UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
Washington,
                             WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended:       March

(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, 2002       
2004

                                       OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto
Commission File No.

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

                 FOR THE TRANSITION PERIOD FROM ______ TO______

                        COMMISSION FILE NUMBER 333-45241

                           
ELITE PHARMACEUTICALS, INC.
(Name
             (Exact name of small business issuerregistrant as specified in its charter)
Delaware22-3542636
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer Identification No.)
165 Ludlow Avenue, Northvale, New Jersey07647
(Address of principal executive offices)(Zip Code)


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

           165 Ludlow Avenue
         Northvale, New Jersey                             07647

(Address of principal executive offices)                (Zip Code)

Registrant's telephone number:number, including area code:   (201) 750-2646
Securities registered pursuant to Section
12(b) of the Act:
Title of each className of each exchange on which registered
    Common stock                                   Common Stock - $.01 par value
                                             The Common Stock is listed on the
                                                   American Stock Exchange


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

(Title of Class)

(Title of Class)
        Check                                           None

Indicate by check mark whether the issuerRegistrant (1) has filed all reports required
to be filed by Sectionsection 13 or 15(d) of the Securities Exchange Act of 1934 during
the pastpreceding 12 months (or for such shorter period that the registrantRegistrant was required
to file such reports), and (2) has been subject to such filing  requirements  for
at least the past 90 days. Yes |X| No 
|_|

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of
the registrant computed by reference toas of June 3, 2004 was  approximately  $26,137,608 based upon the
closing sale price of that portion of the  registrant's  common equity that is publicly tratedstock on the American Stock Exchange,
as of May 21, 2002 is $37,072,520.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
        The numberJune 3, 2004.  (For purposes of shares outstanding of each of the issuers classes of common equity, as of May 21, 2002 is 9,725,736determining  this amount,  only directors,
executive  officers,  and  10% or  greater  stockholders  and  their  respective
affiliates have been deemed affiliates).

Registrant  had  12,104,423  shares of common stock.
stock,  par value $0.01 per share,
outstanding as of June 1, 2004.

DOCUMENTS INCORPORATED BY REFERENCE
        List here the following

There are no documents if  incorporated  by reference andinto the PartAnnual Report or any
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; (3) any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for information purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).  N/A

report. FORWARD LOOKING STATEMENTS

     This Annual Report includes "forward-looking statements" within THIS ANNUAL REPORT ON FORM 10-K CONTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY RESULTS, TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. WHEN USED IN THIS ANNUAL REPORT, STATEMENTS THAT ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE FOREGOING, THE WORDS "PLAN", "INTEND", "MAY," "WILL," "EXPECT," "BELIEVE", "COULD," "ANTICIPATE," "ESTIMATE," OR "CONTINUE" OR SIMILAR EXPRESSIONS OR OTHER VARIATIONS OR COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. EXCEPT AS REQUIRED BY LAW, THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. TABLE OF CONTENTS Form 10-K Index PART I PAGE Item 1. Business......................................................... 2 Item 2. Properties....................................................... 21 Item 3. Legal Proceedings................................................ 21 Item 4. Submission of Matters to a Vote of Security Holders.............. 22 PART II Item 5. Market for the meaningRegistrant's Common Equity and Related Stockholder Matters................................ 23 Item 6. Selected Financial Data.......................................... 26 Item 7. Management's Discussion and Analysis of Section 27AFinancial Condition and Results of Operations........................ 27 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......................................... 35 Item 8. Financial Statements and Supplementary Data...................... 35 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................... 35 Item 9A. Controls and Procedures.......................................... 35 PART III Item 10. Directors and Executive Officers of the Securities ActRegistrant............... 36 Item 11. Executive Compensation........................................... 40 Item 12. Security Ownership of 1933, as amendedCertain Beneficial Owners and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included or incorporated by reference in this Annual Report which address activities, events or developments which the Company expects or anticipates will or may occur in the future, including such things as the attainment of pharmaceutical development milestones or the receipt of regulatory approval or the entering into of licensing or partnership arrangementsManagement and other similar matters, are forward-looking statements. These statements are basedRelated Stockholder Matters............. 46 Item 13. Certain Relationships and Related Transactions................... 48 Item 14. Principal Accountant Fees and Services........................... 48 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances. However, whether actual results and developments will conform with the Company's expectations and predictions is subject to a number of risks and uncertainties which could cause actual results to differ materially from the Company's expectations, including the risk factors discussed below and elsewhere in this Annual Report and other factors, many of which are beyond the control of the Company. Consequently, all of the forward-looking statements made in this Annual Report are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Company or its business or operations. The Company assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise.

Form 8-K................................................ 49 Signatures ................................................................. 53 1 PART I

ITEM 1. BUSINESS

Elite Pharmaceuticals, Inc. (“EPI”), the registrant, is the sole owner of the Class A common voting stock of ("Elite Laboratories, Inc. (“ELI”Pharmaceuticals"). EPI and ELI may be referred to collectively in this report as “Elite” or “the Company”.

Business Development

     EPI was incorporated inon October 1, 1997 under the laws of the State of Delaware, and our wholly-owned subsidiaries, Elite Laboratories, Inc. ("Elite Labs") and Elite Research, Inc. ("Elite Research") were incorporated on August 23, 1990 and December 20, 2002, respectively, under the laws of the State of Delaware. Elite Pharmaceuticals, Elite Labs and Elite Research are referred to herein, collectively, as "Elite", "we", "us", "our" or the "Company". On October 1, 1997. EPI's24, 1997, Elite Pharmaceuticals merged with and into our predecessor company, Prologica International, Inc. (“Prologica”("Prologica"), was incorporated in an inactive publicly held corporation formed under the laws of the State of Pennsylvania on April 20, 1984. FromPennsylvania. At the same time, of its incorporation, and the completion of its initial public offering in August 1998, until the date of its merger with EPI, Prologica engaged in no business other than searching for suitable acquisitions. Except for ELI, it located no such acquisitions. EPI was incorporated for the purpose of merging with Prologica in order to change the name and state of incorporation

1

of Prologica. EPI survived the merger with Prologica; Prologica ceased to exist at the time of the merger on October 24, 1997. Contemporaneous with the merger of EPI and Prologica, ELI (the business of which is described below)Elite Labs merged with a wholly-owned subsidiary of Prologica. Following these mergers, Elite Pharmaceuticals survived as the parent to its wholly owned subsidiary, Elite Labs. On September 30, 2002, we acquired from Elan Corporation, plc and Elan International Services, Ltd. (together "Elan") Elan's 19.9% interest in Elite Research, Ltd. ("ERL"), a joint venture formed between Elite and Elan in which our initial interest was 80.1% of Prologica, HMF Enterprises, Inc. (“HMF”)the outstanding capital stock (100% of the outstanding common stock). HMF was incorporated on August 1, 1997 for the purpose of providingAs a vehicle into which ELI could merge. ELI and HMF merged on October 30, 1997. ELI survived the merger with HMF and HMF ceased to exist subsequent to the merger. The net result of the two mergers is that Prologicatermination 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. See "Proposed Acquisition" for possible acquisition of Nostrum Pharmaceuticals Inc. The address of our principal executive offices and HMF ceased to exist,our telephone and EPIfacsimile numbers at that time owned one hundred percentaddress are: Elite Pharmaceuticals, Inc., 165 Ludlow Avenue, Northvale, New Jersey 07647; Phone No.: (201) 750-2646; Facsimile No.: (201) 750-2755. We file registration statements, periodic and current reports, proxy statements and other materials with the Securities and Exchange Commission. You may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You may obtain information on the operation of the stock of ELI. Such stock ownership is EPI's sole business. AtPublic Reference Room by calling the present time, EPI has no plans to conduct anySEC at 1-800-SEC-0330. The SEC maintains a web site at www.sec.gov that contains reports, proxy and information statements and other business apart frominformation regarding issuers that file electronically with the ownership of ELI.

     ELI was incorporated in the State of Delaware on August 23, 1990. On October 30, 1997, one hundred percent of the stock of ELI was acquired by EPI via the merger between ELI and HMF. With that exception, no acquisition or disposition of any material assets, nor any material changes in the method of conducting business have incurred since its incorporation.

Business of EPI

     EPI, through its wholly-owned subsidiary ELI,SEC, including our filings. - 2 - BUSINESS OVERVIEW AND STRATEGY Elite engages primarily engages in researching, developing and licensing manufacturing, and marketing proprietary controlled release drug delivery systems and products. ELI's drug delivery technology involves releasing a drug into the bloodstream or delivering itWe are also equipped to a target site in the body over an extended period of time or at predetermined times. Such products are designed to allow drugs to be administered less frequently, with reduced side effects and, in certain circumstances, in reduced dosages. ELI has concentrated on developing orally administered controlled release products. ELI primarily develops controlled release versions of various drugs as depicted in the table below. The products include drugs which provide therapeutic benefits for angina and hypertension, a nonsteroidal analgesic drug, and one which appears to lower blood glucose by stimulating insulin from the pancreas. None of these products have yet been approved by the Food and Drug Administration (“FDA”), and Elite therefore does not yet market any products. ELI is currently developing and testing products which are at different stages of development, as depicted in the table below.

     The following table provides information concerning a majority of themanufacture controlled release products under development by the Company.

2

  Product Brand Brand Annual
Sales
(Millions)		 Indication NDA/
ANDA		 Partner Competition
  
 
 
 
 
 
 
(1) Glucolite CR Glucotrol XL $300+ Diabetes ANDA Under negotiation One filed for 10mg
(2) ELI 2 Undisclosed $120+ Infection ANDA Self None
(3) ELI 3 None $200+
estimated		 Chrono Delivery NDA
For once
a day		 Identified Verelan PM,
Covera HS,
Cardizem XL
(awaiting approval)
(4) ELI 4 Undisclosed $1,500+ CNS NDA
For once
a day		 TBD Brand twice
a day
(5) ELR 5 Undisclosed $900+ Pain NDA
For once
a day		 Elan Brand twice
a day
(6) ERL 6 Undisclosed $700+ CNS NDA or
ANDA
For once
a day		 Elan Brand
(7) EC 7 None N/A Allergy NDA
For once
a day		 Yes None
(8) EC 8 None N/A Allergy/
Decongestant		 NDA
For once
a day		 Yes None
(9) Methylphenidate
(pulse dose)		 Concerta
Ritalin LA		 N/A ADHD NDA Assigned to
Celgene/
Novartis		 Concerta
Ritalin LA
(10) Diclofelite CR
(diclofenac)		 Voltaren XR $100 Arthritis NDA
For once
a day		 TBD Brand
(11) ELI 11 Undisclosed $50+ CNS ANDA TBD No generics
(12) ELI 12 Undisclosed $500+ Infection ANDA TBD No generics
(13) ELI 13 Undisclosed N/A Hypertension
Angina		 NDA
For once
a day		 Identified -
Under
negotiation		 One
(14) ELI 14 Undisclosed N/A Hypertension
Angina		 NDA
For once
a day		 Identified -
Under
negotiation		 None
(15) Diltilite CD
(diltiazem)		 Cardizem CD $765 Hypertension
Angina		 ANDA Self 3 generics
(16) Ketolite CR
(ketoprofen)		 Oruvail $60 Arthritis ANDA Self One
(17) Nifelite CR
(nifedipne)		 Procardia XL
Adalat CC		 $200+ Hypertension
Angina		 NDA
For once a day		 TBD Two generics
Two brands

ELI (X) a indicates an internal product number for a product, the identity of which should not be described for competitive reasons; ERL (x) means product being developed by the joint venture and the identity of which is not described due to competitive reasons; and, EC (X) means products being developed for a partner, the

3

identity of which is not described due to contractual obligations and/or competitive reasons.

CNS means central nervous system disorder, and ADHD means Attention Deficit Hyperactive Disorder.

NDA mean New Drug Application, and ANDA means Abbreviated New Drug Application.

“TBD” means to be determined, and “Identified” means that the identity of the partner is not disclosed due to contractual restraints.

Patents have been issued on products number 9 and number 17. The Company has filed or anticipates filing patent applications on most of the remaining products.

NOTE:     It is the general policy of the Company not to disclose products in its development pipeline or the status of such products until a product reaches an appropriate stage, for competitive reasons, and because the disclosure of such information may cause people to infer the occurrence of future matters or events that may not occur. In this instance, it was believed that disclosure of the information in the foregoing table would be helpful to persons in better understanding the general nature, orientation and activity of the Company, and the disclosures are made for such purpose. No inference should be made as to the occurrence of matters or events not specifically described. The Company may or may not disclose such information in the future based on competitive reasons and/or contractual obligations. Meanwhile, it is believed that the information is helpful on a one-timecontract basis for the purpose described above.

     The following table presents information with respect the development stage of the principalthird parties and for ourselves if, and when, our products under development by the Company. Completion of development of products by the Company depends on a number of factors, and there can be no assurance that specific time frames will be met during the development process or that the development of any particular products will be continued.

Development StageProductsCommentsNDA/ANDA
Formulation Development3In progress
Phase I4Formulation developed Bioavailability studiesFor NDA
Phase II4Phase I completedFor NDA
Pilot Biostudy1Bioequivalence StudyFor ANDA
Pivotal Studies2Under evaluationFor ANDA
Scale Up2GMPNDA and ANDA
NDA Filing1Through third party

GMP means good manufacturing practices per Food and Drug Administration regulations.

4

     Additionally, the NDA filings contemplated by the Company would be under Sections 505 (b)(1) or 505 (b)(2), which does not require certain studies that would otherwise be necessary; accordingly, the development timetable would be shorter.

are approved. Controlled release drug delivery of a pharmaceutical compound offers a safer and more effective means of administering drugs through releasing a drug into the bloodstream or delivering it to a certain site in the body at predetermined rates or predetermined times. ItsThe goal is to provide more effective drug therapy while reducing or eliminating many of the side effects associated with conventional drug therapy and/or to reduce the frequency of administration.

     ELI We have concentrated on developing orally administered controlled release products. These products include drugs that cover therapeutic areas for pain, angina, hypertension, allergy and infection. The Food and Drug Administration (FDA) has not yet approved any of our products and, therefore, currently we do not market any products. Our products are at various stages of development. We are focusing our efforts on the following areas: (i) obtaining FDA approval for one or more of six oral controlled release pharmaceutical products already in development, either directly or through other companies; (ii) commercial exploitation of these products either by license and the collection of royalties, or through the manufacture of tablets and capsules using our formulations, and (iii) development of new products and the expansion of our licensing agreements with other pharmaceutical companies, including contract research and development projects, joint ventures and other collaborations. In an effort to reduce costs and improve focus and enhance efficiency, we reduced the number of products that we are actively developing from fifteen to six. The six products that continue in development were deemed by us to be the most suitable for continued development given our limited resources. We are focusing on the development of both branded drug products (which require new drug applications ("NDA")) and generic drug products (which require abbreviated new drug applications ("ANDA")). We intend to continue to collaborate in the development of products with our current partners. We also plan to seek additional collaborations to develop more products. We believe that our business strategy enables us to reduce our risk by o having a diverse product portfolio that includes both branded and generic products in various therapeutic categories; and - 3 - o building collaborations and establishing licensing agreements with companies with greater resources thereby allowing us to share costs of development and to improve cash-flow. PROPOSED ACQUISITION Our Board of Directors authorized in August 2003 the negotiation of an agreement to acquire Nostrum Pharmaceuticals Inc., a privately held corporation engaged in the development of drug delivery products and systems ("Nostrum"), by means of a merger with our wholly-owned subsidiary. If the merger is effected on the terms as initially proposed, the outstanding shares of Nostrum will be converted into (i) shares of our Common Stock which will represent in the aggregate 75% of the shares of our Common Stock to be outstanding immediately after such merger and (ii) options to purchase a substantial number of additional shares of our Common Stock exercisable upon satisfaction of certain conditions. No assurance can be given that the merger will be consummated or if consummated will be effected on materially the same terms. If an agreement is executed, it is to contain several conditions to the consummation of the merger, including approval by our stockholders and that the Company will have immediately prior to effectiveness of the merger liquid assets of at least $8,000,000. No assurance can be given that the Agreement will be executed or if executed that the foregoing terms will not be materially changed adversely to the Company or that it will be approved by the Company's stockholders. Nostrum is a specialty pharmaceutical company engaged in the formulation and commercialization of controlled-release orally-administered generic drugs utilizing Nostrum's proprietary drug delivery technologies. RESEARCH AND DEVELOPMENT During each of the last three fiscal years, we have focused on research and development activities. We spent approximately $1,475,487$ 2,075,074 in the fiscal year ended March 31, 2001,2004, $2,013,579 in the fiscal year ended March 31, 2003 and $1,609,108 in the fiscal year ended March 31, 2002 on research and development activities.

     The It is our general policy not to disclose products in our development pipeline or the status of such products until a product reaches a stage that we determine, for competitive reasons, in our discretion, to be appropriate for disclosure and because the disclosure of such information might suggest the occurrence of future matters or events that may not occur. In this instance, we believe that disclosure of the information in the following table is helpful for the description of the general nature, orientation and activity of the Company, has acquired pharmaceutical manufacturing equipment withand the intentiondisclosures are made for such purpose. No inference should be made as to the occurrence of eventually manufacturing products developed by ELI as well as manufacturing productsmatters or events not specifically described. We may or may not disclose such information in the future based on competitive reasons and/or - 4 - contractual obligations. We believe that the information is helpful on a contract basis.one-time basis for the purpose described above. The Companyfollowing table provides information concerning the controlled release products that we are developing and to which we are devoting substantial resources and attention. None of these products has registered its facilities withbeen approved by the FDA and all are in development ("N/A" means not applicable because there is no branded product on the market).
- -------------------------------------------------------------------------------------------------------------------- PRODUCT BRANDED PRODUCT(A) APPROX. U.S. APPROX. NDA/ INDICATION BRAND SALES GROWTH ANDA (2003) $MM(B) (%)(C) - -------------------------------------------------------------------------------------------------------------------- 1 Oxycodone CR OxyContin(R) $1,800+ 10% NDA Pain Once a day twice a day - -------------------------------------------------------------------------------------------------------------------- 2 Abuse Resistance N/A N/A N/A NDA Pain Product for use with Oxycodone (or other opioids) - -------------------------------------------------------------------------------------------------------------------- 3 Diltiazem Cardizem CD(R) $80+ -30% ANDA Cardiovascular Once a day - -------------------------------------------------------------------------------------------------------------------- 4 Undisclosed product N/A N/A N/A Undisclosed Allergy with a partner - -------------------------------------------------------------------------------------------------------------------- 5 Undisclosed product with N/A N/A N/A Undisclosed Allergy partner - -------------------------------------------------------------------------------------------------------------------- 6 Undisclosed Undisclosed $150+ 10% ANDA Infection Twice a day - --------------------------------------------------------------------------------------------------------------------
(a) The name of our competitor's branded product. (b) Indicates the approximate amount of sales of our competitor's product and not the sales of any of our products. (c) Indicates the approximate historical growth rate of sales of our competitor's product and not the growth rate of sales of any of our products. The following table presents information with respect to the development stage of our principal products under development. We intend to make NDA filings under Sections 505(b)(1) or 505(b)(2) of the Drug Enforcement Agency (DEA)Price Competition and Patent Term Restoration Act of 1984 (the "Drug Price Act").

Accordingly, we anticipate that the development timetable for the products for which such NDA filings are made would be shorter and less expensive. Completion of development of products by us depends on - 5 - a number of factors, however, and there can be no assurance that specific time frames will be met during the development process or that the development of any particular products will be continued. In the table below, preclinical testing refers to studies done before initiation of any human studies. Pilot Phase I studies for the NDA products are generally preliminary studies done in healthy human subjects to assess the tolerance/safety and pharmacokinetics of the product. Additional larger studies in humans will be required prior to submission of this product to the FDA for review. Pilot bioequivalence studies are initial studies done in humans for generic products and are used to assess the likelihood of achieving bioequivalence for generic products. Larger pivotal bioequivalence studies will be required prior to submission of the product to the FDA for review. Our prelaunch activity indicates that the final activities are being conducted prior to the product launch. - ------------------------------------------------------------------------- DEVELOPMENT STAGE NUMBER OF PRODUCTS NDA/ANDA - ------------------------------------------------------------------------- Preclinical 1 -- - ------------------------------------------------------------------------- Preclinical 1 Undisclosed - ------------------------------------------------------------------------- Pilot Phase I study 1 NDA - ------------------------------------------------------------------------- Pilot bioequivalence study 2 ANDA - ------------------------------------------------------------------------- Prelaunch 1 Undisclosed - ------------------------------------------------------------------------- MANUFACTURING AND DEVELOPMENT CONTRACTS In September 1999 Elite entered into an agreement with an undisclosed partner to co-develop a chrono diltiazem product. A pilot pharmacokinetic study has been conducted and we and our partner are seeking a license for the product prior to performing further clinical studies. In June 2001, we entered into two development contracts with an undisclosed company pursuant to which it agreed to develop two products in exchange for development fees, certain payments, royalties and manufacturing rights. We have manufactured validation batches for one of the products and are awaiting its launch. The payments under both agreements for the year ended March 31, 2004 were not material. In May 2004 we entered into an agreement with Purdue Pharma LP granting Purdue the exclusive right to evaluate certain of our abuse resistance technology and an exclusive option to negotiate a license to develop and commercialize oxycodone products under the technology. JOINT VENTURE WITH ELAN In October 2000, the Companywe entered into a Joint Development and Operating Agreementjoint venture with Elan Corporation, plc and Elan International Services, Ltd. (together “Elan”) to develop products using drug delivery technologies and expertise of both companies. This joint venture, Elite Research, Ltd. (“ERL”), a Bermuda corporation, is- 6 - ERL, was initially owned 80.1% by the Companyus and 19.9% by Elan. ERL will fundfunded its research through capital contributions from its partners based on the partners' respective ownership percentage. ERL will subcontract research and development projectsOn September 30, 2002, we entered into an agreement with Elan to the Company, Elan and others. The first product developed by ELI forterminate the joint venture has successfully(the "Termination Agreement"). Pursuant to the Termination Agreement, we terminated the joint venture and acquired from Elan its entire interest in ERL. As a result of the Termination Agreement, the joint venture terminated and we owned 100 percent of ERL's capital stock. On December 31, 2002, ERL was merged into a new Delaware corporation, Elite Research, our wholly owned subsidiary. Under the Termination Agreement, we acquired all proprietary, development and commercial rights for the worldwide markets for the products developed by the joint venture. In exchange for this assignment, we agreed to pay Elan a royalty on certain revenues that may be realized in the future from the once-a-day Oxycodone product that was in development by the joint venture, if and when FDA approval is obtained. In the future, we will be solely responsible for funding product development, which funding we anticipate will be derived from internal resources or through loans or investment by third parties. The joint venture had completed the initial Phase I testing.study for its first product, the once-a-day Oxycodone formulation. Currently there is no once-a-day formulation for this compound. The partiesjoint venture had also performed work on a second, related product in the central nervous system therapeutic area. Initial formulation work on a third product combining Oxycodone with a narcotic antagonist has been performed. We have commencedthe exclusive rights to the proprietary, development activities with regardand commercial exploitation for the worldwide markets for these two products developed by ERL. We will not have to two otherpay Elan royalties on revenues that may be realized from these products. As a part ofUnder the transaction,joint venture, Elan was issued 12,015had received 409,165 shares of class A preferred stock of ELI and 454,000our common stock; warrants exercisable at $18.00 per share for 100,000 shares of classour common stock; and Series A and Series B preferred stock of ELI. Both classesElite Labs, which were convertible into 764,221 shares and 52,089 shares, respectively, of ELIour common stock. Under the Termination Agreement, Elan and its transferees retained the securities, and the shares of Series A and Series B preferred stock issued towere converted into our common stock under the preexisting terms for conversion. We did not pay, nor did Elan are non-voting except onreceive, any cash consideration under the following issues: (a) amendment of certificate of incorporation in a manner that would adversely affect the rightsTermination Agreement. PATENTS We have secured five United States patents and have pending applications for five United States patents and seven foreign patents. Two of the shareholders holding the class of stock or (b) any change in the rights of the class of stock.

Competition

     ELI competes in two related but distinct markets: It performs contract research and development work regarding controlled-release drug technology for other pharmaceutical companies, and it seeks to develop and market (either on its own or by licensure to other companies) proprietary controlled-release pharmaceutical products. In both arenas, Elite's competition consists of those companies which are perceived to be able to develop controlled-release drugs.

     In recent years, an increasing number of pharmaceutical companies have become interested in the development and commercialization of products incorporating

5

advanced or novel drug delivery systems. The Company expects 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 the Company in commercializing pharmaceutical products. A comparatively small number of companies have a track record of success in developing controlled-release drugs. Significant among these are Alza Corporation, Andrx, Elan Corporation, Biovail Corporation, Ethypharm, Eurand, Faulding, Impax, KV Pharmaceutical, Penwest and Skyepharma. Each of these companies have 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 the Company. While the Company's product development capabilities and patent protection may help the Company to maintain its 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 the Company's patents if any, or that even if patent protection is obtained, such patents will not be successfully challenged in the future. In addition, it must be noted that almost all of the Company's competitors have vastly greater resources than the Company.

Patents, Trademarks, etc.

     ELI has received Notices of Allowance from the U.S. Patent and Trademark Office granting trademark protection for the following trademarks: Albulite CR, Nifelite CR, Diltilite CD, Ketolite CR, Verelite CR and Glucolite CR.

     On February 16, 1999, Dr. Atul Mehta was awarded a patent on a controlled-release formulation of nifedipine (U.S. Patent No. 5,871,776). The United States market for controlled-release nifedipine is approximately one billion dollars. On May 11, 1999, Dr. Mehta was awarded a patent for method of preparation of controlled release nefedipine formulations (U.S. Patent No. 5,902,632). The Company is the beneficial owner of these patents, and theseissued patents have been transferred by Dr. Mehtaassigned for a fee to the Company. On November 18, 1998, Dr. Mehta with two co-inventors was awarded a patentColgene Corporation for the pulsed-releasepulsed release delivery system for methylphenidate (U.S. Patent No. 5,837,284). This latter patent was assigned to Celgene Corporation. This patent has subsequently been licensed by Celgene Corporation to Novartis. The Company owns certain manufacturing rights forof methylphenidate. The Company licensed from Celgene Corporation rights for the pulsed-release technology with regardpending patent applications relate to all non-methylphenidate drugs.

     The Company has filedfour different control release pharmaceutical products on which we are working. Included among these patent - 7 - applications are applications for two U.S. patents relating to formulations designed for chrono delivery and formulations for delayed and sustained release of drugs.

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     The Company intends In addition, an application for a U.S. patent for a narcotic antagonist product that we are developing to be used with Oxycodone and other narcotics to minimize the abuse potential for the narcotics was filed. We intend to apply for patents for other products in the future; however, there can be no assurance that theseany of the pending applications or any future patentsother application which we may file will be granted. The Company believes that future patent protection of its technologies and processes and of its products may be important to its operations. The success of the Company's products may depend, in part, upon the Company's ability to obtain strong patent protection. There can be no assurance, however, that these patents, if issued, or any additional patents will prevent other companies from developing similar or functionally equivalent dosage forms of products. Furthermore, there can be no assurance that (i) any additional patents will be issued to the Company in any or all appropriate jurisdictions, (ii) the Company's patents will not be successfully challenged in the future, (iii) the Company's processes or products do not infringe upon the patents of third parties or (iv) the scope and validity of the Company's patents will prevent third parties from developing similar products. Although a patent has a statutory presumption of validity in the United States, there can be no assurance that patents issued covering the Company's technologies will not be infringed or successfully avoided through design innovation or by the challenge of that presumption of validity. Finally, there can be no assurance that products utilizing the Company's technologies, if and when issued, will not infringe patents or other rights of third parties. It is also possible that third parties will obtain patents or other proprietary rights that might be necessary or useful to the Company. In cases where third parties are first to invent a particular product or technology, it is possible that those parties will obtain patents that will be sufficiently broad so as to prevent the Company from using such technology or from marketing such products.

     Patents and other proprietary rights are important to the Company's business. It is the Company's policy to seek patent protection for its inventions, and also to rely upon trade secrets, know-how, continuing technological innovations, and licensing opportunities to develop and maintain its competitive position. In addition, the Company consistently enters into confidentiality agreements with its employees and business partners.

Prior to the enactment in the United States of new laws adopting certain changes mandated by the General Agreement on Tariffs and Trade ("GATT")(GATT), the exclusive rights afforded by a U.S. Patent were for a period of 17 years measured from the date of grant. Under these new laws, the term of any U.S. Patent granted on an application filed subsequent to June 8, 1995, would terminateterminates 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 and Patent Term Restoration Act, of 1984, a U.S. Product patent or use patent may be extended for up to five years under certain circumstances to compensate the patent holder for the time required for FDA regulatory review of the product. The benefits of this act are available only to the first approved use of the active ingredient in the drug product and may be applied only to one patent

per drug product. There can be no assurance that the Companywe will be able to take advantage of this law.

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     The Company's success will depend, in part, on its ability to obtain and enforce patents, protect trade secrets, obtain licenses to technology owned by third parties when necessary, and conduct its business without infringing the proprietary rights of others. The patent positions of pharmaceutical and biotechnology firms, including the Company, can be uncertain and involve complex legal and factual questions. In addition, the coverage sought in a patent application can be significantly reduced before the patent is issued.

     Consequently, the Company does not know whether any of its pending applications will result in the issuance of patents or, if any patents are issued, whether they will provide significant proprietary protection or commercial advantage, or will be circumvented by others. Since patent applications in the United States are maintained in secrecy until patents issue, and since publication of discoveries in the scientific or patent literature often lag behind actual discoveries, the Company cannot be certain that it was the first to make the inventions covered by each of its pending patent applications, or that it was the first to file patent applications for such inventions. In the event a third party has also filed a patent for any of its inventions, the Company may have to participate in interference proceedings declared by the United States Patent and Trademark Office to determine priority of invention, which could result in the loss of any opportunity to secure patent protection for the invention and the loss of any right to use the invention, and even if the eventual outcome is favorable to the Company, such interference proceedings could result in substantial cost to the Company. Protection of patent applications and litigation to establish the validity and scope of patents, to assert patent infringement claims against others and to defend against patent infringement claims by others can be expensive and time-consuming. There can be no assurance that in the event that any claims with respect to any of the Company's patents, if issued, are challenged by one or more third parties, that any court or patent authority ruling on such challenge will determine that such patent claims are valid and enforceable. An adverse outcome in such litigation could cause the Company to lose exclusivity relating to such patent claims. If a third party is found to have rights covering products or processes used by the Company, then the Company could be forced to cease using the technologies covered by the disputed rights, could be subject to significant liabilities to such third party, and could be required to license technologies from such third party.

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 the Companyus 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 the Company'sour patents are determined to be valid, enforceable, and broad in scope, there can be no

8

assurance that competitors will not be able to design around such patents and compete with the Companyus using the resulting alternative technology.

     The Company We also reliesrely upon unpatented proprietary and trade secret technology that it seekswe seek to protect, in part, by confidentiality agreements with itsour 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 the Company wouldwe will have adequate remedies for any such breach, or that the Company'sour 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 the Company,us, others have not and will not obtain access to the Company'sour proprietary technology.

Government Regulation - 8 - TRADEMARKS We have received Notices of Allowance from the U.S. Patent and Approval

Trademark Office granting trademark protection for the following trademarks: Albulite CR, Nifelite CR, Diltilite CD, Ketolite CR, Verelite CR and Glucolite CR. However, since we currently plan to license our products to marketing partners and not to sell under our brand name, we do not currently intend to register or maintain any trademarks. GOVERNMENT REGULATION AND APPROVAL The design, development and marketing of pharmaceutical compounds, on which the Company'sour success depends, are intensely regulated by governmental regulatory agencies, including the Food and Drug Administration (the “FDA”).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 Government to enter into supply contracts orFDA to approve abbreviated new drug applications (“ANDAs”)ANDAs and new drug applications (“NDAs”).NDAs. The FDA also has the authority to withdraw approval of drugs in accordance with statutory due process procedures.

