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, 2010





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:  001-15697





ELITE
PHARMACEUTICALS, INC.


(Exact
name of registrant as specified in its charter)





Delaware
                
                22-3542636(State
      or other jurisdiction
                
                (IRS
      Employerof
      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 Section 12(b) of the Act:





Title
      of Each Class
              
              Name
      of Exchange on Which RegisteredNone





Securities
Registered pursuant to Section 12(g) of the Act:


Common
Stock, $0.001 par value





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as
      defined in Rule 405 of the Securities Act
              
              Yes
       ̈
              No
      xIndicate
      by check mark if the registrant is not required to file reports pursuant
      to Section 13 or 15(d) of the Act
              
              Yes
       ̈
              No
      xIndicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that registrant
      was required to file such reports) and (2) has been subject to such filing
      requirements for at least the past 90 days.
              
              Yes
      x
              No
       ̈Indicate
      by check mark whether the registrant has submitted electronically and
      posted on its corporate Web site, if any, every Interactive Data File
      required to be submitted and posted pursuant to Rule 405 of Regulation S-T
      (§ 232.405 of this chapter) during the preceding 12 months (or for such
      shorter period that the registrant was required to submit and post such
      files).  The registrant is not yet subject to this
      requirement.
              
              Yes
       ̈
              No
      x










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.
              
              Yes
       ̈
              No
       ̈





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





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





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).


Yes  ̈                          No  x





State the
aggregate market value of the voting common equity held by non-affiliates
computed by reference to the price at which the common equity was last sold as
of the last business day of the registrant’s most recently completed second
fiscal quarter (for purposes of determining this amount, only directors,
executive officers and, based on Schedule 13(d) filings as of September 30,
2009, 10% or greater stockholders, and their respective affiliates, have been
deemed affiliates.  This determination of affiliate status is not
necessarily a conclusive determination for other purposes).





Title
      of Class
              
              Aggregate
      Market Value
              
              As
      of Close of Business onCommon
      Stock - $0.001 par value
              
              $4,651,271
              
              September
      30, 2009





Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date





Title
      of Class
              
              Shares
      Outstanding
              
              As
      of Close of Business onCommon
      Stock - $0.001 par value
              
              87,352,981
              
              June
      30, 2010





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, as amended. The listed documents should be
clearly described for identification purposes (e.g., annual report to security
holders for fiscal year ended December 24, 1980).


ii


FORWARD LOOKING
STATEMENTS





This
Annual Report on Form 10-K and the documents incorporated herein contain
“forward-looking statements”.   Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking
statements.  Many of these risks and uncertainties are discussed in
this report, particularly in the sections titled “Business”, “Risk Factors” and
“Management’s Discussion and Analysis of Financial Conditions and Results of
Operations”.  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


Table
of Contents





Form 10-K
Index





PAGEPART  IItem
      1.
                Business
                
                5Item
      1A.
                Risk
      Factors
                
                13Item
      1B.
                Unresolved
      Staff Comments
                
                24Item
      2.
                Properties
                
                24Item
      3.
                Legal
      Proceedings
                
                25Item
      4.
                Removed
      and Reserved
                
                29PART  IIItem
      5.
                Market
      for Company’s Common Equity and Related Stockholder
Matters
                
                29Item
      6.
                Selected
      Financial Data
                
                31Item
      7.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
                
                32Item
      7A.
                Quantitative
      and Qualitative Dosclosures About Market Risk
                
                41Item
      8.
                Financial
      Statements and Supplementary Data
                
                41Item
      9.
                Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                
                41Item
      9A.
                Controls
      and Procedures
                
                42Item
      9B.
                Other
      Information
                
                43PART  IIIItem
      10.
                Directors
      and Executive Officers of the Company
                
                44Item
      11.
                Executive
      Compensation
                
                47Item
      12.
                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                
                59Item
      13.
                Certain
      Relationships and Related Transactions
                
                62Item
      14.
                Principal
      Accounting Fees and Services
                
                64PART  IVItem
      15.
                Exhibits,
      Financial Statements and Schedules
                
                64Signatures
                
                
                72




iv


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 its 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.





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, pursuant to a termination agreement, dated as of September
30, 2002 (the “Elan
Termination Agreement”), between us and Elan Corporation, plc and Elan
International Services, Ltd. (together “Elan”), we acquired from Elan
its 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 (the “SEC”). You may read and copy
any materials we file with the SEC at the SEC’s Public Reference Room at 100 F
Street, N.W., Washington, DC 20549, on official business days during the hours
of 10:00 am to 3:00 pm. 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, such as us, that file electronically
with the SEC.  You may also visit our website at www.elitepharma.com
for information regarding the Company including information relating to our SEC
filings.





Business
Overview and Strategy





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





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


5


Strategy





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





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





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





FDA
Approval for generic Methadone tablets




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




A current
report on form 8-K was filed on December 2, 2009 in relation to this
announcement.   The information included in that filing is
incorporated herein by reference.





Elite
Purchased A Generic Hydromorphone HCl Product





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





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





Research
and Development





During
each of the last two fiscal years, we have focused on research and development
activities.  We spent $794,433 for the fiscal year ended March 31,
2010 and $3,631,425 for the fiscal year ended March 31, 2009 on research and
development activities.  We have reduced our research and development
spending this past year to conserve our cash, but we continue our development
work for ELI-216 and ELI-154 and for a number of generic
products.


6


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.





Commercial
Products





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





Lodrane
24®, was first commercially offered in November 2004 and Lodrane 24D® was first
commercially offered in December 2006.  Elite’s revenues for
manufacturing these products and a royalty on sales for the years ended March
31, 2010 and 2009 aggregated $3,339,870 and, $2,274,825,
respectively.





Approved
Products





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





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





Products
Under Development





ELI-154
and ELI-216





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




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


7


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




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




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




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





Epic
Strategic Alliance Agreement





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





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





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





Novel
Labs Investment





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


8


Patents





Since our
incorporation, we have secured seven United States patents of which two have
been assigned for a fee to another pharmaceutical company. Elite’s patents
are:





PATENT
                      
                      EXPIRATION
      DATEU.S.
      patent 5,871,776
                      
                      October
      28, 2016U.S.
      patent 5,902,632
                      
                      July
      31, 2017U.S.
      patent 5,837,284 (assigned to Celgene Corporation)
                      
                      November
      17, 2018U.S.
      patent 6,620,439
                      
                      October
      3, 2020U.S.
      patent 6,635,284 (assigned to Celgene Corporation)
                      
                      March
      11, 2018U.S.
      patent 6,926,909
                      
                      April
      4, 2023U.S.
      patent 6,984,402
                      
                      April
      10,
2023





We have
pending applications for four additional U.S. patents.  The pending
patent applications relate to two different controlled-release pharmaceutical
products on which we are working.  Three of these patents are 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 the
opioids.  Another U.S. patent is 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.  We have also
filed corresponding foreign applications for key patents.





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 Competition 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. Such benefits
under the Drug Price Competition Act are available only to the first approved
use of the active ingredient in the drug product and may be applied only to one
patent per drug product. There can be no assurance that we will be able to take
advantage of this law.





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





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


9


Trademarks





We
currently plan to license our products to marketing partners and not to sell
under our own brand name and so we do not currently intend to register any
trademarks related to our products.





Government
Regulation and Approval





The
design, development and marketing of pharmaceutical compounds, on which our
success depends, are intensely regulated by governmental regulatory agencies, in
particular 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 either by an NDA or an
ANDA, each of which is discussed below.





NDAs
and NDAs under Section 505(b) of the Drug Price Competition Act





The FDA
approval procedure for an NDA is generally a two-step process. During the
Initial Product Development stage, an investigational new drug application
(“IND”) for each
product is filed with the FDA.  A 30-day waiting period after the
filing of each IND is required by the FDA prior to the commencement of initial
clinical testing. If the FDA does not comment on or question the IND within such
30-day period, initial clinical studies may begin. If, however, the FDA has
comments or questions, they must be answered to the satisfaction of the FDA
before initial clinical testing may begin. In some instances this process could
result in substantial delay and expense.  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, which are already marketed drugs, would be made
under Sections 505 (b)(1) or 505 (b)(2) of the Drug Price Competition 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, during 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.  We intend
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.


10


ANDAs





The FDA
approval procedure for an ANDA differs from the procedure for a NDA in that the
FDA waives the requirement of conducting complete clinical studies, although it
normally requires bioavailability and/or bioequivalence studies.
“Bioavailability” indicates the rate and extent of absorption and levels of
concentration of a drug product in the blood stream needed to produce a
therapeutic effect. “Bioequivalence” compares the bioavailability of one drug
product with another, and when established, indicates that the rate of
absorption and levels of concentration of the active drug substance in the body
are equivalent for the generic drug and the previously approved drug. An ANDA
may be submitted for a drug on the basis that it is the equivalent of a
previously approved drug or, in the case of a new dosage form, is suitable for
use for the indications specified.





The
timing of final FDA approval of an ANDA depends on a variety of factors,
including whether the applicant challenges any listed patents for the drug and
whether the brand-name manufacturer is entitled to one or more statutory
exclusivity periods, during which the FDA may be prohibited from accepting
applications for, or approving, generic products. In certain circumstances, a
regulatory exclusivity period can extend beyond the life of a patent, and thus
block ANDAs from being approved on the patent expiration date.




In May
1992, Congress enacted the Generic Drug Enforcement Act of 1992, which allows
the FDA to impose debarment and other penalties on individuals and companies
that commit certain illegal acts relating to the generic drug approval process.
In some situations, the Generic Drug Enforcement Act requires the FDA to not
accept or review ANDAs for a period of time from a company or an individual that
has committed certain violations. It also provides for temporary denial of
approval of applications during the investigation of certain violations that
could lead to debarment and also, in more limited circumstances, provides for
the suspension of the marketing of approved drugs by the affected company.
Lastly, the Generic Drug Enforcement Act allows for civil penalties and
withdrawal of previously approved applications.  Neither we nor any of
our employees have ever been subject to debarment. We do not believe that we
receive any services from any debarred person.




Controlled
Substances





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


11


Competition





We have
competition with respect to our two principal areas of operation.  We
develop and manufacture generic products and 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) generic and proprietary
controlled-release pharmaceutical products. In both areas, our competition
consists of those companies which develop controlled-release drugs and
alternative drug delivery systems.  We do not represent a significant
presence in the pharmaceutical industry.





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





In
addition to competitors that are developing products based on drug delivery
technologies, there are also companies that have announced that they are
developing opioid abuse-deterrent products that might compete directly or
indirectly with Elite’s products.  These include, but are not limited
to King Pharmaceuticals, Pain Therapeutics (which has an agreement with Durect
Corporation and King Pharmaceuticals), Collegium Pharmaceuticals, Inc., Purdue
Pharma LP, and Acura Pharmaceuticals, Inc.





We also
face competition in the generic pharmaceutical market. The principal competitive
factors in the generic pharmaceutical market include: (i) introduction of other
generic drug manufacturers’ products in direct competition with our products
under development, (ii) introduction of authorized generic products in
direct competition with any of our products under development, particularly if
such products are approved and sold during exclusivity periods,
(iii) consolidation among distribution outlets through mergers and
acquisitions and the formation of buying groups, (iv) ability of generic
competitors to quickly enter the market after the expiration of patents or
exclusivity periods, diminishing the amount and duration of significant profits,
(v) the willingness of generic drug customers, including wholesale and
retail customers, to switch among pharmaceutical manufacturers,
(vi) pricing pressures and product deletions by competitors, (vii) a
company’s reputation as a manufacturer and distributor of quality products,
(viii) a company’s level of service (including maintaining sufficient
inventory levels for timely deliveries), (ix) product appearance and
labeling and (x) a company’s breadth of product offerings.





Sources
and Availability of Raw Materials; Manufacturing





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:


12


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


·
            the
      relative instability of some foreign governments and
      economies;


·
            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


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





We
contract manufacture two products for commercial sale by our customer, ECR
Pharmaceuticals.  We have recently experienced delays when passing imported
raw materials through customs.  We have also had a shipment for one of the
imported raw materials rejected at customs under Federal Drug & Cosmetic Act
(FD&CA) Sections 502(f)(1) and 801(a)(3).  ECR Pharmaceuticals is
responsible for regulatory matters related to these products.  We have
notified ECR Pharmaceuticals and they have initiated a discussion with the
FDA.  If rejection of this raw material at customs continues, it could
prevent us from manufacturing these products.




Please
see the Risk Factor entitled “Even after regulatory approval, we will be subject
to ongoing significant regulatory obligations and oversight” at Item
1A.




While we
currently obtain the raw materials that we need from over 20 suppliers, some
materials used in our products are currently available from only one supplier or
a limited number of suppliers.  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.





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 revenues 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.  We have an agreement with ECR which sells and distributes
two products that we manufacture:  Lodrane 24® and Lodrane
24D®.  We receive revenues to manufacture these products and also
receive royalties based on in-market sales of the products.  These are
our only products that are being sold commercially now and are the primary
source of our revenue currently.





Employees





As of
June 15, 2010, we had 16 employees.  Full-time employees are engaged
in operations, 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.





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 us and in
analyzing our forward-looking statements.


13


RISKS
RELATED TO OUR BUSINESS





We
have a relatively limited operating history, which makes it difficult to
evaluate our future prospects.





Although
we have been in operation since 1990, we have a relatively short operating
history and limited financial data upon which you may evaluate our business and
prospects. In addition, our business model is likely to continue to evolve as we
attempt to expand our product offerings and our presence in the generic
pharmaceutical market. 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:





·
            develop
      new products;


·
            obtain
      regulatory approval of our
products;


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


·
            attract,
      retain and motivate qualified personnel;
and


·
            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 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. For the past two years, we
incurred net losses of $8,056,874 and $6,604,708, respectively. We expect to
continue to incur losses until we are able to generate sufficient revenues to
support our operations and offset operating costs.




There
is doubt as to our ability to continue as a going concern.




On June
21, 2010, we had cash reserves of approximately $400,000which permits us to
continue at our anticipated level of operations, including, but not limited to,
the continued development of our pipeline products, through July 2011. The completion of all
transactions contemplated by the Epic Strategic Alliance Agreement, including
the consummation of the third closing thereof, will provide additional funds to
permit us to continue development of our product pipeline for more than 2
years.  Beyond 2 years, we are anticipating that, with growth of
Lodrane; the launch of the ANDA for the methadone product that was approved last
year with our co-development partner, The PharmaNetwork; and the launch of the
generic hydromorphone product that we purchased, Elite could be profitable.In addition, the
commercialization of the Epic products developed under the Epic Strategic
Alliance Agreement will add a new revenue source for Elite.  However,
there can be no assurances as to the success of the development of such Epic
products or the commercialization of such Epic products.




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





If
we are unable to obtain additional financing needed for the expenditures for the
development and commercialization of our drug products, it would impair our
ability to continue to meet our business objectives.





We
continue to require additional financing to ensure that we will be able to meet
our expenditures to develop and commercialize our products.  As of
June 21, 2010 we had cash and cash equivalents of approximately $400,000. We
believe that our existing cash and cash equivalents plus revenues from sale of
our Lodrane 24® and Lodrane 24D® products will be sufficient to fund our
anticipated operating expenses and capital requirements through July
2011.  We will require additional funding in order to continue to
operate thereafter.   If the third and quarterly payment closings
of the transactions contemplated by the Epic Strategic Alliance Agreement are
not closed on a timely basis, or if another financing or strategic alternative
providing sufficient resources to allow us to continue operations is not
consummated upon exhaustion of our current capital, we will be required to cease
operations and liquidate our assets. No assurance can be given that we will be
able to consummate the third and quarterly payment closings under the Epic
Strategic Alliance Agreement on a timely basis, or consummate such other
financing or strategic alternative in the time necessary to avoid the cessation
of our operations and liquidation of our assets. Moreover, even if we consummate
the third and quarterly payment closings under the Epic Strategic Alliance
Agreement, or such other financing or strategic alternative, we may be required
to seek additional capital in the future and there can be no assurances that we
will be able to obtain additional capital on favorable terms, if at
all.


14


If
Novel Laboratories issues additional equity in the future our equity interest in
Novel may be diluted, resulting in a decrease in our share of any dividends or
other distributions which Novel may issue in the future.




As a
result of our determination not to fund our remaining contributions to Novel at
the valuation set forth in the Novel Alliance Agreement and the resulting
purchase from us of a portion of our shares of Class A Voting Common Stock of
Novel by VGS Pharma, LLC, our remaining ownership interest in equity of Novel
was reduced to approximately 10% of the outstanding shares of
Novel.  Novel may seek to raise additional operating capital in the
future and may do so by the issuance of equity.  If Novel issues
additional equity, our future equity interest in Novel will decrease and we will
be entitled to a decreased portion of any dividends or other distributions which
Novel may issue in the future.  Novel also has a company sponsored
stock option plan and any equity issued from this stock plan will also reduce
Elite’s equity interest in Novel.




Substantially all of our product
candidates are at an early stage of development and only a portion of these are
in clinical development.





ELI-154
and ELI-216 are pre-Phase III and two of our generic products are still at an
early stage of development. Other than Lodrane 24® and Lodrane 24D®, which are
commercial drug products, and a generic drug product for which an ANDA was
approved in 2009 and a generic drug product which Elite purchased in 2010, we
will need to perform additional development work for the additional product
candidates in our pipeline before we can seek the regulatory approvals necessary
to begin commercial sales.





If
we are unable to satisfy regulatory requirements, we may not be able to
commercialize our product candidates.





We need
FDA approval prior to marketing our product candidates in the United States of
America. If we fail to obtain FDA approval to market our product candidates, we
will be unable to sell our product candidates in the United States of America
and we will not generate any revenue from the sale of such
products.





This
regulatory review and approval process, which includes evaluation of preclinical
studies and clinical trials of our product candidates, is lengthy, expensive and
uncertain. To receive approval, we must, among other things, demonstrate with
substantial evidence from well-controlled clinical trials that our product
candidates are both safe and effective for each indication where approval is
sought. Satisfaction of these requirements typically takes several years and the
time needed to satisfy them may vary substantially, based on the type,
complexity and novelty of the pharmaceutical product. We cannot predict if or
when we might submit for regulatory approval any of our product candidates
currently under development. Any approvals we may obtain may not cover all of
the clinical indications for which we are seeking approval. Also, an approval
might contain significant limitations in the form of narrow indications,
warnings, precautions, or contra-indications with respect to conditions of
use.





The FDA
has substantial discretion in the approval process and may either refuse to
accept an application for substantive review or may form the opinion after
review of an application that the application is insufficient to allow approval
of a product candidate. If the FDA does not accept our application for review or
approve our application, it may require that we conduct additional clinical,
preclinical or manufacturing validation studies and submit the data before it
will reconsider our application. Depending on the extent of these or any other
studies that might be required, approval of any applications that we submit may
be delayed by several years, or we may be required to expend more resources than
we have available. It is also possible that any such additional studies, if
performed and completed, may not be considered sufficient by the FDA to make our
applications approvable. If any of these outcomes occur, we may be forced to
abandon our applications for approval.


15


We will
also be subject to a wide variety of foreign regulations governing the
development, manufacture and marketing of our products. Whether or not an FDA
approval has been obtained, approval of a product by the comparable regulatory
authorities of foreign countries must still be obtained prior to manufacturing
or marketing the product in those countries. The approval process varies from
country to country and the time needed to secure approval may be longer or
shorter than that required for FDA approval. We cannot assure you that clinical
trials conducted in one country will be accepted by other countries or that
approval of our product in one country will result in approval in any other
country.





Before
we can obtain regulatory approval, we need to successfully complete clinical
trials, outcomes of which are uncertain.





In order
to obtain FDA approval to market a new drug product, we must demonstrate proof
of safety and effectiveness in humans. To meet these requirements, we must
conduct extensive preclinical testing and “adequate and well-controlled”
clinical trials. Conducting clinical trials is a lengthy, time-consuming, and
expensive process. Completion of necessary clinical trials may take several
years or more. Delays associated with products for which we are directly
conducting preclinical or clinical trials may cause us to incur additional
operating expenses. The commencement and rate of completion of clinical trials
may be delayed by many factors, including, for example:





·
            ineffectiveness
      of our product candidate or perceptions by physicians that the product
      candidate is not safe or effective for a particular
      indication;


·
            inability
      to manufacture sufficient quantities of the product candidate for use in
      clinical trials;


·
            delay
      or failure in obtaining approval of our clinical trial protocols from the
      FDA or institutional review boards;


·
            slower
      than expected rate of patient recruitment and
  enrollment;


·
            inability
      to adequately follow and monitor patients after
  treatment;


·
            difficulty
      in managing multiple clinical
sites;


·
            unforeseen
      safety issues;


·
            government
      or regulatory delays; and


·
            clinical
      trial costs that are greater than we currently
  anticipate.





Even if
we achieve positive interim results in clinical trials, these results do not
necessarily predict final results, and positive results in early trials may not
be indicative of success in later trials. A number of companies in the
pharmaceutical industry have suffered significant setbacks in advanced clinical
trials, even after achieving promising results in earlier trials. Negative or
inconclusive results or adverse medical events during a clinical trial could
cause us to repeat or terminate a clinical trial or require us to conduct
additional trials. We do not know whether our existing or any future clinical
trials will demonstrate safety and efficacy sufficiently to result in marketable
products. Our clinical trials may be suspended at any time for a variety of
reasons, including if the FDA or we believe the patients participating in our
trials are exposed to unacceptable health risks or if the FDA finds deficiencies
in the conduct of these trials.





Failures
or perceived failures in our clinical trials will directly delay our product
development and regulatory approval process, damage our business prospects, make
it difficult for us to establish collaboration and partnership relationships,
and negatively affect our reputation and competitive position in the
pharmaceutical community.





Because
of these risks, our research and development efforts may not result in any
commercially viable products. Any delay in, or termination of, our preclinical
or clinical trials will delay the filing of our drug applications with the FDA
and, ultimately, our ability to commercialize our product candidates and
generate product revenues. If a significant portion of these development efforts
are not successfully completed, required regulatory approvals are not obtained,
or any approved products are not commercially successful, our business,
financial condition, and results of operations may be materially
harmed.


16


If
our collaboration or licensing arrangements are unsuccessful, our revenues and
product development may be limited.





We have
entered into several collaborations and licensing arrangements for the
development of generic products. However, there can be no assurance that any of
these agreements will result in FDA approvals, or that we will be able to market
any such finished products at a profit. Collaboration and licensing arrangements
pose the following risks:





·
            collaborations
      and licensing arrangements may be terminated, in which case we will
      experience increased operating expenses and capital requirements if we
      elect to pursue further development of the related product
      candidate;


·
            collaborators
      and licensees may delay clinical trials and prolong clinical development,
      under-fund a clinical trial program, stop a clinical trial or abandon a
      product candidate;


·
            expected
      revenue might not be generated because milestones may not be achieved and
      product candidates may not be
developed;


·
            collaborators
      and licensees could independently develop, or develop with third parties,
      products that could compete with our future
  products;


·
            the
      terms of our contracts with current or future collaborators and licensees
      may not be favorable to us in the
future;


·
            a
      collaborator or licensee with marketing and distribution rights to one or
      more of our products may not commit enough resources to the marketing and
      distribution of our products, limiting our potential revenues from the
      commercialization of a product;


·
            disputes
      may arise delaying or terminating the research, development or
      commercialization of our product candidates, or result in significant and
      costly litigation or arbitration;


·
            one
      or more third-party developers could obtain approval for a similar product
      prior to the collaborator or licensee resulting in unforeseen price
      competition in connection with the development product;
  and


·
            Epic
      may decide that the further or continuing development of one or more of
      the eight designated drug products being developed by Epic at our facility
      is no longer commercially feasible, delaying a potential source of revenue
      to us pursuant to the Epic Strategic Alliance Agreement.  In
      addition, there can be no assurance that any drug product designated by
      the parties as a replacement would be as strong a candidate for commercial
      viability as the drug product that it
replaced.





If
we are unable to protect our intellectual property rights or avoid claims that
we infringed on the intellectual property rights of others, our ability to
conduct business may be impaired.





Our
success depends on our ability to protect our current and future products and to
defend our intellectual property rights. If we fail to protect our intellectual
property adequately, competitors may manufacture and market products similar to
ours.





We
currently hold five patents and we have four patents pending.  We
intend to file further patent applications in the future. We cannot be certain
that our pending patent applications will result in the issuance of patents. If
patents are issued, third parties may sue us to challenge our 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 patent rights may not prevent or
limit our present and future competitors from developing, using or
commercializing products that are similar or functionally equivalent to our
products.





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


17


We rely
particularly on trade secrets, unpatented proprietary expertise and continuing
innovation that we seek to protect, in part, by entering into confidentiality
agreements with licensees, suppliers, employees and consultants. We cannot
provide assurance that these agreements will not be breached or circumvented. We
also cannot be certain that there will be adequate remedies in the event of a
breach. Disputes may arise concerning the ownership of intellectual property or
the applicability of confidentiality agreements. We cannot be sure that our
trade secrets and proprietary technology will not otherwise become known or be
independently developed by our competitors or, if patents are not issued with
respect to products arising from research, that we will be able to maintain the
confidentiality of information relating to these products. In addition, efforts
to ensure our intellectual property rights can be costly, time-consuming and/or
ultimately unsuccessful.





Litigation
is common in our industry, particularly the generic pharmaceutical industry, and
can be protracted and expensive and could delay and/or prevent entry of our
products into the market, which, in turn, could have a material adverse effect
on our business.





Litigation
concerning patents and proprietary rights can be protracted and expensive.
Companies that produce brand pharmaceutical products routinely bring litigation
against applicants that seek FDA approval to manufacture and market generic
forms of their branded products. These companies allege patent infringement or
other violations of intellectual property rights as the basis for filing suit
against an applicant.  Because the eight drug products being developed
by Epic at the Facility are generics, such drug products may be subject to such
litigation brought by companies that produce brand pharmaceutical
products.  If Epic were to become subject to litigation in connection
with any drug products it is developing at the Facility under the Epic Strategic
Alliance Agreement, Epic may choose to, or be required to, decrease or cease its
development and commercialization of such product for an indefinite period of
time, which may prevent or delay the first commercial sale of such product and
cause us to receive reduced or no product fees payable to us by Epic based on
the commercial sales of such product in accordance with the Epic Strategic
Alliance Agreement.





Likewise,
other patent holders may bring patent infringement suits against us alleging
that our products, product candidates and technologies infringe upon
intellectual property rights. Litigation often involves significant expense and
can delay or prevent introduction or sale of our products.





There may
also be situations where we use our business judgment and decide to market and
sell products, notwithstanding the fact that allegations of patent
infringement(s) have not been finally resolved by the courts. The risk involved
in doing so can be substantial because the remedies available to the owner of a
patent for infringement include, among other things, damages measured by the
profits lost by the patent owner and not by the profits earned by the infringer.
In the case of a willful infringement, the definition of which is subjective,
such damages may be trebled. Moreover, because of the discount pricing typically
involved with bioequivalent products, patented brand products generally realize
a substantially higher profit margin than bioequivalent products. An adverse
decision in a case such as this or in other similar litigation could have a
material adverse effect on our business, financial position and results of
operations and could cause the market value of our Common Stock to
decline.





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, the pharmaceutical industry 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 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.


18


As we
expand our presence in the generic pharmaceuticals market our product candidates
may face intense competition from brand-name companies that have taken
aggressive steps to thwart competition from generic companies. In particular,
brand-name companies continue to sell or license their products directly or
through licensing arrangements or strategic alliances with generic
pharmaceutical companies (so-called “authorized generics”). No significant
regulatory approvals are required for a brand-name company to sell directly or
through a third party to the generic market, and brand-name companies do not
face any other significant barriers to entry into such market. In addition, such
companies continually seek to delay generic introductions and to decrease the
impact of generic competition, using tactics which include:





·
            obtaining
      new patents on drugs whose original patent protection is about to
      expire;


·
            filing
      patent applications that are more complex and costly to
      challenge;


·
            filing
      suits for patent infringement that automatically delay approval from the
      FDA;


·
            filing
      citizens’ petitions with the FDA contesting approval of the generic
      versions of products due to alleged health and safety
    issues;


·
            developing
      controlled-release or other “next-generation” products, which often reduce
      demand for the generic version of the existing product for which we may be
      seeking approval;


·
            changing
      product claims and product
labeling;


·
            developing
      and marketing as over-the-counter products those branded products which
      are about to face generic competition;
and


·
            making
      arrangements with managed care companies and insurers to reduce the
      economic incentives to purchase generic
  pharmaceuticals.





These
strategies may increase the costs and risks associated with our efforts to
introduce our generic products under development and may delay or prevent such
introduction altogether.





If
our product candidates do not achieve market acceptance among physicians,
patients, health care payors and the medical community, they will not be
commercially successful and our business will be adversely
affected.





The
degree of market acceptance of any of our approved product candidates among
physicians, patients, health care payors and the medical community will depend
on a number of factors, including:





·
            acceptable
      evidence of safety and efficacy;


·
            relative
      convenience and ease of
administration;


·
            the
      prevalence and severity of any adverse side
  effects;


·
            availability
      of alternative treatments;


·
            pricing
      and cost effectiveness;


·
            effectiveness
      of sales and marketing strategies;
and


·
            ability
      to obtain sufficient third-party coverage or
  reimbursement.





If we are
unable to achieve market acceptance for our product candidates, then such
product candidates will not be commercially successful and our business will be
adversely affected.





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:





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


19


·
            the
      relative instability of some foreign governments and
      economies;


·
            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


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





We have
recently experienced delays when passing imported raw materials through
customs.  We have also had a shipment for one of the imported raw
materials  used to manufacture the products made for ECR
Pharmaceuticals rejected at customs under Federal Drug & Cosmetic Act
(FD&CA) Sections 502(f)(1) and 801(a)(3). ECR Pharmaceuticals is responsible
for the regulatory matters related to these products.  We have notified ECR
Pharmaceuticals and they have initiated a discussion with the FDA.  If
rejection of this raw material at customs continues, it could prevent us from
manufacturing these products.





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 delay or inability to obtain raw materials on a timely
basis, or any significant price increases that cannot be passed on to customers,
can materially adversely affect our ability to produce products. This can
materially adversely affect our business and operations.





Even
after regulatory approval, we will be subject to ongoing significant regulatory
obligations and oversight.





Even if
regulatory approval is obtained for a particular product candidate, the FDA and
foreign regulatory authorities may, nevertheless, impose significant
restrictions on the indicated uses or marketing of such products, or impose
ongoing requirements for post-approval studies. Following any regulatory
approval of our product candidates, we will be subject to continuing regulatory
obligations, such as safety reporting requirements, and additional
post-marketing obligations, including regulatory oversight of the promotion and
marketing of our products. If we become aware of previously unknown problems
with any of our product candidates here or overseas or at our contract
manufacturers’ facilities, a regulatory agency may impose restrictions on our
products, our contract manufacturers or on us, including requiring us to
reformulate our products, conduct additional clinical trials, make changes in
the labeling of our products, implement changes to or obtain re-approvals of our
contract manufacturers’ facilities or withdraw the product from the market. In
addition, we may experience a significant drop in the sales of the affected
products, our reputation in the marketplace may suffer and we may become the
target of lawsuits, including class action suits. Moreover, if we fail to comply
with applicable regulatory requirements, we may be subject to fines, suspension
or withdrawal of regulatory approvals, product recalls, seizure of products,
operating restrictions and criminal prosecution. Any of these events could harm
or prevent sales of the affected products or could substantially increase the
costs and expenses of commercializing and marketing these products.





If
key personnel were to leave us 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 oral, controlled-release drug delivery
systems and generic 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; 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, 2010.


20


RISKS
RELATED TO OUR COMMON STOCK





Future
sales of our Common Stock could lower the market price of our Common
Stock.





Sales of
substantial amounts of our shares in the public market could harm the market
price of our Common Stock, even if our business is doing well. A significant
number of shares of our Common Stock are eligible for sale in the public market
under Rule 144, promulgated under the Securities Act of 1933, as amended (the
“Securities Act”),
subject in some cases to volume and other limitations. These sales, or the
perception in the market that the holders of a large number of shares intend to
sell shares, could reduce the market price of our Common Stock.





Our
stock price has been volatile and may fluctuate in the future.





The
market price for the publicly traded stock of pharmaceutical companies is
generally characterized by high volatility. There has been significant
volatility in the market prices for our Common Stock.  For the twelve
months ended March 31, 2010, the closing sale price on the OTC Bulletin Board
(“OTC-BB”) of our Common Stock fluctuated from a high of $0.20 per share to a
low of $0.06 per share.  The price per share of our Common Stock may
not exceed or even remain at current levels in the future. The market price of
our Common Stock may be affected by a number of factors, including:





·
            Results
      of our clinical trials;


·
            Approval
      or disapproval of our ANDAs or
NDAs;


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


·
            Governmental
      regulation;


·
            Patent
      or proprietary rights developments;


·
            Proxy
      contests or litigation;


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


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


·
            Healthcare
      legislation;


·
            Changes
      in third-party reimbursement policies for
drugs;


·
            Fluctuations
      in our operating results;


·
            Commercial
      success of the eight drug products of Epic identified under the Epic
      Strategic Alliance Agreement; and


·
            Our
      ability to consummate the third closing of the transactions contemplated
      by the Epic Strategic Alliance
Agreement





Our
Common Stock is considered a “penny stock”.  The application of the
“penny stock” rules to our Common Stock could limit the trading and liquidity of
our Common Stock, adversely affect the market price of our Common Stock and
increase the transaction costs to sell shares of our Common Stock.





Our
common stock is a “low-priced” security or “penny stock” under rules promulgated
under the Securities Exchange Act of 1934, as amended.  In accordance
with these rules, broker-dealers participating in transactions in low-priced
securities must first deliver a risk disclosure document which describes the
risks associated with such stocks, the broker-dealers duties in selling the
stock, the customer’s rights and remedies and certain market and other
information.  Furthermore, the broker-dealer must make a suitability
determination approving the customer for low-priced stock transactions based on
the customer’s financial situation, investment experience and
objectives.  Broker-dealers must also disclose these restrictions in
writing to the customer, obtain specific written consent from the customer, and
provide monthly account statements to the customer.  The effect of
these restrictions will likely decrease the willingness of broker-dealers to
make a market in our common stock, will decrease liquidity of our common stock
and will increase transaction costs for sales and purchases of our common stock
as compared to other securities.





We
voluntarily delisted our Common Stock from NYSE Amex in May 2009.  Our
Common Stock is now quoted on the Over-the-Counter Bulletin
Board.  The Over-the-Counter Bulletin Board is a quotation system, not
an issuer listing service, market or exchange, therefore, buying and selling
stock on the Over-the-Counter Bulletin Board is not as efficient as buying and
selling stock through an exchange.  As a result, it may be difficult
to sell our Common Stock for an optimum trading price or at
all.


21


The
Over-the-Counter Bulletin Board (the “OTCBB”) is a regulated quotation service
that displays real-time quotes, last sale prices and volume limitations in
over-the-counter securities.  Because trades and
quotations on the OTCBB involve a manual process, the market information for
such securities cannot be guaranteed.  In addition, quote information,
or even firm quotes, may not be available.  The manual execution
process may delay order processing and intervening price fluctuations may result
in the failure of a limit order to execute or the execution of a market order at
a significantly different price.  Execution of trades, execution
reporting and the delivery of legal trade confirmations may be delayed
significantly.  Consequently, one may not be able to sell shares of
our common stock at the optimum trading prices.





When
fewer shares of a security are being traded on the OTCBB, volatility of prices
may increase and price movement may outpace the ability to deliver accurate
quote information.  Lower trading volumes in a security may result in
a lower likelihood of an individual’s orders being executed, and current prices
may differ significantly from the price one was quoted by the OTCBB at the time
of the order entry.  Orders for OTCBB securities may be canceled or
edited like orders for other securities.  All requests to change or
cancel an order must be submitted to, received and processed by the
OTCBB.  Due to the manual order processing involved in handling OTCBB
trades, order processing and reporting may be delayed, and an individual may not
be able to cancel or edit his order.  Consequently, one may not be
able to sell shares of common stock at the optimum trading prices.





The
dealer’s spread (the difference between the bid and ask prices) may be large and
may result in substantial losses to the seller of securities on the OTCBB if the
common stock or other security must be sold immediately.  Further,
purchasers of securities may incur an immediate “paper” loss due to the price
spread.  Moreover, dealers trading on the OTCBB may not have a bid
price for securities bought and sold through the OTCBB.  Due to the
foregoing, demand for securities that are traded through the OTCBB may be
decreased or eliminated.





