Edgar Filing: ELITE PHARMACEUTICALS INC /DE/

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 2010

COMPARED TO THE

THREE AND NINE MONTH PERIOD ENDED DECEMBER 31, 2009

(UNAUDITED)

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

This Quarterly Report on Form 10-Q and the documents incorporated herein contain “forward-looking statements”. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this Form 10-Q, statements that are not statements of current or historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “plan”, “intend”, “may,” “will,” “expect,” “believe”, “could,” “anticipate,” “estimate,” or “continue” or similar expressions or other variations or comparable terminology are intended to identify such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as required by law, the Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Any reference to “Elite”, the “Company”, “we”, “us”, “our” or the “Registrant” refers to Elite Pharmaceuticals Inc. and its subsidiaries.

Overview

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

We have two products, Lodrane 24® and Lodrane 24D®, currently being sold commercially. We also have an approved generic methadone product developed with our partner, The PharmaNetwork. We are pursuing a sales and distribution agreement for this product. A sales and distribution agreement is a prerequisite for the launch of this product and must be mutually agreed upon by Elite and our development partner. Elite has purchased three approved generic products: a generic hydromorphone product, a generic naltrexone product and a generic phentermine product. The manufacturing process for all three recently acquired products from the previous ANDA holders to our facilities in Northvale, New Jersey, is currently on-going. Elite also executed a License Agreement with Precision Dose, Inc. (“Precision Dose”) to market and sell the Elite products in the United States, Puerto Rico, and Canada through its wholly-owned subsidiary, TAGI Pharma Inc. (“TAGI”). TAGI will market the two approved and on approval-pending product recently purchased by the Company as well as additional products and dosage strengths that have or will be filed for approval with the FDA. The Company also has a pipeline of additional generic drug candidates under active development. Additionally, the Company is developing ELI-216, an abuse resistant oxycodone product, and ELI-154, a once-daily oxycodone product. Elite’s facility in Northvale, New Jersey operates under Current Good Manufacturing Practice (“cGMP”) and is a United States Drug Enforcement Agency (“DEA”) registered facility for research, development and manufacturing.

Strategy

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

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

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

Commercial Products

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

Lodrane 24®, was first commercially offered in November 2004 and Lodrane 24D® was first commercially offered in December 2006. Elite’s revenues for manufacturing these products and a royalty on sales for the quarters ended December, 2010 and 2009 aggregated $1,104,986 and, $917,383, respectively. Elite’s revenues for manufacturing these products and a royalty on sales for the nine month periods ended December, 2010 and 2009 aggregated $2,790,332 and, $2,507,474, respectively.

Since January, 2010, the Company has performed laboratory stability studies of Lodrane and Lodrane 24D, for ECR, on a contract basis. Elite’s revenues from such contract laboratory services for the nine months ended December 31, 2010 were $234,123.

Approved Products

On November 25, 2009, the Company and ThePharmaNetwork, LLC (“TPN”) were notified of the approval of an Abbreviated New Drug Application for methadone hydrochloride 10mg tablets by the U.S. Food and Drug Administration (“FDA”). Elite and TPN co-developed the product and the ANDA was filed under the TPN name. A current report on form 8-K was filed on December 2, 2009 in relation to this announcement, such filing being incorporated herein by this reference.

On May 18, 2010, Elite executed an asset purchase agreement with Mikah Pharma LLC (the “Hydromorphone Agreement”). Pursuant to the Hydromorphone Agreement, the Company acquired from Mikah an Abbreviated New Drug Application for Hydromorphone Hydrochloride Tablets USP, 8 mg, for aggregate consideration of $225,000, comprised of an initial payment of $150,000, which was made on May 18, 2010. A second payment of $75,000 was due to be paid to Mikah on June 15, 2010, with the Company having the option to make this payment in cash or by issuing to Mikah 937,500 shares of the Company’s common stock. The Company elected and did issue 937,500 shares of Common Stock during the quarter ended December 31, 2010, in full payment of the $75,000 due to Mikah pursuant to the asset purchase agreement dated May 18, 2010. Elite is transferring the process to the Facility in Northvale, NJ where it intends to manufacture the product. A current report on form 8-K was filed on May 24, 2010 in relation to this announcement, such filing being incorporated herein by this reference. For further details on the Hydromorphone Agreement, please refer to Exhibit 10.4 to the Quarterly Report on Form 10-Q, filed with the SEC on November 15, 2010, and incorporated herein by reference.

On August 27, 2010, Elite executed the Naltrexone Asset Purchase Agreement with Mikah Pharma LLC (“Mikah”) pursuant to which Elite acquired from Mikah the Abbreviated New Drug Application number 75-274 (Naltrexone Hydrochloride Tablets USP, 50 mg), and all amendments thereto (the “ANDA”), that have to date been filed with the FDA seeking authorization and approval to manufacture, package, ship and sell the products described in the ANDA within the United States and its territories (including Puerto Rico) for aggregate consideration of $200,000. In lieu of cash, Mikah agreed to accept from Elite product development services to be performed by Elite, as described below under Product Development Agreement heading. A current report on form 8-K was filed on August 27, 2010 in relation to this announcement, such filing being incorporated herein by this reference. Please also refer to exhibit 10.5 of the Quarterly Report on Form 10-Q filed with SEC on November 15, 2010, such filing being incorporated herein by this reference.