Before a drug may be marketed, it must be approved by the FDA. The FDA approval procedure for an ANDA relies on bio-equivalencybioequivalency tests which compare the applicant's drug with an already approved reference drug, rather than with clinical studies. Because ELI haswe concentrated, during theour first few years of its business operations, on developing products which are intended to be bio-equivalentbioequivalent to existing controlled-release formulations, the Company expectswe expect that such drug products will require ANDA filings.

filings and not clinical efficacy and safety studies, which are generally more expensive and time-consuming. The FDA approval procedure for an NDA is generally a two-step process. During the Initial Product Development stage, an investigational new drug (“IND”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 (Phase I) clinical testing in healthy subjects.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, the questions must be answered to the satisfaction of the FDA before initial clinical testing can begin. In some instances this process could result in substantial delay and expense. These initial clinical studies generally constitute Phase I studiesof the NDA process and are intendedconducted to demonstrate the functional characteristicsproduct tolerance/safety and safety of a product.

9

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 documentapplication and must include the results of extensive clinical and other testing, the cost of which is substantial. However, the NDA filings contemplated by the Companyus on already marketed drugs would be made under Sections 505 (b)(1) or 505 (b)(2), of the Drug Price Act, which do - 9 - not require certain studies that would otherwise be necessary; accordingly, the development timetable would be shorter. While the FDA is required to review applications within 180 days of their filing,a certain timeframe in the review process, of reviewing applications, the FDA frequently requests that additional information be submitted and starts the 180-day regulatory review period anew when the requested additional information is 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 all Companyour 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. The time to obtain FDA approval may range from approximately 12 to 24 months.

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. All marketing in territories other than the United States shallwill be conducted 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.

All facilities and manufacturing techniques used for the manufacture of products for clinical use or for sale must be operated in conformity with Good Manufacturing Practice (“GMP”("GMP") regulations issued by the FDA. In the event the Company shall engageengages in manufacturing on a commercial basis for distribution of products, it will be required to operate its facilities in accordance with GMP regulations. If the Company shallwe hire another company to perform contract manufacturing for it, itus, we must take steps to ensure that itsour contractor's facilities conform to GMP regulations.

Under the Generic Drug Enforcement Act, ANDA applicants (including officers, directors and employees) who are convicted of a crime involving dishonest or fraudulent activity (even outside the FDA regulatory context) are subject to debarment. Debarment is disqualification from submitting or participating in the submission of future ANDAs for a period of years or permanently. The Generic Drug Enforcement Act also authorizes the FDA to refuse to accept ANDAs from any company which employs or

10

uses the services of a debarred individual. The Company doesWe do not believe that it receiveswe receive any services from any debarred person.

     The Company is governed by We are also subject to federal, state, and local laws of general applicability, such as laws relating to working conditions and environmental protection. The Company estimates that it spends approximately $3,000.00 per year in order to comply with applicable environmental laws. The Company isconditions. We are also licensed by, registered with, and subject to periodic inspection and regulation by the DEA and New Jersey state agencies, pursuant to federal and state legislation relating to drugs and narcotics. Certain drugs that the Companywe may develop in the future may be subject to regulationregulations under the Controlled Substances Act and related Statutes.statutes. At such time as the Company beginswe begin manufacturing products, itwe may become subject to the Prescription Drug Marketing Act, which regulates wholesale distributors of prescription drugs.

Sources - 10 - COMPLIANCE WITH ENVIRONMENTAL LAWS We are subject to comprehensive federal, state and Availabilitylocal environmental laws and regulations that govern, among other things, air polluting emissions, waste water discharges, solid and hazardous waste disposal, and the remediation of Raw Materials

     Thecontamination associated with current or past generation handling and disposal activities, including the past practices of corporations as to which we are the successor. We do not expect that compliance with such environmental laws will have a material effect on our capital expenditures, earnings or competitive position in the foreseeable future. There can be no assurance, however, that future changes in environmental laws or regulations, administrative actions or enforcement actions, or remediation obligations arising under environmental laws will not have a material adverse effect on our capital expenditures, earnings or competitive position. COMPETITION We compete in two related but distinct areas: we perform contract research and development work regarding controlled-release drug technology for other pharmaceutical companies, and we seek to develop and market (either on our own or by license to other companies) proprietary controlled-release pharmaceutical products. In both areas, our competition consists of those companies which develop controlled-release drugs and alternative drug delivery systems. In recent years, an increasing number of pharmaceutical companies have become interested in the development and commercialization of products incorporating advanced or novel drug delivery systems. We expect that competition in the field of drug delivery will significantly increase in the future since smaller specialized research and development companies are beginning to concentrate on this aspect of the business. Some of the major pharmaceutical companies have invested and are continuing to invest significant resources in the development of their own drug delivery systems and technologies and some have invested funds in such specialized drug delivery companies. Many of these companies have greater financial and other resources as well as more experience than we do in commercializing pharmaceutical products. Certain companies have a track record of success in developing controlled-release drugs. Significant among these are Alpharma, Inc., Andrx Corporation, Elan Corporation Plc, Biovail Corporation, Ethypharm S.A., Eurand, Impax Laboratories, Inc., K-V Pharmaceutical Company, Penwest Pharmaceuticals Company and Skyepharma Plc. 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 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 yetbe successfully challenged in the future. - 11 - SOURCES AND AVAILABILITY OF RAW MATERIALS; MANUFACTURING We are not currently in the manufacturing phase of any product and therefore doeswe do not have a requirement forrequire significant amounts of raw materials. ItWe currently obtains what limitedobtain the raw materials it needsthat we need from over twenty suppliers.

Dependence We have acquired pharmaceutical manufacturing equipment with the intention of manufacturing products that we develop and, on One or a Few Major Customers

contract basis, products developed by other pharmaceutical companies. In anticipation of this manufacturing, we have registered our facilities with the FDA and the Drug Enforcement Agency (DEA). DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS Each year the Company haswe have had some customers whichthat have accounted for a large percentage of itsour sales. It isIf our contracts with these customers terminate or expire, we will lose 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 intentiontime that any of the Company to expand its business to service a greater number of customers at one time.

Employees

   ��our current contracts expire, have other contracts in place generating similar revenue. EMPLOYEES As of May 22, 2002, the CompanyJune 25, 2004, we had fourteen15 full-time employees and twothree part-time employees. Both full-time and part-time employees are engaged in administration, research and development. The Company believes its employee relations to be satisfactory. ItNone of our employees is not a party to any labor agreements and none of its employees are represented by a labor union.

Researchunion and Development Activities

     Duringwe 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. RISK FACTORS In addition to the other information contained in this report, the following risk factors should be considered carefully in evaluating an investment in Elite and in analyzing our forward-looking statements. OUR CONTINUING LOSSES ENDANGER OUR VIABILITY AS A GOING-CONCERN AND HAVE CAUSED OUR AUDITORS TO ISSUE A "GOING CONCERN" ANNUAL AUDIT REPORT. We reported net losses of $6,514,217, $4,061,422, $1,774,527 and $13,964,981 for the fiscal years ended March 31, 2004, 2003, 2002 and 2001, respectively. At March 31, 2004, we had an accumulated deficit of approximately $35.1 million, consolidated assets of approximately $7.9 million, stockholders' equity of approximately - 12 - $4.0 million, and working capital of approximately $1.3 million. Our products are in the development and early deployment stage and have not generated any significant revenue to date. Our independent auditors have issued a "going concern" audit report for our financial statements for each of the lastfiscal years ended March 31, 2004 and March 31, 2003. WE HAVE A RELATIVELY LIMITED OPERATING HISTORY, WHICH MAKES IT DIFFICULT TO EVALUATE OUR FUTURE PROSPECTS. Although we have been in operation since 1990, we have a relatively short operating history and limited financial data upon which you may evaluate our business and prospects. In addition, our business model is likely to continue to evolve as we attempt to expand our product offerings and enter new markets. As a result, our potential for future profitability must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies that are attempting to move into new markets and continuing to innovate with new and unproven technologies. Some of these risks relate to our potential inability to: o develop new products; o obtain regulatory approval of our products; o manage our growth, control expenditures and align costs with revenues; o attract, retain and motivate qualified personnel; and o respond to competitive developments. If we do not effectively address the risks we face, our business model may become unworkable and we may not achieve or sustain profitability or successfully develop any products. WE HAVE NOT BEEN PROFITABLE AND EXPECT FUTURE LOSSES. To date, we have not been profitable, and since our inception in 1990, we have not generated any significant revenues. We may never be profitable or, if we become profitable, we may be unable to sustain profitability. We have sustained losses in each year since our incorporation in 1990. We incurred net losses of $6,514,217, $4,061,422, $1,774,527 and $13,964,981 for the years ended March 31, 2004, 2003, 2002 and 2001, respectively. We expect to realize significant losses for the current year of operation. We expect to continue to incur losses until we are able to generate sufficient revenues to support our operations and offset operating costs. - 13 - OUR FOUNDER AND FORMER PRESIDENT AND CHIEF EXECUTIVE OFFICER RESIGNED IN JUNE 2003 ALL OF HIS POSITIONS WITH ELITE, WHICH MAY HAVE A MATERIAL ADVERSE EFFECT ON US. On June 3, 2003, Dr. Atul M. Mehta, our founder and former President and Chief Executive Officer resigned from all of his positions with Elite. In the past, we have been reliant on Dr. Mehta's scientific expertise in developing our products. There can be no assurance that we will successfully replace Dr. Mehta's expertise. In addition, the loss of Dr. Mehta's services may adversely affect our relationships with our contract partners. Under the settlement of a litigation initiated by Dr. Mehta in July 2003 for alleged breach of his employment agreement we paid Dr. Mehta $400,000 and certain expense reimbursements, and the Company received a short term option for it or its designees to acquire all of the shares of Common Stock owned by Dr. Mehta and his affiliate at $2.00 per share. As part of the settlement the Company also extended the expiration date of options to purchase 770,000 shares of Common Stock held by Dr. Mehta and he relinquished any rights to the Company's intellectual property and agreed to certain non-disclosure and non-competition covenants. The Company also provided him with certain "piggyback" registration rights with respect to the 770,000 shares issuable upon exercise of the foregoing options granted by the Company. WE HAVE NOT YET SUCCESSFULLY DEVELOPED A PRODUCT FOR COMMERCIAL USE, AND IF WE ARE UNABLE TO DO SO OUR BUSINESS MAY NOT CONTINUE. We have not yet developed a product to the stage of generating commercial sales. Our research activities are characterized by the inherent risk that the research will not yield results that will receive FDA approval or otherwise be suitable for commercial exploitation. Of the products currently under development and on which we are devoting substantial attention, we have had one product in prelaunch state, one product in pilot Phase I study, one product in bioequivalence stage and two fiscaladditional products in preclinical testing. Additional studies including either pivotal bioequivalence or efficacy studies will be required before commercialization. Successful completion of pivotal biostudies is required for us to file an ANDA with the FDA, and successful completion of pivotal clinical trials is required for us to file a NDA with the FDA. ANDAs are filed with respect to generic versions of existing FDA approved products while NDAs are filed with respect to new products. In order for any of our products to be commercialized, FDA approval is required. IF WE NEED ADDITIONAL FINANCING IN ORDER TO SATISFY OUR SIGNIFICANT CAPITAL REQUIREMENTS, AND ARE UNABLE TO OBTAIN ADDITIONAL FINANCING, IT WOULD IMPAIR OUR ABILITY TO CONTINUE TO DO BUSINESS. - 14 - We completed a private placement in December 2003 of 1,645,000 shares of our common stock yielding gross proceeds of $3,290,000 before commissions and expenses. We anticipate, based on our assumptions relating to our operations, and assuming the consummation of a financing and refinancing of equipment purchases currently being negotiated and consummation of a private placement of shares of our common stock which is the subject of a non-binding agreement in principle with a broker-dealer, that we have sufficient capital to satisfy our contemplated cash requirements through March 31, 2005. After that time, we may require additional financing. In particular, we expect to make substantial expenditures as we further develop and seek to commercialize our products. We also expect that our rate of spending will accelerate as the result of increased costs and expenses associated with seeking regulatory approval and commercialization of products now in development. One of the conditions to consummation of a proposed acquisition (see "Proposed Acquisition") as currently proposed is that we have liquid assets of approximately $8,000,000. We have no current arrangements; however, (i) we are currently negotiating an equipment purchase financing agreement, which we anticipate closing in the reasonably forseeable future, (ii) we have entered into a non-binding agreement in principle with a broker-dealer to effect a private placement of shares of our Common Stock and (iii) there is the potential exercise of options and warrants that are currently outstanding. We have no way of knowing whether any of the options or warrants will be exercised. We do not currently have commitments for other financing, and so do not know whether additional financing would be available to us on favorable terms, or at all. Our inability to obtain additional financing when needed would impair our ability to continue our business and to consummate the proposed acquisition on the terms proposed. If any future financing involves the sale of our securities, our then-existing stockholders' equity could be substantially diluted. On the other hand, if we incurred debt, we would be subject to risks associated with indebtedness, including the risk that interest rates might fluctuate and cash flow would be insufficient to pay principal and interest on such indebtedness. If our plans change, or our assumptions change or prove to be inaccurate, or our cash flow proves to be insufficient to fund our operations due to unanticipated expenses or problems, we would be required to seek additional financing sooner than anticipated. IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND AVOID CLAIMS THAT WE INFRINGED ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, OUR ABILITY TO CONDUCT BUSINESS MAY BE IMPAIRED. Our success, competitive position and amount of royalty income will depend in part on our ability to obtain patent protection in various jurisdictions related to our technologies, processes and products. We intend to file patent applications seeking such protection, but we cannot be certain that these applications will result in the issuance of patents. If patents are issued, third parties may sue us to challenge such patent protection, and although we know of no reason why they should prevail, it is possible that they could. It is likewise possible that our patents may not prevent third parties from developing similar or competing products. In addition, although we are not aware of any threatened or pending actions by third parties asserting that we have infringed on their patents, and are not aware of any actions we have taken that would lead to such a claim, it is possible that we might be sued for infringement. The cost involved in bringing suits against others for infringement of our patents, or in defending any suits brought against us, can be substantial. We may not possess sufficient funds to prosecute or defend such suits. If our products were found to infringe upon patents - 15 - issued to others, we would be prohibited from manufacturing or selling such products and we could be required to pay substantial damages. In addition, we may be required to obtain licenses to patents, or other proprietary rights of third parties, in connection with the development and use of our products and technologies as they relate to other persons' technologies. At such time as we discover a need to obtain any such license, we will need to establish whether we will be able to obtain such a license on favorable terms. The failure to obtain the necessary licenses or other rights could preclude the sale, manufacture or distribution of our products. We also rely upon trade secrets and proprietary know-how. We seek to protect this know-how in part by confidentiality agreements. We consistently require our employees and potential business partners to execute confidentiality agreements prior to doing business with us. However, it is possible that an employee would disclose confidential information in violation of his or her agreement, or that our trade secrets would otherwise become known or be independently developed in such a manner that we will have no practical recourse. We are not engaged in any litigation, nor contemplating any, with regard to a claim that someone has infringed one of our patents, revealed any of our trade secrets, or otherwise misused our confidential information. See also the risk under the heading "OUR FOUNDER AND FORMER PRESIDENT AND CHIEF EXECUTIVE OFFICER RESIGNED IN JUNE 2003 ALL OF HIS POSITIONS WITH ELITE, WHICH MAY HAVE A MATERIAL ADVERSE EFFECT ON US". THE PHARMACEUTICAL INDUSTRY IS SUBJECT TO EXTENSIVE FDA REGULATION AND FOREIGN REGULATION, WHICH PRESENTS NUMEROUS RISKS TO US. The manufacturing and marketing of pharmaceutical products in the United States and abroad are subject to stringent governmental regulation. The sale of any of our products for use in humans in the United States will require the prior approval of the FDA. Similar approvals by comparable agencies are required in most foreign countries. The FDA has established mandatory procedures and safety standards that apply to the clinical testing, manufacture and marketing of pharmaceutical products. Obtaining FDA approval for a new therapeutic product may take several years and involve substantial expenditures. None of our products has been approved for sale or use in humans in the United States or elsewhere. If we or our licensees fail to obtain or maintain requisite governmental approvals or fail to obtain or maintain approvals of the scope requested, it will delay or preclude us or our licensees or marketing partners from marketing our products. It could also limit the commercial use of our products. - 16 - THE PHARMACEUTICAL INDUSTRY IS HIGHLY COMPETITIVE AND SUBJECT TO RAPID AND SIGNIFICANT TECHNOLOGICAL CHANGE, WHICH COULD IMPAIR OUR ABILITY TO IMPLEMENT OUR BUSINESS MODEL. The pharmaceutical industry is highly competitive, and we may be unable to compete effectively. In addition, it is undergoing rapid and significant technological change, and we expect competition to intensify as technical advances in each field are made and become more widely known. An increasing number of pharmaceutical companies have been or are becoming interested in the development and commercialization of products incorporating advanced or novel drug delivery systems. We expect that competition in the field of drug delivery will increase in the future as other specialized research and development companies begin to concentrate on this aspect of the business. Some of the major pharmaceutical companies have invested and are continuing to invest significant resources in the development of their own drug delivery systems and technologies and some have invested funds in such specialized drug delivery companies. Many of our competitors have longer operating histories and greater financial, research and development, marketing and other resources than we do. Such companies may develop new formulations and products, or may improve existing ones, more efficiently than we can. Our success, if any, will depend in part on our ability to keep pace with the changing technology in the fields in which we operate. IF OTHER KEY PERSONNEL WERE TO LEAVE ELITE OR IF WE ARE UNSUCCESSFUL IN ATTRACTING QUALIFIED PERSONNEL, OUR ABILITY TO DEVELOP PRODUCTS COULD BE MATERIALLY HARMED. Our success depends in large part on our ability to attract and retain highly qualified scientific, technical and business personnel experienced in the development, manufacture and marketing of controlled release drug delivery systems and products. Our business and financial results could be materially harmed by the inability to attract or retain qualified personnel. WE HAVE BEEN DEPENDENT ON CONTRACTS WITH A FEW MAJOR CUSTOMERS FOR SUBSTANTIALLY ALL OF OUR REVENUES, AND IF THOSE CONTRACTS TERMINATE OR EXPIRE, WE WILL BE WITHOUT THE STREAMS OF REVENUE THAT THEY HAVE REPRESENTED, UNLESS WE ARE ABLE TO NEGOTIATE OTHER CONTRACTS WITH OTHER CUSTOMERS THAT GENERATE SIMILAR REVENUES. Each year we had some customers that accounted for a large percentage of our sales. If our contracts with these customers terminate or expire, we will lose substantially all of our revenues. As a result of inadequate funds to conduct research and development we were unable to generate material revenues under existing contracts for the year ended March 31, 2004, we had only $258,250 of revenues, of which $108,250 were research and development fees earned in conjunction with our distinct development, license and manufacture agreements. There can be no assurance that at the time that any of our current contracts expire, other contracts will be in place generating similar revenue. - 17 - IF WE WERE SUED ON A PRODUCT LIABILITY CLAIM, AN AWARD COULD EXCEED OUR INSURANCE COVERAGE AND COST US SIGNIFICANTLY. The design, development and manufacture of our products involve an inherent risk of product liability claims. We have procured product liability insurance having a maximum limit of $1,000,000; however, a successful claim against us in excess of the policy limits could be very expensive to us, damaging our financial position. Our insurance coverage 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 May 31, 2004. OUR STOCK PRICE HAS BEEN VOLATILE AND MAY FLUCTUATE IN THE FUTURE. There has been significant volatility in the market prices for publicly traded shares of pharmaceutical companies, including ours. For the twelve months ended March 31, 2004, the closing sale price on the American Stock Exchange of our common stock fluctuated from a high of $3.80 per share to a low of $1.34 per share. The per share price of our Common Stock may not remain at or exceed current levels. The market price for our Common Stock, an and for the stock of pharmaceutical companies generally, has been highly volatile. The market price of our Common Stock may be affected by: o Results of our clinical trials; o Approval or disapproval of abbreviated new drug applications or new drug applications; o Announcements of innovations, new products or new patents by us or by our competitors; o Governmental regulation; o Patent or proprietary rights developments; o Proxy contests or litigation; o News regarding the efficacy of, safety of or demand for drugs or drug technologies; o Economic and market conditions, generally and related to the pharmaceutical industry; o Healthcare legislation; o Changes in third-party reimbursement policies for drugs; and - 18 - o Fluctuations in our operating results. IF ADDITIONAL AUTHORIZED SHARES OF OUR COMMON STOCK AVAILABLE FOR ISSUANCE OR SHARES ELIGIBLE FOR FUTURE SALE WERE INTRODUCED INTO THE MARKET, IT COULD HURT OUR STOCK PRICE AND MAKE A CHANGE OF CONTROL MORE DIFFICULT TO ACHIEVE. As of June 22, 2004, there were 25,000,000 shares of our Common Stock authorized of which 12,104,423 shares of our Common Stock were issued and outstanding. In addition, as of that date there were 5,071,289 shares eligible for issuance upon exercise of currently outstanding options and warrants, although options for 790,000 of those shares of stock had not yet vested. If every warrant and option holder exercised his or her rights, once all the currently unvested options vested, there would be 17,175,712 shares of Common Stock outstanding. An amendment to our Certificate of Incorporation which would increase the authorized shares of capital stock from 25,000,000 shares of Common Stock to 65,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock is being considered by our stockholders for approval at the adjourned Annual Meeting of Stockholders scheduled to be held on July 19, 2004. Currently, more than 11,030,000 outstanding shares are eligible for resale and 150,000 shares are registered for resale upon exercise of certain outstanding warrants and options. We are unable to estimate the amount, timing or nature of future sales of outstanding Common Stock. Sales of substantial amounts of the Common Stock in the public market by these holders or perceptions that such sales may take place may lower the Common Stock's market price. The authorized but unissued shares of the Company's Common Stock or if the proposed amendment to our Certificate of Incorporation is approved by stockholders the issuance of one or more series of Preferred Shares could be used to make a change of control of the Company more difficult and expensive. Under certain circumstances, such shares could be used to create impediments to or frustrate persons seeking to cause a takeover or to gain control of the Company. Such shares could be sold to purchasers who might side with the Board in opposing a takeover bid that the Board determines not to be in the best interests of its stockholders. The Amendment, if approved, might also have the effect of discouraging an attempt by another person or entity, through the acquisition of a substantial number of shares of the Company's Common Stock to acquire control of the Company with a view to consummating a merger, sale of all or part of the Company's assets, or a similar transaction, since the issuance of new shares could be used to dilute the stock ownership of such person or entity. IF PENNY STOCK REGULATIONS BECOME APPLICABLE TO OUR COMMON STOCK THEY WILL IMPOSE RESTRICTIONS ON THE MARKETABILITY OF OUR COMMON STOCK, THE ABILITY OF OUR STOCKHOLDERS TO SELL SHARES OF OUR STOCK COULD BE IMPAIRED. - 19 - The SEC has adopted regulations that generally define a "penny stock" to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share subject to certain exceptions. Exceptions include equity securities issued by an issuer that has (i) net tangible assets of at least $2,000,000, if such issuer has been spent on researchin continuous operation for more than three years, or (ii) net tangible assets of at least $5,000,000, if such issuer has been in continuous operation for less than three years, or (iii) average revenue of at least $6,000,000 for the preceding three years. Unless an exception is available, the regulations require that prior to any transaction involving a penny stock, a risk of disclosure schedule must be delivered to the buyer explaining the penny stock market and development activities. As previously stated, noneits risks. Our Common Stock is currently trading at under $5.00 per share. Although we currently fall under one of the products undergoing researchexceptions, if at a later time we fail to meet one of the exceptions, tour Common Stock will be considered a penny stock. As such the market liquidity for our Common Stock will be limited to the ability of broker-dealers to sell it in compliance with the above-mentioned disclosure requirements. You should be aware that, according to the SEC, the market for penny stocks has suffered in recent years from patterns of fraud and developmentabuse. Such patterns include: o Control of the market for the security by one or a few broker-dealers; o "Boiler room" practices involving high-pressure sales tactics; o Manipulation of prices through prearranged matching of purchases and sales; o The release of misleading information; o Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and o Dumping of securities by broker-dealers after prices have yet been approvedmanipulated to a desired level, which hurts the price of the stock and causes investors to suffer loss. We are aware of the abuses that have occurred in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, we will strive within the confines of practical limitations to prevent such abuses with respect to our Common Stock. SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW MAY DETER A THIRD PARTY FROM ACQUIRING US. Section 203 of the Delaware General Corporation Law prohibits a merger with a 15% shareholder within three years of the date such shareholder acquired 15%, unless the merger meets one of several exceptions. The exceptions include, for example, approval by the FDAholders of two-thirds of the outstanding shares (not counting the 15% - 20 - shareholder), or approval by the Board prior to the 15% shareholder acquiring its 15% ownership. This provision makes it difficult for a potential acquirer to force a merger with or takeover of the Company, and therefore, are not yet being marketedcould thus limit the price that certain investors might be willing to customers.

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Compliance with Environmental Laws

     The Company believes it is currentlypay in substantial compliance with all federal, state and local environmental laws. The costs and effectsthe future for shares of compliance with such laws is not material.


our Common Stock. ITEM 2. PROPERTIES

     The Company owns real property and improvements, suitable for use as a laboratory and offices, Our facility, which we own, is located at 165 Ludlow Avenue, Northvale, New Jersey. It is intended that the property will be used for manufacturing in the future. The Company's operations are not dependent on any specific location. TheJersey, and contains approximately 20,000 square feet of floor space. This real property and the improvements of the Companythereon are encumbered by a mortgage in favor of the New Jersey Economic Development Authority (NJEDA) as security for a loan through tax exempttax-exempt bonds from the NJEDA to the Company.Elite. The mortgage document contains thecertain customary provisions including, without limitation, the right of the mortgageeNJEDA to foreclose upon default.

a default by Elite. We are currently using our facilities as a laboratory and office space and intend to use it in the future for manufacturing, as well. Properties used in our operations are considered suitable for the purposes for which they are used and are believed to be adequate to meet our needs for the reasonably foreseeable future. ITEM 3. LEGAL PROCEEDINGS

     No disclosure required.

In the ordinary course of business, we may be party to litigation from time to time. We had an employment agreement ("Employment Agreement") with our former President and Chief Executive Officer, Dr. Atul M. Mehta. On June 3, 2003, Dr. Mehta resigned from all positions, including as a director, that he held with us, while reserving his rights under his Employment Agreement and under common law. On July 3, 2003, Dr. Mehta instituted litigation against the Company and one of our directors, Mr. Moore, in the Superior Court of New Jersey for, among other things, allegedly breaching his Employment Agreement and for defamation, and claims that he is entitled to receive his salary through June 6, 2006. His salary would total approximately $1,000,000 through June 6, 2006. Prior to Dr. Mehta's resignation, a majority of the members of the Company's Board of Directors had notified Dr. Mehta that they believed that sufficient grounds existed for the termination of his employment for "severe cause" pursuant to his Employment Agreement. We filed counterclaims against Dr. Mehta and a motion to dismiss Mehta's claims and, as part of that motion, sought to compel Mehta to assign and transfer to the Company all patents in Mehta's name which were developed during his employment with us. Mr. Moore's motion to dismiss Mehta's claim against him individually was granted. - 21 - In November 2003, the parties settled the action. In April 2004, the parties closed upon the settlement. Under the settlement the Company paid to Mehta $400,000 and certain expense reimbursements and the Company received a short term option in favor of the Company or its designees to acquire all of Mehta's shares of common stock of the Company (including those held by his affiliates) at $2.00 per share. The Company paid $100,000 into escrow which shall be released to Mehta if the option to purchase the shares of common stock held by Mehta and his affiliates is not exercised within a specified time. As part of the settlement, the Company extended expiration dates of options to purchase 770,000 shares held by Mehta including options with respect to 70,000 shares which had expired and Mehta relinquished any rights to the Company's intellectual property, and Mehta agreed to certain non-disclosure and non-competition covenants. Under the settlement the Company also provided Mehta with certain "piggyback" registration rights with respect to shares not sold pursuant to the options granted to him by the Company. We are not currently a party to any material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     There were no matters No matter was submitted to a vote of security holdersstockholders during the fourth quarter of theour fiscal year ended March 31, 2002.



2004. However at the Annual Meeting of Stockholders held on June 22, 2004 the stockholders (i) elected as its four Directors Messrs. Bernard Beck, Harmon Aronson, John A. Moore and Eric L. Sichel; (ii) approved our 2004 Stock Option Plan; (iii) ratified the actions of the Board of Director's amending certain outstanding options and warrants and (iv) approved our sale of an aggregate of 70,000 shares of Common Stock to a Director and an affiliate of a Director. The Meeting was adjourned to July 19, 2004 for additional time for the stockholders to consider the proposal to approve the Amendment to Article Fourth of the Certificate of Incorporation to increase the authorized capital stock from 25,000,000 shares of Common Stock, par value $.01 per share, to 65,000,000 shares of Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred Stock, par value $.01 per share. - 22 - PART II


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

Market Information

     The Our common stock of the Company first began public trading on July 23, 1998. The stock was tradedis quoted on the NASDAQ over-the-counter bulletin boardAmerican Stock Exchange under the symbol “ELIP.” On February 24, 2000, 13,912,856 shares of"ELI". The following table shows, for the Company's common stock (consisting of 8,560,355 shares issued and outstanding, 2,387,714 shares issuable upon exercise of options pursuant to the Company's 1997 Incentive Stock Option Plan, and 2,964,787 shares issuable upon exercise of warrants) were listed on

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the American Stock Exchange. The Company's shares are now traded on that exchange under the symbol “ELI.”

     The Company's Class A warrants are listed on the NASDAQ over-the-counter bulletin board under the symbol “ELIPZ.” The Company first began trading these warrants on September 11, 1998.

     The common stock of EPI's predecessor, Prologica, was listed in the pink sheets, but no active trading occurred in those securities.

     For each quarter within the two most recent fiscal yearsperiods indicated, the high and low sales prices per share of the Company'sour common stock andas reported by the high and low bid for the Company's Class A warrants are as follows:

Fiscal Year EndedAmerican Stock Exchange. COMMON STOCK QUARTER ENDED HIGH LOW FISCAL YEAR ENDING MARCH 31, 2004: March 31, 2001

                
   Common Stock Warrants
    
 
    High Low High Low 
    
 
 
 
First Quarter$11.385 $6.125 $10.00 $1.50 
 
Second Quarter$12.188 $6.875 $6.50 $2.25 
 
Third Quarter$13.25 $6.00 $7.00 $1.50 
 
Fourth Quarter$8.625 $6.063 $4.00 $1.375 

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Fiscal Year Ended2004........................................ $3.80 $2.40 December 30, 2003..................................... $3.30 $2.70 September 30, 2003.................................... $3.49 $2.05 June 30, 2003 ........................................ $3.49 $1.25 FISCAL YEAR ENDING MARCH 31, 2003: March 31, 2002

                
   Common Stock Warrants
    
 
    High Low High Low 
    
 
 
 
First Quarter$11.45 $4.85 $6.00 $2.00 
 
Second Quarter$11.50 $5.10 $6.21 $1.40 
 
Third Quarter$7.75 $5.90 $2.50 $1.20 
 
Fourth Quarter$8.30 $5.60 $2.25 $0.86 

     This information was obtained from Merrill Lynch & Co. The information reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.