Raising
of additional funding through sales of our securities could cause existing
holders of our Common Stock to experience substantial dilution.




Any
financing that involves the further sale of our securities could cause existing
holders of our Common Stock to experience substantial dilution. On the other
hand, if we incurred debt, we would be subject to risks associated with
indebtedness, including the risk that interest rates might fluctuate and cash
flow would be insufficient to pay principal and interest on such
indebtedness.





The
issuance of additional warrants and shares to Epic under the Epic Strategic
Alliance Agreement will cause existing holders of our Common Stock to experience
substantial dilution.





If Elite
and Epic consummate the third closing and the quarterly payment closings under
the Epic Strategic Alliance Agreement, Elite will issue to Epic an aggregate of
1,750 shares of Series E Preferred Stock, convertible into an aggregate of
approximately 61.8 million shares of Common Stock, based on a conversion price
as of June 30, 2010, and warrants to purchase an additional 40 million shares of
Common Stock. If Epic converts the shares of Series E Preferred Stock into
shares of Common Stock and exercises the warrants for shares of Common Stock,
the existing holders of our Common Stock will experience substantial
dilution.





In
addition, with respect to the products developed by Epic under the Epic
Strategic Alliance Agreement, Elite may issue to Epic (a) warrants to purchase
up to an aggregate of 56,000,000 shares of its Common Stock upon the receipt by
Elite from Epic of written notices of Epic’s receipt of an acknowledgment from
the FDA that the FDA accepted for filing an ANDA for certain controlled-release
and immediate-release products developed by Epic at the Facility and (b) up to
an aggregate of 40,000,000 additional shares of its Common Stock following the
receipt by Elite from Epic of written notices of Epic’s receipt from the FDA of
approval for certain controlled-release and immediate-release products developed
by Epic at the Facility. If these events occur, the existing holders of our
Common Stock will also experience substantial dilution upon the issuance of the
additional shares of Common Stock and the shares of Common Stock underlying the
warrants, if the warrants are exercised.


22


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 our Common Stock or the issuance of shares of
an additional series of preferred stock could be used to make a change of
control of us 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 us. Such shares could be sold to
purchasers who might side with our Board of Directors in opposing a takeover bid
that the Board of Directors determines not to be in the best interests of our
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 our Common Stock to acquire control of us with a view to consummating
a merger, sale of all or part of our assets, or a similar transaction, since the
issuance of new shares could be used to dilute the stock ownership of such
person or entity.





Epic
will have the ability to exert substantial influence over
Elite.




Under the
Epic Strategic Alliance Agreement, Elite agreed that it and its Board of
Directors will take any and all action necessary so that (i) the size of the
Board of Directors will be set and remain at seven directors, (ii) three
individuals designated by Epic (the “Epic Directors”) will be
appointed to the Board of Directors and (iii) the Epic Directors will be
nominated at each annual or special meeting of stockholders at which an election
of directors is held or pursuant to any written consent of the stockholders;
provided, however, that if at any time following the initial closing of the Epic
Strategic Alliance Agreement and ending on the later of (a) the date immediately
following the first anniversary of the Initial Closing Date and (b) the Third
Closing Date, Epic owns less than (1) a number of shares of Series E Preferred
Stock equal to ninety percent of the aggregate number of shares of Series E
Preferred Stock purchased by Epic or (2) following the conversion by Epic of the
Series E Preferred Stock, a number of shares of Common Stock equal to ninety
percent of the number of shares of Common Stock so converted, neither Elite nor
its Board of Directors will be obligated to nominate Epic Directors or take any
other action with respect to those actions described in (i), (ii) and/or (iii)
above. No Epic Director may be removed from office for cause unless such removal
is directed or approved by (A) a majority of the independent members of the
Board of Directors and (B) all of the non-affected Epic Director(s). Any
vacancies created by the resignation, removal or death of an Epic Director will
be filled by the appointment of an additional Epic Director. Any Epic Director
may be removed from office upon the request of Epic, with or without cause.
Epic, by virtue of having the right to designate the three Epic Directors, will
have the ability to exert substantial influence over the election of the other
members of Elite’s Board of Directors, the outcome of issues submitted to our
stockholders for approval and the management and affairs of Elite.




In addition, the
Series E Certificate provides that on any matter presented to the holders of our
Common Stock for their action or consideration at any meeting of our
stockholders (or by written consent of stockholders in lieu of meeting), Epic,
as a holder of Series E Preferred Stock, will be entitled to cast the number of
votes equal to the number of shares of Common Stock into which the shares of
Series E Preferred Stock held by Epic are convertible as of the record date for
determining the stockholders entitled to vote on such matter. Except as provided
by law or by the other provisions of the Series E Certificate, Epic will vote
together with the holders of Common Stock, as a single class. In addition,
pursuant to the Epic Strategic Alliance Agreement and the Series E Certificate,
Elite has agreed that, between the date of the initial closing under the Epic
Strategic Alliance Agreement and the date which is the earlier of (x) the date
the Epic Directors constitute a majority of the Board of Directors and (y)
ninety days following the fifth anniversary of the Initial Closing Date, except
as Epic otherwise agrees in writing, Elite may conduct its operations only in
the ordinary and usual course of business consistent with past
practice.   Further, pursuant to the Epic Strategic Alliance
Agreement and the Series E Certificate, Elite must obtain the prior written
consent of Epic in order to take the actions specifically enumerated
therein.  Accordingly, as a result
of such concentration of ownership, Epic will have the ability to exert further
influence over Elite and may have the effect of preventing a change of control
of Elite.


23


In
addition, with respect to the products developed by Epic under the Epic
Strategic Alliance Agreement, Elite may issue to Epic (a) warrants to purchase
up to an aggregate of 56,000,000 shares of its Common Stock upon the receipt by
Elite from Epic of written notices of Epic’s receipt of an acknowledgment from
the FDA that the FDA accepted for filing an ANDA for certain controlled-release
and immediate-release products developed by Epic at the Facility and (b) up to
an aggregate of 40,000,000 additional shares of its Common Stock following the
receipt by Elite from Epic of written notices of Epic’s receipt from the FDA of
approval for certain controlled-release and immediate-release products developed
by Epic at the Facility. If Elite is required to issue such warrants and such
additional shares of its Common Stock to Epic in accordance with the Epic
Strategic Alliance Agreement, Epic may beneficially own in excess of 50% of the
issued and outstanding Common Stock or other voting securities of Elite. Under
the Epic Strategic Alliance Agreement, at such time as Epic owns more than 50%
of the issued and outstanding Common Stock or other voting securities of Elite,
the number of Epic Directors that the Purchaser will be entitled to designate
under the Alliance Agreement will be equal to a majority of the Board of
Directors.





Holders
of our preferred stock may exercise their veto rights to make it more difficult
for us to take an action or consummate a transaction that may be deemed by the
Board to be in our best interest or the best interest of the other
stockholders.





The
holders of Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock have certain veto rights that may be exercised to prevent us
from taking an action or consummating a transaction that may be deemed by the
Board to be in our best interest and the best interest of the holders of our
Common Stock if the holders of our preferred stock believe such action or
transaction would be adverse to their own interests.  If the holders
of our preferred stock exercise their veto rights to prevent us from taking any
such action or consummating any such transaction, our ability to achieve our
strategic objectives may be hindered.   The ability of holders of
our preferred stock to affect our actions through use of their veto rights might
limit the price that certain investors would be willing to pay in the future for
shares of our Common Stock.




In
addition, pursuant to the Epic Strategic Alliance Agreement and the Series E
Certificate, Elite has agreed that, between the date of the initial closing
under the Epic Strategic Alliance Agreement and the date which is the earlier of
(x) the date the Epic Directors constitute a majority of the Board of Directors
and (y) ninety days following the fifth anniversary of the Initial Closing Date,
except as Epic otherwise agrees in writing, Elite may conduct its operations
only in the ordinary and usual course of business consistent with past
practice.   Further, pursuant to the Epic Strategic Alliance
Agreement and the Series E Certificate, Elite must obtain the prior written
consent of Epic in order to take certain actions specifically enumerated
therein.  This right will terminate if Epic’s ownership percentage of
the capital stock of Elite, on an as-converted basis, falls below 20% of Elite’s
capital stock, on an as-converted basis, as a result of transfers made by
Epic.




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 of Directors 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 us, 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.





ITEM 2.
            PROPERTIES.





We own a
facility located at 165 Ludlow Avenue, Northvale, New Jersey (the “Facility”)
which contains approximately 15,000 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.  The NJEDA has declared
the payment of this bond to be in default.  Please see the discussion
entitled “Liquidity and Capital Resources” in Item 7 – Management’s Discussion
and Analysis of Financial Condition and Results of Operations.  We are
currently using the Facility as a laboratory, manufacturing, storage and office
space.


24


We have
entered into a lease for a portion of a one-story warehouse, located at 80 Oak
Street, Norwood, New Jersey consisting of approximately 3,500 square feet of
floor space, and used for the storage of pharmaceutical finished goods, raw
materials, equipment and documents.  We have exercised an option to
rent the property through July 31, 2010. It is our intention to vacate these
premises on or before the expiration of the lease.





We
entered into a lease for a portion of a one-story warehouse, located at 135
Ludlow Avenue, Northvale, New Jersey, consisting of approximately 15,000 square
feet of floor space.  The lease term begins on July 1,
2010.  The lease includes an initial term of 5 years and 6 months and
we have the option to renew the lease for two additional terms, each of 5
years.  The property related to this lease will be used for the
storage of pharmaceutical finished goods, raw materials, equipment and documents
as well as engaging in manufacturing, packaging and distribution
activities.  This property requires significant construction and
qualification as a prerequisite to achieving suitability for such intended
future use.  It is expected that approximately 3,500 square feet of
this property will be constructed and qualified as suitable for use for storage
of pharmaceutical finished goods, raw materials, equipment and documents on or
before the expiration of the lease for the warehouse at 80 Oak Street, as noted
above.  Construction and qualification as suitable for manufacturing,
packaging and distribution operations are expected to be achieved within two
years from the beginning of the lease term.  These are estimates based
on current project plans, which are subject to change.  There can be
no assurance that the construction and qualification will be accomplished during
the estimated time frames, or that the property located at 135 Ludlow Avenue,
Northvale, New Jersey will ever achieve qualification for intended future
utilization.





Properties
used in our operation are considered suitable for the purposes for which they
are used, at the time they are placed into service, and are believed adequate to
meet our needs for the reasonably foreseeable future.





ITEM 3.
            LEGAL
      PROCEEDINGS.





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





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


25


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





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





Series D Amendment
Agreement





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





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





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





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


26


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





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





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





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





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





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





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


27


Series E Amendment
Agreement





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





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





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





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





Settlement
Agreement





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





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


28


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





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





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





ITEM
      4.
            REMOVED
      AND RESERVED.





PART II





ITEM 5.
            MARKET FOR COMPANY’S COMMON
      EQUITY AND RELATED STOCKHOLDER
MATTERS.





Market
Information





Our
Common Stock was traded on NYSE Amex (formerly, the American Stock Exchange)
under the symbol “ELI” until May 21, 2009, at which time Elite’s Common Stock
began to be quoted on the Over-the-Counter Bulletin Board (OTCBB) under the
ticker symbol “ELTP”.  The following table shows, for the periods
indicated, the high and low sales prices per share of our Common Stock as
reported by NYSE Amex until May 21, 2009 and the high and low bid information as
reported by OTC Bulletin Board thereafter.  Over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.





Common
Stock


Quarter
      ended
                      
                      High
                      
                      
                      LowFiscal
      Year ending March 31, 2010:March
      31, 2010
                      
                      $
                      0.11
                      
                      
                      $
                      0.02December
      31, 2009
                      
                      $
                      0.22
                      
                      
                      $
                      0.22September
      30, 2009
                      
                      $
                      0.17
                      
                      
                      $
                      0.17June
      30, 2009
                      
                      $
                      0.16
                      
                      
                      $
                      0.016Fiscal
      Year ending March 31, 2009:March
      31, 2009
                      
                      $
                      0.26
                      
                      
                      $
                      0.03December
      31, 2008
                      
                      $
                      0.16
                      
                      
                      $
                      0.05September
      30, 2008
                      
                      $
                      0.45
                      
                      
                      $
                      0.06June
      30, 2008
                      
                      $
                      0.80
                      
                      
                      $
                      0.48





On June
30, 2010, the last reported sale price of our Common Stock, as quoted by the OTC
Bulletin Board, was $0.07 per share





Holders





As of
June 30, 2010, there were approximately 201 holders of record of our Common
Stock


29


Dividends





We have
never paid cash dividends on our Common Stock.  We currently
anticipate that we will retain all available funds for use in the operation and
expansion of our business.





Recent Sales of Unregistered
Securities





There
were no sales of unregistered securities during the quarter ended March 31,
2010.





Securities Authorized for
Issuance under Equity Compensation Plans





The
following table sets forth certain information regarding Elite’s equity
compensation plans as of March 31, 2010.




Plan Category
                          
                          Number of
                            securities to be
                            issued upon
                            exercise of
                            outstanding
                            options,
                            warrants and
                            rights
                            (a)
                          
                          
                          Weighted-
                            average
                            exercise price
                            per share of
                            outstanding
                            options,
                            warrants and
                            rights
                            (b)
                          
                          
                          Number of
                            securities
                            remaining
                            available for future
                            issuance under
                            equity
                            compensation
                            plans (excluding
                            securities reflected
                            in column (a))Equity
      compensation plans approved by security
      holders       (1)
                          
                          
                          3,287,000
                          
                          
                          $
                          1.41
                          
                          
                          
                          6,713,000Equity
      compensation plans not approved by security holders
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          7,090,909
                          (2)Total
                          
                          
                          3,362,000
                          
                          
                          $
                          1.41
                          
                          
                          
                          13,803,909





(1)
Represents options issued under the 2004 Stock Option Plan


(2)
Represents securities reserved and available for grant under the 2009 Equity
Incentive Plan





2004 Stock Option
Plan





Our 2004
Stock Option Plan (the “Stock
Option Plan”) permits us to grant both incentive stock options (“Incentive Stock Options” or
“ISOs”) within the
meaning of Section 422 of the Internal Revenue Code (the “Code”) to employees, and
other options which do not qualify as Incentive Stock Options (the “Non-Qualified Options”) to
employees, officers, Directors of and consultants to Elite.




Unless
earlier terminated by the Board of Directors, the Stock Option Plan (but not
outstanding options issued thereunder) terminates on March 1, 2014, after which
no further awards may be granted under the Stock Option Plan. The Stock Option
Plan is administered by the Board of Directors.




Recipients
of options under the Stock Option Plan (“Optionees”) are selected by
the Board of Directors. The Board of Directors 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 Stock Option Plan for
Incentive Stock Options is the fair market value (as defined in the Stock Option
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.


30




Optionees
have no voting, dividend or other rights as stockholders with respect to shares
of Common Stock covered by options prior to becoming the holders of record of
such shares. The purchase price upon the exercise of options may be paid in
cash, by certified bank or cashier’s check, by tendering stock held by the
Optionee, as well as by cashless exercise either through the surrender of other
shares subject to the option or through a broker. The total number of shares of
Common Stock available under the Stock Option 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 or similar corporate event. Subject to limitations set forth in
the Stock Option Plan, the terms of option agreements will be determined by the
Board of Directors, and need not be uniform among Optionees.




The Board
of Directors may at any time terminate the Stock Option Plan or from time to
time make such modifications or amendments to the Stock Option Plan as it may
deem advisable and the Board of Directors 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
of Directors, without the approval of stockholders, amend the Stock Option Plan
to increase the maximum number of shares of Common Stock for which options may
be granted under the Stock Option Plan or change the class of persons eligible
to receive options under the Stock Option Plan.





2009 Equity Incentive
Plan





Our
Equity Incentive Plan was adopted by the Board on November 24, 2009, to provide
incentives to attract, retain and motivate eligible persons whose present and
potential contributions are important to the success of the Company, and its
Parent and Subsidiaries (if any), by offering them an opportunity to participate
in the Company’s future performance through awards of Options, the right to
purchase Common Stock and Stock Bonuses. An aggregate of 8,000,000 common shares
are reserved for grant and issuance pursuant to the Equity Incentive
Plan.  The Equity Incentive Plan is administered and interpreted by
the Company’s Compensation Committee (the “Compensation
Committee”).  The Company intends to seek stockholder approval of the
Equity Incentive Plan within 12 months of its date of adoption by the
Board.




Under
the Equity Incentive Plan, the Company is permitted to grant both incentive
stock options (“Incentive
Stock Options” or “ISOs”) within the meaning of
Section 422 of the Internal Revenue Code (the “Code”) to employees, and
other options which do not qualify as Incentive Stock Options (the “Non-Qualified Options”) to
employees, officers, Directors of and consultants to Elite.  The per
share purchase price of options granted under the Equity Incentive Plan may not
be less than the fair market value of the shares on the date of the grant,
provided that the exercise price of any ISO granted to a ten percent stockholder
will not be less than 110% of the fair market value on the date of the
grant.  Recipients of ISO’s and Non-Qualified Options 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.




Under the
Equity Incentive Plan, the Company is also permitted to offer stock awards
(“Equity Incentive Plan Stock Awards”) to eligible persons.  The
Equity Incentive Plan defines such stock awards as an offer by the Company to
sell to an eligible person shares that may or may not be subject to
restrictions.  The purchase of price of shares sold pursuant to an
Equity Incentive Plan Stock Award may not be less than the fair market value of
the shares on the grant date, provided, however, that the number of shares
issued for the payment of employee and officers’ salaries, or directors’ fees
will be computed using the average daily closing price, which is defined as the
simple average of the closing price of each trading day in the quarter or other
applicable period for which payment is due.





The
Company is also permitted to award stock bonuses under the Equity Incentive Plan
(“Equity Incentive Plan Stock Bonuses”), which defines such stock bonuses as an
award of shares for extraordinary services rendered to the Company.




ITEM
6.       SELECTED FINANCIAL DATA.




[Not
applicable to smaller reporting companies]




31




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
and the information described under the caption “Risk Factors” and “Special Note
Regarding Forward Looking Statements” above.  The following discussion
is intended to assist the reader in understanding and evaluating our financial
position.





Overview





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





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




Strategy




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




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




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




32




FDA
Approval for generic Methadone tablets




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




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





Elite
Purchased A Generic Hydromorphone HCl Product




On May
18, 2010, Elite Pharmaceuticals, Inc. executed an asset purchase agreement with
Mikah Pharma LLC.  Under that agreement completed the acquisition from
the Mikah of an Abbreviated New Drug Application (Hydromorphone Hydrochloride
Tablets USP, 8 mg) for aggregate consideration of $225,000, comprised of an
initial payment of $150,000 paid to the Seller on May 18, 2010 and a second
payment of $75,000 to be made to the Seller on June 15, 2010 (the “Final
Payment”).  The Company has the option to make the Final Payment in
either cash or shares of common stock of the Company with an aggregate value of
$75,000, based on the closing price of the Company’s common stock on May 18,
2010.  Elite is transferring the process to its facility in Northvale,
NJ where it intends to manufacture the product.  Elite will engage a
third party to distribute and sell the product.





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




Epic
Strategic Alliance Agreement




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





Use
of Facility and Joint Development of Drug Products





Pursuant
to the Epic Strategic Alliance Agreement, on June 3, 2009 (the “Initial Closing Date”), Elite
and Epic conducted the initial closing (the “Initial Closing”) of the
transactions contemplated by the Epic Strategic Alliance Agreement,
and  Epic and its employees and consultants commenced use of a portion
of Elite’s facility located at 165 Ludlow Avenue, Northvale, New Jersey (the
“Facility”), for the
purpose of developing new generic drug products, all at Epic’s sole cost and
expense for a period of at least three years (the “Initial Term”), unless sooner
terminated or extended pursuant to the Epic Strategic Alliance Agreement or by
mutual agreement of Elite and Epic (the Initial Term, as shortened or extended,
the “Term”).   In
addition to the use of the Facility, Epic will use Elite’s machinery, equipment,
systems, instruments and tools residing at the Facility (collectively the “Personal Property”) in
connection with its joint drug development project at the
Facility.  Under the Epic Strategic Alliance Agreement, Epic has the
right, exercisable in its sole discretion, to extend the Initial Term for two
periods of one year each by giving written notice to Elite of such extension
within ninety days of the end of the Initial Term or any extension
thereof.  Any such extension will be on the same terms and conditions
contained in the Epic Strategic Alliance Agreement.  Elite will be
responsible for (and Epic will have no responsibility for) any maintenance,
services, repairs and replacements in, to or of the Facility and the Personal
Property, unless any such maintenance, service, repair or replacement is
required as a result of the negligence or misconduct of Epic’s employees or
representatives, in which case Epic will be responsible for the costs and
expenses associated therewith.




33




During
the Term, Epic will use and occupy a portion of the Facility and use the
Personal Property for the purpose of developing (i) at least four
controlled-release products (the “Identified CR Products”) and
(ii) at least four immediate-release products (the “Identified IR Products”), the
identity of each have been agreed upon by Epic and Elite.  If, during
the Term, Epic determines, in its reasonable business judgment, that the further
or continuing development of any Identified CR Product and/or Identified IR
Product is no longer commercially feasible, Epic may, upon written notice to
Elite, eliminate from development under the Epic Strategic Alliance Agreement
such Identified CR Product and/or Identified IR Product, and replace such
eliminated product with another controlled-release or immediate-release product,
as applicable.





Pursuant
to the Epic Strategic Alliance Agreement, Epic will also use a portion of the
Facility and use the Personal Property for the purpose of developing (x)
additional controlled-release products of Epic (the “Additional CR Products”),
subject to the mutual agreement of Epic and Elite, and/or (y) additional
immediate-release products of Epic (the “Additional IR Products”),
subject to the mutual agreement of Elite and Epic (each Identified CR Product,
Identified IR Product, Additional CR Product and Additional IR Product,
individually, a “Product,” and collectively,
the “Products”). Under
the Epic Strategic Alliance Agreement, Epic may not eliminate an Identified CR
Product or an Identified IR Product unless it replaces such Product with an
Additional CR product or Additional IR Product, as the case may be. Subject to
the mutual agreement of Elite and Epic as to additional consideration and other
terms, Epic may use and occupy the Facility for the development of other
products (in addition to the Products).





As
additional consideration for Epic’s use and occupancy of a portion of the
Facility and its use of the Personal Property during the Term and the issuance
and delivery by Elite to Epic of the Milestone Shares (as defined below) and
Milestone Warrants (as defined below), for the period beginning on the First
Commercial Sale (as defined in the Epic Strategic Alliance Agreement) of each
Product and continuing for a period of ten years thereafter (measured
independently for each Product), Epic will pay Elite a cash fee (the “Product Fee”) equal to
fifteen percent of the Profit (as defined in the Epic Strategic Alliance
Agreement), if any, on each of the Products.





With
respect to each Identified CR Product and Additional CR Product developed by
Epic at the Facility: (i) Elite will issue and deliver to Epic a seven-year
warrant to purchase up to 10,000,000 shares of Common Stock, at an exercise
price of $0.0625, following the receipt by Elite from Epic of each written
notice of Epic’s receipt of an acknowledgment from the FDA that the FDA accepted
for filing an ANDA for such Identified CR Products and/or Additional CR
Products, up to a maximum of four such warrants for the right to purchase up to
an aggregate of 40,000,000 shares of Common Stock (such warrants, the “CR Related Warrants”), and
(ii) Elite will issue and deliver to Epic 7,000,000 shares of Common Stock
following the receipt by Elite from Epic of each written notice of Epic’s
receipt from the FDA of approval for such Identified CR Products and/or
Additional CR Products, up to a maximum of an aggregate of 28,000,000 shares of
Common Stock (such shares, the “CR Related
Shares”).





With
respect to each Identified IR Product and Additional IR Product developed by
Epic at the Facility, (i) Elite will issue and deliver to Epic a seven year
warrant to purchase up to 4,000,000 shares of Common Stock, at an exercise price
of $0.0625, following the receipt by Elite from Epic of each written notice of
Epic’s receipt of an acknowledgment from the FDA that the FDA accepted for
filing an ANDA for such Identified IR Products and/or Additional IR Products, up
to a maximum of four such warrants for the right to purchase up to an aggregate
of 16,000,000 shares of Common Stock (such warrants, together with the CR
Related Warrants, the “Milestone Warrants”), and
(ii) Elite will issue and deliver to Epic 3,000,000 shares of Common Stock
following the receipt by Elite from Epic of each written notice of Epic’s
receipt from the FDA of approval for such Identified IR Products and/or
Additional IR Products, up to a maximum of an aggregate of 12,000,000 shares of
Common Stock (such shares, together with the CR Related Shares, the “Milestone
Shares”).  The Milestone Warrants may only be exercised by
payment of the applicable cash exercise price.  Elite will have no
obligation to register with the United States Securities and Exchange Commission
(the “SEC”) or any
state securities commission the resale of the Milestone Shares, Milestone
Warrants or the shares of Common Stock issuable upon exercise of the Milestone
Warrants.




34




Subject
to the mutual agreement of Epic and Elite with respect to the selection of
Additional CR Products and/or Additional IR Products pursuant to the Epic
Strategic Alliance Agreement, Epic will have the sole right to make all
decisions regarding all aspects of the Products, including, but not be limited
to, (i) research and development, formulation, studies and validation of each
Product, (ii) identifying, evaluating and obtaining ingredients for each
Product, (iii) preparing and filing the ANDA for each Product with the FDA and
addressing and handling all regulatory inquiries, audits and investigations
pertaining to the ANDA, and (iv) the manufacture, marketing, supply and
commercialization of each Product.  In addition, Epic would be the
sole and exclusive owner of all right, title and interest in and to each of the
Products.





Pursuant
to the Epic Strategic Alliance Agreement, the use by each of Elite and Epic of
the other party’s confidential and proprietary information is restricted by
customary confidentiality provisions. Elite and Epic also agreed in the Epic
Strategic Alliance Agreement to indemnify and hold each other harmless from
certain losses under the Epic Strategic Alliance Agreement.





Under
certain circumstances Epic will be entitled to terminate the Term early in the
event that the Facility is totally damaged or destroyed such that the Facility
is rendered wholly untenable.  In addition, subject to certain
exceptions, either Elite or Epic may terminate the Term at any time if the other
party is in breach of any material obligations under Article V of the Epic
Strategic Alliance Agreement and has not cured such breach within sixty days
after receipt of written notice requesting cure of such breach.





Elite may
also terminate the Term by written notice to Epic if (i) all conditions
precedent that Elite is obligated to satisfy pursuant to Article II of the Epic
Strategic Alliance Agreement on or prior to a Closing (as defined in the Epic
Strategic Alliance Agreement) have been, or will have been, satisfied by Elite
in accordance with the terms thereof and (ii) Epic does not consummate such
Closing in accordance with Article II. Notwithstanding the foregoing, if Elite
terminates the Epic Strategic Alliance Agreement as described in this paragraph,
then any and all product fees to which it would otherwise be entitled will
remain the obligation of Epic and must be paid to Elite in accordance with the
terms of Epic Strategic Alliance Agreement.





Infusion
of Additional Capital Necessary for Product Development





In order
to provide Elite with the additional capital necessary for the product
development and synergies presented by the strategic relationship with Epic,
Epic agreed to invest $3.75 million in Elite through the purchase of Elite’s
Series E Preferred Stock and common stock warrants.  At the Initial
Closing, which occurred on June 3, 2009, in order to fund the continued
development of Elite’s drug products, Elite issued and sold to the Epic, in a
private placement, pursuant to an exemption from registration under Section 4(2)
of the Securities Act, 1,000 shares of its Series E Convertible Preferred Stock,
par value $0.01 per share (the “Series E Preferred Stock”),
at a price of $1,000 per share, each share convertible, at $0.05 per share (the
“Conversion Price”),
into 20,000 shares of Common Stock, par value $0.001 per share (the “Common Stock”). The
Conversion Price is subject to adjustment for certain events, including, without
limitation, dividends, stock splits, combinations and the like. The Conversion
Price is also subject to adjustment for (a) the sale of Common Stock or
securities convertible into or exercisable for Common Stock, for which Epic’s
consent was not required under the Certificate of Designation of Preferences,
Rights and Limitations of the Series E Convertible Preferred Stock, at a price
less than the then applicable Conversion Price, (b) the issuance of Common Stock
in lieu of cash in satisfaction of Elite’s dividend obligations on outstanding
shares of its Series B 8% Convertible Preferred Stock, par value $0.01 per
share, Series C 8% Convertible Preferred Stock, par value $0.01 per share,
and/or Series D 8% Convertible Preferred Stock, par value $0.01 per share (the
“Series D Preferred
Stock”), and (c) the issuance of Common Stock as a result of any holder
of Series D Preferred Stock exercising its right to require Elite to redeem all
of such holder’s shares of Series D Preferred Stock pursuant to the terms
thereof. Epic also acquired a warrant to purchase 20,000,000 shares of Common
Stock (the "Initial
Warrant"), exercisable
on or prior to June 3, 2016, at a per share exercise price of $0.0625 (the
“Exercise Price”),
subject to adjustments for certain events, including, but not limited to,
dividends, stock splits, combinations and the like. The Exercise Price of the
Initial Warrant will also be subject to adjustment for the sale of Common Stock
or securities convertible into Common Stock, for which Epic’s consent was not
required under the Epic Strategic Alliance Agreement, at a price less than the
then applicable Exercise Price of the Initial Warrant. Epic paid an aggregate
purchase price of $1,000,000 for the shares of Series E Preferred Stock and the
Initial Warrant issued and sold by Elite to the Epic at the Initial Closing, of
which $250,000 was received by Elite, in the form of a cash deposit, on April
30, 2009, pursuant to the First Amendment. The remaining $750,000 of such
aggregate purchase price was paid to Elite by Epic at the Initial
Closing.




35




On
October 30, 2009, Elite completed the second closing of the Strategic Alliance
Agreement with Epic.   Epic paid to Elite a sum of $1,000,000 in
exchange for an additional 1,000 shares of Series E Preferred Stock, and a
warrant to purchase an additional 40,000,000 shares of Common
Stock.  The warrant is to be exercisable until the date that is the
seventh anniversary of the Second Closing Date and is to have a per share
exercise price equal to $0.0625, subject to adjustments for certain events,
including, without limitation, dividends, stock splits, combinations and the
like.





On or
before December 31, 2010, it is anticipated that Elite and Epic will conduct a
third closing (the “Third
Closing” and the date of such Third Closing, the “Third Closing Date”),
provided that all conditions precedent to such Third Closing contained in the
Epic Strategic Alliance Agreement have been satisfied or waived by the
appropriate party on or before such Third Closing Date.  At the Third
Closing, if such closing is held, Epic will pay to Elite a sum of $1,000,000 in
exchange for an additional 1,000 shares of Series E Preferred Stock, which
shares will be convertible, as described above, into 20,000,000 shares of Common
Stock, and a warrant (the “Third Warrant” and
collectively with the Initial Warrant and the Second Warrant, the “Warrants”) to purchase an
additional 40,000,000 shares of Common Stock. The Third Warrant is to be
exercisable until the date that is the seventh anniversary of the Third Closing
Date and is to have a per share exercise price equal to $0.0625, subject to
adjustments for certain events, including, but not limited to, dividends, stock
splits, combinations and the like. The per share exercise price of the Third
Warrant is to also be subject to adjustment for the sale of Common Stock or
securities convertible into Common Stock at a price less than the then
applicable per share exercise price of the Third Warrant, for which the Epic’s
consent was not required under the Epic Strategic Alliance
Agreement.





In
addition, within ten business days following the last day of each calendar
quarter, beginning with the first calendar quarter following the Initial Closing
Date and continuing for each of the eleven calendar quarters thereafter, Epic
will pay to Elite a sum of $62,500, for an aggregate purchase price over such
period of $750,000, in exchange for an additional 62.5 shares of Series E
Preferred Stock per quarter and 750 shares of Series E Preferred Stock, in the
aggregate, over such period, which such shares will be convertible into
1,250,000 shares of Common Stock per quarter and 15,000,000 shares of Common
Stock, in the aggregate, over such period, subject to
adjustment.  Epic made the first payment for the quarter ending
September 30, 2009 and, as agreed upon with Elite, will resume payments
beginning with the quarter ending September 30, 2010.





If Elite
determines, in its reasonable judgment, that additional funding is required for
the development of its pharmaceutical products, then, either (i) Elite will
issue, and Epic will purchase, such additional number of shares of Series E
Preferred Stock or Common Stock from Elite, upon such terms and conditions as
may be agreed upon by Elite and Epic at the time of such determination; or (ii)
on or after September 15, 2011, Epic will provide a loan to Elite, in an
aggregate principal amount not to exceed $1,000,000, which such loan will (A)
have an interest rate equal to the then prime interest rate as published in the
Wall Street Journal on the date of such loan, (B) mature on the second
anniversary of date of such loan, and (C) be on such other terms and conditions
which are customary and reasonable to loans of a similar nature and which are
mutually agreed upon between Epic and Elite.




Elite
believes, which as to such belief there can be no assurances, the completion of
the transactions contemplated by the Epic Strategic Alliance Agreement creates
value for our stockholders by adding a new revenue source for Elite upon the
commercialization of the Epic products developed at our facility, providing an
experienced partner to assist in the development, manufacture and licensing of
our pharmaceutical products, and contributing funding for the products.
Importantly, Elite will continue the development of its pain products and, with
the help of Epic, work towards securing licensing arrangements for such pain
products.




36




Board
of Directors Composition and Voting Rights




As
of the Initial Closing Date and at all times thereafter, except as otherwise set
forth in the Epic Strategic Alliance Agreement, Elite and its Board of Directors
will take any and all action necessary so that (i) the size of the Board of
Directors will be set and remain at seven directors, (ii) three individuals
designated by Epic (the “Epic
Directors”) will be appointed to the Board of Directors and (iii) the
Epic Directors will be nominated at each annual or special meeting of
stockholders at which an election of directors is held or pursuant to any
written consent of the stockholders; provided, however, that if at any time
following the Lock-Up Period (as defined above) the Purchaser owns less than (i)
a number of shares of Series E Preferred Stock equal to ninety percent of the
aggregate number of shares of Series E Preferred Stock purchased by the
Purchaser at all of the then applicable Closings or (ii) following the
conversion by the Purchaser of the Series E Preferred Stock, a number of shares
of Common Stock equal to ninety percent of the number of shares of Common Stock
so converted, neither Elite nor its Board of Directors will be obligated to
nominate Epic Directors or take any other action with respect to those actions
described in (i), (ii) and/or (iii) above. No Epic Director may be removed from
office for cause unless such removal is directed or approved by (x) a majority
of the independent members of the Board of Directors and (y) all of the
non-affected Epic Director (s). Any vacancies created by the resignation,
removal or death of an Epic Director will be filled by the appointment of an
additional Epic Director. Any Epic Director may be removed from office upon the
request of the Purchaser, with or without cause. At such time as the Purchaser
owns more than 50% of the issued and outstanding Common Stock or other voting
securities of Elite, the number of Epic Directors that the Purchaser will be
entitled to designate under the Epic Strategic Alliance Agreement will be equal
to a majority of the Board of Directors.




The
Series E Certificate provides that on any matter presented to the holders of our
Common Stock for their action or consideration at any meeting of our
stockholders (or by written consent of stockholders in lieu of meeting), Epic,
as a holder of Series E Preferred Stock, will be entitled to cast the number of
votes equal to the number of shares of Common Stock into which the shares of
Series E Preferred Stock held by Epic are convertible as of the record date for
determining the stockholders entitled to vote on such matter. Except as provided
by law or by the other provisions of the Series E Certificate, Epic will vote
together with the holders of Common Stock, as a single class.




In
addition, pursuant to the Epic Strategic Alliance Agreement and the Series E
Certificate, Elite has agreed that, between the date of the initial closing
under the Epic Strategic Alliance Agreement and the date which is the earlier of
(x) the date the Epic Directors constitute a majority of the Board of Directors
and (y) ninety days following the fifth anniversary of the Initial Closing Date,
except as Epic otherwise agrees in writing, Elite may conduct its operations
only in the ordinary and usual course of business consistent with past
practice.   Further, pursuant to the Epic Strategic Alliance
Agreement and the Series E Certificate, Elite must obtain the prior written
consent of Epic in order to take the actions specifically enumerated
therein.




For
information regarding composition of the Board and voting rights in connection
with the Epic Strategic Alliance Agreement, refer to the “Risk Factors” under
Item 1A, of this Annual Report on Form 10-K and our Current Reports on Form 8-K,
filed with the SEC on March 23, 2009, May 6, 2009 and June 5, 2009, which are
incorporated herein by reference.