On September 10, 2010, Elite, together with its subsidiary, Elite Laboratories, Inc., executed a Purchase Agreement (the “Phentermine Purchase Agreement”) with Epic Pharma LLC (the “Seller”) for the purpose of acquiring from the seller an Abbreviated New Drug Application for a generic phentermine product (the “Phentermine ANDA”), with such being filed with, but not yet approved by the FDA. On February 4, 2011, the Company announced the approval by the FDA of the Phentermine ANDA. As per the terms and conditions of the Phentermine Purchase Agreement, the acquisition of the Phentermine ANDA will close on the later of 60 days from the date of the Purchase Agreement or upon receipt of FDA approval of the Phentermine ANDA. Upon the closing, Elite will pay a portion of the purchase price. The remainder of the purchase price will be paid in quarterly installments over a period of three years, beginning at the end of the first full quarter following the closing. Current reports on form 8-K were filed on September 10, 2010 and February 4, 2011 in relation to the Phentermine Purchase Agreement and the Phentermine ANDA, with such filings being incorporated herein by this reference. Please also refer to exhibit 10.7 of the Quarterly Report on Form 10-Q filed with SEC on November 15, 2010, such filing being incorporated herein by this reference.

Licensing Agreement

On September 10, 2010, Elite Pharmaceuticals Inc. (“Elite”) executed a License Agreement with Precision Dose, Inc. (“Precision Dose”) to market and sell four Elite generic products, consisting of Hydromorphone, Naltrexone, and two generic products for which ANDA’s have been filed but not yet approved by the FDA., through its wholly-owned subsidiary, TAGI Pharma, Inc. in the United States, Puerto Rico and Canada. Precision Dose will have the exclusive right to market the products in the United States and Puerto Rico and a non-exclusive right to market the products in Canada. Pursuant to the License Agreement, Elite will receive a license fee and milestone payments. The license fee will be computed as a percentage of the gross profit, as defined in the License Agreement, earned by Precision Dose as a result of sales of the products. The license fee is payable monthly for the term of the License Agreement. The milestone payments will be paid in 6 installments. The first installment was paid upon execution of the License Agreement. The remaining installments are to be paid upon FDA approval and initial shipment of the products to Precision Dose. The term of the License Agreement is 15 years and may be extended for 3 successive terms, each of 5 years. A current report on form 8-K was filed on September 10, 2010 in relation to this announcement, such filing being incorporated herein by this reference. Please also refer to exhibits 10.8 and 10.9 of the Quarterly Report on Form 10-Q filed with SEC on November 15, 2010, such filings being incorporated herein by this reference.

Products Under Development

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.

ELI-154 and ELI-216

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

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

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

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

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

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

Epic Strategic Alliance Agreement

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

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

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

Product Development Agreement

On August 27, 2010, Elite Pharmaceuticals Inc. (“Elite”) executed an agreement with Mikah Pharma, LLC (“Mikah”) to undertake and perform development work to facilitate the preparation of a regulatory filing for a product under development (the “Product Development Agreement”). The product will be formulated with a previously approved drug substance and will be designed to be delivered in a unique delivery profile. Among other responsibilities, Elite will provide formulation, analytical development, clinical batch manufacture and validation work for the product. The parties agreed that, in lieu of cash, the transfer to Elite of the Naltrexone product in accordance with the terms of the Naltrexone Asset Purchase Agreement (see discussion at Item 2.01 below), which they valued at $200,000, constituted the consideration for the development services being performed by Elite under the Product Development Agreement. Mikah will also pay to Elite, on a quarterly basis, a royalty in the amount of 5% of net sales of the product. The royalty will be due and payable for the duration of the period beginning on the date that the product is approved by the United States Food and Drug Administration (the “FDA”) and ending on the date of the introduction into the market of an equivalent generic product. Upon approval of the new drug application by the FDA, Elite will manufacture the product and the parties will negotiate in good faith a manufacturing and supply agreement for the product. The Product Development Agreement has a term of 10 years. There is no guarantee that the product will receive approval from the FDA. A current report on form 8-K was filed on September 1, 2010 in relation to this announcement, such filing being incorporated herein by this reference. Please also refer to exhibit 10.6 of the Quarterly Report on Form 10-Q filed with the SEC on November 15, 2010, such filing being herein incorporated by this reference.

Novel Labs Investment

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

Critical Accounting Policies and Estimates

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

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

Results of Consolidated Operations

Three Months Ended December 31, 2010 Compared to Three Months Ended December 31, 2009

Our revenues for the three months ended December 31, 2010 were $1,226,297 an increase of $308,914 or approximately 34% over revenues for the comparable period of the prior year, and consisted of $901,653 in manufacturing fees, $92,902 in lab fees and $231,742 in royalties. Revenues for the three months ended December 31, 2009, consisted of $744,948 in manufacturing fees and $172,435 in royalties. Manufacturing fees increased by approximately 21% due to timing of orders and shipments and growing demand for the Lodrane products. Royalty revenues for the quarter ended December 31, 2010 increased by $59,307, when compared to royalty revenues for the same quarter of the prior year. This increase is due to the timing of end-user sales in the market and a growing demand for the Lodrane products.