Holders

2003........................................ $2.20 $1.45 December 31, 2002..................................... $3.15 $1.80 September 30, 2002.................................... $5.25 $2.41 June 30, 2002......................................... $7.75 $4.50 FISCAL YEAR ENDING MARCH 31, 2002: March 31, 2002........................................ $8.30 $5.65 December 31, 2001..................................... $7.75 $5.90 September 30, 2001.................................... $11.50 $5.10 June 30, 2001......................................... $11.45 $4.85 As of May 22 , 2002,June 21, 2004, the last reported sale price of our common stock, as reported by the American Stock Exchange, was $2.34 per share. As of June 23, 2004, there were 82approximately 130 holders of record and approximately 1600 beneficial owners of the Company'sour common stock. We are informed and believe that as of April 20, 2004, Cede & Co. held 7,069,228 shares of our common stock 23 holders of record of the Company's Class A warrants and 23 holders of record of the Company's Class B warrants. 6,471,033 (66.5%) of such shares and 1,188,430 (71.8%) of the Class A warrants are held by Cede & Company as nominee for the Depository Trust Company, 55 Water Street, New York, New York 10004. It is our understanding that Cede & Co. and theDepository Trust Company believesboth disclaim any beneficial ownership therein and that such shares are held for the account of numerous other persons.

Dividends

     The Company has - 23 - We have never declared or paid any cash dividends on its commonour capital stock. The CompanyWe currently intends toanticipate that we will retain any future earningsall available funds for funding growthuse in the operation and doesexpansion of our business, and do not anticipate paying any cash dividends on its common stock in the foreseeable future.

We issued in 2003 nontransferable Class C Warrants to the record holders of our Class A Warrants on November 30,2002, their expiration date, on a one-for-one basis. The Class C Warrants are exercisable for the same number of shares of Common Stock as the Class A Warrants, have an exercise price of $5.00 per share (subject to adjustment in certain circumstances), expire November 30, 2005, and have substantially all of the same terms and conditions as the Class A Warrants. The issuance was exempt from registration under the Securities AuthorizedAct of 1933, as amended (the "Act") by virtue of the provisions of Section 3(a)(9). On February 6, 2004 the Board of Directors authorized the extension of the expiration date from June 30, 2004 to November 30, 2005 of the outstanding Class B Warrants to purchase an aggregate of 681,002 shares of our Common Stock at a price of $5.00 per share. The Class B Warrants were originally issued as part of units of shares of Common Stock and Class B Warrants in a private placement to a group of investors. Included among the holders of the Class B Warrants are Richard A. Brown, then a Director, who holds, along with his son and an affiliated trust, an aggregate of 156,250 Class B Warrants and Bridge Ventures Inc., a consultant to the Company since December, 2003, which holds 25,000 Class B Warrants. In December 2003, Elite completed a placement to a group of investors of 1,645,000 shares of Common Stock at a price of $2.00 per share for Issuanceaggregate gross proceeds of $3,290,000. We paid Montauk Financial Group Inc., the Placement Agent cash commissions of $72,000 and granted the Placement Agent and its associates five year warrants to purchase an aggregate of 50,000 shares of our Common Stock at a price of $2.00 per share. The issuance of the shares and warrants was exempt from registration under Equity Compensation Plans

the Act by virtue of the provisions of Section 4(2). EQUITY COMPENSATION PLAN INFORMATION The following table below includesprovides information about compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance to employees or non-employees (such as directors and consultants), as of March 31, 2004: - 24 -
Plan category Number of securities to be Weighted average exercise Number of securities issued upon exercise of price of outstanding remaining available for outstanding options, options, warrants and future issuance warrants and rights* rights (a) (b) (c) Equity compensation approved 1,133,300 $2.68 70,700 by security holders of a subsidiary Equity compensation plans not 1,283,750 $4.63 N/A approved by security holders --------- --------- Total 2,417,050 $3.70 70,700
- ----------- * Exclusive of Class B and Class C Warrants. Our stockholders approved on June 22,2004 the endadoption by the Board of Directors of the most recently completed fiscal year of the Company for each category of equity compensation plan, as applicable.

Equity Compensation Plan Information

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Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
  (a) (b) (c)
Equity compensation plans approved by security holders $363,100 $7.17 $886,900
 
Equity compensation plans not approved by security holders
Total		 None None None
 
Total $363,100 $7.17 $886,900

     The Company's Incentive2004 Stock Option Plan (“Plan”), adopted in 1997,which provides that 1,250,0001,500,000 shares of the Company's common stockour Common Stock are subject to options to be granted under the Plan. If options granted under the Plan lapse without being exercised, other options may be granted covering the shares not purchased under such lapsed options. Options may be granted pursuant to the Plan to employees, officers, Directors of and officersconsultants to Elite. The Plan permits the Company to grant both incentive stock options ("Incentive Stock Options" or "ISOs") within the meaning of EPI or ELI. MembersSection 422 of the Code, and other options which do not qualify as Incentive Stock Options (the "Non-Qualified Options"). The aggregate number of shares of Common Stock reserved for issuance under the Plan is 1,500,000, of which incentive stock options with respect to 123,300 shares with an exercise price of $2.34 per share were granted on June 22, 2004 to employee holders of outstanding options previously granted by the Company having on the date of the grant a higher exercise price; such grants subject to the cancellation of the previously granted options. To the extent that stock options previously granted are not surrendered for cancellation then options exercisable for that same number of shares of Common Stock will be available for grant under the Plan. Such grants may be deemed repricing of the outstanding options and will result in charges to earnings of the Company equal to the difference between (i) the fair value of the vested portion of the new options granted, utilizing the Black-Scholes options pricing model on each grant date and (ii) the charges to earnings previously made as a result of the grants of the options being replaced, which will have a dilutive effect on the earnings per share and, as a result, will likely have an adverse effect on the market price of the Common Stock of the Company. Options to purchase 30,000 shares of Common Stock were granted on June 22, 2004 to each of the Company's four Directors under the Pan exercisable at $2.34 per share. - 25 - Unless earlier terminated by the Board of Directors, the Plan (but not outstanding options) terminates on March 1, 2014, after which no further awards may be granted under the Plan. The Plan is administered by the full Board of Directors or, at the Board's discretion, by a committee of the Board consisting of at least two persons who are "disinterested persons" defined under Rule 16b-2(c)(ii) under the Securities Exchange Act of 1934, as amended (the "Committee"). Recipients of options under the Plan ("Optionees") are selected by the Board or the Committee. The Board or Committee determines the terms of each option grant including (1) the purchase price of shares subject to options, (2) the dates on which options become exercisable and (3) the expiration date of each option (which may not exceed ten years from the date of grant). The minimum per share purchase price of options granted under the Plan for Incentive Stock Options is the fair market value (as defined in the Plan) or for Nonqualified Options is 85% of Fair Market Value of one share of the Common Stock on the date the option is granted. Optionees will have no voting, dividend or other rights as stockholders with respect to shares of Common Stock covered by options prior to becoming the holders of record of such shares. The purchase price upon the exercise of options may be paid in cash, by certified bank or cashier's check, by tendering stock held by the Optionee, as well as by cashless exercise either through the surrender of other shares subject to the option or through a broker. The total number of shares of Common Stock available under the Plan, and the number of shares and per share exercise price under outstanding options will be appropriately adjusted in the event of any stock dividend, reorganization, merger or recapitalization of the Company who are not officersor similar corporate event. The Board of employeesDirectors may at any time terminate the Plan or from time to time make such modifications or amendments to the Plan as it may deem advisable and the Board or Committee may adjust, reduce, cancel and regrant an unexercised option if the fair market value declines below the exercise price except as may be required by any national stock exchange or national market association on which the Common Stock is then listed. In no event may the Board, without the approval of stockholders, amend the Company are notPlan to increase the maximum number of shares of Common Stock for which options may be granted under the Plan or change the class of persons eligible to receive options under the Plan. The granting of options underSubject to limitations set forth in the Plan, shall be entirely discretionary. The exercise pricethe terms of an option pursuant to the Plan shall not be less than 100% of the fair market value (toagreements will be determined by the board of directors of the Company in good faith) of the common stock at the time the option was granted; provided, an option granted to a person who, with his affiliates, directlyBoard or through other entities, owns more than 10% of the voting power of the Company's common voting stock (“a Substantial Shareholder”) shall have a exercise priceCommittee, and need not less than 110% of the fair market value of the Company's common stock at the time the option was granted. For any person, “Affiliates” shall mean that person's siblings, spouse, ancestors and lineal descendants. No person to whom options are granted pursuant to the Plan shall receive options first exercisable during any single calendar year for shares, the fair market value of which exceeds $100,000 (determined at the time the options are granted). Options issued pursuant to the Plan expire ten years from the date granted, except that options granted pursuant to the Plan to Substantial Shareholders expire five years from the date of grant (in either case, the “Expiration Date”). If, prior to the Expiration Date, (i) the employees employment with the Company ends for reasons other than death or retirement, any options shall terminate; (ii) the employees retire at normal retirement age or, with the consent of the Company, earlier on account of disability, the option shall expirebe uniform among Optionees. ITEM 6. SELECTED FINANCIAL DATA The following consolidated selected financial data, at the end of three months after such retirement; (iii)and for the employee dies, his estate shall have six months to exercise the option, provided that the exercise period shall never extend beyond the Expiration Date.

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ITEM 6. SELECTED FINANCIAL DATA

     Following islast five fiscal years, should be read in conjunction with our Consolidated Financial Statements and related Notes thereto appearing elsewhere in this Annual Report on Form 10-K. The consolidated selected financial data are derived from our consolidated financial statements that have been audited by Miller, Ellin & Company, LLP, our independent auditors, as - 26 - indicated in their report included herein. The selected financial data provided below is not necessarily indicative of the Company.

Selected Annual Financial Data

    2002  2001  2000  1999  1998 
    
  
  
  
  
 
Net Revenues $1,197,507 $95,246 $10,315 $150,412 $51,958 
 
Net (loss)  (1,774,527) (13,964,981) (2,976,392) (1,661,881) (788,591)
 
Net (loss) per common share  (0.19) (1.53) (0.35) (0.23) (0.13)
 
Total Assets  12,724,498  12,350,301  9,162,383  3,076,582  5,179,119 
 
Long-term obligations  3,788,148  2,765,000  2,885,000  ---  --- 
 
Weighted average number of shares outstanding  9,561,299  9,135,369  8,287,648  7,237,613  5,858,238 

Selected Quarterly Financial Data

Fiscal Year Ended March 31, 2002

   3-31-02  12-31-01  9-30-01  6-30-01 
 
Net Revenues $260,949 $473,597 $387,163 $75,798 
 
Net (loss) $(715,162)$(340,210)$(272,173)$(446,982)
 
Net (loss) per common share $(0.08)$(0.03)$(0.03)$(0.05)
 
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Weighted average shares Outstanding  9,662,001  9,631,601  9,543,526  9,408,593 

Fiscal Year Ended March 31, 2001

   3-31-01  12-31-00  9-30-00  6-30-00 
 
Net Revenues $86,465 $8,781  ---  --- 
 
Net (loss) $(616,034)$(193,052)$(12,566,324)$(589,571)
 
Net (loss) per common share $(0.06)$(0.02)$(1.41)$(0.07)
 
Weighted average shares outstanding  9,373,426  9,353,017  8,915,054  8,902,623 


our future results of operations or financial performance.
2004 2003 2002 2001 2000 ---- ---- ---- ---- ---- Net Revenues $ 258,250 $ 630,310 $ 1,197,507 $ 95,246 $ 10,315 Net (loss) $ (6,514,217) $ (4,061,422) $ (1,774,527) $(13,964,981) $ (2,976,392) Net (loss) per $ (0.58) $ (0.40) $ (0.19) $ (1.53) $ (0.35) common share Total Assets $ 7,853,434 $ 8,696,222 $ 12,724,498 $ 12,350,301 $ 9,162,383 Long-term obligations $ 2,495,000 $ 2,720,000 $ 3,788,148 $ 2,765,000 $ 2,885,000 Weighted average 11,168,618 10,069,991 9,561,299 9,135,369 8,287,648 number of shares outstanding
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION

(a) GENERAL The Company

Introduction

The Company has been developing over 15 oralfollowing discussion and analysis should be read with the financial statements and accompanying notes, included elsewhere in this Annual Report on Form 10-K. It is intended to assist the reader in understanding and evaluating our financial position. OVERVIEW We are involved in the development of controlled release pharmaceuticaldrug delivery systems and products. Our products which are at thein varying stages of the development process and testing.

Elite Labs has We also conducted severalconduct research and development, projectsfrom time to time, on behalf of several large pharmaceuticals companies. Theseother pharmaceutical companies although these activities have generated only limited revenue for Elite Labs to date.

The Company has established a manufacturing facility in Northvale, NJ which is both FDA and DEA registered. This facility will allow the Company to make batches in sizes sufficient to file for FDA approval.

In October 2000, Elite entered into a joint development and operating agreement with Elan Corporation, plc, and Elan International Services, Ltd. (together “Elan”) to develop products using drug delivery technologies and expertise of both companies. This joint venture, Elite Research, Ltd. (“ERL”), a Bermuda corporation, is initially owned 80.1% by Elite and 19.9% by Elan. ERL will fund its research through capital contributions from its partners based on the partners' ownership percentage. ERL will subcontract research and development efforts to Elite, Elan and others. The in-vivo (pilot

17

bioavailability) has been completed on the first product formulated by Elite Labs. Elite has begun to develop formulations for the two additional products.

In June 2001, the Company entered into two separate and distinct development and license agreements with another U.S. pharmaceutical company to develop two products in exchange for development fees, certain payments, royalties and manufacturing rights. Elite has undertaken formulation development for these two products and has earned the development fees paid to date .

In September 2000, Elite received approval of its application to sell $4,872,267 in New Jersey Net Operating Tax Losses under the New Jersey Economic Development Agency's Technology Business Tax Certificate Program. The Company received $368,343 of proceeds from this sale.

In November 2001, Elite received approval of its application to sell an additional $1,822,929 in New Jersey Net Operating Tax Losses under the New Jersey Economic Development Agency's Technology Business Tax Certificate Program. The Company expects to receive $137,818. $71,741 was received during the quarter ending December 31, 2001.

In October 2001, the Company authorized the purchase of up to 100,000 shares of its common stock in the open market at the then prevailing market price on or before March 31, 2002. There has been no repurchases of any common stock during this period.

The Company plans to focus its efforts on the following areas: (i) to receive FDA approval for one or all of the oral controlled release pharmaceutical products already developed, either directly or through other companies; (ii) to commercially exploit these drugs either by licensure and the collection of royalties, or through the manufacturing of tablets and capsules using the formulations developed by the Company, and (iii) to continue the development of new products and the expansion of its licensing agreements with other pharmaceutical companies including contract research and development projects, joint ventures and other collaborations.

The Company has been issued three patents to date and has filed for two more patents. One of the patents has been assigned to Celgene who has now licensed it to Novartis.

Critical Accounting Policies and Estimates

CRITICAL ACCOUNTING POLICIES AND ESTIMATES Management's discussion addresses the Company'sour 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 - 27 - 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

18

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. The Company'sOur most critical accounting policies include the recognition of revenue upon completion of certain phases of projects under research and development contracts. The Company also assesses a need for an allowance for doubtful accounts and determines a need for valuation allowance to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized. The Company assesses the recoverability of long-lived assets and intangible assets whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The Company assesses its exposure to current commitments and contingencies. It should be noted that actual results may differ from these estimates under different assumptions or conditions.

Rules of Consolidated Operations

Year Ended During the year ended March 31, 2002 vs. Year Ended2003, we elected to prospectively recognize the fair value of stock options granted to employees and members of the Board of Directors, effective as of the beginning of the fiscal year, which resulted in our taking a charge of $20,550 and $1,166,601 during the years ended March 31, 2001

Elite's2003 and 2004, respectively. The fair value of stock options held by employees and members of the Board of Directors which have been granted or repriced subsequent to March 31, 2004 is expected to continue to affect the results of operations of future periods, as we continue to grant or reprice stock options to reward our management team. YEAR ENDED MARCH 31, 2004 VS. YEAR ENDED MARCH 31, 2003 Our Auditor's Report on the accompanying financial statements states that such financial statements have been prepared assuming that we will continue as a going concern. We have incurred a significant loss and negative cash flows during our fiscal year ended March 31, 2004 which have significantly decreased our working capital and increased our accumulated deficit. Our auditors have stated in their report that these conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of the assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. Management believes that cost reductions already implemented will reduce losses in the future, and with our existing working capital levels, anticipate that we will be able to continue our operations at least through the end of our current fiscal year. - 28 - Our revenues for the year ended March 31, 20022004 were $1,197,507, an increase$258,250, a decrease of $1,102,261, or approximately 1157%,$372,060 over the comparable period ofprior year, or approximately 59% from the prior year. NetFor the year ended March 31, 2003, revenues include research and developmentconsisted of product formulation fees totaling $593,000 of which $550,000 was$187,810 earned in conjunction with two separateour joint venture in ERL which terminated on September 30, 2002. Of our revenues for the years ended March 31, 2004 and distinctMarch 31, 2003, $108,500 and $442,500, respectively, were research and development and licensing agreements with another pharmaceutical company, product formulationtesting fees of $600,940 earned in conjunction with the Company's joint venture in ERLour distinct development, license and $3,450 of consulting and testing fees. Comparable prior period revenues were $0, $80,931, and $14,314, respectively, for the above components that comprise total revenues.

manufacturing agreements. General and administrative expenses for the year ended March 31, 20022004 were $763,687, a decrease$2,549,846, an increase of $13,431,$691,777, or approximately 1.7%,37% from the comparable period of the prior year. The decreaseincrease in general and administrative expenses was substantially due to increases in legal and consulting fees as well as approximately $550,000 in expenses including $400,000 as compensation, resulting from a decrease in consulting fees. General and administrative expenses expressed as a percentagesettlement of revenues were approximately 64% forlitigation instituted by our former President with respect to the year ended March 31, 2002 as compared to 816% for the comparable periodtermination of the prior year.

his employment agreement. Research and development costs for the year ended March 31, 20022004, were $1,609,108,$2,075,074, an increase of $133,621,$61,495 or approximately 9%,3% from the comparable periodprior year, due primarily due to increased research and development wages, additional biostudies, laboratory supplies and raw materials used in our research and development processes. We expect our research and development costs to continue to increase in future periods as a result of the ERL joint venture termination as we will be solely responsible to fund product development, which we will do from internal resources or through loans or investment by third parties. We are unable to provide a break-down of the specific costs associated with the research and development of each product on which we devoted resources because a significant portion of the costs are generally associated with salaries, laboratory supplies, laboratory and manufacturing expenses, utilities and similar expenses. We have not historically allocated these expenses to any particular product. In addition, we cannot estimate the additional costs and expenses that may be incurred in order to potentially complete the development of any product, nor can we estimate the amount of time that might be involved in such development because of the uncertainties associated with the development of controlled release drug delivery products as described in this report. Other expenses for the year ended March 31, 2004 were $1,813,711, an increase of $1,304,903, or approximately 256% from the prior year. ResearchThe increase was primarily due to charges related to the modification of the warrant exchange offer, the issuance of stock options and development costs have increased aswarrants valued at $1,926,908 (an increase of $1,664,020) and the Company has

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undertaken certain biostudies that were not undertakenreduction in interest income due to lower rates and compensating balances in the prior year. Researchamount of $72,927, partially offset by increases in sale of New Jersey Tax losses of $79,353 and development expenses expressed, as a percentagethe related settlement of revenues were 134% and 1549%, respectively,vendor litigation for the years ended March 31, 2002 and March 31, 2001. Elite's$150,000. - 29 - Our net loss for the year ended March 31, 20022004 was $(1,774,527),$6,514,217 as compared to $(13,964,981) for the comparable period of$4,061,422 in the prior year. The decrease inyear, or an increase of approximately 60% from the net loss wasprior year, primarily due to the decrease in net revenues, and increases in research and development and administrative expenses, including increased charges of $11,572,187 in equity loss$1,664,020 due to the issuance of its 80.1% owned joint venture, which included a one time chargestock options, warrants and the modification of $12,015,000 in the prior comparable period for the Company's share of the $15,000,000 payment to Elan for a technology license.

Year Ended Marchwarrant exchange offer. YEAR ENDED MARCH 31, 2001 vs. Year Ended March2003 VS. YEAR ENDED MARCH 31, 2000

Elite's revenues2002 Revenues for the year ended March 31, 20012003 were $95,246, an increase$630,310, a decrease of $84,931, or approximately 823%,$567,197 over the comparable period ofprior year, or approximately 47.4% from the prior year. NetFor the years ended March 31, 2003 and 2002, revenues consisted of product formulation fees of $80,931$187,810 and $601,057, respectively, earned in conjunction with the Company'sour joint venture in ERL. Revenues also consisted of research and development, and testing fees of $442,500 and $593,000, respectively, earned in conjunction with our distinct development, license and manufacturing agreements. ERL and $14,314had no revenue after our acquisition of consulting and test fees (compared with $10,312 of consulting and test fees forElan's interest in it on September 30, 2002. Elan's obligation to make payments to us or to ERL terminated upon the comparable periodtermination of the prior year).

joint venture with Elan. The absence of payments from Elan will affect revenues for periods subsequent to September 30, 2002. General and administrative expenses for the year ended March 31, 20012003 were $777,118, a decrease$1,858,069, an increase of $207,618,$1,094,382, or approximately 21%143% from the comparable period of the prior year. The decreaseincrease in general and administrative expenses was substantially due to increases in legal and consulting fees as well as approximately $600,000 in expenses resulting from a decrease in consulting fees. Generalconsent solicitation and administrative expenses expressed as a percentageproxy solicitation with regard to the election of revenues were approximately 816% for the year ended March 31, 2001 as compared to 9546% for the comparable period of the prior year.

our directors. Research and development costs for the year ended March 31, 2001,2003, were $1,475,487, a decrease$2,013,579, an increase of $513,162,$404,471 or approximately 26%,25% from the comparable period of the prior year. Research and development costs have declined,increased primarily from the result of increased research and development wages, additional biostudies, laboratory supplies and raw materials used in our research and development processes. We expect our research and development costs to increase in future periods as a result of the Company hasERL joint venture termination as we will be solely responsible to fund product development, which we will do from internal resources or through loans or investment by third parties. We are unable to provide a break-down of the specific costs associated with the research and development of each product on which we devoted resources because a significant portion of the costs are generally associated with salaries, laboratory supplies, laboratory and manufacturing expenses, utilities and similar expenses. We have not undertakenhistorically allocated these expenses to any particular product. In addition, we cannot estimate the kindadditional costs and expenses that may be incurred in order to potentially complete the development of biostudiesany product, nor can we estimate the amount of time that were undertakenmight be involved in such development because of the prior year.

Elite's net lossuncertainties - 30 - associated with the development of controlled release drug delivery products as described in this report. Other expenses for the year ended March 31, 20012003 were $580,482, an increase of $112,774, or approximately 24% from the prior year. A decrease in equity loss in joint venture of $321,261 due to its termination was $13,964,981,more than offset by charges related to the exchange of warrants and the issuance of stock options in the amount of $262,888 and the reduction in interest income due to lower rates and compensating balances in the amount of $163,363. Our net loss for the year ended March 31, 2003 was $4,061,422 as compared to $2,976,392 for$1,774,527 in the comparable periodprior year, an increase of 129% over the prior year. The increase in the net loss was primarily due to $12,079,827 of equitythe decrease in the loss of its 80.1% owned joint venture, ERL, partially offset by the $368,343 of income recognizednet revenues, and an increase in connectionresearch and development and administrative expenses associated with the saleconsent solicitation and proxy solicitation with regard to the election of New Jerseyour directors. Our net operating tax losses. The $12,079,827loss included our 80.1% equity loss in the loss of ERL, includes a one time charge of $12,015,000which was $186,379 and $507,640, respectively, for the Company's 80.1% share ofyears ended March 31, 2003 and 2002. ERL's net loss for the $15,000,000 payment to Elan for a technology license fee.

Liquidityyears ended March 31, 2003 and Capital Resources

The Company's2002 was $232,682 and $633,642, respectively. MATERIAL CHANGES IN FINANCIAL CONDITION Our working capital (total current assets less total current liabilities), which was $7,373,673$2,950,513 as of March 31, 20012003, decreased to $7,054,961$1,289,764 as of March 31, 2002.2004, or approximately 56% from the prior year. The Company'sdecrease is primarily due to our net loss from operations increasesand deposits on equipment, partially offset by net proceeds of $3,179,000 from the sale of common stock through a private placement and the receipt of $30,000 from the exercise of stock options. We experienced negative cash flow from operations of $3,658,321 for the year ended March 31, 2004, primarily due to our net loss from operations of $6,514,217 offset by non-cash charges of $2,259,744. Non-cash charges included, but were not limited to $1,166,601 in connection with the issuance of stock options, a charge of $587,983 in connection with the issuance of warrants, and a charge related to modification of warrant exchange offer of $172,324. The Company recently completed a Good Manufacturing Practices ("GMP") batch for a product currently licensed with a pharmaceutical company under a development and license agreement entered into June 2001. The Company received $30,000 under the Agreement and expects to complete two additional GMP batches in the near future under the terms of the licensing agreement. The Company expects to manufacture the product with revenues projected to be generated in the second quarter of fiscal year ended March 31, 2005. The Company projects earning additional milestone payments under the Agreement subject to completion of the GMP batches. On May 10, 2004, Elite Labs entered into an agreement with Purdue Pharma, L.P. ("Purdue") through which Purdue was granted the exclusive right to evaluate - 31 - certain abuse resistance drug formulation technology of the Company and an exclusive option to negotiate a license to develop and commercialize Oxycodone products under the Company's technology pursuant to which the Company received $150,000 in the first quarter of fiscal year ended March 31, 2005. Should Purdue agree to proceed with licensing, the Company would receive significant upfront licensing fees. The Company estimates that the sales market for Oxycodone exceeds $2 billion annually. The Company is also negotiating an agreement for the financing and refinancing of equipment purchases and has entered into a non-binding agreement in principle with a broker-dealer to effect a private placement of shares of its Common Stock. No assurance can be given that the Company will consummate any of the transactions discussed above other than the foregoing $150,000 receipt or that any of the agreements will result in any material revenues. LIQUIDITY AND CAPITAL RESOURCES For our fiscal year ended March 31, 2004 our operations did not generate positive cash flow. We have financed our operations primarily through the private sale of our equity securities. We had working capital (current assets less current liabilities) of $1.3 million at March 31, 2004 compared with $3.0 million at March 31, 2003. Cash and cash equivalents at March 31, 2004 were $2.1 million, a decrease of $1.2 million from the $3.3 million at March 31, 2003. Net cash used in operating activities was $3,658,000 during the year ended March 31, 2004, compared to $2,573,000 for the year ended March 31, 2003. Net cash used in operating activities during the year ended March 31, 2004 resulted primarily from our net loss of $6.5 million, offset in part by an increase in accounts payable and certain non-cash expenses. Net cash used in operating activities during the year ended March 31, 2003 resulted primarily from a net loss of $4.1 million, offset in part by a reduction in accounts receivable from joint venture and certain non-cash expenses. Investing activities utilized net cash of $495,000 during the year ended March 31, 2004 and utilized net cash of $469,000 during the year ended March 31, 2003. Net cash used in investing activities during the year ended March 31, 2004 resulted primarily from equipment deposits, patent filings and an increase in restricted cash. Net cash used in investing activities during the year ended March 31, 2003 resulted primarily from the acquisition of property and equipment, offset in part by a decrease in restricted cash and purchasesthe maturity of short term investments. Financing activities provided net cash of $2,994,000 during the year ended March 31, 2004 and deposits on property and equipment was offsetutilized net cash of $546,000 during the year ended March 31, 2003. Net cash provided by proceedsfinancing activities during the year ended March 31, 2004 resulted primarily from the issuance of common stock and warrants andthrough a private placement offset by the bank note.

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Forrepayment of indebtedness. Net cash used in financing activities during the year ended March 31, 2002,2003 resulted from the repurchase of stock and the repayment of indebtedness, offset in part by the sale of common stock and warrants. Our capital expenditures aggregated $398,580 and $679,000 for the years ended March 31, 2004 and 2003, respectively. Such expenditures consisted primarily - 32 - of the acquisition of property and equipment necessary to support our existing operations and expected growth. The Company is in process of aggressively seeking financing for this equipment. As discussed below, in June 2004 we are negotiating an agreement with a financial institution for a partial financing and refinancing of our equipment purchases and we have entered into a non-binding agreement in principle with a broker-dealer to attempt a private placement of our shares of Common Stock. We anticipate that our capital expenditures in addition to the foregoing financing for our fiscal year ending March 31, 2005 will be limited to expenditures that can be funded entirely by development contracts that include provisions for such funding for these expenditures. These expenditures substantially would relate to the acquisition of property and equipment in connection with our operations. As described in Note 6 to our consolidated financial statements, we have outstanding $2,495,000 in aggregate amount of bonds. The bonds bear interest at a rate of 7.75% per annum and are due on various dates between 2004 and thereafter. The bonds are secured by a first lien on our facility in Northvale, New Jersey. Pursuant to the terms of the bonds, several restricted cash accounts have been established for the payment of bond principal and interest. Bond proceeds were utilized for the refinancing of the land and building we currently own, for the purchase of certain manufacturing equipment and related building improvements and the maintenance of a $300,000 debt service reserve. All of the restricted cash, other than the debt service reserve, is expected to be expended within twelve months and is therefore categorized as a current asset on our consolidated balance sheet as of March 31, 2004. Pursuant to terms of the bond indenture agreement pursuant to which the bonds were issued, we are required to observe certain covenants, including covenants relating to the incurrence of additional indebtedness, the granting of liens and the maintenance of certain financial covenants. As of March 31, 2004, we were in compliance with the covenants contained in the bond indenture agreement. In August 2003, our Board of Directors authorized the negotiation with Nostrum Pharmaceuticals Inc., a privately held corporation, of an agreement to acquire Nostrum through a merger with our wholly-owned subsidiary; such acquisition to be subject to several conditions including the approval by the stockholders of the Company experienced negative cash flows from operations of $1,568,887 primarily due toand the Company's net loss from operationshaving liquid assets of $1,442,207. Forat least $8,000,000. The agreement if consummated on the proposed terms will result in the issuance of three times the number of shares outstanding at the time of closing and options to purchase a substantial additional number of shares. No assurance can be given that any agreement will be executed, that the merger will be consummated or, if consummated, that it will be consummated of the foregoing terms. As a result of the significant expenditures associated with potential mergers and acquisitions in our fiscal year ended March 31, 2001,2004, and other legal, accounting and consulting expenses, quarterly cash expenses far exceeded our generated revenues in 2004. In order to conserve cash in fiscal year 2005, we intend to continue to limit the Company experienced negative cash flows from operationsnumber of $1,905,984 primarily dueproducts under active development to six. The six products that continue in development were deemed by management to be the most suitable for continued development given the Company's net loss fromlimited resources. However, while we anticipate having adequate capital to support our operations of $2,351,397.


(b)     Elite Research, Ltd.

Elite Research, Ltd. (ERL), a Bermuda corporation, was incorporated in October 2000. ERL, which is initially owned by Elite Pharmaceuticals, Inc. (80.1%) and by Elan Corporation, plc. and Elan International Services, Ltd. (19.9%), was organized to develop products using drug delivery technologies and expertise of both companies. ERL will fund its research through capital contributions based on- 33 - for the partners ownership percentages and will subcontract research development efforts to Elite, Elan, and others.

Results of Operations -

Year Ended March ,31 2002 vs. Year Ended March 31, 2001

To date, there have been no revenues recognized by Elite Research, Ltd.

Research and development costs for thefiscal year ended March 31, 20022005, we will need to raise capital and/or generate additional revenues in order to support our operations beyond that time. To the extent that revenues do not meet expectations or our cost cutting measures do not become effective, we will need to raise additional capital sooner. Elite Labs is currently negotiating with a financial institution an agreement in order to finance the purchase of $600,940, were incurred on contracts with EPI. These costs increased by $520,009 or approximately 643% fromcertain machinery and equipment and to recast the comparable periodoutstanding balance due to a bank in the approximate amount of $212,000. Under the terms of the prior year. Thisproposed agreement, Elite Labs will borrow $612,000 payable in 36 monthly installments of $20,917, including principal plus interest at 14% per annum. The loan is to be secured by two pieces of equipment and the result of ERL incurring costs associated with the later stages of formulation, development and testing of three products in the current period compared to one product in the previous comparable period.

