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, 2006

                                       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                           (IRS Employer
         of incorporation)                             Identification No.)

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

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

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

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

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act. Yes [ ]     No [X]

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or 15(d) of the Act. Yes [ ]     No [X]

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


<PAGE>


period  that  registrant  was  required to file such  reports)  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 a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
file and larger accelerated filer" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]   Accelerated filer [ ]   Non-accelerated filer [X]

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

The aggregate market value of the voting common equity held by non-affiliates of
the registrant as of June 26, 2006 was approximately  $27,141,156 based upon the
closing price of the  registrant's  Common Stock on the American Stock Exchange,
as of June 26, 2006. (For purposes of determining  this amount,  only directors,
executive officers, and, based on Schedule 13(d) filings as of June 10, 2006 10%
or  greater  stockholders  and their  respective  affiliates  have  been  deemed
affiliates).

Registrant  had  19,202,598  shares of common stock,  par value $0.01 per share,
outstanding as of June 15, 2006.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K  (e.g.,  Part I, Part II,  etc.)  into  which the  document  is
incorporated:  (1) Any  annual  report  to  security  holders;  (2) Any proxy or
information  statement;  and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the  Securities Act of 1933.  The listed  documents  should be clearly
described for identification  purposes (e.g.,  annual report to security holders
for fiscal year ended December 24, 1980). N/A

                                       ii


<PAGE>


                           FORWARD LOOKING STATEMENTS

THIS ANNUAL REPORT ON FORM 10-K AND THE DOCUMENTS  INCORPORATED  HEREIN  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.

ANY REFERENCE TO "ELITE",  THE "COMPANY","  WE", "US", "OUR" OR THE "REGISTRANT"
MEANS ELITE PHARMACEUTICALS INC. AND ITS SUBSIDIARIES.

                                      iii


<PAGE>


                                TABLE OF CONTENTS

                                 Form 10-K Index
<TABLE>
<CAPTION>

                                                                                                         PAGE

                                                  PART  I

<S>           <C>                                                                                        <C>
Item 1.       Business.....................................................................................1
Item 1A.      Risk Factors................................................................................11
Item 1B.      Unresolved Staff Comments...................................................................18
Item 2.       Properties..................................................................................19
Item 3.       Legal Proceedings...........................................................................19
Item 4.       Submission of Matters to a Vote of Security Holders.........................................19

                                                 PART  II

Item 5.       Market for Company's Common Equity and Related Stockholder Matters..........................20
Item 6.       Selected Financial Data.....................................................................22
Item 7.       Management's Discussion and Analysis of Financial Condition and Results of Operation........23
Item 7A.      Quantitative and Qualitative Disclosures About Market Risk..................................28
Item 8.       Financial Statements and Supplementary Data.................................................28
Item 9.       Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........29
Item 9A.      Controls and Procedures.....................................................................29
Item 9B.      Other Information...........................................................................29

                                                 PART  III

Item 10.      Directors and Executive Officers of the Company.............................................30
Item 11.      Executive Compensation........................................................................
Item 12.      Security Ownership of Certain Beneficial Owners and Management and Related
              Stockholder Matters.........................................................................40
Item 13.      Certain Relationships and Related Transactions..............................................41
Item 14.      Principal Accounting Fees and Services......................................................41

                                                 PART  IV

Item 15.      Exhibits, Financial Statements and Schedules................................................42
Signatures    ............................................................................................48
Consolidated Financial Statements........................................................................F-1
</TABLE>

                                       iv


<PAGE>


                                     PART I

ITEM 1.  BUSINESS

GENERAL

         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 Pennsylvania corporation. 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.

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 in the allergy therapeutic area currently being sold commercially by our
marketing  partner,  ECR  Pharmaceuticals.  Elite also has a  pipeline  of eight
additional drug products under development in the therapeutic areas that include
pain management, allergy, cardiovascular,  and infection. The addressable market
for Elite's  pipeline of products  exceeds $6 billion in the aggregate.


<PAGE>


Elite's  current  facility  in  Northvale,  New  Jersey is a Good  Manufacturing
Practice  (GMP) and DEA  registered  facility  for  research,  development,  and
manufacturing.

STRATEGY

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

         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 an Patent Term Restoration Act of 1984 (the "Drug Price Act").

         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 $4,343,980 in the fiscal year ended March
31, 2006,  $2,698,641 in the fiscal year ended March 31, 2005 and  $2,075,074 in
the fiscal year ended March 31, 2004 on research and development activities.

         Of our eight controlled  release products in the pipeline,  two are for
pain  (ELI  216 is an  abuse  resistant  oxycodone  and ELI 154 is a once  daily
oxycodone),  one is for an  allergy  indication  (we  already  have one  allergy
product  on  the  market),   two  (doxycycline  and   nitrofurantoin)   are  for
anti-infective indications, one is for gastrointestinal disorders, one is for an
undisclosed indication and one (diltiazem) is for cardiovascular indications.

         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.

                                       2


<PAGE>


         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.
<TABLE>
<CAPTION>

          PRODUCT           BRANDED     APPROX. U.S. SALES      NDA/             PARTNER            INDICATION
                           PRODUCT(a)    FOR BRAND AND/OR       ANDA
                                         GENERIC PRODUCTS
                                              (2005)
                                              $MM(b)

   <S>                   <C>                  <C>            <C>          <C>                    <C>
   ELI 154                 OxyContin(R)       $2,000             NDA              None           Pain Management
   Once Daily Oxycodone
                         twice a day(c)
   ELI 216                   N/A(f)           N/A(f)             NDA              None           Pain Management
   Twice daily
   oxycodone with abuse
   resistant technology
   (ART(TM))

   Undisclosed product       N/A(f)           N/A(f)         Undisclosed   ECR Pharmaceuticals       Allergy
   with partner                                                              (Richmond, VA)

   Nitrofurantoin          Macrobid(R)          $48             ANDA      Pliva US, Inc. (East      Infection
                                                                              Hanover, NJ)

   Undisclosed            Undisclosed          $100             ANDA       Orit Laboratories,      Undisclosed
                                                                                Inc.(e).
                                                                           (East Hanover, NJ)

   Lansoprazole            Prevacid(R)        $3,800            ANDA       IntelliPharmacutics   Gastrointestinal
                                                                            (Toronto, Canada)      disorders(d)

   Diltiazem              Cardizem CD(R)       $230             ANDA              None            Cardiovascular
   Once a day

   Doxycycline               Doryx(R)          $110             ANDA       Tish Technologies,       Infection
                                                                          Inc.(e) East Hanover,
                                                                                   NJ)
                                                                               and Harris
                                                                          Pharmaceuticals (Ft.
                                                                               Meyers, FL)
</TABLE>

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

(b)      Indicates the approximate  amount of sales of our competitor's  product
         and any generics (if there are any).  It is 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.

(d)      This  includes an agreement  that grants to Elite a percent of payments
         paid to its Canadian  partner for commercial  sale of a generic of this
         product.

(e)      Orit  Laboratories  and Tish  Technologies are affiliates

(f)      N/A means not  applicable  because  there is no branded  product on the
         market

                                       3


<PAGE>


         The table below presents information with respect to the development of
eight 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.

         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                      2                        ANDA
       Pilot Phase I study                  2                         NDA
    Pilot bioequivalence study              3                        ANDA
            Pre-Launch                      1                         (1)

         ----------------
         (1)      The partner is handling the FDA and other  regulatory  filings
                  in  connection  with the  product.  Elite is working  with its
                  partner  and is  targeting  to launch  this  product  prior to
                  December 31, 2006 before the end of this calendar year.

COMMERCIAL PRODUCT

         Elite  manufactures a once daily allergy product,  Lodrane 24(R),  that
was co-developed  with our partner,  ECR  Pharmaceuticals.  The product is being
marketed by ECR which also has the  responsibility  for regulatory  matters.  In
addition to  receiving  revenues  for  manufacture  of the  product,  Elite also
receives a royalty on in-market sales.

MANUFACTURING, CO-DEVELOPMENT AND LICENSE AGREEMENTS

         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  and for the year  ended  March 31,  2006  aggregated
$550,697.  The payments under the foregoing  agreements for the year ended March
31, 2004 were not material.  Development of the second product  continues and is
targeted for launch before December 31, 2006.

                                       4


<PAGE>


         On March 30, 2005,  we entered into a three party  agreement  with Tish
Technologies,   Inc.  and  Harris  Pharmaceuticals,   Inc.  ("Harris")  for  the
co-development  and license of a  controlled  release  product that is a generic
equivalent of a commercial  product sold as Doryx(R).  Upon its  development and
the  securing  of the  required  FDA  approval  by the  formulation  development
company, Elite is 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. On
June 19,  2006,  we received  written  notice  from Harris of Harris'  intent to
terminate the agreement in accordance  with Section 9.3 of the agreement.  Elite
is in  discussions  to  continue  the  development  of this  product  with  Tish
Technologies  with the  intent  to  license  the  product  to a third  party for
distribution.  As the date hereof,  there have been no material  revenues earned
under the Agreement.

         On  June  21,  2005,  Elite  entered  into a  product  development  and
commercialization agreement with IntelliPharmaCeutics Corp. ("IPC"), a privately
held, specialty pharmaceutical Canadian company that develops generic controlled
release drug  products.  It is affiliated  with  IntelliPharmaCeutics,  Ltd. The
agreement provides for the co-development and  commercialization of a controlled
released product that is the generic  equivalent of a commercial product sold as
Prevacid(R). IntelliPharmaCeutics has taken a formulation for the product into a
pilot bioequivalence biostudy. Elite with IntelliPharmaCeutics  intends to scale
up the  product,  complete  additional  biostudies  and secure the  required FDA
approval for commercialization of the product. Upon commercialization,  Elite is
to share the profits, if any, realized upon sales.

         On June 22, 2005, Elite entered into a Product  Development and License
Agreement with Pliva,  Inc.,  providing,  for the  development  and license of a
controlled released product that is a generic equivalent to a commercial product
sold as Macrobid(R). Under the agreement, Pliva is to make upfront and milestone
payments in the aggregate of $550,000 to the Elite.  We are to  manufacture  and
Pliva is to market and sell the product.  The development  costs will be paid by
Pliva and Elite and the profits will be shared equally.

         On December  12,  2005,  Elite and IPC  amended  their  obligations  to
suspend  their   obligations  under  the  IPC  Agreement  with  respect  to  the
development  and  commercialization  of the  controlled  release drug product in
Canada.  IPC, in turn,  entered into an agreement  with  ratiopharm,  a Canadian
company, for the development and commercialization for the product in Canada and
will pay Elite a certain percentage of any payments received by IPC with respect
to the commercial sale of this product by ratiopharm in Canada.

         On  January  10,  2006,  Elite  entered  into an  agreement  with  Orit
Laboratories LLC, an affiliate of Tish  Technologies  LLC,  providing that Elite
and Orit will co-develop and  commercialize an extended release drug product for
treatment of anxiety,  and, upon completion of  development,  may license it for
manufacture  and sale.  The parties  intend to develop all dose strengths of the
product. Elite is to share in the profits, if any from the sales of the drug.

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.

                                       5


<PAGE>


         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 also performed work on a second,  related  product in
the central nervous system  therapeutic  area and initial  formulation work on a
third  product  combining  Oxycodone  with a  narcotic  antagonist.  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 upon
termination  of the joint  venture  converted  into  764,221  shares  and 52,089
shares, respectively, of our Common Stock. We did not pay, nor did Elan receive,
any cash consideration under the Termination Agreement.

PATENTS

         Since our  incorporation,  we have secured six United States patents of
which two have been  assigned for a fee to another  pharmaceutical  company.  In
addition,  we have pending  applications  for two United States patents and four
foreign patents.

         The pending  patent  applications  relate to two  different  controlled
release  pharmaceutical  products on which we are working.  One is a U.S. patent
for an opioid agonist and  antagonist  product that we are developing to be used
with oxycodone and other opioids to minimize the abuse potential for theopioids.
A second is a U.S.  patent for  formulation  of oral sustained  release  opioids
intended to improve the delivery of the opioids.  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.

                                       6


<PAGE>


         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.

TRADEMARKS

         We have  received  Notices  of  Allowance  from  the  U.S.  Patent  and
Trademark Office granting trademark protection for one trademark. 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
additional 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,

                                       7


<PAGE>


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  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

                                       8


<PAGE>


statutes.  As we  manufacture  such  products,  we  may  become  subject  to the
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-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

                                       9


<PAGE>


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 or
material revenue.

EMPLOYEES

         As of June 15,  2006,  we had 26 full-time  employees  and no part-time
employees.  Full-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.

                                       10


<PAGE>


ITEM 1A.          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  the  Company  and in  analyzing  the  Company's  forward-looking
statements.

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
insignificant  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.

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 $6,883,914, $5,906,890, $6,514,217, $4,061,422, and $1,774,527 for the
years ended March

                                       11


<PAGE>


31,  2006,  2005,  2004,  2003 and 2002,  respectively.  We  expect  to  realize
significant  losses for the current year of  operation  and to continue to incur
losses  until  we are  able to  generate  sufficient  revenues  to  support  our
operations and offset operating costs.

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, 2006, we have entered into  agreements  with respect to
the marketing upon  development of four drugs.  Each agreement  provides that we
are to commercially  develop or co-develop the product with the partner and upon
securing  by a partner or  partners  having  FDA  approval  or other  regulatory
approval,  if  required,  we are to  manufacture  the  product  and sell it to a
partner or marketing partner for distribution. The commercial development of one
of the four drugs has been  completed.  No assurance can be given that sales, if
any, by any marketing partner will result in profit for Elite from the product.

         We have also entered  into two  additional  co-development  agreements.
These products are currently in  development.  No assurance can be given that we
will be successful in developing  these  products,  and, if successful,  that an
agreement  can be reached with a marketing  partner for the sale of the products
or that any sales of the products will result in profit for Elite.