Novel
Labs Investment




At the
end of 2006, Elite entered into a joint venture with VGS Pharma, LLC (“VGS”) and created Novel
Laboratories, Inc. (“Novel”), a privately-held
company specializing in pharmaceutical research, development, manufacturing,
licensing, acquisition and marketing of specialty generic pharmaceuticals.
Novel's business strategy is to focus on its core strength in identifying and
timely executing niche business opportunities in the generic pharmaceutical
area. Elite’s ownership interest in Novel’s Class A Voting Common Stock of Novel
is approximately 10% of the outstanding shares of Class A Voting Common Stock of
Novel. As of October 1, 2007, Elite deconsolidated its financial statements from
Novel and the investment in Novel is accounted for under the cost method of
accounting.





Since its
inception, Novel has filed at least 11 Abbreviated New Drug Applications with
the US Food and Drug Administration.  The first ANDA approval for
Novel was received in December 2008 and at least three additional ANDA approvals
were received in 2009.  Four of the Novel ANDAs have been granted
first-to-file status.





In
addition, Novel has acquired three ANDAs to supplement its own in-house product
development and marketing strategy.  Novel has publicly said that it
has identified over 50 drug products which are in various stages of development
that it plans to commercialize in the coming years.




We also
know from public information that Perrigo Company acquired rights in 2010 for an
undisclosed amount to an additional Novel ANDA approved in 2010 for the product
HalfLytely®.  Novel believes this is a first to file
ANDA.  Perrigo expects to be in a position to launch a generic version
of this product later this year and they expect to have 180 days of generic
exclusivity. Novel will manufacture the product exclusively for
Perrigo.




37




In
accordance with GAAP, the Company records an impairment write-down to such
investments when the cost of the investment exceeds its fair value and when the
decline in value is determined to be other-than temporary. Indicators of an
other-than-temporary decline in value include, without limitation, the
following:





·
            A
      significant deterioration in the earnings performance, credit rating,
      asset quality, or business prospects of the
  investee


·
            A
      significant adverse change in the regulatory, economic, or technological
      environment of the investee


·
            A
      significant adverse change in the general market condition of either the
      geographic area or the industry in which the investee
    operates


·
            A
      bona fide offer to purchase (whether solicited or unsolicited), an offer
      by the investee to sell, or a completed auction process for the same or
      similar security for an amount less than the cost of the
      investment


·
            Factors
      that raise significant concerns about the investee's ability to continue
      as a going concern, such as negative cash flows from operations, working
      capital deficiencies, or noncompliance with statutory capital requirements
      or debt covenants.





A review
and assessment of all documents available, public announcements by Novel and
communications with the management of Novel does not indicate the existence of
impairment indicators.  Accordingly, the Company determined that no
impairment is required in the valuation of its investment in Novel as of March
31, 2010.  The valuation of the Company’s investment in Novel remains
at $3,329,322, an amount equal to the valuation as of March 31, 2009 with no
impairment write downs.





Critical
Accounting Policies and Estimates





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





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




Liquidity
and Capital Resources





As of
March 31, 2010, our principal source of liquidity was approximately $578,000 of
cash and cash equivalents, or approximately twelve months of cash or cash
equivalents available based on our current operations Our strategic alliance
with Epic may also generate (i) an additional $1.6875 million in cash proceeds
to us through Epic’s purchase of additional shares of Series E Preferred Stock
over the course of additional closings pursuant to the terms and conditions of
the Epic Strategic Alliance Agreement and (ii) profit sharing in the revenue
from commercialized products which were developed at Elite’s Facility pursuant
to the Epic Strategic Alliance Agreement.  However, no assurance can
be given that we will consummate such additional closings of the transactions
contemplated by, or successfully commercialize the products developed under, the
Epic Strategic Alliance Agreement.  If adequate funds are not
available to us as we need them, it would raise substantial doubt about our
ability to continue as a going concern.




38




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





For the
year ended March 31, 2010, we expended approximately $1.4 million in operating
activities which we funded through the $2.0 million in gross proceeds realized
from the issuance of Series E Preferred Stock pursuant to the Epic Strategic
Alliance Agreement and from cash on hand as of March 31, 2009. Our working
capital at March 31, 2010 was negative $2.3 million compared with working
capital of $0.8 million at March 31, 2009.  Cash and cash equivalents
at March 31, 2010 were $0.6 million an increase of $0.3 million from the $0.3
million of cash and cash equivalents at March 31, 2009.





On June
3, 2009 and October 30, 2009, respectively, we consummated the Initial and
Second Closings of the transactions contemplated by the Epic Strategic Alliance
Agreement and received from Epic cash payments of $1,000,000 (including $250,000
previously paid to us as a good faith deposit) at the Initial Closing and
$1,000,000 at the Second Closing, in exchange for 1,000 shares of our Series E
Preferred Stock, at each closing.  These funds provide us with the
additional capital necessary for the development of both the product and the
business synergies contemplated by the Epic Strategic Alliance
Agreement.  The Epic Strategic Alliance Agreement also contemplates
one additional closing, which could generate an additional $1.0 million in cash
proceeds through Epic’s purchase of additional shares of Series E Preferred
Stock.





On
November 12, 2009, the Company received $62,500 from Epic in exchange for 62.5
shares of Series E Preferred Stock to be issued to Epic.  The Epic
Strategic Alliance Agreement also contemplates an additional 11 payments of
$62,500, over the next three years, which could generate an additional $687,500
in cash proceeds through Epic’s purchase of additional shares of Series E
Preferred Stock.





The
Company had outstanding, as of March 31, 2010, bonds in the aggregate principal
amount of $3,385,000 consisting of $3,140,000 of 6.5% tax exempt bonds with an
outside maturity of September 1, 2030 and $245,000 of 9.0% bonds with an outside
maturity of September 1, 2012 (together, the “NJEDA Bonds”). The NJEDA Bonds are
secured by a first lien on the Facility in Northvale, New
Jersey.  Pursuant to the terms of the NJEDA Bonds, a restricted cash
account has been established for the payment of bond principal and interest, in
the event that the Company does not make such payments when due.  Bond
proceeds were utilized for the redemption of previously issued tax exempt bonds
issued by the Authority in September 1999 and to refinance equipment financing,
as well as provide approximately $1,000,000 of capital for the purchase of
additional equipment for the manufacture and development at the Facility of
pharmaceutical products and the maintenance of a $388,990 debt service reserve
(the “Debt Service Reserve Fund”) to be held in the restricted cash account
established with the Trustee for the NJEDA Bonds.   All proceeds
from the NJEDA Bonds, other than the amount used to establish the Debt Service
Reserve Fund, were expended within the year ended March 31, 2007.





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





The
principal payment due on September 1, 2009, totaling $210,000 and the interest
payments due on September 1, 2009 and March 1, 2010, totaling $120,775 and
$113,075, respectively were all paid from the Debt Service Reserve Fund, due to
the Company not having sufficient available funds to make such payments when
due.  Nonpayment of the amounts when due constituted an Event of
Default under the NJEDA Bonds and the loan document executed with NJEDA Bonds.
Pursuant to the terms of the NJEDA Bonds, the Company is required to replenish
any amounts withdrawn from the Debt Service Reserve Fund and used to make
principal or interest payments in six monthly installments, each being equal to
one-sixth of the amount withdrawn and with the first installment due on the
15th
of the month in which the withdrawal from Debt Service Reserve Fund occurred and
the remaining five monthly payments being due on the 15th of the
five immediately subsequent months. The Company has, to date, made all payments
required in relation to the withdrawals made from the Debt Service Reserve on
September 1, 2009 and March 1, 2010.  The Company is required to make
two additional payments of $18,846 each, on July 15, 2010 and August 15, 2010,
in order to fully replenish the March 1, 2010 withdrawal from the Debt Service
Reserve.




39




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





Until the
event of default is waived or rescinded, the Company has classified the entire
principal due, an amount aggregating $3.385 million, as a current
liability.





The
Trustee’s remedies on default include declaring the NJEDA Bonds due and payable
and exercising rights against the collateral provided to secure the NJEDA
Bonds.





Results
of Operations:





Year
Ended March 31, 2010 as compared to the Year Ended March 31,
2009




Elite’s
revenues for the year ended March 31, 2010 were $3,344,298, an increase of
$1,069,473 over revenues for the prior year, and consisted of $2,575,942 in
manufacturing fees, $763,928 in royalty fees and $4,429 in contract lab service
fees. Revenues for the year ended March 31, 2009 consisted of $1,927,062 in
manufacturing fees and $347,763 in royalty fees. Manufacturing fees increased by
approximately 34% and royalties increased by approximately 120% due to growth of
product sales.




Research
and development costs for the year ended March 31, 2010 were $794,433, a
decrease of $2,836,992, or approximately 78%, from $3,631,425 of such costs for
the prior year.  Decreases were attributed to decreases in salaries
and wages, consulting fees associated with the development of products and lower
active pharmaceutical ingredient (“API”) costs for product
development.  Research and development costs are expected to increase,
however, in future periods, once Phase III and other clinical trials for ELI-216
are initiated.




General
and administrative expenses for the year ended March 31, 2010, were $1,841,425,
a decrease of $305,470, or approximately 14% from $2,146,895of general and
administrative expenses for the prior year. The decrease was primarily
attributable to decreases in salaries and fringe benefits from Elite’s force
reduction offset by increases in legal fees related to the Midsummer et al
litigation.  This litigation was settled on June 25,
2010.




Non-cash
compensation satisfied by the issuance of stock options and warrants decreased
$796,438 to $125,004 for the year ended March 31, 2010 from $921,442 for the
year ended March 31, 2009. Decreases were the result of previously issued
options becoming vested and forfeitures as a result of the reduction in
workforce.




Depreciation
and amortization decreased by $286,822, or approximately 57%, from $500,817 for
the prior year to $213,995. We acquired no new machinery and equipment in the
current year and we implemented revised cost accounting standards, both of which
contributed to the decrease.




Other
income (expenses) for the year ended March 31, 2010 were $(6,120,553) compared
to other income (expenses) of $(211,266) for the year ended March 31, 2009. The
decrease in other income (expenses) was due to derivative expenses related to
changes in the fair value of our preferred shares and outstanding warrants of
$(4,076,050), derivative interest expense of ($1,271,254) and discount in Series
E issuance attributable to beneficial conversion features of ($512,912) The
derivative expenses result from a change in accounting principal required by the
adoption of EITF 07-5 as of the beginning of the 2010 fiscal
year   Accordingly, derivative income/(expenses) were not
applicable to the 2009 fiscal year..




As a
result of the foregoing, Elite’s net loss for the year ended March 31, 2010 was
$8,056,874 compared to $6,604,708 for the year ended March 31,
2009.




40




Material
Changes in Financial Condition





Our
working capital (total current assets less total current liabilities), decreased
to a working capital deficiency of $2,274,572 as of March 31, 2010 from $758,676
as of March 31, 2009, primarily due to net proceeds received as a result of our
private placement of Series E Convertible Preferred Stock, offset by net cash
used in operations and the reclassification of the NJEDA Bonds as a current
liability.





We
experienced negative cash flows from operations of $1,364,748 for the year ended
March 31, 2010, primarily due to our net loss from operations of $8,056,874,
combined with an increase in accounts receivable of $395,245 and offset by
non-cash expenses included in the net operating loss of
$6,905,623.  The increased accounts receivable were collected, in
full, during the 3 months immediately subsequent to close of the 2010 fiscal
year.





On
November 15, 2004 and on December 18, 2006, Elite’s partner, ECR, launched
Lodrane 24® and Lodrane 24D®, respectively. Under its agreement with ECR, Elite
is currently manufacturing commercial batches of Lodrane 24® and Lodrane 24D® in
exchange for manufacturing margins and royalties on product revenues.
Manufacturing revenues and royalty income earned for the year ended March 31,
2010 was $2,575,942 and $763,928, respectively. We expect future cash flows from
manufacturing fees and royalties to provide additional cash to help fund our
operations. However, no assurance can be given that we will generate any
material revenues from the manufacturing fees and royalties earned on the
Lodrane products.





Off-balance
sheet arrangements





None.





ITEM
      7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.





Not
applicable to smaller reporting companies





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.





The Audit
Committee of the Board of Directors of Elite Pharmaceuticals, Inc (“Company”)
regularly reviews the selection of the Company’s independent registered public
accounting firm.





Engagement of Demetrius
& Company as the Company’s Independent Registered Public Accounting
Firm


On
January 14, 2010, after an extensive evaluation process the Audit Committee
engaged Demetrius & Company, LLC (“Demetrius”) as its new independent
registered public accounting firm and dismissed Rosen Seymour Shapss Martin
& Company LLP (“Rosen”) as the Company’s independent registered public
accounting firm.





The
reports of Rosen on the Company’s consolidated financial statements for the
fiscal year ended March 31, 2009 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles.




41




During
the fiscal year ended March 31, 2009, and in the subsequent interim period from
April 1, 2009 through and including January 14, 2010, there were no
disagreements with Rosen on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to Rosen’s satisfaction, would have caused Rosen
to make reference to the subject matter of the disagreement in connection with
its report. During the fiscal year ended March 31, 2009, and in the subsequent
interim period from April 1, 2009 through and including January 14, 2010, there
were no “reportable events” as that term is described in Item 304(a)(1)(v) of
Regulation S-K.





During
the fiscal year ended March 31, 2009, and in the subsequent interim period from
April 1, 2009 through and including January 14, 2010, the Company did not
consult Demetrius with respect to the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Company’s consolidated financial
statements.




Merger of Miller, Ellin
& Company LLP into Rosen Seymour Shapss Martin & Company
LLP




Effective
January 1, 2009, the Company’s independent accountant, Miller, Ellin &
Company, LLP, merged its practice into the practice of Rosen Seymour Shapss
Martin & Company LLP (“ Rosen Seymour”). As
a result of such merger, Rosen Seymour became the Company’s new principal
accountant. By letter, dated February 12, 2009, Rosen Seymour notified the
Company that such merger is considered by the Securities and Exchange Commission
to be a change in independent auditors.




Prior to
the merger, the Company had not consulted with Rosen Seymour with respect to (i)
the application of accounting principles to a specific transaction, either
completed or proposed, (ii) the type of audit opinion that might be rendered on
the Company’s financial statements, or (iii) any matter that was either the
subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation
S-K).





ITEM
9A.     CONTROLS AND PROCEDURES.





Evaluation
of Disclosure Controls and Procedures




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




Management
has determined that, as of March 31, 2010, there were material weaknesses in
both the design and effectiveness of our internal control over financial
reporting.  A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of our annual or interim
financial statements will not be prevented or detected on a timely
basis.




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




42




Management's
Annual Report on Internal Control over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control over financial reporting
has been designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles in the
United States of America (“GAAP”).




Our
internal control over financial reporting includes policies and procedures that
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect transactions and dispositions of our assets; provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with accounting principles generally accepted
in the United States of America, that receipts and expenditures are being made
only in accordance with authorization of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a
material effect on our financial statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements or fraudulent actions. Therefore, even those
systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation. Projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.





This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by
our registered public accounting firm pursuant to temporary rules of the SEC
that permit us to provide only management's report in this annual
report.




Our
management assessed the effectiveness of our internal control over financial
reporting as of March 31, 2010. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control—Integrated Framework. Based on that assessment
under those criteria, management has determined that, at March 31, 2010, there
were material weaknesses in both the design and effectiveness of our internal
control over financial reporting.  A material weakness is a
deficiency, or a combination of deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented
or detected on a timely basis.




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




Changes in Internal Control over
Financial Reporting




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





ITEM 9B.
            OTHER
      INFORMATION.




43




PART III





ITEM 10.
            DIRECTORS , EXECUTIVE OFFICERS
      AND CORPORATE GOVERNANCE.





Directors
and Executive Officers





On June
8, 2009, at a Special Meeting of the Board of Directors, the Board took the
following actions, in accordance with the terms of the Epic Strategic Alliance
Agreement:  (1) increased the size of the Board from five directors to
seven directors and (2) appointed each of Ashok G. Nigalaye, Jeenarine Narine
and Ram Potti as directors effective immediately following the resignation of
one of the existing directors.   In accordance with the Epic
Strategic Alliance Agreement, Chris Dick voluntarily resigned as a member of the
Board, effective as of June 24, 2009, and, effective immediately following such
resignation, Messrs. Nigalaye, Narine and Potti were appointed as members of the
Board, representing the three directors designated by Epic for appointment to
the Board (such three directors, the “Epic Directors”), in
accordance with the terms of the Epic Strategic Alliance Agreement.





Our
current directors, executive officers and key employees, and such persons’
biographical information are set forth below:





Name
                      
                      Age
                      
                      TitleJerry
      Treppel
                      
                      56
                      
                      Director,
      Chairman of the Board, Chief Executive OfficerBarry
      Dash, Ph. D
                      
                      78
                      
                      DirectorAshok
      G. Nigalaye, Ph. D
                      
                      58
                      
                      Director,
      Chief Scientific OfficerJeenarine
      Narine
                      
                      60
                      
                      DirectorRam
      Potti
                      
                      57
                      
                      DirectorChris
      Dick
                      
                      55
                      
                      Director,
      President, Chief Operating OfficerJeffrey
      Whitnell
                      
                      54
                      
                      DirectorCarter
      J. Ward
                      
                      46
                      
                      Chief
      Financial Officer, Secretary and
Treasurer





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





Jerry Treppel, Director since
October 28, 2008, Chairman of the Board since November 6, 2008 and Chief
Executive Officer since September 15, 2009.  Mr. Treppel has served as
the managing member of Wheaten Capital Management LLC, a capital management
company focusing on investment in the health care sector since 2003. In October
2008, Mr. Treppel was also appointed managing director of Ledgemont Capital
Group LLC, a boutique merchant bank that provides access to capital and
corporate advisory services to public and private companies. Over the past 20
years, Mr. Treppel was an equity research analyst focusing on the specialty
pharmaceuticals and generic drug sectors at several investment banking firms
including Banc of America Securities, Warburg Dillon Read LLC (now UBS), and
Kidder, Peabody & Co. He previously served as a healthcare services analyst
at various firms, including Merrill Lynch & Co. He also held administrative
positions in the healthcare services industry early in his career. Since 2003,
Mr. Treppel has served as a member of the board of directors of Akorn,
Incorporated (NASDAQ: AKRX), a specialty pharmaceutical company engaged in the
development, manufacturing and marketing of branded and multi-source
pharmaceutical products and vaccines. Mr. Treppel also serves as the Chair of
Akorn’s Nominating and Corporate Governance Committee and as a member of its
Audit Committee and Compensation Committee. Mr. Treppel holds a BA in Biology
from Rutgers College in New Brunswick, N.J., an MHA in Health Administration
from Washington University in St. Louis, Mo., and an MBA in Finance from New
York University. Mr. Treppel has been a Chartered Financial Analyst (CFA) since
1988.  Mr. Treppel’s knowledge of the pharmaceutical industry as well
as his education credentials and his experience as a member of the board of
directors of Akorn, Incorporated led to the conclusion that he is qualified to
serve as a director.




44




Dr. Barry Dash, Director
since April 2005, Member of the Audit Committee since April 2005, Member of the
Nominating Committee since April 2005 and Member and Chairman of the
Compensation Committee since June 2007. Dr. Dash has been, since 1995, President
and Managing Member of Dash Associates, L.L.C., an independent consultant to the
pharmaceutical and health industries.  From 1983 to 1996 he was
employed by Whitehall-Robins Healthcare, a division of American Home Products
Corporation (now known as Wyeth), initially as Vice President of Scientific
Affairs, then as Senior Vice President of Scientific Affairs and then as Senior
Vice President of Advanced Technologies, during which time he personally
supervised six separate departments:  Medical and Clinical Affairs,
Regulatory Affairs, Technical Affairs, Research and Development, Analytical
R&D and Quality Management/Q.C.  Dr. Dash had been employed by the
Whitehall Robins Healthcare 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 to
1982.  From 1976 to 1978 he was Vice President and Director of
Laboratories of the Consumer Products Division of American Can
Company.  He currently serves on the board of directors of GeoPharma,
Inc. (NASDQ: GORX).  Dr. Dash holds a Ph.D. from the University of
Florida and M.S. and B.S. degrees from Columbia University where 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, American Association of Pharmaceutical Scientists, Drug Information
Association, American Foundation for Pharmaceutical Education, and Diplomate
American Board of Forensic Examiners.  He is the author of scientific
publications and patents in the pharmaceutical field.  Dr. Dash’s
extensive education in pharmaceutical sciences and his experience in the
development of scientific products, including his experience in regulatory
affairs, led to the conclusion that he is qualified to serve as a
director.





Dr. Ashok G. Nigalaye,
Director since June 24, 2009, member of the Compensation Committee since October
23, 2009 and Chief Scientific Officer since September 15, 2009.  Dr..
Nigalaye was elected as a member of Elite’s Board in June 2009 as one of three
directors designated by Epic pursuant to the terms of the Epic Strategic
Alliance Agreement.   Since July 2008, Dr. Nigalaye has been the
President and Chief Executive Officer of Epic Pharma LLC, a manufacturer of
generic pharmaceuticals and Elite’s strategic partner pursuant to the Epic
Strategic Alliance Agreement.  From August 1993 to February 2008, Dr.
Nigalaye served as Vice President of Scientific Affairs and Operations of
Actavis Totowa LLC, a manufacturer of generic pharmaceuticals, where he was
responsible for directing and organizing company activities relating to
pharmaceutical drug manufacturing, regulatory affairs and research and
development.  Dr. Nigalaye currently serves as a director of GTI Inc.,
a privately held company.  Dr. Nigalaye holds a B.S. in Pharmacy from
the University of Bombay, an M.S. in Industrial Pharmacy from Long Island
University, and a Ph.D. in Industrial Pharmacy from St. John’s
University.  Dr. Nigalaye is also a licensed pharmacist in the State
of New York.  Dr. Nigalaye’s extensive education in pharmaceutical
sciences and experience as a director and officer of pharmaceutical companies
led to the conclusion that he is qualified to serve as a director.





Jeenarine Narine, Director
since June 24, 2009 and member of the Nominating Committee since October 23,
2009.  Mr. Narine was elected as a member of Elite’s Board in June
2009 as one of three directors designated by Epic pursuant to the terms of the
Epic Strategic Alliance Agreement.  Since July 2008, Mr. Narine has
been the Executive Vice President of Manufacturing and Operations of Epic Pharma
LLC, a manufacturer of generic pharmaceuticals and Elite’s strategic partner
pursuant to the Epic Strategic Alliance Agreement, in which capacity he oversees
all manufacturing operations.  Mr. Narine is also the current
President of Eniran Manufacturing Inc., a contract manufacturer of dietary and
nutritional supplements, and has held such office since 2000.  In
addition, Mr. Narine has been since 1989 the President of A&J Machine Inc.,
a company owned by Mr. Narine that is engaged in the sales of new and used
pharmaceutical manufacturing equipment.  In addition to this
professional experience, Mr. Narine graduated from the Guyana Industrial
Institute, where he studied Metalology and Welding.  Mr. Narine’s
experience as the Executive Vice President of Manufacturing and Operations of
Epic Pharma LLC and his knowledge of pharmaceutical manufacturing equipment led
to the conclusion that he is qualified to serve as a director.





Ram Potti, Director since
June 24, 2009, chairman of the Nominating Committee since October 23, 2009 and
member of the Audit Committee since October 23, 2009.  Mr. Potti was
elected as a member of Elite’s Board in June 2009 as one of three directors
designated by Epic pursuant to the terms of the Epic Strategic Alliance
Agreement.   Since July 2008, Mr. Potti has been the Vice
President of Business Development of Epic Pharma LLC, a manufacturer of generic
pharmaceuticals and Elite’s strategic partner pursuant to the Epic Strategic
Alliance Agreement, in which capacity he handles the company’s new ventures and
products.  Mr. Potti is also the founder and current President of RSMB
Investments LLC, an investment company that specializes in startup ventures in
the healthcare and technology sectors.   In addition, from 2002
to 2006, Mr. Potti was the President and Chief Operating Officer of Trigen
Laboratories, a company which he founded that manufactures generic
pharmaceutical products. Mr. Potti holds a B.S. in Chemistry from the University
of Kerala, St. Albert’s College.  Mr. Potti’s experience in developing
business and products for Epic Pharma LLC led to the conclusion that he is
qualified to serve as a director.




45




Chris Dick,  Chief
Operating Officer since October 2008, acting Chief Executive Officer from
November 2008 to September 15, 2009, and President since April 2009; Director
from October 20, 2008 to June 24, 2009, and since October 23, 2009.  Mr.
Dick began at Elite in November 2002 as Vice President of Business
Development.  Since March 2006, Mr. Dick has been Executive Vice President
of Corporate Development.  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 1978 to 1999, he held various business and technical positions at FMC
Corporation which included responsibility for business development and marketing
for EnTec, a drug delivery business unit within FMC Corporation’s Pharmaceutical
Division and 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 M.S. in Chemical Engineering from Cornell University.  Mr.
Dick’s experience and qualifications in the pharmaceutical industry,
specifically in the area of business and product development, provides specific
attributes and qualifications to serve as a director, President and COO for the
Company.





Jeffrey Whitnell, Director
since October 23, 2009, Chairman of the Audit Committee since October 23, 2009,
member of the nominating committee since October 23, 2009 and designated by the
Board as an “audit committee financial expert” ad defined under applicable rules
under the Securities Exchange Act of 1934, as amended, since October 23,
2009.  From June 2004 to June 2009, Mr. Whitnell was Chief Financial
Officer and Senior Vice President of Finance at Akorn, Inc.  From 2002 to
April 2004, Mr. Whitnell was Vice President of Finance and Treasurer for Ovation
Pharmaceuticals.  From 1997 to 2001, Mr. Whitnell was Vice President of
Finance and Treasurer for MediChem Research.  Prior to 1997, Mr. Whitnell
held various finance positions at Akzo Nobel and Motorola.  Mr. Whitnell
began his career as an auditor at Arthur Andersen & Co. He is a certified
public accountant and holds an M.B.A. in Finance from the University of Chicago
and a B.S. in Accounting from the University of Illinois.  Mr. Whitnell’s
qualifications as an accounting and audit expert provide specific experience to
serve as a director for the Company.





Carter J. Ward, Chief
Financial Officer, Secretary and Treasurer of the Company since July 1,
2009.  Prior to joining the Company, from July 2005 to April 2009, Mr. Ward
filled multiple finance and supply chain leadership roles with the Actavis Group
and its U.S. subsidiary, Amide Pharmaceuticals.  From September 2004 to
June 2005, Mr. Ward was a consultant, mainly engaged in improving internal
controls and supporting Sarbanes Oxley compliance of Centennial Communications
Inc., a NASDAQ listed wireless communications provider.  From 1999 to
September 2004, Mr. Ward was the Chief Financial Officer for Positive
Healthcare/Ceejay Healthcare, a U.S.-Indian joint venture engaged in the
manufacture and distribution of generic pharmaceuticals and nutraceuticals in
India.  Mr. Ward began his career as a certified public accountant in the
audit department of KPMG and is a Certified Supply Chain Professional
(“CSCP”).  Mr. Ward holds a B.S. in Accounting from Long Island University,
Brooklyn, NY, from where he graduated summa cum laude.  Mr.
Ward’s experience and expertise in the area of finance and more specifically, as
a Certified Supply Chain Professional, provides the qualifications, attributes
and skills to serve as an officer for the Company.





Each
director holds office until the next annual meeting of stockholders or until
such director’s death, resignation or removal.  There are no family
relationships between any of our directors and executive officers.





Committees
of the Board




The Board
of Directors has an Audit Committee, a Compensation Committee and a Nominating
Committee.





Audit
Committee





During
the fiscal year ended March 31, 2010, the members of the Audit Committee were
Barry Dash, Robert J. Levenson (Chairman of the Audit Committee) and Melvin Van
Woert until October 23, 2009 and Jeffrey Whitnell (Chairman of the Audit
Committee), Ram Potti and Dr. Barry Dash, thereafter.  We deem the
members of our Audit Committee to be independent and Mr. Levenson to be
qualified as an audit committee financial expert.




46




Nominating
Committee





During
the fiscal year ended March 31, 2010, the members of the Nominating Committee
were Melvin Van Woert (Chairman of the Nominating Committee), Robert J. Levenson
and Dr. Barry Dash until October 23, 2009 and Ram Potti (Chairman of the
Nominating Committee), Dr. Barry Dash and Jeenarine Narine,
thereafter.  The Nominating Committee makes recommendations to the
Board of Directors with respect to Director nominees.  There were no
material changes to the procedures by which security holders may recommend
nominees to our Board of Directors since the filing of our last Annual Report on
Form 10-K.





Compensation
Committee





During
the fiscal year ended March 31, 2010, the members of the Compensation Committee
were Barry Dash (Chairman of the Compensation Committee), Robert J. Levenson and
Melvin Van Woert until October 23, 2009, and Dr. Barry Dash (Chairman of the
Compensation Committee), Dr. Ashok Nigalaye and Jeffrey Whitnell,
thereafter.





Code
of Conduct





At the
first meeting of theBoard of Directors
following the annual meeting of stockholders held on June 22, 2004, the Board of
Directors adopted a Code of Business Conduct and Ethics that is applicable to
the Company’s directors, officers and employees.  A copy of the Code
of Business Conduct and Ethics is available on our website at
www.elitepharma.com.





Section
16(a) Beneficial Ownership Reporting Compliance





To our
knowledge, there was no person who, at any time during the fiscal year ended
March 31, 2010, was a director, officer or beneficial owner of more than 10% of
any class of our equity securities registered pursuant to Section 12 of the
Exchange Act, who failed to file on a timely basis a report required by Section
16(a) of the Exchange Act during or with respect to such fiscal year, except as
follows.





In
addition, Dr. Dash and Mr. Treppel each failed to file one report required by
Section 16(a) of the Exchange Act for transactions since March 31, 2009 to
report (a) in the case of Dr. Dash, the conversion of 20 shares of Series C
Preferred Stock into 12,243 shares of Common Stock and the Company’s issuance to
him of warrant to purchase up to 12,243 shares of Common Stock on June 3, 2009
and (b) in the case of Mr. Treppel, the conversion by Wheaten of 75 shares of
Series D Preferred Stock into 375,000 shares of Common Stock and the Company’s
issuance to Wheaten of a warrant to purchase up to 375,000 shares of Common
Stock on June 3, 2009.








ITEM
11.    EXECUTIVE
COMPENSATION.





COMPENSATION
DISCUSSION AND ANALYSIS


SUMMARY




Our
approach to executive compensation, one of the most important and complex
aspects of corporate governance, is influenced by our belief in rewarding people
for consistently strong execution and performance.  We believe that
the ability to attract and retain qualified executive officers and other key
employees is essential to our long-term success.





Compensation
Linked to Attainment of Performance Goals




Our plan
to obtain and retain highly skilled employees is to provide significant
incentive compensation opportunities and market competitive salaries. The plan
was intended to link individual employee objectives with overall company
strategies and results, and to reward executive officers and significant
employees for their individual contributions to those strategies and
results.  We use compensation and performance data from comparable
companies in the pharmaceutical industry to establish market competitive
compensation and performance standards for our employees. Furthermore, we
believe that equity awards serve to align the interests of our executives with
those of our stockholders.  As such, equity is a key component of our
compensation program.




47




Role
of the Compensation Committee and its Advisors





The
Company formed the Compensation Committee in June 2007.  Since the
formation of the Compensation Committee all elements of the executives’
compensation are determined by the Compensation Committee, which is comprised of
a two independent non-employee directors, and one director who is also the
Company’s Chief Scientific Officer.  However, the Compensation
Committee’s decisions concerning the compensation of the Company’s Chief
Executive Officer are subject to ratification by the independent directors of
the Board of Directors.  As of March 31, 2010, the members of the
Compensation Committee were Barry Dash, Ashok Nigalaye and Jeffrey
Whitnell.  The Committee operates pursuant to a
charter.  Under the Compensation Committee charter, the Compensation
Committee has authority to retain compensation consultants, outside counsel, and
other advisors that the committee deems appropriate, in its sole discretion, to
assist it in discharging its duties, and to approve the terms of retention and
fees to be paid to such consultants




NAMED
EXECUTIVE OFFICERS AND KEY EMPLOYEES




The named
executive officers and key employees for the fiscal year ending March 31, 2010
are Jerry Treppel, Chief Executive Officer since September 15, 2009; Chris C.
Dick, President, Chief Operating Officer for the full year and acting Chief
Executive Officer until September 15, 2009; Carter J. Ward, Chief Financial
Officer, Secretary and Treasurer since July 1, 2009.  These
individuals are referred to collectively in this Annual Report on Form 10-K as
the “Named Executive Officers.”





OUR
EXECUTIVE COMPENSATION PROGRAM





Overview




The
primary elements of our executive compensation program are base salary,
incentive cash and stock bonus opportunities and equity incentives typically in
the form of stock option grants or payment of a portion of annual salary as
stock. Although we provide other types of compensation, these three elements are
the principal means by which we provide the Named Executive Officers with
compensation opportunities.





The
annual bonus opportunity and equity compensation components of the executive
compensation program reflect our belief that a portion of an executive’s
compensation should be performance-based. This compensation is performance-based
because payment is tied to the achievement of corporate performance goals. To
the extent that performance goals are not achieved, executives will receive a
lesser amount of total compensation.





ELEMENTS
OF OUR EXECUTIVE COMPENSATION PROGRAM




Base
Salary




We pay a
base salary to certain of the Named Executive Officers, with such payments being
made in either cash, Common Stock or a combination of cash and Common Stock. In
general, base salaries for the Named Executive Officers are determined by
evaluating the responsibilities of the executive’s position, the executive’s
experience and the competitive marketplace. Base salary adjustments are
considered and take into account changes in the executive’s responsibilities,
the executive’s performance and changes in the competitive marketplace. We
believe that the base salaries of the Named Executive Officers are appropriate
within the context of the compensation elements provided to the executives and
because they are at a level which remains competitive in the
marketplace.




Bonuses




The Board
of Directors may authorize us to give discretionary bonuses, payable in cash or
shares of Common Stock, to the Named Executive Officers and other key
employees.  Such bonuses are designed to motivate the Named Executive
Officers and other employees to achieve specified corporate, business unit
and/or individual, strategic, operational and other performance
objectives.




48




Stock
Options




Stock
options constitute performance-based compensation because they have value to the
recipient only if the price of our Common Stock increases.  Stock
options for each of the Named Executive Officers generally vest over time,
obtainment of a corporate goal or a combination of the two.





The grant
of stock options at Elite is designed to motivate our Named Executive Officers
to achieve our short-term and long-term corporate goals.





Retirement
and Deferred Compensation Benefits




We do not
presently provide the Named Executive Officers with a defined benefit pension
plan or any supplemental executive retirement plans, nor do we provide the Named
Executive Officers with retiree health benefits. We have adopted a deferred
compensation plan under Section 401(k) of the Code.  The plan provides
for employees to defer compensation on a pretax basis subject to certain limits,
however, Elite does not provide a matching contribution to its
participants.





The
retirement and deferred compensation benefits provided to the Named Executive
Officers are not material factors considered in making other compensation
determinations with respect to Named Executive Officers.




Post-Termination
/ Change of Control Compensation





We do not
presently provide the Named Executive Officers with any plan or arrangement in
connection with any termination, including, without limitation, through
retirement, resignation, severance or constructive termination (including a
change in responsibilities) of such Named Executive Officer’s employment with
the Company.  We also do no presently provide the Named Executive
Officers any plan or arrangement in connection with a change in control of the
Company.


Perquisites





As
described in more detail below, the perquisites provided to certain of the Named
Executive Officers consist of car allowances and life insurance premiums.  These perquisites
represent a small fraction of the total compensation of each such Named
Executive Officer. The value of the perquisites we provide are taxable to the
Named Executive Officers and the incremental cost to us of providing these
perquisites is reflected in the Summary Compensation Table. The Board of
Directors believes that the perquisites provided are reasonable and appropriate.
For more information on perquisites provided to the Named Executive Officers,
please see the “All Other Compensation” column of the Summary Compensation Table
on page 54 of this Annual Report on Form 10-K and “Agreements with Named
Executive Officers” below.