General and administrative costs for the year ended March 31, 2002 were $13,997 compared to $0 for the comparable periodguaranty of the prior year. This wasCompany. In addition, restricted cash currently held as collateral under the result of administrative expenses and the payment of a franchise tax imposed by Bermuda.

Licensing fees decreased in the current year. In the year ended March 31, 2001, ERL incurred a one time $15,000,000 payment to Elan for a technology license.

Liquidity and Capital Resources

The working capital (total current assets less total current liabilities) of ERL, which was ($80,931) as of March 31, 2001 decreased to ($543,524) as of March 31, 2002. Capital contributions for research and development activities were more than offset by ERL's net loss from operations. In April 2002, additional contributions were funded by Elite and Elannote payable in the amount of $254,000$225,000 will be released to the lender, of which $125,500 is to be utilized to prepay the first six monthly payments under the loan. The balance is to be held as a security deposit which will be released if the Company raises certain proceeds from the sale of its securities or other licensing fees. No assurance can be given that an agreement will be executed or that if executed it will provide for materially the same terms. The Company has entered into a non-binding agreement in principle with a registered broker-dealer to attempt a private placement of shares of its Common Stock. Should Purdue Pharma decide to proceed with the terms of its licensing agreement with the Company, the terms of the agreement provide for the Company to receive significant milestone payments before March 31, 2005. No assurance can be given that the Company will consummate any of the transactions discussed above or that any material funds will be derived therefrom. We also, from time to time, consider potential strategic transactions including acquisitions, strategic alliances, joint ventures and $78,791, respectively.

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licensing arrangements with other pharmaceutical companies. The Company retained an investment banking firm to assist with its efforts. There can be no assurance that any such transaction will be available or consummated in the future. Reference is made to "Risk Factors" under "Item 1 -- Business" for a description of certain risks that may affect the achievement of our objectives and results discussed herein. As of March 31, 2004, our principal source of liquidity was approximately $2,105,000 of cash and cash equivalents. Additionally, we may have access to funds of approximately $200,000 that may be generated from the potential sale of New Jersey tax losses. There can be no assurance that the sale of tax losses will be effected or be material. The following table depicts our obligations and commitments to make future payments under existing contracts and contingent commitments. - 34 -
Payments Due by Period LESS THAN 1 AFTER 5 CONTRACTUAL OBLIGATIONS TOTAL YEAR 1-3 YEARS 4-5 YEARS YEARS ----- Note payable 225,000 75,000 150,000 -- -- EDA Bonds payable 2,495,000 150,000 530,000 430,000 1,385,000
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information for Attached hereto and filed as a part of this item is contained as an exhibit attached to this report.

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

     No None. ITEM 9A. CONTROLS AND PROCEDURES Within the 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure required.

controls and procedures pursuant to Securities Exchange Act Rule 13a-14. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us (including our consolidated subsidiaries) required to be included in our periodic SEC filings. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. - 35 - PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors and Executive Officers

The DIRECTORS AND EXECUTIVE OFFICERS Our directors and executive officers, as of June 22, 2004, and their biographical information are set forth below: - -------------------------------------------------------------------------------- NAME AGE POSITION - -------------------------------------------------------------------------------- Bernard Berk 55 Chairman of the Board, Chief Executive Officer - -------------------------------------------------------------------------------- John A. Moore 39 Director - -------------------------------------------------------------------------------- Harmon Aronson 60 Director - -------------------------------------------------------------------------------- Eric L. Sichel, M.D. 44 Director - -------------------------------------------------------------------------------- Mark I. Gittelman 43 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 the person's business experience, he has held the position indicated for at least the past five years. Bernard Berk was appointed the Chief Executive Officer of the Company are:

NameAgePosition
Atul M. Mehta53in June 2003, a Director in February 2004 and Chairman of the Board on May 12, 2004. Mr. Berk has been the President and Chief Executive Officer of Michael Andrews Corporation, a pharmaceutical management consultant firm, since 1996. Mr. Berk devotes and Director
Donald S. Pearson66Director
Harmon Aronson59Director
Eric L. Sichel, M.D.43Director
Mark I. Gittelman42Secretary and Treasurer

     There are no arrangements between any director or executive officer and any other person, pursuant to which the director or officer is to be selected as such. There is no family relationship betweendevote during his employment substantially all of his time to the directors, executive officers, or persons nominated or chosen byoperations of the Company to become directors or executive officers.

     Atul M. Mehta, Ph.D.,Company. From 1994 until 1996, Mr. Berk was President and Chief Executive Officer of Nale Pharmaceutical Corporation. From 1989 until 1994, Mr. Berk was Senior Vice President of Sales, Marketing and Business Development of Par Pharmaceuticals, Inc. Mr. Berk holds a B.S. from New York University. John A. Moore was Chairman of the founderBoard from June 2003 until his resignation on May 12, 2004. He has been Chief Executive Officer and President of ELI, hasEdson Moore Healthcare Ventures, an investment entity, since July 2002. Mr. Moore had been Chief Executive Officer and President from 1994 through June 2001 and since 1994 a director of ELI since its inceptionOptimer, Inc., a research based polymer development company. He is also a director and Chairman of ImaRx Therapeutics, Inc., a privately-held company engaged in 1990medical technology development and a director of EPI since 1997. He has been employed as the President of ELI since 1990 and President of EPI since 1997. Prior to that, he was Vice President at Nortec Development Associates, a company specializing in the development of food, pharmaceutical and chemical specialty products, from 1984 to 1989. From 1981 to 1984, he was associated with Ayerst Laboratories, a division of American Home Products Corporation in the solids formulation section as Group Leader. His responsibilities included development of formulations of ethical drugs for conventional and controlled-release dosage forms for both USA and international

22

markets. He received his B.S. degree in Pharmacy with honors from Shivaji University, Kolhapur, India, and a BS, MS, and a Doctorate of Philosophy in Pharmaceutics from the University of Maryland in 1981. Other than ELI, no company with which Dr. Mehta was affiliated in the past was a parent, subsidiary or other affiliate of the Company.

     Donald S. Pearson, a director since 1999, has been employed since 1997 as the President of Pearson & Associates,Medi-Hut Co., Inc., a company that provides consulting services to the pharmaceutical industry. Prior to starting Pearson & Associates,publicly traded medical products company. Mr. Pearson served for five years as the Director of Licensing at Elan Pharmaceuticals, and prior to that he was employed by Warner-Lambert for thirty years in various marketing, business development and licensing capacities. Mr. PearsonMoore holds a B.S.B.A. in Chemistryhistory from the University of Arkansas and studied steroid chemistry at St. John'sRutgers University. He has served on the informal advisory board of ELI for several years; other than ELI, no company with which he was affiliated in the past was a parent, subsidiary or other affiliate of the Company.

Harmon Aronson, Ph.D., a director since 1999, has been employed since 1997 as the President of Aronson Kaufman Associates, Inc., a New Jersey-based consulting firm that provides manufacturing, FDA regulatory and compliance services to the pharmaceutical and biotechnology companies. Its clients include United States and international firms - 36 - manufacturing bulk drugs and finished pharmaceutical dosage products who are seeking FDA approval for their products for the USU.S. Market. Prior to that,1997, Dr. Aronson was employed by Biocraft Laboratories, a leading generic drug manufacturer, most recently inrising to the position of Vice President of Quality Management; prior to that he held the position of Vice President of Non-Antibiotic Operations, where he was responsible for the manufacturing of all the firm's non-antibiotic products. Dr. Aronson holds a Ph.D. in Physics from the University of Chicago. He is also a director of Elite Research, Ltd. Other than ELI,Elite Research Ltd., no company with which Dr. Aronson was affiliated in the past was a parent, subsidiary or other affiliate of the Company.

Eric L. Sichel, M.D., a director has been since August 2, 2001, is1997, owner and President of Sichel Medical Ventures, Inc., Englewood, NJ, whicha company that provides biotechnology company assessments and investment banking services. Dr. Sichel has been the owner and President of Sichel Medical Ventures, Inc. since 1997. From 1995 through 1996, Dr. Sichel was a senior analyst in the biotechnology field for Alex.Alex Brown & Sons, Inc. of New York, NY. Prior to that, Dr. Sichel was affiliated with Sandoz Pharmaceuticals Corp. of East Hanover, NJ, in various capacities, including associate director of transplantation/immunology. Dr. Sichel holds an M.B.A. from Columbia University and an M.D. from UMDNJ--New Jersey Medical School, and is licensed to practice medicine inby the State of New York.

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

23

Societies of CPAs. Other than ELI, no company with which Mr. Gittelman was affiliated in the past was a parent, subsidiary or other affiliate of the Company.

Election of Directors

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

Section 16(a) Beneficial Ownership Reporting Compliance

      To the knowledge of the Company, there wasDirectors has an Audit Committee and, since March 2004, a Nominating Committee. The Board has no person who, at any timeother standing committees. The Audit Committee members are John A. Moore, Harmon Aronson and Eric L. Sichel. The Audit Committee had two meetings during the fiscal year ended March 31, 2002,2004. The Company's Board of Directors has adopted a written charter for the Audit Committee, a copy of which was aincluded as an appendix to the Company's proxy statement sent to stockholders in connection with the annual meeting of stockholders held October 11, 2001. Other than Mr. Moore, we deem the members of its Audit Committee to be independent as independence is defined in Section 121(A) of the American Stock - 37 - Exchange Listing Standards, as amended effective December 1, 2003. The Board determined that Mr. Sichel, an independent director, officer, beneficial ownerqualifies as the audit committee financial expert within the meaning of more than 10%that term under the applicable regulations under the Securities Exchange Act of any class of equity securities1934. Audit Committee Report: The following is the Audit Committee Report made by all its members. The Audit Committee reviewed and discussed the audited financial statements with management. The Audit Committee discussed with the independent auditors of the Company registered pursuantthe matters required to Section 12be discussed by SAS 61 (Codification of Statements on Auditing Standards, AU 380), as modified or supplemented. The Audit Committee received the written disclosures and the letter from the independent accountants required by Independence Standards Board Standard No. 1 (Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees), as modified or supplemented. The Audit Committee discussed with the independent accountant the independent accountant's independence. Based upon the foregoing review and discussions, the Audit Committee recommended to the Board of Directors of the Company that the audited financial statements of the Company be included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2004 as filed with the Commission. HARMON ARONSON JOHN A. MOORE ERIC L. SICHEL NOMINATING COMMITTEE The Nominating Committee appointed, on June 22, 2004, is authorized to select the nominees of the Board of Directors for election as directors. The members are John A. Moore, Harmon Aronson and Bernard Berk. In selecting nominees the Committee identifies and evaluates the current Directors and their commitment to the policy of the Company and each individual's qualifications and availability. The Committee believes that a nominee for director of the Company should have an appropriate level of sophistication, knowledge and understanding of the Company and the industry, stockholder relations and finance and accounting for publicly held companies. The Committee also considers the need to select a nominee who has the appropriate experience and financial background who could qualify as an "audit committee financial expert" within the meaning of the rules under the Securities Exchange Act of 1934 failedand of the American Stock Exchange. The Company has not engaged any third party to fileassist in the process of identifying or evaluating candidates. The Company currently does not have a process for considering candidates put forward by stockholders other than those who are directors of the Company. In view of the recent effectiveness of the requirements under the Securities Exchange Act of 1934 as to a policy with respect to the consideration of - 38 - candidates put forward by stockholders other than those who are directors of the Company, the adoption of such policy and the procedures for stockholders to submit candidates is under consideration by the recently elected Board. MEETINGS During the fiscal year ended March 31, 2004, our Board of Directors held nine meetings. Each director attended 75 percent or more of the aggregate number of meetings and committees of which he was a member that were held during the period of his service as a director. The Company does not have a formal policy regarding attendance by members of the Board of Directors at the Company's annual meeting of stockholders, although it does encourage attendance by the directors. Historically, more than a majority of the directors have attended the annual meeting. CODE OF CONDUCT At the first meeting of the Board of Directors following the Annual Meeting of Stockholders held on June 22, 2004 it adopted a timely basisCode of Business Conduct and Ethics for its directors, officers and employees which it believes complies with the reports requiredrequirements for a company code of ethics for financial officers that were promulgated by the SEC pursuant to the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") as well as for the members of our Board of Directors. The directors will be surveyed annually regarding their compliance with the policies as set forth in the Code of Conduct for Directors. A copy of the Code of Business Conduct and Ethics may be obtained without charge by a written request addressed to the Treasurer, Elite Pharmaceuticals, Inc., 165 Ludlow Avenue, Northvale, New Jersey 07647. We intend to disclose any amendment to, or waiver of, a provision of the Business Conduct and Ethics for Directors in a report filed under the Securities Exchange Act of 1934 within five business days of the amendment or waiver. STOCKHOLDER COMMUNICATIONS Stockholders who wish to send communications to the Board of Directors should address their communication to Elite Pharmaceuticals Inc., 165 Ludlow Avenue, Northvale, New Jersey 07647, attention Mark I. Gittelman, Secretary. Mr. Gittelman has been instructed to collect and organize stockholder communications and forward copies to each of the Directors. If a communication relates to the Secretary, such communication should be sent to the same address, attention Bernard Berk, Chairman. Typically, we do not forward to our directors communications from our stockholders or other communications which are of a personal nature or not related to the duties and responsibilities of the Board, including: o Junk mail and mass mailings - 39 - o New product suggestions o Resumes and other forms of job inquiries o Opinion surveys and polls o Business solicitations or advertisements COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers and persons who own more than ten percent of a registered class of our equity securities (collectively, "Reporting Persons") to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities of Elite. Reporting Persons are required by SEC regulation to furnish Elite with copies of all Section 16(a) forms that they file. To our knowledge, based solely on a review of the copies of such reports furnished to us, we believe that during fiscal year ended March 31, 2004 all Reporting Persons complied with all applicable filing requirements. ITEM 11. EXECUTIVE COMPENSATION EXECUTIVE OFFICER COMPENSATION The Company entered into a three-year employment agreement effective July 23, 2003 with Mr. Berk providing for (i) his full time employment as Chief Executive Officer at an annual base salary of $200,000, (ii) the grant to him of options which vest immediately to purchase 300,000 shares of Common Stock at a price of $2.01 per share, the closing share price on the American Stock Exchange on the date of grant and (iii) the grant of options to purchase an additional 300,000 shares at the $2.01 per share to vest on consummation of a "strategic transaction" while he is employed as Chief Executive Officer. The consummation of such transaction will result in the increase of his base annual salary to $310,140 effective with the consummation. A strategic transaction is defined as any one of the following transactions provided that the net value of the consideration to the Company or its stockholders determined in good faith by the Board of Directors is at least $10,000,000: (i) the sale of all or substantially all of the assets of the Company, (ii) a merger or consolidation or business combination, or (iii) the sale by the Company of debt or equity securities. Either party upon notice may terminate Mr. Berk's employment except that a termination by the Company without cause or because of his permanent disability or a termination by him for cause will result in severance pay in the form of the continuation of his base salary for the balance of the term or two years, whichever is longer, less in the event of termination for permanent disability the amount of payments under a disability insurance policy maintained by the Company. The Company is also to - 40 - continue to pay during the most recent fiscal year. The Company becameforegoing period the premiums for life and disability insurance policies. Furthermore, in the event that Mr. Berk terminates his employment following a reporting company, and reports"change of control" event he is to receive, payable in 24 monthly installments, an amount which will depend on the Securities and Exchange Commission on Form 3, Form 4 and Form 5 became obligatory as of August 14, 1998. Nonefair value of the officers, directorsconsideration determined in good faith by the Board of Directors received by the Company or stockholders from the "change of control" event less related expenses ("Net Fair Value") -- $500,000 if the Net Fair Value is $10 million or less; the greater of $500,000 or twice his then base annual salary, if the Net Fair Value is greater than $10 million but not more than $20 million, or $1,000,000 if the Net Fair Value is greater than $20 million. A "change of control" event is (i) a merger or consolidation in which securities possessing more than 50% of the voting power is issued to persons other than the holders of 10% or more ofvoting securities of the Company made a timely filingimmediately prior to the event, (ii) the sale, transfer or disposition of Form 3. Toall or substantially all the knowledgeassets of the Company, all required reports on Form 3 have now been filed. Toor (iii) the knowledgesale by the Company of securities to a third party. The agreement contains Mr. Berk's non-competition covenant for a period of one year from termination. The Company is a party to an agreement dated February 26, 1998 whereby fees are paid to Gittelman & Co., P.C., a firm wholly-owned by Mark I. Gittelman, the Company's Chief Financial Officer, Secretary and Treasurer, in consideration for services rendered by the firm as internal accountant and financial and management consultant. The firm's services include the services rendered by Mr. Gittelman in his capacity as Chief Financial Officer, Secretary and Treasurer. For the fiscal years ended March 31, 2004, 2003 and 2002, the fees paid by the Company under the agreement were $168,750, $167,544 and $91,260, respectively. The services rendered by the firm to the Company averaged 128, 127 and 69 hours per month, respectively, of which an average of 30 hours per month were services rendered by him in his capacity as an officer of the Company, all required reports on Form 4 were filed late but have now been filed. To the knowledge of the Company, all filings for prior fiscal years required under Section 16(a) of said Act have been filed.

ITEM 11. EXECUTIVE COMPENSATION

Company. The following table provides information onsets forth the annual and long-term compensation offor services in all capacities to the Company for the three years ended March 31, 2004, awarded or paid to, or earned by Bernard Berk, our President and Chief Executive Officer since June 2003 and our former President and Chief Executive Officer, Dr. Atul M. Mehta. Dr. Mehta the chief executive officerresigned as an employee and as a director of EPI for the last three fiscal years.Elite as of June 3, 2003. No other executive officer of the Company received salary and bonuscompensation exceeding $100,000 during those periods.

24

Summary - 41 - SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------- Annual Compensation Table

Chief executive Officer(2) - -------------------------------------------------------------------------------------------------------------------------
Annual CompensationLong Term Compensation
------------------- ---------------------- - ------------------------------------------------------------------------------------------------------------------------- (a)(b)(c)(d)(e)(f)(g)(h)(i)
Name and principal position
Fiscal YearSalaryBonusOther Annual CompensationRestricted Securities LTIP All Other Principal Year(1) ------ ----- Compensa- Stock AwardsSecurities Underlying optionsLTIP payoutsAll other compensation
Payouts Compensa- Position ------- tion(3) ------------ Options ------- tion -------- ------------ ---------- --------- - ------------------------------------------------------------------------------------------------------------------------- Bernard Berk, 2003-04 $166,667 -- -- -- 300,000(4) -- -- President and Chief Executive Officer - ------------------------------------------------------------------------------------------------------------------------- Atul M. Mehta,
2003-04 $ 53,684 -- $ 3,040 -- --(5) -- -- Ph.D. former 2002-03 $330,140 -- $ 3,040 -- -- -- -- President		 and 2001-02
2000-01
1999-00		 $272,855 -- $
$
$		272,855
248,050
227,030		$
$
$		30,000
45,000
25,000		$
$
$		83,896
3,040
3,040		 83,856 --
50,000(6) --
--		50,000
425,000(1)(2)
500,000		--
--
--		--
--
--

(1) On December 15, 2000,The Company's fiscal year begins on April 1 and ends on March 31. The information is provided for each fiscal year beginning April 1. (2) Dr. Mehta surrendered optionsresigned as an employee and as a director of Elite as of June 3, 2003. (3) Other Annual Compensation represents use of a company car, premiums paid by the Company for 425,000 shareslife insurance on Dr. Mehta's life for the benefit of his wife and the Company's common stock (exercisable at $7.00 per share) and in return received options for 425,000 shares of the Company's common stock exercisable on January 2, 2001 and expiring January 1, 2006. The exercise price is 110% of the openingpurchase price of the Company's common stock on January 2,$80,856 for options acquired from Dr. Mehta. (4) Does not include 300,000 options which are exercisable only upon occurrence of a "strategic transaction". (5) See "Item 3 - Legal Proceedings" for settlement of a litigation providing for extension of expiration dates of options granted prior to April 1, 2001 adjusted upward to the nearest half dollar of $7.00. On January 2, 2001, the stock of the Company opened at $6.25 per share, therefore the exercise price for the stock subjecthim to these options is $7.00 per share.

     (2)purchase 770,000 shares. (6) By action on February 21, 2002, theour Board of Directors corrected a clerical error in options for 425,000 shares of class Aour common stock of the Company previously granted to Dr. Mehta. This correction did not result in any additional shares being subject to options held by Dr. Mehta, any change in the exercise price or a change in any other material terms.

     The Company's fiscal year begins April 1 Option Grants to and ends March 31. The information is provided for each fiscal year beginning April 1.

     Other Annual Compensation represents use of a company car and premiums paidExercised by the Company for life insurance on Dr. Mehta's life for the benefit of his wife paid by the Company.

     Reported below in this report is the purchase by the Company of options from Dr. Mehta. The purchase price for those options of $80,896 is included above in "Other Annual Compensation."

Option GrantsExecutive Officers in Last Fiscal Year

     During the fiscal year, the Board Options granted to executive officers of the Company authorized issuance to Dr. Mehta of options to acquire 50,000 shares ofnamed in the common stock of the Company, vesting over a period of five years at the rate of 10,000 shares per year beginning February 21, 2003, exercisable at a price equal to 110% of the closing price of the stock on February 21, 2002 ($8.25 per share).

     By action on January 25, 2001, the Board purchased options held by Dr. Mehta for 20,214 shares of the class A common stock of the Company at a price of $4.00 per share. The options carried an exercise price of $2.00 per share. The then current market price for the stock was in excess of $7.50. Dr. Mehta had intended to exercise the option for these shares and then sell the shares. The purchase price for the option

25

arrived at by the Board took into account the amount which would be necessary to purchase the options and cover taxes due Dr. Mehta on the transaction.

Option/SAR GrantsSummary Compensation Table in Last Fiscal Year

    Individual Grants    
 
(a) (b) (c) (d) (e)
Name Number of Securities Underlying Options Granted % Grant Represents of Options to Employees Exercise or Base Price
($/sh)		 Expiration Date
 
Atul M. Mehta 50,000 2.8% $8.25 2-20-07

Aggregated Option Exercises and Fiscal Year End Option Value Table

abcde
No. of Securities Underlying Unexercised Options at FY-EndValue of Unexercised In-the-Money Options/ at FY-End
NameShares Acquired on ExerciseValue RealizedExercisable/UnexcercisableExercisable/Unexercisable
Atul M. MehtaNone$01,025,000/450,000$2,120,000/0

     These options and the shares underlying them are unregistered, and their market value is unknown and incalculable. However, the registered common stock of the Company was trading for $6.15 per share as of the close of business on May 21, 2002. It is on this hypothetical value that the figures in column (e) are calculated. These figures may have no relation to the actual value of the unexercised options.

     Options for 500,000 shares which were granted to Dr. Mehta during the fiscal year ended March 31, 2000 vest2004 were as follows: - 42 - OPTION GRANTS IN LAST FISCAL YEAR NUMBER OF SHARES % OF TOTAL EXERCISE EXPIRATION POTENTIAL REALIZED VALUE AT UNDERLYING OPTIONS GRANTED PRICE DATE ASSUMED ANNUAL RATES OF NAME OPTIONS TO EMPLOYEES IN STOCK PRICE APPRECIATION GRANTED FISCAL YEAR FOR OPTION TERM 5% 10% Bernard Berk 300,000(1) 41.4% $2.01 6/2/13 $982,223 $1,564,027 Atul M. Mehta(2) -- -- -- -- -- --
(1) Does not include options to purchase 300,000 shares at $2.01 per share which are exercisable only upon occurrence of a "strategic transaction". See "Executive Officers". (2) See "Item 3 - Legal Proceedings" for settlement of litigation providing for extension of expiration dates of options to purchase 770,000 shares granted prior to year ended March 31, 2002 while he was an executive officer. No options were exercised by executive officers during the ratefiscal year ended March 31, 2004.
SHARES VALUE NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY NAME EXERCISED REALIZED UNEXERCISED OPTIONS AT YEAR-END OPTIONS AT YEAR-END (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE Atul M. -0- -0- 270,000 -0- $0 -- Mehta(2) -0- -0- 100,000 -0- $0 -- -0- -0- 100,000 -0- $48,000 -- -0- -0- 100,000 -0- $98,000 -- -0- -0- 100,000 -0- $148,000 -- -0- -0- 100,000 -0- $198,000 -- Bernard Berk (3) -0- -0- 300,000 300,000 $291,000 $291,000
(1) The dollar values are calculated by determining the difference between $2.98 per share, the fair market value of 100,000 shares per year on each Decemberthe common stock at March 31, beginning December 31, 2001. The options expire on2004, and the earlierexercise price of (a) one year afterthe respective options. (2) Dr. Mehta ceases to be employed by EPI or to serveresigned as an officer or director of EPI or (b) March 31, 2010. Notwithstanding, the options shall become fully vested and exercisable if Dr. Mehta's employment agreement or his position as an officerofficer/employee and director is terminated byas of June 3, 2003. (3) Mr. Berk entered the Company for any reason or if it expires as a resultemploy of the Company giving notice of nonrenewal. If the board of directors of the Company votes to approve the acquisition of more than 50% of the stock of the Company by any person or entity, the Company may require Dr. Mehta to exercise or sell the options. In addition to the above stated options, by board action on September 22, 2000, Dr. Mehta was granted a preemptive right to acquire shares of the Company

26

in a sufficient number to maintain his percentage ownership of the shares outstanding. Under this preemptive right, upon issuance by the Company of shares of common stock for any reason, or of securities convertible into common stock upon demand, Dr. Mehta shall be permitted to purchase shares of common stock of the Company sufficient to maintain the greater of his percentage ownership of outstanding common stock of the Company determined on an absolute basis and upon a fully diluted basis as existed prior to the stock issuance. The price which Dr. Mehta shall pay for such stock shall be the lower of (a) the then current market price (discounted 15% if the shares are not registered) or (b) the price to be paid by the party in the transaction triggering the preemptive right. The right shall be exercised and the price shall be paid within 120 days of the issuance of the stock triggering the preemptive right.

Compensation of Directors

June 2003. - 43 - COMPENSATION OF DIRECTORS Each non-affiliated director receives $2,000 as compensation for each meeting attended.

Employment Agreement

     The only employment agreement which On February 6, 2004, the Company has with an executive officer isBoard of Directors authorized the Amended and Restated Employment Agreement entered into March 31, 2000 between the Company and Dr. Atul Mehta (the "Agreement"). The Agreement provides that the Company will employ Mehtapayment of a fee of $125,000 per annum retroactive to January 1, 2004 to Mr. Moore as compensation for a period of five years ending December 31, 2005 (unless sooner terminated pursuant to provisionshis services as Chairman of the Agreement). AtBoard. The fee is based on the endsubstantial duties the Board has assigned to him, principally to assist the Chief Executive Officer in the management of saidthe Company's operations, and the time required to perform such duties. Mr. Moore earned $46,875 under the authorization for the period of five years, the Agreement will be automatically renewed for an additional five year term unless either party gives written notice of nonrenewal by December 31, 2004. Subsequent to December 31, 2005, the Agreement is automatically extended for periods of one year unless either party gives notice of nonrenewal at least one year prior tothrough May 12, 2004, the date of expiration. The Agreement provides for an annual salary of $242,000, which amount is to be increased by the board of directors not less than 10% annually beginning January 1, 2001. The Agreement further provides that Dr. Mehta will receive 5% of the net profit each fiscal year, health insurance to cover Dr. Mehta and his dependents, insurance on the life of Dr. Mehta for the benefit of his spouse or his estate in an amount of at least $300,000 and such bonusresignation as the board in its discretion may award Dr. Mehta from time to time.Chairman. OPTIONS AND WARRANTS In addition, the Agreement provides that Dr. Mehta will receive options to purchase the common stock of Elite at a price of $10.00 per share in a total amount of 500,000 shares, exercisable in increments of 100,000 shares annually beginning December 31, 2001. The options shall be exercisable from the date of vesting until one year after Mehta ceases to be employed by the Company or to serve as an officer and director of the Company or March 31, 2010, whichever is earlier. The options are exercisable by Dr. Mehta if the Agreement or Dr. Mehta's position as an officer and director is terminated by the Company for any reason or if the Agreement is not renewed by the Company. The Agreement further provides that if the board of directors votes to

27

approve the acquisition of more than 50% of the stock by any person or entity, the Company may require Dr. Mehta to elect to exercise the options or to sell the options at a price equal to the difference between the exercise price and an amount which is 110% of the then fair market value of the stock. Dr. Mehta's compensation subsequent to December 31, 2005, the agreement provides that the parties shall determine Dr. Mehta's compensation after said period; and, such compensation shall be on terms no less favorable to Dr. Mehta then the terms of compensation for the first five years and shall be no less than 110% of his annual salary for the year ended December 31, 2005. The Agreement shall terminate upon (a) Mehta's death, (b) election of either party if Mehta is unable to perform his duties on account of disability for a total period of 120 days or more during any consecutive period of twelve months, by Elite upon "severe cause" and (d) by Mehta upon the occurrence of certain events. If the Agreement is terminated due to Dr. Mehta's death, his surviving spouse, or his estate if his spouse does not survive, shall receive Dr. Mehta's salary, incentive commissions, benefits and any deferred compensation accrued through the last day of the third calendar month following the month in which termination occurred; in addition, one-half of his salary would be paid for an additional period of three years. If the Agreement is terminated by the Company because of Dr. Mehta's disability or upon "severe cause", Dr. Mehta will receive his salary, incentive commissions, benefits and any deferred compensation through the last day of the calendar month in which the termination occurs. If the Agreement is terminated by Dr. Mehta upon the occurrence of one of the events specified which would permit him to so terminate, Dr. Mehta shall then receive all accrued salary, incentive commissions, benefits and any deferred compensation through the later of May 22, 2006 or the third anniversary of such termination.

      The board of the Company does not have a Compensation Committee. Dr. Mehta's compensation and employment agreement have been unanimously approved by the board, with Dr. Mehta abstaining.

      The board of the Company has an Audit Committee which is comprised of the board members other than Dr. Mehta.

Comparative Shareholder Return

     The graph which follows compares the yearly percentage change in the Company's cumulative shareholder return on its common stock with the cumulative total return of (1) all United States companies traded onOctober 2003, the American Stock Exchange (where(the "Amex") amended its Rules to require stockholder approval of material amendments to a stock option plan or other equity compensation arrangements pursuant to which options or stock may be acquired by officers, director or employees, subject to certain limited exceptions. Our stockholders approved at its meeting held on June 22, 2004 the following amendments by our Board of Directors of the provisions of outstanding options and warrants issued to officers, directors or employees of, or consultants to, the Company. On June 6, 2003 our Board of Directors reduced the exercise price of options to purchase 30,000 shares of the Company's common stock is now traded) and (2) 51 companies tradedCommon Stock granted on the American Stock Exchange which carry the Standard Industrial Classification (SIC) code 283 Pharmaceuticals). The graph was prepared by the Center for Research in Security Prices at the University of Chicago Graduate School of Business, Chicago, IL.

     The stockJanuary 31, 2003 to each of the Companyfollowing persons, each of whom was traded on the NASDAQ over-the-counter bulletin boardthen a Director: Messrs. Harmon Aronson, Richard A. Brown, John P. deNeufville, John A. Moore, Donald S. Pearson and Eric L. Sichel from July 23, 1998 until February 24, 2000. The stock$6.50 to $2.21 per share, which was 110% of the Company began tradingclosing per share sale price of the Common Stock on the American Stock Exchange on the date of the amendment. These options vest as follows: 10,000 shares on December 12, 2003, 10,000 shares on December 12, 2004 and 10,000 shares on December 12, 2005. The options expire at the earlier to occur of: (1) January 31, 2013; or (2) the date one year after the optionee ceases to be a director of or a consultant or advisor of the Company. On February 24, 2000. The period covered6, 2004, the Board of Directors authorized a further amendment to all the options held by Messrs. Brown (30,000 shares), deNeufville (55,000 shares) and Pearson (90,000 shares) to extend their expiration date to a date two years following the Comparison begins September 1998 because no trading data was available for

28

June 22, 2004 Annual Meeting. On March 8, 2004 our Board of Directors amended those options held by then Directors which contained an exercise price greater than $2.21 to reduce their exercise price to $2.21 per share. - 44 -
Name Shares Subject Date of Original Expiration ---- To Amended Options Grant Exercise Price Date ------------------ ----- -------------- ---- Donald Pearson 30,000 7/1/99 $6.00 6/22/06 30,000 1/2/01 $6.50 6/22/06 Harmon Aronson 30,000 7/1/99 $6.00 9/1/09 30,000 1/2/01 $6.50 1/1/11 Eric Sichel 30,000 8/2/01 $10.00 8/2/11
On May 12, 2004 our Board of Director also authorized an amendment to the period from July 23, 1998 through August 31, 1998. The Company's fiscal year ends on March 31.

