ELITE PHARMACEUTICALS INC /NV/ - FORM 10-Q

Attached files

file	filename
EX-31.2 - EXHIBIT 31.2 - ELITE PHARMACEUTICALS INC /NV/	ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - ELITE PHARMACEUTICALS INC /NV/	ex32-1.htm
EX-10.2 - EXHIBIT 10.2 - ELITE PHARMACEUTICALS INC /NV/	ex10-2.htm
EX-10.1 - EXHIBIT 10.1 - ELITE PHARMACEUTICALS INC /NV/	ex10-1.htm
EX-32.2 - EXHIBIT 32.2 - ELITE PHARMACEUTICALS INC /NV/	ex32-2.htm
EX-31.1 - EXHIBIT 31.1 - ELITE PHARMACEUTICALS INC /NV/	ex31-1.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

September 30, 2009

	or

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period ended to

Commission File Number: 333-45241

ELITE PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

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

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

(201) 750-2646

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

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


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

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

Yes o No x

Indicate the number of shares outstanding of the common stock, $.01 par value, as of September 30, 2009:

[74,469,508] (exclusive of 100,000 shares held in treasury).

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

INDEX


		Page No.
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of September 30, 2009 (unaudited) and March 31, 2009 (audited)	F-1

	Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2009 (unaudited) and September 30, 2008 (unaudited)	F-3

	Condensed Consolidated Statement of Changes in Stockholders’ Equity for the six months ended September 30, 2009 (unaudited)	F-4

	Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2009 (unaudited) and September 30, 2008 (unaudited)	F-6

	Notes to Condensed Consolidated Financial Statements	F-7

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	9
Item 1A.	Risk Factors	10
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults upon Senior Securities	19
Item 4.	Submission of Matters to a Vote of Security Holders	19
Item 5.	Other Information	19
Item 6.	Exhibits	20

SIGNATURES		21

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


ASSETS

	September 30, 2009 (Unaudited)		March 31, 2009 (Audited)
CURRENT ASSETS
Cash and cash equivalents	$	180,443	$	282,578
Accounts receivable		357,148		1,177
Inventories (net of reserve of 494,425 and nil, respectively)		1,454,889		1,703,766
Prepaid expenses and other current assets		121,920		331,622

Total current assets		2,114,400		2,319,143

PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization		4,335,485		4,575,487

INTANGIBLE ASSETS – net of accumulated amortization		23,977		27,743

OTHER ASSETS
Accrued interest receivable		9,916		8,539
Deposit on equipment		—		14,073
Investment in Novel Laboratories, Inc.		3,329,322		3,329,322
Security deposits		14,652		13,488
Restricted cash – debt service for EDA bonds		113,434		327,435
EDA Bond offering costs, net of accumulated amortization of $57,701 and $49,534, for September and March, respectively		296,750		304,918

Total other assets		3,764,074		3,997,775

TOTAL ASSETS	$	10,237,936	$	10,920,148

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

F - 1

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY


	September 30, 2009 (Unaudited)			March 31, 2009 (Audited)
CURRENT LIABILITIES
Current portion of EDA Bonds	$	225,000		$	210,000
Short term loans and current portion of long-term debt		93,159			10,788
Accounts payable and accrued expenses		1,085,709			981,058
Preferred share derivative interest payable		334,760			—
Dividends payable		—			358,621
Total Current Liabilities		1,738,628			1,560,467

LONG TERM LIABILITIES
EDA bonds – net of current portion		3,160,000			3,385,000
Long-term debt, less current portion		25,852			31,600
Derivative Liability – Preferred Shares		6,208,785			—
Derivative Liability – Warrants		6,023,258			—
Total Long-Term Liabilities		15,417,895			3,416,600

Total Liabilities		17,156,523			4,977,067

COMMITMENTS AND CONTINGENCIES:

STOCKHOLDERS (DEFICIT) EQUITY
Preferred Stock - $0.01 par value;
Authorized 4,483,442 shares (originally 5,000,000 shares of which 516,558 shares of Series A Convertible Preferred Stock were retired) and 0 shares outstanding as of September 30, 2009 and March 31, 2009, respectively		—			—

Authorized 10,000 Series B convertible Preferred Stock – issued and outstanding 896 and 1,046 shares, respectively – Reclassified as a liability as of 4/1/09		—			11

Authorized 20,000 Series C convertible Preferred Stock – issued and outstanding 5,418 and 1,3705 shares, respectively – Reclassified as a liability as of 4/1/09		—			137

Authorized 30,000 Series D convertible Preferred Stock – issued and outstanding 9,009 and 9,154 shares, respectively – Reclassified as a liability as of 4/1/09		—			91

Common Stock - $0.01 par value;
Authorized 210,000,000 shares as of September 30, 2009 and March 31, 2009

Issued and outstanding – 74,469,508 shares and 60,839,374 shares, respectively		744,695			608,394

Subscription receivable		(75,000	)		(75,000	)

Additional paid-in capital		89,156,632			95,718,082

Accumulated deficit		(96,438,073	)		(90,001,793	)

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

Total Stockholders Equity		(6,918,587	)		5,493,081

TOTAL LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY	$	10,237,936		$	10,920,148

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

F - 2

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	THREE MONTHS ENDED SEPTEMBER 30,						SIX MONTHS ENDED SEPTEMBER 30,
	2009			2008			2009			2008
REVENUES
Manufacturing Fees		538,941			405,005		$	1,204,005		$	1,093,292
Royalties		237,275			70,187			386,086			158,578

Total Revenues		776,216			475,192			1,590,091			1,251,870

Costs of Revenues		453,029			399,571			1,003,043			1,001,496
Inventory Adjustment		—						311,986
Gross Profit		323,187			75,621			275,062			250,374