Agreements
with Named Executive Officers


Mr. Chris C.
Dick





On
November 13, 2006, we entered into an employment agreement and, on November 10,
2008, an amendment to the employment agreement, with Mr. Dick, as our Executive
Vice President of Corporate Development and Chief Operating Officer (as amended,
the “FirstDick
Agreement”).  The First Dick Agreement was for an initial term
that ended on November 13, 2009, without renewal. As provided in the First
Dick Agreement, we have the right to terminate Mr. Dick’s employment due to
disability as defined in a long-term disability insurance policy reasonably
satisfactory to him or, in the absence of such policy, due to Mr. Dick’s
inability for 120 days in any 12 month period to substantially perform his
duties as a result of a physical or mental illness.




49




The First
Dick Agreement provides for an initial base annual salary of $250,000, a
guaranteed bonus of $25,000 payable within 30 calendar days of the end of each
fiscal year during the term and a $700 per month automobile
allowance.  The First Dick Agreement provides for payment of a
discretionary bonus following the end of each fiscal year of up to 50% of Mr.
Dick’s then annual base salary. The amount, if any, of the discretionary bonus
will be determined by the Board of Directors or the Compensation
Committee.  The discretionary bonus, if paid to Mr. Dick will be based
on the achievement of goals discussed with the executive in good faith and
within a reasonable time following the commencement of each fiscal year and may
be paid in cash or shares of our Common Stock valued at the average of the
closing price per share during the five trading days immediately preceding the
date of issuance of the shares. For the year ended March 31, 2010 Mr. Dick is to
receive a $25,000 bonus.





The First
Dick Agreement provides for the grant under the Stock Option Plan of
fully-vested options to purchase 250,000 shares of Common Stock at an exercise
price of $2.25 per share. The Dick Agreement also provides for the grant of
options to purchase up to 300,000 shares of Common Stock, at an exercise price
of $2.25 per share, which vest in two 150,000 share tranches upon the closing of
an exclusive product license for the United States national market, the entire
European Union Market or the Japan market or a product sale transaction of all
our ownership rights in the United States (only once for each product) for our
first drug developed by us for which FDA approval will be sought under a NDA
(including a 505(b) (2) application) for a Non-Generic Opioid Product as to the
first tranche and as to our second Non-Generic Opioid Product for the second
tranche.





The First
Dick Agreement also provides for the grant of options to purchase up to 200,000
shares of Common Stock at an exercise price of $2.25 per share (the “DickMilestone Options”) with the
Dick Milestone Options to vest (A) as to not more than 125,000 shares and 75,000
shares, respectively, upon the commencement of the first Phase III clinical
trial relating to the first and then the second Non–Generic Opioid Product
developed by us; (B) 50,000 shares upon the closing of each product license or
product sale transaction (on a product by product basis and only once for each
product) other than Non-Generic Opioid Products for which options were granted
above; (C) 10,000 shares upon the filing by us (in our name) with the FDA of
either an ANDA or an NDA, for a product not covered by a previous FDA
application; (D) 40,000 shares upon the approval by the FDA of any ANDA or NDA
(filed in our name) for a product not previously approved by the FDA; (E) 25,000
shares upon the filing of an application for a U.S. patent by us (in our name);
and (F) 25,000 shares upon the granting by the PTO of a patent to us filed in
our name or an approval of an ANDA or NDA; provided, however, that the foregoing
options terminate upon the executive’s termination of employment except that
options under (D) and (F) nevertheless vest if the filing was made during the
initial term but prior to termination of Mr. Dick’s employment by us without
cause and the approval was made within 540 days of the filing of the ANDA, NDA
or patent application.




We also
agreed that if all 200,000 Dick Milestone Options have fully vested during the
initial term of the Dick Agreement, we will grant under the Stock Option Plan to
Mr. Dick at the end of the first current fiscal year in which the following
event occurs fully vested additional options to purchase the following shares at
the fair market value on the date of grant (the “Additional Dick Milestone
Options”): (a) to the extent not previously vested with respect to his
comparable Dick Milestone Options: (i) up to 125,000 shares upon the
commencement of the first Phase III clinical trial relating to the first
Non-Generic Opioid Product developed by us; and (ii) up to an additional 125,000
shares as to such trial relating to the second Non-Generic Opioid Product
developed by us, (b) 50,000 shares upon the closing of each product license for
the United States national market or product sale transaction of all ownership
rights (on a product by product basis and only once for each product); (c)
10,000 shares upon the filing by us (in our name) with the FDA of either an ANDA
or NDA for a product not covered by a previous FDA application for each drug
product of us, other than the Non-Generic Opioid Products for which any Opioid
Option was granted under the Dick Agreement;  (d) 40,000 shares upon
the approval by the FDA of any ANDA, NDA or 505(b)(2) application filed in our
name for a product not previously approved by the FDA; (e) 25,000 shares in the
event of the filing of an application of an additional U.S. patent by us (filed
in our name); and (f) 25,000 shares in the event of the granting by the PTO of
the foregoing additional patent applications to us (filed in our
name).




The First
Dick Agreement allows us at our discretion to grant to Mr. Dick additional
options under the Stock Option Plan and provides Mr. Dick the right to register
at our expense for reoffering shares issued upon exercise of the options under
the Securities Act in certain registration statements filed by us with respect
to offerings of securities by us.




50




The First
Dick Agreement provides that in the event we terminate Mr. Dick’s employment for
Cause (as defined in the Dick Agreement) or Mr. Dick terminates employment
without Good Reason (as defined in the Dick Agreement), he is to receive salary
through date of termination, reimbursement for expenses incurred prior to
termination, all unvested options will terminate as of the date of termination
and vested options will be governed by the terms of the Stock Option Plan and
the related option agreement. In the event of a termination due to death,
disability or by us without cause or by Mr. Dick for Good Reason, we are to pay
him or his estate subject to his compliance with certain covenants, including
non-competition, non-solicitation, confidentiality and assignment of
intellectual property, his base salary for the longer of the balance of the
initial term or one year from date of termination, continue health insurance
coverage for 12 months from termination and his vested options are to be
exercisable for 90 days from date of termination.




In the
event the employment of Mr. Dick is terminated by us following a Change of
Control (as defined below) of Elite, Mr. Dick will be entitled to the amounts
payable as a result of termination by us without cause plus a lump sum payment
of $500,000 and all unvested options shall immediately vest and along with
unexercised vested options be exercisable within 90 days from the date of
termination.  “Change of Control” is defined as the acquisition of
Elite pursuant to a merger or consolidation which results in the reduction to
less than 50% of the shares outstanding upon consummation of the holders of its
outstanding shares immediately prior thereto or sale of substantially all our
assets or capital stock to another person, or the acquisition by a person or a
related group in a single transaction or a series of related transaction of more
than 50% of the combined voting power of Elite’s outstanding voting
securities.




The First
Dick Agreement provides for a one-year non-competition covenant and a two-year
non-solicitation covenant following termination of employment.




The First
Dick Agreement provides for reimbursement of expenses (including business,
travel and entertainment) reasonably incurred in the performance of his duties,
provided, however that reimbursement of expenses in excess of $2,000 per month
are subject to the approval of our chief executive officer.  Mr. Dick
is entitled to participate in such employee benefit and welfare plans and
programs, which may be offered to our senior executives including life
insurance, health and accident insurance, medical plans and programs and profit
sharing and retirement plans.




On
November 13, 2009, we entered into an employment agreement with Mr. Dick as our
President and Chief Operating Officer (the “Second Dick
Agreement”).  The Second Dick Agreement is terminable at the will of
either the Company or Mr. Dick, with or without notice and for any reason or no
reason.





The
Second Dick Agreement provides for a base salary of $200,000, with $175,000 of
this amount being paid in cash and $25,000 of this amount being paid in
restricted shares of the Company’s Common Stock.  The Common Stock
component of Mr. Dick’s compensation is to be paid on a quarterly basis, with
the number of shares issued equal to the quotient of the quarterly amount due of
$6,250 divided by the average daily closing price of the Company’s Common Stock
for the quarter just ended.





In
addition, the Second Dick Agreement provides for 25 days of paid vacation, the
right to participate in all health insurance plans maintained by the Company for
its employees, a monthly auto allowance of $700 and term life insurance in the
amount of $500,000 payable to Mr. Dick’s estate.





The
Second Dick Agreement also required Mr. Dick’s execution of a Proprietary Rights
Agreement.





Mr. Jerry
Treppel




In a
Current Report on Form 8-K filed with the SEC on November 6, 2008, which is
incorporated herein by reference, the Company disclosed that Jerry I. Treppel, a
member of the Company’s Board of Directors, was appointed as the Chairman of the
Board. On December 1, 2008, Elite entered into a compensation agreement with Mr.
Treppel (the “First Treppel
Agreement”) providing for the terms under which Mr. Treppel will serve as
the non-executive Chairman of the Board. Pursuant to the First Treppel
Agreement, Mr. Treppel will serve as the non-executive Chairman of the Board
until immediately prior to the next annual meeting of the Company’s
stockholders; provided, however, that following such annual meeting, and each
subsequent annual meeting of the Company’s stockholders, if the Board elects Mr.
Treppel as the non-executive Chairman of the Board, the term of the First
Treppel Agreement will be extended through the earlier of (a) the date of the
next subsequent annual meeting of the Company’s stockholders and (b) the date
upon which Mr. Treppel no longer serves as the non-executive
Chairman.




51




During
the term of the First Treppel Agreement, including any applicable extensions
thereof, Mr. Treppel is entitled to cash compensation of $2,083.33 on a monthly
basis in lieu of, and not in addition to, any cash directors’ fees and other
compensation paid to other non-employee members of the Board. Mr. Treppel is
also entitled to reimbursement of any expenses reasonably incurred in the
performance of his duties under the First Treppel Agreement upon presentation of
proper written evidence of such expenditures.




In
addition, pursuant to the terms of the First Treppel Agreement, Elite granted to
Mr. Treppel under its 2004 Stock Option Plan non-qualified stock options to
purchase 180,000 shares of Common Stock of Elite, par value $0.001 per share,
exercisable for a period of 10 years at an exercise price per share of $0.06,
subject to the terms and conditions of the related option
agreement.




Under the
First Treppel Agreement, Elite has also agreed to indemnify Mr. Treppel to the
fullest extent permitted by law in accordance with the By-Laws of Elite against
(a) reasonable expenses, including attorneys’ fees, incurred by him in
connection with any threatened, pending, or completed civil, criminal,
administrative, investigative, or arbitrative action, suit, or proceeding (and
any appeal therein) seeking to hold him liable for actions taken in his capacity
as Chairman of the Board, and (b) reasonable payments made by him in
satisfaction of any judgment, money decree, fine (including assessment of excise
tax with respect to an employee benefit plan), penalty or settlement for which
he may have become liable in any such action, suit or proceeding, provided that
any such expenses or payments are not the result of Mr. Treppel’s gross
negligence, willful misconduct or reckless actions.




Either
party may terminate the First Treppel Agreement, effective immediately upon the
giving of written notice to the other party.




On
September 15, 2009, Mr. Treppel was appointed Chief Executive Officer of the
Company.  Mr. Treppel will continue to also serve as Chairman of the
Board and he has agreed to forego any additional compensation related to his
activities and Chief Executive Officer.  Accordingly, Mr. Treppel’s
compensation as Chief Executive Officer and Chairman of the Board remains
unchanged from the First Treppel Agreement.




On
October 23, 2009, at the meeting of the Board held immediately after the annual
shareholders meeting, Mr. Treppel’s compensation as Chairman of the Board was
revised to an annual amount of $30,000, payable in common shares of the
Company.  The amount of common shares to be issued to Mr. Treppel in
payment of compensation due to him as Chairman of the Board is calculated on a
quarterly basis, and is equal to the quotient of the quarterly amount due of
$7,500, divided by the average daily closing price of the Company’s common stock
for the quarter just ended.




Mr.
Treppel agreed to forego any additional compensation for his services as Chief
Executive Officer of the Company.





Mr. Carter J.
Ward


In a
Current Report on Form 8-K filed with the SEC on July 8, 2009, which is
incorporated herein by reference, the Company disclosed that Carter J. Ward was
appointed Chief Financial Officer on July 1, 2009, and that the Company entered
into a letter agreement with Mr. Ward (the “First Ward Agreement”)
wherein Mr. Ward became an at-will employee as the Company’s Chief Financial
Officer.  Under the terms of the First Ward Agreement, Mr. Ward will
dedicate at least two business days per week toward fulfilling his
responsibilities as Chief Financial Officer and will receive an annual base
salary of $60,000, payable in accordance with the Company’s payroll
practices.  Mr. Ward is entitled to generally the same benefits
offered to other employees of the Company, subject to applicable eligibility
requirements and may become eligible for cash and/or equity based awards that
may be granted by the Company in the future, with any such awards being granted
in the discretion of the Company and its Chief Executive Officer.





On
November 12, 2009, the Company entered into an employment agreement replacing
the First Ward Agreement (the “Second Ward
Agreement”).  Pursuant to the terms of the Second Ward
Agreement, Mr. Ward will continue as an at-will employee of the Company as its
Chief Financial Officer.  Mr. Ward will receive a base salary of
$150,000, with $125,000 of such amount being paid in accordance with the
Company’s payroll practices and $25,000 of such amount being paid by the
issuance of restricted shares of Common Stock, in lieu of cash.  The
Common Stock component of Mr. Ward’s compensation is to be paid on a quarterly
basis, with the number of shares issued equal to the quotient of the quarterly
amount due of $6,250 divided by the average daily closing price of the Company’s
Common Stock for the quarter just ended.




52




Hedging
Policy




We do not
permit the Named Executive Officers to “hedge” ownership by engaging in short
sales or trading in any options contracts involving our securities.





Option
Exercises and Stock Vested




No
options have been exercised by our Named Executive Officers during the fiscal
year ended March 31, 2010.




Pension
Benefits




We do not
provide pension benefits to the Named Executive Officers.





Nonqualified
Deferred Compensation





We do not
have any defined contribution or other plan that provides for the deferral of
compensation on a basis that is not tax-qualified.





Potential
Payments Upon Termination or Change of Control





We do not
presently provide the Named Executive Officers with any plan or arrangement in
connection with any termination, including, without limitation, through
retirement, resignation, severance or constructive termination (including a
change in responsibilities) of such Named Executive Officer’s employment with
Company.  We also do no presently provide the Named Executive Officers
any plan or arrangement in connection with a change in control of the
Company.




53


COMPENSATION
OF NAMED EXECUTIVE OFFICERS





Summary Compensation
Table





Name
                                                                                                and principal position
                                                                                              
                                                                                              FiscalYear
                                                                                              
                                                                                              Salary
                                                                                                ($)
                                                                                              
                                                                                              
                                                                                              Bonus
                                                                                                ($)
                                                                                              
                                                                                              
                                                                                              Option
                                                                                                Awards
                                                                                                ($)
                                                                                              
                                                                                              
                                                                                              All
                                                                                                Other
                                                                                                Compensation
                                                                                                ($)
                                                                                              
                                                                                              
                                                                                              Total
                                                                                                ($)Jerry
      Treppel
                                                                                              
                                                                                              2010(1)
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              27,500
                                                                                              (2)
                                                                                              
                                                                                              
                                                                                              27,500Chairman
      of the Board
                                                                                              
                                                                                              2009(1)
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              18,646
                                                                                              (3)
                                                                                              
                                                                                              
                                                                                              18,646andChief
      Executive OfficerChris
      Dick
                                                                                              
                                                                                              2010(1)
                                                                                              
                                                                                              
                                                                                              218,817
                                                                                              (4)
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              18,690
                                                                                              (7)
                                                                                              
                                                                                              
                                                                                              8,400
                                                                                              (6)
                                                                                              
                                                                                              
                                                                                              245,907President
      and
                                                                                              
                                                                                              2009(1)
                                                                                              
                                                                                              
                                                                                              218,750
                                                                                              
                                                                                              
                                                                                              
                                                                                              25,000
                                                                                              (5)
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              8,400
                                                                                              (6)
                                                                                              
                                                                                              
                                                                                              252,150Chief
      Operating OfficerCarter
      J. Ward
                                                                                              
                                                                                              2010(1)
                                                                                              
                                                                                              
                                                                                              105,000
                                                                                              (8)
                                                                                              
                                                                                              
                                                                                              500
                                                                                              (9)
                                                                                              
                                                                                              
                                                                                              18,690
                                                                                              (10)
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              124,190Chief
      Financial Officer,
                                                                                              
                                                                                              2009(1)
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —
                                                                                              
                                                                                              
                                                                                              
                                                                                              —Secretary
      and Treasurer




(1)
            Represents
      the fiscal years ended March 31, 2010 and
2009





(2)
            Represents
      compensation due to Mr. Treppel for his service as Chairman of the Board.
      $12,500 of the total amount results from cash compensation due pursuant to
      the First Treppel Agreement and $15,000 of the total amount results from
      compensation due for Mr. Treppel’s service as Chairman of the
      Board.  Mr. Treppel receives no salary or additional
      compensation for his service as Chief Executive
  Officer





(3)
            Represents
      Directors fees totaling $8,750 earned while Mr. Treppel was a director of
      the Company and $9,896 of compensation due to Mr. Treppel for his service
      as Chairman of the Board pursuant to the First Treppel
      Agreement.  Mr. Treppel was appointed Chief Executive Officer on
      September 15, 2009 and accordingly did not serve in such position during
      the fiscal year ended March 31,
2009.





(4)
            Represents
      salaries paid to Mr. Dick pursuant to the First Dick Agreement for the
      period April 2009 to November 2009, and pursuant to the Second Dick
      Agreement thereafter.  Of the total salary amount, $208,400 was
      paid in cash as salary in accordance with the Company’s payroll practices,
      and $10,417 which will be paid via the issuance of common shares in lieu
      of cash, pursuant to the Second Dick Agreement.  The shares to
      be issued in relation to this amount have not been issued as of the date
      of filing of this annual report on Form
10-K





(5)
            Represent
      guaranteed bonuses due to Mr. Dick pursuant to the First Dick
      Agreement





(6)
            Represents
      amounts paid for auto allowance





(7)
            Represents
      the value of incentive stock options granted to Mr. Dick under the Elite
      Pharmaceutical Inc. 2004 Stock Option Plan on January 18,
      2010.  Mr. Dick was granted options to purchase 200,000 shares
      of the Company’s Common Stock at 10 cents per share.  The
      options vest in equal increments of one-third of the total grant each on
      January 18, 2011, 2012 and 2013, respectively.  The options
      expire on January 17, 2020.  The options were valued using the
      Black Scholes Method. Please refer to note 12 of the financial statements
      for further details on the valuation assumptions, with such note so
      referenced deemed part of the disclosure provided pursuant to this
      Item.




54




(8)
            Represents
      salaries paid to Mr. Ward pursuant to the First Ward Agreement for the
      period July 2009 to October 2009, and pursuant to the Second Ward
      Agreement thereafter.  Of the total salary amount, $94,583 was
      paid in cash as salary in accordance with the Company’s payroll practices
      and $10,417 will be paid via the issuance of common shares in lieu of
      cash, pursuant to the Second Ward Agreement.  The shares to be
      issued in relation to this amount have not been issued as of the date of
      filing of this annual report on Form
10-K





(9)
            Represents
      a discretionary bonus awarded to Mr. Ward by the Chief Executive Officer
      in December 2009.





(10)
            Represents
      the value of incentive stock options granted to Mr. Ward under the Elite
      Pharmaceutical Inc. 2004 Stock Option Plan on January 18,
      2010.  Mr. Ward was granted options to purchase 200,000 shares
      of the Company’s Common Stock at 10 cents per share.  The
      options vest in equal increments of one-third of the total grant each on
      January 18, 2011, 2012 and 2013, respectively.  The options
      expire on January 17, 2020.  The options were valued using the
      Black Scholes Method. Please refer to note 12 of the financial statements
      for further details on the valuation assumptions, with such note so
      referenced deemed part of the disclosure provided pursuant to this
      Item.





Outstanding Equity Awards at
Fiscal Year-End





The
following table sets forth information concerning stock option awards held by
Named Executive Officers as of March 31, 2010:





OPTION AWARDSName
                                                                  
                                                                  Number of securities
                                                                    underlying
                                                                    unexercised
                                                                    options (#)
                                                                    exercisable
                                                                  
                                                                  
                                                                  Number ofsecuritiesunderlying
      unexercised
                                                                    options (#)
      unexercisable
                                                                  
                                                                  
                                                                  Equity incentive plan
      awards:
                                                                    Number of securities
      underlying unexercised unearned options
                                                                    (#)
                                                                  
                                                                  
                                                                  Optionsexerciseprice
                                                                    ($)
                                                                  
                                                                  OptionexpirationdateChris Dick10,000
                                                                  (1)
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  2.34
                                                                  
                                                                  10/31/1210,000
                                                                  (1)
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  2.34
                                                                  
                                                                  10/31/1210,000
                                                                  (1)
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  2.34
                                                                  
                                                                  10/31/1210,000
                                                                  (2)
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  2.21
                                                                  
                                                                  6/13/1310,000
                                                                  (2)
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  2.21
                                                                  
                                                                  6/13/1310,000
                                                                  (2)
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  2.21
                                                                  
                                                                  6/13/1340,000
                                                                  (3)
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  2.80
                                                                  
                                                                  7/14/15250,000
                                                                  (4)
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  2.25
                                                                  
                                                                  11/13/16—
                                                                  
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  150,000
                                                                  (5)
                                                                  
                                                                  
                                                                  2.25
                                                                  
                                                                  11/13/16—
                                                                  
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  150,000
                                                                  (6)
                                                                  
                                                                  
                                                                  2.25
                                                                  
                                                                  11/13/16—
                                                                  
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  200,000
                                                                  (7)
                                                                  
                                                                  
                                                                  2.25
                                                                  
                                                                  11/13/16—
                                                                  
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  200,000
                                                                  (8)
                                                                  
                                                                  
                                                                  0.10
                                                                  
                                                                  1/17/20Jerry Treppel60,000
                                                                  (9)
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  0.06
                                                                  
                                                                  12/1/1860,000
                                                                  (10)
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  0.06
                                                                  
                                                                  12/1/1860,000
                                                                  (11)
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  0.06
                                                                  
                                                                  12/1/18Carter J. Ward—
                                                                  
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  200,000
                                                                  (8)
                                                                  
                                                                  
                                                                  0.10
                                                                  
                                                                  1/17/20




55




(1)
            Options
      vested on November 1, 2003, 2004 and 2005,
  respectively





(2)
            Options
      vested on June 13, 2004, 2005 and 2006,
  respectively





(3)
            Options
      vested on July 14, 2005





(4)
            Options
      vested on November 3, 2006





(5)
            These
      options vest upon the closing of an exclusive product license for the
      first of the United States national market, the entire European Union
      market or the Japan market or product sale transaction of all of our
      ownership rights in the United States (only once for each individual
      product) for our first Non-Generic Opioid
  Product.





(6)
            These
      options vest upon the closing of an exclusive product license for the
      United States national market, the entire European Union market or the
      Japan market or product sale transaction of all of our ownership rights in
      the United States (only once for each individual product) for our second
      Non-Generic Opioid Product.





(7)
            These
      options vest as follows:  upon the commencement of the first
      Phase III clinical trial relating to the first "Non-Generic Opioid
      Product" developed by the Company as to 125,000 options and relating to
      the second "Non-Generic Opioid Product" developed by the Company as to
      75,000 options.





(8)
            Options
      vest in annual increments on January 18, 2011, 2012 and 2013, with each
      increment equal to one-third of the total options
  granted.





(9)
            Options
      vested on December 1, 2009





(10)
            Options
      vest on December 1, 2010





(11)
            Options
      vest on December 1, 2011




56





DIRECTOR
COMPENSATION





The
following table sets forth information concerning director compensation for the
year ended March 31, 2010:





Name
                    
                    Feesearned orpaid incash
                      ($)
                    
                    
                    Stockawards
                      ($)
                    
                    
                    Optionawards
                      ($)
                    
                    
                    Non-equityincentiveplancompensation
      earnings
                      ($)
                    
                    
                    Nonqualifieddeferredcompensation
      earnings
                      ($)
                    
                    
                    All other
      compensation
                      ($)
                    
                    
                    Total
                      ($)Ashok
      Nigalaye
                    
                    
                    4,750
                    (1)
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    10,000
                    (2)
                    
                    
                    14,750Ram
      Potti
                    
                    
                    4,750
                    (1)
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    10,000
                    (2)
                    
                    
                    14,750Jeenarine
      Narine
                    
                    
                    4,750
                    (1)
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    10,000
                    (2)
                    
                    
                    14,750Barry
      Dash
                    
                    
                    19,500
                    (1)
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    10,000
                    (2)
                    
                    
                    29,500Jeffrey
      Whitnell
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    10,000
                    (2)
                    
                    
                    10,000Robert
      Levenson
                    
                    
                    21,500
                    (1)
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    21,500Melvin
      van Woert
                    
                    
                    19,500
                    (1)
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    19,500




(1)
            Represents
      directors fees earned pursuant to the Company’s policy with regards to
      directors fees in effect until October 23,
2009.





(2)
            Represents
      directors fees earned pursuant to the Company’s policy with regards to
      directors fees in effect since October 23, 2009.  In accordance
      with such policy, all directors are to be paid via the issuance of common
      stock of the Company in lieu of
cash




57





Fee
Compensation




As of
January 1, 2008 and until October 23, 2009, the Company’s policy regarding
director fees was as follows: (i) Directors who are employees or consultants of
the Company (and/or any of its subsidiaries) receive no additional remuneration
for serving as directors or members of committees of the Board; (ii) all
Directors are entitled to reimbursement for out-of-pocket expenses incurred by
them in connection with their attendance at the Board or committee meetings;
(iii) Directors who are not employees or consultants of the Company (and/or any
of its subsidiaries) receive $15,000 annual retainer fee for their service on
the Board and all committees; (iv) Directors who are not employees or
consultants of the Company (and/or any of its subsidiaries) receive a per board
meeting fee of $1,000 for each board meeting and a per committee meeting fee of
$1,000 for each committee meeting attended by such Director; provided that the
chairperson of the committee conducting such meeting shall (in place of the
$1,000 meeting fee) receive a per committee meeting fee of $1,500 for each
committee meeting attended; and (v) for purposes of the compensation schedule
set forth above, (x) a meeting shall only constitute a meeting of the Board or a
committee entitling a participant to a meeting fee if such meeting extends to at
least sixty (60) minutes (including the time of any reconvened portion of a
meeting after an adjournment), (y) a meeting shall include all meetings attended
in-person (whether at the Company’s offices or at any other location) or via
telephone conference, and (z) only one fee may be payable to Director and/or
committee member per calendar day.  Except as described in this
section, non-employee Directors do not receive any additional compensation for
their services on the Board of Directors, except for Mr. Treppel, who receives
$25,000 per year for serving as Chairman of the Board in lieu of the fees
described above, pursuant to First Treppel Agreement.





As of
October 23, 2009, the Company’s policy regarding director fees was as follows:
((i) Directors who are employees or consultants of the Company (and/or any of
its subsidiaries), except for Mr. Jerry Treppel, Chief Executive Officer and Dr.
Ashok Nigalaye, Chief Scientific Officer,  receive no additional
remuneration for serving as directors or members of committees of the Board;
(ii) all Directors are entitled to reimbursement for out-of-pocket expenses
incurred by them in connection with their attendance at the Board or committee
meetings; (iii) Directors who are not employees or consultants of the Company
(and/or any of its subsidiaries) receive $20,000 annual retainer fee, payable on
a quarterly basis, in arrears, for their service on the Board and all
committees; (iv) The Chairman of the Board receives a $30,000 annual retainer
fee, payable on a quarterly basis, in arrears; (v) Directors and the Chairman do
not receive any additional compensation for attendance at or chairing of any
meetings. (vi) Mr. Jerry Treppel receives no additional compensation, above the
annual retainer fee due to the Chairman of the Board, for his services as Chief
Executive Officer (vii) Dr. Ashok Nigalaye receives no additional compensation,
above the annual retainer fee due to Directors, for his services as Chief
Scientific Officer.  (viii) All Director and Chairman fees are paid
via the issuance of common stock of the Company, in lieu of cash, as described
below.





Equity
Compensation




As of
October 23, 2009, Members of the Board of Directors and the Chairman are paid
their annual retainer fees via the issuance of restricted shares of Common Stock
of the Company, in lieu of cash.  The number of shares to be issued to
each Director and the Chairman is equal to the quotient of the quarterly amount
due to each Director and the Chairman, respectively, divided by the average
daily closing price of the Company’s stock for the quarter just
ended.





Members
of the Board of Directors during the fiscal years ended March 31, 2010 and March
31, 2009 did not receive any options or equity compensation for serving as
directors other than the grant of grant of 180,000 options to the Chairman of
the Board in December 2008 and shares of Common Stock earned in lieu of cash in
relation to Director and Chairman fees due since October 23, 2009.





Other





The
Company has entered into indemnification agreements with each of its directors
to indemnify them to the fullest extent permitted under Delaware General
Corporation Law.




58




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





Security
Ownership of Certain Beneficial Owners and Management





The
following table sets forth certain information, as of June 30, 2010 (except as
otherwise indicated), regarding beneficial ownership of our Common Stock by (i)
each person who is known by us to own beneficially more than 5% of the Common
Stock, (ii) each of our directors and nominees for director, (iii) each of the
Named Executive Officers (as defined below) and (iv) all our directors and
executive officers as a group. On June 30, 2010, we had 87,352,981 shares of
Common Stock outstanding (exclusive of 100,000 treasury shares). The 2,000
shares of Series E Preferred Stock outstanding as of June 30, 2010 are entitled
to vote, on an as-converted basis, with the Common Stock on any matter presented
to the holders of our Common Stock for their action or consideration at any
meeting of our stockholders (or by written consent of stockholders in lieu of
meeting). The 895.5590 shares of Series B Preferred Stock, 5,418 shares of
Series C Preferred Stock and 9,008.4410 shares of Series D Preferred Stock
outstanding as of June 30, 2010 are nonvoting. As of June 30, 2010, none of the
individuals listed below beneficially owned any shares of Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock, except for the following (as further described in the footnotes to the
table): (a) 2,062.5 shares of Series E Preferred Stock were beneficially owned
by Messrs. Ashok G. Nigalaye, Jeenarine Narine and Ram Potti, including 62.5
shares of Series Preferred Shares which are fully paid but not yet issued, (c)
3,956 shares of Series D Preferred Stock were beneficially owned by Midsummer
Capital LLC, (d) 2,064.4410 shares of Series D Preferred Stock were beneficially
owned collectively by Bushido Capital Master Fund LP and BCMF Trustees LLC.
There are currently no shares of Series A Preferred Stock
outstanding.





As used
in the table below and elsewhere in this Annual Report on Form 10-K, the term
beneficial ownership with respect to a security consists of sole or shared
voting power, including the power to vote or direct the vote, and/or sole or
shared investment power, including the power to dispose or direct the
disposition, with respect to the security through any contract, arrangement,
understanding, relationship, or otherwise, including a right to acquire such
power(s) during the 60 days immediately following June 30, 2010. Except as
otherwise indicated, the stockholders listed in the table have sole voting and
investment powers with respect to the shares indicated.





Name and Address of Beneficial Owner of Common Stock
                                
                                Amount andNature ofBeneficialOwnership***
                                
                                
                                Percent (%)of ClassBeneficiallyOwnedChris
      Dick, President and Chief Operating Officer*
                                
                                
                                985,647
                                (1)
                                
                                
                                **Barry
      Dash, Director*
                                
                                
                                274,240
                                (2)
                                
                                
                                **Jerry
      Treppel, Chairman of the Board and Chief Executive
Officer*
                                
                                
                                2,159,557
                                (3)
                                
                                
                                **Ashok
      G. Nigalaye, Chief Scientific Officer and Director *
                                
                                
                                158,123,783
                                (4)
                                
                                
                                36.9Jeenarine
      Narine, Director *
                                
                                
                                158,123,783
                                (4)
                                
                                
                                36.9Ram
      Potti, Director *
                                
                                
                                158,123,783
                                (4)
                                
                                
                                36.9Jeffrey
      Whitnell *
                                
                                
                                96,584
                                (5)
                                
                                
                                **Carter
      J. Ward, Chief Financial Officer *
                                
                                
                                100,360
                                (6)
                                
                                
                                **Epic
      Pharma, LLC
                                  227-15
      North Conduit Ave.
                                  Laurelton,
      NY 11413
                                
                                
                                158,027,199
                                (4)
                                
                                
                                36.9Trellus
      Management Company
                                  Adam
      Usdan
                                  350
      Madison Avenue, 9th Floor
                                  New
      York, New York  10017
                                
                                
                                23,391,777
                                (9)
                                
                                
                                5.5Midsummer
      Capital LLC
                                  Scott
      D. Kaufman
                                  295
      Madison Ave., 38th
      Floor
                                  New
      York, NY 10017
                                
                                
                                68,556,721
                                (7)
                                
                                
                                16.0Bushido
      Capital Partners
                                  Ronald
      S. Dagar
                                  145
      E. 57th
      St., 11th
      Floor
                                  New
      York, NY 10022
                                
                                
                                14,328,847
                                (8)
                                
                                
                                8.6All
      Directors and Officers as a group***
                                
                                
                                161,932,339
                                (10)
                                
                                
                                37.8




59










* The
address is c/o Elite Pharmaceuticals Inc., 165 Ludlow Avenue, Northvale, NJ
07647.





** Less
than 1%





*** As of
June 30, 2010





(1)
Includes options to purchase 850,000 shares of Common Stock, warrants held by
Mr. Dick and Hedy Rogers as joint tenants to purchase 10,479 shares of Common
Stock, 24,808 shares of Common Stock and 100,360 shares of Common Stock to be
issued to Mr. Dick for the five months ended March 31, 2010, in accordance with
the terms and conditions of the Second Dick Agreement. In addition, Mr. Dick has
been granted options to purchase 200,000 shares of Common Stock under the
Company’s 2004 Equity Incentive Plan.  These options vest in equal
annual increments over a three year period, with the first vesting to occur on
January 18, 2011.  As of June 30, 2010, none of the options granted
were vested and accordingly they are not included as part of Mr. Dick’s
beneficial ownership.





(2)
Includes options to purchase 120,000 shares of Common Stock, warrants to
purchase 21,544 shares of Common Stock, 36,112 shares of Common Stock and 96,584
shares of Common Stock to be issued to Mr. Dash in payment of Director Fees
earned and owing as of March 31, 2010, pursuant to the Company’s policy
regarding payment of Director’s Fees..





(3)
Includes 396,569 shares of restricted Common Stock, 190,000 shares of
unrestricted common stock, warrants to purchase up to 1,257,113 of Common Stock,
an option to purchase up to 180,000 shares of Common Stock and 144,875 shares of
Common Stock to be issued to Mr. Treppel in payment of Chairman of the Board
Fees earned and owing as of March 31, 2010, pursuant to the Company’s policy
regarding payment of the Chairman’s Fees.





(4) Based
on information in the Schedule 13D filed jointly on June 12, 2009 by Epic
Pharma, LLC (“Epic
Pharma”), Epic Investments, LLC (“Epic Investments”), Ashok G.
Nigalaye, Jeenarine Narine and Ram Potti and the individual Forms 3 filed on
June 12, 2009 by each of Epic Pharma and Messrs. Nigalaye, Narine and
Potti.  Represents 2,000 shares of Series E Preferred Stock
convertible into 73,237,821 shares of Common Stock , warrants to purchase
80,000,000 shares of Common Stock held by Epic Investments, LLC, a Delaware
limited liability company and 62.5 shares of Series E Preferred Stock
convertible into 2,289,377 shares of Common Stock and warrants to purchase
2,500,000 shares of Common Stock which have been paid in full by, but not yet
issued to Epic Investments, LLC, a Delaware limited liability
company.  Messrs. Nigalaye, Narine and Potti are executive officers
and equity owners of Epic Pharma, LLC, a Delaware limited liability company, and
Epic Investments, LLC, a Delaware limited liability company.  Epic
Pharma, LLC is an equity owner of Epic Investments, LLC.  Epic Pharma
LLC and Messrs. Nigalaye, Narine and Potti share voting and investment control
over, and are indirect beneficial owners of, the shares.  The interest
of Epic Pharma LLC and Messrs. Nigalaye, Narine and Potti in the shares is
limited, and each disclaims beneficial ownership of such shares except to the
extent of its pecuniary interest in Epic Investments, LLC.  In
addition to beneficial interests related to Epic Investments, Messrs. Nigalaye,
Narine and Potti each are due 96,584 shares of Common Stock in payment of
Director’s Fees earned and owing as of March 31, 2010, pursuant to the Company’s
policy regarding payment of Director’s Fees.