29

Comparisonexpiration dates of Five-Year Cumulative Total Returns

Performance Graph for
Elite Pharmaceuticals, Inc.

Produced on 05/29/2002 including dataoptions to 03/28/2002

$3,000








$2,000









$1,000








      $0















1238.4









135.0
110.1
09/30/199803/31/199903/31/200003/30/200103/28/2002

Legend

Symbol CRSP Total Returns Index for: 09/1998 03/1999 03/2000 03/2001 03/2002
 Elite Pharmaceuticals, Inc. 100.0 158.4 1780.0 880.0 1238.4
 AMEX Stock Market (US Companies) 100.0 117.5 166.6 132.9 135.0
 AMEX Stocks (SIC 2830 - 2839 US Companies) Drugs 100.0 136.2 267.8 156.3 110.1
Notes:
  1. The lines represent monthly index levels derived from compounded daily returns that include all dividends.
  2. The indexes are reweighted daily, usingpurchase 330,000 shares held by Mr. Moore, of which 30,000 options granted in January 2003 and exercisable at $2.21 have an expiration date of January 13, 2003 and 300,000 options granted in June 2003 and exercisable at $2.01 per share have an expiration date of June 13, 2013. Similar to the market capitalizationabove amendment of the options held by Messrs Pearson, Aronson and Sichel, the options will terminate on the previous trading day.
  3. Ifearlier of their current expiration date or a date two years after Mr. Moore ceases to be a director of the monthlly interval, basedCompany. On March 8, 2004, the Board of Directors confirmed the reduction to $2.21 per share of the $3.31 per share exercise price of options of purchase 30,000 shares granted on June 13, 2003 to each of three employees. Such options vest in three equal annual installments commencing with the fiscal year-end, is notdate of grant. On February 6, 2004 the Board of Directors authorized the extension of the expiration date from June 30, 2004 to November 30, 2005 of the outstanding Class B Warrants to purchase an aggregate of 681,002 shares of our Common Stock at a trading day,price of $5.00 per share. The Class B Warrants were originally issued as part of units of shares of Common Stock and Class B Warrants in a private placement to a group of investors. Included among the preceding trading day is used.
  4. holders of the Class B Warrants are Richard A. Brown, a Director at the time, who holds, along with his son and an affiliated trust, an aggregate of 156,250 Class B Warrants and Bridge Ventures Inc., a consultant to the Company since December, 2003, which holds 25,000 Class B Warrants. The index levelBoard of Directors authorized the foregoing amendments for all series was setthe purposes of hopefully generating additional funds through the exercise of the options or warrants, and restoring a principal purpose or purposes of the original grants of the options or warrants to $100.0 on 09/30/1998.
  5. Dataofficers, directors and employees, namely a reasonable opportunity for Elite Pharmaceuticals, Inc. from 09/1996the holder to 01/2000 was provided byacquire or increase a proprietary interest in the client.

Prepared by CRSP (www.crsp.uchicago.edu), CenterCompany and to restore a meaningful form of noncash compensation. As described under "Item 3 - Legal Proceedings" a settlement of a litigation with Dr. Atul Mehta, includes provisions for Research in Security Prices, Graduate Schoolthe extension of Business,the expiration dates to June 13, 2005 of options previously issued to Dr. Mehta to purchase 770,000 shares of Common Stock, including options with respect to 70,000 shares which had previously expired. The University of Chicago. Used with permission. All rights reserved.           ©Copyright 2002

30

number and exercise prices are as follows: - 45 - NUMBER OF OPTIONS EXERCISE PRICE ----------------- -------------- 270,000* $10.00 100,000 3.00 100,000 2.50 100,000 2.00 100,000 1.50 100,000 1.00 - ---------- * Includes the 70,000 which had expired ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS The following table sets forth the securitycertain information regarding beneficial ownership of the Company's votingour common stock by certain beneficial owners and management as of May 22, 2002. Listed isApril 30, 2004 by (i) each persondirector and named executive officer, (ii) all executive officers and current directors as a group and (iii) the persons known by the Company to be the beneficial owner ofus to own beneficially more than 5% of the Company's common stock; (ii) each directoroutstanding shares of the Company; (iii) each executive officer of the Company; and (iv) the officers and directors of the Company as a group.

          
Title of Class Name and Address of Amount and Nature of Percent of Class
  Beneficial Owner Beneficial Ownership  
 
 
 
Common Atul M. Mehta, Director/Officer
165 Ludlow Avenue
Northvale NJ 07647		  2,912,700
Direct and
Indirect		(1) 26.5%
Common Jerome Belson
495 Broadway
New York, NY 10012		  916,000
Direct and
Indirect		(2) 9.2%
Common John de Neufville and Mely Rahn, Trustees
Margaret de Neufville Revocable Trusts
197 Meister Avenue
North Branch, NJ 08876		  768,900
Direct and
Indirect		(3) 7.9%
Common Bakul and Dilip Mehta
P.O. Box 438
Muscat, Sultanate of Oman		  630,000
Direct		  6.5%
Common Bridge Ventures, Inc.
575 Lexington Avenue, Ste. 410
New York, NY 10022		  635,604
Direct and
Indirect		(4) 6.4%
Common Donald S. Pearson, Director
1305 Peabody Avenue
Memphis, TN 38104		  78,750
Direct		(5) 0.8%
Common Harmon Aronson, Director
26 Monterey Drive
Wayne, NJ 07470		  60,000
Direct		(6) 0.6%
Common Eric L. Sichel, Director
411 Highview Road
Englewood, NJ 07631		  30,000
Direct		(7) 0.3%
 
31
 
Common Mark I. Gittelman, Treasurer/Sec'y
300 Colfax Avenue
Clifton, NJ 07013		  10,000
Direct		(8) 0.1%
Common Officers and Directors as a Group  3,141,450
Direct and
Indirect		  27.7%

(1)     Includes (i) 6,300 shares held by Dr. and Mrs. Mehta as custodians for Amar Mehta; (ii) 6,300 shares held by Dr. and Mrs. Mehta as custodians for Anand Mehta; and (iii) options to purchase 1,475,000our Common Stock. On such date, we had 12,104,423 shares of common stock outstanding. Shares not outstanding but deemed beneficially owned by virtue of the right of any individual to acquire shares within 60 days are treated as outstanding only when determining the amount and percentage of common stock owned by such individual. Each person has sole voting and investment power with respect to the shares shown, except as noted. Unless otherwise indicated, the address of the person named is c/o Elite Pharmaceuticals, Inc., 165 Ludlow Avenue, Northvale, New Jersey 07647.
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF CLASS ---------------- ---------------- ------------------- Bernard Berk, Chairman of the Board and Chief 300,000(1) 2.4% Executive Officer Harmon Aronson, Director* 70,000(2) ** Eric L. Sichel, Director* 60,000(3) ** John A. Moore, Director* 1,224,218(4) 9.9% Mark I. Gittelman, CFO, Treasurer and Secretary 10,000(5) ** 300 Colfax Avenue Clifton, New Jersey 07013 Dr. Atul Mehta 2,257,700(6) 17.5% c/o Andrew Giles Freda, Esq. Edwards & Caldwell LLC 1600 Route 208 North Hawthorne, NJ 07647 Edson Moore Healthcare Ventures, Inc. 914,218(7) 7.5% 403 Marsh Lane Wilmington, Delaware 19804
- 46 - Jerome Belson 905,100(8) 7.5% 495 Broadway New York, NY 10012 ALL DIRECTORS AND OFFICERS AS A GROUP 1,664,218(9) 13.0%
* See "Item 10 - Directors and Executive Officers of the Registrant" for his address ** Less than 1% of outstanding shares (1) Comprised of options to purchase 3000,000 shares. (2) Comprised of options to purchase 70,000 shares. (3) Represents options to purchase 40,000 shares and 20,000 shares owned as co-tenant with Dana Cernea. (4) Represents (i) options personally held by Mr. Moore to purchase 310,000 shares and (ii) 914,218 shares of common stock beneficially owned by Edson Moore Healthcare Ventures, Inc. ("Edson Moore"), of which he is president and principal stockholder. The 914,218 shares of common stock are comprised of (i) 764,218 shares of common stock issued to Edson Moore upon the exchange of 12,915 shares of Series A Preferred Stock, par value $1.00 per share, of Elite Laboratories, Inc., (ii) 100,000 shares issuable upon exercise of a warrant (exercisable through October 17, 2005) at an exercise price of $18.00 per share and (iii) 50,000 shares acquired in a recent private placement. (5) Comprised of options to purchase 10,000 shares. (6) Based on the terms of the settlement of a litigation with Dr. Mehta (includingand includes options for 400,000to purchase 770,000 shares which do not begin vesting until December 31, 2002(see "Item 3 - Legal Proceedings"), and then vest 100,000312, 600 shares owned by his wife, members of his family or an affiliate. (7) See clause (ii) of note 4 above. (8) Based on that date and 100,000 shares annually thereafter for three years and options for 50,000 shares which do begin vesting until December 31, 2002 and then vest 10,000 sharesinformation contained in a Schedule 13D, as amended, filed by Jerome Belson on that date and 10,000 shares annually thereafter for four years).

(2)November 15, 2002. Includes (i) 25,000535,200 shares held by Jerome Belson, (ii) 53,900 shares held by Maxine Belson, wife of Jerome Belson; (ii) 50,000Belson, (iii) 7,000 shares held by theBrianne Goldstein, daughter of Jerome Belson, Foundation; and (iii) 35,000(iv) 28,000 shares held by Majorie Belson, daughter-in-law of Jerome Belson, (v) 25,000 shares owned by the Grandchildrengrandchildren of Jerome Belson;Belson and (iv) warrants for 255,000 shares.

(3)     Represents (i) 333,900 shares held in trust for the benefit of John P. de Neufville; (ii) 410,000 shares held in trust for David T. de Neufville; and (iii) options personally held by John P. de Neufville to purchase 25,000 shares.

(4)     Includes (i) 56,334 shares owned by SMACS Holding Corp., an affiliate of Bridge Ventures, Inc.; (ii)(vi) warrants to purchase 206,250256,000 shares held by Bridge Ventures, Inc.; (iii)of common stock. (9) Includes options and warrants to purchase 75,000 shares held by SMACS Holding Corp.; and (iv) 47,500 shares owned by the Bridge Ventures, Inc. Employee Pension Plan.

(5)     Includes options to purchase 60,000an aggregate of 730,000 shares. Options for 40,000 shares are vested. The remaining options vest in increments of 10,000 shares eachExcept as otherwise set forth, information on September 1, 2002 and January 2, 2003.

(6)     Comprised of options to purchase 60,000 shares. Options for 40,000 shares are vested. The remaining options vest in increments of 10,000 shares each on September 1, 2002 and January 2, 2003.

(7)     Comprised of options to purchase 30,000 shares. Options for 10,000 shares are vested. Options for the remaining shares vest in increments of 10,000 each on August 2, 2003 and August 2, 2004.

(8)     Comprised of options to purchase 10,000 shares.

     Information as to the stock ownership set out aboveof each person was provided to the Company by such person. Other than our 2004 Stock Option Plan, we do not have any compensation plans or arrangements benefiting employees or non-employees under which equity securities - 47 - of the beneficial owners.

32

Company are authorized for issuance in exchange for consideration in the form of goods or services. The Company is informed and believes that as of May 21, 2002,April 20, 2004, Cede & Co. held 6,471,0337,069,228 shares (66/5%) and Class A warrants for 1,188,430 shares (71.8%) of the CompanyCompany's common stock as nominee for Depository Trust Company, 55 Water Street, New York, New York 10004,10004. It is our understanding that Cede & Co. and Depository Trust Company both disclaim any beneficial ownership thereof,therein and that such shares are held for the account of numerous other persons, no one of whom is believed to beneficially own five percent or more of the common stock of the Company.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     ELI was We had a partycontractual relationship with Donald Pearson, a former Director, which expired on November 30, 2003, providing for Mr. Pearson to a three-year Consulting Agreement entered into with Bridge Ventures, Inc. ("Bridge") on August 1, 1997, under which Bridge provided(i) refer potential customers who will license or collaborate in the company with marketingdevelopment or purchase of the technology of the Company and management(ii) render financial consulting services.services to the Company. Under the termsarrangement, Mr. Pearson received consulting fees aggregating $28,800, $38,400 and $12,800 for fiscal years ended March 31, 2004, 2003 and 2002, respectively. The referral fees were to be a percentage ranging from 5% to 1% of the Consulting Agreement, ELIfirst $5,000,000 of revenues generated by his referrals after deducting expenses and a credit for the consulting fees. No revenues were generated under the arrangement. The Company also has a similar customer referral arrangement with Mr. Harmon Aronson, a Director, to pay him a percentage of net revenues generated by customers referred by him. No fees have been earned under his arrangement. See Item 10 "Directors and Executive Officer of Registrant" for information as to employment or engagement agreements with Bernard Berk and an affiliate of Mark I. Gittelman. ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES The following is a description of the fees paid Bridgeby the sumCompany to Miller, Ellin & Co., LLP ("Miller Ellin") during the fiscal years ended March 31, 2004 and March 31, 2003: Audit Fees: The Company paid fees of $10,000 per monthapproximately $150,000 and reimbursed Bridge for all out-of-pocket expenses incurred on behalf of ELI. This agreement expired on December 31, 2001. Bridge is an owner of at least five percent$119,000 to Miller Ellin in connection with its audit of the Company's common stock.

     ELI is a party to an agreement whereby fees are paid to Gittelmanfinancial statements for the fiscal years ended March 31, 2004 and Company, a company wholly owned by Mark Gittelman,March 31, 2003, respectively, its review of the Company's Treasurer,interim financial statements included in consideration for services rendered by Mr. Gittelman in his capacity as Treasurer. Forthe Company's Quarterly Reports on Form 10-Q during each of the fiscal years ended March 31, 2004 and March 31, 2003. Financial Information Systems Design and Implementation Fees: The Company did not engage Miller Ellin during either of the years ended March 31, 20022004 and 2001,March 31, 2003 to provide advice to the fees paidCompany regarding financial information systems design and implementation. - 48 - Other fees: The Company did not pay any fee to that company were $91,260Miller Ellin to perform non-audit services during either of the years ended March 31, 2004 and $82,639, respectively.

March 31, 2003. PART IV ITEM 14.15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) (1) AttachedDocuments filed as an exhibit is thepart of this Report on Consolidated(1) Financial Statements See Financial Statements included after the signature page beginning at page F-1. (2) Financial statement schedules All schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or the notes thereto. (3) List of Exhibits See Index to Exhibits in paragraph (c) below. (b) REPORTS ON FORM 8-K. We filed the following Current Reports on Form 8-K with the Securities and Exchange Commission during the period from January 1, 2004 through May 31, 2004. 1. Report filed on January 8, 2004 reporting under Items 5 and 7 issuance of a press release announcing an agreement to utilize Elite's proprietary drug delivery technology for the development of a controlled release product. 2. Report filed on January 29, 2004 reporting under Items 5 and 7 issuance of a press release announcing the filing of a U.S. patent application. 3. Report filed on March 5, 2004 under Items 5 and 7 reporting issuance of a press release announcing completion of validation batches for once-a-day product which treat allergies and their symptoms. 4. Report filed on March 10, 2004 under Items 5 and 7 reporting issuance of a press release announcing extension by our Board of Directors of the expiration dates of our Class B Warrants from June 23, 2004 to November 30, 2005. 5. Report filed on April 2, 2004 under Items 5 and 7 reporting issuance of a press release disclosing the ruling by the Superior Court of New Jersey to enforce the - 49 - settlement of the litigation between Elite and its former President and Chief Executive Officer. 6. Report filed on April 16, 2004 under Item 5 disclosing a change in scheduled date for Annual Meeting of Stockholders. 7. Report filed on May 4, 2004 under Items 5 and 7 reporting issuance of a press release announcing closing of the settlement of the litigation with Dr. Mehta. 8. Report filed on May 10, 2004 under Items 5 and 7 reporting issuance of a press release disclosing agreement granting Purdue Pharma L.P. exclusive rights to evaluate certain of our abuse resistance drug formulation technology and the option to negotiate a license to develop and commercialize oxycodone products under the technology. 9. Report filed on May 17, 2004 under Items 5 and 7 disclosing issuance of a press release announcing appointment of Mr. Berk as Chairman of the Board of Directors. (c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K. We will furnish to our stockholders a copy of any of the exhibits listed below upon payment of $.25 per page to cover the costs of the Company and subsidiary forof furnishing the fiscal years ended March 31, 2002, 2001 and 2000.

          (2) No financial statement schedules are required to be filed by Item 8 or by Item 14 (d).

          (3) Exhibits required to be filed by Item 601exhibits. Exhibit No. Description 3.2 By-Laws of Regulation S-K which are applicable are: (i) articles of incorporation -the Company, as amended, incorporated by reference having been previouslyto Exhibit 3.2 to the Company's Registration Statement on Form SB-2 (Reg. No. 333-90633) made effective on February 28, 2000 (the "Form SB-2"). 4.1 Certificate of incorporation of the Company, together with all amendments thereto, as filed with the Secretary of State of the State of Delaware, incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4 (Reg. No. 333-101686), filed with the SEC byon December 6, 2002 (the "Form S-4"). 4.1(a) Form of specimen certificate for common stock of the Company, as a part of Form SB-2 on January 29, 1998; (ii) bylaws - incorporated by reference having been previouslyto Exhibit 4.1 to the Form SB-2. 4.2 Form of Class C Common Stock Purchase Warrant Certificate. * 4.3 Form of Class B Common Stock Purchase Warrant Certificate. * 4.4 Registration Rights Agreement by and between Prologica International, Inc. and each of the persons, whose name appears on the signature pages attached thereto, incorporated by reference to Exhibit 4.4 to the Form SB-2. 10.1 Settlement Agreement, dated October 23, 2002, among Elite, Harris Freedman, Sharon Will, Michael H. Freedman and certain of their respective - 50 - affiliates, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated November 1, 2002 (the "November 2002 Form 8-K"). 10.2 Commercial Lease made between Serex, Inc. and Elite executed September 7, 1993, incorporated by reference to Exhibit 10.4 to the Form SB-2. 10.3 2004 Employee Stock Option Plan approved by stockholders on June 22, 2004, incorporated by reference to Exhibit A to the Proxy Statement filed on Schedule 14A with respect to the Annual Meeting of Stockholders held on June 22, 2004. 10.4 Form of Confidentiality Agreement (corporate), incorporated by reference to Exhibit 10.7 to the Form SB-2. 10.5 Form of Confidentiality Agreement (employee), incorporated by reference to Exhibit 10.8 to the Form SB-2. 10.6 Employment Agreement dated as of July 23, 2003 between Bernard Berk and the Company incorporated by reference to Exhibit 10.6 to Report on Form 10-Q for three months ended June 30, 2003 (the "June 30, 2003 10Q Report") 10.7 Option Agreement between Bernard Berk and the Company dated as of July 23, 2003 incorporated by reference to Exhibit 10.7 to the June 30, 2003 10Q Report. 10.8 Option Agreement between Bernard Berk and the Company dated as of July 23, 2003 incorporated by reference to Exhibit 10.8 to the June 30, 2003 10Q Report. 10.9 Option Agreement between John A. Moore and the Company dated as of July 23, 2003 incorporated by reference to Exhibit 10.9 to the June 30, 2003 10Q Report. 10.10 Engagement letter dated February 26, 1998, between Gittelman & Co. P.C. and the Company. * 21 Subsidiaries of the Company.* 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* 32.1** Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* 32.2** Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* - ---------- * Filed herewith - 51 - ** 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 SECSecurities and Exchange Commission and are not incorporated by the Company as a part of Form SB-2 on January 29, 1998; (iii) subsidiaries of the registrant - an exhibit listing the subsidiaries of the Company is attached; (iv) consent of auditors - - consent of Miller, Ellin & Co. is attached hereto as an exhibit with the financial statements referred toreference in paragraph 14 (a) (1) above.

33

     (b)     The Company did not file any reports on Form 8-K during the last quarter of the fiscal year ended March 31, 2002.

     (c)     Attached as an exhibit is a list of the subsidiaries of registrant.

     (d)     Attached as an exhibit is the Report on Financial Statementsfiling of Elite Research, Ltd., a significant subsidiaryPharmaceuticals, Inc. under the Securities Act of 1933 or the Company, forSecurities Exchange Act of 1934, whether made before or after the fiscal period ended March 31, 2002date hereof and the consentirrespective of KPMG.

34

any general incorporation language in any such filings. - 52 - 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/ Atul M. Mehta                                                     
     Atul M. Mehta
     President
     (Principal Executive Officer)
     Date:                      June 24  , 2002
By:  s/ Mark I. Gittleman                                                    
     Mark I. Gittleman
     Treasurer
     (Principal Accounting Officer)
     Date:                      June 25   , 2002

In accordance with ELITE PHARMACEUTICALS, INC. By: /s/ Bernard Berk ------------------------------ Bernard Berk Chief Executive Officer Dated: June 28, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons constituting a majority of the board of directors of the registrant, on behalf of the registrant and in the capacities and on the dates indicated.

 s/ Atul M. Mehta                                                       
Atul M. Mehta
Director
Date: June 24                        , 2002
 s/ Harmon Aronson                                                        
Harmon Aronson
Director
Date: June 24                        , 2002
  s/ Eric L. Sichel                                                      
Eric L. Sichel
Director
Date: June 24                       , 2002

35



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


/s/ Bernard Berk               Chief Executive Officer             June 28, 2004
- --------------------------     (Principal Executive
Bernard Berk                   Officer)


/s/ Mark I. Gittelman          Chief Financial Officer             June 28, 2004
- --------------------------     and Treasurer (Principal
Mark I. Gittelman              Financial and Accounting
                               Officer)


/s/ Harmon Aronson             Director                            June 28, 2004
- --------------------------
Harmon Aronson


/s/ John A. Moore              Director                            June 28, 2004
- --------------------------
John A. Moore


/s/ Eric L. Sichel             Director                            June 28, 2004
- --------------------------
Eric L. Sichel


                                     - 53 -


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

                                  REPORT ONSUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                FOR THE YEARS ENDED MARCH 31, 2002, 20012004, 2003 AND 2000







                                       ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

                                       REPORT ON CONSOLIDATED FINANCIAL STATEMENTS

                                     FOR THE YEARS ENDED MARCH 31, 2002 2001 AND 2000

                                    CONTENTS

                                                                        PAGE

INDEPENDENT AUDITORS' REPORT                                             OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                                              1F-1

CONSOLIDATED BALANCE SHEETS                                           2F-2 - 3F-3

CONSOLIDATED STATEMENTS OF OPERATIONS                                    4F-4

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 5(DEFICIT)             F-5 - F-7

CONSOLIDATED STATEMENTS OF CASH FLOWS                                    6F-8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                            7F-9 - 24F-30



                          INDEPENDENT AUDITORS' REPORT

OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


The Board of DirectorsTo Elite Pharmaceuticals, Inc.
Northvale, New Jersey

We  have  audited  the  accompanying   consolidated   balance  sheets  of  Elite
Pharmaceuticals,  Inc. and SubsidiarySubsidiaries (the "Company") as of March 31, 20022004 and
2001,2003,  and the related  consolidated  statements  of  operations,  changes in stockholders'
equity  (deficit)  and cash flows for the years ended March 31,  2002, 20012004,  2003 and
2000.2002.  These  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 audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,   in  all   material   respects,   the   financial   position  of  Elite
Pharmaceuticals,  Inc. and  SubsidiarySubsidiaries  as of March 31, 20022004 and 20012003, and the
results of their  operations and their cash flows for each of the three years in
the period ended March 31, 2002, 20012004,  2003 and 2000,2002 in  conformity  with  accounting
principles generally accepted in the United States of America.

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


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

New York, New York
May 10, 2002
                                                     -1-June 8, 2004, except for
  the fourth and fifth paragraphs of
    Note 13, as to which
      the date is June 24, 2004


                                      F-1



ELITE PHARMACEUTICALS, INC. AND SUBSIDIARYSUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                             MARCH 31, 20022004 AND 20012003

                                     ASSETS

CURRENT ASSETS:
                                                                                    2002                2001

       Cash and cash equivalents                                                   $  6,852,434        $  7,296,702
       Short-term investments                                                           100,000                 ---
       Accounts receivable                                                               39,988              13,314
       Restricted cash                                                                  213,664             306,040
       Due from Joint Venture                                                           525,259              80,932
       Prepaid expenses and other current assets                                        106,082              81,732
                                                                                    ------------        ------------
           Total current assets                                                       7,837,427           7,778,720



PROPERTY AND EQUIPMENT- net of accumulated
       depreciation and amortization                                                  3,865,771           3,891,308



INTANGIBLE ASSETS - net of accumulated amortization                                      54,669              57,173


OTHER ASSETS:

       Deposit on Equipment                                                             123,396                 ---
       Investment in Joint Venture                                                       63,381                 ---
       Amount receivable from sale of state tax losses                                   66,077             146,132
       Restricted cash - Debt Service Reserve                                           300,000             300,000
       Restricted cash - Note payable                                                   250,000                 ---
       EDA bond offering costs, net of accumulated
           amortization of $34,076 and $20,885, respectively.                           163,777             176,968
                                                                                        --------         ----------

           Total other assets                                                           966,631             632,100
                                                                                        --------         ----------
                                                                                   $ 12,724,498        $ 12,350,301
                                                                                   ============        ============

                                                                     2004          2003
                                                                     ----          ----

CURRENT ASSETS:
       Cash and cash equivalents                                 $2,104,869    $3,264,081
       Accounts and accrued interest receivable                     153,250         4,681
       Restricted cash                                              203,995        99,380
       Prepaid expenses and other current assets                    137,892       132,092
                                                                 ----------    ----------

           Total current assets                                   2,600,006     3,500,234

PROPERTY AND EQUIPMENT- net of accumulated
       depreciation and amortization                              4,090,250     4,390,553

INTANGIBLE ASSETS - net of accumulated amortization                 102,196       104,842

OTHER ASSETS:

       Deposit on equipment                                         398,580            --
       Restricted cash - debt service                               300,000       300,000
       Restricted cash - note payable                               225,000       250,000
       EDA bond offering costs, net of accumulated
           amortization of $60,458 and $47,267, respectively        137,402       150,593
                                                                 ----------    ----------

           Total other assets                                     1,060,982       700,593
                                                                 ----------    ----------

                                                                 $7,853,434    $8,696,222
                                                                 ==========    ==========



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


                                      -2-F-2


ELITE PHARMACEUTICALS, INC. AND SUBSIDIARYSUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                             (CONTINUED)

                         MARCH 31, 20022004 AND 20012003
                                   (CONTINUED)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
                                                                                    2002                2001
                                                                                    ----                ----

       Current portion - Note payable                                                $   75,000           $     ---
       Current portion of EDA bonds                                                     130,000             120,000
       Accounts payable and accrued expenses                                            141,712             220,220
       Due to Joint Venture                                                             435,754              64,827
                                                                                 --------------          ----------

            Total current liabilities                                                   782,466             405,047
                                                                                 --------------      --------------

LONG TERM LIABILITIES:
       Dividends payable - Preferred Series A                                           853,148                 ---
       Note payable - net of current portion                                            300,000                 ---
       EDA bonds - net of current portion                                             2,635,000           2,765,000
                                                                                 --------------      --------------
            Total long-term liabilities                                               3,788,148           2,765,000
                                                                                 --------------      --------------

            Total liabilities                                                         4,570,614           3,170,047
                                                                                 --------------      ---------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:

       Preferred stock at liquidating value of $1,000 per share- $1.00 par
            value; 20,000 shares authorized; Series A convertible exchangeable
            preferred stock; 12,015 issued
            and outstanding in 2002 and 2001                                         12,015,000          12,015,000
       Preferred stock - $1.00 par value; 7,250,000 shares
            authorized; Series B convertible preferred stock;
            4,806,000 shares designated, and 200,000 shares
                issued and outstanding in  2002                                         200,000                 ---
       Common stock - $.01 par value;
            Authorized - 25,000,000 shares
            Issued and outstanding - 9,710,840 and 9,376,389 in
                 2002 and 2001, respectively                                             97,108              93,764

       Additional paid-in capital                                                    19,469,464          18,071,503
       Accumulated deficit                                                          (23,627,688)         (21,000,013)
                                                                                   ------------         ------------

            Total stockholders' equity                                                8,153,884           9,180,254
                                                                                   -------------        ------------

            Total liabilities and stockholders' equity                             $ 12,724,498        $ 12,350,301

                                                                          2004             2003
                                                                          ----             ----

CURRENT LIABILITIES:
       Current portion - Note payable                                $     75,000     $     75,000
       Current portion of EDA bonds                                       150,000          140,000
       Accounts payable and accrued expenses                            1,085,242          334,721
                                                                     ------------     ------------
            Total current liabilities                                   1,310,242          549,721
                                                                     ------------     ------------

LONG TERM LIABILITIES:
       Note payable - net of current portion                              150,000          225,000
       EDA bonds - net of current portion                               2,345,000        2,495,000
                                                                     ------------     ------------
            Total long-term liabilities                                 2,495,000        2,720,000
                                                                     ------------     ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:

       Common stock - $.01 par value;
            Authorized - 25,000,000 shares
            Issued and outstanding - 12,204,423 and 10,544,423 in
                 2004 and 2003, respectively                              122,044          105,444

       Additional paid-in capital                                      39,338,140       34,218,832
       Accumulated deficit                                            (35,105,151)     (28,590,934)
                                                                     ------------     ------------
                                                                        4,355,033        5,733,342

            Treasury stock                                               (306,841)        (306,841)
                                                                     ------------     ------------
            Total stockholders' equity                                  4,048,192        5,426,501
                                                                     ------------     ------------

            Total liabilities and stockholders' equity               $  7,853,434     $  8,696,222
                                                                     ============     ============
-3-

                     ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                             YEARS ENDED MARCH 31,
                                                                  2002               2001               2000
                                                                  -----              -----              ----

REVENUES:
       Research and development                               $  593,000          $     ---          $     ---
       Product formulation fees                                  601,057             80,932                ---
       Consulting and test fees                                    3,450             14,314              10,315
                                                             --------------    ------------           -----------
                      Total revenues                           1,197,507             95,246              10,315
                                                             --------------    ------------           -----------


OPERATING EXPENSES:
       Research and development                                1,609,108          1,475,487          1,988,649
       General and administrative                                763,687            777,118            984,736
       Depreciation and amortization                             266,919            194,038             86,290
                                                             ---------------   -------------          -----------
                                                               2,639,714          2,446,643          3,059,675
                                                             ---------------   -------------          -----------

LOSS FROM OPERATIONS                                          (1,442,207)        (2,351,397)        (3,049,360)
                                                             ---------------   ---------------       -----------

OTHER INCOME (EXPENSES):
       Interest income                                           260,055            329,583            210,877
       Interest expense                                         (220,123)          (227,301)          (137,709)
       Equity in loss of Joint Venture                          (507,640)       (12,079,827)               ---
                                                           ----------------     ------------         -----------
                                                                (467,708)       (11,977,545)            73,168