         We are also developing three additional products on our own. Two are in
pilot Phase I studies and one is 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  products  to be  commercialized,  the FDA
requires  successful  completion  of  pivotal  biostudies  to file  an ANDA  and
successful  completion of pivotal  clinical  trials before filing a NDA. The FDA
next  requires  successful  completion  of  comparative  studies for drug listed
products.  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 being developed and are available for
partnering,   we  intend  to  pursue   product-specific   licensing,   marketing
agreements,  co-development  opportunities and other partnering  arrangements in
connection with the products.  We have entered into partnership  arrangements as
to six  products  but no  assurance  can be given that we will be able to locate
partners for our other products or that any  arrangement is or 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

                                       12


<PAGE>


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  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;

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<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 THE  COMPANY  IS  UNABLE  TO  OBTAIN  ADDITIONAL  FINANCING  NEEDED  FOR  THE
EXPENDITURES  FOR THE  DEVELOPMENT AND  COMMERCIALIZATION  OF THE COMPANY'S DRUG
PRODUCTS, IT WOULD IMPAIR THE COMPANY'S ABILITY TO CONTINUE TO MEET ITS BUSINESS
OBJECTIVES.

            On March 15, 2006, the Company  completed a private  placement,  for
aggregate  gross  proceeds  of  $10,000,000,  of 10,000  shares of its  Series B
Preferred Stock  convertible into 4,444,444 shares of Common Stock and five year
warrants to purchase an aggregate of 2,222,222  shares of Common  Stock.  50% of
such warrants have an exercise  price of $2.75 and 50% have an exercise price of
$3.25. Additionally, the placement agent received five year warrants to purchase
355,555 shares of Common Stock with an exercise price of $2.25.

            As of March  31,  2006,  the  Company  had  aggregate  cash and cash
equivalents  of  approximately  $9,000,000,  which the  Company  anticipates  is
adequate to finance its operations through the next 12 to 18 months. Thereafter,
the Company will require additional financing to insure that the Company will be
able to meet the  expenditures  to develop and  commercialize  its  products for
which  requirement  the  Company  has no current  arrangements.  Other  possible
sources  of the  required  financing  are the cash  exercise  of the  Long  Term
Warrants issued in the October 2004 private placement,  the Replacement Warrants
issued in the December  2005 private  placement  and other  warrants and options
that are currently  outstanding.  No representation can be made that the Company
will  be  able to  obtain  additional  financing  or if  obtained  it will be on
favorable  terms,  or at all.  No  assurance  can be given that any  offering if
undertaken will be successfully concluded or that if concluded the proceeds will
be material.  The Company's inability to obtain additional financing when needed
would impair its ability to continue its business.

         Any  further  sale  of  the  Company's   equity  could  result  in  the
substantial dilution of the Company's then-existing stockholders' equity. On the
other hand, if the Company  incurred debt, the Company 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 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 revenues,  principally
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

                                       14


<PAGE>


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  licenses  or rights,  we
will  need to  establish  whether  we will be able to obtain  them 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  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 eight 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.

                                       15


<PAGE>


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.

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, 2006.

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, 2006,  the closing sale price on the American  Stock Exchange of
our Common Stock fluctuated from a high of $4.42 per share to a low of $1.68 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;

                                       16


<PAGE>


         o        Governmental regulation;

         o        Patent or proprietary rights developments;

         o        Proxy contests or litigation;

         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.

As of this date sales of  substantial  amounts of the Common Stock in the public
market  are  eligible  for  sale by  these  holders  pursuant  to  exemption  or
registration  under the Securities Act.  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.

         On January 4, 2006,  the Company  received a letter  from the  American
Stock  Exchange  ("AMEX")  notifying it that,  based on the Company's  unaudited
financial  statements as of September 30, 2005, the Company is not in compliance
with the continued listing standards set forth in the AMEX Company Guide in that
under one listing standard its shareholders'  equity is less than $4,000,000 and
it had losses from continuing  operations and/or net losses in three of its four
most recent fiscal years and under another  listing  standard its  shareholders'
equity is less than  $6,000,000  and it had losses  from  continuing  operations
and/or net losses in its five most recent  fiscal  years.  The  Company,  at the
request of AMEX,  submitted a plan on February 3, 2006  advising AMEX of action,
it has  taken,  and will  take,  to bring it in  compliance  with the  continued
listing  standards  within a maximum of 18 months from January 4, 2006. On March
15, 2006,  the Company  completed a private  placement of its Series B Preferred
Stock and warrants to purchase Common Stock. The Company received $10,000,000 in
gross  proceeds  from the  private  placement.  On March 21,  2006,  the Company
submitted an update to the plan it had previously submitted on February 6, 2006.
Upon notice of the recent  private  placement and the  acceptance of the updated
plan,  AMEX provided the Company with an extension  until July 3, 2007 to regain
compliance with the continued listing standards.  AMEX will allow the Company to
maintain its AMEX listing through the plan period, subject to periodic review of
the  Company's  progress by the AMEX staff.  If the Company is not in compliance
with the continued listing  standards or does not make progress  consistent with
such plan during the plan period, AMEX may then initiate delisting  proceedings.
The failure to maintain listing of the Common Stock on AMEX will have an adverse
effect on the market and the market price for the Common Stock.

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

                                       17


<PAGE>


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;

         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 1B.          UNRESOLVED STAFF COMMENTS.

Not applicable.

                                       18


<PAGE>


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 contains certain
customary  provisions  including,  without  limitation,  the  right  of NJEDA to
foreclose upon a default by Elite. See "Note 6. - Long Term Debt".

         On July 15, 2005,  we entered into a lease for two years  commencing on
July 1, 2005 for a portion of a one-story  warehouse for the storage of finished
and raw material of pharmaceutical products and equipment.

         We are currently  using our facilities as a laboratory,  manufacturing,
storage 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  the  Company  may be  subject to
litigation  from time to time.  There is no past,  pending or, to the  Company's
knowledge,  threatened litigation or administrative action (including litigation
or action  involving the Company's  officers,  directors or other key personnel)
which in the  Company's  opinion has or is expected to have, a material  adverse
effect upon its business, prospects financial condition or operations.

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

         No matters  were  submitted  to a vote of security  holders  during the
three months ended March 31, 2006.

                                       19


<PAGE>


                                     PART II

ITEM 5.           MARKET FOR COMPANY'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, 2006:
March 31, 2006.......................................$2.49       $1.85
December 31, 2005....................................$3.02       $1.69
September 30, 2005...................................$3.05       $2.62
June 30, 2005 .......................................$4.42       $2.67

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

         On June 20, 2006, the last reported sale price of our Common Stock,  as
reported by the American Stock Exchange, was $2.00 per share.

         As of June 20,  2006,  there were  approximately  109 holders of record
and, we believe,  approximately  2114 beneficial  owners of our Common Stock. We
are informed and believe  that as of June 20, 2006,  Cede & Co. held  17,482,412
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 common stock.  We paid on May
1, 2006 a dividend in the aggregate principal amount of $33,333.33 on our Series
B Convertible  Preferred Stock. We currently  anticipate that we will retain all
available funds for use in the operation and expansion of our business.

         Please  see our  Quarterly  Reports  on Form 10-Q for the  three  month
periods  ending June 30, 2005,  September 30, 2005 and December 31, 2005 and our
Current Reports on Form 8-K dated September 2, 2005, December 14, 2005, December
31,  2005 and  March  15,  2006 for  information  concerning  our  issuances  of
unregistered securities during the 12 months ended March 31, 2006.

                                       20


<PAGE>


EQUITY COMPENSATION PLAN INFORMATION

          As of March 31,  2006,  we had  authorized  the  issuance of 4,000,000
shares of Common  Stock upon  exercise of options  pursuant to our Stock  Option
Plan (the "Plan")  approved by our  stockholders on June 22, 2004 and amended by
our  stockholders on June 28, 2006 to increase to 7,000,000 the number of shares
subject to the Plan.  As of March 31, 2006,  there was an aggregate of 2,397,500
shares of Common Stock issuable upon exercise of  outstanding  options under the
Plan having a weighted average  exercise price of $2.38. In addition,  there was
an aggregate of 573,750  shares of Common Stock  issuable upon exercise of other
outstanding options granted to employees and directors having a weighted average
exercise price of $2.28.

         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  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 ISOs  outstanding,  options  for 93,300  shares with an exercise
price of  $2.34  per  share  were  granted  under  the Plan 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. Such grants are deemed repricing
of the  outstanding  options and  resulted 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  exercisable at $2.34
per share 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.

         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, 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

                                       21


<PAGE>


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,  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>

                               2006             2005              2004              2003                 2002
                               ----             ----              ----              ----                 ----
<S>                        <C>              <C>               <C>               <C>                  <C>
Net revenues               $   550,697      $   301,480       $   258,250       $   630,310          $ 1,197,507

Net (loss)                 $(6,883,914)     $(5,906,890)      $(6,514,217)      $(4,061,422)         $(1,774,527)

Net (loss) per             $     (0.49)     $     (0.47)      $     (0.58)      $     (0.40)         $     (0.19)
common share

Total assets               $15,702,241      $ 9,245,292       $ 7,853,434       $ 8,696,222          $12,724,498

Long-term obligations      $ 3,980,000      $ 2,367,128       $ 2,495,000       $ 2,720,000          $ 3,788,148

Weighted average            18,463,514       12,869,924        11,168,618        10,069,991            9,561,299
number of shares
outstanding
</TABLE>

                                       22


<PAGE>


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

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 charges of $1,166,601, $370,108 and $902,967 during the

                                       23


<PAGE>


years ended March 31, 2004, 2005 and 2006, respectively. The fair value of stock
options held by employees and members of the Board of Directors  which have been
granted  subsequent  to March 31,  2003 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, 2006 VS. YEAR ENDED MARCH 31, 2005

         Our  revenues  for the year  ended  March 31,  2006 were  $550,697,  an
increase of $249,217 or  approximately  83%,  over  revenues for the  comparable
prior year,  and  consisted  of $494,231  in  manufacturing  fees and $56,466 in
royalty  fees.  Revenues  for the year  ended  March 31,  2005,  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.

         Research and development  costs for the year ended March 31, 2006, were
$4,343,890,  an increase of $1,645,249, or approximately 61%, from $2,698,641 of
such costs for the comparable period of the prior year,  primarily the result of
increased  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 developing and testing of products
currently in our pipeline.

         General and administrative  expenses (G&A) for the year ended March 31,
2006, were $1,726,626, a decrease of $433,044, or approximately 20% from G&A for
the prior year. The decrease was attributable to a decrease in litigation costs,
bad debt  expense,  auditing  and legal fees,  somewhat  offset by  increases in
salaries and staff.

         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.

         Depreciation and  amortization  increased by $130,249 from $356,438 for
the prior year to  $486,687.  The  increase  was the  result of writing  off the
balance of the prior EDA Bond Offering costs as a result of the refinancing.

                                       24


<PAGE>


         Other  income  (expenses)  for the  year  ended  March  31,  2006  were
($876,408),  a decrease of $116,213,  or approximately  12%, from ($992,621) for
the prior year due to (i) a  reduction  by  $105,923  in charges  related to the
issuances of stock options and warrants,  (ii) an increase of $13,329 in sale of
New Jersey tax losses, and (iii) additional  interest income of $50,930,  due to
higher  compensating  balances as a result of the private  placement,  partially
offset by an increase of $53,969 in interest expense  resulting from an increase
in NJEDA Bonds outstanding.

         As a result of the foregoing, the Company's net loss for the year ended
March 31, 2006 was  $6,883,914  compared to $5,906,890  for the year ended March
31, 2005.

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

         Our  revenues  for the year  ended  March 31,  2005 were  $301,480,  an
increase of $43,230 or  approximately  17%,  over  revenues of $258,250  for the
prior  year.  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 of
manufacturing fees, $24,291 of royalty fees and $1,450 of 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 (approximately 30%) from $2,075,074 of such
costs  for the  prior  year,  primarily  the  result  of  increased  wages,  raw
materials, laboratory and manufacturing supplies and consulting fees.

         General and administrative  expenses (G&A) for the year ended March 31,
2005, were $2,159,670,  a decrease of $390,176, or approximately 15% from of G&A
for the prior year,  attributable  to a decrease in litigation  costs  partially
offset 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  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 for
the year ended March 31, 2004 to $356,438 for the year ended March 31, 2005.

         Other  income  (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 (i) a reduction of $1,143,466 in charges
related  to the  issuances  of stock  options  and  warrants,  (ii) a charge  of
$172,324  in the prior  year  related  to the  warrant  exchange  offer,  offset
partially  by a charge of $397,732 in the year ended March 31, 2005  relating to
the repricing of stock options,  (iii) an increase of $54,765 in the sale of New
Jersey tax losses and (iv) the litigation settlement expense of $150,000 for the
prior year partially offset by a $16,167 increase in interest expenses.

                                       25


<PAGE>


         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.

MATERIAL CHANGES IN FINANCIAL CONDITION

         The Company's  working capital (total current assets less total current
liabilities),  increased from  $3,328,583 as of March 31, 2005, to $8,615,287 as
of March  31,  2006,  primarily  due to net  proceeds  approximating  $8,600,000
received from the sale of Series B 8% Preferred  Stock  partially  offset by the
net loss of  $5,494,300  from  operations,  exclusive  of  non-cash  charges  of
$1,389,614.

         The  Company  experienced   negative  cash  flows  from  operations  of
($4,625,549)  for the year ended March 31, 2006,  primarily due to the Company's
net loss from  operations of  $6,883,914,  less non-cash  charges of $1,389,614,
which included  $902,927 in connection  with the issuance of stock options,  and
$486,687 in depreciation and amortization expenses.

         On November 15, 2004, Elite's partner, ECR, launched LODRANE 24(R) 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(R) in exchange for manufacturing
margin and  royalties on product  revenues.  Royalty  income earned for the year
ended March 31, 2006 was  $56,466.  The Company  expects  future cash flows from
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 hopes to achieve some of
the milestones by the end of the quarter ending June 30, 2007.

         On March 30, 2005,  the Company  entered  into a product,  development,
manufacturing  and  distribution  agreement  with  Harris  Pharmaceutical,  Inc.
("Harris")  and Tish  Technologies,  LLC (Tish")  with  respect to a  controlled
release generic  anti-infective  drug. The product is a generic  equivalent to a
branded drug which the Company  estimates  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 of the product 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  sales of the
product by the marketing  company.  On June 19, 2006, we received written notice
from Harris of Harris'  intent to terminate  the  agreement in  accordance  with
Section 9.3 of the agreement. In the letter, Harris states that Tishtech did not
use  commercially  reasonable  efforts to develop the product in accordance with
the development activities set forth in the Agreement. As the date hereof, there
have been no material revenues earned under the Agreement.