Research and development costs for the three months ended December 31, 2010 were $179,525, a decrease of $68,248 or approximately 28% from $247,773 of such costs for the comparable period of the prior year. Decreases were attributed to decreases in employee costs and consulting fees associated with the development of products and lower active pharmaceutical ingredient costs for product development.

General and administrative expenses for the three months ended December 31, 2010, were $315,537, a decrease of $183,347, or approximately 37% from $498,884 of general and administrative expenses for the comparable period of the prior year. The decrease was primarily due to the December 2010 quarter not having the unusually high legal fees incurred during the December 2009 quarter in relation to litigation existing during that period that has since been settled, plus continued cost reduction initiatives throughout all aspects of our operations, offset by increased rent expense related to the operating lease entered into as of July 1, 2010.

Depreciation and amortization for the three months ended December 31, 2010 was $9,200, a decrease of $30,515, or approximately 77%, from $39,715 for the comparable period of the prior year. The decrease was due to the implementation of improved manufacturing cost accounting systems which more accurately allocate depreciation expense among manufacturing and other operations, increased manufacturing volumes reducing excess capacity, as well as non-essential machinery and equipment not being replaced upon reaching retirement, full depreciation.

Non-cash compensation through the issuance of stock options and warrants for the three months ended December 31, 2010 was $7,580, a decrease of $20,908, or approximately 73% from $28,488 for the comparable period of the prior year. The decrease was due to the timing of the amortization schedule established at the time of issuance of the related stock options and warrants.

Other income/(expenses) for the three months ended December 31, 2010 were $5,856,343, an increase in other income of $14,939,935 from the net other income/(expense) of $(9,083,592) for the comparable period of the prior year. The increase in other income/(expenses) was due to derivative income relating to changes in the fair value of our preferred shares and outstanding warrants during the quarter ended December 31, 2010 totaling $6.2 million, as compared to a derivative expense of $8.4 million for the comparable period of the prior year.

As a result of the foregoing, our net income for the three months ended December 31, 2010 was $5,928,212 compared to a net loss of $(9,590,485) for the three months ended December 31, 2009.

Nine Months Ended December 31, 2010 Compared to Nine Months Ended December 31, 2009

Our revenues for the nine months ended December 31, 2010 were $3,052,864 an increase of $545,390 or approximately 22% over revenues for the comparable period of the prior year, and consisted of $2,236,064 in manufacturing fees, $234,123 in lab fees and $582,677 in royalties. Revenues for the nine months ended December 31, 2009, consisted of $1,948,952 in manufacturing fees and $558,522 in royalty fees. Manufacturing fees increased by approximately 15% due to growing demand for the Lodrane products. Royalty revenues for the nine months ended December 31, 2010 increased by $24,155, when compared to royalty revenues for the same period of the prior year.

This increase is due to the timing of end-user sales in the market and a growing demand for the Lodrane products.

Research and development costs for the nine months ended December 31, 2010 were $494,968, a decrease of $263,222 or approximately 35% from $758,190 of such costs for the comparable period of the prior year. Decreases were attributed to decreases in employee costs and consulting fees associated with the development of products and lower active pharmaceutical ingredient costs for product development.

General and administrative expenses for the nine months ended December 31, 2010, were $947,761, a decrease of $340,804, or approximately 26% from $1,288,565 of general and administrative expenses for the comparable period of the prior year. The decrease was primarily due to not having the unusually high legal fees incurred in the prior year in relation to litigation existing during that period that has since been settled, plus continued cost reduction initiatives throughout all aspects of our operations, offset by increased rent expense related to the operating lease entered into as of July 1, 2010.

Depreciation and amortization for the nine months ended December 31, 2010 was $113,490, a decrease of $100,997, or approximately 47%, from $214,487 for the comparable period of the prior year. The decrease was due to the implementation of improved manufacturing cost accounting systems which more accurately allocate depreciation expense among manufacturing and other operations, increased manufacturing volumes which reduced excess capacity, as well as non-essential machinery and equipment not being replaced upon reaching retirement, full depreciation.

Non-cash compensation through the issuance of stock options and warrants for the nine months ended December 31, 2010 was $33,268, a decrease of $79,773, or approximately 71% from $113,041 for the comparable period of the prior year. The decrease was due to the timing of the amortization schedule established at the time of issuance of the related stock options and warrants.

Other income/(expenses) for the nine months ended December 31, 2010 were $3,185,787, an increase in other income of $13,505,840 from the net other income/(expense) of $(10,320,053) for the comparable period of the prior year. The increase in other income/(expenses) was due to derivative expense related to changes in the fair value of our preferred shares and outstanding warrants during the nine months ended December 31, 2010 totaling $4.4 million, as compared to $(8.6) million for the comparable period of the prior year.

As a result of the foregoing, our net income for the nine months ended December 31, 2010 was $3,023,043 compared to a net loss of $(12,111,307) for the nine months ended December 31, 2009.

Material Changes in Financial Condition

Our working capital (total current assets less total current liabilities), decreased to a deficit of $2.7 million as of December 31, 2010 from a working capital deficit of $2.3 million as of March 31, 2010, primarily due to our net loss from operations, exclusive of non-cash charges. In addition, it should be noted that current liabilities includes the entire principal amount due on the Company’s NJEDA Bonds Payable. This amount, totaling $3.4 million has been classified as a current liability as a result of the Company receiving a notice of default from the Trustee of the NJ-EDA Bonds. Please refer to Note 5 to our financial statements and Item 3 of this current report on Form 10-Q for further details.