LOSS BEFORE PROVISION (CREDIT) FOR
       INCOME TAXES                                           (1,909,915)       (14,328,942)        (2,976,192)

PROVISION (CREDIT) FOR INCOME TAXES                             (135,388)          (363,961)               200
                                                             ----------------   ------------         ----------


NET LOSS                                                     $(1,774,527)      $(13,964,981)       $(2,976,392)
                                                             ============      =============       ============

BASIC AND DILUTED LOSS PER COMMON
       SHARE                                                 $     (0.19)  $         (1.53)   $         (0.35)
                                                             ================  ================   ================

WEIGHTED AVERAGE NUMBER OF
       COMMON SHARES OUTSTANDING                                9,561,299         9,135,369          8,287,648
                                                             ===============    ================  ===============


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


                                      -4-F-3


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARYSUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                           SERIES A                    SERIES B                                          ADDITIONAL
                                        PREFERRED STOCK             PREFERRED STOCK                COMMON STOCK             PAID-IN     ACCUMULATED        STOCKHOLDERS'
                                        ---------------             ---------------               -------------            -------     -----------        -------------
                                    SHARES         AMOUNT        SHARES        AMOUNT         SHARES         AMOUNT        CAPITAL          DEFICIT              EQUITY
                                    ------         ------        ------        ------         ------         ------        --------         --------             ------
BALANCE AT MARCH 31, 1999                                                                   7,237,613     $   72,376    $ 6,815,362     $  (4,058,640)       $    2,829,098
Sale of securities through
  private placement                    -               -            -             -       1,275,002         12,750      4,449,750                  -            4,462,500
Issuance of shares through
  exercise of options                  -               -            -             -         125,000          1,250        248,750                  -              250,000
Issuance of shares and warrants
  through exercise of Placement
  Agent warrants                       -               -            -             -          29,324            293        105,274                  -              105,567
Issuance of shares through
  exercise of warrants                 -               -            -             -         188,580          1,886        969,594                  -              971,480
Offering costs in connection
  with sale of securities              -               -            -             -               -              -       (10,000)                  -             (10,000)
Offering costs in connection
  with registration of
  securities                           -               -            -             -               -              -       (67,650)                  -             (67,650)
Net loss for year ended March
  31, 2000                             -               -            -             -               -              -              -         (2,976,392)          (2,976,392)
                                    --------        ---------      -------     -------         -------      -------     -----------       ----------           ----------
BALANCE AT MARCH 31, 2000             0          $    0            0       $     0         8,855,519     $   88,555    $12,511,080      $  (7,035,032)       $   5,564,603
                                    ========        =========      ========    =======      =========      ---------     ==========      ===========        ==============
Issuance of shares                      -               -            -             -         409,165          4,092      4,995,908                -              5,000,000
Issuance of shares through              -               -            -             -          88,435            884        510,975                -                511,859
  exercise of warrants
Issuance of shares through              -               -            -             -          18,750            188         37,313                -                 37,501
  exercise of options
Issuance of shares and warrants         -               -            -             -           4,520             45         16,227                -                 16,272
  through exercise of Placement
  agent warrants
Issuance of Series A                   12,015         12,015,000         -             -               -              -              -                  -           12,015,000
  convertible exchangeable
  Preferred Stock
Net loss for year ended March
  31, 2001                                  -             -               -            -             -               -              -          (13,964,981)         (13,964,981)
                                        --------        ----------      --------    --------       -------        ---------     --------        -----------         ------------

BALANCE AT MARCH 31, 2001                12,015       $ 12,015,000        0       $     0         9,376,389      $ 93,764    $18,071,503    $  (21,000,013)        $  9,180,254
                                       =========      =============     ========    =========     ==========    ===========OPERATIONS



                                                                      YEARS ENDED MARCH 31,
                                                                      ---------------------
                                                             2004             2003             2002
                                                             ----             ----             ----

REVENUES:
       Research and development                         $    258,250     $    442,500     $    593,000
       Product formulation fees                                   --          187,810          601,057
       Consulting and test fees                                   --               --            3,450
                                                        ------------     ------------     ------------
                    Total revenues                           258,250          630,310        1,197,507
                                                        ------------     ------------     ------------

OPERATING EXPENSES:
       Research and development                            2,075,074        2,013,579        1,609,108
       General and administrative                          2,549,846        1,858,069          763,687
       Depreciation and amortization                         332,836          310,876          266,919
                                                        ------------     ------------     ------------
                                                           4,957,756        4,182,524        2,639,714
                                                        ------------     ------------     ------------

LOSS FROM OPERATIONS                                      (4,699,506)      (3,552,214)      (1,442,207)
                                                        ------------     ------------     ------------

OTHER INCOME (EXPENSES):
       Interest income                                        23,765           96,692          260,055
       Litigation Settlement                                 150,000               --               --
       Sale of NJ Tax Losses                                 151,027           71,674          137,818
       Interest expense                                     (211,595)        (227,907)        (220,123)
       Equity in loss of joint venture                            --         (186,379)        (507,640)
       Charge relating to issuance of stock options       (1,166,601)         (20,550)              --
       Charge relating of issuance of stock warrants        (587,983)              --               --
       Charge relating to warrant exchange offer            (172,324)        (242,338)              --
                                                        ------------     ------------     ------------
                                                          (1,813,711)        (508,808)        (329,890)
                                                        ------------     ------------     ------------

LOSS BEFORE PROVISION FOR INCOME
       TAXES                                              (6,513,217)      (4,061,022)      (1,772,097)

PROVISION FOR INCOME TAXES                                     1,000              400            2,430
                                                        ------------     ------------     ------------

NET LOSS                                                $ (6,514,217)    $ (4,061,422)    $ (1,774,527)
                                                        ============     ============     ============

BASIC AND DILUTED LOSS PER COMMON
       SHARE                                            $      (0.58)    $      (0.40)    $      (0.19)
                                                        ============     ============     ============

WEIGHTED AVERAGE NUMBER OF
       COMMON SHARES OUTSTANDING                          11,168,618       10,069,991        9,561,299
                                                        ============     =============        ==============

BALANCE AT MARCH 31, 2001                12,015       $ 12,015,000        0       $     0         9,376,389      $ 93,764    $18,071,503    $  (21,000,013)        $  9,180,254
                                       =========      =============     ========    =========     ==========    ===========  ============     =============        ==============
Issuance of Shares through
  exercise of warrants                      -               -            -             -            298,179          2,981     1,301,606                 -            1,304,587
Issuance of shares through
  exercise of options                       -               -            -             -             20,000            200        37,939                 -               38,139
Issuance of shares and warrants
  through exercise of placement
  agent warrants                            *               -            -             -             16,272            163        58,416                 -               58,579
Issuance of Series B
  convertible exchangeable
  Preferred Stock                           -               -           200,000       200,000         -                 -              -                 -              200,000
Dividends - Series A Preferred
  Stock                                     -               -            -             -               -                -              -          (853,148)            (853,148)
Net loss for year ended March
  31, 2002                                  -               -            -             -               -                -              -        (1,774,527)          (1,774,527)
                                      -----------      -------------   ---------    -----------      ---------     ----------  ------------     ------------        -------------
BALANCE AT MARCH 31, 2002              12,015          $ 12,015,000    $ 200,000      200,000       9,710,840        97,108    $19,469,464    $ (23,627,688)         $(8,153,884)
                                      ===========      =============   =========    ===========     ==========     ==========     ============     ============
=============


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


                                      F-4
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARYSUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                                               YEARS ENDED MARCH 31,
                                                                                               ---------------------
                                                                                     2002               2001               2000
                                                                                     -----              -----              ----
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss                                                                     $ (1,774,527)     $ (13,964,981)     $ (2,976,392)
      Adjustments to reconcile net loss to cash
         used in operating activities:
            Write off of accounts receivable and patents                                   5,057                ---               ---
            Depreciation                                                                 249,338            177,662            76,784
            Amortization                                                                  17,581             16,376             9,506
            Equity in loss of Joint Venture                                              507,640         12,079,827               ---
            Changes in assets and liabilities:
                 Accounts receivable                                                    (26,674)           (13,314)               ---
                 Prepaid expenses and other current assets                              (24,350)            256,938         (286,065)
                 Due from Joint Venture                                                (444,444)           (80,932)               ---
                 Accounts payable and accrued expenses                                  (78,508)          (377,560)           397,317STOCKHOLDERS' EQUITY (DEFICIT)



                                              PREFERRED STOCK                 COMMON STOCK
                                              ---------------                 ------------
                                                                                                      ADDITIONAL
                                                                                                        PAID-IN
                                          SHARES         AMOUNT           SHARES         AMOUNT         CAPITAL
                                          ------         ------           ------         ------         -------

BALANCE AT APRIL 1, 2001                       --    $         --       9,376,389    $     93,764    $ 18,071,503

Issuance of shares through
exercise of warrants                           --              --         298,179           2,981       1,301,606

Issuance of shares and warrants
through exercise of placement
agent warrants                                 --              --          16,272             163          58,416

Issuance of shares and warrants
through exercise of options                    --              --          20,000             200          37,939

Issuance of Series B convertible
exchangeable preferred stock              200,000         200,000              --              --              --

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

Net loss for year ended March 31, 2002         --              --              --              --              --
                                          -------    ------------       ---------    ------------    ------------

BALANCE AT MARCH 31, 2002                 200,000    $    200,000       9,710,840    $     97,108    $ 19,469,464
                                          -------    ------------       ---------    ------------    ------------


                                                 TREASURY STOCK
                                                 --------------
                                                                                                STOCKHOLDERS'
                                                                            ACCUMULATED            EQUITY
                                             SHARES          AMOUNT           DEFICIT             (DEFICIT)
                                             ------          ------           -------             ---------

BALANCE AT APRIL 1, 2001                                                       ($21,000,013)    $ (2,834,746)

Issuance of shares through
exercise of warrants                                                                     --        1,304,587

Issuance of shares and warrants
through exercise of placement
agent warrants                                                                           --           58,579

Issuance of shares and warrants
through exercise of options                                                              --           38,139

Issuance of Series B convertible
exchangeable preferred stock                                                             --          200,000

Dividends declared - Series A
preferred stock                                                                    (853,148)        (853,148)

Net loss for year ended March 31, 2002            --             --              (1,774,527)      (1,774,527)
                                            --------       --------            ------------     ------------

BALANCE AT MARCH 31, 2002                         --       $     --            ($23,627,688)    $ (3,861,116)
                                            --------       --------            ------------     ------------
---------
NET CASH USED IN OPERATING ACTIVITIES                                                 (1,568,887)       (1,905,984)       (2,778,850)
                                                                                    ------------       ------------        -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of short-term investments                                              (100,000)                ---               ---
      Payments for patent and trademark filings                                          (6,920)           (30,788)          (13,616)
      Restricted cash                                                                  (157,624)            265,690         (871,730)
      Receivable from Sale of New Jersey Tax Losses                                       80,055          (146,132)               ---
      Payment of deposit for manufacturing equipment                                   (123,396)                  -       (1,119,172)
      Purchases of property and equipment                                              (223,801)          (273,933)       (1,305,874)
                                                                                        ---------          ---------       -----------
NET CASH USED IN INVESTING ACTIVITIES                                                  (531,686)          (185,163)       (3,310,392)
                                                                                       ---------          ---------       -----------


CASH FLOWS FROM FINANCING ACTIVITIES:
      Proceeds from Note - Bank                                                          375,000                ---               ---
      Proceeds from issuance of NJ Economic Development Authority
         (EDA) Bonds                                                                         ---                ---         3,000,000
      Payments of offering costs in connection with issuance of EDA
         Bonds                                                                               ---                ---         (197,860)
      Principal payments on capital lease                                                    ---                ---          (47,021)
      Proceeds from issuance of common stock and warrants                              1,401,305          5,565,632         1,327,047
      Proceeds from issuance of common stock and warrants
         in connection with private placement                                                ---                ---         4,462,500
      Payments of offering costs in connection with private placement                        ---                ---          (10,000)
      Payments of offering costs in connection with registration filing                      ---                ---          (67,650)
      Principal repayments of NJEDA Bonds                                                (120,000)          (115,000)            ---
                                                                                        ----------         ----------       ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                               1,656,305          5,450,632         8,467,016
                                                                                        ---------          ---------         ---------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                                (444,268)          3,359,485         2,377,774

CASH AND CASH EQUIVALENTS - beginning                                                  7,296,702          3,937,217         1,559,443
                                                                                       ---------          ---------         ---------

CASH AND CASH EQUIVALENTS - ending                                                  $  6,852,434       $  7,296,702      $  3,937,217
                                                                                    ============       ============      ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
      Cash paid for interest                                                         $   218,938        $   228,044       $   118,326
      Cash paid for income taxes                                                           2,430              4,380               200

SCHEDULES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
      Utilization of equipment deposit towards purchase of equipment                  $      ---         $1,315,710        $      ---
      Preferred stock issuance in exchange for interest in joint venture                 200,000         12,015,000               ---
      Paydown of Amounts Due to Joint Venture through issuance of common
         Stock                                                                         (136,619)                 --               ---
      Additional Investment in Joint Venture                                            (63,381)                 --               ---
      Dividends accrued on Preferred Stock - Series A                                    853,148                 --               ---


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


                                      -6-F-5


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARYSUBSIDIARIES

            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)



                                             PREFERRED STOCK                     COMMON STOCK
                                             ---------------                     ------------
                                                                                                         ADDITIONAL
                                                                                                           PAID-IN
                                          SHARES          AMOUNT            SHARES          AMOUNT         CAPITAL
                                          ------          ------            ------          ------         -------


BALANCE AT APRIL 1, 2002                  200,000     $    200,000        9,710,840     $     97,108    $ 19,469,464

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

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

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

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

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

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

Conversion of  convertible
exchangeable preferred stock into
common stock                             (773,000)        (773,000)         816,310            8,163      14,520,810

Purchase of treasury stock                     --               --         (100,000)              --              --

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

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

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

Net loss for the year ended March
31, 2003                                       --               --               --               --              --
                                     ------------     ------------     ------------     ------------    ------------

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


                                          TREASURY STOCK
                                          --------------
                                                                                  STOCKHOLDERS'
                                                                  ACCUMULATED        EQUITY
                                        SHARES       AMOUNT         DEFICIT        (DEFICIT)
                                        ------       ------         -------        ---------

BALANCE AT APRIL 1, 2002                     --   $       --     $(23,627,688)    $ (3,861,116)

Issuance of shares through
exercise of warrants                                                       --           13,030

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

Issuance of convertible
exchangeable preferred stock                                               --          559,000

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

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

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

Conversion of  convertible
exchangeable preferred stock into
common stock                                 --           --               --       13,755,973

Purchase of treasury stock              100,000     (306,841)              --         (306,841)

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

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

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

Net loss for the year ended March
31, 2003                                     --           --       (4,061,422)      (4,061,422)
                                     ----------   ----------     ------------     ------------

BALANCE AT MARCH 31, 2003               100,000   $ (306,841)    $(28,590,934)    $  5,426,501
                                     ==========   ==========     ============     ============



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

                                      F-6


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)



                                           PREFERRED STOCK                COMMON STOCK
                                           ---------------                ------------
                                                                                                   ADDITIONAL
                                                                                                    PAID-IN
                                         SHARES       AMOUNT         SHARES          AMOUNT         CAPITAL
                                         ------       ------         ------          ------         -------

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

Modification of warrant exchange
offer                                         --           --              --               --         172,324

Issuance of stock options                     --           --              --               --       1,166,601

Issuance of stock warrants                    --           --              --               --         587,983

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

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

Previous rounding differences                 --           --                               --              --

Net loss for the year ended March
31, 2004                                      --           --              --               --              --
                                       ---------    ---------    ------------     ------------    ------------

BALANCE AT MARCH 31, 2004                     --    $      --      12,104,423     $    122,044    $ 39,338,140
                                       =========    =========    ============     ============    ============


                                                TREASURY STOCK
                                                --------------
                                                                                         STOCKHOLDERS'
                                                                         ACCUMULATED       EQUITY
                                             SHARES        AMOUNT          DEFICIT        (DEFICIT)
                                             ------        ------          -------        ---------

BALANCE AT APRIL 1, 2003                    100,000    $   (306,841)    $(28,590,934)    $  5,426,501

Modification of warrant exchange
offer                                            --              --               --          172,324

Issuance of stock options                        --              --               --        1,166,601

Issuance of stock warrants                       --              --               --          587,983

Proceeds from exercising stock
options                                          --              --               --           30,000

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

Previous rounding differences                    --              --               --               --

Net loss for the year ended March
31, 2004                                         --              --       (6,514,217)      (6,514,217)
                                       ------------    ------------     ------------     ------------

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




                                      F-7


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                                                             YEARS ENDED MARCH 31,
                                                                                             ---------------------
                                                                                    2004             2003             2002
                                                                                    ----             ----             ----

CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss                                                                 $ (6,514,217)    $ (4,061,422)    $ (1,774,527)
      Adjustments to reconcile net loss to cash
         used in operating activities:
            Write off of accounts receivable and patents                                 --               --            5,057
            Depreciation and amortization                                           332,836          310,876          266,919
            Charge relating to Warrant Exchange Offer                               172,324          242,338               --
            Charge relating to issuance of stock options                          1,166,601           20,550               --
            Charge relating to issuance of stock warrants                           587,983               --               --
            Equity in loss of joint venture                                              --          186,379          507,640
            Changes in assets and liabilities:
                 Contract revenue receivable                                       (148,569)          35,307          (26,674)
                 Prepaid expenses and other current assets                           (5,800)         (26,010)         (24,350)
                 Amount receivable from Joint Venture                                    --          525,259         (444,444)
                 Accounts payable and accrued expenses and other current
                    Liabilities                                                     750,521          193,009          (78,508)
                                                                               ------------     ------------     ------------
NET CASH (USED IN) OPERATING ACTIVITIES                                          (3,658,321)      (2,573,714)      (1,568,887)
                                                                               ------------     ------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
      (Purchases) redemptions of short-term investments                                  --          100,000         (100,000)
      Payments for patent and trademark filings                                     (16,696)         (69,517)          (6,920)
      Restricted cash                                                               (79,615)         114,284         (157,624)
      Receivable from sale of New Jersey tax losses                                      --           66,077           80,055
      Payment of deposit for manufacturing equipment                               (398,580)              --         (123,396)
      Purchases of property and equipment                                                --         (679,485)        (223,801)
                                                                               ------------     ------------     ------------
NET CASH (USED IN) INVESTING ACTIVITIES                                            (494,891)        (468,641)        (531,686)
                                                                               ------------     ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Fees relating to Warrant Exchange Offer                                                       (100,000)              --
      Proceeds under bank note                                                           --               --          375,000
      Principal repayments of bank note                                             (75,000)         (75,000)              --
      Purchase of treasury stock                                                         --         (306,841)              --
      Proceeds from issuance of common stock and warrants                         3,209,000           65,843        1,401,305
      Principal repayments of EDA bonds                                            (140,000)        (130,000)        (120,000)
                                                                               ------------     ------------     ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                               2,994,000         (545,998)       1,656,305
                                                                               ------------     ------------     ------------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                          (1,159,212)      (3,588,353)        (444,268)

CASH AND CASH EQUIVALENTS - beginning of period                                   3,264,081        6,852,434        7,296,702
                                                                               ------------     ------------     ------------

CASH AND CASH EQUIVALENTS - end of period                                      $  2,104,869     $  3,264,081     $  6,852,434
                                                                               ============     ============     ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
      Cash paid for interest                                                   $    214,199     $    228,938     $    218,938
      Cash paid (received) for income taxes                                        (150,027)         (71,274)           2,430

SCHEDULES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
      Utilization of equipment deposit towards purchase of equipment           $         --     $    123,396     $         --
      Issuance of Preferred Stock (including stock dividend payable
         of $14,000 and subscription receivable of $67,000) for interest in
            joint venture                                                                --          573,000          200,000
      Conversion of preferred stock to common stock                                      --            8,163               --
      Conversion of preferred stock to additional paid in capital                        --       14,520,810               --
      Satisfaction of amounts due to joint venture                                       --          622,133          136,619
      Reduction in (addition to) investment in joint venture                             --           63,381          (63,381)
      Dividends accrued on preferred stock                                               --          899,923          853,148



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


                                      F-8


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2002, 20012004, 2003 AND 20002002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Principles of ConsolidationPRINCIPLES OF CONSOLIDATION

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

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

      NATURE OF BUSINESS

      Elite Pharmaceuticals,  Inc. ("Elite") was incorporated on October 1, 1997
      under the Laws of the State of Delaware,  and its wholly-owned  subsidiary
      Elite  Laboratories,  Inc.  ("Elite Labs") was  incorporated on August 23,
      1990  under  the Laws of the  State of  Delaware,  in order to  engage  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.

      Merger Activities

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

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

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

                                      F-9



                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2004, 2003 AND 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      CASH AND CASH EQUIVALENTS

      The  Company  considers  all highly  liquid  short-term investments  purchased with initial maturitiesan original
maturity  of  three  months  or less  to be  cash  equivalents.  -7-
                   ELITE PHARMACEUTICALS, INC.Cash  and  cash
equivalents  consist of cash on deposit with banks and money market instruments.
The  Company  places  its cash  and cash  equivalents  with  high-quality,  U.S.
financial  institutions  and, to date, has not experienced  losses on any of its
balances.

      PROPERTY AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    YEARS ENDED MARCH 31, 2002, 2001 AND 2000

NOTE 1       - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

               Property and EquipmentEQUIPMENT

      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
               thirty-nine years. For property and equipment financed with
               proceeds of the NJ EDA Bond issuance, depreciation is provided
               under the Alternative Depreciation System based on useful lives
               ranging from five to forty years. Major repairs or improvements
      are capitalized.  Minor  replacements and maintenance and repairs which do
      not improve or extend asset lives are expensed currently.

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

      Research and DevelopmentIMPAIRMENT OF LONG-LIVED ASSETS

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

      RESEARCH AND DEVELOPMENT

      Research and development expenditures are charged to expense as incurred.

      PatentsPATENTS AND TRADEMARKS

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

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

                                      Concentration of Credit RiskF-10



                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2004, 2003 AND 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      CONCENTRATION OF CREDIT RISK

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

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

      The Company extends credit to its customers  pursuant to contract terms in
      the normal course of business and performs ongoing credit evaluations.  As
      of March  31,  20022004 and 2001,2003,  no  allowance  for  doubtful  accounts  was
      considered necessary.

               Usenecessary,  based on historical trends, economic conditions and
      the credit worthiness of Estimatescustomers.  Amounts are written off when they are
      deemed  uncollectible.   The  Company  has  not  experienced   significant
      write-offs.

      USE OF ESTIMATES

      The  preparation  of financial  statements  in conformity  with  generally
      accepted  accounting  principles requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
      disclosure  of  contingent  assets  and  liabilities  at the  date  of the
      financial  statements  and the  reported  amounts of revenues and expenses
      during the  reporting  period.  Actual  results  could  differ  from those
      estimates.  -8-
                   ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    YEARS ENDED MARCH 31, 2002, 2001 AND 2000


NOTE 1       - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

               Income TaxesSignificant  estimates made by management include, but are not
      limited to, the  recognition  of revenue and the fair value of  intangible
      assets and stock-based awards.

      INCOME TAXES

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

      Loss Per Common ShareLOSS PER COMMON SHARE

      Net loss  per  common  share is  based oncalculated  by  dividing  net loss by the
      weighted  average  number  of  shares   outstanding   during  each  period
      presented.  The weighted
               average number of shares outstanding has been adjusted to reflect
               the recapitalization in connection with the private placement as
               if it had occurred as of the beginning of the period for which
               loss per share is presented as well as the effect of stock splits
               and reverse stock splits issued during the periods. Common stock equivalents,  consisting of options, warrants and
      convertible  securities,  have not been included, as their effect would be
      antidilutive.   Revenue RecognitionFor  the  three  years  ended  March  31,  the   following
      potentially  dilutive  securities  were not included in the computation of
      diluted loss per share:



                                              2004                          2003                          2002
                                                    WEIGHTED-                     WEIGHTED-                      WEIGHTED-
                                                     AVERAGE                       AVERAGE                        AVERAGE
                                                    EXERCISE                      EXERCISE                       EXERCISE
                                      SHARES         PRICE          SHARES         PRICE           SHARES          PRICE

Stock options                       2,417,050        $ 3.70       2,266,850        $ 5.74        2,056,850        $ 5.82
Warrants                            2,654,239        $ 4.72         733,752        $12.33        2,669,477        $ 5.47
Convertible preferred shares               --                            --            --          816,310            --

                                   ----------                    ----------                     ----------
                                    5,071,289                     3,000,602                      5,542,637




                                      F-11



                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2004, 2003 AND 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      REVENUE RECOGNITION

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

      Revenues earned primarily by licensing certain pharmaceutical  products developed by
      Elite are  recognized  at the  Company as well as performing researchbeginning  of a license  term when  Elite's
      customer has legal right to the use of the product.  To date,  no revenues
      have  been  earned by  licensing  products  and  development servicesthere  are no  continuing
      obligations under fixed price contracts. Such
               revenues are recorded as certain projected goals are attained, as
               defined in the individual contract. The Company follows SEC Staff
               Accounting Bulletin No. 101, "Revenue Recognition in Financial
               Statements," which provides guidance on the recognition,
               presentation and disclosure of revenues in the financial
               statements.

               Investments

               Short-term investments consist of certificates of deposit at a
               bank with initial maturities of one year. At March 31, 2002,
               $100,000 was classified as held-to-maturity, bearing interest at
               4.07% and maturing on September 13, 2002.any licensing agreements.

      INVESTMENT IN JOINT VENTURE

      The equity  method of  accounting  iswas used to account  for the  Company's
      investment in its joint venture with Elan International
               Services, Inc.Elan.  Under the equity  method,  the
      Company  recognizesrecognized  its share in the net  earnings or losses of the joint
      venture as they occur.





                                       -9-occurred. While Elite owned 100% of the outstanding common
      stock of ERL, Elite's equity in the loss of ERL was based on 100% of ERL's
      losses,  less the  amounts  funded  by Elan.  Elan  funded  19.9% of ERL's
      losSes.  Once Elite's  investment was reduced to zero, further losses were
      recognized  to the extent of Elite's  commitment  to fund the losses.  The
      joint  venture was  terminated  effective  September  30, 2002, as further
      discussed in Note 7.

                                      F-12




                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARYSUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          YEARS ENDED MARCH 31, 2002, 20012004, 2003 AND 20002002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      Recently Issued Accounting Standards

                In June 2001,  the  Financial  Accounting  Standards  Board (FASB) issued
                Statements No. 141, Business Combinations, No. 142, GoodwillTREASURY STOCK

      The Company records common shares purchased and Other
                Intangible  Assets,  and No.  143,  Accounting  for  Asset  Retirement
                Obligations.  In August  2001,  the FASB  issued  Statement  No.  144,
                Accounting for the Impairment or Disposal of Long-Lived  Assets.  FASB
                Statement No. 141  eliminated  the pooling  method of  accounting  for
                business  combinations  after June 30, 2001.  FASB  Statement  No. 142
                eliminated the amortization of goodwill and requires  periodic testing
                for  impairment of goodwill and other  intangibles,  effective for the
                Company  beginning  April 1, 2002.  FASB  Statement No. 143 applies to
                legal  obligations  associated  with  the  retirement  of  a  tangible
                long-lived  asset,  and is effective for the Company  beginning  April
                1,2003.  FASB No. 144 describes the  accounting  for the impairment or
                disposal  of  long-lived  assets,  and is  effective  for the  Company
                beginning  April 1, 2002.  These  standards are not expected to have a
                material effect on the financial  position or results of operations of
                the Company.

               Stock-Based Compensationheld in treasury at cost.

      STOCK-BASED COMPENSATION

      Under various  qualified and  non-qualified  plans,  the Company may grant
      stock options to officers,  selected employees,  as well as members of the
      board of directors and advisory  board  members. Themembers,  as further  described in
      Note 11.  Effective  April 1, 2002,  the  Company has  adopted  the disclosure onlyfair value
      recognition  provisions  of Statement
               of Financial Accounting StandardsSFAS  No.  123,  "Accounting  for  Stock-Based
      Compensation.Compensation" and selected the prospective method of adoption described in
      SFAS No. 148,  "Accounting for  Stock-Based  Compensation - Transition and
      Disclosure - an  amendment  of SFAS No. 123." ThePrior to April 1, 2002,  the
      Company measuresmeasured  stock-based  compensation
               expense for its stock-based employee  compensation
      plans using the intrinsic value method prescribed by Accounting Principles
      Board  Opinion No. 25,  "Accounting  for Stock  Issued to  Employees."

               Fair ValueEmployees"  and
      related interpretations.  No stock-based employee compensation expense for
      stock  options was reflected in net loss for the year ended March 31, 2002
      as all stock options granted under those plans had an exercise price equal
      to the fair market  value of Financial Instrumentsthe  underlying  common  stock on the date of
      grant.

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

      On June 22, 2004 the Company's Stockholders approved the 2004 Stock Option
      Plan and ratified the amendments of the terms of  outstanding  options and
      warrants,  including  the  repricing of options to certain  Directors  and
      employees   (See  Note  13).  The  Company   will  record  a   significant
      compensation  expense  in future  periods,  based on the fair value of the
      options after  reflecting the repricing and amendments to the terms of the
      options.

      The following table  illustrates the effect on net loss and loss per share
      as if the Company had applied  the fair value  recognition  provisions  of
      SFAS  No.  123 to  all  outstanding  and  unvested  awards  in  each  year
      presented:



                                                         2004                2003                2002
                                                         ----                ----                ----

Net loss as reported                                 $(6,514,217)        $(4,061,422)        $(1,774,527)
Add: Stock-based compensation expense
included in reported net loss, net of related
tax effects                                            1,166,601              20,550                  --
Deduct: Total stock-based compensation
expense determined under fair value method
for all awards, net of related tax effects              (865,255)         (1,070,651)         (1,779,338)
                                                     -----------         -----------         -----------
Pro forma net loss                                    (6,212,871)         (5,111,523)         (3,553,865)
Loss per share as reported                                 (0.58)              (0.40)              (0.19)
Pro-forma loss per share                                   (0.56)              (0.51)              (0.38)




                                      F-13


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2004, 2003 AND 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      FAIR VALUE OF FINANCIAL INSTRUMENTS

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






                                      -10-terms, degrees of risk and remaining maturities.

      RECLASSIFICATIONS

      Certain  accounts  and amounts in the 2003 and 2002  financial  statements
      have been  reclassified  in order to conform  with the 2004  presentation.
      These reclassifications have no effect on net income.

NOTE 2 - MANAGEMENT'S LIQUIDITY PLANS

      The Company  reported net losses of $6,514,217,  $4,061,422 and $1,774,527
      for the fiscal years ended March 31, 2004, 2003 and 2002, respectively. At
      March 31, 2004,  the Company had an accumulated  deficit of  approximately
      $35.1  million,   consolidated   assets  of  approximately  $7.9  million,
      stockholders' equity of approximately $4.0 million, and working capital of
      approximately $1.3 million.  The Company has not generated any significant
      revenue to date.

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

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

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

      In the event  Purdue  proceeds  with its option to license  the  Company's
      Oxycodone product pursuant to the option agreement entered into on May 14,
      2004 (See Note 13), the terms of the licensing  agreement  provide for the
      Company to receive  significant  milestone payments on or before March 31,
      2005.

      See  Note 13 for  information  as to the  Company's  efforts  to  effect a
      financing of equipment  purchases and a private placement of shares of its
      Common  Stock.  No  representation  can be made that the  efforts  will be
      successful  or that if  successful  that the  resulting  proceeds  will be
      material.

      There is also no assurance that the Company's current business  strategies
      will be successfully implemented or that it will raise the necessary funds
      to allow it to continue  its  operations.  Management  believes  that cost
      reductions already  implemented will reduce losses in the future, and with
      the  Company's  existing  working  capital  levels,  anticipates  that the
      Company will be able to continue its  operations  at least through the end
      of fiscal  year  2005,  assuming  it is  successful  in  consummating  the
      transactions discussed above.