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

                                       26


<PAGE>


the Company a certain  percentage  of any payments  received by IPC with respect
the  commercialization  of the controlled  release drug product by such Canadian
company.

         On June 22, 2005, the Company and Pliva, Inc.  ("Pliva") entered into a
Product  Development  and License  Agreement  providing for the  development and
license of a controlled  released generic  anti-infective drug formulated by the
Company.  The  Company  is to  manufacture  and Pliva  will  market and sell the
product.  Under the agreement,  the partner is to make milestone payments to the
Company. The development costs are to be paid both by Pliva and the Company, and
the profits are to be shared equally.

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

         In  January  2006,  the  Food  and  Drug  Administration  accepted  the
Company's  investigational - new drug application for OxyQD(TM),  its once-a-day
oxycodone painkiller. Under the new drug application, the Company will begin its
development program with an early stage study to evaluate OxyQD(TM)'s  sustained
release formation.  Currently there is no once-daily  oxycodone  available;  the
Company  estimates  that the U.S.  market  for  sustained  release,  twice-daily
oxycodone was about $2 billion as of September, 2005.

         No assurance can be given that 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, 2006, the Company  recorded  positive cash
flow and financed its  operations  through  utilization of its existing cash. In
March  2006,  the  Company  raised net cash  approximating  $8,600,000  from its
private  placement of its Series B 8% Preferred  Stock.  The  Company's  working
capital at March 31, 2006 was $8.6 million compared with working capital of $3.3
million at March 31, 2005. Cash and cash equivalents at March 31, 2006 were $8.9
million, an increase of $5.0 million from the $3.9 million at March 31, 2005.

         The Company spent approximately  $450,000 on improvements and machinery
and equipment during the year ended March 31, 2006.  Proceeds generated from the
Company's refinancing, discussed below, were used to pay for these additions.

         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.

         On August 31, 2005,  the Company  successfully  completed a refinancing
through the  issuance of the  tax-exempt  bonds (the  "Bonds") by the New Jersey
Economic Development  Authority (the "Authority").  The refinancing involved the
borrowing  of  $4,155,000,  evidenced  by a 6.5% Series A Note in the  principal
amount of $3,660,000 maturing on September 1, 2030 and a 9% Series B Note in the
principal  amount of $495,000  maturing on September 1, 2012.  The net proceeds,
after  payment  of

                                       27


<PAGE>


issuance costs,  were or will be used (i) to redeem the  outstanding  tax-exempt
Bonds  originally  issued by the Authority on September 2, 1999,  (ii) refinance
other former equipment financing and (iii) for the purchase of certain equipment
to be used in the manufacture of pharmaceutical products.

         Interest  is payable  semiannually  on March 1 and  September 1 of each
year. The Bonds are collateralized by a first lien on the Company's facility and
equipment  acquired with the proceeds of the original and refinanced  Bonds. The
related  Indenture  requires the  maintenance of a $415,500 Debt Service Reserve
Fund  consisting of $366,000  from the Series A Bonds  proceeds and $49,500 from
the Series B  proceeds.  $1,274,311  of the  proceeds  has been  deposited  in a
short-term  restricted cash account to fund the future purchase of manufacturing
equipment and development of the Company's facility.

         On  March  15,  2006,  the  Company  completed  a  $10,000,000  private
placement  of to a group of  institutional  and other  private  investors of its
Series B Preferred  Stock at a price of $1,000 per share,  each share  initially
convertible at $2.25 into 4,444,444  shares of Common Stock,  or an aggregate of
4,444,444  shares of  Common  Stock.  The  investors  received  two  classes  of
five-year  common stock  purchase  warrants.  One Class  represents the right to
purchase an aggregate of 1,111,111  shares of Common Stock at an exercise  price
of $2.75 per  share and the other  class  represents  the right to  purchase  an
aggregate of 1,111,111  shares of Common Stock at an exercise price of $3.25 per
share. The Company expects that the approximate  $8,600,000 of net proceeds will
contribute  materially  to the Company's  efforts to advance their  portfolio of
pain products  through the clinic as well as accelerate the development of other
Company controlled release products which utilize the Company's proprietary oral
drug delivery systems and abuse resistant technology.

         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.

         As  of  March  31,  2006,   our  principal   source  of  liquidity  was
approximately $8,900,000 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.

                             PAYMENTS DUE BY PERIOD
<TABLE>
<CAPTION>

Contractual Obligations      TOTAL     LESS THAN 1YEAR     1-3 YEARS      4-5 YEARS      AFTER 5 YEARS
                             -----     ---------------     ---------      ---------      -------------
<S>                       <C>             <C>               <C>            <C>            <C>
NJEDA Bonds payable       $4,155,000      $175,000          $595,000       $470,000       $2,915,000
</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.

                                       28


<PAGE>


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.

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 completed, its assessment of internal
controls over financial reporting.

ITEM 9B.          OTHER INFORMATION.

None.

                                       29


<PAGE>


                                    PART III

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

DIRECTORS AND EXECUTIVE OFFICERS

Our  directors  and  executive  officers,  as  of  March  31,  2006,  and  their
biographical information are set forth below:

---------------------- --- -----------------------------------------------------
NAME                   AGE POSITION
---------------------- --- -----------------------------------------------------
Bernard Berk           57  Chairman of the Board, Chief Executive Officer
---------------------- --- -----------------------------------------------------
Edward Neugeboren      37  Director
---------------------- --- -----------------------------------------------------
Barry Dash, PhD        74  Director
---------------------- --- -----------------------------------------------------
Dr. Melvin Van Woert   75  Director
---------------------- --- -----------------------------------------------------
Mark I. Gittelman      46  Chief Financial Officer, Secretary and Treasurer
---------------------- --- -----------------------------------------------------
Dr. Charan Behl        55  Executive Vice President and Chief Scientific Officer
---------------------- --- -----------------------------------------------------
Chris Dick             51  Executive Vice President of Corporate Development
---------------------- --- -----------------------------------------------------

         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.

         Mr.  Bernard  Berk was  appointed  the Chief  Executive  Officer of the
Company in June 2003 and a Director  in  February  2004.  Mr.  Berk has been the
President  and  Chief  Executive  Officer  of  Michael  Andrews  Corporation,  a
pharmaceutical  management  consultant  firm, since 1996. Mr. Berk was from 1994
until  1996,  President  and  Chief  Executive  Officer  of Nale  Pharmaceutical
Corporation and from 1989 until 1994, 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, an investment-banking  firm based in New York, since January 2003. From May
2001 to January  2004,  Mr.  Neugeboren  was a managing  partner of Third  Ridge
Capital  Management,  LLC, a U.S. equity hedge fund. He was from October 2000 to
April 2001 the Chief Administrative  Officer of Soceron, a then emerging Silicon
Alley  based  media  software   company,   and  from  1998  to  2000  the  Chief
Administrative  Officer and  director of Equity  Research  Operations  at Lehman
Brothers.  He was from 1996 to 1998 deputy  director  of Equity  Research at UBS
Warburg,  formerly  Warburg,  Dillon  Read,  and  director  of  Equity  Research
Operations  from 1995 to 1996.  Mr.  Neugeboren  began his  career in 1992 as an
equity  research  analyst  covering  the  specialty   pharmaceuticals  industry,
constituting  generic  drugs and drug  delivery,  at Dillon Read & Co.,  Kidder,
Peabody & Co. and Furman  Selz,  Inc. Mr.  Neugeboren  is a Director of KineMed,
Inc. a platform based drug development and advanced medical  diagnostics company
based in San Francisco, California.

         Dr. Barry Dash 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

                                       30


<PAGE>


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. Dr. Dash
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.  He 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,  an  internist,  has been since 1974, a member of
the staff of Mount  Sinai  Medical  Center  where  since 1978 he has also been a
Professor in the Department of Neurology and  Pharmacology at Mount Sinai School
of Medicine. Dr. Van Woert had been a consultant for  Neuropharmacological  Drug
Products to the Food and Drug Administration from 1974 to 1980; Associate Editor
of  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.

         Mark I. Gittelman,  Chief Financial Officer, Secretary and Treasurer of
the Company,  is the President of Gittelman & Co.,  P.C., an accounting  firm in
Clifton,  New Jersey.  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 State and New York State Societies of CPAs. Other
than Elite Labs, no company with which Mr.  Gittelman had been  affiliated was a
parent, subsidiary or other affiliate of the Company.

         Chris Dick,  who is  employed  on an  "at-will"  basis,  was  appointed
Executive Vice President of Corporate Development in March, 2006. Since November
2002,  the Company has engaged  Mr. Dick to direct its  licensing  and  business
development  activities.  From 1999 to 2002,  Mr.  Dick  served as  Director  of
Business Development for Elan Drug Delivery, Inc., responsible for licensing and
business  development of Elan's  portfolio of drug delivery  technologies.  From
1997 to 1999, he was Manager of Business  Development and Marketing for EnTec, a
drug delivery  business unit within FMC Corporation's  Pharmaceutical  Division.
Prior  thereto he held various  other  business and  technical  positions at FMC
Corporation,  including Manager of Marketing for its  pharmaceutical  functional
coatings  product  line.  Mr.  Dick  holds an M.B.A  from the  Stern  School  of
Business,  New York  University,  and a B.S. and a M.S. in Chemical  Engineering
from Cornell University.

         Dr. Charan Behl was appointed in March,  2006  Executive Vice President
and Chief Scientific  Officer of the Company.  Dr. Behl has provided the Company
since June 2003 consulting  technological services as an independent contractor.
He was from January  1995 to July 1998 Vice  President of R&D and from July 1988
to January  2001  Executive  Vice  President  of R&D of  Nastech  Pharmaceutical
Corporation,  Inc.  From April 1981 to November  1994,  Dr. Behl was employed by
Hoffman La Roche,

                                       31


<PAGE>


where  he  held  a  number  of  positions,  including  research  leader  of  its
Pharmaceutical R&D Department.  During his tenure at Roche and Nastech, Dr. Behl
created intellectual property in the area of drug delivery. His patent portfolio
includes over 40 patents issued,  pending and in  preparation.  Dr. Behl holds a
B.S.  in  Pharmaceutical   Sciences  from  BITS,  Pilani,   India,  an  M.S.  in
Pharmaceutics  from Duquesne  University,  under the  mentorship of Dr. Alvin M.
Galinsky,  and a  Ph.D.  in  Pharmaceutical  Sciences  from  the  University  of
Michigan,  under the  mentorship  of Dr.  William I.  Higuchi.  Dr.  Behl was an
Assistant  Research  Scientist  from 1978 to 1981 at the University of Michigan.
Dr.  Behl  is   internationally   known  for  his  scientific  and  professional
activities.  He  has  coauthored  over  200  publications,   including  research
articles,  book chapters, and abstracts,  and has made numerous presentations at
national and  international  conferences  and  workshops.  In  conjunction  with
associates from academia and industry and  representatives  of the FDA, Dr. Behl
has co-organized  several  workshops and symposia.  He was the founding chair of
the Nasal Drug  Delivery  Focus Group  formed in 1995 under the  auspices of the
American Association of Pharmaceutical  Scientists  ("AAPS"),  and served as its
Chairman from 1995 to 2001. Dr. Behl is a fellow of the AAPS.

         Each  director  holds office  (subject to our  By-Laws)  until the next
annual  meeting of  stockholders  and until such  director's  successor has been
elected  and  qualified.  Except for Mr.  Berk who is  employed  pursuant  to an
employment  agreement,  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 June 22, 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,  2006.  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,  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  qualified and Mr. Edward Neugeboren with respect
to the current Audit Committee qualifies 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 independent accountant's
independence.  Based  upon the  foregoing  review  and  discussions,  the  Audit
Committee  recommended to the Board of

                                       32


<PAGE>


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, 2006 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 initially 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 at least one 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 Board.

MEETINGS

         During the fiscal year ended  March 31,  2006,  our Board of  Directors
held three 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.

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 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

                                       33


<PAGE>


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, we believe  that during
fiscal  year  ended  March 31,  2006 all  Reporting  Persons  complied  with all
applicable filing requirements other than Mr. Neugeboren who did not timely file
a Form 4.

ITEM 11.          EXECUTIVE COMPENSATION.

EXECUTIVE OFFICER COMPENSATION

         Mr. Berk is employed pursuant to an employment  agreement,  dated as of
June 23,  2003,  as amended and  restated on  September  2, 2005 (the  "RESTATED
EMPLOYMENT  AGREEMENT"),  providing  for him to  serve  as the  Company's  Chief
Executive  Officer  through  August 31, 2009. Mr. Berk's salary was increased to
$330,140 as a result of the  occurrence of a Strategic  Transaction  pursuant to
the terms of the Restated Employment  Agreement - the increase from $200,000 was
effective May 1, 2005 but not payable until November 1, 2005. Additionally,  Mr.
Berk is entitled to an annual bonus as determined by the Compensation Committee.

                                       34


<PAGE>


         Pursuant to the Restated Employment Agreement,  Mr. Berk (i) waived his
rights to 75,000 of the 300,000  options  granted to him under the  agreement on
June 23, 2003 and the Company  determined  that the  remaining  225,000  options
fully vested as a result of the occurrence of a Strategic  Transaction  and (ii)
was granted on  September  2, 2005 under its 2004 Stock Option Plan (the "PLAN")
ten year options to purchase  600,000 shares of common stock at $2.69,  the fair
market value of the Common Stock as of the time of the grant,  of which  100,000
vest on September 2, 2006,  100,000 vest on September 2, 2007 and the  remaining
400,000  vest as follows:  (a) 50,000  shares  upon the closing of each  product
license or product sale transaction (on a product by product basis and only once
for each  product)  in which  the  Company  receives  an  aggregate  of at least
$5,000,000 in net cash proceeds  (including  royalties and signing,  license and
milestone  payments) in  connection  with such product  transaction;  (b) 10,000
shares upon the filing by the Company  (in the  Company's  name) with the United
States Food and Drug  Administration  (the "FDA") of either an  abbreviated  new
drug application (an "ANDA") OR a new drug application (including an application
filed with the FDA under  Section  505(b)(2)  of the  Federal  Food,  Drug,  and
Cosmetic  Act, 21 U.S.C.  Section 301 et seq.)  (collectively,  a "NDA"),  for a
product not covered by a previous FDA  application;  and (c) 40,000  shares upon
the approval by the FDA of any ANDA or NDA (filed in the  Company's  name) for a
product not previously approved by the FDA.