COST OF OPERATIONS
Research and development		259,326			1,196,711			510,418			2,543,690
General and administrative		393,140			645,106			789,678			1,274,273
Depreciation and amortization		49,230			130,257			174,772			260,514
Total Cost of Operations		701,696			1,972,074			1,474,867			4,078,477

LOSS FROM OPERATIONS		(378,509	)		(1,896,453	)		(1,199,805	)		(3,828,103

OTHER INCOME / (EXPENSES)
Interest income		4			8,318			2,012			30,101
Interest expense		(61,212	)		(64,054	)		(133,200	)		(162,254	)
Non-cash compensation through issuance of stock options and warrants		(29,190	)		(285,624	)		(84,553	)		(592,173	)
Change in fair value of outstanding warrant derivatives		(1,520,822	)		—			(1,366,496	)		—
Change in fair value of preferred share derivatives		(1,383,231	)		—			1,178,296			—
Interest expense attributable to dividends accrued to preferred share derivative liabilities		(299,352	)		—			(658,373	)		—
Discount in Series E issuance attributable to beneficial conversion features		—			—			(258,700	)		—
Total Other Income / (Expense)		(3,293,803	)		(341,360	)		(1,321,014	)		(691,326	)

INCOME / (LOSS) BEFORE PROVISION FOR INCOME TAXES		(3,672,312	)		(2,237,813	)		(2,520,823	)		(4,519,429	)

Provision for Income Taxes		—			—			—			3,120
NET INCOME / (LOSS)		(3,672,312	)		(2,237,813	)		(2,520,819	)		(4,522,549	)

Preferred Stock Dividends		—			(558,282	)		—			(1,112,189	)
NET INCOME / (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS		(3,672,313	)	$	(2,796,095	)	$	(2,520,819	)	$	(5,643,738	)

BASIC AND DILUTED LOSS PER COMMON SHARE	$	(0.05	)	$	(0.11	)	$	(0.04	)	$	(0.23	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC		74,075,307			24,523,192			70,232,854			23,918,539

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

F - 3

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

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

(page 1 of 2)


	Series B Preferred Stock						Series C Preferred Stock						Series D Preferred Stock						Common Stock
	Shares			Amount			Shares			Amount			Shares			Amount			Shares		Amount
Balance at March 31, 2009		1,046			11			13,705			137			9,154			91			60,839,374		608,394

Cumulative effect of reclassification of preferred stock and warrants					(11	)					(137	)					(91	)		—		—

Proceeds received in exchange for beneficial conversion features embedded in Series E preferred shares		—			—			—			—			—			—			—		—

Conversion of Series B, Series C and Series D preferred shares into common		(150	)					(8,827	)					(145	)					5,378,009		53,780

Costs associated with raising capital		—			—			—			—			—			—			—		—

Non-cash compensation through Issuance of stock options and warrants		—			—			—			—			—			—			—		—

Net Income for the six months ended September 30, 2009		—			—			—			—			—			—			—		—

Dividends		—			—			—			—			—			—			4,006,339		40,063

Common shares issued in lieu of cash in payment of preferred share derivative interest expense		—			—			—			—			—			—			4,245,785		42,458


Balance at Sept 30, 2009		896			—			5,418			—			9,009			—			74,469,507		744,659

Schedule continues on next page

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

F - 4

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

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

(page 2 of 2)

(schedule continued from preceding page)


	Subscription Receivable			Additional Paid in Capital			Treasury Stock						Accumulated Deficit			Stockholders (Deficit) Equity
	Subscription Receivable			Additional Paid in Capital			Shares			Amount			Accumulated Deficit			Stockholders (Deficit) Equity
Balance at March 31, 2009		(75,000	)		95,718,092			(100,000	)		(306,841	)		(90,001,793	)		5,943,081

Cumulative effect of reclassification of preferred stock and warrants		—			(7,143,892	)		—			—			(3,915,462	)		(11,059,593	)

Proceeds received in exchange for beneficial conversion features embedded in Series E preferred shares		—			258,700			—			—			—			258,700

Conversion of Series B, Series C and Series D preferred shares into common		—			14,000			—			—			—			67,780

Costs associated with raising capital		—			(351,362	)		—			—			—			(351,362	)

Non-cash compensation through Issuance of stock options and warrants		—			84,553			—			—			—			84,553

Net Income for the six months ended September 30, 2009		—			—			—			—			(2,520,819	)		(2,520,819	)

Dividends		—			318,958			—			—			—			359,021

Common shares issued in lieu of cash in payment of preferred share derivative interest expense		—			257,594			—			—			—			300,052

Balance at Sept 30, 2009		(75,000	)		89,156,633			(100,000	)		(306,841	)		(96,438,073	)		(6,918,587	)

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

F - 5

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	SIX MONTHS ENDED SEPTEMBER 30,
	2009 (Unaudited)			2008 (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(2,520,819	)	$	(4,522,549	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		251,936			260,514
Inventory adjustment		311,986			—
Change in fair value of warrant derivative liability		1,366,496			—
Change in fair value of preferred shares derivative liability		(1,178,296	)		—
Discount in Series E issuance attributable to embedded beneficial conversion feature		258,700			—
Preferred shares derivative interest accrued		658,373			—
Non-cash compensation satisfied by the issuance of common stock, options and warrants		84,553			592,173
Changes in assets and liabilities:
Accounts and interest receivable		(357,348	)		(258,419	)
Inventories		(63,109	)		410,905
Prepaid expenses and other current assets		12,211			52,296
Security deposit		12,909			—
Accounts payable, accrued expenses and other current liabilities		105,224			190,827
NET CASH USED IN OPERATING ACTIVITIES		(1,057,184	)		(3,274,253	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		—			(75,558	)
(Deposits) to / Withdrawals from restricted cash		214,002			(3,326	)
NET CASH USED IN INVESTING ACTIVITIES		214,002			(78,884	)

CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid		—			(126,603	)
Proceeds from issuance of Series D 8% Convertible Preferred Stock and Warrants		—			1,777,000
Proceeds from issuance of Series E Preferred Stock and Warrants		1,000,000			—
NJEDA bond principal payments		(210,000	)		(200,000	)
Other loan payments		(48,953	)		(4,821	)
Costs associated with raising capital		—			(263,753	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		741,047			1,181,823

NET CHANGE IN CASH AND CASH EQUIVALENTS		(102,135	)		(2,171,314	)

CASH AND CASH EQUIVALENTS – beginning of period		282,578			3,702,615
CASH AND CASH EQUIVALENTS – end of period	$	180,443		$	1,531,301

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest		133,200			130,472
Cash paid for income taxes		—			3,120

SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Accrued dividends		—			36,800
Consulting services paid by issuance of 125,000 shares of common stock		—			101,250
Common shares issued in lieu of cash in payment of preferred share derivative interest expense		299,460			—
Accrued preferred share derivative interest expense		334,760			—

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

F - 6

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(UNAUDITED)


NOTE 1 -	BASIS OF PRESENTATION

	The information in this Form 10-Q Report includes the results of operations of Elite Pharmaceuticals, Inc. and its consolidated subsidiaries (collectively the “Registrant”) including its wholly-owned subsidiaries, Elite Laboratories, Inc. (“Elite Labs”) and Elite Research, Inc. (“ERI”) for the three and six months ended September 30, 2009 and 2008. The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission in accordance with accounting principles generally accepted for interim financial statement presentation. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the condensed consolidated financial position, results of operations and cash flows of the Registrant for the periods presented have been included.

	The financial results for the interim periods are not necessarily indicative of the results to be expected for the full year or future interim periods.

	The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Registrant’s Annual Report on Form 10-K for the year ended March 31, 2009. With the exception of the Registrant adopting the requirements of EITF 07-5 with regards to the accounting for warrants and convertible instruments with anti-dilutive properties, there have been no changes in significant accounting policies since March 31, 2009. Please refer to Note 2 of the financial statements in this report for a description of the change in accounting policy related to the adoption of the requirements of EITF 07-5.

	The Registrant does not anticipate being profitable for fiscal year ending March 31, 2010; therefore a current provision for income tax was not established for the three and six months ended September 30, 2009. Only the minimum liability required for state corporation taxes is reflected.

	The accompanying unaudited condensed consolidated financial statements were prepared on the assumption that the Registrant will continue as a going concern. The Registrant continues to generate losses and negative cash flow from operations and does not anticipate being profitable for fiscal year 2010. Therefore Elite continues to require additional financing to ensure that we will be able to meet our expenditures to develop and commercialize our products. As of September 30, 2009, we had cash and cash equivalents of $180,443. We believe that our existing cash and cash equivalents plus revenues from sale of our Lodrane 24® and Lodrane 24D® products and proceeds received from the second closing under the Epic Strategic Alliance Agreement, which occurred on October 30, 2009, will be sufficient to fund our anticipated operating expenses and capital requirements through March 2010. We will require additional funding in order to continue to operate thereafter. If the third closing of the transactions contemplated by the Epic Strategic Alliance Agreement is not closed on a timely basis, or if another financing or strategic alternative providing sufficient resources to allow us to continue operations is not consummated upon exhaustion of our current capital, we will be required to cease operations and liquidate our assets. No assurance can be given that we will be able to consummate the third closing under the Epic Strategic Alliance Agreement on a timely basis, or consummate such other financing or strategic alternative in the time necessary to avoid the cessation of our operations and liquidation of our assets. Moreover, even if we consummate the third closing under the Epic Strategic Alliance Agreement, or such other financing or strategic alternative, we may be required to seek additional capital in the future and there can be no assurances that the Registrant will be able to obtain such additional capital on favorable terms, if at all.

F - 7


NOTE 2 -	CHANGE IN ACCOUNTING PRINCIPAL AND DERIVATIVE LIABILITIES

	The following discussion of derivative liabilities consists of the following sections:
	●	Overview of Derivative Liability accounting
	●	Preferred Stock Derivative Liabilities
	●	Warrant Derivative Liabilities
	●	Beneficial Conversion Feature of Series E Preferred Stock
	●	Summary of effects of derivatives on the financial statements

	In June 2008, the FASB finalized Emerging Issues Task Force (“EITF”) 07-5, “Determining Whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock”, effective for fiscal years beginning after December 15, 2008. Under EITF 07-5, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The conversion features within, and the detachable warrants issued with the Registrant’s Series B, Series C, Series D and Series E preferred stock, do not have fixed settlement provisions because their conversion and exercise prices may be lowered if the Registrant issues securities at lower prices in the future. The Registrant was required to include the reset provisions in order to protect the preferred share and warrant holders from potential dilution associated with future financings for the fiscal year beginning April 1, 2009. In accordance with EITF 07-5, the preferred shares and warrants were recognized as a derivative instrument and have been re-characterized as derivative liabilities at their fair value. “Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”) requires that the fair value of these liabilities be re-measured at the end of every reporting period, with the change in value reported in the statement of operations. EITF 07-5 requires that the cumulative effect of this change in accounting principal, for all periods prior the period of implementation, be recognized as an adjustment in the opening balance of retained earnings/(accumulated deficit)