                                      F-14


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARYSUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          YEARS ENDED MARCH 31, 2004, 2003 AND 2002

2001 AND 2000


NOTE 2       -3- PROPERTY AND EQUIPMENT

      Property  and  equipment  at  March  31,  20022004 and  20012003  consists  of the
      following:

                                                             2002                20012004         2003
                                                             ----         ----

      Laboratory manufacturing, and warehouse equipment  $  2,337,120        $  2,118,727$3,140,250   $3,140,250
      Office equipment                                       32,981       32,981
      Furniture and fixtures                                 51,781       51,781
      Land, building and improvements                     2,097,668    2,092,2602,097,668
      Equipment under capital lease                         168,179      168,179
                                                         -----------        -----------
                                                                                                       4,687,729           4,463,928----------   ----------
                                                          5,490,859    5,490,859
      Less: Accumulated depreciation and amortization     821,958             572,620
                                                                                                      -----------        -----------

                                                                                                    $  3,865,771        $  3,891,308
                                                                                                    ============        ============1,400,609    1,100,306
                                                         ----------   ----------
                                                         $4,090,250   $4,390,553
                                                         ==========   ==========

      Depreciation and amortization  expense amounted to $249,338,
               $177,662$300,303,  $278,348 and
      $76,784$249,338 for the years ended March 31, 2004, 2003 and 2002,  2001 and
               2000, respectively.
      The Company's  obligations  under capital leases were  satisfied  prior to
      March 31, 2003.

NOTE 34 - INTANGIBLE ASSETS

      Intangible assets at March 31, 20022004 and 2001, consists2003, consist of the following:

                                                        2002                20012004             2003
                                                        ----             ----

      Patents                                         $   59,617          $   57,788$145,830         $129,134
      Trademarks                                         8,120            8,120
                                                      -----               -----
                                                                                                     67,737              65,908
                                                                                                      -------            --------------         --------
                                                       153,950          137,254
      Less: Accumulated amortization                    13,068               8,735
                                                                                                      ------               -----
                                                                                                 $   54,669          $   57,173
                                                                                                     ==========          ==========51,754           32,412
                                                      --------         --------
                                                      $102,196         $104,842
                                                      ========         ========

      Amortization of intangible assets amounted to $4,390, $3,179$19,342,  $19,344 and $1,811$4,390
      for the years ended March 31, 2004, 2003 and 2002, 2001 and 2000, respectively.

      -11-Aggregate  amortization  expense  of  intangible  assets for the next five
      fiscal years is estimated to be as follows:

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

             2005                                                       $ 19,340
             2006                                                         19,340
             2007                                                         19,340
             2008                                                         19,340
             2009                                                          8,140


                                      F-15


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARYSUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          YEARS ENDED MARCH 31, 2004, 2003 AND 2002

2001 AND 2000



NOTE 45 - NOTE PAYABLE

      On January 25,February 26, 2002, the Company closed on a Bank Loanbank loan totaling  $375,000 to
      finance the purchase and installation of machinery and equipment. Interest
      is fixed at 5.70% per annum  calculated on a 360 day year. The loan is due
      in 60 equal monthly  installments of $6,250 plus interest,  with the first
      payment  commencing on April 1, 2002,  and is secured by the machinery/machinery and
      equipment  purchased  under this facility and a Certificatecertificate  of Depositdeposit in
      the amount of $250,000$225,000 held as collateral. This Certificatecertificate of Depositdeposit has
      been classified as noncurrent  restricted  cash. The note payable consists
      of the following at March 31:

                                                          2004           2003
                                                          ----           ----

Bank note payable                                      $ 375,000225,000      $ 300,000
Current portion                                          (75,000)       ------------------(75,000)
                                                       ---------      ---------
Long-term portion, net of current maturities           $ 300,000
                                                                                                    ===========

               Principal Maturities150,000      $ 225,000
                                                       =========      =========

      Future principal maturities under this loan are as follows:

      Year Ending MarchYEARS ENDING MARCH 31,
      2003----------------------

               2005                                                    $   75,000
                         2004                                                                            75,000
                         2005  75,000
               2006                                                       75,000
               2007                                                       75,000
                                                                       ---------

                                                                       $ 375,000225,000
                                                                       =========

NOTE 56 - BOND FINANCING OFFERING

      On September  2, 1999,  the Company  completed  the issuance of tax exempt
      bonds by the New Jersey  Economic  Development  Authority.  The  aggregate
      principal  proceeds  of the  fifteen  year  term  bonds  were  $3,000.000.
      Interest on the bonds  accrues at 7.75% per annum.  The  proceeds,  net of
      offering costs of $60,000,  are being used by the Company to refinance the
      land and  building  it  currently  owns,  and for the  purchase of certain
      manufacturing equipment and related building improvements.

      Offering  costs in  connection  with the bond issuance  totaled  $197,860,
      including the $60,000  mentioned above which were paid from bond proceeds.
      Offering costs included  underwriter  fees equal to $90,000 (three percent
      (3%) of the par amount of the bonds).

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

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


                                      -12-F-16


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARYSUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          YEARS ENDED MARCH 31, 2004, 2003 AND 2002

2001 AND 2000



NOTE 56 - BOND FINANCING OFFERING (CONTINUED)

      All restricted  accounts other than the $300,000 Debt Service  Reserve are
      expected to be expended within twelve months and are therefore categorized
      as current assets. 2002                2001Bond financing consisted of the following at March 31:

                                                           2004          2003
                                                           ----          ----

      EDA Bonds                                       $ 2,765,0002,495,000   $ 2,885,0002,635,000
      Current Portion                                                             (130,000)           (120,000)
                                                                                     ------------------  ------------------portion                                    (150,000)     (140,000)
                                                      -----------   -----------
      Long term portion, net of current maturities      $  2,635,000        $  2,765,000
                                                                                           ============       =============


               Principal2,345,000     2,495,000
                                                      ===========   ===========

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

      Years Ended MarchYEARS ENDING MARCH 31,
      2003                                                                         130,000
                               2004                                                                         140,000----------------------

               2005                                                  $   150,000
               2006                                                      165,000
               2007                                                      175,000
               2008                                                      190,000
               2009                                                      205,000
               Thereafter                                              2,005,000
                                                                                                 -------- ---------1,610,000
                                                                     -----------
                                                                     $ 2,765,0002,495,000
                                                                     ===========


                                      F-17


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2004, 2003 AND 2002

NOTE 67 - JOINT VENTURE ACTIVITIES

      In  October  2000,  Elitethe  Company  entered  into a  joint  development  and
      operating  agreement with Elan  Corporation,  plc, and Elan  International
      Services,  Ltd.  (together "Elan") to develop products using drug delivery
      technologies  and expertise of both companies.  This joint venture,  Elite
      Research,  Ltd. ("ERL"), a Bermuda corporation,  iswas initially owned 80.1%
      by Elitethe Company  and 19.9% by Elan.  ERL willwas to fund its  research  through
      capital  contributions from its partners based on the partners' respective
      ownership percentage.  In
               the ordinary course of business, ERL will subcontractsubcontracted  research and development efforts
      to Elite,the Company, Elan and others. It iswas anticipated that Elite will likelythe Company would
      provide most of the  formulation  and  development  work.  Elite hasThe Company had
      commenced  work for  twothree  products.  As ofThe  joint  venture  terminated  on
      September  30,2002.  For the  years  ended  March 31,  2003 and 2002,  the
      Company  charged  $187,810 and  2001, Elite has charged
               $601,057, and $80,932,  respectively,  to this joint ventureERL which iswas
      reflected in product  formulation  fees.  Intercompany  profits and losses
      were eliminated.

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

      While the Company  ownsinitially owned 80.1% of the outstanding  capital stock
      (100% of the  outstanding  common stockstock) of ERL until  September 30, 2002,
      Elan and its subsidiaries have  retained  significant  minority investor rights
      that arewere  considered  "participating  rights" as defined in the  Emerging
      Issues Task Force  Consensus No. 96-16.  Accordingly,  the Company willdid not
      consolidate  the financial  statements of ERL until September 30, 2002 but
      will instead  accountaccounted  for its  investment  in ERL under the equity method of
      accounting.



                                      -13-
                   ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    YEARS ENDED MARCH 31, 2002, 2001 AND 2000



NOTE 6 - JOINT VENTURE ACTIVITIES (CONTINUED)

               Foraccounting until the year ended March 31, 2001 ERL recognized a net loss of
               $15,080,931. The net loss includes a $15,000,000 payment to Elan
               for a technology license fee as well as $80,931 due to Elite for
               services rendered to ERL. Elite recognized 80.1% of ERL's loss,
               or $12,079,827 for the year ended March 31, 2001.Joint Venture was terminated, effective September 30,
      2002.

      For the year ended March 31, 2002 and the period  beginning  April 1, 2002
      through  September  30, 2002,  ERL  recognized  a net losslosses of $633,642. Elite$633,642 and
      $232,742,  respectively, and the Company recognized 80.1% of ERL's loss,these losses,
      or $507,640  and  $186,379,  respectively.  The product  formulation  fees
      $187,810 and $601,057  earned by the Company for services  rendered to ERL
      for the yearyears ended March 31, 2002. To2003 and 2002, respectively, are included in
      ERL's expenses.  During fiscal year 2001, ERL paid $15,000,000 to Elan for
      a  license  providing  ERL  non-exclusive   rights  to  use  certain  Elan
      in-process drug delivery technologies. The Elan technology rights acquired
      relate to very early stage  technology that, in the opinion of management,
      have not reached technological  feasibility and have no future alternative
      uses.  Through the date ERL has not recognized any revenue.

               In December 2000, the joint venture hadof its first organizational
               meeting and approved one product for development. In March 2001,
               the management committee of ERL met to finalize it's budget and
               business plan and to complete a preliminary formulation of the
               drug product. As of March 31, 2002,termination,  ERL completed  in-vivo (pilot
      clinical trial) on the first product and began formulation and development
      of two additional products.

      As of March 31, 2002 and 2001,During fiscal year 2003, the Company  owedconsummated a termination  agreement
      (the "Termination  Agreement") with Elan to acquire all of Elan's interest
      in ERL. As further  discussed in Note 10, the joint venture was terminated
      effective September 30, 2002.


                                      F-18


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2004, 2003 AND 2002

NOTE 7 - JOINT VENTURE ACTIVITIES (CONTINUED)

      Under the Termination Agreement,  among other things, the Company acquired
      all  proprietary,  development  and  commercial  rights for the  worldwide
      markets for the products developed by ERL. In exchange for the assignment,
      ERL $435,754agreed to pay Elan a royalty on certain  revenues that may be realized
      from the  once-a-day  Oxycodone  product  that has been  developed by ERL.
      Effective October 1, 2002, the Company is solely responsible to fund ERL's
      product development.

      The Company did not pay, nor did Elan receive any cash consideration under
      the  Termination  Agreement.  Furthermore,  the Company has the  exclusive
      rights to the  proprietary,  development  and  $64,827, respectively, representing its 80.1% contributioncommercial  rights  for the
      worldwide markets for two other products  developed by ERL. The Company is
      not required to pay Elan  royalties on revenues  that may be realized from
      these products.

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

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

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

      The  following is a condensed  balance  sheet of ERL on September 30, 2002
      (the date of acquisition):

      CURRENT ASSETS

      Cash                                                            $   1,084
                                                                      ---------

                  Total assets                                        $   1,084
                                                                      =========

      CURRENT LIABILITIES

      Accounts payable                                                $  84,597
                                                                      ---------

                  Total liabilities                                      84,597

      Shareholders' deficit                                             (83,513)
                                                                      ---------

                                                                      $   1,084
                                                                      =========


                                      F-19


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2004, 2003 AND 2002

NOTE 7 - JOINT VENTURE ACTIVITIES (CONTINUED)

      The following are unaudited pro-forma  consolidated  results of operations
      for the years endingended March 31, 2003 and 2002,  assuming the acquisition was
      completed on April 1, 2001.

                                                       YEAR ENDED MARCH 31,
                                                       --------------------
                                                      2003              2002
                                                      ----              ----
                                                  (Unaudited)        (Unaudited)

      Revenue                                     $   442,500       $   596,450

      Proforma net (loss) available to common
        shareholders                              $(4,107,785)      $(1,900,529)

      Proforma net (loss) available to common
        shareholders per share -
        basic and March 31, 2001, respectively.diluted                         $     (0.40)      $     (0.19)

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

NOTE 78 - INCOME TAXES

      The components of the provision (credit) for income taxes by taxing jurisdiction are as follows:

                                                  YEAR ENDED MARCH 31,
                                          --------------------------------------
                                           2004            2003            2002               2001                2000
                                           ----            ----            ----
      Federal:
          Current                         $   ---          $   ---          $   ---
          Deferred                            -                   -                   -
                                                                               ---------           ----------              --              --
                                          ------          -                  -                   -
                                                                               ---------           --------------          ------
                                              --              --              --
                                          ------          ------          ------
      State:
          Current                          1,000             400           2,430
          4,382              200
                      Deferred                            -                  -                -
                      Sale of New Jersey net operating losses                  (137,818)          (368,343)              -
                                                                                -------            ----------              --              --
                                          ------          (135,388)          (363,961)             200
                                                                                -------            -------              -------
                                                                               $(135,388)------          ------
                                           1,000             400           2,430
                                          ------          ------          ------
                                          $1,000          $  (363,961)            $ 200
                                                                                ==========      ============           ========400          $2,430
                                          ======          ======          ======

      In the year ended March 31, 2001,  the Company  received  approval for the
      sale of $4,872,267 of New Jersey net operating losses under the Technology
      Tax  Certificate  Transfer  Program  sponsored by the New Jersey  Economic
      Development  Authority (NJEDA). The total tax benefit receivableapproved for receipt
      by the Company  during the year ended March 31, 2002 was $368,343 of which
      $222,211 and $146,132 was received in 20012002 and in 2003, respectively.


                                      F-20


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2004, 2003 AND 2002

respectively.NOTE 8 - INCOME TAXES (CONTINUED)

      During the current year ended March 31, 2003,  the Company  received  approval for
      the sale of an additional  $1,822,989 of New Jersey  net-operating  losses
      under the Technology Tax Certificate Transfer Program sponsored by the New
      Jersey  Economic  Development  Authority  (NJEDA).  The total tax  benefit
      receivableapproved  for receipt by the Company  as ofduring the year ended March 31, 2002 is2003
      was  $137,818,  of which  $71,741  was  received  in  November  2001.2002.  The
      remaining balance of $66,077 will bewas received pendingin 2003.

      During the NJEDA's authorization. Such amounts are classifiedyear ended March 31, 2004,  the Company  received  approval for
      the sale of an additional  $1,928,817 of New Jersey  net-operating  losses
      under the Technology Tax Certificate Transfer Program sponsored by the New
      Jersey  Economic  Development  Authority  (NJEDA).  The total tax  benefit
      received during the year ended March 31, 2004 was $151,027 and is recorded
      as non-current assets onother income in the accompanying consolidated balance
               sheet.


                                      -14-
                   ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    YEARS ENDED MARCH 31, 2002, 2001 AND 2000


NOTE 7       - INCOME TAXES (CONTINUED)financial statements.

      The major components of deferred tax assets at March 31, 20022004 and 20012003 are
      as follows:

                                                     2002                20012004               2003
                                                     ----               ----
      Net operating loss carry forwardforwards          $ 3,128,3756,736,336        $ 2,824,0004,486,167
      Valuation allowance                         (3,128,375)          (2,824,000)
                                                                                              -----------------(6,736,336)        (4,486,167)
                                                 -----------        -----------

                                                 $        0--        $        0
                                                                                                       ========             ========--
                                                 ===========        ===========

      At March 31,  2002,2004,  a 100%  valuation  allowance  is  provided,  as it is
      uncertain  if the  deferred  tax assets will be  utilized.  The  valuation
      allowance  increased during 2004, 2003 and 2002 by $2,250,169,  $1,357,792
      and $304,375, respectively.

      At March 31, 2002,2004, for federal income tax purposes, the Company has unused
      net operating loss carryforwards of approximately  $10,129,135$20,518,995 expiring in
      2007 through 2015. For state tax purposes,  the Company has $3,244,988$11,011,302 of
      unused net operating losses, which are net of the $6,695,616$9,539,503 of New Jersey
      net operatingnet-operating losses sold, as discussed above.

NOTE 89 - COMMITMENTS AND CONTINGENCIES

      Employment Agreement

               On March 31, 2000, theEMPLOYMENT AGREEMENTS

      The Company amended and restatedhad an employment agreement ("Employment  Agreement") with its
      former President/CEO. The following is the minimum
               annual commitment payable under the agreement:

                Year Ending March 31,CEO, Atul M. Mehta.

      On June 3, 2003,  $   300,141
                         2004                                                                           330,155
                         2005                                                                           363,170
                         2006                                                                           399,487
                         2007                                                                           439,435
                         Thereafter                                                                   2,070,748
                                                                                             -------- ---------

                                                                                                   $  3,903,136
                                                                                                      =========

               On December 31, 2005, this agreement will be automatically
               renewed for an additional five years, unless written notice is
               given by December 31, 2004. Annual compensation under the renewed
               agreement shall be equal to no less than one hundred and ten
               percent (110%) of the previous year's base salary.

               The agreement also provides for the following:

a.             Incentive commissions equal to five percent (5%) of net profit,
               as defined, for each fiscal year.

b.                 Options to purchase 520,214 shares of common stock at a price
                   of $2.00 per share. The options were initially to vest at the
                   rate of 100,000 shares per year each yearDr. Mehta  resigned from 1996 through
                   2001; however, upon completion of the private placement
                   undertaken byall positions that he held with
      the Company, while reserving his rights under his Employment Agreement and
      under common law. On July 3, 2003, Dr. Mehta instituted litigation against
      Elite and one of its directors,  in 1997, they became 100% vested.
                   Such options are exercisable from the dateSuperior Court of New Jersey, for,
      among other things,  allegedly breaching his Employment  Agreement and for
      defamation,  and claims that they are
                   grantedhe is entitled to receive his salary  through
      either one year after termination of
                   employment or ten years from the date of grant.

                                      -15-June 6, 2006.


                                      F-21


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARYSUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          YEARS ENDED MARCH 31, 2004, 2003 AND 2002

2001 AND 2000




NOTE 89 - COMMITMENTS AND CONTINGENCIES Employment Agreement (Continued)
               --------------------


c.             Options(CONTINUED)

      EMPLOYMENT AGREEMENTS

      The Company and Dr. Mehta settled their litigation subsequent to March 31,
      2004 (See Note 13). The Company accrued $400,000 for compensation  owed to
      Dr.  Mehta  as of March  31,  2004,  in  accordance  with  the  settlement
      agreement.

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

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

      -     The  Company  confirmed  its  grant to Mr.  Berk on June 3,  2003 of
            options to purchase  500,000300,000  shares of the  Company's  common stock
            at aat$2.01 per share. All of these options are vested.

      -     The  Company  granted Mr.  Berk  options to  purchase an  additional
            300,000 shares of its common stock,  with an exercise price equal to
            $2.15,  the closing price of $10 per share.
               Optionsthe Company's  common stock on the date
            of grant.  These  options  will vest solely upon  consummation  of a
            Strategic Transaction.

      -     Mr.  Berk will be  appointed  as a director  of the Company if he is
            serving as its Chief Executive Officer following the consummation of
            a Strategic Transaction.

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

      CONSULTING AGREEMENTS

      The Company entered into one year consulting agreements with each of Saggi
      Capital  Corp.  and  Bridge   Ventures  Inc.  on  November  4,  2003.  The
      consultants'  services  will  include,  but not be limited to, advice with
      respect   to  overall   strategic   planning,   financing   opportunities,
      acquisition  policy,  commercial and investment banking  relationships and
      stockholders matters. In consideration of each consultant's  services, the
      Company agrees to pay it $75,000 payable in monthly installments of $6,250
      and to issue to the consultant a warrant to purchase 100,000 shares will vest each year beginning December 31,
               2001 and ending December 31, 2005.

d.             Certain additional compensation on termination as a result of a change in
               control of the
      Company.

               Compensation expenseCompany's  common  stock.  For the year ended March 31,  2004,  consulting
      expenses  under both  agreements  aggregated  $30,000  plus  approximately
      $470,000 attributable to the issuance of warrants.

      On July 3, 2003, the Company  entered into an agreement with Leerink Swann
      & Company to provide a Valuation  and a Fairness  Opinion in order for the
      Company  to  complete  a  proposed  acquisition  for which it  received  a
      non-refundable retainer fee of $50,000. If and when the Board of Directors
      requests a Fairness Opinion,  Leerink's compensation shall be $50,000. For
      the year ended March 31, 2004,  consulting  expenses  under this agreement
      amounted to $335,964,
               $293,050 and $252,030 for the years ended March 31, 2002, 2001
               and 2000, respectively.

         On January 2, 2001, under two separate agreements, the Company granted
        its President/CEO incentive stock options to purchase 300,000 and 125,000
        shares, respectively, of common stock at an exercise price of $7. These options
        were granted in exchange for 300,000 options dated December 31, 1998 and 125,000
        options dated September 1, 1997. These options vest immediately and expire no
        later than January 1, 2006.


               On January 25, 2001, the Board of Directors voted to purchase
               20,214 of certain options of the President/CEO for $4.00 per
               option. These options were purchased in March of 2002 and $80,856
               was included in officer's compensation expense.

               Consulting Agreements

               On August 1, 1997, the Company entered into agreements with two
               corporations, one of which is an owner of at least 5% of the
               Company's common stock, to provide various consulting services
               for a period of three years. Terms of the agreements include the
               following:

a.           Combined monthly fees of $15,000.

b.           The issuance of 350,000  warrants to purchase  common  stock at an exercise
             price of $6.00 per share for a period of five (5) years.

               Such agreements terminated on July 31, 2000. The Company entered
               into two new agreements with these Companies commencing on
               September 1, 2000 and terminating on December 31, 2000. Such
               agreements called for combined monthly fees of $7,500. One
               agreement was extended through December 31, 2001 and then
               terminated and the other agreement was subsequently extended
               until March 31, 2002, calling for payments of $5,000 per month.

               Consulting expenses under these agreements amounted to $67,500,
               $97,500 and $180,000, for the years ended March 31, 2002, 2001
               and 2000, respectively.






                                      -16-$50,000 non-refundable retainer fee.


                                      F-22


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARYSUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          YEARS ENDED MARCH 31, 2004, 2003 AND 2002

2001 AND 2000



NOTE 89 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

      Consulting Agreements  (Continued)
               ---------------------

               On August 1, 1998, the Company entered into a consulting
               agreement with a company for the purpose of providing management,
               marketing and financial consulting services for an unspecified
               term. Terms of the agreement provide for a nonrefundable monthly
               fee of $2,000. This compensation will be applied against amounts
               due pursuant to a business referral agreement entered into on
               April 8, 1997.

               Terms of the business referral agreement provide for payments by
               the Company based upon a formula, as defined, for an unspecified
               term. On November 14, 2000, the Company amended its referral
               agreement to provide certain consulting services for the period
               of November 1, 2000 through October 31, 2003. The Company
               previously advanced $20,000 under the April 8, 1997 agreement in
               addition to a payment of $50,000 made during the year ended March
               31, 2001. The agreement calls for 25 monthly installments of
               $3,200 beginning on December 1, 2001.

               Consulting expense under these agreements amounted to $12,800,
               $50,000 and $4,000 for the years ended March 31, 2002, 2001 and
               2000, respectively.

               Referral AgreementREFERRAL AGREEMENTS

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

      Percentage of Referral
                                  Base                             From                            ToPERCENTAGE OF REFERRAL
               BASE                          FROM                          TO
               ----                          ----                          --

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

      CollaborativeNO AMOUNTS HAD BEEN EARNED THROUGH MARCH 31, 2004.

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

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

      Consulting expense under the 1997 and 1998 Agreements amounted to $28,800,
      $38,400 and $12,800  for the years  ended March 31,  2004,  2003 and 2002,
      respectively. The agreement terminated on November 30, 2003.


                                      F-23


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2004, 2003 AND 2002

NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

      COLLABORATIVE AGREEMENTS

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

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

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

      In  June 27,  2001,  the  Company  entered  into  two  separate  and  distinct
      development  and license  agreements with another  pharmaceutical  company
      ("partner").  The Company will developis developing two drug compounds for the partner
      in exchange for certain payments and royalties.  EliteThe Company also reserves
      the right to manufacture the compounds.  The Company received $250,000 and
      $300,000,  respectively, on these two agreements, which were earned during
      the year ended March 31, 2002.  The Company is currently  proceeding  with
      the  development  and  formulation  for both  products as specified in the
      development  agreements.  These amounts have beenDuring the years  ended March 31, 2004 and 2003,
      the Company  earned  asrevenues of $105,000 and $85,000,  respectively,  for
      additional development and formulation for both products.

      On September 13, 2002, the Company, entered into a manufacturing agreement
      with Ethypharm S.A. ("Ethypharm").  Under the terms of this agreement, the
      Company has initiated the manufacturing of a new prescription drug product
      for Ethypharm.  The Company received an upfront  manufacturing fee for the
      first phase of the  technology  transfer and billed an  additional  amount
      upon the  completion of the first phase of  manufacturing.  The Company is
      entitled to receive  additional fees in advance for the final phase of the
      manufacturing.  In  addition,  if and when FDA approval is obtained and if
      requested by Ethypharm, the Company will manufacture commercial batches of
      the product on terms to be agreed upon. As of March 31, 20022004,  the Company
      billed and earned revenues of $280,000 under this agreement,  all if which
      was billed and earned  during the year ended March 31, 2003, in accordance
      with the substantive  milestone method of revenue recognition.  Under this
      method,  the milestone payments are reflectedconsidered to be payments received for
      the accomplishment of a discrete, substantive earnings event. Accordingly,
      the  non-refundable  milestone  payments are  recognized  in full when the
      consolidated
               statementmilestone is  achieved.  In addition to  milestone  payments,  the Company
      billed and  recognized  $75,000 in additional  revenues as a result of operations.




                                      -17-the
      manufacturing  and delivery of  additional  batches  during the year ended
      March 31, 2003.


                                      F-24


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARYSUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          YEARS ENDED MARCH 31, 2004, 2003 AND 2002

2001 AND 2000


NOTE 8 -     COMMITMENTS AND CONTINGENCIES (CONTINUED)

               Contingencies

               Elite is the plaintiff in a civil action brought in the Superior
               Court of New Jersey on November 20, 2000 against three parties to
               recover damages in an unspecified amount based on the alleged
               failure of the defendants to properly perform and complete
               certain pharmaceutical tests and studies for which Elite paid
               approximately $950,000.

               The defendants have brought a counterclaim of approximately
               $418,000 allegedly due for services rendered to Elite by the
               defendants. Elite will vigorously contest the counterclaim.

               The action and counterclaim are proceeding in pretrial discovery
               under a Case Management Order entered by the court. If such
               action or counterclaim is in favor of defendants, the recovery,
               if any, would not have a material effect on the Company's
               financial condition or results of operations. Legal counsel is
               unable to predict the outcome of these actions. Accordingly, no
               provisions for liability, if any, has been provided in the
               accompanying consolidated financial statements.


NOTE 910 - STOCKHOLDERS' EQUITY Public Offering(DEFICIT)

      TREASURY STOCK TRANSACTIONS

      At a special  meeting of the Company's Board of Directors held on June 27,
      2002, the Board authorized the Company to purchase up to 100,000 shares of
      its common stock in the open market no later than December 31, 2002. As of
      March 31, 2003,  the Company had purchased  100,000 shares of common stock
      for total consideration of $306,841.

      PUBLIC OFFERINGS

      In July 1998 the Company successfully filed a registration statement on Form SB-2 under
      the  Securities  Act of 1933, as amended,  for the purpose of  registering
      securities  previously  sold  to and  held  by  various  corporations  and
      individuals.  The Company did not receive any proceeds upon filing of this
      Form SB-2. The securities  registered consisted of 3,725,000 shares of the
      Company's  $.01 par value common  stock,  including  1,525,000  redeemable
      common stock purchase warrants.

      In March 2000,  the Company successfully  filed a  registration  statement on Form SB-2
      under  the  Securities  Act of  1933,  as  amended,  for  the  purpose  of
      registering securities previously sold to and held by various corporations
      and  individuals.  The Company did not receive any proceeds upon filing of
      this Form SB-2. The securities registered consisted of 3,297,539 shares of
      the Company's $.01 par value common stock,  2,022,537  underlying  Class A
      and Class B common stock  purchase  warrants,  and 317,250  Class A common
      stock purchase warrants.

      For            the years ended March 31, 2002, 2001, and 2000 the Company
               incurred legal fees and other costs amounting to $0, $0, and
               $7,878, respectively, in connection with its public filing, which
               has been charged to additional paid-in capital.

               Private Placement OfferingPRIVATE PLACEMENT OFFERINGS

      In a private  placement  offering  dated May 17, 1999,  the Company raised
      $4,462,500  from the sale of 12.75  units  of its  securities;  each  unit
      consisting  of 100,000  shares of common  stock of the  Company and 50,000
      warrants,  each  warrant  entitling  the holder to  purchase  one share of
      common stock at an exercise  price of $5.00 per share during the five year
      period  commencing  with  the date of  closing  of the  private  placement
      memorandum (June 16, 1999). The price per unit was $350,000. This resulted
      in the issuance of 1,275,000  shares of common stock and 637,500  warrants
      to purchase common stock, at an exercise price of $5.00 per share.

      -18-
                   ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    YEARS ENDED MARCH 31, 2002, 2001 AND 2000


NOTE 9       - STOCKHOLDERS' EQUITY (CONTINUED)

               Private Placement Offering  (Continued)
               --------------------------


               The Company received net proceeds of $4,452,500 from the private
placement after legal fees of $10,000.

               Placement Agent Agreement

               On August 8, 1997, in connection with itsIn a private  placement  offering  concluded in December  2003 the Company
      entered into a placement agent agreement
               with its underwriter. Terms of this one year agreement include
               the following:

a.           Placement fees equal to ten percent (10%) of the gross proceeds.

b.           Consulting fees in the amount of $3,000 per month.

c.                 The issuance of ten placement agent warrants, each made up of
                   20,000sold  1,645,000   shares  of  common stockCommon  Stock  for  aggregate   proceeds  of
      $3,290,000.  It paid a cash  commission of $75,000 to the Placement  Agent
      and 10,000issued to the agent and its associates  five year warrants to purchase
      common stock,50,000  shares of Common Stock at an exercise price of $6.00 per share, for a price of $72,000$2.00 per unit. Such warrants are exercisable forshare.  The Company
      granted to the purchasers and the Placement Agent  piggyback  registration
      rights.

      PREFERRED STOCK

      As further discussed in Note 7, on October 16, 2000, Elite entered into an
      agreement  (the  "Joint  Venture   Agreement")  with  Elan   International
      Services,  Ltd. and Elan Corporation,  plc. (together "Elan"), under which
      the parties formed a periodjoint venture,  Elite Research,  Ltd. ("ERL").  Under
      the terms of five years from the date of issuance.

               For the years ended March 31, 2002 and 2001, no placement agent
fees have been charged to additional paid-in capital. Joint Venture Subscription Offering

               On September 21, 2000,Agreement,  409,165 shares of the Company's
      common stock and 12,015  shares of a newly  created  Elite Series A  convertible exchangeable preferred stockConvertible
      Exchangeable  Preferred Stock ("Series A Preferred  Stock") were issued to
      Elan International Services, Ltd. ("EIS")  for  consideration  of  $5,000,000  and  $12,015,000,  respectively.
      Proceeds  from the sale of the Series A Preferred  Stock were used to fund
      the Company's 80.1% share of Elite Research, Ltd.
               ("ERL"), a joint venture with EIS.ERL, as further discussed in Note 7.