         The Company  also agreed that in the event that options to purchase the
above 400,000  shares have fully vested,  it will grant him under the Plan fully
vested  additional  options to purchase  shares at the fair market  value on the
date of grant as follows:  (a) 50,000  options  upon the closing of each product
license or product sale transaction (on a product by product basis and only once
for each  product)  in which  the  Company  receives  an  aggregate  of at least
$5,000,000 in net cash proceeds  (including  royalties and signing,  license and
milestone  payments) in  connection  with such product  transaction;  (b) 10,000
options upon the filing by the Company (in the  Company's  name) with the FDA of
either an ANDA or NDA for a product not covered by a previous  FDA  application;
and  (c)  40,000  options  upon  the  approval  by the FDA of any  ANDA,  NDA or
505(b)(2)  application  filed in the Company's name for a product not previously
approved by the FDA.

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

         The  Restated  Employment  Agreement  provides  that in the  event of a
change of control in lieu of any severance  that may otherwise be payable to Mr.
Berk if Mr. Berk elects to terminate  his  employment  for any reason  within 90
days thereof,  or the Company elects to terminate his employment within 180 days
thereof,  other than for cause,  he is to be entitled to the following:  (i) any
earned but unpaid base

                                       35


<PAGE>


salary  plus  any  unpaid  reimbursable  expenses  as of the  effective  date of
termination of his employment,  (ii)  $1,000,000,  (iii) the  then-current  base
salary for a period of 12 months  following the effective  date of  termination,
(iv)  reimbursement  of the cost, for a period equal to the 12 months  following
the  effective  date of  termination,  of  replacing  the  life  and  disability
insurance  coverage  afforded to Mr. Berk under the Company's benefit plans with
substantially  similar  coverage  and (v) payment by the Company of premiums for
health  insurance  for the period during which Mr. Berk is entitled to continued
health  insurance  coverage as specified  in the  Comprehensive  Omnibus  Budget
Reconciliation Act.

         The Restated Employment  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, 2006,  2005, and 2004, the
fees paid by the  Company  under the  agreement  were  $154,704,  $111,312,  and
$168,750 respectively. The services rendered by the firm to the Company averaged
103, 84, and 128 hours per month, respectively,  of which an average of 25 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  and fees
for services in all capacities to the Company for each of the years in the three
year period ended March 31, 2006, awarded or paid to, or earned by our President
and Chief  Executive  Officer during the year and those  executive  officers who
earned at least  $100,000  during  the year,  including  Mr.  Chris Dick and Dr.
Charan Behl who were elected officers in March 2006. Dr. Behl's compensation for
the years ended March 31, 2004,  2005 and 2006  consisted of consulting  fees at
the rate of $200 per hour.

                           Summary Compensation Table
                           --------------------------
<TABLE>
<CAPTION>

                           Annual Compensation                             Long Term Compensation
                      ------------------------------                       ------------------------
       (a)             (b)         (c)          (d)          (e)              (f)           (g)       (h)          (i)

     Name and                                                              Restricted    Securities
     Principal        Fiscal                             Other Annual        Stock       Underlying   LTIP      All Other
     Position         Year(1)    Salary        Bonus      Compensation       Awards       Options    Payouts   Compensation
     --------         -------    ------        -----      ------------       ------       -------    -------   ------------
<S>                  <C>        <C>           <C>            <C>               <C>        <C>           <C>          <C>
Bernard Berk,        2005-06    $344,295      $150,000          --             --                       --           --
President and        2004-05    $200,000       $50,000          --             --          30,000       --           --
Chief Executive      2003-04    $166,667         --             --             --         525,000       --           --
Officer

Atul M. Mehta,       2005-06        --           --             --             --           --          --           --
Ph.D. former         2004-05        --           --             --             --           --          --           --
President and        2003-04    $53,684          --          $3,040(3)         --           --          --           --
Chief Executive
Officer (2)

Chris Dick           2005-06    $150,000       $25,000          --             --                       --           --
Executive Vice       2004-05    $140,250       $25,000          --             --                       --           --
President of         2003-04    $137,000         --             --             --         30,000        --           --
Corporate
Development

Charan Behl          2005-06    $450,000         --             --             --           --          --
Executive Vice       2004-05    $392,455         --             --             --           --          --
President and        2003-04    (4)              --             --             --           --          --
Chief Scientific                $151,114
Officer
</TABLE>

                                       36


<PAGE>


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

(1)      The  information is provided for each fiscal year which begins on April
         1 and ends on March 31.

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

(3)      Represents  the value of the use of a company car and premiums  paid by
         the Company for life  insurance on Dr.  Mehta's life for the benefit of
         his wife.

(4)      Includes  $229,325 of fees paid by the value of units  issued to him by
         the  Company  in  the  Series  A  Preferred  private  placement,   each
         consisting of (i) a share of Series A Preferred Stock  convertible into
         ten shares of Common Stock and (ii) ten common stock purchase warrants,
         at the rate of $12.30 per unit.

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

Options  granted  during the fiscal year ended  March 31, 2006 to the  executive
officers named in the Summary Compensation Table were as follows:

                OPTION GRANTS IN FISCAL YEAR ENDED MARCH 31, 2006
<TABLE>
<CAPTION>

                                                                                           POTENTIAL REALIZED VALUE AT
                       NUMBER OF SHARES     % OF TOTAL OPTIONS                                 ASSUMED ANNUAL RATES OF
                         UNDERLYING       GRANTED TO EMPLOYEES    EXERCISE    EXPIRATION     STOCK PRICE APPRECIATION
NAME                   OPTIONS GRANTED        IN FISCAL YEAR        PRICE         DATE            FOR OPTION TERM
----                   ----------------   --------------------    --------    ----------   ---------------------------
                                                                                                5%            10%
                                                                                                --            ---
<S>                        <C>                    <C>              <C>        <C>            <C>           <C>
Bernard Berk               30,000                 3.1%             $2.75      8/30/2015      $39,300        $111,200
                          600,000                61.9%             $2.69      9/02/2015      $822,000      $2,262,000

Atul M. Mehta               ---                   ---               ---          ---           ---            ---

Chris Dick                 40,000                 4.1%             $2.80      7/14/2015      $50,400        $146,400

Charan Behl                 ---                   ---               ---          ---           ---            ---

Mark Gittelman             20,000                 2.1%             $2.80      7/14/2015      $25,200        $73,200
</TABLE>


         No options were exercised by executive officers during the fiscal years
ended March 31, 2005 and 2006.
<TABLE>
<CAPTION>

                    NUMBER OF SHARES UNDERLYING UNEXERCISED   VALUE OF UNEXERCISED IN-THE-MONEY
        NAME               OPTIONS AT MARCH 31, 2006           OPTIONS AT MARCH 31, 2006 (1)
        ----        ---------------------------------------   ---------------------------------
                        EXERCISABLE         UNEXERCISABLE       EXERCISABLE      UNEXERCISABLE
                        -----------         -------------       -----------      -------------
<S>                       <C>                    <C>              <C>                 <C>
Atul M. Mehta (2)         170,000                -0-              $25,500             -0-
                          100,000                -0-                -0-               -0-
                          100,000                -0-                -0-               -0-
                          100,000                -0-              $49,000             -0-
                          100,000                -0-              $99,000             -0-
</TABLE>


                                       37


<PAGE>

<TABLE>
<S>                       <C>                  <C>                <C>                <C>
Bernard Berk (3)          300,000                -0-              $144,000            -0-
                          225,000                -0-              $76,500             -0-
                           30,000                -0-              $45,000             -0-
                            -0-                30,000               -0-               -0-
                            -0-                600,000              -0-               -0-

Chris Dick                 30,000                -0-              $4,500              -0-
                           30,000              10,000             $5,600             $2,800
                           30,000                -0-                -0-               -0-

Mark Gittelman             10,000              20,000               -0-               -0-

Chran Behl                  -0-                  -0-                -0-               -0-
</TABLE>

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

(1)      The dollar values are calculated by determining the difference  between
         $2.49 per share, the fair market value of the Common Stock at March 31,
         2006, 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 a fee of $2,000 for each meeting
attended.

         Mr. John A. Moore for the period from  January 1, 2004  through May 12,
2004, when he resigned,  while he was Chairman of the Board received  $46,875 as
compensation for 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.

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.  The options vested in equal 10,000
share installments on December 12, 2003, December 12, 2004 and December 12, 2005
and expire at the earlier 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

                                       38


<PAGE>


(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  which  contained an exercise price greater than $2.21 to reduce
their exercise price to $2.21 per share as follows:

                    Shares Subject      Date of      Original      Expiration
         Name     To Amended Options     Grant    Exercise Price      Date
         ----     ------------------    -------   --------------   ----------
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

         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 terminate on the earlier of their current expiration date or
a date two years after Mr. Moore ceased to be a director of the Company (January
24, 2007).

         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.

         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.

         The  outstanding  Class  B  Warrants  and C  Warrants  to  purchase  an
aggregate of 2,404,239  shares of our Common Stock at a price of $5.00 per share
expired on November 30, 2005. Included among the holders of the Class B Warrants
were Richard A. Brown, a Director at the time, who held,  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 held
25,000 Class B Warrants.

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 the March 31, 2006 by (i) each
director and executive officer named under the Summary  Compensation Table, (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  19,190,159   shares  of  Common  Stock
outstanding.  (The 10,000  shares of Series B Preferred  Stock  outstanding  are
nonvoting and none of the individuals  listed below beneficially owns any shares
of Series B Preferred  Stock).  Shares not outstanding  but deemed  beneficially
owned by virtue of

                                       39


<PAGE>


the right of any  individual  to acquire  shares within 60 days of the foregoing
date are treated as outstanding only in 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                                        1,352,300(1)        7.04
Director and Chief Executive Officer

Edward Neugeboren                                     221,063(2)        1.15
Director

Barry Dash, Ph.D                                       30,000(3)          **
Director

Dr. Melvin Van Woert                                   30,000(3)          **
Director

Dr. Charan Behl                                       546,000(4)        2.77
Executive Vice President and Chief Scientific
Officer

Chris Dick                                            135,377(5)          **
Executive Vice President of Corporate
Development

Mark I. Gittelman                                     100,000(3)          **
Chief Financial Officer, Treasurer and
Secretary

Dr. Atul Mehta                                        570,000(3)        2.89
c/o Katten Muchin Zavis Rosenman
575 Madison Avenue
New York, NY 10022

Trellus Management Company, LLC                       996,400(6)        5.5%
Adam Usdan
350 Madison Avenue, 9th Floor
New York, New York  10017

Mark Fain                                           1,145,333(7)        5.9%
237 Park Avenue, Suite 900
New York, NY 10017

Chad Comiteau                                       1,151,765(8)        5.9%
237 Park Avenue, Suite 900
New York, NY 10017

All Directors and Officers as a group (12)          2,984,740(9)       13.07

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

*        See  "Election  of  Directors - Board of  Directors  Nominees"  for his
         address.

                                       40


<PAGE>


**       Less than 1%

(1)      Includes options to purchase 1,185,000 shares. See "Executive Officers"

(2)      Includes  options and  warrants to  purchase  an  aggregate  of 190,571
         shares.

(3)      Represents options.

(4)      Includes warrants to purchase 130,000 shares.

(5)      Includes  options  to  purchase  100,000  shares  of  Common  Stock and
         warrants  held by Mr. Dick and Hedy Rogers as joint tenants to purchase
         10,569 shares of Common Stock.

(6)      Based on  information  in the Schedule  13G filed  February 15, 2006 of
         Trellus  Management  Company  and  Adam  Usdan  who  share  voting  and
         dispositve power.

(7)      Based on  information  provided by Mark Fain and Chad Comiteau in their
         Schedule 13G filed May 17, 2006. Includes (i) 33,333 convertible shares
         beneficially  owned by Mr. Fain over which he has sole voting power and
         sole  dispositive  power,  (ii)  33,000  shares  beneficially  owned by
         Stratford  Management  Money  Purchase  Pension Plan over which Messrs.
         Fain and  Comiteau  have  shared  voting  power and shared  dispositive
         power,  and  (iii)  750,000  shares  and  150,000   convertible  shares
         beneficially owned by Stratford  Partners,  L.P. of which Messrs.  Fain
         and  Comiteau  are  Managing  Members,  and over which they have shared
         voting power and shared dispositive power.

(8)      Based on  information  provided by Mark Fain and Chad Comiteau in their
         Schedule 13G filed May 17, 2006. Includes (i) 32,655 convertible shares
         beneficially  owned by Mr. Comiteau over which he has sole voting power
         and sole dispositive  power, and (ii) the shares and convertible shares
         described  in  footnote  7 which are  beneficially  owned by  Stratford
         Management  Money Purchase  Pension Plan and Stratford  Partners,  L.P.
         over which  Messrs.  Fain and  Comiteau  have shared  voting  power and
         shared dispositive power.

(9)      Includes  options and  warrants to purchase an  aggregate  of 2,246,140
         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.

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         We entered into a placement agent agreement with Indigo  Securities LLC
in March 2006 for Indigo to provide  financial  advisory  services  and act as a
placement  agent in to us in  connection  with the Company's  private  placement
transactions  which occurred  during the fiscal year ended March 31, 2006.  This
agreement  superceded all prior  agreements  with us. In December  2005,  Indigo
received  $76,418 cash  compensation  and placement  agent  warrants to purchase
25,473 shares of common stock in connection  with acting as the placement  agent
for the warrant  exchange  offer. In March 2006,  Indigo received  $800,000 cash
compensation  and placement agent warrants to purchase  355,555 shares of common
stock in  connection  with  acting as  placement  agent for the  offering of our
Series  B  Preferred  Stock.  Edward  Neugeboren,  one of our  directors,  is an
employee of Indigo Securities, LLC.

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

ITEM 14.          PRINCIPAL ACCOUNTING FEES AND SERVICES.

         The  following  table  presents  fees,  including   reimbursements  for
expenses,  for professional  audit services  rendered by Miller Ellin & Company,
LP.  ("Miller  Ellin")  for the audits of our annual  financial

                                       41


<PAGE>


statements  and interim  reviews of our quarterly  financial  statements for the
years ended March 31, 2006 and March 31, 2005 and fees billed for other services
rendered by Miller Ellin during those periods.


