These  contributions  were in
          addition to a capital  contribution  in the amount of $200,000 made by
          the Company to ERL during the fiscal year ended March 31, 2002.

          JOINT-VENTURE TERMINATION

          In addition to the issuance of shares as described  above,  on October
          17, 2000 the Company  issued to Elan 100,000  warrants to purchase the
          Company's  Common  Stock at an  exercise  price of $18 per share.  The
          warrants are  exercisable  at any time on or before  October 17, 2005.
          Subject to a Termination  Agreement between the Company and Elan dated
          September 30, 2002, the Company acquired Elan's 19.9% interest in ERL,
          and Elan  transferred  its warrants and its 12,015  shares of Series A
          Preferred Stock to a third party along with accrued dividends of 1,741
          shares. On November 6, 2002, under a transfer and assignment among the
          Company, Elan and a third party purchaser, all 13,756 shares of Series
          A Preferred Stock have been converted,  according to their terms, into
          764,221  shares of the Company's  Common Stock using the $18 per share
          price.


                                      F-30
<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003


NOTE 10 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

          JOINT-VENTURE TERMINATION (CONTINUED)

          Elan retained 409,165 shares of the Company's Common Stock and 773,000
          shares of Series B Preferred  Stock, the latter of which was converted
          into 52,089 shares of the Company's Common Stock. Both of the Series A
          and Series B Preferred Stock were converted into the Company's  Common
          Stock in accordance with their terms. The warrants remain  unexercised
          at March 31, 2004 and 2005.

          For the period of one year after the  issuance of the above  shares of
          Common  Stock,  Elan and the third party  purchaser  have the right to
          require  registration  under the  Securities  Act of 1933,  as amended
          ("the  Securities  Act")  of all or  part  of  these  securities.  All
          registration expenses would be borne by the requesting party. Elan and
          the  third  party   purchaser   also  have  the  right  to   piggyback
          registration if at any time the Company proposes to register shares of
          its Common Stock under the Securities Act.

                                        WARRANTS

          To date,  the  Company has  authorized  the  issuance of Common  Stock
          purchase  warrants,  with  terms  of five  to six  years,  to  various
          corporations  and   individuals,   in  connection  with  the  sale  of
          securities, loan agreements and consulting agreements. Exercise prices
          range from $2.00 to $18.00 per warrant. The warrants expire at various
          times through November 30, 2005.

          A summary of warrant  activity  for the fiscal years  indicated  below
          were as follows:
<TABLE>
<CAPTION>
                                                                       2005                2004              2003
                                                                       ----                ----              ----
<S>                                                                 <C>                 <C>               <C>
          Beginning balance                                         2,654,239             733,752         2,669,477
          Warrants issued                                             200,000             200,000               ---
          Warrants issued pursuant to Placement Agent
                    Agreement                                         519,931              50,000             8,136
          Warrants issued pursuant to Private Placement             5,165,580                  --               ---
          Placement Agent Warrants Exercised                           (7,500)                 --         (158,652)
          Class C Warrants                                                 --           1,723,237               ---
          Warrants exercised or expired                              (496,375)            (52,750)       (1,829,957)
                                                                    ---------           ---------        ----------

          Ending balance                                            8,035,875           2,654,239           733,752
                                                                    =========           =========        ==========
</TABLE>

          CLASS A WARRANT EXCHANGE OFFER

          On October 23, 2002, the Company  entered into a Settlement  Agreement
          with  various  parties  in order  to end a  Consent  Solicitation  and
          various litigation  initiated by the Company.  The Agreement provided,
          among other  things,  an agreement to commence an exchange  offer (the
          "Exchange  Offer")  whereby  holders of the Company's Class A Warrants
          which  expired  on  November  30,  2002 (the "Old  Warrants")  had the
          opportunity  to exchange  those  warrants for new  warrants  (The "New
          Warrants")  upon  payment to the  Company of $0.10 per share of Common
          Stock  issuable  upon the exercise of the old  warrants.  In September
          2003 the  Company  issued New  Warrants  to the  record  holders as of
          November  30,  2002 of the Old  Warrants  without  requiring  any cash
          payment.


                                      F-31
<PAGE>

                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003


NOTE 10 - STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

          CLASS A WARRANT EXCHANGE OFFER (CONTINUED)

          Each New  Warrant  is  exercisable  for the same  number  of shares of
          Common  Stock as the Old  Warrants at an  exercise  price of $5.00 per
          share,  and expires on November  30,  2005.  The New  Warrants are not
          transferable except pursuant to operation of law.