                                      F-25


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2004, 2003 AND 2002

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

      PREFERRED STOCK (CONTINUED)

      The  Series  A  Preferred  Stock  accruesaccrued  a  dividend  of 7%  per  annum,
      compounded  annually  and payable in shares of Series A  Preferred  Stock.
      Dividends shall be accrued and compounded  annually  beginning on October 16, 2001.
      The Series A Preferred Stock is
               convertible at anytime after two years, at EIS's option, into the
               Company's common stock at a priceAs of $18.00 per share and has a
               term of six years. At the endSeptember 30, 2002 (the termination date of the sixth year, at the option of
               Elite, the Series A Preferred Stock shall either be redeemed in
               cash or in shares of Elite common stock at a fair market value
               equal to the aggregate outstanding Series A liquidation
               preference and accrued dividends. As of March 31, 2002,Joint Venture),  the
      Company  hashad accrued  dividends  of  $1,740,973  on the Series A Preferred
      Stock,
               totaling $853,148.

               The Series A Preferred Stock is exchangeable atStock.  During the option of EIS
               at any time during the term of the agreement for that amount of
               the preferred shares of ERL which will allow EIS to own a total
               of 50% of the issued and outstanding common and preferred shares
               of ERL.

               For a period of one year after the issuance of the above
               securities, EIS shall have the right to require registration
               under the Securities Act of all or part of these securities. All
               registration expenses will be borne by EIS. EIS also has the
               right to piggyback registration if at any timeended March 31, 2003, the Company shall
               proposeissued preferred
      stock to register shares of common stock under the Securities
               Act.

                                                                         -19-
                   ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    YEARS ENDED MARCH 31, 2002, 2001 AND 2000




NOTE 9       - STOCKHOLDERS' EQUITY (CONTINUED)

               Joint Venture Subscription Offering (Continued)
               -----------------------------------satisfy accrued dividends.

      On October 17,  2000,  the Company  also authorized  7,250,000  shares of newly
      created Elite  Series B Preferred  Stock of which  4,806,000 has beenwas  designated for
      issuance to EISElan for a total  consideration  of  $4,806,000.  These shares
      can be issued upon
               demand by Elite in increments of $100,000 and shall be usedwere  issuable  from time to time to fund Elite's 80.10%the  Company's  80.1% portion of the future
      capital  contributions  to  ERL  and  for subsequent  funding  of  the  research  and
      development activities for ERL.

      The Series B  Preferred  Stock  shall be entitled to receiveaccrued a mandatory
               dividend  equal toof 7% per yearannum of the
      original  issue  price. Such
               dividend shall be accrued andprice,   compounded  on  each  succeeding   twelve  month
      anniversary  of the first  issuance and is payable  solely by the issuance of
      additional  shares of Series B Preferred Stock, at a price per share equal
      to the  original  issue  priceprice.  Dividends  were  accrued  and not in
               cash. Dividends shall be  compounded
      commencing  one  year  after  issuance.  Additionally, Class B Preferred Stock shall have a
               senior liquidation preference of $1 per share (original issue
               price) plus any accrued and unpaid dividends. As of  March 31,September  30,  2002  (the
      termination date of the joint venture),  the Company hashad accrued no dividends
      of $14,000 on the Series B  Preferred  Stock.  Additionally,During the year ended March
      31, 2003, the Company issued preferred stock to satisfy accrued dividends.

      During the fiscal year ended March 31,  2003,  the  Company  made  capital
      contributions to ERL in the amount of $573,000.  These  contributions were
      financed by the proceeds  from the  issuance to Elan of 573,000  shares of
      Series B  Stock shall be exchangeable, atPreferred  Stock.  These  contributions  were in  addition  to a
      capital  contribution in the optionamount of EIS, at any time after two years from$200,000 made by the date of issuance,
               into shares ofCompany to ERL
      during the Company's common stock using an exchange price
               of $14.84 per share and has a term of six years from the date of
               first issuance.

               At the end of the sixthfiscal year at the option of Elite, Series B
               Stock can be redeemed in cash or byended March 31, 2002.

      JOINT-VENTURE TERMINATION

      In addition to the issuance of shares of
               Elite common stock at a fair market value equal to the Series B
               liquidation preference and accrued dividends.

               In addition to the offeringas described  above,  on October 17,
      2000 the Company issued EISto Elan 100,000 warrants to purchase the Company's
      common  stock of
               Elite Pharmaceuticals at thean  exercise  price of $18 per share.  The  warrants  are
      exercisable  at any time on or  before  October  17,  2005.  As of March 31,Subject  to a
      Termination  Agreement  between the Company and Elan dated  September  30,
      2002,  a $200,000 capital contribution was made on
               behalf ofthe  Company  acquired  Elan's  19.9%  interest  in ERL,  and  financed throughElan
      transferred its warrants and its 12,015 shares of Series A Preferred Stock
      to a third party along with accrued dividends of 1,741 shares. On November
      6, 2002,  under a transfer and  assignment  among the issuanceCompany,  Elan and a
      third party purchaser,  all 13,756 shares of 200,000Series A Preferred Stock have
      been  converted,  according  to their terms,  into  764,221  shares of the
      Company's  common  stock  using the $18 per  share  price.  Elan  retained
      409,165 shares of the Company's  common stock and 773,000 shares of Series
      B Preferred Stock.

               WarrantsStock, the latter of which was converted into 52,089 shares of
      the Company's  common  stock.  Both of the Series A and Series B preferred
      stock were  converted into the Company's  common stock in accordance  with
      their terms. The warrants remain unexercised at March 31, 2004.


                                      F-26


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2004, 2003 AND 2002

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

      JOINT-VENTURE TERMINATION (CONTINUED)

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

                                    WARRANTS

      To date,  the Company has authorized the issuance of common stock purchase
      warrants,  with terms of five to six years,  to various  corporations  and
      individuals,  in connection  with the sale of securities,  loan agreements
      and consulting agreements.  Exercise prices range from $2.00 to $18.00 per
      warrant. The warrants expire at various times from August 1, 2001 tothrough October 17, 2005.








                                                                         -20-



                   ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    YEARS ENDED MARCH 31, 2002, 2001 AND 2000

NOTE 9       - STOCKHOLDERS' EQUITY (CONTINUED)

               Warrants (Continued)
               --------

      A summary of warrant activity for the periodsfiscal years indicated below were areas
      follows:



                                                   2004           2003           2002              2001               2000
                                                   ----           ----           ----
Beginning balance                                 733,752      2,669,477      2,983,928        3,020,869           1,917,286
                  Warrants issued                                                                    100,000           1,277,501
Warrants issued                                   200,000             --             --
Warrants issued pursuant to Placement Agent
          Agreement                                50,000          8,136          2,260
Placement Agent Warrants Exercised                     --       (158,652)       (24,408)
Class C Warrants                                1,723,237             --             --
Warrants exercised or expired                     (52,750)    (1,829,957)      (298,179)
                                               ----------     ----------     ----------

Ending balance                                  2,654,239        733,752      2,669,477
                                               ==========     ==========     ==========



      CLASS A WARRANT EXCHANGE OFFER

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

      Each New  Warrant is  exercisable  for the same number of shares of common
      stock as the Old  Warrants  at an exercise  price of $5.00 per share,  and
      expires on November 30, 2005. The New Warrants are not transferable except
      pursuant to Placement Agent
                         Agreement                                                    8,136            2,260              14,662
                  Placement Agent Warrants Exercised                                (24,408)         (50,766)                ---
                  Warrants exercised or expired                                     (298,179)        (88,435)           (188,580)
                                                                                  -----------       ----------         -----------
                  Ending balance                                                   2,669,477        2,983,928           3,020,869
                                                                                  ============      =========           =========operation of law.


                                      F-27


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2004, 2003 AND 2002

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

      CLASS A WARRANT EXCHANGE OFFER (CONTINUED)

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

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

NOTE 11 - STOCK OPTION PLANS

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

Years Ended March 31,                         2002                             2001                            2000
         ---------------------                         ----                             ----                            ----

                                                              Average                          Average                        Average
                                                             Weighted                         Weighted                        Weighted
                                                             Exercise                         Exercise                        Exercise
                                             Shares            Price           Shares           Price         Shares           Price
Outstanding at beginning of the
        Year                                   2,009,064         $   5.64        1,935,714        $  5.56      1,472,714         $    3.69
Granted                                           63,000            10.00          518,100           6.94        663,000              9.08
Exercised                                       (20,000)             6.00         (18,750)           2.00      (125,000)              2.00
Expired                                         (25,000)             7.80        (426,000)           7.00       (75,000)              6.00
Purchased by the Company for
         retirement                             (20,214)            4.00                -              -              -                 -
                                         ---------------    -------------
Outstanding at end of year                    2,006,850          $   5.78        2,009,064        $  5.64      1,935,714         $    5.56
                                         ============       ==============        ========       =========      =========         =========

                                      -21-

                                    2004                            2003                            2002
                                          AVERAGE                        AVERAGE                          AVERAGE
                                          WEIGHTED                       WEIGHTED                         WEIGHTED
                                          EXERCISE                       EXERCISE                         EXERCISE
                           OPTIONS          PRICE          OPTIONS         PRICE          OPTIONS          PRICE
                           -------          -----          -------         -----          -------          -----

Outstanding at
beginning of year         2,266,850         $5.74         2,056,850        $5.82         2,009,064         $5.64
Granted                   1,024,000          2.23           210,000         5.00           113,000          9.22
Exercised                   (15,000)         2.00                --           --           (20,000)         6.00
Expired                    (858,800)         7.38                --           --           (25,000)         7.80
Purchased for
retirement                       --            --                --           --           (20,214)         4.00
                         ----------         -----        ----------        -----        ----------         -----
Outstanding at
end of year               2,417,050         $3.70         2,266,850        $5.74         2,056,850         $5.82
                         ==========         =====        ==========        =====        ==========         =====




                                      F-28


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARYSUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          YEARS ENDED MARCH 31, 2004, 2003 AND 2002

2001 AND 2000


NOTE 1011 - STOCK OPTION PLANS (CONTINUED)

      The following table summarizes information about stock options outstanding
      at March 31, 2002:

                                    Weighted
                                     Average
                                                             Remaining        Weighted-                       Weighted
                                                            Contractual        Average                         Average
               Range of                  Shares                Life           Exercise         Shares        Exercisable2004:



                                              WEIGHTED AVERAGE    WEIGHTED-                        WEIGHTED
                                                 REMAINING         AVERAGE                         AVERAGE
         RANGE OF              OPTIONS          CONTRACTUAL       EXERCISE          OPTIONS       EXERCISABLE
      EXERCISE PRICE         OUTSTANDING        LIFE (YEARS)        PRICE         EXERCISABLE        PRICE
      --------------         -----------        ------------        -----         -----------        -----
      
      $1.00 -- $2.00            503,750             1.40           $ 1.70            503,750        $ 1.70

       2.01 -- 4.00           1,209,000             5.47             2.20            810,000          2.20

        4.01 - 6.00             311,000             8.15             5.55            156,000          5.55

        6.01 - 8.00              60,300             6.75             6.50             60,300          6.50

       8.01 - 10.00             333,000             6.27            10.00            122,000         10.00
      -------------          ----------            -----           ------         ----------        ------
      $1.00 - 10.00           2,417,050             5.11           $ 3.10          1,652,080        $ 3.10
      -------------          ----------            -----           ------         ----------        ------
----           --------         ------        -----------
            Exercise price               Outstanding          (Years)      Price             Exercisable   Price
                                                              -------                        -----------   -----

                $ 2.00                      718,750             3.76            $2.00        718,750             $2.00
              6.00 - 7.00                   725,100             4.93             6.26        625,700              6.23
             9.00 - 10.00                   563,000             8.17            10.00        110,000             10.00
             ------------                   -------             ----            -----  ----  -------             -----
             $2.00 - 10.00                2,006,850             5.42            $5.78      1,454,450             $4.43
                                                                ----            -----                            -----


      The per share  weighted-average  fair value of each option  granted during
      fiscal 2004, 2003 and 2002 2001ranged from $1.03 to $2.68,  $1.28,  and 2000 was $8.38, $6.12 and $7.49,
      respectively, on the date of grant using the Black-Scholes options pricing
      model with the following weighted-average  assumptions used
             for grants;assumptions; no dividend yield;
      expected volatility ofranging from 75.47% to 77.97%,  75.40%, and 76.69%,
             87.29% and 119.72% for
      fiscal 2002, 2001years 2004, 2003, and 2000,2002,  respectively;  risk-free interest rate
      of 4.0% in 2004,  4.0% in 2003 and rates  ranging  from 4.55% to 4.875% in
      2002, 5.12%
             to 6.20% in 2001, and 5.05% to 6.79% in 2000; and expected lives of
             approximatelyranging from five years. Weighted-averages are used because of
             varying assumed exercise dates.

             The Company applies APB Opinion 25 and related interpretations in
             accounting for stock options; accordingly, no compensation cost has
             been recognized for any employees, officers and directors. Had
             compensation cost been determined based upon the fair value of the
             stock options at grant date consistent with the method in SFAS
             Statement 123, the Company's net (loss) and (loss) per share would
             have been increased to the pro forma amounts indicated below:

                                                                       2002                   2001                   2000
                                                                       ----                   ----                   ----

Net loss as reported                                                 $   (1,774,527)        $  (13,964,981)        $   (2,976,392)
Pro forma loss                                                           (3,553,865)           (15,796,850)            (3,285,298)
Basic and diluted loss per share as reported                                  (0.19)                 (1.53)                 (0.35)
Pro forma basic and diluted loss per share                                    (0.38)                 (1.73)                 (0.39)













                                      -22-
                   ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                    YEARS ENDED MARCH 31, 2002, 2001 AND 2000





NOTE 11 -      CONSULTING AGREEMENTS

               Collaborative Agreements

               On June 1, 2000, the Company entered into a Memorandum of
               Understanding (MOU) with Inabata America Corporation ("Inabata"),
               an international trading company which markets specialty
               chemicals throughout the world in several industry segments
               including the pharmaceutical industry. The purpose of the
               Memorandum was to agree that the two parties would explore the
               possibility of entering into a joint venture for the purpose of
               marketing Elite products in Japan through the efforts of Inabata.
               The parties will review each other's capabilities and obtain
               information concerning regulatory procedures, price restrictions
               and marketing information for the Japanese markets. The parties
               will perform other due diligence investigations and analyses.
               Although Elite declined to extend the term of the (MOU) after its
               initial term of six months expired, both Inabata and the Company
               continued in good faith to explore opportunities. On October 8,
               2001, Inabata acknowledged that the Memorandum of Understanding
               would not be extended. Both parties later agreed to devise a more
               definitive collaboration agreement.

               Consulting Agreement

               On October 1, 1998, the Company entered into a consulting
               agreement with an investment-banking firm ("Consultant"). The
               terms of the agreement provide for the consultant to render
               various services to the Company relating to financial and
               investment activities for a term of twenty-four months.


               As compensation for the consultant's services, the Company shall
               grant warrants to purchase 300,000 shares of the Company's common
               stock at an exercise price of $6 per share. The warrants shall
               vest at the rate of 50,000 warrants every ninety days after the
               commencement of the agreement.

               On June 30, 1999, this consulting agreement was amended to
               provide for payment of a monthly consulting fee of $5,000,
               commencing on July 1, 1999 and was terminated on December 1,
               2000. Consulting fees under this agreement amounted to $45,000
               for the years ended March 31, 2001 and 2000.ten years.

NOTE 12 - MAJOR CUSTOMERS

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

                                       2004              2003              2002                2001          2000
                                       ----              ----              ----

      Customer A                         --             29.79%            50.19%               84.90%        58.10%
      Customer B                         --             13.90%        32.90%56.32%               --
      Customer C                      49.52%40.70%            13.49%               --
      Customer D                      59.30%               --                --

      -23-Customer A represents ERL, a joint-venture  until September 30, 2002, when
      it became a wholly-owned  subsidiary of the Company,  as further discussed
      in  Note  7.  Revenues  after   September  30,  2002,  are  eliminated  in
      consolidation.


                                      F-29


                  ELITE PHARMACEUTICALS, INC. AND SUBSIDIARYSUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          YEARS ENDED MARCH 31, 2002, 20012004, 2003 AND 20002002

NOTE 13 - SUBSEQUENT EVENTS

      On April 21, 2004,  the Company  settled the  litigation  between Dr. Atul
      Mehta,  its former  president and chief executive  officer of the Company.
      Under the settlement  agreement,  Dr. Mehta relinquished any rights to the
      Company's  patents  and  intellectual  properties  and  agreed to  certain
      non-disclosure and certain limited non-competition  covenants. The consultingCompany
      agreed to pay Dr. Mehta  $400,000 and certain  expense  reimbursements  in
      accordance with the settlement agreement, originallyand received a short term option
      for the  Company  or its  designees  to  acquire  all of the shares of the
      common stock of the Company held by Dr. Mehta and his  affiliates at $2.00
      per share. The Company paid $100,000 into escrow which will be released to
      Dr. Mehta if the Company  option is not exercised  within 90 days. As part
      of the  settlement,  the  Company  extended  expiration  dates of  certain
      options to purchase  770,000  shares of Common Stock held by Dr. Mehta and
      also  provided  him with  certain  "piggyback"  registration  rights  with
      respect to shares underlying his options.

      On May 10, 2004,  Elite Labs entered into on August 1,
               1997an agreement  with Purdue Pharma
      L.P.  ("Purdue")  through which Purdue was granted the exclusive  right to
      evaluate  certain  abuse  resistance  drug  formulation  technology of the
      Company  and which expired on March 31, 2002 was extended through
               June 30, 2002 atan  exclusive  option to  negotiate  a monthly fee of $5,000.

               As of April 4, 2002, a $254,000 capital contribution was made on
               behalf of ERLlicense to develop and
      financed through the issuance of 254,000 shares
               of Series B Preferred Stock. Amounts due from ERL for research
               and development activities totaling $379,310 and amounts due to
               joint venture for Elite's shares of these expenses totaling
               $317,149 were simultaneously satisfied.















                                      -24-




                                               CONSENT OF INDEPENDENT
                                            CERTIFIED PUBLIC ACCOUNTANTS






Elite Pharmaceuticals, Inc. and Subsidiary
Northvale, New Jersey


We hereby consent to the incorporation by reference in the Annual Report of
Elite Pharmaceuticals, Inc. and .Subsidiary (the "Company") on Form 10-K of our
report dated May 10, 2002, appearing incommercialize  oxycodone  products  under the  Company's  Form 10-K fortechnology.  The
      Company's   proprietary   abuse  resistance   technology  is  designed  to
      discourage  and reduce abuse of narcotic  analgesic  medications by making
      the years
ended March 31, 2002, 2001 and 2000.






                                                          MILLER, ELLIN & COMPANY, LLP



June 25, 2002




                        EXHIBIT ATTACHED TO FORM 10-K FOR
                      THE FISCAL YEAR ENDING MARCH 13, 2002
                         OF ELITE PHARMACEUTICALS, INC.


Subsidiaries ofproducts more  difficult to abuse when  crushed,  damaged or otherwise
      manipulated.

      On May 14, 2004, the Company:


         Elite Laboratories, Inc., a Delaware corporation

         Elite Research, Ltd., a Bermuda corporation



                                                     ELITE RESEARCH, LTD.

                                                     Financial Statements
                                                     (With Independent Auditors' Report Thereon)
                                                     March 31, 2002




INDEPENDENT AUDITORS' REPORT


TheCompany's Board of Directors  appointed Bernard Berk,
      its Chief Executive Officer and Shareholders of
Elite Research, Ltd.


We have auditedPresident,  to the accompanying balance sheet of Elite Research, Ltd. as at
March 31, 2002 and the related statement of operations, changes in shareholders'
equity and cash flows for the year ended March 31, 2002. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 financial statements referred to above present fairly, in
all material respects, the financialadditional  position of
      Elite Research, Ltd. as at
March 31, 2002, and the results of its operations and its cash flows for the
year ended March 31, 2002 in conformity with accounting principles generally
accepted in the United States of America.


KPMG


Chartered Accountants
Hamilton, Bermuda
June 11, 2002



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

ELITE RESEARCH, LTD.

Balance Sheet

March 31, 2002
(Expressed in United States Dollars)

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

                                                                                           2002               2001
                                                                                           ----               ----
                                                                                                       (Unaudited)

Assets
Cash and cash equivalents                                                          $      63,478      $      -
                                                                                        ---------       ----------
    Total assets                                                                     $   63,478        $      -
                                                                                        =========       ==========
Liabilities
Deferred capital contributions                                                       $   62,990           $      -
Accounts payable to related parties (Note 3)                                            544,012             80,931
                                                                                        -------          --------

    Total liabilities                                                                   607,002             80,931
                                                                                        --------           --------
Shareholders' equity
Share capital (Note 5)                                                                   12,000             12,000
Share premium (Note 6)                                                               14,988,000         14,988,000
Contributed surplus (Note 7)                                                            171,049                  -
Retained deficit                                                                   (15,714,573)       (15,080,931)
                                                                                    ------------       ------------

    Total shareholders' equity                                                        (543,524)           (80,931)
                                                                                    ------------        -----------

    Total liabilities and shareholders' equity                                       $   63,478           $      -
                                                                                    ============        ===========


See accompanying notes to financial statements


Signed on behalfChairman of the Board __________________________ Director

__________________________ Director




ELITE RESEARCH, LTD.

Statement of Operations

Year Ended March 31, 2002
(ExpressedDirectors.

      On June 22, 2004 the Company's stockholders approved the 2004 Stock Option
      Plan providing for grants of incentive and nonqualified  stock option with
      respect to 1,500,000  shares  including  shares which are to be subject to
      options to be granted to employees in United States Dollars)

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


                                                                                             2002              2001
                                                                                             ----              ----
                                                                                                        (Unaudited)

Income
Interest income                                                                  $            48     $            -
                                                                                  ---------------
                                                                                               48                 -

     Total income                                                                  --------------       ------------

Expenses
Researchreplacement  of outstanding  options
      held by them.  The  stockholders  also ratified the amendments of terms of
      outstanding  options and development (Note 3)                                                         619,693            80,931
General and administrative                                                                 13,997                 -
License fee (Note 4)                                                                            -         15,000,000
                                                                                 -----------------        ----------

     Total operating expenses                                                             633,690         15,080,931
                                                                                  ----------------        ----------

Net (loss)                                                                            $  (633,642)    $  (15,080,931)
                                                                                   ==============        ============


See accompanying noteswarrants  including the repricing of options with
      respect to financial statements




ELITE RESEARCH, LTD.

Statement420,000  shares  which will result in a  significant  charge to
      earnings.  A proposal to amend the  Certificate  of  Changes in Shareholders' Equity

For the Year Ended March 31, 2002
(Expressed in United States Dollars)

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

                                                                                              2002              2001
                                                                                              ----              ----
                                                                                                         (Unaudited)

Share Capital
Balance at beginning of period (Note 5)                                                 $   12,000          $      -
Shares issued during the period                                                                  -            12,000
                                                                                    --------------           ------
Balance at end of period                                                                    12,000            12,000

Share premium
Balance at beginning of period                                                          14,988,000                 -
Share premium during the period (Note 6)                                                         -        14,988,000
                                                                                 ------------------        ----------
Balance at end of period                                                                14,988,000        14,988,000


Contributed surplus
Balance at beginning of period                                                                   -                 -
Contributed surplus during the period (Note 7)                                            171,049                  -
                                                                                 -----------------         ----------
Balance at end of period                                                                   171,049                 -
                                                                                 -----------------         ----------

Deficit
Balance at beginning of period                                                        (15,080,931)                 -
Net loss for the period                                                                 (633,642)        (15,080,931)
                                                                                 -----------------       ------------

Balance at end of period                                                              (15,714,573)      (15,080,931)
                                                                                  ---------------        ------------

Total shareholders' deficit                                                           $  (543,524)       $  (80,931)



See accompanying notes to financial statements




ELITE RESEARCH, LTD.

Statement of Cash Flows

For the Year Ended March 31, 2002
(Expressed in United States Dollars)

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

                                                                                            2002                2001
                                                                                            ----                ----
                                                                                                         (Unaudited)

Cash flows from operating activities
Net (loss)                                                                           $ (633,642)      $ (15,080,931)
Adjustments to reconcile net income to net cash
provided by operating activities:
   Due to related parties                                                                463,081              80,931
                                                                                ----------------    ----------------

   Cash used in operating activities                                                   (170,561)        (15,000,000)
                                                                                ----------------    ----------------

Cash flows from financing activities
Contributed surplus                                                                      234,039                   -
Proceeds from issuance of common stock                                                         -           7,500,000
Proceeds from issuance of non-voting
   convertible preferred shares                                                                -           7,500,000
                                                                                ----------------      ---------------
   Cash provided by financing activities                                                 234,039          15,000,000
                                                                                ----------------      ---------------

Net change in cash and cash equivalents                                                   63,478                   -

Cash and cash equivalents at beginning of period                                               -                   -
                                                                                ----------------      ---------------
Cash and cash equivalents at end of period                                            $   63,478            $      -






See accompanying notes to financial statements





ELITE RESEARCH, LTD.

Notes to Financial Statements

March 31, 2002


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

1.       General

         Elite Research, Ltd. (the "Company") ("ERL") was incorporated on
         October 6, 2000 under the Laws of Bermuda, in order to engage 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
         using the technologiesIncorporation  of the
      joint venture partnersCompany to increase the  authorized  25,000,000  shares of Common Stock to
      65,000,000  shares of Common Stock and 5,000,000 shares of Preferred stock
      is to be considered at the Company.

         The Company is owned by Elite  Pharmaceuticals,  Inc. ("Elite") and Elan
         International  Services Ltd. ("EIS"), a wholly owned subsidiary of Elan
         Corporation plc, holding 80.1% and 19.9% (non-voting shares) of the shares
         respectively.

         The Company is subjectadjourned  meeting scheduled to the terms and conditions of a joint
         development and operating agreement between Elite Laboratories, Inc.
         ("Elite Labs"), a wholly owned subsidiary of Elite, and Elan to
         develope products using drug delivery technologies and expertise of
         both Elite and Elan. The Company funds its research through capital
         contributions from its partners basedbe held on the partner's ownership
         percentage. The Company subcontracts research and development efforts
         toJuly
      19, 2004.

      Elite  Labs  is  currently  negotiating  an  agreement  with  a  financial
      institution to finance the purchase of certain machinery and Elan. Elite Labs provides mostequipment and
      to recast the outstanding  balance due to a bank in the approximate amount
      of the formulation and
         development work. Elite Labs has completed in-vivo (pilot clinical
         trial) on the first product the Company has formulated and began
         formulation and development of two additional products as of March 31,
         2002.

         The Company was initially capitalized with $15,000,000 which included
         the issuance of 6,000 Voting Common Shares and 6,000 Non-Voting
         Convertible Preferred Shares. The proceeds of $15,000,000 were used to
         pay a licensing fee to Elan, under$212,000.  Under the terms of a licensethe proposed agreement,  entered into between ElanElite Labs is to
      borrow $612,000 payable in 36 monthly  installments of $20,917,  including
      principal  plus  interest at 14% per annum.  The proposed  agreement is to
      provide that the (i) loan  will be secured by two pieces of equipment  and
      the  Company as fully described in Note 4.

         As at March 31, 2002,guaranty of the  Company,  has a deficit of $15,714,573. The
         Company is(ii)  restricted  cash  currently  inheld as
      collateral  under the research and development stage, and hence
         is not yet generating revenue. As more fully described in Note 7, the
         Company's shareholders have, by way of a Joint Development and
         Operating Agreement, agreed to provide additional funding.

2.       Significant accounting policy

         The accompanying financial statements are prepared in accordance with
         accounting principles generally accepted in the United States of
         America which require 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. The
         following are the significant accounting policies adopted by the
         Company:

(a)      Cash and cash equivalents

         The Company considers highly liquid short-term investments purchased
         with initial maturities of three months or less to be cash equivalents.



ELITE RESEARCH, LTD.

Notes to Financial Statements

March 31, 2002

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

2.       Significant accounting policy (continued)

(b)      Research and development costs

         Research costs are charged as an expense of the period in which they
are incurred.

(c)      Revenue recognition

         To date, the Company has not generated revenues, however, it expects
         that future revenues, if any, will be earned primarily by licensing
         certain pharmaceutical products. Such revenues will be recorded as
         certain projected goals are attained, as defined in the individual
         contact.

(d)      Fair value of financial instruments

         The carrying amounts of cash, accountsnote  payable and accrued expenses
         approximate fair value due to the short term maturity of these items.


3.       Related party transactions

         For the year ended March 31, 2002 and for the period of October 6, 2000
         (date of incorporation) through March 31, 2001 ERL recognized net
         losses of $633,642 and $15,080,931, respectively. The net loss for the
         year ended March 31, 2002 includes research and development services
         rendered by Elite Labs and Elan in the amounts of $600,940 and $18,753,
         respectively. The net loss for the period ended March 31, 2001 includes
         a $15,000,000 payment to Elan for a technology license fee, as well as
         $80,931 due to Elite Labs for services rendered to ERL.

         As of March 31, 2002 and 2001, the Company had outstanding accounts
         payable to Elite Labs for research and development services in the
         amounts of $525,259 and $80,931, respectively.

         As of March 31, 2002, the Company had outstanding accounts payable to
         Elan for research and development services  in the  amount of  $18,753.

4.       License agreement

         In October 2000,$225,000  is to be
      released to the lender,  of which  $125,500 will be utilized to prepay the
      first six monthly  payments  under the loan and (iii) the balance  will be
      held as a security  deposit which is to be released if the Company  entered into a license agreement with Elan
         Corporation, plc ("Elan") whereby Elan licensedraises
      certain  patents and
         intellectual property to the Company in consideration of a
         non-refundable license fee of $15 million. The fee was not subject to
         future performance obligations of Elan to the Company and was taken as
         a charge to operations in the period ended March 31, 2001.





ELITE RESEARCH, LTD.

Notes to Financial Statements

March 31, 2002


- ----------------------------------------------------------------------------------
5.       Share capital

         Voting common shares, of par value US $1.00 per share
         6,000 shares authorised;
         6,000 shares issued and outstanding                                                           $      6,000

         Non-voting convertible preferred shares, of par value US$1.00 per share
         6,000 shares authorised;
         6,000 shares issued and outstanding                                                                  6,000
                                                                                                             -------

                                                                                                         $   12,000
                                                                                                             =======

         The Preferred shares may be converted at the option of the holders on a
         one-for-one basis into common shares of the Company at any time after
         two yearsproceeds from the datesale of issuance ofits securities or other licensing fees.
      No assurance can be given that the preferred stock. The
         Preferred shares are non-voting, do not bear a dividend and shall have
         a liquidation preference equal to their original issue price.


6.       Share premium

         Share premium represents amounts contributed by shareholders in excess
ofproposed  agreement will be executed or
      if the par value ofagreement is executed that the shares subscribed for.


7.       Contributed surplus

         Contributed surplus represents amounts contributed by shareholders in
addition to their subscription to the issued share capital. These amounts were
provided to fund the operations of the Company as agreed by the shareholders on
a pro rata basis based on their equity participation. In addition, within three
years from the date of incorporation, the shareholders mayagreement will provide the Company,
on a pro rata basis in accordance with the shareholders' respective percentage
ownership of capital, up to an aggregate maximum of $6,000,000, as agreed upon
by the shareholders, by way of contributed surplus or loans. During the year
shareholders contributed an additional $234,039.


8.       Taxes

         Under current Bermuda law, the Company is not required to pay any taxes
in Bermuda on either income or capital gains. The Company has received an
undertaking from the Minister of Finance in Bermuda that in the event of such
taxes being imposed, the Company will be exempted from taxation until the year
2016.




The Board of Directors
Elite Research Ltd.



We hereby  consent  to the  inclusion  in the  Annual  Report on Form 10-K of Elite
Pharmaceuticals,  Inc.  to be filed  with the U.S. Securities  and Exchange  Commission
of our Report dated June 11, 2002 on the  Financial  Statements  of Elite  Research  Ltd. for the
period ended March 31, 2002.

s/ KPMG
- -------

Hamilton, Bermuda
June 26, 2002foregoing
      terms.


                                      F-30