60





(5)
Included 96,584 shares of Common Stock to be issued to Mr. Whitnell in payment
of Director Fees earned and owing as of March 31, 2010, pursuant to the
Company’s policy regarding payment of Director’s Fees..





(6)
Consists of 100,360 shares of Common Stock to be issued to Mr. Ward for the five
months ended March 31, 2010, in accordance with the terms and conditions of the
Second Ward Agreement. In addition, Mr. Ward has been granted options to
purchase 200,000 shares of Common Stock under the Company’s 2004 Equity
Incentive Plan.  These options vest in equal annual increments over a
three year period, with the first vesting to occur on January 18,
2011.  As of June 30, 2010, none of the options granted were vested
and accordingly they are not included as part of Mr. Ward’s beneficial
ownership.





(7)
Includes 3,956 shares of Series D Preferred Stock convertible into an aggregate
of 56,514,286 shares of Common Stock, 543,143 shares of common stock to be
issued pursuant to the Settlement Agreement and 6,663,040 shares of Common Stock
issued to Midsummer in lieu of cash for payment of Series D Preferred Share
dividends earned and owed during the period from October 1, 2008 to June 30,
2010 and warrants to purchase up to 4,836,252 shares of Common Stock held by
Midsummer Investment, Ltd.  (“Midsummer”).  Notwithstanding
the inclusion of the beneficial ownership calculation, pursuant to the terms of
our Certificate of Designation of Preferences, Rights and Limitations of Series
D 8% Convertible Preferred Stock (the “Series D Certificate”) and
the aforementioned warrants, the number of shares of Common Stock into which the
Series D Preferred Stock are convertible and the warrants are exercisable is
limited to the extent that, after giving effect to such conversion or exercise,
Midsummer (together with its affiliates, and any other person or entity acting
as a group together with Midsummer or any of its affiliates) would beneficially
own in excess of 4.99% of the number of shares of Common Stock outstanding,
provided, however, that such beneficial ownership limitation may be increased at
the election of Midsummer to a percentage not in excess of 9.99% upon at least
61 days’ prior notice to the Company.





(8)
Includes 2,064.4410 shares of Series D Preferred Stock convertible into an
aggregate of 29,492,000 shares of Common Stock 277,992 shares of common stock to
be issued pursuant to the Settlement Agreement and 3,242,180 shares of Common
Stock issued to Bushido in lieu of cash for payment of Series D Preferred Share
dividends earned and owed during the period from October 1, 2008 to June 30,
2010 and warrants to purchase up to 3,906,642 shares of Common Stock held
collectively by Bushido Capital Master Fund LP and BCMF Trustees LLC (together,
“Bushido”).   Notwithstanding
the inclusion of the beneficial ownership calculation, pursuant to the terms of
the Series D Certificate and the aforementioned warrants, the number of shares
of Common Stock into which the Series D Preferred Stock are convertible and the
warrants are exercisable is limited to the extent that, after giving effect to
such conversion or exercise, Midsummer (together with its affiliates, and any
other person or entity acting as a group together with Bushido or any of its
affiliates) would beneficially own in excess of 4.99% of the number of shares of
Common Stock outstanding, provided, however, that such beneficial ownership
limitation may be increased at the election of Bushido to a percentage not in
excess of 9.99% upon at least 61 days’ prior notice to the Company.





(9) Based
on information provided by Trellus Management Company, LLC (“TMC”), Trellus Partners L.P
(“TPLP”), Trellus
Partners II L.P. (“TPLP
II”) and Trellus Offshore Fund Limited (“TOF”), and Adam Usdan (“Usdan” and, together with
TMC, TPLP, TPLP II and TOF, , the “Trellus Entities”) in the
Schedule 13D filed jointly by the Trellus Entities with the SEC on February 16,
2010,  Includes an aggregate of  23,391,777 shares of Common Stock
held collectively by Trellus Partners L.P (“TPLP”), Trellus Partners II
L.P. (“TPLP II”) and
Trellus Offshore Fund Limited (“TOF”) (the “Trellus Entities”) and
warrants to purchase up to 4,703,063 shares of Common Stock held collectively by
the Trellus Entities.  TMC is the investment adviser to TPLP, TPLP II, and
TOF.  Mr. Usdan is the controlling principal and chief investment officer
of TMC.  Mr. Usdan and TMC share voting power and dispositive power over
the shares.  Pursuant to the terms of the warrants, the number of shares of
Common Stock into which the warrants are exercisable is limited to that number
of shares of Common Stock which would result in the Trellus Entities, together
with their affiliates, having aggregate beneficial ownership of not more than
4.99% of the total number of shares of Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock issuable upon any
exercise of the warrants, provided, however, that such beneficial ownership
limitation may be increased at the election of the Trellus Entities to 9.99%
upon at least 61 days’ prior notice to the Company.





(10)
Includes 396,569 shares of restricted Common Stock, 250,920 shares of
unrestricted Common Stock, 828,515 shares of Common Stock to be issued in
aggregate to the Directors and Officers in payment of Chairman fees, Director
fees and salaries earned and owing pursuant to the Company’s policy regarding
payment of Chairman’s fees, Director fees and pursuant to the Second Dick
Agreement and the Second Ward Agreement, 2,000 shares of Series E Preferred
Stock convertible into 73,237,821 shares of Common Stock warrants to purchase
81,469,136 shares of Common Stock, options to purchase 970,000 shares of Common
Stock, and 62.5 shares of Series E Preferred Stock convertible into 2,289,377
shares of Common Stock and warrants to purchase 2,500,000 shares of Common Stock
which have been paid in full by, but not yet issued to Epic Investments, LLC, a
Delaware limited liability company.


61





Changes
in Control





Set forth
below are any arrangement known to the Company the operation of which may at a
subsequent date result in a change of control of the Company.  As of
June 30, 2010, Epic held 2,000 shares of Series E Preferred Stock convertible
into 73,237,821 shares of Common Stock, a warrant to purchase up to 80,000,000
shares of Common Stock and has fully paid and is to be issued 62.5 shares of
Series E Preferred Stock, convertible into 2,289,377 shares of Common Stock and
warrants to purchase up to 2,500,000 shares of Common Stock, representing its
beneficial ownership of approximately 36.9% of the Company’s outstanding Common
Stock as of such date (calculated in accordance with Rule 13d-3 of the Exchange
Act).   Further, the 2,000 shares of Series E Preferred Stock
held by Epic as of June 30, 2009 are entitled to vote, on an as-converted basis,
with the Common Stock on any matter presented to the holders of our Common Stock
for their action or consideration at any meeting of our stockholders (or by
written consent of stockholders in lieu of meeting).





In
addition, in connection with subsequent closings of the transactions
contemplated by the Epic Strategic Alliance Agreement, Epic could acquire an
additional 1,000 shares of Series E Preferred Stock and warrants to purchase up
to 40,000,000 shares of Common Stock.  Further, with respect to the
products developed by Epic at the Facility under the Epic Strategic Alliance
Agreement, the Company would also be obligated to issue to Epic (a) warrants to
purchase up to an aggregate of 56,000,000 shares of its Common Stock upon the
receipt by Elite from Epic of written notices of Epic’s receipt of an
acknowledgment from the FDA that the FDA accepted for filing an ANDA for certain
controlled-release and immediate-release products developed by Epic at Elite’s
facility and (b) up to an aggregate of 40,000,000 additional shares of its
Common Stock following the receipt by Elite from Epic of written notices of
Epic’s receipt from the FDA of approval for certain controlled-release and
immediate-release products developed by Epic at the Facility.





If Elite
is required to such additional securities to Epic in accordance with the Epic
Strategic Alliance Agreement, Epic could beneficially own in excess of 50% of
the issued and outstanding Common Stock or other voting securities of the
Company. Further, under the Epic Strategic Alliance Agreement, at such time as
Epic owns more than 50% of the issued and outstanding Common Stock or other
voting securities of Elite, the number of Epic Directors that the Purchaser will
be entitled to designate under the Epic Strategic Alliance Agreement will be
equal to a majority of the Board of Directors.





Equity Compensation Plan
Information





For
information regarding securities authorized for issuance under equity
compensation plans as of March 31, 2010, please refer to the disclosure
contained in Item 5 in Part II of this Annual Report on Form 10-K, under the
heading “Equity Compensation Plan Information,” which is incorporated herein by
reference.





ITEM 13.
            CERTAIN RELATIONSHIPS AND
      RELATED TRANSACTIONS AND DIRECTOR
  INDEPENDENCE.





All
related person transactions are reviewed and, as appropriate, may be approved or
ratified by the Board of Directors. If a Director is involved in the
transaction, he or she may not participate in any review, approval or
ratification of such transaction. Related person transactions are approved by
the Board of Directors only if, based on all of the facts and circumstances,
they are in, or not inconsistent with, our best interests and the best interests
of our stockholders, as the Board of Directors determines in good faith. The
Board of Directors takes into account, among other factors it deems appropriate,
whether the transaction is on terms generally available to an unaffiliated
third-party under the same or similar circumstances and the extent of the
related person’s interest in the transaction. The Board of Directors may also
impose such conditions as it deems necessary and appropriate on us or the
related person in connection with the transaction.




In the
case of a transaction presented to the Board of Directors for ratification, the
Board of Directors may ratify the transaction or determine whether rescission of
the transaction is appropriate.




CERTAIN
RELATED PERSON TRANSACTIONS




Transactions with Mark
Gittelman and Gittelman & Co. P.C.(“Gittelman”)




On
February 26, 1998, we entered into an agreement with Gittelman and Co., P.C.,
whereby fees are paid to Gittelman and Co., PC., a firm wholly-owned by Mark I.
Gittelman, our Chief Executive Officer, Secretary and Treasurer until July 1,
2009, in consideration for services rendered by the firm as internal accountant
and financial and management consultant to us.  The firm’s services
included the services rendered by Mr. Gittelman in his capacity as Chief
Financial Officer, Secretary and Treasurer until July 1, 2009.  For
the period April 1, 2009 to June 30, 2010 and the fiscal years ended March 31,
2009 and 2008, the fees paid by us under the agreement were $40,185, $233,181
and $176,206, respectively.  The services rendered by the firm to us
for the period April 1, 2009 to June 30, 2009 and the fiscal years ended March
31, 2009 and 2008 averaged 157, 111 and 105 hours per month, respectively, of
which a monthly average 21 hours for the period April 1, 2009 to June 30, 2009
and 28 hours for the fiscal years ended March 31, 2009 and 2008, respectively,
were services rendered by Mr. Gittelman in his capacity as an officer of
Elite.


62





On July
15, 2009, we entered into a settlement agreement and release Gittelman and Co.,
P.C., (the “Gittelman
Settlement”) for payment of outstanding invoices totaling $85,531,
representing all invoices issued by Gittelman to us and outstanding as of July
15, 2009.  The Gittelman Settlement requires the Company to pay the
principal sum of $75,000, plus interest accruing on the outstanding balance of
such $75,000 at the rate of 6% per annum, in twelve equal, monthly installments,
beginning on July 20, 2009 and due on the 20th of the
next 11 months thereafter.  The monthly payments, consisting of
principal reduction and interest equal $6,454.98 with all twelve required
payments equal to $77,460, in aggregate.  The Company made all
payments required in the Gittelman Settlement and Gittelman released the Company
from all further claims related to the outstanding invoices as of July 15,
2009.





Gittelman
has not rendered any services to the Company since June 30, 2009 and as of June
23, 2010, no amounts were due to Gittelman.





Transactions with Epic
Pharma LLC and Epic Investments LLC





On March
18, 2009, we entered into the Epic Strategic Alliance Agreement with Epic
Pharma, LLC and Epic Investments, LLC, a subsidiary controlled by Epic Pharma
LLC, as disclosed in this Annual Report Form 10-K under Item 7 of Part II of
this Annual Report on Form 10-K, under the heading “Epic Strategic Alliance
Agreement,” Item 9B and Item 10, under the heading “Directors and Executive
Officers,” and in our Current Reports on Form 8-K, filed with the SEC on March
23, 2009, May 6, 2009 and June 5, 2009, which disclosures are incorporated
herein by reference.   Ashok G. Nigalaye, Jeenarine Narine and
Ram Potti, each were elected as members of our Board of Directors, effective
June 24, 2009, as the three directors that Epic is entitled to designate for
appointment to the Board pursuant to the terms of the Epic Strategic Alliance
Agreement.  Messrs. Nigalaye, Narine and Potti are also officers of
Epic Pharma, LLC, in the following capacities:





§
            Mr.
      Nigalaye, President and CEO of Epic Pharma,
LLC;


§
            Mr.
      Narine, Executive Vice President of Manufacturing and Operations of Epic
      Pharma, LLC; and


§
            Mr.
      Potti, Vice President of Business Development of Epic Pharma,
      LLC.





As part
of the operation of the strategic alliance, the Company identified certain raw
materials used in its operations which were also used by Epic Pharma LLC and for
which Epic Pharma LLC was achieving lower acquisition costs, mainly as a result
of greater purchase volume discounts.  The strategic alliance allowed
the Company to purchase these raw materials from Epic, at the Epic acquisition
cost, without markup.  During the fiscal year ended 3/31/2010, an
aggregate amount of $100,056 in such raw materials was purchased from Epic
Pharma LLC.  All purchases were at Epic Pharma’s acquisition cost,
without markup and evidenced by supporting documents of Epic Pharma LLC’s
acquisition cost.





In
September 2009 Carter Ward, our Chief Financial Officer, acquired a less than
2.5% interest in Epic Investments LLC in exchange for a cash payment of
$50,000.  Epic Investments LLC owns (i) 2,000 shares of the Company’s
Series E Preferred Stock, which is convertible into 73,237,821 shares of the
Company’s Common Stock, (ii) warrants to purchase 80,000,000 shares of the
Company’s Common Stock, and (iii) 62.5 shares of the Company’s Series E
Preferred Stock convertible into 2,289,377 shares of the Company’s Common Stock
and warrants to purchase 2,500,000 shares of the Company’s Common Stock, which
have been paid for in full but have not yet been issued.  The Series E
Preferred Stock and the warrants represent all of the assets of Epic Investments
LLC.  If Epic Investments LLC were to make distributions to its
members in the future, Mr. Ward will be entitled to his pro rata share of any
such distribution.  Any distributions would likely be made only if
Epic Investments LLC sells shares of the Company’s Common Stock that it would
acquire after converting the Series E Preferred Stock or exercising the
warrants.


63





ITEM 14.
            PRINCIPAL ACCOUNTING FEES AND
      SERVICES.





Effective
January 1, 2009, Miller, Ellin & Company, LLP (“Miller Ellin”), the
independent accountant of Elite, and the principal accountant engaged to audit
Elite’s financial statements, consummated a merger of its practice into the
practice of Rosen Seymour, with Rosen Seymour Shapss Martin & Company LLP
(“Rosen Seymour”)
succeeding to the business and operations of Miller Ellin, subject to certain
conditions and exceptions, as agreed upon by the parties under the terms of the
Merger. Upon consummation of the Merger on January 1, 2009, Miller Ellin
effectively resigned as Elite’s independent accountant, and Rosen Seymour,
pursuant to the terms of its agreement with Miller Ellin, became Elite’s new
independent accountant and principal accountant to audit its financial
statements, as the successor in interest of Miller Ellin.





On
January 14, 2010, the Audit Committee engaged Demetrius & Company LLC
(“Demetrius”) as its
new independent registered public accounting firm and dismissed Rosen Seymour as
the Company’s independent registered public accounting firm.  The
appointment of Demetrius was disclosed in a current report on Form 8-K filed
with the SEC on January 15, 2010, and incorporated herein by
reference.





The
following table presents fees, including reimbursements for expenses, for
professional audit services rendered by Demetrius & Co, Rosen Seymour and
Miller Ellin for the audits of our annual financial statements and interim
reviews of our quarterly financial statements for the years ended March 31, 2010
and March 31, 2009 and fees billed for other services rendered by Rosen Seymour
and Miller Ellin during those periods.





2010
                  
                  
                  2009Audit
      Fees(1)Rosen
      Seymour and Miller Ellin
                  
                  $
                  90,850
                  
                  
                  $
                  90,315Demetrius
      & Co.
                  
                  
                  61,750
                  
                  
                  
                  —Audit-Related
      Fees
                  
                  
                  —
                  
                  
                  
                  —Tax
      Fees
                  
                  $
                  10,000
                  
                  
                  $
                  10,000All
      Other Fees
                  
                  
                  —
                  
                  
                  
                  —





(1)
            Audit Fees relate to
      the audit of our financial statements and reviews of financial statements
      included in our quarterly reports on Form
      10-Q.




PART IV





ITEM
      15.
            EXHIBITS,
      FINANCIAL STATEMENTS AND SCHEDULES.





(a)
            The
      following are filed as part of this Annual Report on Form
      10-K:





(1)           The
financial statements and schedules required to be filed by Item 8 of this Annual
Report on Form 10-K and listed in the Index to Consolidated Financial
Statements.





(2)           The
Exhibits required by Item 601 of Regulation S-K and listed below in the “Index
to Exhibits required by Item 601 of Regulation S-K.”





(b)
            The
      Exhibits are filed with or incorporated by reference in this Annual Report
      on Form 10-K.





(c)
            None.


64





Index
to Exhibits required by Item 601 of Regulation S-K.





Exhibit
      No.
                  
                  Description3.1(a)
                  
                  Certificate
      of Incorporation of the Company, together with all other amendments
      thereto, as filed with the Secretary of State of the State of Delaware,
      incorporated by reference to (a) Exhibit 4.1 to the Registration Statement
      on Form S-4 (Reg. No. 333-101686), filed with the SEC on December 6, 2002
      (the “Form S-4”), (b) Exhibit 3.1 to the Company’s Current Report on Form
      8-K dated July 28, 2004 and filed with the SEC on July 29, 2004, (c)
      Exhibit 3.1 to the Company’s Current Report on Form 8-K dated June 26,
      2008 and filed with the SEC on July 2, 2008, and (d) Exhibit 3.1 to the
      Company’s Current Report on Form 8-K dated December 19, 2008 and filed
      with the SEC on December 23, 2008.3.1(b)
                  
                  Certificate
      of Designations, Preferences and Rights of Series A Preferred Stock, as
      filed with the Secretary of the State of Delaware, incorporated by
      reference to Exhibit 4.5 to the Current Report on Form 8-K dated October
      6, 2004, and filed with the SEC on October 12, 2004.3.1(c)
                  
                  Certificate
      of Retirement with the Secretary of the State of the Delaware to retire
      516,558 shares of the Series A Preferred Stock, as filed with the
      Secretary of State of Delaware, incorporated by reference to Exhibit 3.1
      to the Current Report on Form 8-K dated March 10, 2006, and filed with the
      SEC on March 14, 2006.3.1(d)
                  
                  Certificate
      of Designations, Preferences and Rights of Series B 8% Convertible
      Preferred Stock, as filed with the Secretary of the State of Delaware,
      incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K
      dated March 15, 2006, and filed with the SEC on March 16,
      2006.3.1(e)
                  
                  Amended
      Certificate of Designations of Preferences, Rights and Limitations of
      Series B 8% Convertible Preferred Stock, as filed with the Secretary of
      State of the State of Delaware, incorporated by reference to Exhibit 3.1
      to the Current Report on Form 8-K dated April 24, 2007, and filed with the
      SEC on April 25, 2007.3.1(f)
                  
                  Certificate
      of Designations, Preferences and Rights of Series C 8% Convertible
      Preferred Stock, as filed with the Secretary of the State of Delaware,
      incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K
      dated April 24, 2007, and filed with the SEC on April 25,
      2007.3.1(g)
                  
                  Amended
      Certificate of Designations, Preferences and Rights of Series C 8%
      Convertible Preferred Stock, as filed with the Secretary of the State of
      Delaware, incorporated by reference to Exhibit 3.1 to the Current Report
      on Form 8-K dated April 24, 2007, and filed with the SEC on April 25,
      20073.1(h)
                  
                  Amended
      Certificate of Designations of Preferences, Rights and Limitations of
      Series B 8% Convertible Preferred Stock, as filed with the Secretary of
      State of the State of Delaware, incorporated by reference to Exhibit 3.1
      to the Current Report on Form 8-K dated September 15, 2008, and filed with
      the SEC on September 16, 2008.3.1(i)
                  
                  Amended
      Certificate of Designations, Preferences and Rights of Series C 8%
      Convertible Preferred Stock, as filed with the Secretary of the State of
      Delaware, incorporated by reference to Exhibit 3.2 to the Current Report
      on Form 8-K dated September 15, 2008, and filed with the SEC on September
      16, 2008.3.1(j)
                  
                  Amended
      Certificate of Designations of Preferences, Rights and Limitations of
      Series D 8% Convertible Preferred Stock, as filed with the Secretary of
      State of the State of Delaware, incorporated by reference to Exhibit 3.3
      to the Current Report on Form 8-K dated September 15, 2008, and filed with
      the SEC on September 16, 2008.3.1(k)
                  
                  Certificate
      of Designation of Preferences, Rights and Limitations of Series E
      Convertible Preferred Stock, as filed with the Secretary of State of the
      State of Delaware, incorporated by reference to Exhibit 3.1 to the Current
      Report on Form 8-K dated June 1, 2009, and filed with the SEC on June 5,
      2009.3.1(l)
                  
                  Amended
      Certificate of Designations of the Series D 8% Convertible Preferred Stock
      as filed with the Secretary of State of the State of Delaware on June 29,
      2010, incorporated by reference to Exhibit 3.1 to the Current Report on
      Form 8-K, dated July 1, 2010 and filed with the SEC on July 1,
      20103.1(m)
                  
                  Amended
      Certificate of Designations of the Series E Convertible Preferred Stock as
      filed with the Secretary of State of the State of Delaware on June 29,
      2010, incorporated by reference to Exhibit 3.2 to the Current Report on
      Form 8-K, dated July 1, 2010 and filed with the SEC on July1,
      20103.2
                  
                  By-Laws
      of the Company, as amended, incorporated by reference to Exhibit 3.2 to
      the Company’s Registration Statement on Form SB-2 (Reg. No. 333-90633)
      made effective on February 28, 2000 (the “Form SB-2”).4.1
                  
                  Form
      of specimen certificate for Common Stock of the Company, incorporated by
      reference to Exhibit 4.1 to the Form SB-2.4.2
                  
                  Form
      of specimen certificate for Series A 8% Convertible Preferred Stock of the
      Company, incorporated by reference to Exhibit 4.5 to the Current Report on
      Form 8-K, dated October 6, 2004, and filed with the SEC on October 12,
      2004.


65





4.3
              
              Form
      of specimen certificate for Series B 8% Convertible Preferred Stock of the
      Company, incorporated by reference to Exhibit 4.1 to the Current Report on
      Form 8-K, dated March 15, 2006 and filed with the SEC on March 16,
      2006.4.4
              
              Form
      of specimen certificate for Series C 8% Convertible Preferred Stock of the
      Company, incorporated by reference to Exhibit 4.1 to the Current Report on
      Form 8-K, dated April 24, 2007 and filed with the SEC on April 25,
      2007.4.5
              
              Warrant
      to purchase 100,000 shares of Common Stock issued to DH Blair Investment
      Banking Corp., incorporated by reference to Exhibit 10.2 to the Quarterly
      Report on Form 10-Q for the period ended September 30,
    2004.4.6
              
              Warrant
      to purchase 50,000 shares of Common Stock issued to Jason Lyons
      incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form
      10-Q for the period ended June 30, 2004.4.7
              
              Form
      of Warrant to purchase shares of Common Stock issued to designees of
      lender with respect to financing of an equipment loan incorporated by
      reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the
      period ended June 30, 2004.4.8
              
              Form
      of Short Term Warrant to purchase shares of Common Stock issued to
      purchasers in the private placement which initially closed on October 6,
      2004 (the “Series A Financing”), incorporated by reference to Exhibit 4.6
      to the Current Report on Form 8-K, dated October 6, 2004, and filed with
      the SEC on October 12, 2004.4.9
              
              Form
      of Long Term Warrant to purchase shares of Common Stock issued to
      purchasers in the Series A Financing, incorporated by reference to Exhibit
      4.7 to the Current Report on Form 8-K, dated October 6, 2004, and filed
      with the SEC on October 12, 2004.4.10
              
              Form
      of Warrant to purchase shares of Common Stock issued to the Placement
      Agent, in connection with the Series A Financing, incorporated by
      reference to Exhibit 4.8 to the Current Report on Form 8-K, dated October
      6, 2004, and filed with the SEC on October 12, 2004.4.11
              
              Form
      of Replacement Warrant to purchase shares of Common Stock in connection
      with the offer to holders of Warrants in the Series A Financing (the
      “Warrant Exchange”), incorporated by reference as Exhibit 4.1 to the
      Current Report on Form 8-K, dated December 14, 2005, and filed with the
      SEC on December 20, 2005.4.12
              
              Form
      of Warrant to purchase shares of Common Stock to the Placement Agent, in
      connection with the Warrant Exchange, incorporated by reference as Exhibit
      4.2 to the Current Report on Form 8-K, dated December 14, 2005, and filed
      with the SEC on December 20, 2005.4.13
              
              Form
      of Warrant to purchase shares of Common Stock issued to purchasers in the
      private placement which closed on March 15, 2006 (the “Series B
      Financing”), incorporated by reference to Exhibit 4.2 to the Current
      Report on Form 8-K, dated March 15, 2006 and filed with the SEC on March
      16, 2006.4.14
              
              Form
      of Warrant to purchase shares of Common Stock issued to purchasers in the
      Series B Financing, incorporated by reference to Exhibit 4.3 to the
      Current Report on Form 8-K, dated March 15, 2006 and filed with the SEC on
      March 16, 2006.4.15
              
              Form
      of Warrant to purchase shares of Common Stock issued to the Placement
      Agent, in connection with the Series B Financing, incorporated by
      reference to Exhibit 4.4 to the Current Report on Form 8-K, dated March
      15, 2006 and filed with the SEC on March 16, 2006.4.16
              
              Form
      of Warrant to purchase 600,000 shares of Common Stock issued to Indigo
      Ventures, LLC, incorporated by reference to Exhibit 4.1 to the Current
      Report on Form 8-K, dated July 12, 2006 and filed with the SEC on July 18,
      2006.4.17
              
              Form
      of Warrant to purchase up to 478,698 shares of Common Stock issued to
      VGS  PHARMA,  LLC, incorporated by reference as
      Exhibit 3(a) to the Current Report on Form 8-K, dated December 6, 2006 and
      filed with the SEC on December 12, 2006.4.18
              
              Form
      of Non-Qualified Stock Option Agreement for 1,750,000 shares of Common
      Stock granted to Veerappan Subramanian, incorporated by reference as
      Exhibit 3(b) to the Current Report on Form 8-K, dated December 6, 2006 and
      filed with the SEC on December 12,
2006.


66





4.19
              
              Form
      of Warrant to purchase shares of Common Stock issued to purchasers in the
      private placement which closed on April 24, 2007 (the “Series C
      Financing”), incorporated by reference to Exhibit 4.2 to the Current
      Report on Form 8-K, dated April 24, 2007 and filed with the SEC on April
      25, 2007.4.20
              
              Form
      of Warrant to purchase shares of Common Stock issued to the placement
      agent in the Series C Financing, incorporated by reference to Exhibit 4.3
      to the Current Report on Form 8-K, dated April 24, 2007 and filed with the
      SEC on April 25, 2007.4.21
              
              Form
      of specimen certificate for Series D 8% Convertible Preferred Stock of the
      Company, incorporated by reference to Exhibit 4.1 to the Current Report on
      Form 8-K, dated September 15, 2008 and filed with the SEC on September 16,
      2008.4.22
              
              Form
      of Warrant to purchase shares of Common Stock issued to purchasers in the
      private placement which closed on September 15, 2008 (the “Series D
      Financing”), incorporated by reference to Exhibit 4.2 to the Current
      Report on Form 8-K, dated September 15, 2008 and filed with the SEC on
      September 16, 2008.4.23
              
              Form
      of Warrant to purchase shares of Common Stock issued to the placement
      agent in the Series D Financing, incorporated by reference to Exhibit 4.3
      to the Current Report on Form 8-K, dated September 15, 2008 and filed with
      the SEC on September 16, 2008.4.24
              
              Form
      of specimen certificate for Series E Convertible Preferred Stock of the
      Company, incorporated by reference to Exhibit 4.1 to the Current Report on
      Form 8-K, dated June 1, 2009, and filed with the SEC on June 5,
      2009.4.25
              
              Warrant
      to purchase shares of Common Stock issued to Epic Investments, LLC in the
      initial closing of the Strategic Alliance Agreement, dated as of March 18,
      2009, by and among the Company, Epic Pharma, LLC and Epic Investments,
      LLC, incorporated by reference to Exhibit 4.2 to the Current Report on
      Form 8-K, dated June 1, 2009, and filed with the SEC on June 5,
      2009.10.1
              
              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
      Current Report on 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 Quarterly Report on Form
      10-Q for three months ended June 30, 2003 (the “June 30, 2003 10Q
      Report”).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 Current Report on 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
      Current Report on 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
      Current Report on 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.


67





10.11
              
              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 Current Report on Form 8-K, dated June
      21, 2005 and originally filed with the SEC on June 27, 2005, as amended on
      the Current Report on Form 8-K/A filed September 7, 2005, as further
      amended by the Current Report on Form 8-K/A filed December 7, 2005
      (Confidential Treatment granted with respect to portions of the
      Agreement).10.12
              
              Agreement,
      dated December 12, 2005, by and among the Company, Elite Labs, and
      IntelliPharmaCeutics Corp., incorporated by reference as Exhibit 10.1 to
      the Current Report on Form 8-K, dated December 12, 2005, and originally
      filed with the SEC on December 16, 2005, as amended by the Current Report
      on Form 8-K/A filed March 7, 2006 (Confidential Treatment granted with
      respect to portions of the Agreement).10.13
              
              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 Current Report on Form 8-K, dated August 31, 2005
      and filed with the SEC on September 6, 2005.10.14
              
              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
      Current Report on Form 8-K, dated August 31, 2005 and filed with the SEC
      on September 6, 2005.10.15
              
              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
      Current Report on Form 8-K, dated August 31, 2005 and filed with the SEC
      on September 6, 2005.10.16
              
              Mortgage
      from the Company to the NJEDA, incorporated by reference to Exhibit 10.4
      to the Current Report on Form 8-K, dated August 31, 2005 and filed with
      the SEC on September 6, 2005.10.17
              
              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 Current Report on
      Form 8-K, dated August 31, 2005 and filed with the SEC on September 6,
      2005.10.18
              
              Form
      of Warrant Exercise Agreement, between the Registrant and the signatories
      thereto, incorporated by reference to Exhibit 10.1 to the Current Report
      on Form 8-K, dated December 14, 2005 and filed with the SEC on December
      20, 2005.10.19
              
              Form
      of Registration Rights Agreement, between the Registrant and signatories
      thereto, incorporated by reference to Exhibit 10.2 to the Current Report
      on Form 8-K, dated December 14, 2005 and filed with the SEC on December
      20, 2005.10.20
              
              Form
      of Securities Purchase Agreement, between the Registrant and the
      signatories thereto, incorporated by reference to Exhibit 10.1 to the
      Current Report on Form 8-K, dated March 15, 2006 and filed with the SEC on
      March 16, 2006.10.21
              
              Form
      of Registration Rights Agreement, between the Registrant and the
      signatories thereto, incorporated by reference to Exhibit 10.2 to the
      Current Report on Form 8-K, dated March 15, 2006 and filed with the SEC on
      March 16, 2006.10.22
              
              Form
      of Placement Agent Agreement, between the Registrant and Indigo
      Securities, LLC, incorporated by reference as Exhibit 10.3 to the Current
      Report on Form 8-K, dated March 15, 2006, and filed with the SEC on March
      16, 2006.10.23
              
              Financial
      Advisory  Agreement  between  the  Registrant
      and Indigo Ventures LLC, incorporated by reference as Exhibit 10.1 to the
      Current Report on Form 8-K dated July 12, 2006 and filed with the SEC on
      July 18, 2006.10.24
              
              Seconded  Amended
      and Restated  Employment  Agreement  between
      the Registrant and Bernard Berk, incorporated by reference as Exhibit 10.1
      to the Quarterly Report on Form 10-Q for the quarter ended September 30,
      2006 and filed with the SEC on November 14, 2006.10.25
              
              Employment
      Agreement between the Registrant and Charan Behl, incorporated by
      reference as Exhibit 10.2 to the Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2006 and filed with the SEC on November 14,
      2006.10.26
              
              Employment
      Agreement between the Registrant and Chris Dick, incorporated by reference
      as Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended
      September 30, 2006 and filed with the SEC on November 14,
      2006.10.27
              
              Product
      Collaboration Agreement between the Registrant and ThePharmaNetwork LLC,
      incorporated by reference as Exhibit 10.1 to the Current Report on Form
      8-K, dated November 10, 2006 and filed with the SEC on November 15, 2006.
      (Confidential Treatment granted with respect to portions of the
      Agreement).


68





10.28
                
                Strategic
      Alliance Agreement among the Registrant, VGS Pharma (“VGS”) and Veerappan
      S. Subramanian  (“VS”), incorporated by reference as Exhibit
      10(a) to the Current Report on Form 8-K, dated December 6, 2006 and filed
      with the SEC on December 12, 2006.10.29
                
                Advisory
      Agreement, between the Registrant and VS, incorporated by reference as
      Exhibit 10(b) to the Current Report on Form 8-K, dated December 6, 2006
      and filed with the SEC on December 12, 2006.10.30
                
                Registration
      Rights Agreement between the Registrant, VGS and VS, incorporated by
      reference as Exhibit 10(c) to the Current Report on Form 8-K, dated
      December 6, 2006 and filed with the SEC on December 12,
    2006.10.31
                
                Employment
      Agreement between Novel Laboratories Inc. (“Novel”) and VS, incorporated
      by reference as Exhibit 10(d) to the Current Report on Form 8-K, dated
      December 6, 2006 and filed with the SEC on December 12,
    2006.10.32
                
                Stockholders’
      Agreement between Registrant, VGS, VS and Novel, incorporated by reference
      as Exhibit 10(e) to the Current Report on Form 8-K, dated December 6, 2006
      and filed with the SEC on December 12, 2006.10.33
                
                Amended
      and Restated Employment Agreement, between the Registrant and Charan Behl,
      incorporated by reference as Exhibit 10.1 to the Current Report on Form
      8-K, dated February 9, 2007 and filed with the SEC on February 14,
      2007.10.34
                
                Form
      of Securities Purchase Agreement, between the Registrant and the
      signatories thereto, incorporated by reference to Exhibit 10.1 to the
      Current Report on Form 8-K, dated April 24, 2007 and filed with the SEC on
      April 25, 2007.10.35
                
                Form
      of Registration Rights Agreement, between the Registrant and the
      signatories thereto, incorporated by reference to Exhibit 10.2 to the
      Current Report on Form 8-K, dated April 24, 2007 and filed with the SEC on
      April 25, 2007.10.36
                
                Form
      of Placement Agent Agreement, between the Company and Oppenheimer &
      Company, Inc., incorporated by reference as Exhibit 10.3 to the Current
      Report on Form 8-K, dated April 24, 2007 and filed with the SEC on April
      25, 2007.10.37
                
                Form
      of Securities Purchase Agreement, between the Registrant and the
      signatories thereto, incorporated by reference to Exhibit 10.1 to the
      Current Report on Form 8-K, dated July 17, 2007 and filed with the SEC on
      July 23, 2007.10.38Form
      of Registration Rights Agreement, between the Registrant and the
      signatories thereto, incorporated by reference as Exhibit 10.2 to the
      Current Report on Form 8-K, dated July 17, 2007 and filed with the SEC on
      July 23, 2007.10.39
                
                Consulting
      Agreement, dated as of July 27, 2007, between the Registrant and Willstar
      Consultants, Inc., incorporated by reference as Exhibit 10.1 to the
      Quarterly Report on Form 10-Q for the period ending September 30, 2007 and
      filed with the SEC on November 14, 2007.10.40
                
                Consulting
      Agreement, dated as of September 4, 2007, between the Registrant, Bridge
      Ventures, Inc. and Saggi Capital, Inc., incorporated by reference as
      Exhibit 10.2 to the Quarterly Report on Form 10-Q for the period ending
      September 30, 2007 and filed with the SEC on November 14,
      2007.10.41
                
                Employment
      Agreement, dated as of January 3, 2008, by and between the Registrant and
      Dr. Stuart Apfel, incorporated by reference as Exhibit 10.1 to the Current
      Report on Form 8-K dated January 3, 2008 and filed with the SEC on January
      9, 2008.10.42
                
                Form
      of Securities Purchase Agreement, between the Company and the signatories
      thereto, incorporated by reference to Exhibit 10.1 to the Current Report
      on Form 8-K, dated September 15, 2008 and filed with the SEC on September
      16, 2008.10.43
                
                Form
      of Placement Agent Agreement, between the Company, ROTH Capital Partners,
      LLC and Boenning & Scattergood, Inc., incorporated by reference to
      Exhibit 10.3 to the Current Report on Form 8-K, dated September 15, 2008
      and filed with the SEC on September 16, 2008.10.44
                
                Separation
      Agreement and General Release of Claims, dated as of October 20, 2008, by
      and between the Company and Stuart Apfel, incorporated by reference to
      Exhibit 10.1 to the Current Report on Form 8-K, dated October 15, 2008 and
      filed with the SEC on October 21,
2008.