We achieved a positive cash flow from operations of $318,457 for the nine months ended December 31, 2010, primarily due to deferred revenues relating to milestone payments, totaling $234,956, received from marketing contracts signed during the period and our net income from continuing operations of $3,005,004, decreased by non cash charges totaling $3,019,933, which included depreciation and amortization of $362,381, change in fair value of warrant derivative liabilities of $(4,788,493), change in fair value of preferred share derivative liabilities of $412,908, derivative interest payments satisfied through the issuance of common shares in lieu of cash of $897,680 and non cash compensation satisfied by the issuance of common stock and options of $33,268.

LIQUIDITY AND CAPITAL RESOURCES

Going concern considerations

As of December 31, 2010, the Company had a working capital deficit of $2.7 million, losses from operations totaling $0.2 million for the nine months ended December 31, 2010, other income totaling $3.2 million for the nine months ended and a net income of $3.0 million for the nine months ended December 31, 2010. Please note that the Company’s other income/(expenses) are significantly influenced by the fluctuations in the fair value of outstanding preferred share and warrant derivatives, and that such fair values strongly correlate to and vary inversely with the market share price of the Company’s Common Stock.

In addition, the Company has received Notice of Default from the Trustee of the NJEDA Bonds as a result of the utilization of the debt service reserve being used to pay interest payments due on September 1, 2009, March 1, 2010 and September 1, 2010 totaling $121k, $113k and $113k, respectively, and principal payments due on September 1, 2009 totaling $210k. The debt service reserve was utilized to make such payments as a result of the Company’s not having sufficient funds available to make such payments when due.

The Company did not have sufficient funds available to make the principal payments due on September 1, 2010, totaling $200k and requested that the Trustee withdraw such funds from the debt service reserve. The Company’s request was denied and accordingly the principal payment due on September 1, 2010, totaling $200k was not made.

The Company has requested a postponement of principal payments due on September 1, 2010, 2011 and 2012, with an aggregate of all such postponed principal payments being added to the principal payments due on September 1, 2013. Resolution of the Company’s default on the NJEDA Bonds and our request for postponement of principal payments will have a significant effect on our ability to operate in the future.

Please refer to Note 5 to our financial statements and Item 3 of this current report on Form 10-Q for a more detailed discussion of the NJEDA Bonds and Notice of Default.

As of December 31, 2010, we had cash reserves of $415,194. The completion of all transactions contemplated by the Epic Strategic Alliance Agreement, including the consummation of the third closing thereof, is expected to provide additional funds to permit us to continue development of our product pipeline for more than two years. Beyond two years, we anticipate that, with growth of Lodrane and the launch of the generic Hydromorphone 8mg and Naltrexone 50mg recently acquired pursuant to asset purchase agreements with Mikah Pharma LLC, Elite could be profitable. In addition, the commercialization of the products developed at the Facility under the Epic Strategic Alliance Agreement is expected to add a new revenue source for Elite. However, there can be no assurances as to the growth, success of development or commercialization of these products.

Despite the successful completion of the initial and second closings of the Epic Strategic Alliance Agreement, there can be no assurances that we will be able to consummate the third closing pursuant to the terms and conditions of the Epic Strategic Alliance Agreement. If such transactions are consummated, we will receive additional cash proceeds of $1.6875 million (which will include quarterly payments of $62,500 for a period of 11 quarters). Even if we were able to successfully complete the third closing of the Epic Strategic Alliance Agreement, we still may be required to seek additional capital in the future and there can be no assurances that we will be able to obtain such additional capital on favorable terms, if at all. For additional information regarding the Epic Strategic Alliance Agreement, please see our disclosures under “Epic Strategic Alliance Agreement” in Item 7 of Part II of our Annual Report on Form 10-K, and in our Current Reports on Form 8-K, filed with the SEC on March 23, 2009, May 6, 2009, June 5, 2009, July 1, 2010 and January 13, 2011, which disclosures are incorporated herein by reference.

Based upon our current cash position, management has undertaken a review of our operations and implemented cost-cutting measures in an effort to eliminate any expenses which are not deemed critical to our current strategic objectives. We will continue this process without impeding our ability to proceed with our critical strategic goals, which, as noted above, include developing our pain management and other products and manufacturing our current products.

For the nine months ended December 31, 2010, we realized approximately $0.3 million positive cash flow from operating activities. Our working capital deficit at December 31, 2010 was approximately $2.7 million compared with working capital surplus of approximately $0.5 million at December 31, 2009. Please note that the working capital deficit of $2.6 million as of December 31, 2010, includes the entire principal amount due in relation to the NJEDA Bonds. This amount, totaling $3.4 million was first classified as a current liability as of March 31, 2010, due to the Notice of Default received from the Trustee in relation to the NJEDA Bonds. The working capital surplus of $0.5 million as of December 31, 2009, does not include classification of such entire principal amount due on the NJEDA Bonds as a current liability. Please refer to Note 5 to our financial statements and Item 3 of this current report on Form 10-Q for a more detailed discussion of the NJEDA Bonds and Notice of Default.

Cash and cash equivalents at December 31, 2010, were approximately $0.4 million, a decrease of approximately $0.5 million from the approximately $0.9 million at December 31, 2009.