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

F - 8

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

PREFERRED STOCK DERIVATIVE LIABILITY AS OF APRIL 1, 2009
	Series B		Series C		Series D		Series E		Total
Preferred shares Outstanding		1,046		13,705		9,154		—		23,905

Underlying common shares into which Preferred may convert		670,230		8,512,422		45,772,205		—		54,954,857

Closing price on valuation date	$	0.13	$	0.13	$	0.13	$	0.13	$	0.13

Preferred stock derivative liability at April 1, 2009	$	87,130	$	1,106,615	$	5,950,386	$	—	$	7,144,131

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

PREFERRED STOCK DERIVATIVE LIABILITY AS OF SEPTEMBER 30, 2009
	Series B			Series C			Series D			Series E		Total
Preferred shares Outstanding		896			5,418			9,009			1,000		16,358

Underlying common shares into which Preferred may convert		574,076			3,365,217			45,047,194			20,000,000		68,986,498

Closing price on valuation date	$	0.09		$	0.09		$	0.09		$	0.09	$	0.09

Preferred stock derivative liability at September 30, 2009	$	51,667		$	302,870		$	4,054,248		$	1,800,000	$	6,208,784
Series E liability at issue date (related to beneficial conversion option											258,700		258,700
Change in preferred stock derivative liability for the six months ended September 30, 2009	$	(35,463	)	$	(803,745	)	$	(1,880,388	)	$	1,541,300	$	(1,178,296	)
Change in preferred stock derivative liability for the 3 months ended June 30, 2009		(46,945	)		(871,050	)		(2,784,832	)		1,141,300		(2,561,527	)

Change in preferred stock derivative liability for the three months ended September 30, 2009	$	11,482		$	67,305		$	904,444		$	400,000	$	1,383,231

The change of $1,383,231 and $(1,178,296) in value of the preferred stock derivative liability occurring during the three and six months ended September 30, 2009, respectively, is included in the amount reported in the “Other Income / (Expense)” section of the statement of operations. Increases in value are reported as other expenses and decreases in value are reported as other income.

F - 9

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

	April 1 2009			June 30 2009		September 30 2009
Risk-Free interest rate		2	%	2	%		2	%
Expected volatility		118%- 137	%	116% - 153	%		120% - 165	%
Expected life (in years)		3.2 – 5.2		3.0 – 7.0			2.7 – 6.7
Expected dividend yield		—		—			—
Number of warrants		45,469,740		85,469,740			85,469,740

Fair value – Warrant Derivative Liability	$	3,915,462		4,502,436		$	6,023,258

Derivative warrant liability recorded at issue date of Series E Preferred Shares		—		741,300

Change in Warrant Derivative Liability for the three months ended		—		(154,326	)		1,520,822

Change in Warrant Derivative Liability for the six months ended September 30, 2009						$	1,366,496

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

	The warrant derivative liability as of April 1, 2009 was $3,915,462. This amount represents the cumulative effect of the change in accounting principal for all periods prior to April 1, 2009 and as per the requirements of EITF 07-5, is recognized as an adjustment in the opening accumulated deficit balance.

	The increase of $1,520,822 and $1,366,496 in value of the warrant derivative liability occurring during the three and six months ended September 30, 2009, respectively, is reported in the “Other Income (Expenses)” section of the statement of operations.

F - 10

	Beneficial Conversion Features of Series E Preferred Shares
	The Series E Preferred shares included an option, exercisable from the issuance date, to convert to common shares at a price of $0.05 per share. The share price on the date of issuance was $0.09. The difference of $0.04 between the share price and option price represents a beneficial conversion feature existing on the issue date.

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

Allocation % attributable to the Preferred shares conversion option
Proceeds from issuance of Series E preferred shares	$	1,000,000
Value of warrants issued with Series E preferred shares (see below for a description of the method of valuation)		2,865,486
Total of proceeds plus warrants		3,865,486
Allocation % attributable to Preferred Shares conversion option (quotient of the proceeds divided by the proceeds plus warrants)		25.9	%
Amount of proceeds attributed to conversion option	$	258,700

Gross value of beneficial conversion feature
Share price as of issue date	$	0.09
Conversion option price	$	0.05
Beneficial conversion feature per share	$	0.04
Number of common shares		20,000,000
Gross value of beneficial conversion feature	$	800,000

Beneficial conversion option recorded (lesser of the gross value or the amount of proceeds attributed to the conversion option)	$	258,700

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

Risk-free interest rate		2%
Expected volatility		115.2%
Expected life (in years)		7
Number of warrants		40 million
Fair value		$2,865,486

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

F - 11

Summary of effects of derivatives on the financial statements

	Derivative Liabilities			Accumulated Deficit and Paid-in Capital			Other Income / (Expense)
Cumulative effect of change in accounting principle - Preferred Stock Derivative Liability	$	7,144,131		$	(7,144,131	)	$	—

Cumulative effect of change in accounting principle - Warrant Derivative Liability		3,915,462			(3,915,462	)		—

Beneficial conversion feature of Series E		—			258,700			—

Warrants issued with Series E		741,300			—			—

Amortization of beneficial conversion of Series E as interest expense		258,700			—			(258,700	)

Change in value of preferred stock derivative liability		(1,178,296	)		—			1,178,296

Change in value of warrants derivative liability		1,366,496			—			(1,366,496	)

Preferred stock derivatives converted into common shares		(15,750	)		15,750			—

Net Effect of Derivatives		12,232,043			(10,785,143	)		(446,900	)

NOTE 3 -	INVENTORIES

	Inventories are recorded at the lower of cost or market. As of September 30, 2009 the Company had inventory valuation reserve totaling $494,425 resulting in a charge to operations of $311,986 during the six months ended September 30, 2009.