          During the year ending March 31, 2003, the Company  expensed  $242,338
          relating to the Exchange Offer, which represents the fair value of the
          New  Warrants.  The per  share  weighted-average  fair  value  of each
          warrant on the date of grant was $1.10 using the Black-Scholes  option
          pricing  model with the  following  weighted-average  assumptions:  no
          dividend yield; expected volatility of 73.77%; risk-free interest rate
          of 2.88%;  and expected lives of 3 years. The elimination of the $0.10
          per share fee resulted in an additional  charge of $172,324 during the
          year ended March 31, 2004.

          For the year ended March 31, 2003 the Company  incurred legal fees and
          other costs amounting to  approximately  $100,000,  in connection with
          the  Exchange  Offer,  which has been  charged to  additional  paid-in
          capital.

          CLASS B WARRANTS

          In September  2003,  the Company  amended the  expiration  date of the
          Class B Warrants to November 30, 2005.

NOTE 11 - STOCK OPTION PLANS

          Under various plans,  the Company may grant stock options to officers,
          selected  employees,  as well as members of the board of directors and
          advisory board  members.  All options have generally been granted at a
          price equal to or greater than the fair market value of the  Company's
          Common Stock at the date of grant. Generally, options are granted with
          a vesting  period of up to three  years and  expire ten years from the
          date of  grant.  Transactions  under  the  various  stock  option  and
          incentive plans for the years indicated were as follows:

<TABLE>
<CAPTION>


                                    2005                              2004                                  2003
                                          AVERAGE                              AVERAGE                              AVERAGE
                                          WEIGHTED                             WEIGHTED                             WEIGHTED
                                          EXERCISE                             EXERCISE                             EXERCISE
                          OPTIONS          PRICE            OPTIONS             PRICE             OPTIONS            PRICE
                          -------          -----            -------             -----             -------            -----

<S>                      <C>              <C>              <C>               <C>                 <C>               <C>
Outstanding at
beginning of year

                         2,417,050        $   3.70         2,266,850         $      5.74         2,056,850         $   5.82
Granted                    120,000            2.34         1,024,000                2.23           210,000             5.00
Exercised                 (100,000)           1.00           (15,000)               2.00                --               --
Expired                   (160,000)           7.13          (858,800)               7.38                --               --
                         ---------        --------         ---------         -----------         ---------         --------
Outstanding at
end of year              2,277,050        $   2.16         2,417,050         $      3.70         2,266,850         $   5.74
                         =========        ========         =========         ===========         =========         ========

</TABLE>

                                      F-32
<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003



NOTE 11 - STOCK OPTION PLANS (CONTINUED)

          The  following  table  summarizes   information  about  stock  options
          outstanding at March 31, 2005:
<TABLE>
<CAPTION>

                                                   WEIGHTED AVERAGE        WEIGHTED-                        WEIGHTED
                                                       REMAINING            AVERAGE                         AVERAGE
              RANGE OF             OPTIONS           CONTRACTUAL           EXERCISE         OPTIONS        EXERCISABLE
           EXERCISE PRICE        OUTSTANDING         LIFE (YEARS)            PRICE        EXERCISABLE         PRICE
           --------------        -----------         ------------            -----        -----------         -----
<S>                                 <C>                <C>                 <C>            <C>                <C>
              $1.00 -- $2.00          403,750           0.45               $  1.88          403,750           $ 1.88

              $2.01 - $4.00         1,873,000           5.24                  2.22        1,344,300             2.23
              -------------         ---------          -----               -------        ---------           ------

              $1.00 -  4.00         2,277,050          $4.39                $ 2.16        1,748,050           $ 2.14
              -------------         ---------          -----               -------        ---------           ------
</TABLE>

          The per  share  weighted-average  fair  value of each  option  granted
          during  fiscal 2005,  2004 and 2003 ranged from $1.91,  $1.03 to $2.68
          and $1.28, respectively,  on the date of grant using the Black-Scholes
          options pricing model with the following weighted-average assumptions;
          no dividend yield;  expected volatility ranging from 76.69%, 75.47% to
          77.97% and 75.40%, for fiscal years 2005, 2004 and 2003, respectively;
          risk-free  interest rate of 4.0% in 2005,  4.0% in 2004,  4.0% in 2003
          and expected lives ranging from five to ten years.