                            FISCAL 2006        FISCAL 2005

Audit fees (1)           $     69,923       $     127,561
Audit-Related fees (2)   $       --         $        --
Tax fees (3)             $       --         $        --
All other fees (4)       $       --         $        --
Total                    $     69,923       $     127,561
                               ======             =======

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

(1)      Audit fees consist of fees billed for  professional  services  rendered
         for the audit of the Company's consolidated annual financial statements
         and review of the interim consolidated financial statements included in
         quarterly  reports and services  that are  normally  provided by Miller
         Ellin.  in  connection   with  statutory  and  regulatory   filings  or
         engagements.

(2)      Audit-Related  fees  consist of fees billed for  assurance  and related
         services that are reasonably related to the performance of the audit or
         review of the Company's  consolidated  financial statements and are not
         reported under "Audit Fees."

(3)      Tax fees consist of fees billed for professional  services rendered for
         tax compliance, tax advice and tax planning.

(4)      All other fees  consist of fees for  services  other than the  services
         reported above.

                                     PART IV

ITEM 15.          EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES.

(a)      Documents filed as part of this Report

         (1)      The financial  statements  listed in the Index to Consolidated
Financial Statements are filed as part of this report

         (2)      The financial  statements listed in the Index are filed a part
of this report.

         (3)      List of Exhibits

         See Index to Exhibits in paragraph (b) below.

         The  Exhibits  are filed  with or  incorporated  by  reference  in this
report.

(c)      EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K.

                                       42


<PAGE>


EXHIBIT NO.   DESCRIPTION

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

  3.1(b)      Certificate of  Designations,  Preferences  and Rights of Series A
              Preferred  Stock,  as filed  with the  Secretary  of the  State of
              Delaware, incorporated by reference to Exhibit 4.5 to the Form 8-K
              dated October 6, 2004, and filed with the SEC on October 12, 2004.

  3.1(c)      Certificate  of Retirement  with the Secretary of the State of the
              Delaware to retire 516,558 shares of the Series A Preferred Stock,
              as filed with the Secretary of State of Delaware,  incorporated by
              reference to Exhibit 3.1 to the Form 8-K dated March 10, 2006, and
              filed with the SEC on March 14, 2006.

  3.1(d)      Certificate of Designations, Preferences and Rights of Series B 8%
              Convertible  Preferred  Stock,  as filed with the Secretary of the
              State of Delaware, incorporated by reference to Exhibit 3.1 to the
              Form 8-K dated March 15, 2006, and filed with the SEC on March 16,
              2006.

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

    4.2       Form of specimen certificate for Series A 8% Convertible Preferred
              Stock of the Company,  incorporated by reference to Exhibit 4.5 to
              the Form 8-K,  dated  October 6,  2004,  and filed with the SEC on
              October 12, 2004.

    4.3       Form of specimen certificate for Series B 8% Convertible Preferred
              Stock of the Company,  incorporated by reference to Exhibit 4.1 to
              the Form 8-K, dated March 15, 2006 and filed with the SEC on March
              16, 2006

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

    4.7       Form of Short Term  Warrant  to  purchase  shares of Common  Stock
              issued to  purchasers  in the private  placement  which  initially
              closed on October 6, 2004 (the "Series A Financing"), incorporated
              by  reference  to Exhibit  4.6 to the Form 8-K,  dated  October 6,
              2004, and filed with the SEC on October 12, 2004.

                                       43


<PAGE>


    4.8       Form of Long Term  Warrant  to  purchase  shares  of Common  Stock
              issued to  purchasers in the Series A Financing,  incorporated  by
              reference to Exhibit 4.7 to the Form 8-K,  dated  October 6, 2004,
              and filed with the SEC on October 12, 2004.

    4.9       Form of Warrant to purchase  shares of Common  Stock issued to the
              Placement  Agent,  in  connection  with the  Series  A  Financing,
              incorporated  by reference  to Exhibit 4.8 to the Form 8-K,  dated
              October 6, 2004, and filed with the SEC on October 12, 2004.

   4.10       Form of Replacement  Warrant to purchase shares of Common Stock in
              connection  with the offer to holders of  Warrants in the Series A
              Financing (the "Warrant  Exchange"),  incorporated by reference as
              Exhibit 4.1 to the Form 8-K,  dated  December 14, 2005,  and filed
              with the SEC on December 20, 2005.

   4.11       Form  of  Warrant  to  purchase  shares  of  Common  Stock  to the
              Placement  Agent,  in connection  with the Warrant  Exchange,  "),
              incorporated  by reference  as Exhibit 4.2 to the Form 8-K,  dated
              December 14, 2005, and filed with the SEC on December 20, 2005.

   4.12       Form of  Warrant  to  purchase  shares of Common  Stock  issued to
              purchasers in the private placement which closed on March 15, 2006
              (the "Series B Financing"),  incorporated  by reference to Exhibit
              4.2 to the Form 8-K,  dated  March 15, 2006 and filed with the SEC
              on March 16, 2006.

   4.13       Form of  Warrant  to  purchase  shares of Common  Stock  issued to
              purchasers in the Series B Financing, incorporated by reference to
              Exhibit  4.3 to the Form 8-K,  dated March 15, 2006 and filed with
              the SEC on March 16, 2006.

   4.14       Form of Warrant to purchase  shares of Common  Stock issued to the
              Placement  Agent,  in  connection  with the  Series  B  Financing,
              incorporated  by reference  to Exhibit 4.4 to the Form 8-K,  dated
              March 15, 2006 and filed with the SEC on March 16, 2006

   10.1       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.

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

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

   10.4       Amended and Restated Employment Agreement dated as of September 2,
              2005  between  Bernard  Berk  and  the  Company,  incorporated  by
              reference  to Exhibit 10.1 to Form 8-K,  dated  September 2, 2005,
              and filed with the SEC on September 9, 2005.

   10.5       Option Agreement  between Bernard Berk and the Company dated as of
              July 23, 2003  incorporated  by  reference  to Exhibit 10.7 to the
              Report on Form  10-Q for three  months  ended  June 30,  2003 (the
              "June 30, 2003 10Q Report").

                                       44


<PAGE>


   10.6       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.

   10.7       Amendment,  dated as of  September 2, 2005,  by and  between,  the
              Company and Bernard Berk, to the Stock Option Agreement,  dated as
              of July 23,  2003,  incorporated  by  reference to Exhibit 10.2 to
              Form 8-K,  dated  September  2,  2005,  and filed  with the SEC on
              September 9, 2005.

   10.8       Stock Option  Agreement,  dated as of  September  2, 2005,  by and
              between the Company and Bernard Berk, incorporated by reference to
              Exhibit 10.3 to Form 8-K, dated  September 2, 2005, and filed with
              the SEC on September 9, 2005.

   10.9       Stock Option  Agreement,  dated as of  September  2, 2005,  by and
              between the Company and Bernard Berk, incorporated by reference to
              Exhibit 10.4 to Form 8-K, dated  September 2, 2005, and filed with
              the SEC on September 9, 2005.

   10.10      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, by and among Elite Laboratories, Inc.,
              a Delaware corporation and wholly-owned  subsidiary of the Company
              ("Elite Labs"), Harris Pharmaceuticals, Inc. and Tish Technologies
              LLC,  incorporated  by  reference as Exhibit 10.1 to the Form 8-K,
              dated March 30,  2005,  originally  filed with the SEC on 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, as further  amended
              by the Form 8-K/A filed July 20, 2005,  as further  amended by the
              Form 8-K/A filed August 23, 2005,  as further  amended by the Form
              8-K/A filed  September  27, 2005,  as further  amended by the Form
              8-K/A filed December 7, 2005 (Confidential  Treatment granted with
              respect to portions of the Agreement).

   10.12      Product Development and Commercialization  Agreement,  dated as of
              June 21,  2005,  between  the  Company  and  IntelliPharmaceutics,
              Corp.,  incorporated by reference as Exhibit 10.1 to the Form 8-K,
              dated June 21, 2005 and originally  filed with the SEC on June 27,
              2005,  as amended on the Form 8-K/A filed  September  7, 2005,  as
              further   amended  by  the  Form  8-K/A  filed  December  7,  2005
              (Confidential  Treatment  granted  with respect to portions of the
              Agreement).

   10.13      Product  Development and License  Agreement,  dated as of June 22,
              2005,  between  the  Company  and  Pliva,  Inc.,  incorporated  by
              reference as Exhibit 10.1 to the Form 8-K, dated June 22, 2005 and
              originally  filed with the SEC on June 28, 2005, as amended on the
              Form 8-K/A filed September 6, 2005, as further amended by the Form
              8-K/A filed December 7, 2005 (Confidential  Treatment granted with
              respect to portions of the Agreement).

   10.14      Agreement,  dated  December  12,  2005,  by and among the Company,
              Elite  Labs,  and  IntelliPharmaCeutics   Corp.,  incorporated  by
              reference  as Exhibit  10.1 to the Form 8-K,  dated

                                       45


<PAGE>


              December 12, 2005, and  originally  filed with the SEC on December
              16,  2005,  as  amended  by the Form  8-K/A  filed  March 7,  2006
              (Confidential  Treatment  granted  with respect to portions of the
              Agreement).

   10.15      Product Development and Commercialization Agreement, dated January
              10, 2006, by and among the Company, Elite Laboratories,  Inc., its
              wholly-owned subsidiary and Orit Laboratories LLC, incorporated by
              reference as Exhibit 10.1 to the Form 8-K, dated January 10, 2006,
              and  filed  with  the  SEC  on  January  17,  2006.  (Confidential
              Treatment granted with respect to portions of the Agreement).

   10.16      Loan  Agreement,  dated as of August 15, 2005,  between New Jersey
              Economic   Development   Authority   ("NJEDA")  and  the  Company,
              incorporated  by reference to Exhibit 10.1 to the Form 8-K,  dated
              August 31, 2005 and filed with the SEC on September 6, 2005.

   10.17      Series A Note in the aggregate  principal  amount of $3,660,000.00
              payable to the order of the NJEDA,  incorporated  by  reference to
              Exhibit 10.2 to the Form 8-K, dated August 31, 2005 and filed with
              the SEC on September 6, 2005.

   10.18      Series B Note in the  aggregate  principal  amount of  $495,000.00
              payable to the order of the NJEDA,  incorporated  by  reference to
              Exhibit 10.3 to the Form 8-K, dated August 31, 2005 and filed with
              the SEC on September 6, 2005.

   10.19      Mortgage from the Company to the NJEDA,  incorporated by reference
              to Exhibit  10.4 to the Form 8-K,  dated August 31, 2005 and filed
              with the SEC on September 6, 2005.

   10.20      Indenture between NJEDA and the Bank of New York as Trustee, dated
              as of August 15,2005, incorporated by reference to Exhibit 10.5 to
              the Form 8-K,  dated  August  31,  2005 and filed  with the SEC on
              September 6, 2005.

   10.21      Form of Warrant Exercise Agreement, between the Registrant and the
              signatories thereto,  incorporated by reference to Exhibit 10.1 to
              the Form 8-K,  dated  December  14, 2005 and filed with the SEC on
              December 20, 2005

   10.22      Form of Registration Rights Agreement,  between the Registrant and
              signatories thereto,  incorporated by reference to Exhibit 10.2 to
              the Form 8-K,  dated  December  14, 2005 and filed with the SEC on
              December 20, 2005.

   10.23      Form of Securities Purchase Agreement,  between the Registrant and
              the signatories thereto, incorporated by reference to Exhibit 10.1
              to the Form 8-K,  dated  March 15,  2006 and filed with the SEC on
              March 16, 2006.

   10.24      Form of Registration Rights Agreement,  between the Registrant and
              the signatories thereto, incorporated by reference to Exhibit 10.1
              to the Form 8-K,  dated  March 15,  2006 and filed with the SEC on
              March 16, 2006.

   10.21      Form  of  Placement  Agent  Agreement,   the  Company  and  Indigo
              Securities,  LLC, incorporated by reference as Exhibit 10.3 to the
              Form 8-K dated March 15, 2006, and filed with the SEC on March 16,
              2006.

                                       46


<PAGE>



    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.

(c)    Financial  statements  required by Regulation S-X which are excluded from
the annual report to shareholders by Rule 14a-3(b).

                                       47


<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 29, 2006

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 29, 2006
--------------------------    (Principal Executive
Bernard Berk                  Officer)


/s/  Mark Gittelman           Chief Financial Officer        June 29, 2006
--------------------------    and Treasurer (Principal
Mark I. Gittelman             Financial and Accounting
                              Officer)

/s/ Edward Neugeboren         Director                       June 29, 2006
--------------------------
Edward Neugeboren

/s/  Barry Dash               Director                       June 29, 2006
--------------------------
Barry Dash

/s/  Melvin Van Woert         Director                       June 29, 2006
--------------------------
Melvin Van Woert

                                       48


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                FOR THE YEARS ENDED MARCH 31, 2006, 2005 AND 2004



                                    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                        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, 2006 and
2005,  and the related  consolidated  statements  of  operations,  stockholders'
equity and cash flows for the years ended March 31, 2006,  2005 and 2004.  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, 2006 and 2005, and the
results of their  operations  and their  cash flows for each of the three  years
ended March 31, 2006,  2005 and 2004 in conformity  with  accounting  principles
generally accepted in the United States of America.