69





10.45
              
              Consulting
      Agreement, dated as of October 20, 2008, by and between the Company and
      Parallex Clinical Research, incorporated by reference to Exhibit 10.2 to
      the Current Report on Form 8-K, dated October 15, 2008 and filed with the
      SEC on October 21, 2008.10.46
              
              Separation
      Agreement and General Release of Claims, dated as of November 3, 2008, by
      and between the Company and Charan Behl, incorporated by reference to
      Exhibit 10.1 to the Current Report on Form 8-K, dated October 28, 2008 and
      filed with the SEC on November 3, 2008.10.47
              
              Consulting
      Agreement, dated as of November 3, 2008, by and between the Company and
      Charan Behl, incorporated by reference to Exhibit 10.2 to the Current
      Report on Form 8-K, dated October 28, 2008 and filed with the SEC on
      November 3, 2008.10.48
              
              Separation
      Agreement and General Release of Claims, dated as of November 5, 2008, by
      and between the Company and Bernard J. Berk, incorporated by reference to
      Exhibit 10.1 to the Current Report on Form 8-K, dated November 6, 2008 and
      filed with the SEC on November 6, 2008.10.49
              
              Amendment
      to Employment Agreement, dated as of November 10, 2008, by and between the
      Company and Chris Dick, incorporated by reference to Exhibit 10.1 to the
      Quarterly Report on Form 10-Q for the period ended September 30, 2008 and
      filed with the SEC on November 14, 2008.10.50
              
              Compensation
      Agreement, dated as of December 1, 2008, by and between the Company and
      Jerry I. Treppel, incorporated by reference to Exhibit 10.1 to the Current
      Report on Form 8-K, dated December 1, 2008 and filed with the SEC on
      December 4, 2008.10.51
              
              Strategic
      Alliance Agreement, dated as of March 18, 2009, by and among the Company,
      Epic Pharma, LLC and Epic Investments, LLC, incorporated by reference to
      Exhibit 10.1 to the Current Report on Form 8-K, dated March 18, 2009 and
      filed with the SEC on March 23, 2009.10.52
              
              Amendment
      to Strategic Alliance Agreement, dated as of April 30, 2009, by and among
      the Company, Epic Pharma, LLC and Epic Investments, LLC, incorporated by
      reference to Exhibit 10.1 to the Current Report on Form 8-K, dated April
      30, 2009 and filed with the SEC on May 6, 2009.10.53
              
              Second
      Amendment to Strategic Alliance Agreement, dated as of June 1, 2009, by
      and among the Company, Epic Pharma, LLC and Epic Investments, LLC,
      incorporated by reference to Exhibit 10.1 to the Current Report on Form
      8-K, dated June 1, 2009, and filed with the SEC on June 5,
      2009.10.54
              
              Employment
      Agreement, dated as of July 1, 2009, by and between the Company and Carter
      J. Ward, incorporated by reference to Exhibit 10.1 to the Current Report
      on Form 8-K dated July 1, 2009 and filed with the SEC on July 8,
      2009.10.55
              
              Third
      Amendment to Strategic Alliance Agreement, dated as of Aug 18, 2009, by
      and among the Company, Epic Pharma LLC and Epic Investments, LLC,
      incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form
      10-Q, for the period ending June 30, 2009 and filed with the SEC on August
      19, 2009.10.56
              
              Employment
      Agreement, dated as of November 13, 2009, by and between the Company and
      Chris Dick, , incorporated by reference to Exhibit 10.1 to the Quarterly
      Report on Form 10-Q, for the period ending September 30, 2009 and filed
      with the SEC on November 16, 2009.10.57
              
              Employment
      Agreement, dated as of November 13, 2009, by and between the Company and
      Carter J. Ward, incorporated by reference to Exhibit 10.2 to the Quarterly
      Report on Form 10-Q, for the period ending September 30, 2009 and filed
      with the SEC on November 16, 2009.10.58
              
              Elite
      Pharmaceuticals Inc. 2009 Equity Incentive Plan, as adopted November 24,
      2009, incorporated by reference to Exhibit 10.1 to the Registration
      Statement Under the Securities Act of 1933 on Form S-8, dated December 18,
      2009 and filed with the SEC on December 22, 2009.10.59
              
              Stipulation
      of Settlement and Release, dated as of June 25, 2010, by and among the
      Company, Midsummer Investment, Ltd., Bushido Capital Master Fund, LP, BCMF
      Trustees, LLC, Epic Pharma, LLC and Epic Investments, LLC, incorporated by
      reference to Exhibit 10.1 to the Current Report on Form 8-K, dated July 1,
      2010 and filed with the SEC on July 1,
2010


70





10.60
              
              Amendment
      Agreement, dated as of June 25, 2010, by and among the Company, and the
      investors signatory thereto, incorporated by reference to Exhibit 10.2 to
      the Current Report on Form 8-K, dated July 1, 2010 and filed with the SEC
      on July 1, 201010.61
              
              Amendment
      Agreement, dated as of June 2010, by and among the Company, Epic Pharma,
      LLC and Epic Investments, LLC, incorporated by reference to Exhibit 10.3
      to the Current Report on Form 8-K, dated July 1, 2010 and filed with the
      SEC on July 1, 201021
              
              Subsidiaries
      of the Company.*23.1
              
              Consent
      of Demetrius & Company, L.L.C.*23.2
              
              Consent
      of Rosen Seymour Shapss Martin & Company LLP*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 or the Securities Exchange Act,
whether made before or after the date hereof and irrespective of any general
incorporation language in any such filings.


71


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/ Jerry TreppelJerry
      TreppelChief
      Executive OfficerDated:
      July 7, 2010By:
              /s/ Carter J. WardCarter
      J. WardChief
      Financial OfficerDated:
      July 7, 2010





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/ Jerry Treppel
                  
                  Chairman,
      Chief Executive Officer
                  
                  July
      7, 2010Jerry
      Treppel/s/ Chris Dick
                  
                  President,
      Chief Operating
                  
                  July
      7, 2010Chris
      Dick
                  
                  Officer
      and Director(Principal
      ExecutiveOfficer)/s/ Carter J. Ward
                  
                  Chief
      Financial Officer
                  
                  July
      7, 2010Carter
      J. Ward
                  
                  and
      Treasurer (PrincipalFinancial
      and AccountingOfficer)/s/ Ashok Nigalaye
                  
                  Director
                  
                  July
      7, 2010Ashok
      Nigalaye/s/ Barry Dash
                  
                  Director
                  
                  July
      7, 2010Barry
      Dash/s/ Ram Potti
                  
                  Director
                  
                  July
      7, 2010Ram
      Potti/s/ Jeenarine Narine
                  
                  Director
                  
                  July
      7, 2010Jeenarine
      Narine


72


ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES





CONSOLIDATED
FINANCIAL STATEMENTS





FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009





CONTENTS





PAGEREPORTS
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                  
                  F-1CONSOLIDATED
      BALANCE SHEETS
                  
                  F-3CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS EQUITY
                  
                  F-6CONSOLIDATED
      STATEMENTS OF CASH FLOWS
                  
                  F-10NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS
                  
                  F-12








Report
of Independent Registered Public Accounting Firm





To
The Board of Directors and Shareholders of Elite Pharmaceuticals,
Inc.





We have
audited the accompanying consolidated balance sheet of Elite Pharmaceuticals,
Inc. and its subsidiaries as of March 31, 2010 and the related consolidated
statements of operations, stockholders' deficit and cash flows for the year then
ended.  These consolidated financial statements are the responsibility
of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting 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.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting.  Accordingly, we express no such
opinion.  An audit also 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 audit provides 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, 2010  and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America.





The
accompanying consolidated financial statements have been prepared assuming that
Elite Pharmaceuticals, Inc. and subsidiaries will continue as a going
concern.  As shown in the financial statements, the Company has
experienced significant losses and negative operating cash flows resulting in a
working capital deficiency and shareholders’ deficit.  These
conditions raise substantial doubt about its ability to continue as a going
concern.   Management’s plans in regard to these matters are more
fully described in Note 2.  The consolidated financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.





/s/Demetrius
& Company, L.L.C.





Wayne,
New Jersey


July 7,
2010




F -
1





REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Shareholders of Elite Pharmaceuticals, Inc. and
Subsidiaries:





We have
audited the accompanying consolidated balance sheet of Elite Pharmaceuticals,
Inc. and subsidiaries (the “Company”) as of March 31, 2009, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended.  These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting 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 audit provides 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, 2009, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.





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





/S/ ROSEN
SEYMOUR SHAPSS MARTIN & COMPANY LLP





New York,
New York


June 29,
2009




F -
2





ELITE PHARMACEUTICALS, INC.
AND SUBSIDIARIES


CONSOLIDATED BALANCE
SHEETS


March
31, 2010 and 2009





ASSETS





2010
                  
                  
                  2009CURRENT
      ASSETSCash
      and cash equivalents
                  
                  $
                  578,187
                  
                  
                  $
                  282,578Accounts
      receivable, (net of allowance for doubtful accounts of
    zero)
                  
                  
                  404,961
                  
                  
                  
                  1,177Inventories
      (net of allowance of $494,425 and $ 0, respectively)
                  
                  
                  1,371,292
                  
                  
                  
                  1,703,766Prepaid
      expenses and other current assets
                  
                  
                  131,507
                  
                  
                  
                  331,622Total
      current assets
                  
                  
                  2,485,947
                  
                  
                  
                  2,319,143PROPERTY
      AND EQUIPMENT, net of accumulateddepreciation
      and amortization of $3,840,279 and $3,360,606
                  
                  
                  4,095,814
                  
                  
                  
                  4,575,487INTANGIBLE
      ASSETS – net of accumulated amortization of $76,434 and
      $131,677
                  
                  
                  96,407
                  
                  
                  
                  27,743OTHER
      ASSETSAccrued
      interest receivable
                  
                  
                  —
                  
                  
                  
                  8,539Deposit
      on equipment
                  
                  
                  —
                  
                  
                  
                  14,073Investment
      in Novel Laboratories Inc.
                  
                  
                  3,329,322
                  
                  
                  
                  3,329,322Security
      deposits
                  
                  
                  14,652
                  
                  
                  
                  13,488Restricted
      cash – debt service for EDA bonds
                  
                  
                  294,836
                  
                  
                  
                  327,435EDA
      Bond offering costs, net of accumulated amortization of $64,767 and
      $49,534
                  
                  
                  289,685
                  
                  
                  
                  304,918Total
      other assets
                  
                  
                  4,024,902
                  
                  
                  
                  3,997,775TOTAL
      ASSETS
                  
                  $
                  10,606,663
                  
                  
                  $
                  10,920,148




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


F -
3


ELITE PHARMACEUTICALS, INC.
AND SUBSIDIARIES


CONSOLIDATED BALANCE
SHEETS


March
31, 2010 and 2009





LIABILITIES
AND STOCKHOLDERS  (DEFICIT) EQUITY





2010
                
                
                2009CURRENT
      LIABILITIESCurrent
      portion of EDA Bonds
                
                $
                3,385,000
                
                
                $
                210,000Short
      term loans and current portion of long-term debt
                
                
                82,302
                
                
                
                10,788Accounts
      payable and accrued expenses
                
                
                986,777
                
                
                
                981,058Preferred
      share derivative interest payable
                
                
                306,440
                
                
                
                —Dividends
      payable
                
                
                —
                
                
                
                358,621Total
      Current Liabilities
                
                
                4,760,519
                
                
                
                1,560,467LONG
      TERM LIABILITIESEDA
      bonds – net of current portion
                
                
                —
                
                
                
                3,385,000Long-term
      debt, less current portion
                
                
                19,823
                
                
                
                31,600Derivative
      Liability – Preferred Shares
                
                
                7,924,763
                
                
                
                —Derivative
      Liability – Warrants
                
                
                8,499,423
                
                
                
                —Total
      Long-Term Liabilities
                
                
                16,444,009
                
                
                
                3,416,600Total
      Liabilities
                
                
                21,204,528
                
                
                
                4,977,067COMMITMENTS
      AND CONTINGENCIES:STOCKHOLDERS
      (DEFICIT) EQUITYPreferred
      Stock - $0.01 par value;Authorized
      4,483,442 shares (originally 5,000,000 shares of which 516,558 shares of
      Series A Convertible Preferred Stock were retired) and 0 shares
      outstanding as of March 31, 2010 and 2009, respectively
                
                
                —
                
                
                
                —Authorized
      10,000 Series B convertible Preferred Stock – issued and outstanding 896
      and 1,046 shares, respectively – Reclassified as a liability as of April
      1, 2009
                
                
                —
                
                
                
                11Authorized
      20,000 Series C convertible Preferred Stock – issued and outstanding 5,418
      and 1,3705 shares, respectively – Reclassified as a liability as of April
      1, 2009
                
                
                —
                
                
                
                137Authorized
      30,000 Series D convertible Preferred Stock – issued and outstanding 9,008
      and 9,154 shares, respectively – Reclassified as a liability as of April
      1, 2009
                
                
                —
                
                
                
                91Common
      Stock – par value of $0.001 and $0.01 as of March 31, 2010 and 2009,
      respectivelyAuthorized
      355,516,558 and 210,000,000 shares as of March 31, 2010 and 2009,
      respectivelyIssued
      and outstanding – 83,950,168 shares and 60,839,374 shares, as of March 31,
      2010 and 2009, respectively
                
                
                83,950
                
                
                
                608,394Subscription
      receivable
                
                
                —
                
                
                
                (75,000
                )Additional
      paid-in capital
                
                
                90,903,896
                
                
                
                95,718,082Accumulated
      deficit
                
                
                (101,278,870
                )
                
                
                (90,001,793
                )Treasury
      stock, at cost (100,000 common shares)
                
                
                (306,841
                )
                
                
                (306,841
                )Total
      Stockholders (Deficit) / Equity
                
                
                (10,597,865
                )
                
                
                5,943,081TOTAL
      LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY
                
                $
                10,606,663
                
                
                $
                10,920,148




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


F -
4


ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS





Years
      Ended
                                                                    March
      31,2010
                                                                  
                                                                  
                                                                  2009REVENUES:Manufacturing
      Revenues
                                                                  
                                                                  $
                                                                  2,575,942
                                                                  
                                                                  
                                                                  $
                                                                  1,927,062Lab
      Fee Revenues
                                                                  
                                                                  
                                                                  4,429
                                                                  
                                                                  
                                                                  
                                                                  —Royalties
                                                                  
                                                                  
                                                                  763,928
                                                                  
                                                                  
                                                                  
                                                                  347,763Total
      Revenues
                                                                  
                                                                  
                                                                  3,344,298
                                                                  
                                                                  
                                                                  
                                                                  2,274,825Cost
      of Revenues (including depreciation of $294,615 for the year ended March
      31, 2010)
                                                                  
                                                                  
                                                                  2,305,763
                                                                  
                                                                  
                                                                  
                                                                  1,464,568Gross
      Profit
                                                                  
                                                                  
                                                                  1,038,536
                                                                  
                                                                  
                                                                  
                                                                  810,257OPERATING
      EXPENSESResearch
      and Development
                                                                  
                                                                  
                                                                  794,433
                                                                  
                                                                  
                                                                  
                                                                  3,631,425General
      and Administrative
                                                                  
                                                                  
                                                                  1,841,425
                                                                  
                                                                  
                                                                  
                                                                  2,146,895Non-cash
      compensation through issuance of stock options and
warrants
                                                                  
                                                                  
                                                                  125,004
                                                                  
                                                                  
                                                                  
                                                                  921,442Depreciation
      and amortization
                                                                  
                                                                  
                                                                  213,995
                                                                  
                                                                  
                                                                  
                                                                  500,817Total
      Operating Expenses
                                                                  
                                                                  
                                                                  2,974,857
                                                                  
                                                                  
                                                                  
                                                                  7,200,579LOSS
      FROM OPERATIONS
                                                                  
                                                                  
                                                                  (1,936,321
                                                                  )
                                                                  
                                                                  
                                                                  (6,390,322
                                                                  )OTHER
      INCOME / (EXPENSES):Interest
      income
                                                                  
                                                                  
                                                                  1,064
                                                                  
                                                                  
                                                                  
                                                                  40,917Interest
      expense
                                                                  
                                                                  
                                                                  (261,401
                                                                  )
                                                                  
                                                                  
                                                                  (252,183
                                                                  )Change
      in fair value of outstanding warrant derivatives
                                                                  
                                                                  
                                                                  (3,792,130
                                                                  )
                                                                  
                                                                  
                                                                  —Change
      in fair value of preferred share derivatives
                                                                  
                                                                  
                                                                  (283,920
                                                                  )
                                                                  
                                                                  
                                                                  —Interest
      expense attributable to dividends accrued to preferred share derivative
      liabilities
                                                                  
                                                                  
                                                                  (1,271,254
                                                                  )
                                                                  
                                                                  
                                                                  —Discount
      in Series E issuance attributable to beneficial conversion
      features
                                                                  
                                                                  
                                                                  (512,912
                                                                  )
                                                                  
                                                                  
                                                                  —Total
      Other Expense
                                                                  
                                                                  
                                                                  (6,120,553
                                                                  )
                                                                  
                                                                  
                                                                  (211,266
                                                                  )LOSS
      BEFORE PROVISION FOR INCOME TAXES
                                                                  
                                                                  
                                                                  (8,056,874
                                                                  )
                                                                  
                                                                  
                                                                  (6,601,588
                                                                  )Provision
      for Income Taxes
                                                                  
                                                                  
                                                                  —
                                                                  
                                                                  
                                                                  
                                                                  (3,120
                                                                  )NET
      LOSS
                                                                  
                                                                  
                                                                  (8,056,874
                                                                  )
                                                                  
                                                                  
                                                                  (6,604,708
                                                                  )Preferred
      Stock Dividends
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  (2,206,683
                                                                  )NET
      LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
                                                                  
                                                                  $
                                                                  (8,056,874
                                                                  )
                                                                  
                                                                  $
                                                                  (8,811,391
                                                                  )BASIC
      AND DILUTED LOSS PER COMMON SHARE
                                                                  
                                                                  $
                                                                  (0.11
                                                                  )
                                                                  
                                                                  $
                                                                  (0.27
                                                                  )WEIGHTED
      AVERAGE NUMBER OF COMMON SHARES OUTSTANDINGS
                                                                  
                                                                  
                                                                  75,581,345
                                                                  
                                                                  
                                                                  
                                                                  32,047,421




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




F -
5





ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES


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


FOR
THE YEAR ENDED MARCH 31, 2009


(page
1 of 2)





Series
      B
                      
                      
                      Series
      C
                      
                      
                      Series
      DPreferred
      Stock
                      
                      
                      Preferred
      Stock
                      
                      
                      Preferred
      Stock
                      
                      
                      Common
      StockShares
                      
                      
                      Amount
                      
                      
                      Shares
                      
                      
                      Amount
                      
                      
                      Shares
                      
                      
                      Amount
                      
                      
                      Shares
                      
                      
                      AmountBalance
      at March 31, 2008
                      
                      
                      8,410
                      
                      
                      $
                      84
                      
                      
                      
                      19,155
                      
                      
                      $
                      192
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      23,131,035
                      
                      
                      $
                      231,310Sale
      of Series D Preferred
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      1,777
                      
                      
                      
                      18
                      
                      
                      
                      —
                      
                      
                      
                      —Conversion
      of Series B Preferred and Series C Preferred into Series D
      Preferred
                      
                      
                      (7,139
                      )
                      
                      
                      (71
                      )
                      
                      
                      (4,898
                      )
                      
                      
                      (49
                      )
                      
                      
                      12,037
                      
                      
                      
                      120
                      
                      
                      
                      —
                      
                      
                      
                      —Conversion
      of Series B, Series C and Series D preferred shares into
      common
                      
                      
                      (225
                      )
                      
                      
                      (2
                      )
                      
                      
                      (552
                      )
                      
                      
                      (6
                      )
                      
                      
                      (4,660
                      )
                      
                      
                      (47
                      )
                      
                      
                      23,682,161
                      
                      
                      
                      236,822Issuance
      of stock for consulting services
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      125,000
                      
                      
                      
                      1,250Costs
      Associated with raising capital
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Non-cash
      compensation through issuance of stock options and
warrants
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Net
      Loss for the year ended March 31, 2009
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —Dividends
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      13,901,178
                      
                      
                      
                      139,012Balance
      at March 31, 2009
                      
                      
                      1,046
                      
                      
                      
                      11
                      
                      
                      
                      13,705
                      
                      
                      
                      137
                      
                      
                      
                      9,154
                      
                      
                      
                      91
                      
                      
                      
                      60,839,374
                      
                      
                      
                      608,394





Schedule
continues on next page




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


F -
6


ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES


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


FOR
THE YEAR ENDED MARCH 31, 2009


(page
2 of 2)





(schedule
continued from preceding page)





Treasury StockSubscription
                          Receivable
                        
                        
                        Additional Paid
                          in Capital
                        
                        
                        Shares
                        
                        
                        Amount
                        
                        
                        Accumulated
                          Deficit
                        
                        
                        Stockholders
                          (Deficit) EquityBalance
      at March 31, 2008
                        
                        $
                        (75,000
                        )
                        
                        $
                        91,889,978
                        
                        
                        
                        (100,000
                        )
                        
                        $
                        (306,841
                        )
                        
                        $
                        (81,190,402
                        )
                        
                        $
                        10,549,321Sale
      of Series D Preferred
                        
                        
                        —
                        
                        
                        
                        1,776,982
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        1,777,000Conversion
      of Series B Preferred and Series C Preferred into Series D
      Preferred
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Conversion
      of Series B, Series C and Series D preferred shares into
      common
                        
                        
                        —
                        
                        
                        
                        (236,767
                        )
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Issuance
      of stock for consulting services
                        
                        
                        —
                        
                        
                        
                        100,000
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        101,250Costs
      Associated with raising capital
                        
                        
                        —
                        
                        
                        
                        (342,454
                        )
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (342,454
                        )Non-cash
      compensation through issuance of stock options and
warrants
                        
                        
                        —
                        
                        
                        
                        921,442
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        921,442Net
      Loss for the year ended March 31, 2009
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (6,604,708
                        )
                        
                        
                        (6,604,708
                        )Dividends
                        
                        
                        —
                        
                        
                        
                        1,608,901
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (2,206,683
                        )
                        
                        
                        (458,770
                        )Balance at March 31, 2009
                        
                        
                        (75,000
                        )
                        
                        
                        95,718,082
                        
                        
                        
                        (100,000
                        )
                        
                        
                        (306,841
                        )
                        
                        
                        (90,001,793
                        )
                        
                        
                        5,943,081





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


F -
7


ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES


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


FOR
THE YEAR ENDED MARCH 31, 2010


(page
1 of 2)





Series B
                    
                    
                    Series C
                    
                    
                    Series DPreferred Stock
                    
                    
                    Preferred Stock
                    
                    
                    Preferred Stock
                    
                    
                    Common StockShares
                    
                    
                    Amount
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    Shares
                    
                    
                    AmountBalance
      at March 31, 2009
                    
                    
                    1,046
                    
                    
                    $
                    11
                    
                    
                    
                    13,705
                    
                    
                    $
                    137
                    
                    
                    
                    9,154
                    
                    
                    $
                    91
                    
                    
                    
                    60,839,374
                    
                    
                    $
                    608,394Cumulative
      effect of reclassification of preferred stock and warrants
                    
                    
                    
                    
                    
                    
                    (11
                    )
                    
                    
                    
                    
                    
                    
                    (137
                    )
                    
                    
                    
                    
                    
                    
                    (91
                    )
                    
                    
                    —
                    
                    
                    
                    —Proceeds
      received in exchange for beneficial conversion features embedded in Series
      E preferred shares
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Conversion
      of Series B, Series C and Series D preferred shares into
      common
                    
                    
                    (150
                    )
                    
                    
                    
                    
                    
                    
                    (8,287
                    )
                    
                    
                    
                    
                    
                    
                    (146
                    )
                    
                    
                    
                    
                    
                    
                    5,383,010
                    
                    
                    
                    53,830Costs
      associated with raising capital
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Non-cash
      compensation through Issuance of stock options and
warrants
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Net
      Income for the year ended March 31, 2010
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Dividends
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    3,914,944
                    
                    
                    
                    39,149Common
      shares issued in lieu of cash in payment of preferred share derivative
      interest expense
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    12,699,749
                    
                    
                    
                    93,504Reduction
      in Par Value
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (712,040
                    )Common
      shares issued in lieu of cash in payment of legal and consulting
      expenses
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    1,113,091
                    
                    
                    
                    1,113Write-off
      of subscription receivable from defunct company
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Balance at March 31, 2010
                    
                    
                    896
                    
                    
                    
                    —
                    
                    
                    
                    5,418
                    
                    
                    
                    —
                    
                    
                    
                    9,008
                    
                    
                    
                    —
                    
                    
                    
                    83,950,168
                    
                    
                    
                    83,950





Schedule
continues on next page





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


F -
8


ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES


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


FOR
THE YEAR ENDED MARCH 31, 2010


(page
2 of 2)





(schedule
continued from preceding page)





Treasury StockSubscription
                      Receivable
                    
                    
                    Additional Paid
                      in Capital
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    Accumulated
                      Deficit
                    
                    
                    Stockholders
                      (Deficit) EquityBalance
      at March 31, 2009
                    
                    $
                    (75,000
                    )
                    
                    $
                    95,718,082
                    
                    
                    
                    (100,000
                    )
                    
                    $
                    (306,841
                    )
                    
                    $
                    (90,001,793
                    )
                    
                    $
                    5,943,081Cumulative
      effect of reclassification of preferred stock and warrants
                    
                    
                    —
                    
                    
                    
                    (7,144,131
                    )
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (3,220,203
                    )
                    
                    
                    (10,364,573
                    )Proceeds
      received in exchange for beneficial conversion features embedded in Series
      E preferred shares
                    
                    
                    —
                    
                    
                    
                    512,912
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    512,912Conversion
      of Series B, Series C and Series D preferred shares into
      common
                    
                    
                    —
                    
                    
                    
                    14,000
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    67,830Costs
      associated with raising capital
                    
                    
                    —
                    
                    
                    
                    (183,456
                    )
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (183,456
                    )Non-cash
      compensation through Issuance of stock options and
warrants
                    
                    
                    —
                    
                    
                    
                    125,004
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    125,004Net
      Income for the year ended March 31, 2010
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (8,056,874
                    )
                    
                    
                    (8,056,874
                    )Dividends
                    
                    
                    —
                    
                    
                    
                    319,472
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    358,621Common
      shares issued in lieu of cash in payment of preferred share derivative
      interest expense
                    
                    
                    —
                    
                    
                    
                    805,882
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    899,386Reduction
      in Par Value
                    
                    
                    —
                    
                    
                    
                    712,040
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Common
      shares issued in lieu of cash in payment of legal expenses
                    
                    
                    —
                    
                    
                    
                    99,091
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    100,204Write-off
      of subscription receivable from defunct company
                    
                    
                    75,000
                    
                    
                    
                    (75,000
                    )
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Balance at March 31, 2010
                    
                    
                    —
                    
                    
                    
                    90,903,896
                    
                    
                    
                    (100,000
                    )
                    
                    
                    (306,841
                    )
                    
                    
                    (101,278,870
                    )
                    
                    
                    (10,597,865
                    )





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


F -
9


ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(page
1 of 2)


Years Ended March 31,2010
                      
                      
                      2009CASH
      FLOWS FROM OPERATING ACTIVITIESLoss
      from Continuing Operations
                      
                      $
                      (8,056,874
                      )
                      
                      $
                      (6,604,708
                      )Adjustments
      to reconcile net loss to cash used in operating
activities:Depreciation
      and amortization
                      
                      
                      508,610
                      
                      
                      
                      500,817Inventory
      adjustment
                      
                      
                      311,986
                      
                      
                      
                      —Change
      in fair value of warrant derivative liability
                      
                      
                      3,792,130
                      
                      
                      
                      —Change
      in fair value of preferred shares derivative liability
                      
                      
                      283,920
                      
                      
                      
                      —Discount
      in Series E issuance attributable to embedded beneficial conversion
      feature
                      
                      
                      512,912
                      
                      
                      
                      —Preferred
      shares derivative interest satisfied by the issuance of common
      stock
                      
                      
                      964,814
                      
                      
                      
                      —Derivative
      interest accrued and payable
                      
                      
                      306,440Legal
      and consulting expenses satisfied by the issuance of common
      stock
                      
                      
                      100,204
                      
                      
                      
                      —Non-cash
      compensation satisfied by the issuance of common stock, options and
      warrants
                      
                      
                      125,004
                      
                      
                      
                      921,442Changes
      in assets and liabilities:Accounts
      and interest receivable
                      
                      
                      (395,245
                      )
                      
                      
                      143,512Inventories
                      
                      
                      20,488
                      
                      
                      
                      420,654Prepaid
      expenses and other current assets
                      
                      
                      16,659
                      
                      
                      
                      (52,400
                      )Security
      deposit
                      
                      
                      12,909
                      
                      
                      
                      —Accounts
      payable, accrued expenses and other current liabilities
                      
                      
                      131,294
                      
                      
                      
                      130,615NET
      CASH USED IN OPERATING ACTIVITIES
                      
                      
                      (1,364,748
                      )
                      
                      
                      (4,540,068
                      )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of property and equipment
                      
                      
                      —
                      
                      
                      
                      (45,892
                      )Costs
      incurred for intellectual property assets
                      
                      
                      (96,404
                      )(Deposits)
      to / Withdrawals from  restricted cash, net
                      
                      
                      32,599
                      
                      
                      
                      104,644NET
      CASH PROVIDED BY / (USED IN) INVESTING ACTIVITIES
                      
                      
                      (63,805
                      )
                      
                      
                      58,752CASH
      FLOWS FROM FINANCING ACTIVITIESOther
      loan payments
                      
                      
                      (65,839
                      )
                      
                      
                      (9,864
                      )Dividends
      paid
                      
                      
                      
                      
                      
                      
                      (163,403
                      )NJEDA
      bond principal payments
                      
                      
                      (210,000
                      )
                      
                      
                      (200,000
                      )Costs
      associated with raising capital
                      
                      
                      
                      
                      
                      
                      (342,454
                      )Proceeds
      from issuance of Series D 8% Convertible Preferred Stock and
      Warrants
                      
                      
                      
                      
                      
                      
                      1,777,000Proceeds
      from issuance of Series E Convertible Preferred Stock and
      Warrants
                      
                      
                      2,000,000NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                      
                      
                      1,724,161
                      
                      
                      
                      1,061,279NET
      CHANGE IN CASH AND CASH EQUIVALENTS
                      
                      
                      295,609
                      
                      
                      
                      (3,420,037
                      )CASH
      AND CASH EQUIVALENTS – beginning of period
                      
                      
                      282,578
                      
                      
                      
                      3,702,615CASH
      AND CASH EQUIVALENTS – end of period
                      
                      $
                      578,187
                      
                      
                      $
                      282,578





Schedule
continues on next page




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


F -
10


ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(page
2 of 2)





(schedule
continued from preceding page)





Years Ended March 31,2010
                
                
                2009SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONCash
      paid for interest
                
                $
                262,685
                
                
                $
                253,402Cash
      paid for income taxes
                
                
                —
                
                
                
                3,120SCHEDULE
      OF NON-CASH INVESTING AND FINANCING ACTIVITIESPreferred
      stock dividends for the year ended March 31, 2009, of $2,106,535 paid by
      issuance of  13,901,178 shares of common stock
                
                
                —
                
                
                
                —Cumulative
      effect of reclassification of Preferred Stock and Warrants as Derivative
      Liabilities
                
                
                10,364,573
                
                
                
                —Reduction
      in par value of common stock from $0.01 per share to $0.001 per
      share
                
                
                712,954Consulting
      services paid by issuance of 125,000 shares of common
stock
                
                
                —
                
                
                
                101,250




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


F -
11


ELITE
PHARMACEUTICALS, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31,
2010 AND 2009





NOTE
      1       -
            SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES





BASIS OF
PRESENTATION





The
accompanying audited financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
(“GAAP”)





PRINCIPLES
OF CONSOLIDATION





The
consolidated financial statements include the accounts of Elite Pharmaceuticals,
Inc. and its consolidated subsidiaries, (collectively the “Company”) including
its wholly-owned subsidiaries, Elite Laboratories, Inc. (“Elite Labs”) and Elite
Research, Inc. (“ERI”) for the years ended March 31, 2010 (“Fiscal Year 2010”)
and 2009 (“Fiscal Year 2009”).  Our Company consolidates all entities
that we control by ownership of a majority voting interest.  As of
March 31, 2010, the financial statements of all wholly-owned entities are
consolidated and all significant intercompany accounts are eliminated upon
consolidation.





NATURE OF
BUSINESS





Elite
Pharmaceuticals, Inc. was incorporated on October 1, 1997 under the laws of the
State of Delaware, and its wholly-owned subsidiary Elite Laboratories, Inc. 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 concentrated on developing orally administered controlled-release
products. These products include drugs that cover therapeutic areas for pain,
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.





INVENTORIES





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




F -
12


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.




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 maintains cash balances, which, at times, may exceed the amounts insured
by the Federal Deposit Insurance Corp. ($250,000).  Uninsured balances
at March 31, 2010 are $328,187.  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 due to uncertainty of collection is established
based  on historical collection experience. Amounts are written off
when payment is not received after exhaustive collection efforts. Currently the
Company generates all its revenues from one company. The termination of the
contract with that Company will result in the loss of all revenues currently
earned.





USE OF
ESTIMATES





The
preparation of financial statements in conformity with GAAP 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, stock-based awards and
derivatives.


F -
13


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.




Effective
April 1, 2007, the Company adopted the provisions of FASB’s Interpretation
(“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation
of FASB No. 109.”  Fin 48 prescribes a recognition threshold and
measurement attribute for how a company should recognize, measure, present, and
disclose in its financial statements uncertain tax positions that the company
has taken or expects to take on a tax return. FIN 48 requires that the financial
statements reflect expected future tax consequences of such positions presuming
the taxing authorities’ full knowledge of the position and all relevant facts,
but without considering time values.  No such amounts were accrued for
April 1, 2008. Additionally, no adjustments related to uncertain tax positions
were recognized during the year ended March 31, 2010.




The
Company recognizes interest and penalties related to uncertain tax positions as
a reduction of the income tax benefit.  No interest and penalties
related to uncertain tax positions were accrued as of March 31,
2010.




The
Company operates in multiple tax jurisdictions within the United States of
America.  Although we do not believe that we are currently under
examination in any of our major tax jurisdictions, we remain subject to
examination in all of our tax jurisdiction until the applicable statutes of
limitation expire. As of March 31, 2010, a summary of the tax years that remain
subject to examination in our major tax jurisdictions are: United States –
Federal and State – 2005 and forward.  The Company does not expect to
have a material change to unrecognized tax positions within the next twelve
months.





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.




F -
14


REVENUE
RECOGNITION




Revenues
earned under manufacturing agreements with other pharmaceutical companies are
recognized on the date of shipment of the product, when title for the goods is
transferred, and for which the price is agreed to and it has been determined
that collectability is reasonably assured.





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




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.




Revenues
earned by licensing certain pharmaceutical products developed by the Company are
recognized at the beginning of a license term when the Company’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.





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.