As of December 31, 2010, our principal source of liquidity was approximately $0.4 of cash and cash equivalents. Additionally, we may have access to funds through the exercise of outstanding stock options and warrants. There can be no assurance that the exercise of outstanding warrants or options will generate or provide sufficient cash.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that would be considered material to investors.

Effects of Inflation

We are subject to price risks arising from price fluctuations in the market prices of the products that we sell. Management does not believe that inflation risk is material to our business or our consolidated financial position, results of operations, or cash flows.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

ITEM 4 CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

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

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

Changes in Internal Controls

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15 (f) under the Exchange Act) during the quarter ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

The PharmaNetwork, LLC v. Elite Pharmaceuticals, Inc. – On or about September 3, 2010, The PharmaNetwork, LLC (“Plaintiffs”) filed a complaint against the Company in the Superior Court of New Jersey Chancery Division: Bergen County (Docket No. C-272-10), with an amendment of this complaint being filed on or about September 24, 2010 (the “TPN Complaint”). The TPN Complaint consists of two counts. The first count is for breach of contract and specific performance & injunctive relief and seeks judgment against the Company for (a) specific performance of the Product Collaboration Agreement made on or about November 26, 2006 (the “Agreement”) ; (b) injunctive relief enjoining the Company from using its assets for any purpose other than its obligations under the Agreement and the payment of the Company’s existing and continuing costs and expenses incurred in the ordinary course of business ; and (c) such other relief as the Court deems equitable and just. The second count is for breach of the implied covenant of good faith and fair dealing and seeks judgment against the Company for (a) specific performance of the Product Collaboration Agreement made on or about November 26, 2006 (the “Agreement”) ; (b) injunctive relief enjoining the Company from using its assets for any purpose other than its obligations under the Agreement and the payment of the Company’s existing and continuing costs and expenses incurred in the ordinary course of business ; and (c) such other relief as the Court deems equitable and just.

Plaintiffs requests for injunctive relief have been denied pursuant to order of the court.

The Company disputes the claims, believes the lawsuit is without merit and intends to vigorously defend against them.

On or about October 14, 2010, the Company filed its response to the TPN complaint and two counterclaims. The first counterclaim asserts TPN’s breach of contract and seeks monetary damages in the sum of an amount no less than $1.125 million, plus interest. The second counterclaim asserts TPN’s breach of its obligation of good faith and fair dealing to the Company and seeks monetary damages in the sum of an amount no less than $1.125 million, plus interest.

The case is presently in discovery stage.

ITEM 1A. RISK FACTORS

There have been no material changes from the Risk Factors described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2010.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

During the quarter ended December 31, 2010, we issued 3,926,568 shares of our common stock to the holders of our Series B, C and D Preferred Stock. The shares were issued in satisfaction of our obligation to pay $227,320 in dividends earned and/or owing during the quarter ended September 30, 2010. We did not receive any proceeds in exchange for the issuance of these securities. We relied on the exemption provided by Section 4(2) of the Securities Act of 1933 to issue the common stock The securities were offered and sold without any form of general solicitation or general advertising and the offerees made representations that they were accredited investors.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Please see the discussion in Note 5 to our financial statements titled “NJEDA Bonds” which is incorporated herein by this reference.

ITEM 4. REMOVED AND RESERVED

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

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

Exhibit Number		Description
3.1(a)		Certificate of Incorporation of the Company, together with all other amendments thereto, as filed with the Secretary of State of the State of Delaware, incorporated by reference to (a) Exhibit 4.1 to the Registration Statement on Form S-4 (Reg. No. 333-101686), filed with the SEC on December 6, 2002 (the “Form S-4”), (b) Exhibit 3.1 to the Company’s Current Report on Form 8-K dated July 28, 2004 and filed with the SEC on July 29, 2004, (c) Exhibit 3.1 to the Company’s Current Report on Form 8-K dated June 26, 2008 and filed with the SEC on July 2, 2008, and (d) Exhibit 3.1 to the Company’s Current Report on Form 8-K dated December 19, 2008 and filed with the SEC on December 23, 2008.

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

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

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

3.1(e)		Amended Certificate of Designations of Preferences, Rights and Limitations of Series B 8% Convertible Preferred Stock, as filed with the Secretary of State of the State of Delaware, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K dated April 24, 2007, and filed with the SEC on April 25, 2007.

3.1(f)		Certificate of Designations, Preferences and Rights of Series C 8% Convertible Preferred Stock, as filed with the Secretary of the State of Delaware, incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K dated April 24, 2007, and filed with the SEC on April 25, 2007.

3.1(g)		Amended Certificate of Designations, Preferences and Rights of Series C 8% Convertible Preferred Stock, as filed with the Secretary of the State of Delaware, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K dated April 24, 2007, and filed with the SEC on April 25, 2007

3.1(h)		Amended Certificate of Designations of Preferences, Rights and Limitations of Series B 8% Convertible Preferred Stock, as filed with the Secretary of State of the State of Delaware, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K dated September 15, 2008, and filed with the SEC on September 16, 2008.

3.1(i)		Amended Certificate of Designations, Preferences and Rights of Series C 8% Convertible Preferred Stock, as filed with the Secretary of the State of Delaware, incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K dated September 15, 2008, and filed with the SEC on September 16, 2008.