NOTE 4 -	PREFERRED SHARE DERIVATIVE INTEREST PAYABLE

	Preferred share derivative interest payable as of September 30, 2009 consisted of $298,760 in derivative interest earned and accrued during the quarter ended September 30, 2009 plus $18,000 in preferred dividends earned during the quarter ended December 31, 2008, but not previously paid, plus $18,000 in dividends earned during the quarter ended March 31, 2009, but not previously paid. The derivative interest relating to the quarter ended September 30, 2009 was paid via the issuance of 4,245,518 shares of common stock in October 2009. The Registrant expects to also pay the dividends relating to the quarters ended December 31, 2008 and March 31, 2009 via the issuance of common shares and is in the process of executing the necessary waivers to do so. The Registrant expects to have such required waivers executed subsequent to the filing of this Report.

NOTE 5 -	NJEDA BONDS

	On September 2, 1999, the Company completed the issuance of tax exempt bonds by the New Jersey Economic Development Authority (“NJEDA” or the “Authority”). The aggregate proceeds from the issuance of the fifteen year term bonds were $3,000,000. Interest on the bonds accrues at 7.75% per annum. A portion of the proceeds were used by the Company to refinance its land and building, and the remaining proceeds used for the purchase of manufacturing equipment and building improvements. On August 31, 2005, the Company successfully completed a refinancing of the 1999 bond issue through the issuance of new tax-exempt bonds (the “Bonds”). The refinancing involved borrowing $4,155,000, evidenced by a 6.5% Series A Note in the principal amount of $3,660,000 maturing on September 1, 2030 and a 9% Series B Note in the principal amount of $495,000 maturing on September 1, 2012. The net proceeds, after payment of issuance costs, were used (i) to redeem the outstanding tax-exempt Bonds originally issued by the Authority on September 2, 1999, (ii) refinance other equipment financing and (iii) for the purchase of certain equipment to be used in the manufacture of pharmaceutical products. Interest is payable semiannually on March 1 and September 1 of each year. The Bonds are collateralized by a first lien on the Company’s facility and equipment acquired with the proceeds of the original and refinanced Bonds. The related Indenture requires the maintenance of a $415,500 Debt Service Reserve Fund consisting of $366,000 from the Series A Notes proceeds and $49,500 from the Series B Notes proceeds. The Debt Service Reserve is maintained in restricted cash accounts that are classified in Other Assets. $1,274,311 of the proceeds was deposited in a short-term restricted cash account to fund the purchase of manufacturing equipment and development of the Company’s facility. As of September 30, 2009, all of these proceeds were utilized to upgrade the Company’s manufacturing facilities and for the purchase of manufacturing and laboratory equipment. Bond issue costs of $354,000 were paid from the bond proceeds and are being amortized over the life of the bonds. Amortization of bond financing costs amounted to $7,065 and $7,092 for the six months ended September 30, 2009 and 2008, respectively.

F - 12

NOTE 6 -	STOCKHOLDERS’ EQUITY

	The adoption of EITF 07-5 resulted in a cumulative effect adjustment of $11,059,593 to the opening balance in the accumulated deficit account. This amount represents the cumulative effect on equity of the reclassification of the Series B, Series C, and Series D preferred shares and the outstanding warrants as derivative liabilities, pursuant to the requirements of EITF 07-5.

	Please refer to Note 2 for a discussion of the change in accounting principle and derivative liabilities.

	Options

	At September 30, 2009, the Registrant had 2,512,000 options outstanding with exercise prices ranging from $0.06 to $3.00 per share; each option representing the right to purchase one share of Common Stock.

NOTE 7 -	PER SHARE INFORMATION

	Basic earnings per share of common stock (“Basic EPS”) is computed by dividing the net (loss) income by the weighted-average number of shares of common stock outstanding. Diluted earnings per share of common stock (“Diluted EPS”) is computed by dividing the net (loss) income by the weighted-average number of shares of common stock, and dilutive common stock equivalents and convertible securities then outstanding. SFAS No. 128 requires the presentation of both Basic and Diluted EPS, if such Diluted EPS is not anti-dilutive, on the face of Company’s Condensed Statements of Operations. Diluted earnings per share is not presented because the effect of the Company’s common stock equivalents is anti-dilutive.

	For the Three Months Ended September 30, 2009			For the Six Months Ended September 30, 2008
Numerator
Net Income (loss) attributable to common shareholders	$	(3,672,313	)	$	(2,520,819	)

Denominator
Weighted-average shares of common stock outstanding		74,075,307			70,232,854

Net (loss) income per share
Basic	$	(0.05	)	$	(0.04	)

F - 13

NOTE 8 - SUBSEQUENT EVENTS

The Registrant has evaluated subsequent events from the balance sheet date through November 13, 2009, the date the accompanying financial statements were issued. The following are material subsequent events:

Second Closing of Epic Strategic Alliance Agreement

On October 30, 2009 (the “Second Closing Date”), Epic Pharmaceuticals LLC and Epic Investments LLC (together, “Epic”) and Elite conducted the second closing of the transactions contemplated by the Epic Strategic Alliance Agreement (the “Strategic Alliance Agreement”). Pursuant to the Strategic Alliance Agreement, on the Second Closing Date, Epic remitted to Elite a total of $1 million and received 1,000 shares of Elite Pharmaceuticals Series E Preferred Shares.

Common shares issued in lieu of cash in payment of derivative interest expense

Derivative interest expense related to the Preferred Share derivatives accrued during the quarter ended September 30, 2009 were paid during October 2009 through the issuance of 4,245,518 shares of common stock.