STOCK-BASED
COMPENSATION





The
Company accounts for all stock-based payments and awards under the fair value
based method. Stock-based payments to non-employees are measured at the fair
value of the consideration received, or the fair value of the equity instruments
issued, or liabilities incurred, whichever is more reliably measurable. The fair
value of stock-based payments to non-employees is periodically re-measured until
the counterparty performance is complete, and any change therein is recognized
over the vesting period of the award and in the same manner as if the Company
had paid cash instead of paying with or using equity based instruments on an
accelerated basis. The cost of the stock-based payments to nonemployees that are
fully vested and non-forfeitable as at the grant date is measured and recognized
at that date, unless there is a contractual term for services in which case such
compensation would be amortized over the contractual term.




The
Company accounts for the granting of share purchase options to employees using
the fair value method whereby all awards to employees will be recorded at fair
value on the date of the grant. Share based awards granted to employees with a
performance condition are measured based on the probable outcome of that
performance condition during the requisite service period. Such an award with a
performance condition is accrued if it is probable that a performance condition
will be achieved. Compensation costs for stock-based payments to employees that
do not include performance conditions are recognized on a straight-line basis.
The fair value of all share purchase options is expensed over their vesting
period with a corresponding increase to additional capital surplus. Upon
exercise of share purchase options, the consideration paid by the option holder,
together with the amount previously recognized in additional capital surplus, is
recorded as an increase to share capital





The
Company uses the Black-Scholes option valuation model to calculate the fair
value of share purchase options at the date of the grant. Option pricing models
require the input of highly subjective assumptions, including the expected price
volatility. Changes in these assumptions can materially affect the fair value
estimate.




F -
15




The
compensation expense recognized for the years ended March 31, 2010 and 2009 was
$125,004 and $921,442, respectively.


RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS





From time
to time, new accounting pronouncements are issued by the Financial Accounting
Standards Board, or FASB, or other standard setting bodies that are adopted by
us as of the specified effective date. Unless otherwise discussed, we believe
that the impact of recently issued standards that are not yet effective will not
have a material impact on our consolidated financial position or results of
operations upon adoption.





In May
2009, the FASB issued ASC No. 855, “SubsequentEvents,” which established general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before the financial statements are issued. It sets forth
the period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that occur for potential
recognition or disclosure in the financial statements, the circumstances under
which an entity should recognize events or transactions occurring after the
balance sheet date in its financial statements and the disclosures that an
entity should make about events or transactions that occurred after the balance
sheet date and up to the date the financial statements are issued. ASC 855 was
effective for financial statements issued for interim and annual periods ending
after June 15, 2009 and did not have any impact on the Company’s financial
statements.




In June
2009, the Financial Accounting Standards Board, or FASB, established the FASB
Accounting Standards Codification, or ASC, as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in preparation of financial statements in conformity with generally
accepted accounting principles in the United States. All other accounting
literature not included in the ASC is now non-authoritative. The ASC was
effective for financial statements issued for interim and annual periods ending
after September 15, 2009 and its adoption did not have any impact on the
Company’s financial statements.





NOTE
      2       -
            MANAGEMENT’S LIQUIDITY
      PLANS





The
Company reported net losses of $8,056,874 and $6,604,708 for the fiscal years
ended March 31, 2010 and 2009, respectively. At March 31, 2010, the Company had
an accumulated deficit of approximately $101.3 million, consolidated assets of
approximately $10.6 million, negative stockholders’ equity of approximately
$10.6 million, and a working capital deficit of approximately $2.3 million. The
Company has not generated any significant profits to date. During the fiscal
year ended March 31, 2010, the Company raised $2,000,000 of net proceeds from
the sale of Series E Preferred Stock, and received $62,500 in payment of Series
E Preferred Stock which were paid for but not yet issued.




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 two products currently being sold
commercially; a generic product recently purchased and being transferred to
Elite but not yet being sold; an approval for a generic product not yet being
sold; and a pipeline of products under development.





As of
March 31, 2010, the Company’s principal source of liquidity was approximately
$578,000 of cash and cash equivalents, or approximately 12 months of cash
available based on its current operations. The Company may also receive funds
through the exercise of outstanding stock options and warrants and $1.6875
million from the issuance of the Company’s Series E Convertible Preferred Stock
pursuant to the Strategic Alliance Agreement with Epic
Pharma.  However, there can be no assurance of the exercise of any
outstanding options or warrants, the performance of Epic Pharma under the
Strategic Alliance Agreement, or that any cash received from such sources will
be material to contribute sufficient amounts to continue operating
activities.




As a
result there is no assurance that the Company’s business strategy will be
successfully implemented, and with the Company’s existing working capital
levels, there can be no assurance that the Company will continue as a going
concern.




F -
16




NOTE 3 -
            INVENTORIES





Inventories
are recorded at the lower of cost or market.  As of March 31, 2010 the
Company had an inventory valuation reserve totaling $494,425 resulting in a net
charge to operations of $311,986 during the year ended March 31,
2010.




NOTE 4
      -
            INVESTMENT
      IN NOVEL LABORATORIES INC.




At the
end of 2006, Elite entered into a joint venture with VGS Pharma, LLC (“VGS”) and created Novel
Laboratories, Inc. (“Novel”), a privately-held
company specializing in pharmaceutical research, development, manufacturing,
licensing, acquisition and marketing of specialty generic pharmaceuticals.
Novel's business strategy is to focus on its core strength in identifying and
timely executing niche business opportunities in the generic pharmaceutical
area. Elite’s ownership interest in Novel’s Class A Voting Common Stock of Novel
is approximately 10% of the outstanding shares of Class A Voting Common Stock of
Novel. As of October 1, 2007, Elite deconsolidated its financial statements from
Novel and the investment in Novel is accounted for under the cost method of
accounting.





Since its
inception, Novel has filed at least 11 Abbreviated New Drug Applications with
the US Food and Drug Administration.  The first ANDA approval for
Novel was received in Dec 2008 and at least three additional ANDA approvals were
received in 2009.  Four of the Novel ANDAs have been granted
first-to-file status.





In
addition, Novel has acquired three ANDAs to supplement its own in-house product
development and marketing strategy.  Novel has publicly said that it
has identified over 50 drug products which are in various stages of development
that it plans to commercialize in the coming years.





We also
know from public information that Perrigo Company acquired rights in 2010 for an
undisclosed amount to an additional Novel ANDA approved in 2010 for the product
HalfLytely®.  Novel believes this is a first to file
ANDA.  Perrigo expects to be in a position to launch a generic version
of this product later this year and they expect to have 180 days of generic
exclusivity. Novel will manufacture the product exclusively for
Perrigo.  Annual sales for the branded product was approximately $80
million according to Wolters Kluwer.





In
accordance with GAAP, the company records an impairment write-down to such
investments when the cost of the investment exceeds its fair value and when the
decline in value is determined to be other-than temporary. Indicators of an
other-than-temporary decline in value include, without limitation, the
following:





·
            A
      significant deterioration in the earnings performance, credit rating,
      asset quality, or business prospects of the
  investee


·
            A
      significant adverse change in the regulatory, economic, or technological
      environment of the investee


·
            A
      significant adverse change in the general market condition of either the
      geographic area or the industry in which the investee
    operates


·
            A
      bona fide offer to purchase (whether solicited or unsolicited), an offer
      by the investee to sell, or a completed auction process for the same or
      similar security for an amount less than the cost of the
      investment


·
            Factors
      that raise significant concerns about the investee's ability to continue
      as a going concern, such as negative cash flows from operations, working
      capital deficiencies, or noncompliance with statutory capital requirements
      or debt covenants.





A review
and assessment of all documents available, public announcements by Novel and
communications with the management of Novel does not indicate the existence of
impairment indicators.  Accordingly, the Company determined that no
impairment is required in the valuation of its investment in Novel as of March
31, 2010.  The valuation of the Company’s investment in Novel remains
at $3,329,322, an amount equal to the valuation as of March 31, 2009 with no
impairment write downs.




F -
17


NOTE 5  
      -
            PROPERTY
      AND EQUIPMENT




Property
and equipment at March 31, 2010 and 2009 consists of the
following:





2010
                      
                      
                      2009Laboratory
      manufacturing, and warehouse equipment
                      
                      $
                      5,089,540
                      
                      
                      $
                      5,089,540Office
      equipment
                      
                      
                      56,961
                      
                      
                      
                      56,961Furniture
      and fixtures
                      
                      
                      62,406
                      
                      
                      
                      62,406Transportation
      equipment
                      
                      
                      66,855
                      
                      
                      
                      66,855Land,
      building and improvements
                      
                      
                      2,492,152
                      
                      
                      
                      2,492,152Equipment
      under capital lease
                      
                      
                      168,179
                      
                      
                      
                      168,1797,936,093
                      
                      
                      
                      7,936,093Less:
      Accumulated depreciation and amortization
                      
                      
                      (3,840,279
                      )
                      
                      
                      (3,360,606$
                      4,095,814
                      
                      
                      $
                      4,575,487





Depreciation
and amortization expense amounted to $508,610 and $500,817 for the years ended
March 31, 2010 and 2009, respectively.





NOTE 6  
      -
            INTANGIBLE
      ASSETS





Intangible
assets at March 31, 2010 and 2009, consist of the following:





2010
                        
                        
                        2009Patents
                        
                        $
                        172,841
                        
                        
                        $
                        151,300Trademarks
                        
                        
                        —
                        
                        
                        
                        8,120172,841
                        
                        
                        
                        159,420Less:
      Accumulated amortization
                        
                        
                        (76,434
                        )
                        
                        
                        (131,677
                        )$
                        96,407
                        
                        
                        $
                        27,743





Amortization
of intangible assets, excluding $20,210 expensed in Fiscal Year 2010 due to
impairment, amounted to $22,762 and $7,530 for the years ended March 31, 2010
and 2009, respectively.





NOTE 7  
      -
            NJEDA
      BONDS and 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 used (i) to redeem the
outstanding tax-exempt Bonds originally issued by the Authority on September 2,
1999, (ii) refinance other equipment financing and (iii) for the purchase of
certain equipment to be used in the manufacture of pharmaceutical
products.




Interest
is payable semiannually on March 1 and September 1 of each year. The Bonds are
collateralized by a first lien on the Company’s facility and equipment acquired
with the proceeds of the original and refinanced Bonds. The related Indenture
requires the maintenance of a $415,500 Debt Service Reserve Fund consisting of
$366,000 from the Series A Notes proceeds and $49,500 from the Series B Notes
proceeds. The Debt Service Reserve is maintained in restricted cash accounts
that are classified in Other Assets. $1,274,311 of the proceeds had been
deposited in a short-term restricted cash account to fund the purchase of
manufacturing equipment and development of the Company’s facility. As of March
31, 2010, all of these proceeds were utilized to upgrade the Company’s
manufacturing facilities and for the purchase of manufacturing and laboratory
equipment.




F -
18


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
$15,233, $14,178 and $14,178 for the years ended March 31, 2009, 2008 and 2007,
respectively.




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





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





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





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





Bond
financings consisted of the following at March 31:


2010
                      
                      
                      2009Refinanced
      NJEDA Bonds
                      
                      $
                      3,385,000
                      
                      
                      $
                      3,595,000Current
      portion
                      
                      
                      (3,385,000
                      )
                      
                      
                      (210,000
                      )Long
      term portion, net of current maturities
                      
                      $
                      —
                      
                      
                      $
                      3,385,000





Maturities
of Bonds for the next five years are as follows:





YEAR ENDING MARCH 31,
                  
                  AMOUNT2011
                  
                  $
                  225,0002012
                  
                  
                  245,0002013
                  
                  
                  260,0002014
                  
                  
                  185,0002015
                  
                  
                  195,000Thereafter
                  
                  
                  2,275,000$
                  3,385,000




F -
19




Long-term
debt consists of the following at March 31:




2010
                        
                        
                        2009Note
      payable to First Niagara Bank in 60 monthly installments of $1,180,
      including interest at the rate of 9.00% per annum; Final payment in
      September 2012 ; Secured by vehicle purchased with proceeds of
      loan
                        
                        $
                        31,616
                        
                        
                        $
                        42,388Less:
      Current portion
                        
                        
                        (11,793
                        )
                        
                        
                        (10,788
                        )Long
      term debt, net of current maturities
                        
                        $
                        19,823
                        
                        
                        $
                        31,600





Maturities
of Long Term Debt for the next five years are as follows:





YEAR ENDING MARCH 31,
                  
                  AMOUNT2011
                  
                  $
                  11,7932012
                  
                  
                  12,8992013
                  
                  
                  6,9242014
                  
                  
                  —2015
                  
                  
                  —Thereafter
                  
                  
                  —$
                  31,616





NOTE 8 -
            PREFERRED
      SHARE DERIVATIVE INTEREST
PAYABLE





Preferred
share derivative interest payable as of March 31, 2010 consisted of $306,440 in
derivative interest accrued as of March 31, 2010.  The full amount of
derivative interest payable as of March 31, 2010 was paid via the issuance of
3,402,813 shares of Common Stock, in lieu of cash, in April 2010.




F -
20


NOTE 9 -
            INCOME
      TAXES




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




YEAR ENDED MARCH 31,2010
                    
                    
                    2009Federal:Current
                    
                    $
                    —
                    
                    
                    $
                    —Deferred
                    
                    
                    —
                    
                    
                    
                    —State:Current
                    
                    
                    —
                    
                    
                    
                    3,120Deferred
                    
                    
                    —
                    
                    
                    
                    —$
                    —
                    
                    
                    $
                    3,120




The major
components of deferred tax assets at March 31, 2010 and 2009 are as
follows:





2010
                      
                      
                      2009Net
      operating loss carry forwards
                      
                      $
                      17,604,348
                      
                      
                      $
                      17,048,800Valuation
      allowance
                      
                      
                      (17,604,348
                      )
                      
                      
                      (17,048,800
                      )$
                      —
                      
                      
                      $
                      —




At March
31, 2010 and 2009, 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 2010 and 2009 by $555,548 and 1,920,078,
respectively.





At March
31, 2010, for federal income tax purposes, the Company has unused net operating
loss carryforwards of $52,214,510 expiring in fiscal years ending in 2011
through 2025. For state tax purposes, the Company has $31,013,316 of unused net
operating losses, which are net of the $19,784,360 of the New Jersey
net-operating losses sold in prior periods, with the last such sale occurring
during the fiscal year ended March 31, 2007.




NOTE 10 -
            COMMITMENTS
      AND CONTINGENCIES




EMPLOYMENT
AGREEMENTS




On
November 12, 2009, the Company entered into an employment agreement (the “Dick
Agreement”) with Chris Dick, President and Chief Operating Officer, effective
upon the November 13, 2009 expiration of the employment agreement dated November
13, 2006 and amended on November 10, 2008.  A copy of the Dick
Agreement is attached to the Quarterly Report on Form 10-Q and filed on November
16, 2009, incorporated herein by reference, and  the summary of
material terms of the Dick Agreement set forth in this Annual Report on Form
10-K is qualified in its entirety by reference to such exhibit.




Pursuant
to the terms of the Dick Agreement, commencing on November 13, 2009, Mr. Dick
will be an at-will employee of the Company as its President and Chief Operating
Officer.  Mr. Dick will receive a base salary of $200,000, with
$175,000 of such amount being paid in accordance with the Company’s payroll
practices and $25,000 of such amount being paid by issuance of restricted shares
of common stock, in lieu of cash, as stipulated in the Dick
Agreement.




F -
21




On July
1, 2009, the Company appointed Carter J. Ward as its Chief Financial Officer,
replacing Mark I. Gittelman who served as the Company’s Chief Financial Officer
through the same date.  In connection with such appointment, Mr. Ward
and Company entered into a letter agreement (the “First Ward
Agreement”).  A copy of the First Ward Agreement is attached to the
Current Report on Form 8-K, filed on July 8, 2009, incorporated herein by
reference and the summary of material terms of the First Ward Agreement set
forth in this Annual Report on Form 10-K is qualified in its entirety by
reference to such exhibit.




Pursuant
to the terms of the First Ward Agreement, Mr. Ward became an at-will employee of
the Company as its Chief Financial Officer.  Mr. Ward was required to
dedicated at least 2 business days per week toward fulfilling his
responsibilities as Chief Financial Officer and received an annual base
salary of $60,000, payable in accordance with the Company’s payroll
practices.  The Company and Mr. Ward also entered into the Company’s
standard Employee Proprietary Information and Non-Solicitation Agreement that
the Company requires its employees to execute in connection with their
employment with the Company.




On
November 12, 2009, the Company entered into an employment agreement with Carter
J. Ward, Chief Financial Officer (the “Second Ward Agreement”), replacing the
First Ward Agreement.  A copy of the Second Ward Agreement is attached
to the Quarterly Report on Form 10-Q and filed on November 16, 2009,
incorporated herein by reference, and the summary of material terms of the
Second Ward Agreement set forth in this Annual Report on Form 10-K is qualified
in its entirety by reference to such exhibit.




Pursuant
to the terms of the Second Ward Agreement, Mr. Ward will continue as an at-will
employee of the Company as its Chief Financial Officer Mr. Ward will receive a
base salary of $150,000, with $125,000 of such amount being paid in accordance
with the Company’s payroll practices and $25,000 of such amount being paid by
issuance of restricted shares of common stock, in lieu of cash, as stipulated in
the Second Ward Agreement.  Mr. Ward is required to dedicate his
full-time efforts towards fulfilling his responsibilities as Chief Financial
Officer and discontinue any consulting arrangements which were previously in
place with Epic Pharmaceuticals LLC.




CHIEF EXECUTIVE
OFFICER




Effective
as of September 15, 2009, the Company appointed its Chairman, Jerry I. Treppel
as its Chief Executive Officer, replacing Chris Dick who was the Company’s
interim Chief Executive Officer. Mr. Dick remained with the Company as its
President and Chief Operating Officer.  Biographical information for
Mr. Treppel in included in Part III of this Annual Report on Form
10-K.




In order
to assist the Company in its cost control efforts, Mr. Treppel agreed to forego
any additional compensation, above that which he receives as the Company’s
Chairman.  Details of Mr. Treppel’s compensation as Chairman are
included in Part III of this Annual Report on Form 10-K.




CHIEF SCIENTIFIC
OFFICER




Effective
as of September 15, 2009, the Company appointed Dr. Ashok G. Nigalaye as its
Chief Scientific Officer, replacing Dr. Stuart Apfel who resigned as Chief
Scientific Officer on September 15, 2009.  Dr. Apfel also resigned as
the Company’s Chief Medical Officer, with no replacement being
appointed.  Biographical information for Mr. Treppel in included in
Part III of this Annual Report on Form 10-K.




In order
to assist the Company in its cost control efforts, Dr. Nigalaye agreed to forego
any additional compensation, above that which he receives as a member of the
Company’s Board of Directors. Details of Dr. Nigalaye’s compensation as Director
are included in Part III of this Annual Report on Form 10-K.




F -
22





COLLABORATIVE
AGREEMENTS





Development
and License Agreements


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





Leases of
Rental Properties


The
following leases for rental properties were either operative during Fiscal 2010
or entered into subsequent to March 31, 2010 but prior to the filing of this
annual report on Form 10-K.





80 Oak Street
                                          Unit 101
                                        
                                        
                                        80 Oak Street
                                          Unit 102
                                        
                                        
                                        135 Ludlow AveEffective
      date
                                        
                                        August
      1, 2007
                                        
                                        
                                        August 1, 2009
                                        
                                        
                                        July
      1, 2010Termination
      date
                                        
                                        December 31, 2009
                                        
                                        
                                        July
      31, 2010
                                        
                                        
                                        December
      31, 2015Renewal
      options
                                        
                                        None
                                        
                                        
                                        None
                                        
                                        
                                        Two
      tenant options
                                          for
      extensions of 5
                                          years
      eachRent
      expense for the fiscal year ended March 31, 2010
                                        
                                        $
                                        24,871
                                        
                                        
                                        $
                                        44,121
                                        
                                        
                                        NoneMinimum
      5 Year Lease Payments *:Fiscal
      year ended March 31, 2011
                                        
                                        None
                                        
                                        
                                        $
                                        13,837
                                        
                                        
                                        $
                                        19,689Fiscal
      year ended March 31, 2012
                                        
                                        None
                                        
                                        
                                        None
                                        
                                        
                                        
                                        79,248Fiscal
      year ended March 31, 2013
                                        
                                        None
                                        
                                        
                                        None
                                        
                                        
                                        
                                        81,228Fiscal
      year ended March 31, 2014
                                        
                                        None
                                        
                                        
                                        None
                                        
                                        
                                        
                                        83,259Fiscal
      year ended March 31, 2015
                                        
                                        None
                                        
                                        
                                        None
                                        
                                        
                                        
                                        85,344Total
      Minimum 5 Year Lease Payments
                                        
                                        None
                                        
                                        
                                        $
                                        13,837
                                        
                                        
                                        $
                                        348,768





* Minimum
lease payments for 135 Ludlow avenue are exclusive of additional expenses
related to certain expenses incurred in the operation and maintenance of the
premises, including, without limitation, real estate taxes and common area
charges, which may be due under the terms and conditions of the lease, but which
are not quantifiable at the time of filing of this annual report on Form
10-K.





Sources
and Availability of Raw Materials; Manufacturing





We
contract manufacture two products for commercial sale by our customer, ECR
Pharmaceuticals.  We have recently experienced delays when passing imported
raw materials through customs.  We have also had a shipment for one of the
imported raw materials rejected at customs under Federal Drug & Cosmetic Act
(FD&CA) Sections 502(f)(1) and 801(a)(3).  ECR Pharmaceuticals is
responsible for regulatory matters related to these products.  We have
notified ECR Pharmaceuticals and they have initiated a discussion with the
FDA.  If rejection of this raw material at customs continues, it could
prevent us from manufacturing these products.





Some
materials used in our products are currently available from only one supplier or
a limited number of suppliers.  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.  We currently
obtain the raw materials that we need from over twenty suppliers.




F -
23





GENERAL
CONTINGENCIES




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





NOTE 11 -
            STOCKHOLDERS’
      EQUITY




On
October 23, 2009, at the annual meeting of the stockholders of the Company, the
stockholders approved an amendment to the Company’s Certificate of Incorporation
to increase the number of our authorized shares of common stock (the “Common Stock”) from
210,000,000 to 355,516,558, reduce the authorized shares of Preferred Stock from
5,000,000 to 4,483,442 and reduce the par value of the authorized shares of
Common Stock from $0.01 to $0.001 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 two years ended March 31, the
following potentially dilutive securities were not included in the computation
of diluted loss per share:




2010
                    
                    
                    2009Shares
                    
                    
                    SharesStock
      Options
                    
                    
                    3,287,000
                    
                    
                    
                    2,554,900Convertible
      Preferred Stock
                    
                    
                    94,370,379
                    
                    
                    
                    54,971,921Warrants
                    
                    
                    125,469,740
                    
                    
                    
                    39,667,853223,127,119
                    
                    
                    
                    97,194,674





SERIES C
8% CONVERTIBLE PREFERRED STOCK





As of
April 1, 2009, in accordance with GAAP, the preferred shares were recognized as
a derivative instrument and were re-characterized as a derivative
liability.  Please refer to Note 15.





SERIES D
8% CONVERTIBLE PREFERRED STOCK





As of
April 1, 2009, in accordance with GAAP, the preferred shares were recognized as
a derivative instrument and were re-characterized as a derivative
liability.  Please refer to Note 15.





COMMON
STOCK TRANSACTIONS





The
following grants were made under the Company’s 2004 Stock Option Plan in Fiscal
Year 2010:





On
January 18, 2010, the Company granted options to 14 employees to purchase an
aggregate of 1,000,000 shares of common stock with an exercise price of $0.10 to
vest over a period of three years from grant date.





During
the year ended March 31, 2010, 150 shares of Series B 8% Preferred Stock were
converted into 96,154 shares of common stock.





During
the year ended March 31, 2010, 8,287 shares of Series C 8% Preferred Stock were
converted into 5,147,206 shares of common stock.


F -
24





During
the year ended March 31, 2010, 146 shares of Series D 8% Preferred Stock were
converted into 730,000 shares of common stock.





During
the year ended March 31, 2010, 12,699,749 shares of Common Stock were issued in
lieu of cash payment of derivative interest due to holders of the Company’s
Series B Preferred, Series C Preferred and Series D Preferred
shares.





During
the year ended March 31, 2010, 3,914,944 shares of Common Stock were issued in
lieu of cash payment of dividends due to holders of the Company’s Series B
Preferred, Series C Preferred and Series D Preferred shares.





During
the year ended March 31, 2010, 909,091 shares of Common Stock were issued to
Richardson and Patel, in lieu of cash payment of amounts due for legal services
provided to the Company.





During
the year ended March 31, 2010, 204,000 shares of Common Stock were issued to
Brockington Securities Inc. as part of consideration paid for financial
advisory, investment banking and placement agent services provided to the
Company.





During
the year ended March 31, 2009, 225 shares of Series B 8% Preferred Stock were
converted into 191,168 shares of common stock. In connection with such
conversions, the Company issued 46,968 shares of common stock in satisfaction of
dividend obligations of the Company on such shares of Series B Preferred Stock,
which such dividend obligations accrued through the date of such
conversion.





During
the year ended March 31, 2009, 552 shares of Series C 8% Preferred Stock were
converted into 241,775 shares of common stock. In connection with such
conversions, the Company issued 3,844 shares of common stock and $93 in cash in
satisfactory dividend obligations of the Company on such shares of Series C
Preferred Stock, which such dividend obligations accrued through the date of
such conversions.





During
the year March 31, 2009, 4,660 shares of Series D 8% Preferred Stock were
converted into 23,300,000 shares of common stock. In connection with such
conversions, the Company has accrued dividends of $27,312 through the date of
such conversions.





WARRANTS





As of
April 1, 2009, in accordance with GAAP, the warrants were recognized as a
derivative instrument and were re-characterized as a derivative
liability.  Please refer to Note 15.




NOTE
12 – STOCK OPTION
PLANS





STOCK-BASED
COMPENSATION




During
the years ended March 31, 2010 and 2009, the Company issued 1,000,000 and
258,000, respectively, options to purchase Common Stock to employees,
consultants, financial advisors and to members of the board of directors. The
options have an exercise price ranging from $.06 to $3.00 per share and all vest
over three years..  The options expire between five and ten years from
the date of grant, including those whose vesting is based on the achievement of
certain milestones. The Company has recorded compensation expense of $125,004
and $921,442 for the years ended March 31, 2010 and 2009, respectively, which
represents the fair value of the options vested computed using the Black-Scholes
options pricing model on each grant date.




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.






F -
25


Transactions under the plans
for the years indicated were as follows:




2010
                    
                    
                    2009Options
                    
                    
                    Weighted
                      Average
                      Exercise
                      Price
                    
                    
                    Options
                    
                    
                    Weighted
                      Average
                      Exercise PriceOutstanding
      at beginning of year
                    
                    
                    2,554,900
                    
                    
                    $
                    1.87
                    
                    
                    
                    5,543,300
                    
                    
                    $
                    2.16Granted
                    
                    
                    1,000,000
                    
                    
                    $
                    0.10
                    
                    
                    
                    258,000
                    
                    
                    
                    0.07Exercised
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Expired
                    
                    
                    (267,900
                    )
                    
                    $
                    0.87
                    
                    
                    
                    (3,246,400
                    )
                    
                    
                    2.40Outstanding
      at end of year
                    
                    
                    3,287,000
                    
                    
                    $
                    1.41
                    
                    
                    
                    2,554,900
                    
                    
                    $
                    1.87





The following table
summarizes information about stock options outstanding at March 31,
2010:




Range of
                          Exercise Price
                        
                        
                        Options
                          Outstanding
                        
                        
                        Weighted
                          Average
                          Remaining
                          Contractual Life
                          (Years)
                        
                        
                        Weighted
                          Average
                          Exercise Price
                        
                        
                        Options
                          Exercisable
                        
                        
                        Weighted
                          Average
                          Exercisable
                          Price$
                        0.01
      – 1.00
                        
                        
                        
                        1,198,000
                        
                        
                        
                        8.70
                        
                        
                        $
                        0.09
                        
                        
                        
                        198,000
                        
                        
                        $
                        0.061.01
      – 2.00
                        
                        
                        
                        99,000
                        
                        
                        
                        7.82
                        
                        
                        
                        1.08
                        
                        
                        
                        95,999
                        
                        
                        
                        1.082.01
      – 3.00
                        
                        
                        
                        1,990,000
                        
                        
                        
                        5.90
                        
                        
                        
                        2.22
                        
                        
                        
                        1,240,000
                        
                        
                        
                        2.23$
                        0.01 – 3.00
                        
                        
                        
                        3,287,000
                        
                        
                        
                        7.19
                        
                        
                        $
                        1.41
                        
                        
                        
                        1,533,999
                        
                        
                        $
                        1.88




During
the fiscal year ended March 31, 2010, 1,000,000 options with an initial
aggregate valuation of $93,425 were granted.  The per shares
weighted-average fair value of each option granted during such fiscal year was
$0.0935 on the date of the grant using the Black-Scholes options pricing model
with the following weighted-average assumptions:  no dividend yield;
expected volatility of 111%; risk -free interest rate of 3.73%; and expected
life of 10 years.  The per share weighted-average fair value of each
option granted during fiscal year ended March 31, 2009 was $0.0156 and the per
share weighted average fair value of each option granted during the fiscal year
March 31, 2008 ranged from $.56 to $1.20 on the date of grant using the
Black-Scholes options pricing model with the following weighted-average
assumptions:  no dividend yield; expected volatility of 128% and 33.0%
for fiscal 2009 and 2008, respectively;  risk-free interest rates of
3.00% and 4.00% for fiscal 2009 and 2008, respectively and expected lives
ranging from 5 to 10 years.




There are
6,520,100 options available for future grant under our Stock Option
Plan.




F -
26





NOTE
13 – MAJOR
CUSTOMERS




For the
years ended March 31 2010 and 2009, one customer accounted for 100 percent of
revenues and at March 31, 2010 and 2009, 100 percent of accounts
receivable.





NOTE
14 – SUBSEQUENT
EVENTS




COMMON
STOCK TRANSATIONS





During
the first quarter of the fiscal year ending March 31, 2011, the Company issued a
total of 3,402,813 shares of Common Stock in lieu of cash in payment of
derivative interest, totaling $306,440 owed to holders of the Company’s Series B
Preferred, Series C Preferred and Series D Preferred shares during the quarter
ended March 31, 2010.





Settlement ofMidsummer
Investments, Ltd, et al. v Elite Pharmaceuticals, Inc.





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





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





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





Series D Amendment
Agreement





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




F -
27





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





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





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





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





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


F -
28





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





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





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





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





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





Series E Amendment
Agreement





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





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





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





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


F -
29





Settlement
Agreement





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





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





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





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





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





NOTE
      15 -
            CHANGE IN ACCOUNTING
      PRINCIPAL AND DERIVATIVE
LIABILITIES





The
following discussion of derivative liabilities consists of the following
sections:


·      Overview
of Derivative Liability accounting


·      Preferred
Stock Derivative Liabilities


·      Warrant
Derivative Liabilities


·      Beneficial
Conversion Feature of Series E Preferred Stock


·      Summary
of effects of derivatives on the financial statements





In June
2008, the FASB finalized Emerging Issues Task Force (“EITF”) 07-5, “Determining
Whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own
Stock”, effective for fiscal years beginning after December 15,
2008.  Under EITF 07-5, instruments which do not have fixed settlement
provisions are deemed to be derivative instruments.  The conversion
features within, and the detachable warrants issued with the Registrant’s Series
B, Series C, Series D and Series E preferred stock, do not have fixed settlement
provisions because their conversion and exercise prices may be lowered if the
Registrant issues securities at lower prices in the future.  The
Registrant was required to include the reset provisions in order to protect the
preferred share and warrant holders from potential dilution associated with
future financings.  In accordance with EITF 07-5, the preferred shares
and warrants were recognized as a derivative instrument and have been
re-characterized as derivative liabilities at their fair
value.  “Accounting for Derivative Instruments and Hedging Activities”
(“FAS 133”) requires that the fair value of these liabilities be re-measured at
the end of every reporting period, with the change in value reported in the
statement of operations.  EITF 07-5 requires that the cumulative
effect of this change in accounting principal, for all periods prior the period
of implementation, be recognized as an adjustment in the opening balance of
retained earnings/(accumulated deficit)


F -
30





In
addition, the Series E Preferred shares included an option, exercisable from the
issuance date, to convert to common shares at a price which was below the share
price on the date of issuance.  The excess of value based on the share
price over the cost of shares, based on the option price represents a beneficial
conversion feature existing on the issue date.  In accordance with
EITF 98-5, the beneficial conversion feature was valued separately at issuance
and allocated to additional paid in capital.  As the options which
comprise the beneficial conversion feature were exercisable when issued, a
discount resulting from and in the full amount of the beneficial conversion
feature was recorded at the time of issuance.





SERIES C
8% CONVERTIBLE PREFERRED STOCK





On April
24, 2007, the Company sold 15,000 shares of its Series C 8% Convertible
Preferred Stock, par value $0.01 (the “Series C Preferred Stock”), and 1,939,655
warrants for gross proceeds of $15,000,000. The 15,000 shares of Series C
Preferred Stock are convertible into 6,465,517 shares of Common Stock. The
warrants are exercisable at $3.00 per share and are exercisable through April
24, 2012. The Company paid $1,050,000 in commissions to the placement agent and
others in connection with the sale of the Series C Preferred Stock. In addition,
the Company granted the placement agent 193,965 warrants exercisable at $3.00
per share which were valued at $129,627. The gross proceeds of the private
placement were $15,000,000 before payment of $1,050,000 in commissions to the
placement agent and selected dealers. In addition, the Company agreed to
reimburse the placement agent for all documented out-of-pocket expenses incurred
by the placement agent in connection with the private placement, including
reasonable fees and expenses of its counsel, which the Company and placement
agent agreed to be limited to $25,000. Based on the relative fair values, the
Company has attributed $1,182,101 of the total proceeds to the warrants and has
recorded the warrants as additional paid-in capital. The remaining portion of
the proceeds of $13,817,899 was used to determine the value of the 6,465,517
shares of the Company Common Stock underlying the Series C Preferred Stock, or
$2.1372 per share. Since the value was $0.1628 lower than the fair market value
of the Company’s Common Stock on April 24, 2007, the $1,052,790 fair value of
the conversion option resulted in the recognition of a preferred stock dividend
and an increase to additional paid-in capital.





On July
17, 2007, the Company sold the remaining 5,000 authorized shares of its Series C
Preferred Stock. Each share of Series C Preferred Stock was sold at a price of
$1,000 per share and is initially convertible at $2.32 into 431.0345 shares of
the Company’s Common Stock, or an aggregate of 2,155,172 shares of Common
Stock.  Each purchaser of Series C Preferred Stock also received a
warrant to purchase shares of the Company’s Common Stock in an amount equal to
30% of the aggregate number of shares of Common Stock into which the shares of
Series C Preferred Stock purchased by such purchaser may be converted. The
warrants are exercisable on or before July 17, 2012 and represent the right to
purchase an aggregate of 646,554 shares of Common Stock, at an exercise price of
$3.00 per share.  The lead placement agent for the offering was
Oppenheimer & Company, Inc. The gross proceeds of the private placement were
$5,000,000 before payment of $350,000 in commissions to the placement agent and
its selected dealers and $18,000 in expenses incurred by the placement agent and
its selected dealers. Pursuant to the placement agent agreement, the Company
issued to the placement agent and its designees warrants (the "Placement
Warrants") to purchase 64,655 shares of Common Stock.  Such Placement
Warrants are at an exercise price of $3.00 per share, exercisable on or prior to
July 17, 2012.  The Company received net proceeds from the sale of the
Series C 8% Preferred Stock of $4,631,500.   Based on the
relative fair values, the Company has attributed $534,407 of the total proceeds
to the warrants and has recorded the warrants as additional paid-in capital. The
remaining portion of the proceeds of $4,465,593 was used to determine the value
of the 2,155,172 shares of the Company Common Stock underlying the Series C
Preferred Stock, or $2.0720 per share. Since the value was $0.6180 lower than
the fair market value of the Company’s Common Stock on July 17, 2007, the
$1,331,819 fair value of the conversion option resulted in the recognition of a
preferred stock dividend and an increase to additional paid-in
capital.





The
Company sought and obtained the consent of 70% of the holders of its Series B
Preferred Stock (the “Series B
Consent”), as a condition to the sale of the Series C Preferred Stock, to
modify to the Series B Certificate and to the creation of the Series C Preferred
Stock.





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




F -
31





On April
24, 2007, pursuant to the authority of its Board of Directors, the Company filed
with the Secretary of State of the State of Delaware the Certificate of
Designations of Preferences, Rights and Limitations of the Series C 8%
Convertible Preferred Stock.