3.1(j)		Amended Certificate of Designations of Preferences, Rights and Limitations of Series D 8% Convertible Preferred Stock, as filed with the Secretary of State of the State of Delaware, incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K dated September 15, 2008, and filed with the SEC on September 16, 2008.

3.1(k)		Certificate of Designation of Preferences, Rights and Limitations of Series E Convertible Preferred Stock, as filed with the Secretary of State of the State of Delaware, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K dated June 1, 2009, and filed with the SEC on June 5, 2009.

3.1(l)		Amended Certificate of Designations of the Series D 8% Convertible Preferred Stock as filed with the Secretary of State of the State of Delaware on June 29, 2010, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, dated July 1, 2010 and filed with the SEC on July 1, 2010

3.1(m)		Amended Certificate of Designations of the Series E Convertible Preferred Stock as filed with the Secretary of State of the State of Delaware on June 29, 2010, incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K, dated July 1, 2010 and filed with the SEC on July1, 2010

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

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

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

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

4.4		Form of specimen certificate for Series C 8% Convertible Preferred Stock of the Company, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, dated April 24, 2007 and filed with the SEC on April 25, 2007.

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

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

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

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

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

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

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

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

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

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

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

4.16		Form of Warrant to purchase 600,000 shares of Common Stock issued to Indigo Ventures, LLC, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, dated July 12, 2006 and filed with the SEC on July 18, 2006.

4.17		Form of Warrant to purchase up to 478,698 shares of Common Stock issued to VGS PHARMA, LLC, incorporated by reference to Exhibit 3(a) to the Current Report on Form 8-K, dated December 6, 2006 and filed with the SEC on December 12, 2006.

4.18		Form of Non-Qualified Stock Option Agreement for 1,750,000 shares of Common Stock granted to Veerappan Subramanian, incorporated by reference to Exhibit 3(b) to the Current Report on Form 8-K, dated December 6, 2006 and filed with the SEC on December 12, 2006.

4.19		Form of Warrant to purchase shares of Common Stock issued to purchasers in the private placement which closed on April 24, 2007 (the “Series C Financing”), incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K, dated April 24, 2007 and filed with the SEC on April 25, 2007.

4.20		Form of Warrant to purchase shares of Common Stock issued to the placement agent in the Series C Financing, incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K, dated April 24, 2007 and filed with the SEC on April 25, 2007.

4.21		Form of specimen certificate for Series D 8% Convertible Preferred Stock of the Company, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, dated September 15, 2008 and filed with the SEC on September 16, 2008.

4.22		Form of Warrant to purchase shares of Common Stock issued to purchasers in the private placement which closed on September 15, 2008 (the “Series D Financing”), incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K, dated September 15, 2008 and filed with the SEC on September 16, 2008.

4.23		Form of Warrant to purchase shares of Common Stock issued to the placement agent in the Series D Financing, incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K, dated September 15, 2008 and filed with the SEC on September 16, 2008.

4.24		Form of specimen certificate for Series E Convertible Preferred Stock of the Company, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K, dated June 1, 2009, and filed with the SEC on June 5, 2009.

4.25		Warrant to purchase shares of Common Stock issued to Epic Investments, LLC in the initial closing of the Strategic Alliance Agreement, dated as of March 18, 2009, by and among the Company, Epic Pharma, LLC and Epic Investments, LLC, incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K, dated June 1, 2009, and filed with the SEC on June 5, 2009.

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

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

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

		Page No.
	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of December 31, 2010 (unaudited) and March 31, 2010 (audited)	F-1 F-2

	Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2010 (unaudited) and December 31, 2009 (unaudited)	F-3

	Condensed Consolidated Statement of Changes in Stockholders’ Deficit for the nine months ended December 31, 2010 (unaudited)	F-4

	Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2010 (unaudited) and December 31, 2009 (unaudited)	F-5

	Notes to Condensed Consolidated Financial Statements	F-6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	9

Item 4.	Controls and Procedures	9

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	10

Item 1A.	Risk Factors	10

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	11

Item 3.	Defaults upon Senior Securities	11

Item 4.	Removed and Reserved	11

Item 5.	Other Information	11

Item 6.	Exhibits	11

SIGNATURES		15

	December 31, 2010 (Unaudited)		March 31, 2010 (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	415,194	$	578,187
Accounts receivable (net of allowance for doubtful accounts of -0-)		626,242		404,961
Inventories (net of reserve of $494,425 and $494,425, respectively)		1,302,142		1,371,292
Prepaid expenses and other current assets		55,268		131,507

Total Current Assets		2,398,846		2,485,947

PROPERTY AND EQUIPMENT, net of accumulated depreciation of $4,072,064 and $3,840,279, respectively		3,945,845		4,095,814

INTANGIBLE ASSETS – net of accumulated amortization of $-0- and $76,434, respectively		562,681		96,407

OTHER ASSETS
Investment in Novel Laboratories, Inc.		3,329,322		3,329,322
Security deposits		28,377		14,652
Restricted cash – debt service for EDA bonds		346,300		294,836
EDA bond offering costs, net of accumulated amortization of $74,365 and $64,767, respectively		279,086		289,685