Execution of new employment agreement with Chris Dick, President and COO

On November 12, 2009 Elite entered into an employment agreement (the “Dick Agreement”) with Chris Dick, President and COO, effective upon the November 13, 2009 expiration of the employment agreement dated November 13, 2006 and amended November 10, 2008. A copy of the Dick Agreement is attached to this Quarterly Report on Form 10-Q as Exhibit 10.1 and the summary of the material terms of the Dick Agreement set forth in this Quarterly Report on Form 10-Q is qualified in its entirety by reference to such exhibit.

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

Execution of new employment agreement with Carter J. Ward, Chief Financial Officer

On November 12, 2009 Elite entered into an employment agreement (the “Ward Agreement”) with Carter J Ward, Chief Financial Officer, replacing the employment agreement dated July 1, 2009. A copy of the Ward Agreement is attached to this Quarterly Report on Form 10-Q as Exhibit 10.2, and the summary of the material terms of the Ward Agreement set forth in this Quarterly Report on Form 10-Q is qualified in its entirety by reference to such exhibit.

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

Annual Shareholders Meeting held on October 23, 2009

The Company held its annual shareholders meeting on October 23, 2009. The Definitive Proxy Statement relating to such annual shareholders meeting was filed on September 9, 2009 and incorporated herein by reference.

A quorum was present at the meeting, with shareholders approving each of the three proposals contained in the Definitive Proxy Statement.

F - 14

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 2009 COMPARED TO THE

THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 2008

(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” 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 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

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

Elite has two products, Lodrane 24® and Lodrane 24D®, currently being sold commercially, and a pipeline of five additional drug candidates under active development in the therapeutic areas that include pain management, gastro-intestinal and infection. Of the products under development, ELI-216, a once-a-day, abuse deterrent oxycodone product, and ELI-154, a once-a-day oxycodone product, are in clinical trials and Elite has completed pilot studies on two of Elite’s other generic product candidates. Elite has also submitted an ANDA with Elite’s co-development partner, The PharmaNetwork, for a pain management generic product. The addressable market for the pipeline of products is approximately $6 billion. Elite’s facility in Northvale, New Jersey is a Good Manufacturing Practice (“GMP”) and DEA registered facility for research, development and manufacturing.

In January 2006, the FDA accepted Elite’s Investigational New Drug Application (an “IND”) for ELI-154, Elite’s once-a-day oxycodone painkiller. Elite has completed two pharmacokinetic studies to evaluate ELI-154’s controlled-release formulation, of which the most recent study was completed in 2006. Elite has scaled up the product and it will begin its Phase III studies for this product upon the completion of a joint development and distribution agreement. Currently there is no once-daily oxycodone available commercially worldwide.

In May 2005, the FDA accepted Elite’s IND for ELI-216, Elite’s once-a-day, abuse resistant oxycodone painkiller. After the acceptance of the IND, Elite completed two pharmacokinetic studies and a euphoria study in recreational drug users to assess the abuse deterrent properties of ELI-216. Elite met with the FDA in October 2006 and received guidance for the ELI-216 development program and in November 2007, Elite reached agreement with the FDA on a Special Protocol Assessment for the Phase III protocol for ELI-216. Elite is currently scaling up the product and it will begin its Phase III studies for this product upon the completion of a joint development and distribution agreement. Currently there is no abuse deterrent oxycodone product available commercially. Elite estimate that the U.S. market for controlled-release, twice-daily oxycodone was about $2.8 billion in 2008.

Strategy

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

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

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

Epic Strategic Alliance Agreement

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

Use of Facility and Joint Development of Drug Products

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

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

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

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

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

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

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

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

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

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

Infusion of Additional Capital Necessary for Product Development

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

On October 30, 2009, Elite Pharmaceuticals, Inc. (“Elite”) (OTCBB: ELTP) completed the second closing of the Strategic Alliance Agreement (the “Alliance”) with Epic Pharma, LLC and Epic Investments, LLC, a wholly-owned subsidiary of Epic Pharma, LLC (collectively “Epic”) pursuant to the terms of the Epic Strategic Alliance Agreement.

Epic and its employees and consultants are using and will continue to use a portion of Elite’s facility located at 165 Ludlow Avenue, Northvale, New Jersey (the “Facility”), for the purpose of developing new generic drug products at Epic’s cost and expense, other than Facility related expenses. Under the Epic Strategic Alliance Agreement (i) at least eight additional generic drug products are to be developed by Epic at Elite’s facility with the intent of filing abbreviated new drug applications for obtaining United States Food and Drug Administration (“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 with each other 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. Epic will also be entitled to receive additional shares of Elite’s Common Stock and warrants to purchase shares of Elite’s Common Stock upon achievement of certain milestones relating to the eight additional generic drug products being developed together.

In order to provide Elite with the additional capital necessary for the product development and synergies presented by the strategic relationship with Epic, Epic agreed to invest $3.75 million in Elite through the purchase of Elite’s Series E Preferred Stock and common stock warrants. In the October 30 closing, Epic invested the second $1.0 million of this total amount, and acquired 1,000 shares of Series E Preferred Stock, which is presently convertible into 20 million shares of common stock.

Epic representatives also hold three seats on the board of directors of Elite. Those Directors were approved by a majority vote of the outstanding shares of Elite stock at the annual meeting of stockholders held on October 23, 2009. Elite’s board of directors consists of a total of seven directors

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

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

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

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

Board of Directors Composition and Voting Rights

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

At the Special Meeting of Stockholders, three Directors designated by Epic pursuant to the Epic Strategic Alliance Agreement were approved by holders of a majority vote of the outstanding shares of stock held by eligible stockholders.