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





SERIES D
8% CONVERTIBLE PREFERRED STOCK





On
September 15, 2008, the Company completed a private placement of 1,777 shares of
its Series D Preferred Stock, par value $0.01 per share (the “Series D Preferred
Stock”), for gross proceeds of $1,777,000.  The shares were issued at
a price of $1,000 per share with each share initially convertible at $0.20 into
5,000 shares of the Company’s Common Stock, par value $0.001 per share (the
“Common Stock”), or an aggregate of 8,885,000 shares of Common Stock. Each
purchaser of Series D Preferred Stock also received a warrant to purchase shares
of the Company’s Common Stock. The warrants are exercisable on or before
September 15, 2013 and represent the right to purchase an aggregate of
17,770,000 shares of Common Stock at an exercise price of $0.25 per share. The
newly-created Series D Preferred Stock is senior as to dividends, liquidation
and redemption to the Company’s Series B Preferred Stock and Series C Preferred
Stock (collectively, the “Existing Preferred Stock”).  The Company has
authorized, in total, 30,000 shares of Series D Preferred Stock.





The gross
proceeds of the private placement for shares of the Company’s Series D Preferred
Stock were $1,777,000 before payment of $263,743 in expenses. Pursuant to the
placement agent agreement, the Company issued to the placement agent warrants to
purchase 355,400 shares of Common Stock exercisable at $0.25 per share. The
Company will account for these warrants as a cost of raising capital and will
include the instrument as equity in our financial statements. Accordingly, there
will be no net impact on the Company’s financial position or results of
operations.





As part
of the private placement for shares of the Company’s Series D Preferred Stock,
holders of existing preferred stock who met a pre-defined level of participation
in this placement (“Qualifying Holders”) received the right to exchange (the
“Exchange”): (i) shares of their existing preferred stock for shares of Series D
Preferred Stock at a rate equal to one share of Series D Preferred Stock for
each share of existing preferred stock held by the Qualifying Holder and (ii)
warrants to purchase Common Stock which were originally issued to each Qualified
Holder in connection with the purchase of such exchanged existing preferred
stock (such originally issued warrants, the “Original Warrants”) for warrants
exercisable for the same number of shares of Common Stock with terms identical
to the warrants issued to the purchasers of Series D Preferred Stock (such
warrants, the “Exchange Warrants”).  The Exchange Warrants have an
exercise price of $0.25 per share. To be a Qualifying Holder, a holder of
existing preferred stock was required to purchase shares of Series D Preferred
Stock with a stated value of at least the lesser of (x) $400,000 and (y) 20% of
the aggregate stated value of the shares of Existing Preferred Stock then held
by such holder. In connection with the private placement for shares of the
Company’s Series D Preferred Stock, Qualifying Holders exchanged (a) shares of
their existing preferred stock for an aggregate of approximately 12,037
additional shares of Series D Preferred Stock, which such shares of Series D
Preferred Stock are convertible into an aggregate of approximately 60,185,000
shares of Common Stock, and (b) their Original Warrants for Exchange Warrants to
purchase an aggregate of approximately 2,336,000 shares of Common
Stock.





On April
14, 2008, a holder of 872 shares of Series C 8% Preferred Stock converted 87
shares into 37,745 shares of common stock.  The same holder converted
an additional 87 shares into 38,427 shares of Common Stock on May 4,
2008.  All accrued dividends were paid through dates of
conversion.




F -
32





SERIES E
CONVERTIBLE PREFERRED STOCK




Epic
Strategic Alliance Agreement




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





Use
of Facility and Joint Development of Drug Products


Pursuant
to the Epic Strategic Alliance Agreement, on June 3, 2009 (the “Initial Closing Date”), Elite
and Epic conducted the initial closing (the “Initial Closing”) of the
transactions contemplated by the Epic Strategic Alliance Agreement,
and  Epic and its employees and consultants commenced use of a portion
of Elite’s facility located at 165 Ludlow Avenue, Northvale, New Jersey (the
“Facility”), for the
purpose of developing new generic drug products, all at Epic’s sole cost and
expense for a period of at least three years (the “Initial Term”), unless sooner
terminated or extended pursuant to the Epic Strategic Alliance Agreement or by
mutual agreement of Elite and Epic (the Initial Term, as shortened or extended,
the “Term”).   In
addition to the use of the Facility, Epic will use Elite’s machinery, equipment,
systems, instruments and tools residing at the Facility (collectively the “Personal Property”) in
connection with its joint drug development project at the
Facility.  Under the Epic Strategic Alliance Agreement, Epic has the
right, exercisable in its sole discretion, to extend the Initial Term for two
periods of one year each by giving written notice to Elite of such extension
within ninety days of the end of the Initial Term or any extension
thereof.  Any such extension will be on the same terms and conditions
contained in the Epic Strategic Alliance Agreement.  Elite will be
responsible for (and Epic will have no responsibility for) any maintenance,
services, repairs and replacements in, to or of the Facility and the Personal
Property, unless any such maintenance, service, repair or replacement is
required as a result of the negligence or misconduct of Epic’s employees or
representatives, in which case Epic will be responsible for the costs and
expenses associated therewith.





During
the Term, Epic will use and occupy a portion of the Facility and use the
Personal Property for the purpose of developing (i) at least four
controlled-release products (the “Identified CR Products”) and
(ii) at least four immediate-release products (the “Identified IR Products”), the
identity of each have been agreed upon by Epic and Elite.  If, during
the Term, Epic determines, in its reasonable business judgment, that the further
or continuing development of any Identified CR Product and/or Identified IR
Product is no longer commercially feasible, Epic may, upon written notice to
Elite, eliminate from development under the Epic Strategic Alliance Agreement
such Identified CR Product and/or Identified IR Product, and replace such
eliminated product with another controlled-release or immediate-release product,
as applicable.





Pursuant
to the Epic Strategic Alliance Agreement, Epic will also use a portion of the
Facility and use the Personal Property for the purpose of developing (x)
additional controlled-release products of Epic (the “Additional CR Products”),
subject to the mutual agreement of Epic and Elite, and/or (y) additional
immediate-release products of Epic (the “Additional IR Products”),
subject to the mutual agreement of Elite and Epic (each Identified CR Product,
Identified IR Product, Additional CR Product and Additional IR Product,
individually, a “Product,” and collectively,
the “Products”). Under
the Epic Strategic Alliance Agreement, Epic may not eliminate an Identified CR
Product or an Identified IR Product unless it replaces such Product with an
Additional CR product or Additional IR Product, as the case may be. Subject to
the mutual agreement of Elite and Epic as to additional consideration and other
terms, Epic may use and occupy the Facility for the development of other
products (in addition to the Products).





As
additional consideration for Epic’s use and occupancy of a portion of the
Facility and its use of the Personal Property during the Term and the issuance
and delivery by Elite to Epic of the Milestone Shares (as defined below) and
Milestone Warrants (as defined below), for the period beginning on the First
Commercial Sale (as defined in the Epic Strategic Alliance Agreement) of each
Product and continuing for a period of ten years thereafter (measured
independently for each Product), Epic will pay Elite a cash fee (the “Product Fee”) equal to
fifteen percent of the Profit (as defined in the Epic Strategic Alliance
Agreement), if any, on each of the Products.


F -
33





With
respect to each Identified CR Product and Additional CR Product developed by
Epic at the Facility: (i) Elite will issue and deliver to Epic a seven-year
warrant to purchase up to 10,000,000 shares of Common Stock, at an exercise
price of $0.0625, following the receipt by Elite from Epic of each written
notice of Epic’s receipt of an acknowledgment from the FDA that the FDA accepted
for filing an ANDA for such Identified CR Products and/or Additional CR
Products, up to a maximum of four such warrants for the right to purchase up to
an aggregate of 40,000,000 shares of Common Stock (such warrants, the “CR Related Warrants”), and
(ii) Elite will issue and deliver to Epic 7,000,000 shares of Common Stock
following the receipt by Elite from Epic of each written notice of Epic’s
receipt from the FDA of approval for such Identified CR Products and/or
Additional CR Products, up to a maximum of an aggregate of 28,000,000 shares of
Common Stock (such shares, the “CR Related
Shares”).





With
respect to each Identified IR Product and Additional IR Product developed by
Epic at the Facility, (i) Elite will issue and deliver to Epic a seven year
warrant to purchase up to 4,000,000 shares of Common Stock, at an exercise price
of $0.0625, following the receipt by Elite from Epic of each written notice of
Epic’s receipt of an acknowledgment from the FDA that the FDA accepted for
filing an ANDA for such Identified IR Products and/or Additional IR Products, up
to a maximum of four such warrants for the right to purchase up to an aggregate
of 16,000,000 shares of Common Stock (such warrants, together with the CR
Related Warrants, the “Milestone Warrants”), and
(ii) Elite will issue and deliver to Epic 3,000,000 shares of Common Stock
following the receipt by Elite from Epic of each written notice of Epic’s
receipt from the FDA of approval for such Identified IR Products and/or
Additional IR Products, up to a maximum of an aggregate of 12,000,000 shares of
Common Stock (such shares, together with the CR Related Shares, the “Milestone
Shares”).  The Milestone Warrants may only be exercised by
payment of the applicable cash exercise price.  Elite will have no
obligation to register with the United States Securities and Exchange Commission
(the “SEC”) or any
state securities commission the resale of the Milestone Shares, Milestone
Warrants or the shares of Common Stock issuable upon exercise of the Milestone
Warrants.





Subject
to the mutual agreement of Epic and Elite with respect to the selection of
Additional CR Products and/or Additional IR Products pursuant to the Epic
Strategic Alliance Agreement, Epic will have the sole right to make all
decisions regarding all aspects of the Products, including, but not be limited
to, (i) research and development, formulation, studies and validation of each
Product, (ii) identifying, evaluating and obtaining ingredients for each
Product, (iii) preparing and filing the ANDA for each Product with the FDA and
addressing and handling all regulatory inquiries, audits and investigations
pertaining to the ANDA, and (iv) the manufacture, marketing, supply and
commercialization of each Product.  In addition, Epic would be the
sole and exclusive owner of all right, title and interest in and to each of the
Products.





Pursuant
to the Epic Strategic Alliance Agreement, the use by each of Elite and Epic of
the other party’s confidential and proprietary information is restricted by
customary confidentiality provisions. Elite and Epic also agreed in the Epic
Strategic Alliance Agreement to indemnify and hold each other harmless from
certain losses under the Epic Strategic Alliance Agreement.





Under
certain circumstances Epic will be entitled to terminate the Term early in the
event that the Facility is totally damaged or destroyed such that the Facility
is rendered wholly untenable.  In addition, subject to certain
exceptions, either Elite or Epic may terminate the Term at any time if the other
party is in breach of any material obligations under Article V of the Epic
Strategic Alliance Agreement and has not cured such breach within sixty days
after receipt of written notice requesting cure of such breach.





Elite may
also terminate the Term by written notice to Epic if (i) all conditions
precedent that Elite is obligated to satisfy pursuant to Article II of the Epic
Strategic Alliance Agreement on or prior to a Closing (as defined in the Epic
Strategic Alliance Agreement) have been, or will have been, satisfied by Elite
in accordance with the terms thereof and (ii) Epic does not consummate such
Closing in accordance with Article II. Notwithstanding the foregoing, if Elite
terminates the Epic Strategic Alliance Agreement as described in this paragraph,
then any and all product fees to which it would otherwise be entitled will
remain the obligation of Epic and must be paid to Elite in accordance with the
terms of Epic Strategic Alliance Agreement.




F -
34





Infusion
of Additional Capital Necessary for Product Development





In order
to provide Elite with the additional capital necessary for the product
development and synergies presented by the strategic relationship with Epic,
Epic agreed to invest $3.75 million in Elite through the purchase of Elite’s
Series E Preferred Stock and common stock warrants.  At the Initial
Closing, which occurred on June 3, 2009, in order to fund the continued
development of Elite’s drug products, Elite issued and sold to the Epic, in a
private placement, pursuant to an exemption from registration under Section 4(2)
of the Securities Act, 1,000 shares of its Series E Convertible Preferred Stock,
par value $0.01 per share (the “Series E Preferred Stock”),
at a price of $1,000 per share, each share convertible, at $0.05 per share (the
“Conversion Price”),
into 20,000 shares of Common Stock, par value $0.001 per share (the “Common Stock”). The
Conversion Price is subject to adjustment for certain events, including, without
limitation, dividends, stock splits, combinations and the like. The Conversion
Price is also subject to adjustment for (a) the sale of Common Stock or
securities convertible into or exercisable for Common Stock, for which Epic’s
consent was not required under the Certificate of Designation of Preferences,
Rights and Limitations of the Series E Convertible Preferred Stock, at a price
less than the then applicable Conversion Price, (b) the issuance of Common Stock
in lieu of cash in satisfaction of Elite’s dividend obligations on outstanding
shares of its Series B 8% Convertible Preferred Stock, par value $0.01 per
share, Series C 8% Convertible Preferred Stock, par value $0.01 per share,
and/or Series D 8% Convertible Preferred Stock, par value $0.01 per share (the
“Series D Preferred
Stock”), and (c) the issuance of Common Stock as a result of any holder
of Series D Preferred Stock exercising its right to require Elite to redeem all
of such holder’s shares of Series D Preferred Stock pursuant to the terms
thereof. Epic also acquired a warrant to purchase 20,000,000 shares of Common
Stock (the "Initial
Warrant"), exercisable
on or prior to June 3, 2016, at a per share exercise price of $0.0625 (the
“Exercise Price”),
subject to adjustments for certain events, including, but not limited to,
dividends, stock splits, combinations and the like. The Exercise Price of the
Initial Warrant will also be subject to adjustment for the sale of Common Stock
or securities convertible into Common Stock, for which Epic’s consent was not
required under the Epic Strategic Alliance Agreement, at a price less than the
then applicable Exercise Price of the Initial Warrant. Epic paid an aggregate
purchase price of $1,000,000 for the shares of Series E Preferred Stock and the
Initial Warrant issued and sold by Elite to the Epic at the Initial Closing, of
which $250,000 was received by Elite, in the form of a cash deposit, on April
30, 2009, pursuant to the First Amendment. The remaining $750,000 of such
aggregate purchase price was paid to Elite by Epic at the Initial
Closing.





On
October 30, 2009, Elite completed the second closing of the Strategic Alliance
Agreement with Epic.  Epic paid to Elite a sum of $1,000,000 in
exchange for an additional 1,000 shares of Series E Preferred Stock, and a
warrant to purchase an additional 40,000,000 shares of Common
Stock.  The warrant is to be exercisable until the date that is the
seventh anniversary of the Second Closing Date and is to have a per share
exercise price equal to $0.0625, subject to adjustments for certain events,
including, without limitation, dividends, stock splits, combinations and the
like.





On or
before December 31, 2010, it is anticipated that Elite and Epic will conduct a
third closing (the “Third
Closing” and the date of such Third Closing, the “Third Closing Date”),
provided that all conditions precedent to such Third Closing contained in the
Epic Strategic Alliance Agreement have been satisfied or waived by the
appropriate party on or before such Third Closing Date.  At the Third
Closing, if such closing is held, Epic will pay to Elite a sum of $1,000,000 in
exchange for an additional 1,000 shares of Series E Preferred Stock, which
shares will be convertible, as described above, into 20,000,000 shares of Common
Stock, and a warrant (the “Third Warrant” and
collectively with the Initial Warrant and the Second Warrant, the “Warrants”) to purchase an
additional 40,000,000 shares of Common Stock. The Third Warrant is to be
exercisable until the date that is the seventh anniversary of the Third Closing
Date and is to have a per share exercise price equal to $0.0625, subject to
adjustments for certain events, including, but not limited to, dividends, stock
splits, combinations and the like. The per share exercise price of the Third
Warrant is to also be subject to adjustment for the sale of Common Stock or
securities convertible into Common Stock at a price less than the then
applicable per share exercise price of the Third Warrant, for which the Epic’s
consent was not required under the Epic Strategic Alliance
Agreement.





In
addition, within ten business days following the last day of each calendar
quarter, beginning with the first calendar quarter following the Initial Closing
Date and continuing for each of the eleven calendar quarters thereafter, Epic
will pay to Elite a sum of $62,500, for an aggregate purchase price over such
period of $750,000, in exchange for an additional 62.5 shares of Series E
Preferred Stock per quarter and 750 shares of Series E Preferred Stock, in the
aggregate, over such period, which such shares will be convertible into
1,250,000 shares of Common Stock per quarter and 15,000,000 shares of Common
Stock, in the aggregate, over such period, subject to
adjustment.  Epic made the first payment for the quarter ending
September 30, 2009 and,, as agreed upon with Elite, will resume payments
beginning with the quarter ending September 30, 2010.





If Elite
determines, in its reasonable judgment, that additional funding is required for
the development of its pharmaceutical products, then, either (i) Elite will
issue, and Epic will purchase, such additional number of shares of Series E
Preferred Stock or Common Stock from Elite, upon such terms and conditions as
may be agreed upon by Elite and Epic at the time of such determination; or (ii)
on or after September 15, 2011, Epic will provide a loan to Elite, in an
aggregate principal amount not to exceed $1,000,000, which such loan will (A)
have an interest rate equal to the then prime interest rate as published in the
Wall Street Journal on the date of such loan, (B) mature on the second
anniversary of date of such loan, and (C) be on such other terms and conditions
which are customary and reasonable to loans of a similar nature and which are
mutually agreed upon between Epic and Elite.




F -
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Elite
believes, which as to such belief there can be no assurances, the completion of
the transactions contemplated by the Epic Strategic Alliance Agreement creates
value for our stockholders by adding a new revenue source for Elite upon the
commercialization of the Epic products developed at our facility, providing an
experienced partner to assist in the development, manufacture and licensing of
our pharmaceutical products, and contributing funding for the products.
Importantly, Elite will continue the development of its pain products and, with
the help of Epic, work towards securing licensing arrangements for such pain
products.




Board
of Directors Composition and Voting Rights




As of the
Initial Closing Date and at all times thereafter, except as otherwise set forth
in the Epic Strategic Alliance Agreement, Elite and its Board of Directors will
take any and all action necessary so that (i) the size of the Board of Directors
will be set and remain at seven directors, (ii) three individuals designated by
Epic (the “Epic
Directors”) will be appointed to the Board of Directors and (iii) the
Epic Directors will be nominated at each annual or special meeting of
stockholders at which an election of directors is held or pursuant to any
written consent of the stockholders; provided, however, that if at any time
following the Lock-Up Period (as defined above) the Purchaser owns less than (i)
a number of shares of Series E Preferred Stock equal to ninety percent of the
aggregate number of shares of Series E Preferred Stock purchased by the
Purchaser at all of the then applicable Closings or (ii) following the
conversion by the Purchaser of the Series E Preferred Stock, a number of shares
of Common Stock equal to ninety percent of the number of shares of Common Stock
so converted, neither Elite nor its Board of Directors will be obligated to
nominate Epic Directors or take any other action with respect to those actions
described in (i), (ii) and/or (iii) above. No Epic Director may be removed from
office for cause unless such removal is directed or approved by (x) a majority
of the independent members of the Board of Directors and (y) all of the
non-affected Epic Director (s). Any vacancies created by the resignation,
removal or death of an Epic Director will be filled by the appointment of an
additional Epic Director. Any Epic Director may be removed from office upon the
request of the Purchaser, with or without cause. At such time as the Purchaser
owns more than 50% of the issued and outstanding Common Stock or other voting
securities of Elite, the number of Epic Directors that the Purchaser will be
entitled to designate under the Epic Strategic Alliance Agreement will be equal
to a majority of the Board of Directors.




The
Series E Certificate provides that on any matter presented to the holders of our
Common Stock for their action or consideration at any meeting of our
stockholders (or by written consent of stockholders in lieu of meeting), Epic,
as a holder of Series E Preferred Stock, will be entitled to cast the number of
votes equal to the number of shares of Common Stock into which the shares of
Series E Preferred Stock held by Epic are convertible as of the record date for
determining the stockholders entitled to vote on such matter. Except as provided
by law or by the other provisions of the Series E Certificate, Epic will vote
together with the holders of Common Stock, as a single class.




In
addition, pursuant to the Epic Strategic Alliance Agreement and the Series E
Certificate, Elite has agreed that, between the date of the initial closing
under the Epic Strategic Alliance Agreement and the date which is the earlier of
(x) the date the Epic Directors constitute a majority of the Board of Directors
and (y) ninety days following the fifth anniversary of the Initial Closing Date,
except as Epic otherwise agrees in writing, Elite may conduct its operations
only in the ordinary and usual course of business consistent with past
practice.   Further, pursuant to the Epic Strategic Alliance
Agreement and the Series E Certificate, Elite must obtain the prior written
consent of Epic in order to take the actions specifically enumerated
therein.




For
information regarding composition of the Board and voting rights in connection
with the Epic Strategic Alliance Agreement, refer to the “Risk Factors” under
Item 1A, of this Annual Report on Form 10-K and our Current Reports on Form 8-K,
filed with the SEC on March 23, 2009, May 6, 2009 and June 5, 2009, which are
incorporated herein by reference.




F -
36


Preferred Stock Derivative
Liabilities




The
portion of derivative liabilities related to the Series B, Series C, Series D
and Series E preferred shares was valued at the market value of the underlying
common shares, into which the preferred shares may be converted.  Such
valuations as of the beginning and end of the period are summarized as
follows:





PREFERRED
STOCK DERIVATIVE LIABILITY AS OF APRIL 1, 2009


Series B
                  
                  
                  Series C
                  
                  
                  Series D
                  
                  
                  Series E
                  
                  
                  TotalPreferred
      shares Outstanding
                  
                  
                  1,046
                  
                  
                  
                  13,705
                  
                  
                  
                  9,154
                  
                  
                  
                  —
                  
                  
                  
                  23,905Underlying
      common shares into which Preferred may convert
                  
                  
                  670,230
                  
                  
                  
                  8,512,422
                  
                  
                  
                  45,772,205
                  
                  
                  
                  —
                  
                  
                  
                  54,954,857Closing
      price on valuation date
                  
                  $
                  0.13
                  
                  
                  $
                  0.13
                  
                  
                  $
                  0.13
                  
                  
                  $
                  0.13
                  
                  
                  $
                  0.13Preferred
      stock derivative liability at April 1, 2009
                  
                  $
                  87,130
                  
                  
                  $
                  1,106,615
                  
                  
                  $
                  5,950,386
                  
                  
                  $
                  —
                  
                  
                  $
                  7,144,131





As of
April 1, 2009, the total preferred stock derivative liability was
$7,144,131.  This amount represents the cumulative effect of the
change in accounting principal for all periods prior to April 1, 2009 and in
accordance with generally accepted accounting principles, is recognized as an
adjustment in the opening accumulated deficit balance.





PREFERRED
STOCK DERIVATIVE LIABILITY AS OF MARCH 31, 2010


Series B
                          
                          
                          Series C
                          
                          
                          Series D
                          
                          
                          Series E
                          
                          
                          TotalPreferred
      shares Outstanding
                          
                          
                          896
                          
                          
                          
                          5,418
                          
                          
                          
                          9,008
                          
                          
                          
                          2,000
                          
                          
                          
                          17,322Underlying
      common shares into which Preferred may convert
                          
                          
                          574,076
                          
                          
                          
                          3,365,217
                          
                          
                          
                          45,042,205
                          
                          
                          
                          44,256,006
                          
                          
                          
                          93,237,504Closing
      price on valuation date
                          
                          $
                          0.085
                          
                          
                          $
                          0.085
                          
                          
                          $
                          0.085
                          
                          
                          $
                          0.085
                          
                          
                          $
                          0.085Preferred
      stock derivative liability at March 31, 2010
                          
                          $
                          48,796
                          
                          
                          $
                          286,043
                          
                          
                          $
                          3,828,587
                          
                          
                          $
                          3,761,761
                          
                          
                          $
                          7,925,188Series
      E liability at issue date (related to beneficial conversion
      option)
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          512,912
                          
                          
                          
                          512,912Change
      in preferred stock derivative liability for the year ended March 31,
      2010
                          
                          $
                          (38,333
                          )
                          
                          $
                          (820,571
                          )
                          
                          $
                          (2,106,171
                          )
                          
                          $
                          3,248,995
                          
                          
                          $
                          283,920





The
change of $283,920 in value of the preferred stock derivative liability
occurring during the year ended March 31, 2010, is included in the amount
reported in the “Other Income / (Expense)” section of the statement of
operations.  Increases in value are reported as other expenses and
decreases in value are reported as other income.


F -
37





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 $0.625 to $3.74 per warrant. The warrants
expire at various times through October 13, 2016.




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





2010
                    
                    
                    2009Warrant Shares
                    
                    
                    WeightedAverage
                      ExercisePrice
                    
                    
                    Warrant
                      Shares
                    
                    
                    Weighted Average
                      Exercise PriceBalance
      at beginning of year
                    
                    
                    39,667,853
                    
                    
                    $
                    0.63
                    
                    
                    
                    9,281,391
                    
                    
                    $
                    2.64Warrants
      issued
                    
                    
                    80,000,000
                    
                    
                    $
                    0.06
                    
                    
                    
                    —
                    
                    
                    
                    —Warrants
      issued pursuant to placement agent agreements
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    355,400
                    
                    
                    
                    0.25Warrants
      issued pursuant to private placement
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    17,770,000
                    
                    
                    
                    0.25Exchange
      warrants issued
                    
                    
                    5,806,887
                    
                    
                    $
                    0.25
                    
                    
                    
                    12,261,062
                    
                    
                    
                    0.33Warrants
      exercised, forfeited or expired
                    
                    
                    175,000
                    
                    
                    $
                    2.82
                    
                    
                    
                    —
                    
                    
                    
                    —Ending
      Balance
                    
                    
                    125,299,740
                    
                    
                    $
                    0.25
                    
                    
                    
                    39,667,853
                    
                    
                    $
                    0.63





Warrant Derivative
Liabilities


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





March 31
                    2010
                  
                  
                  March 31
                    2009Risk-Free
      interest rate
                  
                  
                  2.44%
      – 3.28
                  %
                  
                  
                  2.440
                  %Expected
      volatility
                  
                  
                  126%
      - 214
                  %
                  
                  
                  118%
      - 321
                  %Expected
      life (in years)
                  
                  
                  0.5
      – 6.6
                  
                  
                  
                  0.2
      – 5.3Expected
      dividend yield
                  
                  
                  —
                  
                  
                  
                  —Number
      of warrants
                  
                  
                  125,299,740
                  
                  
                  
                  39,667,853Fair
      value – Warrant Derivative Liability
                  
                  $
                  8,499,423
                  
                  
                  $
                  3,220,204


F -
38





Year Ended
                              March 31 2010Initial
      derivative warrant value for those warrants existing at the beginning of
      the fiscal year
                            
                            
                            3,220,204Cumulative
      initial value of warrants issued during the fiscal year
                            
                            
                            1,487,089Year-to-Date
      Change in Warrant Derivative Liability
                            
                            
                            3,792,130Fair
      Value – Warrant Derivative Liability
                            
                            $
                            8,499,423





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





The
warrant derivative liability as of April 1, 2009 was $3,220,204.  This
amount represents the cumulative effect of the change in accounting principal
for all periods prior to April 1, 2009 and as per the requirements of EITF 07-5,
is recognized as an adjustment in the opening accumulated deficit
balance.





The
increase of   $3,792,130 in value of the warrant derivative
liability occurring during the year ended March 31, 2010,   is
reported in the “Other Income (Expenses)” section of the statement of
operations.




F -
39





Beneficial Conversion
Features of Series E Preferred Shares


The
Series E Preferred shares include an option, exercisable from the issuance date,
to convert to common shares at a price of $0.05 per share.  The share
price on the date of issuance was $0.09 and $0.08 for the issuances of Series E
Preferred shares at the first and second closings of the Epic Strategic Alliance
Agreement (the “First and Second Closings”), respectively.  The
differences of $0.04 and $.03 between the share price and option price
represents a beneficial conversion feature existing on the issue
date.





In
accordance with EITF 98-5, the beneficial conversion feature was valued
separately and allocated to additional paid in capital.  The
beneficial conversion feature was valued at $258,700 and $254,212, for the First
and Second closings, respectively,  calculated using the relative fair
value method, as required by FAS 14, allocating the proceeds of $1 million from
each issuance of the Series E Preferred shares to the conversion option and
detachable warrants included with such issuance as follows:





First
                        Closing
                        (Jun 2009)
                      
                      
                      Second
                        Closing
                        (Oct 2009)Allocation % attributable to the Preferred shares
      conversion optionProceeds
      from Issuance of Series E Preferred Shares
                      
                      $
                      1,000,000
                      
                      
                      $
                      1,000,000Value
      of warrants issued with Series E Preferred Shares (see below for a
      description of the method of valuation)
                      
                      
                      2,869,361
                      
                      
                      
                      2,931,983Total
      of proceeds plus warrants
                      
                      
                      3,869,361
                      
                      
                      
                      3,931,983Allocation
      % attributable to Preferred Shares conversion option (quotient of the
      proceeds divided by the proceeds plus warrants)
                      
                      
                      25.9
                      %
                      
                      
                      25.4
                      %Amount
      of proceeds attributed to conversion option
                      
                      
                      258,700
                      
                      
                      
                      254,212Gross value of beneficial conversion
      featureShare
      price as of issue date
                      
                      $
                      0.08
                      
                      
                      $
                      .08Conversion
      option price
                      
                      $
                      0.05
                      
                      
                      $
                      .05Beneficial
      conversion feature per share
                      
                      $
                      0.03
                      
                      
                      $
                      .03Number
      of common shares
                      
                      
                      20,000,000
                      
                      
                      
                      20,000,000Gross
      value of beneficial conversion feature
                      
                      $
                      600,000
                      
                      
                      $
                      715,282Beneficial
      conversion option recorded (lesser of the gross value or the amount of
      proceeds attributed to the conversion option)
                      
                      $
                      258,700
                      
                      
                      $
                      254,212





The
warrants issued with the Series E Preferred shares were valued using the Black
Scholes option valuation model, with the following assumptions:





First
                    Closing
                    (June 2009)
                  
                  
                  Second
                    Closing
                    (Oct 2009)Risk-free
      interest rate
                  
                  
                  2.31
                  %
                  
                  
                  2.21
                  %Expected
      volatility
                  
                  
                  115.2
                  %
                  
                  
                  123.30
                  %Expected
      life (in years)
                  
                  
                  7
                  
                  
                  
                  7Number
      of warrants
                  
                  40 million
                  
                  
                  40 millionFair
      value
                  
                  $
                  2,869,361
                  
                  
                  $
                  2,931,983





A
beneficial conversion option is required to be recognized as a discount and
amortized from the date of issuance to the earliest conversion
date.  As the conversion options were exercisable on their issue date,
the full value assigned to the conversion option was charged to interest
expense.




F -
40





Summary of effects of
derivatives on the financial statements





Derivative
                      Liabilities
                    
                    
                    Accumulated
                      Deficit
                      and
                      Paid-in Capital
                    
                    
                    Other Income
                      /
                      (Expense)Cumulative
      effect of change in accounting principle
                      -
      Preferred Stock Derivative Liability
                    
                    $
                    7,144,131
                    
                    
                    $
                    (7,144,131
                    )
                    
                    $
                    —Cumulative
      effect of change in accounting principle
                      -
      Warrant Derivative Liability
                    
                    
                    3,220,204
                    
                    
                    
                    (3,220,204
                    )
                    
                    
                    —Beneficial
      conversion feature of Series E
                    
                    
                    —
                    
                    
                    
                    512,912
                    
                    
                    
                    —Warrants
      issued with Series E
                    
                    
                    1,487,088
                    
                    
                    
                    —
                    
                    
                    
                    —Amortization
      of beneficial conversion of Series E as interest expense
                    
                    
                    512,912
                    
                    
                    
                    —
                    
                    
                    
                    (512,912
                    )Change
      in value of preferred stock derivative liability
                    
                    
                    283,920
                    
                    
                    
                    —
                    
                    
                    
                    (283,920
                    )Change
      in value of warrants derivative liability
                    
                    
                    3,792,130
                    
                    
                    
                    —
                    
                    
                    
                    (3,792,130
                    )Preferred
      stock derivatives converted into common shares
                    
                    
                    (16,199
                    )
                    
                    
                    (16,199
                    )
                    
                    
                    —Net
      Effect of Derivatives
                    
                    
                    16,424,186
                    
                    
                    
                    (9,867,622
                    )
                    
                    
                    (4,588,962
                    )


F -
41


NOTE 16 – TRANSACTIONS WITH RELATED
PARTIES




Transactions with Mark
Gittelman and Gittelman & Co. P.C.(“Gittelman”)




On
February 26, 1998, we entered into an agreement with Gittelman and Co., P.C.,
whereby fees are paid to Gittelman and Co., PC., a firm wholly-owned by Mark I.
Gittelman, our Chief Financial Officer, Secretary and Treasurer until July 1,
2009, in consideration for services rendered by the firm as internal accountant
and financial and management consultant to us.  The firm’s services
included the services rendered by Mr. Gittelman in his capacity as Chief
Financial Officer, Secretary and Treasurer until July 1, 2009.  For
the period April 1, 2009 to June 30, 2010 and the fiscal years ended March 31,
2009 and 2008, the fees paid by us under the agreement were $40,185, $233,181
and $176,206, respectively.  The services rendered by the firm to us
for the period April 1, 2009 to June 30, 2009 and the fiscal years ended March
31, 2009 and 2008 averaged 157, 111 and 105 hours per month, respectively, of
which a monthly average 21 hours for the period April 1, 2009 to June 30, 2009
and 28 hours for the fiscal years ended March 31, 2009 and 2008, respectively,
were services rendered by Mr. Gittelman in his capacity as an officer of
Elite.





On July
15, 2009, we entered into a settlement agreement and release Gittelman and Co.,
P.C., (the “Gittelman
Settlement”) for payment of outstanding invoices totaling $85,531,
representing all invoices issued by Gittelman to us and outstanding as of July
15, 2009.  The Gittelman Settlement requires the Company to pay the
principal sum of $75,000, plus interest accruing on the outstanding balance of
such $75,000 at the rate of 6% per annum, in twelve equal, monthly installments,
beginning on July 20, 2009 and due on the 20th of the
next 11 months thereafter.  The monthly payments, consisting of
principal reduction and interest equal $6,454.98 with all twelve required
payments equal to $77,460, in aggregate.  The Company made all
payments required in the Gittelman Settlement and Gittelman released the Company
from all further claims related to the outstanding invoices as of July 15,
2009.





Gittelman
has not rendered any services to the Company since June 30, 2009 and as of June
23, 2010, no amounts were due to Gittelman.





Transactions with Epic
Pharma LLC and Epic Investments LLC





On March
18, 2009, we entered into the Epic Strategic Alliance Agreement with Epic
Pharma, LLC and Epic Investments, LLC, a subsidiary controlled by Epic Pharma
LLC, as disclosed in this Annual Report Form 10-K under Item 7 of Part II of
this Annual Report on Form 10-K, under the heading “Epic Strategic Alliance
Agreement,” Item 9B and Item 10, under the heading “Directors and Executive
Officers,” and in our Current Reports on Form 8-K, filed with the SEC on March
23, 2009, May 6, 2009 and June 5, 2009, which disclosures are incorporated
herein by reference.   Ashok G. Nigalaye, Jeenarine Narine and
Ram Potti, each were elected as members of our Board of Directors, effective
June 24, 2009, as the three directors that Epic is entitled to designate for
appointment to the Board pursuant to the terms of the Epic Strategic Alliance
Agreement.  Messrs. Nigalaye, Narine and Potti are also officers of
Epic Pharma, LLC, in the following capacities:





§
            Mr.
      Nigalaye, President and CEO of Epic Pharma,
LLC;


§
            Mr.
      Narine, Executive Vice President of Manufacturing and Operations of Epic
      Pharma, LLC; and


§
            Mr.
      Potti, Vice President of Business Development of Epic Pharma,
      LLC.





As part
of the operation of the strategic alliance, the Company identified certain raw
materials used in its operations which were also used by Epic Pharma LLC and for
which Epic Pharma LLC was achieving lower acquisition costs, mainly as a result
of greater purchase volume discounts.  The strategic alliance allowed
the Company to purchase these raw materials from Epic, at the Epic acquisition
cost, without markup.  During the fiscal year ended 3/31/2010, an
aggregate amount of $100,056 in such raw materials was purchased from Epic
Pharma LLC.  All purchases were at Epic Pharma’s acquisition cost,
without markup and evidenced by supporting documents of Epic Pharma LLC’s
acquisition cost.




F -
42