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


New York, New York
June 5, 2006

                                      F-2


<PAGE>



                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                             MARCH 31, 2006 AND 2005

                                     ASSETS
<TABLE>
<CAPTION>

                                                                                       2006                2005
                                                                                       ----                ----
<S>                                                                                <C>                 <C>
CURRENT ASSETS:
       Cash and cash equivalents                                                   $  8,919,354        $  3,902,003
       Accounts receivable, net of allowance for doubtful accounts of
           $153,250 as of March 31, 2006 and 2005                                           ---             142,113
       Current portion of restricted cash - capital project fund                      1,173,896             113,425
       Prepaid expenses and other current assets                                        470,633             346,905
                                                                                   ------------        ------------

           Total current assets                                                      10,563,883           4,504,446

PROPERTY AND EQUIPMENT- net of accumulated
       depreciation and amortization                                                  4,308,969           4,194,437

INTANGIBLE ASSETS - net of accumulated amortization                                      59,457              81,184

OTHER ASSETS:

       Deferred charges                                                                     ---              41,013
       Security deposit                                                                   6,980                 ---
       Restricted cash - debt service                                                   415,500             300,000
       EDA bond offering costs, net of accumulated
           amortization of $7,000 and $73,468, respectively.                            347,452             124,212
                                                                                   ------------        ------------

           Total other assets                                                           769,932             465,225
                                                                                   ------------        ------------

           TOTAL ASSETS                                                            $ 15,702,241        $  9,245,292
                                                                                   ============        ============
</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, 2006 AND 2005
                                   (CONTINUED)

                      LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                                                                       2006                2005
                                                                                       ----                ----
<S>                                                                                <C>                 <C>
CURRENT LIABILITIES:
       Current portion - note payable                                              $        ---        $    127,946
       Current portion of EDA bonds                                                     175,000             165,000
       Accounts payable and accrued expenses                                          1,740,263
                                                                                                            882,917

       Dividends payable                                                                 33,333                 ---
                                                                                   ------------        ------------
            Total current liabilities                                                 1,948,596           1,175,863
                                                                                   ------------        ------------

LONG TERM DEBT:
       Note payable - net of current portion                                                ---             187,128
       EDA bonds - net of current portion                                             3,980,000           2,180,000
                                                                                   ------------        ------------
            Total long-term liabilities                                               3,980,000           2,367,128
                                                                                   ------------        ------------

            Total liabilities                                                         5,928,596           3,542,991
                                                                                   ------------        ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:

       Preferred stock - $.01 par value;
            Authorized - 4,483,442 (originally 5,000,000 shares of which 516,558
            shares of Series A Preferred retired) and 0 shares at March 31, 2006
            and 2005, respectively Authorized - 10,000 Convertible Series B
            Preferred Stock - issued and outstanding - 10,000 shares and 0
            shares, respectively                                                            100                 ---
       Common Stock - $.01 par value;
            Authorized - 65,000,000 and 25,000,000
                shares, respectively
            Issued and outstanding - 19,190,159 and 18,022,183
                shares in 2006 and 2005, respectively                                   191,902             180,222
       Additional paid-in capital                                                    60,105,107          47,006,379
       Accumulated deficit                                                         (50,216,623)        (41,177,459)
                                                                                   -----------         ------------
                                                                                     10,080,486           6,009,142

       Treasury stock, at cost (100,000 shares)                                       (306,841)           (306,841)
                                                                                   ------------        ------------
       Total stockholders' equity                                                     9,773,645           5,702,301
                                                                                   ------------        ------------

            TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                             $ 15,702,241        $  9,245,292
                                                                                   ============        ============

</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,
                                                                 -------------------------------------------------
                                                                    2006               2005               2004
                                                                    ----               ----               ----
<S>                                                              <C>                <C>                <C>
REVENUES:
       Licensing fees                                            $       ---        $   150,000        $       ---
       Manufacturing fees                                            494,231            125,739                ---
       Royalties                                                      56,466             24,291                ---
       Research and development                                          ---                ---            258,250
       Consulting and test fees                                          ---              1,450                ---
                                                                 -----------        -----------        -----------
                    Total revenues                                   550,697            301,480            258,250
                                                                 -----------        -----------        -----------

COST OF OPERATIONS:
       Research and development                                    4,343,890          2,698,641          2,075,074
       General and administrative                                  1,726,626          2,159,670          2,549,846
       Depreciation and amortization                                 486,687            356,438            332,836
                                                                 -----------        -----------        -----------
                                                                   6,557,203          5,214,749          4,957,756
                                                                 -----------        -----------        -----------

LOSS FROM OPERATIONS                                              (6,006,506)        (4,913,269)        (4,699,506)
                                                                 -----------        -----------        -----------

OTHER INCOME (EXPENSES):
       Interest income                                                90,862             39,932             23,765
       Litigation settlement                                             ---                ---            150,000
       Sale of New Jersey tax losses                                 219,121            205,792            151,027
       Interest expense                                             (283,464)          (229,495)          (211,595)
       Compensation satisfied by issuance of
          stock options and warrants                                (902,927)        (1,008,850)        (1,754,584)
       Expenses relating to warrant exchange offer                       ---                ---           (172,324)
                                                                 -----------        -----------        -----------
                                                                    (876,408)          (992,621)        (1,813,711)
                                                                 -----------        -----------        -----------

LOSS BEFORE PROVISION FOR INCOME
       TAXES                                                      (6,882,914)        (5,905,890)        (6,513,217)

PROVISION FOR INCOME TAXES
                                                                       1,000              1,000              1,000
                                                                 -----------        -----------        -----------

NET LOSS                                                          (6,883,914)        (5,906,890)        (6,514,217)

Preferred Stock Dividends                                         (2,155,250)          (165,418)               ---
                                                                 -----------        -----------        -----------


NET LOSS ATTRIBUTABLE TO COMMON
       SHAREHOLDERS                                              $(9,039,164)       $(6,072,308)       $(6,514,217)
                                                                 ===========        ===========        ===========

BASIC AND DILUTED LOSS PER COMMON
       SHARE                                                        $   (.49)         $   (0.47)         $   (0.58)
                                                                 ===========        ===========        ===========

WEIGHTED AVERAGE NUMBER OF
       COMMON SHARES OUTSTANDING                                  18,463,514         12,869,924         11,168,618
                                                                 ===========        ===========        ===========
</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


<TABLE>
<CAPTION>

                            PREFERRED STOCK       COMMON STOCK        ADDITIONAL       TREASURY STOCK
                            ---------------       ------------         PAID-IN         --------------     ACCUMULATED  STOCKHOLDERS'
                           SHARES    AMOUNT    SHARES      AMOUNT      CAPITAL        SHARES       AMOUNT   DEFICIT       EQUITY
                           ------    ------    ------      ------     ----------      ------       ------   -------       ------
<S>                          <C>    <C>       <C>         <C>         <C>            <C>       <C>         <C>           <C>
BALANCES AT
APRIL 1, 2003                ---    $  ---    10,544,423  $   105,444 $  34,218,832  (100,000) $(306,841)  $(28,590,934) $5,426,501

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

Non-cash compensation
satisfied by the
issuance of stock,
options and warrants         ---       ---           ---          ---     1,754,584       ---        ---            ---   1,754,584

Exercise of stock options    ---       ---        15,000          150        29,850       ---        ---            ---      30,000

Net proceeds from private
placement                    ---       ---     1,645,000       16,450     3,162,550       ---        ---            ---   3,179,000

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

BALANCES AT MARCH 31, 2004   ---    $  ---    12,204,423   $  122,044  $ 39,338,140  (100,000) $(306,841)  $(35,105,151) $4,048,192
                           =====    ======    ==========   ==========  ============  ========= ==========  ============= ==========
</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

<TABLE>
<CAPTION>

                            PREFERRED STOCK       COMMON STOCK        ADDITIONAL       TREASURY STOCK
                            ---------------       ------------         PAID-IN         --------------     ACCUMULATED  STOCKHOLDERS'
                           SHARES    AMOUNT    SHARES      AMOUNT      CAPITAL        SHARES       AMOUNT   DEFICIT       EQUITY
                           ------    ------    ------      ------     ----------      ------       ------   -------       ------
<S>                     <C>       <C>         <C>           <C>        <C>           <C>       <C>        <C>            <C>

BALANCES AT
  APRIL 1, 2004              ---  $    ---    12,204,423    $ 122,044  $ 39,338,140  (100,000) $(306,841) $ (35,105,151) $4,048,192

Net proceeds from
  issuance of Series A
  8% Convertible
  Preferred Stock
  and warrants           516,558     5,166           ---          ---     5,786,436       ---        ---            ---   5,791,602

Issuance of Common
  Stock for
  consulting services        ---       ---        26,500          265        58,035       ---        ---            ---      58,300

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

Non-cash compensation
  satisfied by
  the issuance of
  stock, options
  and warrants                                                            1,008,850                                       1,008,850

Common Stock issued as
  dividend on
  Series A 8%
  Convertible Preferred
  Stock                      ---       ---        99,936        1,000       164,418       ---        ---       (165,418)        ---

Exercise of stock
  options and
  warrants                   ---       ---       525,744        5,257       579,250       ---        ---            ---     584,507

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

Net loss                     ---       ---           ---          ---           ---       ---        ---    (5,906,890)  (5,906,890)
                           -----  --------    ----------    ---------  ------------  --------- ----------  ------------- ----------
BALANCES AT
  MARCH 31, 2005             ---  $    ---    18,022,183    $ 180,222  $ 47,006,379  (100,000) $(306,841)  $(41,177,459) $5,702,301
                           =====  ========    ==========    =========  ============  ========= ==========  ============= ==========
</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

<TABLE>
<CAPTION>

                            PREFERRED STOCK       COMMON STOCK        ADDITIONAL       TREASURY STOCK
                            ---------------       ------------         PAID-IN         --------------     ACCUMULATED  STOCKHOLDERS'
                           SHARES    AMOUNT    SHARES      AMOUNT      CAPITAL        SHARES       AMOUNT   DEFICIT       EQUITY
                           ------    ------    ------      ------     ----------      ------       ------   -------       ------
<S>                          <C>    <C>       <C>         <C>         <C>            <C>       <C>         <C>           <C>

BALANCES AT
  APRIL 1, 2005              ---   $   ---    18,022,183  $   180,222 $  47,006,379  (100,000) $(306,841)  $(41,177,459) $5,702,301

Net proceeds from
  issuance of
  Series B 8%
  Convertible
  Preferred Stock
  and warrants            10,000   $   100           ---          ---     8,792,569       ---        ---            ---   8,792,669

Non-cash compensation
  satisfied by
  the issuance of
  stock, options
  and warrants               ---       ---           ---          ---       902,927                                         902,927

Exercise of stock
  options                    ---       ---        20,000          200        39,800       ---        ---            ---      40,000

Exercise of stock
  warrants                   ---       ---     1,147,976       11,480     1,241,515       ---        ---            ---   1,252,995

Net loss                     ---       ---           ---          ---           ---       ---        ---     (6,883,914) (6,883,914)

Dividends                    ---       ---           ---          ---     2,121,917       ---        ---     (2,155,250)    (33,333)
                          ------   -------    ----------  -----------  ------------  --------- ----------  ------------- ----------
BALANCES AT
  MARCH 31, 2006          10,000   $   100    19,190,159  $   191,902  $ 60,105,107  (100,000) $(306,841)  $(50,216,623) $9,773,645
                          ======   =======    ==========  ===========  ============  ========= ==========  ============= ==========
</TABLE>


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

                                      F-8


<PAGE>



                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                               YEARS ENDED MARCH 31,
                                                                                    ---------------------------------------------
                                                                                       2006               2005           2004
                                                                                       ----               ----           ----
<S>                                                                                 <C>                <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss                                                                      $(6,883,914)       $(5,906,890)   $(6,514,217)
      Adjustments to reconcile net loss to cash
         used in operating activities:
            Provision for doubtful accounts                                                 ---            153,250            ---
            Depreciation and amortization                                               486,687            356,438        332,836
            Non-cash compensation satisfied by issuance of stock,
                  options and warrants                                                  902,927          1,067,150      1,926,908
            Changes in assets and liabilities:
                 Accounts receivable                                                    142,113           (142,113)      (148,569)
                 Prepaid expenses and other current assets                             (123,728)          (209,013)        (5,800)
                 Security Deposit                                                        (6,980)               ---            ---
                 Accounts payable, accrued expenses and other current                   857,346           (202,325)       750,521
                                                                                    -----------        -----------    -----------
NET CASH USED IN OPERATING ACTIVITIES                                                (4,625,549)        (4,883,503)    (3,658,321)
                                                                                    -----------        -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchase of patent                                                                    ---                ---        (16,696)
      Deposits to restricted cash                                                    (1,175,971)               ---        (79,615)
      Release of restricted cash                                                            ---            315,570            ---
      Payment of deposit for manufacturing equipment                                        ---                ---       (398,580)
      Purchases of property and equipment                                              (448,280)           (27,843)           ---
                                                                                    -----------        -----------    -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                                  (1,624,251)            287,727       (494,891)
                                                                                    -----------        -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Principal bank note payments                                                          ---           (225,000)       (75,000)
      Proceeds from issuance of Common Stock and warrants                                   ---                ---      3,209,000
      Principal repayments of NJEDA bonds                                            (2,345,000)          (150,000)      (140,000)
      Proceeds from issuance of Series A 8% Convertible Preferred
         stock and warrants                                                                 ---          5,791,602            ---
      Proceeds from equipment loan                                                          ---            400,000            ---
      Proceeds - NJEDA Tax Exempt Bonds                                               4,155,000                ---            ---
      Payment - NJEDA Bond Offering Costs                                              (354,452)               ---            ---
      Proceeds from issuance of Series B 8% Convertible Preferred
         stock and warrants                                                           8,792,669                ---            ---
      Principal equipment note payments                                                (315,074)           (84,926)           ---
      Prepaid interest                                                                   41,013            (41,013)           ---
      Proceeds from exercise of stock options                                            40,000            100,000            ---
      Proceeds from exercise of stock warrants                                        1,252,995            484,507            ---
      Proceeds from short swing profits                                                     ---            117,740            ---
                                                                                    -----------        -----------    -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                            11,267,151          6,392,910      2,994,000
                                                                                    -----------        -----------    -----------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                               5,017,351          1,797,134     (1,159,212)

CASH AND CASH EQUIVALENTS - beginning of period                                       3,902,003          2,104,869      3,264,081
                                                                                    -----------        -----------    -----------

CASH AND CASH EQUIVALENTS - end of period                                           $ 8,919,354        $ 3,902,003    $ 2,104,869
                                                                                    ===========        ===========    ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

      Cash paid for interest                                                        $   275,071        $   230,464    $   214,199
      Cash received for income taxes                                                   (218,121)          (204,792)      (150,027)

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            ---
      Dividends accrued on preferred stock                                               33,333                ---            ---
      Beneficial conversion                                                           2,121,917                ---            ---
</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, 2006, 2005 AND 2004

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.

               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.

               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.

               LONG-LIVED ASSETS

               The Company  periodically  evaluates the fair value of long-lived
               assets,  which include  property and  equipment and  intangibles,
               whenever  events or changes in  circumstances  indicate  that its
               carrying  amounts may not be  recoverable.  Such  conditions  may
               include an  economic  downturn or a change in the  assessment  of
               future operations. A charge for impairment is recognized whenever
               the carrying amount of a long-lived asset exceeds its fair value.
               Management has determined that no impairment of long-lived assets
               has occurred.