For information regarding composition of the Board and voting rights in connection with Epic Strategic Alliance Agreement, refer to the “Risk Factors” under Item 1A, above, which are incorporated herein by reference.

Appointment of Chief Executive Officer and Chief Scientific Officer

Effective as of September 15, 2009, Elite Pharmaceuticals, Inc. (“Elite” or the “Company”) appointed Jerry I. Treppel as its Chief Executive Officer, and Ashok G Nigalaye, Ph.D. as its Chief Scientific Officer. Dr. Nigalaye replaced Dr. Stuart Apfel, who resigned as Chief Scientific Officer on September 15, 2009. Dr. Apfel also resigned as the Company’s Chief Medical Officer and no replacement has been appointed at this time.

Biographical information for Mr. Treppel and Dr. Nigalaye is included in the definitive proxy statement filed by the Company with the Securities and Exchange Commission on September 8, 2009 (the “Proxy Statement”) and is incorporated herein by this reference. There are no family relationships between Mr. Treppel and Dr. Nigalaye and any of the Company’s directors or executive officers. No decision regarding compensation that may be paid to Mr. Treppel for his services as Chief Executive Officer or to Dr. Nigalaye for his services as Chief Scientific Officer has yet been made. Information about transactions between the Company and Epic Pharma LLC, an entity controlled by Dr. Nigalaye, is incorporated herein by reference from the Proxy Statement.

Mr. Treppel and Dr. Nigalaye each agreed to render services to the Company on a part-time basis and expect to devote approximately one week per month to the Company’s business. While no longer acting in the capacity of Interim Chief Executive Officer, Chris Dick continues to provide full-time services to the Company as its President and Chief Operating Officer.

On September 21, 2009, the Company filed a Current Report on Form 8-K announcing the appointment of Mr. Treppel as its Chief Executive Officer and Dr. Nigalaye as its Chief Scientific Officer, with such filing being incorporated herein by this reference. On September 25, 2009, the Company filed an amendment to the Current Report on Form 8-K/A to provide additional information regarding the newly appointed officers, with such filing being incorporated herein by this reference.

Resignation of Director

On September 24, 2009, Dr. Melvin H. Van Woert resigned from the board of directors of Elite Pharmaceuticals, Inc.

On September 30, 2009, the Company filed a Current Report on Form 8-K announcing the resignation of Mr. Van Woert, which filing is incorporated herein by reference.

Critical Accounting Policies and Estimates

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

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

Results of Consolidated Operations

Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008

Our revenues for the three months ended September 30, 2009 were $776,216 an increase of $301,024 or approximately 63% over revenues for the comparable period of the prior year, and consisted of $538,941 in manufacturing fees and $237,275 in royalty fees. Revenues for the three months ended September 30, 2008, consisted of $405,005 in manufacturing fees and $70,187 in royalty fees. Manufacturing fees increased by approximately 33% due to fluctuations in the number and timing of batches shipped each quarter because of seasonality of sales, and increased marketing efforts being made by the distributor of the products for whom we manufacture on a contract basis. Royalties increased by approximately 238% due to growth of product sales.

Research and development costs for the three months ended September 30, 2009, were $259,326, a decrease of $937,385 or approximately 78% from $1,196,711 of such costs for the comparable period of the prior year. Decreases were attributed to decreases in salaries and wages, consulting fees associated with the development of products and lower active pharmaceutical ingredient (“API”) costs for product development. To conserve cash, we have reduced the number of our employees from 18 employees in September 2008, to 13 employees as of September 30, 2009. Research and development costs are expected to increase, however, in future periods, once Phase III and other clinical trials for ELI-216 are initiated. Additional funding is required for such research and development costs. Elite is currently scaling up the product and anticipates that it will begin its Phase III studies for this product upon the completion of a joint development and distribution agreement.

General and administrative expenses for the three months ended September 30, 2009, were $393,140, a decrease of $251,966, or approximately 39% from $645,106 of general and administrative expenses for the comparable period of the prior year. The decrease was primarily attributable to decreases in salaries, and fringe benefits offset by increases in legal and accounting fees.

Depreciation and amortization for the three months ended September 30, 2009 were $49,230, a decrease of $81,027, or approximately 62%, from $130,257 for the comparable period of the prior year. The decrease was due to the implementation of a manufacturing cost accounting system as of July 1, 2009 which more accurately allocates depreciation expense among manufacturing and other operations.

Other income/(expenses) (net) for the three months ended September 30, 2009 were $(3,293,803), a decrease in other income of $2,952,443 from the net expense of $(341,360) for the comparable period of the prior year. The decrease in other income/(expenses) was due to derivative expenses related to changes in the fair value of our preferred shares and outstanding warrants of $2,904,053 and derivative interest expense of $299,352. The derivative income and expense is resulting from a change in accounting principle required by the adoption of EITF 07-5 as of the beginning of the period. Please refer to Note 2 of the financial statements in this Report for a discussion of the effects of this change in accounting principle.

As a result of the foregoing, our net loss for the three months ended September 30, 2009 was $3,672,312 compared to a loss of $2,237,813 for the three months ended September 30, 2008.

Six Months Ended September 30, 2009 Compared to Six Months Ended September 30, 2008

Our revenues for the six months ended September 30, 2009 were $1,590,091 an increase of $338,221 or approximately 27% over revenues for the comparable period of the prior year, and consisted of $1,204,005 in manufacturing fees and $386,086 in royalty fees. Revenues for the six months ended September 30, 2008, consisted of $1,093,292 in manufacturing fees and $158,578 in royalty fees. Manufacturing fees increased by approximately 10% due to fluctuations in the number and timing of batches shipped each quarter because of seasonality of sales, and increased marketing efforts being made by the distributor of the products for whom we manufacture on a contract basis. Royalties increased by approximately 143% due to growth of product sales.