Total Other Assets		3,983,085		3,928,495

TOTAL ASSETS	$	10,890,457	$	10,606,663

	December 31, 2010 (Unaudited)			March 31, 2010 (Audited)
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
EDA bonds payable	$	3,385,000		$	3,385,000
Short term loans and current portion of long-term debt		12,614			82,302
Accounts payable and accrued expenses		1,215,169			986,777
Customer Deposits		39,400			—
Deferred revenues - current		13,333			—
Preferred share derivative interest payable		385,559			306,440

Total Current Liabilities		5,051,075			4,760,519

LONG TERM LIABILITIES
Deferred revenues		182,223			—
Long term debt, less current portion		75,801			19,823
Derivative liability – preferred shares		8,439,304			7,924,763
Derivative liability – warrants		3,710,930			8,499,423

Total Long Term Liabilities		12,408,258			16,444,009

TOTAL LIABILITIES		17,459,333			21,204,528

STOCKHOLDERS’ DEFICIT
Common stock – par value $0.001, Authorized 355,516,558 shares Issued and outstanding – 97,520,813 shares and 83,950,168 shares, respectively		97,521			83,950

Additional paid-in-capital		91,896,273			90,903,896

Accumulated deficit		(98,255,829	)		(101,278,870	)

Treasury stock at cost (100,000 common shares)		(306,841	)		(306,841	)

TOTAL STOCKHOLDERS’ DEFICIT		(6,568,876	)		(10,597,865	)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	10,890,457		$	10,606,663

	THREE MONTHS ENDED DECEMBER 31,						NINE MONTHS ENDED DECEMBER 31,
	2010			2009			2010			2009
REVENUES
Manufacturing Fees	$	901,653		$	744,948		$	2,236,064		$	1,948,952
Royalties		231,742			172,435			582,677			558,522
Lab Fee Revenues		92,902			—			234,123			—

Total Revenues		1,226,297			917,383			3,052,864			2,507,474

COSTS OF REVENUES		641,524			609,416			1,618,820			1,924,445

Gross Profit		584,773			307,967			1,434,044			583,029

OPERATING EXPENSES
Research and Development		179,525			247,773			494,968			758,190
General and Administrative		315,537			498,884			947,761			1,288,565
Non-cash compensation through issuance of stock options		7,580			28,488			33,268			113,041
Depreciation and Amortization		9,200			39,715			113,490			214,487

Total Operating Expenses		511,842			814,860			1,589,487			2,374,283

INCOME / (LOSS) FROM OPERATIONS		72,931			(506,893	)		(155,443	)		(1,791,254	)

OTHER INCOME / (EXPENSES)
Interest expense, net		(58,059	)		(67,342	)		(173,867	)		(198,529	)
Change in fair value of warrant derivatives		2,064,745			(5,086,610	)		4,788,493			(6,453,107	)
Change in fair value of preferred share derivatives		4,156,097			(3,325,418	)		(412,908	)		(2,147,122	)
Interest expense attributable to preferred share derivatives		(306,440	)		(350,010	)		(976,799	)		(1,008,383	)

Discount in Series E issuance attributable to beneficial conversion features		—			(254,212	)		(39,132	)		(512,912	)

Total Other Income / (Expense)		5,856,343			(9,083,592	)		3,185,787			(10,320,053	)

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES		5,929,274			(9,590,485	)		3,030,344			(12,111,307	)

PROVISION FOR INCOME TAXES		1,062			—			7,302			—

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	5,928,212		$	(9,590,485	)	$	3,023,043		$	(12,111,307	)

NET INCOME (LOSS) PER SHARE
Basic	$	0.06		$	(0.12	)	$	0.03		$	(0.17	)
Diluted	$	0.02		$	(0.12	)	$	0.01		$	(0.17	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic		96,873,523			78,620,207			92,196,433			73,018,708
Diluted		307,839,425			78,620,207			264,110,230			73,018,708

	Common Stock						Treasury Stock
	Shares		Amount		Additional Paid-In Capital		Shares		Amount			Accumulated Deficit			Stockholders’ Deficit
Balance at Mar 31, 2010		83,950,168	$	83,950	$	90,903,896		100,000	$	(306,841	)	$	(101,278,868	)	$	(10,597,863	)

Net Income													3,023,043			3,023,043

Common shares issued in lieu of cash in payment of preferred share derivative interest expense		12,633,145		12,633		885,047										897,680

Non-cash compensation through the issuance of stock options						33,268										33,268

Common shares issued pursuant to ANDA purchase agreement dated 5/18/2010		937,500		938		74,062										75,000

Balance at Dec 31, 2010		97,520,813	$	97,521	$	91,896,273		100,000	$	(306,841	)	$	(98,255,829	)	$	(6,568,876	)

	NINE MONTHS ENDED DECEMBER 31,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income / (Loss)	$	3,023,043		$	(12,111,307	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		362,381			377,196
Inventory adjustment		—			311,986
Change in fair value of warrant derivative liability		(4,788,493	)		6,453,107
Change in fair value of preferred share derivative liability		412,908			2,147,122
Discount in Series E issuance attributed to embedded beneficial conversion feature		39,132			512,912
Preferred share derivative interest satisfied by the issuance of common stock		897,680			1,008,383
Legal expenses satisfied by the issuance of common stock		—			100,000
Non-cash compensation satisfied by the issuance of common stock and options		33,268			113,041
Non-cash rent expense		22,584			—
Non-cash lease accretion		601			—