          There are 1,722,950 options available for future grant under our Stock
          Option Plan.

NOTE 12 - MAJOR CUSTOMERS

          For the years ended March 31,  revenues  from major  customers  are as
          follows:

                                              2005           2004          2003
                                              ----           ----          ----

              Customer A                        --             --         29.79%
              Customer B                        --             --         56.32%
              Customer C                     49.80%         40.70%        13.49%
              Customer D                        --          59.30%           --
              Customer E                     49.80%            --            --

          Customer A represents ERL, a  joint-venture  until September 30, 2002,
          when it became a  wholly-owned  subsidiary of the Company,  as further
          discussed in Note 7. Revenues after September 30, 2002, are eliminated
          in consolidation.


                                      F-33
<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2005, 2004 AND 2003


NOTE 13 - SUBSEQUENT EVENTS

          The Board of Directors in January 2005 adopted,  and the  stockholders
          of the  Company  approved  on April  15,  2005,  an  amendment  to the
          Company's  Stock  Option Plan ("the  Plan") to increase  the number of
          shares  subject to the Plan from  1,500,000 to 4,000,000  shares.  The
          Plan authorizes the grant of options to employees and directors of the
          Company or its  subsidiaries  and  individuals  performing  consulting
          services to the Company or a subsidiary.

          On May 26, 2005,  the Company  announced that the FDA has approved the
          Company's investigational new drug ("IND") application for its abuse -
          resistant technology ("ART (TM)"),  incorporating an opioid antagonist
          designed  to  discourage  and  reduce  abuse  of  narcotic   analgesic
          medications  by  making  the  product  more  difficult  to abuse  when
          crushed, damaged or otherwise manipulated.

          Elite's ART(TM) can be applied not only to the $2 billion  addressable
          market  of  oxycodone,   but  also  to  many  other  opiods,   thereby
          potentially  addressing a greater  overall  market.  The technology is
          protected by a patent pending.

          On May 18, 2005,  proceeds of $40,000 were  received from the exercise
          of stock  options  previously  granted to  purchase  20,000  shares of
          Common Stock at $2.00 per share.

          On May 24, 2005 proceeds of $156,503 were received and 101,625  shares
          of Common  Stock were  issued from the  exercise of 101,625  Long-Term
          Warrants  granted  at an  exercise  price  of  $1.54,  as  part of the
          Company's private placement in October, 2004.

          On April 22, 2005, the Company  retained the  investment  banking firm
          Ryan Beck & Co.,  as its  placement  agent  with  respect  to  Elite's
          refinancing of the 1999 A tax exempt bond issuance with the New Jersey
          Economic Development Authority ("NJEDA").

          The Company  intends to refund and  refinance its current bonds in the
          aggregate  amount of  approximately  $4,200,000 and intends to use net
          proceeds,  after refunding and issuance  costs, to purchase  machinery
          and equipment needed to expand its manufacturing  facility.  Under the
          terms of the  agreement  with  the  Placement  Agent,  it is on a best
          efforts basis, to undertake to structure and place a new bond with the
          NJEDA.

          The Placement Agent's fee for these services will be $30 per $1,000 of
          principal   amount  of  refunding  bonds  issued,   payable  upon  the
          successful  closing of the  refunding  bond  issue.  Furthermore,  the
          Placement Agent will pay the fees and expenses of any counsel retained
          by it.

          There can be no  assurance  that Elite will be  successful  in closing
          this bond refunding program.

          On June 21,  2005,  the  Company and Intelli  PharmaCeutics  Corp.,  a
          specialty  pharmaceutical  company,  entered into an agreement for the
          development and  commercialization  of a controlled  released  generic
          drug by the parties.  The Company is to share in the  profits,  if any
          from the sales of the drug.

          On June 22, 2005, the Company and Pliva,  Inc.  entered into a Product
          Development  and License  Agreement.  The  agreement  provides for the
          development  and  license  of  a  controlled   released


                                      F-34
<PAGE>

          generic drug  formulated by the Company.  Under the  agreement,  Pliva
          will make upfront and milestone  payments to the Company.  The Company
          will  manufacture  the  product  and Pliva  will  market  and sell the
          product.  The development  costs will be paid by Pliva and the Company
          and the profits will be shared equally.


                                      F-36