                                      F-10


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 1       - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

               LONG-LIVED ASSETS (CONTINUED)

               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 recognized in income.

               Costs  incurred  to  acquire  intangible  assets  such as 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.  Such costs are charged to
               expense if the patent or trademark is unsuccessful.

               RESEARCH AND DEVELOPMENT

               Research and development  expenditures  are charged to expense as
               incurred.

               CONCENTRATION OF CREDIT RISK

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

               The Company maintains cash balances,  which, at times, may exceed
               the  amounts  insured  by the  Federal  Deposit  Insurance  Corp.
               Management does not believe that there is any significant risk of
               losses.

               The Company in the normal  course of business  extends  credit to
               its customers based on contract terms and performs ongoing credit
               evaluations.  An allowance for doubtful  accounts was established
               based on  historical  collection  experience  and current  credit
               evaluations  at March 31, 2006 and 2005,  due to  uncertainty  of
               collectibility.  Amounts  are  written  off when  payment  is not
               received after exhaustive collection efforts.

                                      F-11


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 1       - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

               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,  the  amount  of the
               allowance for doubtful accounts  receivable and the fair value of
               intangible assets and stock-based awards.

               INCOME TAXES

               The Company uses the liability method for reporting income taxes,
               under which current and deferred tax  liabilities  and assets are
               recorded in accordance with enacted tax laws and rates.  Deferred
               income taxes reflect the net tax effects of temporary differences
               between  the  carrying  amounts  of assets  and  liabilities  for
               financial  reporting purposes and the amounts used for income tax
               purposes. Under the liability method, the amounts of deferred tax
               liabilities  and assets at the end of each period are  determined
               using  the tax rate  expected  to be in  effect  when  taxes  are
               actually paid or recovered.  Further tax benefits are  recognized
               when it is more  likely  than  not  that  such  benefits  will be
               realized.  Valuation  allowances are provided to reduce  deferred
               tax assets to the amount considered likely to be realized.

               EARNINGS PER COMMON SHARE

               Basic  earnings  per common share is  calculated  by dividing net
               earnings by the  weighted  average  number of shares  outstanding
               during  each  period  presented.  Diluted  earnings  per share is
               calculated by dividing earnings by the weighted average number of
               shares and common stock  equivalents.  The Company's common stock
               equivalents,   consist  of  options,   warrants  and  convertible
               securities.

               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 have 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.

                                      F-12


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 1       - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

               REVENUE RECOGNITION (CONTINUED)

               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 payment is received.

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

               TREASURY STOCK

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

               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 2004  and 2005  financial
               statements  have been  reclassified  in order to conform with the
               2006 presentation.  These reclassifications have no effect on net
               income.

                                      F-13


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 2       - MANAGEMENT'S LIQUIDITY PLANS

               The Company  reported net losses of  $6,883,914,  $5,906,890  and
               $6,514,217  for the fiscal years ended March 31,  2006,  2005 and
               2004,  respectively.  At  March  31,  2006,  the  Company  had an
               accumulated deficit of approximately $48.1 million,  consolidated
               assets of approximately  $15.7 million,  stockholders'  equity of
               approximately $9.8 million,  and working capital of approximately
               $8.6  million.  The Company  has not  generated  any  significant
               revenue to date.  During 2006, the Company  raised  $8,792,669 of
               net  proceeds  from  the  sale  of  Series  B  Preferred   Stock.
               Management  plans to use these net proceeds  over the next twelve
               to  twenty-four  months  to fund  its  research  and  development
               activities.

                The  Company's  strategy  is to  continue  to be  engaged in the
                development  and   manufacturing   of  oral   controlled-release
                products.  It will  continue  to  develop  generic  versions  of
                controlled release drug products with high barriers to entry and
                assist  partner  companies  in  the  life  cycle  management  of
                products to improve off patent  drug  products.  The Company has
                one product  currently being sold commercially and a pipeline of
                eight products under development.

                The  Company  retained  an  investment  banking  firm to 2006 to
                assist the Company in connection  with  potential  acquisitions,
                strategic alliances with other pharmaceutical companies,  advice
                to future financings and introductions to key parties in capital
                markets.

                As  of  March  31,  2006,  the  Company's  principal  source  of
                liquidity  was   approximately   $8,900,000  of  cash  and  cash
                equivalents.  The Company  may also  receive  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 proceeds from
                the sale of the tax losses  and from the  exercise,  if any,  of
                outstanding warrants or options will be material.

                There is no assurance that the Company's  business strategy will
                be successfully implemented, however with the Company's existing
                working capital levels,  it will be able to continue  operations
                at least through the end of fiscal 2007.

               See "Note 8 - Stockholders  Equity  (Deficit)" for description of
               Series B Convertible Preferred Stock.

                                      F-14


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 3-        PROPERTY AND EQUIPMENT

               Property and equipment at March 31, 2006 and 2005 consists of the
               following:
<TABLE>
<CAPTION>

                                                                    2006               2005
                                                                    ----               ----
<S>                                                               <C>                <C>
               Laboratory manufacturing, and warehouse equipment  $3,763,163         $3,566,674
               Office equipment                                       32,981             32,981
               Furniture and fixtures                                 51,781             51,781
               Land, building and improvements                     2,349,459          2,097,668
               Equipment under capital lease                         168,179            168,179
                                                                  ----------         ----------
                                                                   6,365,563          5,917,283
               Less: Accumulated depreciation and amortization     2,056,594          1,722,846
                                                                  ----------         ----------
                                                                  $4,308,969         $4,194,437
                                                                  ==========         ==========
</TABLE>


               Depreciation  and  amortization  expense  amounted  to  $333,748,
               $300,303 and  $278,348  for the years ended March 31, 2006,  2005
               and 2004, respectively.

NOTE 4 -       INTANGIBLE ASSETS

               Intangible  assets at March 31,  2006 and  2005,  consist  of the
               following:

<TABLE>
<CAPTION>

                                                                    2006               2005
                                                                    ----               ----
<S>                                                               <C>                <C>
               Patents                                            $  145,830         $  145,830
               Trademarks                                              8,120              8,120
                                                                  ----------         ----------
                                                                     153,950            153,950
               Less: Accumulated amortization                         94,493             72,766
                                                                  ----------         ----------
                                                                  $   59,457         $   81,184
                                                                  ==========         ==========
</TABLE>

               Amortization of intangible  assets  amounted to $21,727,  $21,012
               and $19,342 for the years  ended March 31,  2006,  2005 and 2004,
               respectively.

                                      F-15


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 5 -       LONG TERM DEBT

               On September 2, 1999,  the Company  completed the issuance of tax
               exempt  bonds by the New Jersey  Economic  Development  Authority
               ("NJEDA" or the  "Authority").  The  aggregate  proceeds from the
               issuance of the fifteen year term bonds was $3,000,000.  Interest
               on the  bonds  accrues  at 7.75%  per  annum.  A  portion  of the
               proceeds  were  used by the  Company  to  refinance  its land and
               building, and the remaining proceeds were intended to be used for
               the   purchase   of   manufacturing    equipment   and   building
               improvements.

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

               Interest is payable  semiannually  on March 1 and  September 1 of
               each year.  The Bonds are  collateralized  by a first lien on the
               Company's  facility and  equipment  acquired with the proceeds of
               the original and refinanced Bonds. The related Indenture requires
               the   maintenance  of  a  $415,500  Debt  Service   Reserve  Fund
               consisting  of  $366,000  from the  Series A Notes  proceeds  and
               $49,500  from the  Series  B Notes  proceeds.  The  Debt  Service
               Reserve  is  maintained  in  restricted  cash  accounts  that are
               classified in Other  Assets.  $1,274,311 of the proceeds has been
               deposited  in a  short-term  restricted  cash account to fund the
               future purchase of manufacturing equipment and development of the
               Company's facility.

               Bond issue costs of $354,000 were paid from the bond proceeds and
               are being  amortized over the life of the bonds.  Amortization of
               bond financing  costs amounted to $7,000 for the year ended March
               31, 2006.

               Bond issue costs of the 1999 bonds were being  amortized over the
               term of  those  bonds.  Such  amortization  amounted  to  $5,500,
               $13,190 and $13,190 in the years ending March 31, 2006,  2005 and
               2004,   respectively.   Upon  the   refinancing   the   remaining
               unamortized issue costs of $118,712 were charged to expenses.

                                      F-16


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 5 -       LONG TERM DEBT (CONTINUED)

               As of March 31, 2006,  $115,772 has been  requisitioned  and been
               deposited  into  operating  accounts  to  fund  the  purchase  of
               equipment and to upgrade and manufacturing facility.

               Bond financings consisted of the following at March 31:
<TABLE>
<CAPTION>

                                                                     2006              2005
                                                                     ----              ----

<S>                                                               <C>                <C>
                  Refinanced NJEDA Bonds                          $4,155,000         $      ---
                  EDA Bonds                                              ---          2,345,000
                                                                  ----------         ----------
                                                                   4,155,000          2,345,000
                  Current portion                                   (175,000)          (165,000)
                                                                  ----------         ----------
                  Long term portion, net of current maturities    $3,980,000         $2,180,000
                                                                  ==========         ==========
</TABLE>

                  Maturities of Bonds for the next five years follow:

                            YEAR ENDING MARCH 31,                AMOUNT
                            ---------------------                ------
                                     2007                       $  175,000
                                     2008                          185,000
                                     2009                          200,000
                                     2010                          210,000
                                     2011                          225,000
                                  Thereafter                     3,160,000
                                                                ----------
                                                                $4,155,000
                                                                ==========

               In 2004, the Company entered into a loan and financing  agreement
               to  purchase  machinery  and  equipment.  The  $400,000  loan was
               payable in 36 monthly  installments of $13,671,  each,  including
               principal  and interest at 14% annum.  As part of the  agreement,
               the Company issued to the lender's designees warrants to purchase
               50,000 shares of the  Company's  Common Stock at $4.20 per share.
               The  warrants  vested  immediately  and their cost of $41,252 was
               charged to expense in the year  ended  March 31,  2005.  Proceeds
               from the  refinancing of the Company's EDA Bonds were used to pay
               off the unpaid portion of the loan.

                                      F-17


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 6       - INCOME TAXES

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

                                               YEAR ENDED MARCH 31,
                                      --------------------------------------
                                       2006            2005            2004
                                       ----            ----            ----
               Federal:

                   Current            $  ---          $  ---          $  ---
                   Deferred              ---             ---             ---
                                      ------          ------          ------
                                         ---             ---             ---
                                      ------          ------          ------

               State:

                   Current             1,000           1,000           1,000
                   Deferred              ---             ---             ---
                                      ------          ------          ------
                                       1,000           1,000           1,000
                                      ------          ------          ------
                                      $1,000          $1,000          $1,000
                                      ======          ======          ======

               During the years ended March 31, 2006,  2005 and 2004 the Company
               received  approval  for  the  sale of an  additional  $2,798,478,
               $2,628,257  and  $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 benefits received during the year ended March 31, 2006,
               2005 and 2004 were $219,121, $205,792 and $151,027,  respectively
               and are recorded as other income in the statements of operations.

               The major components of deferred tax assets at March 31, 2006 and
               2005 are as follows:

                                                        2006            2005
                                                        ----            ----
               Net operating loss carry forwards     $ 10,785,800   $ 8,422,225
               Valuation allowance                    (10,785,800)   (8,422,225)
                                                     ------------   -----------
                                                     $        ---   $       ---
                                                     ============   ===========

               At March  31,  2006  and  2005,  a 100%  valuation  allowance  is
               provided,  as it is  uncertain  if the  deferred  tax assets will
               provide any future benefits because of the uncertainty  about the
               Company's ability to generate the future taxable income necessary
               to use  the  net  operating  loss  carryforwards.  The  valuation
               allowance  increased  during 2006,  2005 and 2004 by  $2,363,575,
               $1,685,889 and $2,250,169, respectively.

               At March 31, 2006, for federal  income tax purposes,  the Company
               has unused net  operating  loss  carryforwards  of  approximately
               $29,150,810   expiring  in  2007  through  2025.  For  state  tax
               purposes,  the Company has  $11,018,094  of unused net  operating
               losses,  which  are  net of the  $14,966,238  of the  New  Jersey
               net-operating losses sold, as discussed above.

                                      F-18


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 7 -       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  in  return
               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 the expiration dates of certain options held by
               Mehta to  purchase  770,000  shares  of  Common  Stock at  prices
               ranging from $1.00 to $10.00 per share. The Company also provided
               him with certain "piggyback"  registration rights with respect to
               shares underlying his options and 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  obligated  the
               Company to bear  Mehta's  legal and other  expenses not to exceed
               $50,000 for the two year period from the litigation settlement.

               On July 23, 2003, the Company  entered into an agreement with its
               new Chief  Executive  Officer,  Bernard Berk. The initial term of
               this agreement was 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 June 3, 2003 grant to Mr. Berk of
                    options to purchase  300,000 shares of the Company's  Common
                    Stock at $2.01 per share. All of these options are vested.

                                      F-19


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 7 -       COMMITMENTS AND CONTINGENCIES (CONTINUED)

               EMPLOYMENT AGREEMENTS (CONTINUED)

               -    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.

               On  September  2, 2005,  the Company  entered into an amended and
               restated  Employment  Agreement  ("Restated  Agreement") with Mr.
               Berk,  providing  for him to continue  to serve as the  Company's
               Chief  Executive  Officer  through  August 31, 2009. The Restated
               Agreement  provides  for an  annual  bonus as  determined  by the
               Compensation Committee of the Company's Board of Directors.

               Pursuant to the Restated Agreement:

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

               -    Mr. Berk's salary was increased to $330,140 effective May 1,
                    2005 but not payable until November 1, 2005.

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

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

                                      F-20


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 7 -       COMMITMENTS AND CONTINGENCIES (CONTINUED)


               CONSULTING AGREEMENTS

               The Company has two one year renewable consulting  agreements for
               consulting  services that include  advice with respect to overall
               strategic planning, financing opportunities,  acquisition policy,
               commercial and investment banking  relationships and stockholders
               matters.  In  consideration  for the  services,  the Company paid
               $75,000  and issued a warrant to purchase  100,000  shares of the
               Company's Common Stock to each of the two consultants. Consulting
               expenses under both  agreements  aggregated  $75,000 and $165,000
               for the years  ended  March 31,  2006 and 2005  respectively  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 to November 2005 at $75,000 each.