Changes in Assets and Liabilities
Accounts receivable		(221,280	)		(413,503	)
Inventories		69,151			(4,015	)
Prepaid and other current assets		76,239			72,374
Security deposits		(13,725	)		12,909
Accounts payable, accrued expenses and other current liabilities		90,892			275,643
Deferred revenues and Customer deposits		234,956			—
Derivative interest payable		79,120			—
.
NET CASH PROVIDED BY / (USED IN) OPERATING ACTIVITIES		318,457			(1,144,152	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(35,398	)		—
Cost of leasehold improvements		(176,645	)		—
Costs incurred for intellectual property assets		(191,274	)		—
Proceeds from sale of retired equipment		30,000			—
(Deposits to) / Withdrawals from restricted cash, net		(51,464	)		48,623
NET CASH PROVIDED BY / (USED IN) INVESTING ACTIVITIES		(424,781	)		48,623

CASH FLOWS FROM FINANCING ACTIVITIES
Other loan payments		(56,669	)		(109,661	)
NJEDA bond principal payments		—			(210,000	)
Proceeds from issuance of Series E Convertible Preferred Stock and Warrants		—			2,000,000

NET CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES		(56,669	)		1,680,339

NET CHANGE IN CASH AND CASH EQUIVALENTS		(162,993	)		584,810

CASH AND CASH EQUIVALENTS – beginning of period		578,187			282,578
CASH AND CASH EQUIVALENTS – end of period	$	415,194		$	867,388

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest		114,950			145,287
Cash paid for taxes		4,182			—

SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Non-Cash acquisition of Intangible Assets		275,000			—

Intangible assets at March 31, 2010 (audited)
Patent application costs		96,407
ANDA acquisitions		—

Intangible asset costs capitalized during the nine months ended December 31, 2010
Patent application costs		41,274
ANDA acquisition costs		425,000

Amortization of intangible assets during the nine months ended December 31, 2010
Patent application costs		—
ANDA acquisition costs		—

Intangible assets at December 31, 2010 (unaudited)
Patent application costs		137,681
ANDA acquisition costs		425,000
Total	$	562,681

	Series B		Series C		Series D		Series E		Total
Preferred shares Outstanding		896		5,418		9,008		2,062.5		17,384.5

Underlying common shares into which Preferred may convert		574,076		3,365,217		128,692,014		78,351,302		210,982,610

Closing price on valuation date	$	0.04	$	0.04	$	0.04	$	0.04	$	0.04

Preferred stock derivative liability at December 31, 2010	$	22,963	$	134,609	$	5,147,680	$	3,134,052	$	8,439,304

Preferred stock derivative liability at September 30, 2010	$	34,445	$	201,913	$	7,721,521	$	4,637,523	$	12,595,401

Preferred stock derivative liability at March 31, 2010	$	48,796	$	286,043	$	3,828,163	$	3,761,761	$	7,924,763

Change in preferred stock derivative liability for the three months ended December 31, 2010									$	(4,156,097	)

Change in preferred stock derivative liability for the nine months ended December 31, 2010									$	412,908

	March 31 2010			September 30 2010			December 31 2010
Risk-Free interest rate		2.4% - 3.3	%		0.3% - 1.6	%		0.3% - 2.4	%
Expected volatility		126% - 214	%		135% - 194	%		141% - 202	%
Expected life (in years)		0.5 – 6.6			0.0 – 6.1			0.0 – 5.8
Expected dividend yield		—			—			—
Number of warrants		125,299,740			125,116,392			119,566,601

Fair value – Warrant Derivative Liability	$	8,499,423		$	5,775,676		$	3,710,930

Change in warrant derivative liability for the three months ended							$	(2,064,745	)

Change in warrant derivative liability for the nine months ended							$	(4,788,493	)

Fiscal year ended March 31, 2011	$	19,689
Fiscal year ended March 31, 2012		79,248
Fiscal year ended March 31, 2013		81,228
Fiscal year ended March 31, 2014		83,259
Fiscal year ended March 31, 2015		85,344
Total Minimum 5 year lease payments	$	348,768

	Three Months Ended Dec 31, 2010		Nine Months Ended Dec 31, 2010
Rent Expense	$	22,584	$	45,169

Change in deferred rent liability		22,584		45,169
Balance of deferred rent liability (long-term liability)		45,169		45,169

	For the Three Months Ended Dec 31, 2010		For the Nine Months Ended Dec 31, 2010
Numerator
Net Income attributable to common shareholders	$	5,928,211	$	3,023,042

Denominator
Weighted-average shares of common stock outstanding - basic		96,873,523		92,196,433

Dilutive effect of stock options, warrants and convertible securities		210,956,902		171,913,797

Weighted-average shares of common stock outstanding - diluted		307,839,425		264,110,230

Net income per share
Basic	$	0.06	$	0.03
Diluted	$	0.02	$	0.01

		ELITE PHARMACEUTICALS, INC.

Date:	February 14, 2011	/s/ Jerry Treppel
		Jerry Treppel
		Chief Executive Officer
		(Principal Executive Officer)

Date:	February 14, 2011	/s/ Carter J. Ward
		Carter J. Ward
		Chief Financial Officer
		(Principal Financial and Accounting Officer)