               REFERRAL AGREEMENTS

               On  January  29,  2002,  the  Company  entered  into  a  Referral
               Agreement  with a Director  whereby  Elite will pay referral fees
               based upon  payments net of direct  costs  received by Elite from
               sales of products, development fees, licensing fees and royalties
               generated  as  a  direct  result  of  this  Director  identifying
               customers for Elite.  The referral fee each year is roughly based
               on the  percentages  of from 1% to 5%  applied  inversely  to the
               total amount gross  margins  attributable  to the  referrals.  No
               amounts had been earned through March 31, 2006.

               COLLABORATIVE AGREEMENTS

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

                                      F-21


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 7 -       COMMITMENTS AND CONTINGENCIES (CONTINUED)

               COLLABORATIVE AGREEMENTS (CONTINUED)

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

               On June 22, 2005, the Company and Pliva,  Inc.  ("Pliva") entered
               into a Product  Development and License Agreement,  providing for
               the  development  and license of a  controlled  released  generic
               anti-infective drug formulated by the Company.  The Company is to
               manufacture  and Pliva is to  market  and sell the  product.  The
               development costs are to be paid by Pliva and the Company and the
               profits  are to be  shared  equally.  Pliva is to make  milestone
               payments to the Company.

               On  March  30,  2005,   the  Company   entered  into  a  product,
               development, manufacturing and distribution agreement with Harris
               Pharmaceutical,   Inc.   ("Harris")  and  Tish  Technologies  LLC
               ("Tish")   with   respect  to  a   controlled   release   generic
               anti-infective  drug.  The product is a generic  equivalent  to a
               branded drug. The agreement provides for (i) the drug development
               by Elite  with  costs of  development  to be  shared by Elite and
               Harris, (ii) the manufacture of the product by Elite and its sale
               to Harris for distribution,  and (iii) Tish 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.

               The aforementioned agreements are in their infancy stages.

               The Company is a party to two separate  and distinct  development
               and license agreements with ECR, another pharmaceutical  company.
               The Company  developed  Lodrante 24(R) which is now being sold by
               ECR. The Company is also  developing  a second drug  compound for
               ECR in exchange for certain  payments and royalties.  The Company
               is  manufacturing  Lodrane  24(R)  and also,  per the  agreement,
               reserves the right to manufacture the second product. The Company
               received an  aggregate  of $550,000  under these two  agreements,
               which were earned during the year ended March 31, 2002.

                                      F-22


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 8 -       STOCKHOLDERS' EQUITY

               During 2005,  the  Certificate  of  Incorporation  was amended to
               increase the number of  authorized  shares of capital  stock from
               25,000,000  shares 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.

               LOSS PER COMMON SHARE

               Basic net loss per common share has been  calculated  by dividing
               the net loss by the weighted average number of shares outstanding
               during the periods  presented.  Diluted earnings per share is not
               presented  because  the  effect  of the  Company's  common  stock
               equivalents is 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>

                                       2006                             2005                              2004
                                            WEIGHTED-                         WEIGHTED-                         WEIGHTED-
                                             AVERAGE                           AVERAGE                           AVERAGE
                                             EXERCISE                         EXERCISE                          EXERCISE
                             SHARES           PRICE            SHARES           PRICE           SHARES            PRICE
<S>                          <C>           <C>                 <C>           <C>                <C>           <C>
          Stock options      2,971,250     $       2.36        2,277,050     $       2.16       2,417,060     $       3.70
          Convertible        4,444,444
          Preferred Stock                  $       2.25
                           ------------                     -------------                     ------------
          Warrants           6,079,199     $       2.26        8,035,875     $       2.69       2,654,239     $       4.72
                           ------------                     -------------                     ------------
                            13,494,893                        10,312,925                        5,071,289
                           ============                     =============                     ============
</TABLE>

                                      F-23


<PAGE>



                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 8 -       STOCKHOLDERS' EQUITY (CONTINUED)

               SERIES B 8% CONVERTIBLE PREFERRED STOCK

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

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

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

                                      F-24


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 8 -       STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

               SERIES B 8% CONVERTIBLE PREFERRED STOCK TRANSACTION (CONTINUED)

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

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

                                      F-25


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 8 -       STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

               SERIES B 8% CONVERTIBLE PREFERRED STOCK TRANSACTION (CONTINUED)

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

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

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

               SERIES 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  (the  "INVESTORS")  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

                                      F-26


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 8 -       STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

               SERIES A 8% CONVERTIBLE PREFERRED STOCK TRANSACTION (CONTINUED)

               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 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.

               The Company has  registered at its expense  under the  Securities
               Act of 1933 (the "ACT") for resale by the Investors of 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 Investor has represented that the Investor 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 to pay him $229,325 for consulting fees for
               services rendered through September 30, 2004.

                                      F-27


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 8 -       STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

               COMMON STOCK TRANSACTIONS

               Pursuant  to the  Certificate  of  Designation  of the  Series  A
               Preferred Stock of the Corporation, all outstanding 21,922 shares
               of Preferred Stock were automatically  converted on March 7, 2005
               into  219,200  shares of Common  Stock,  par value $0.01 upon the
               Corporation  as a  result  of the  Company's  written  notice  to
               holders of Preferred  Stock  certifying  that the Current  Market
               Price of the Common  Stock for 30  consecutive  Trading Days from
               January 18, 2005  through and  including  March 1, 2005  exceeded
               $3.69 (300% of the Initial  Conversion  Price of $1.23 per share)
               and the average daily trading volume of the Common Stock for such
               30 consecutive Trading Days equaled or exceeded 50,000 shares per
               day.

               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.  Pursuant to the terms of an Exchange
               Offer,  the  Company  sold on or before  the  expiration  date of
               December 31, 2005, an aggregate of 735,674 shares of common stock
               upon the exercise for cash of Short Term  Warrants for  aggregate
               gross  proceeds of  $1,172,912  and issued five year  Replacement
               Warrants to  purchase at a price of $3.00 per share an  aggregate
               220,705 shares of the Company's  Common Stock. The Exchange Agent
               received  cash  commissions  aggregating  $76,418  and  five-year
               placement  warrants to purchase an aggregate of 25,473  shares of
               Common  Stock  at a price  of  $3.00  per  share.  The  remaining
               unexercised  Short Term  Warrants,  issued as part of the Private
               Placement in October 2004, expired on December 31, 2005.

               During  the year  ended  March  31,  2006,  there  were  cashless
               exercises  of  1,066,612  warrants  resulting  in the issuance of
               310,678 shares of Common Stock.

               On May 18, 2005, $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  $156,503  were  received  and 101,625  shares of
               Common Stock were issued upon 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 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 its 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-28


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 8 -       STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

               INSIDER TRADING

               During  fiscal 2005,  the former  Chairman of the Board  remitted
               $117,740 to the Company to return his gain under Section 16(b) of
               the Securities  Exchange Act of 1934, from the purchase and sale,
               of the Company's equity securities within a period of six months.

               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 it 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.

                                      F-29


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 8 -     STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

               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 $4.20 per warrant. The warrants expire
               at various times through March 15, 2011.

               A summary of warrant  activity  for the  fiscal  years  indicated
               below were as follows:

<TABLE>
<CAPTION>

                                                                               2006                2005               2004
                                                                               ----                ----               ----

<S>                                                                           <C>                 <C>                 <C>
             Balance at beginning of year:                                    8,035,875           2,654,239           733,752
             Warrants issued                                                    220,705             200,000           200,000
             Warrants issued pursuant to Placement Agent
                       Agreements                                               381,028             519,931            50,000
             Warrants issued pursuant to Private Placement                    2,222,222           5,165,580               ---
             Placement Agent Warrants Exercised                                     ---              (7,500)              ---
             Class C Warrants                                                       ---                 ---         1,723,237
             Warrants exercised or expired                                   (4,780,631)           (496,375)          (52,750)
                                                                             ----------           ---------         ---------

             Ending balance                                                   6,079,199           8,035,875         2,654,239
                                                                             ==========           =========         =========
</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 the New Warrants to the record  holders as of November 30,
               2002 of the Old Warrants without requiring any cash payment.

                                      F-30


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 8 -       STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

               CLASS A WARRANT EXCHANGE OFFER (CONTINUED)

               The New Warrants expired on November 30, 2005.

               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.

               CLASS B WARRANTS

               The  Company's  Class B Warrants  originally  issued in a private
               placement in September  1998 expired on November 30, 2005,  their
               amended expiration date.

NOTE 9 -       STOCK OPTION PLANS

               STOCK-BASED COMPENSATION

               During the years ended March 31, 2004,  2005 and 2006 the Company
               issued 1,024,000,  120,000 and 969,200,  respectively  options to
               purchase Common Stock to employees and to members of the board of
               directors.  The options have an exercise price ranging from $2.69
               to $3.00 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 and 75,000  issued for the
               year  ending  March 31, 2006 which vest  pro-rata  over a 6 month
               period.  The options  expire  between five and ten years from the
               date of grant. The Company has recorded  compensation  expense of
               $1,166,601,  $370,108  and $902,927 for the years ended March 31,
               2004,  2005 and 2006,  respectively,  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.

                                      F-31


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 9 -       STOCK OPTION PLANS  (CONTINUED)

               STOCK-BASED COMPENSATION (CONTINUED)

               Under its 2004 Stock  Option  Plan and prior  option  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  plans  for  the  years
               indicated were as follows:
<TABLE>
<CAPTION>

                                2006                               2005                                2004
                                       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   2,277,050         $   2.16        2,417,050         $   3.70              2,266,850       $  5.74
Granted               969,200             2.74          120,000             2.34              1,024,000          2.23
Exercised             (20,000)            2.00         (100,000)            1.00                (15,000)         2.00
Expired              (255,000)            2.04         (160,000)            7.13               (858,800)         7.38
                    ---------         --------        ---------         --------              ---------       -------
Outstanding at
end of year         2,971,250             2.36        2,277,050         $   2.16              2,217,050          3.70
                    =========         ========        =========         ========              =========       =======
</TABLE>

               The following table  summarizes  information  about stock options
               outstanding at March 31, 2006:
<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            203,750              1.75            $1.75             203,750       $ 1.75
                 $2.01 - $3.00           2,767,500              7.30             2.40           1,835,800         2.27
                 --------------          ---------              ----            -----           ---------       ------
                  $1.00 - 3.00           2,971,250              6.23            $2.34           2,039,550       $ 2.22
                 --------------          ---------              ----            -----           ---------       ------
</TABLE>

                                      F-32


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 9 -       STOCK OPTION PLANS  (CONTINUED)

               STOCK-BASED COMPENSATION (CONTINUED)

               The per share  weighted-average fair value of each option granted
               during  fiscal  2006,  2005 and 2004  ranged  from $1.48 to $1.70
               during  fiscal 2006,  $1.91 during  fiscal 2005 and from $1.03 to
               $2.68  during  fiscal  2004,  on the  date  of  grant  using  the
               Black-Scholes   options   pricing   model   with  the   following
               weighted-average   assumptions;   no  dividend  yield;   expected
               volatility of 97.84% for fiscal year 2006, 76.69% for fiscal year
               2005 and  75.47%  to  77.97%  for  fiscal  year  2004;  risk-free
               interest rates of 4.18% in 2006,  4.00% in 2005, 4.0% in 2004 and
               expected lives ranging from five to ten years.

               There are 1,602,520  options available for future grant under our
               Stock Option Plan.

NOTE 10 -      MAJOR CUSTOMERS

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

                                 2006        2005          2004
                                 ----        ----          ----


               Customer A -      100%       49.80%        40.70%
               Customer B -       ---         ---         59.30%
               Customer C -       ---       49.80%          ---


NOTE 11 -      SUBSEQUENT EVENTS

               In April 2006, the Company's  registration  statement on Form S-3
               registering  under the  Securities  Act of 1933,  as amended  for
               reoffering  up to  9,876,022  shares of Common Stock which may be
               acquired upon  conversion of the  outstanding  shares of Series B
               Preferred  Stock,  upon payment of Preferred  Stock dividends and
               upon exercise of the Common Stock Purchase Warrants issued in the
               March  2006  private  placement  was  declared  effective  by the
               Commission.

               In April 2006, the Company's  registration  statement on Form S-3
               registering  under the  Securities  Act of 1933,  as amended  for
               reoffering  up to  246,175  shares of Common  Stock  which may be
               acquired  upon  exercise of the Common  Stock  Purchase  Warrants
               issued  in the  December  2005  private  placement  was  declared
               effective by the Commission.

                                      F-33


<PAGE>


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2006, 2005 AND 2004

NOTE 11 -      SUBSEQUENT EVENTS (CONTINUED)

               On May 3, 2006, the Company  granted  options to purchase  70,000
               shares of common stock with and exercise price of $2.26 per share
               to its chief financial officer, one-third of the options vests on
               May 3, 2007,  a second  third  which vests on May 3, 2008 and the
               final third vests on May 3, 2009.

               On May 22,  2006, a holder of 250 shares of Series B 8% Preferred
               Stock converted his shares and accrued dividends through the date
               of conversion into 112,429 shares of Common Stock.

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

               On  June  1,  2006,  the  Registrant  entered  into  a  one  year
               consulting  agreement  with David Filer,  whereby Dr. Filer is to
               provide   financial   advisory   services  to  the  Company.   In
               consideration  for his services,  Dr. Filer  received  options to
               purchase 10,000 shares of common stock  exercisable  from June 1,
               2006 to June 1, 2009, with an exercise price of $3.00 per share.

               On June 19, 2006, the Company received written notice from Harris
               Pharmaceuticals,  Inc.  ("HARRIS") of Harris' intent to terminate
               the   Product   Development,   Manufacturing   and   Distribution
               Agreement,  dated as of March 30, 2005 (the  "Agreement"),  among
               Elite  Laboratories,  Inc.,  Harris  and  Tish  Technologies  LLC
               ("TISH") in accordance with Section 9.3 of the Agreement.  As the
               date hereof,  there have been no material  revenues  earned under
               the Agreement.

                                      F-34


<PAGE>


                                   Exhibit 21

                           Subsidiaries of the Company

Elite Laboratories, Inc., a Delaware corporation

Elite Research, Inc., a Delaware corporation