Research and development costs for the six months ended September 30, 2009, were $510,418, a decrease of $2,033,272 or approximately 80% from $2,543,690 of such costs for the comparable period of the prior year. Decreases were attributed to decreases in salaries and wages, consulting fees associated with the development of products and lower active pharmaceutical ingredient (“API”) costs for product development. To conserve cash, we have reduced the number of our employees from 18 employees in September 2008, to 13 employees as of September 30, 2009. Research and development costs are expected to increase, however, in future periods, once Phase III and other clinical trials for ELI-216 are initiated. Additional funding is required for such research and development costs. Elite is currently scaling up the product and anticipates that it will begin its Phase III studies for this product upon the completion of a joint development and distribution agreement.

General and administrative expenses for the six months ended September 30, 2009, were $789,678, a decrease of $484,595, or approximately 38% from $1,274,273 of general and administrative expenses for the comparable period of the prior year. The decrease was primarily attributable to decreases in salaries, and fringe benefits offset by increases in legal and accounting fees.

Depreciation and amortization for the six months ended September 30, 2009 were 172,889, a decrease of $87,625, or approximately 33%, from $260,514 for the comparable period of the prior year. The decrease was due to the implementation of a manufacturing cost accounting system as of July 1, 2009 which more accurately allocates depreciation expense among manufacturing and other operations.

Other income/(expenses) (net) for the six months ended September 30, 2009 were $(1,308,763), a decrease in other income of $617,437 from the net expense of $(691,326) for the comparable period of the prior year. The decrease in other income was due to derivative expenses related to changes in the fair value of our preferred shares and outstanding warrants of $1,366,496, derivative interest expense of $658,373 and discount in Series E issuance attributable to beneficial conversion features of $258,700 offset by other income recorded as the result of change in fair value of preferred share derivatives totaling $1,190,547. The derivative income and expense is resulting from a change in accounting principle required by the adoption of EITF 07-5 as of the beginning of the period. Please refer to Note 2 of the financial statements in this Report for a discussion of the effects of this change in accounting principle.

As a result of the foregoing, our net loss for the six months ended September 30, 2009 was $2,506,686 compared to a loss of $5,643,738 for the six months ended September 30, 2008.

Material Changes in Financial Condition

Our working capital (total current assets less total current liabilities), decreased to $375,772 as of September 30, 2009 from $758,676 as of March 31, 2009, primarily due to our net loss from operations, exclusive of non-cash charges.

We experienced negative cash flows from operations of $1,057,184 for the six months ended September 30, 2009, primarily due to our net loss from continuing operations of $2,506,689, increased by non cash charges totaling $2,930,161, which included depreciation and amortization of $250,053, inventory adjustments of $311,986, change in fair value of warrant derivative liabilities of $1,366,496, non cash interest expense related to the issuance of series E Preferred Stock of $258,700, dividends accruing to preferred share derivative liabilities of $658,373, non cash compensation satisfied by the issuance of common stock, options and warrants of $84,553 and reduced by non cash income related to the change in fair value of preferred share derivative liabilities of $1,190,547. Please refer to Note 2 of the financial statements in this report for discussions on the fair value of preferred share and warrant derivatives, and interest expense recorded as a discount in the issuance of Series E Preferred Stock.

On November 15, 2004 and on December 18, 2006, our partner, ECR, launched Lodrane 24(R) and Lodrane 24D(R), respectively. Under its agreement with ECR, we are currently manufacturing commercial batches of Lodrane 24(R) and Lodrane 24D(R) in exchange for manufacturing margins and royalties on product revenues. Manufacturing revenues and royalty income earned for the six months ended September 30, 2009 and September 30, 2008 were $1,590,091 and $1,251,870, respectively. We expect future cash flows from manufacturing fees and royalties to provide additional cash to help fund its operations. However, no assurance can be given that we will generate any material revenues from the manufacturing fees and royalties of the Lodrane products.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2009, we had approximately nine months of cash available based on our current operations. In October 2009, we also received $1 million from the second closing of the Epic Strategic Alliance Agreement as described above. In June 2010, a third closing is anticipated in the Strategic Alliance Agreement with Epic Pharma where we would receive an additional $1 million and Elite is also receiving on a quarterly basis $62,500 over the next three years. No assurance can be given that we will be able to complete these closings on a timely basis, or receive these payments, or consummate such other financing or strategic alternatives in the time necessary to avoid the cessation of our operations and liquidation of our assets. Moreover, even if we consummate such strategic transaction, or such other financing or strategic alternative, we may be required to seek additional capital in the future and there can be no assurances that we will be able to obtain such additional capital on favorable terms, if at all.

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.

For the six months ended September 30, 2009, we expended $1,057,184 in operating activities which we funded through the $1,000,000 in gross proceeds raised through our private placement of its Series E Preferred Stock and manufacturing and royalty revenues resulting from the manufacture and sale of Lodrane 24® and Lodrane 24D ®. Our working capital at September 30, 2009 was approximately $376,000 compared with working capital of approximately $2,578,000 at September 30, 2008. Cash and cash equivalents at September 30, 2009, were approximately $180,000, a decrease of approximately $1,351,000 from the $1,531,000 at September 30, 2008.

As of September 30, 2009, our principal source of liquidity was approximately $180,000 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.

We had outstanding, as of September 30, 2009, bonds in the aggregate principal amount of $3,385,000 consisting of $3,140,000 of 6.5% tax exempt bonds with an outside maturity of September 1, 2030 and $245,000 of 9.0% bonds with an outside maturity of September 1, 2012. 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 redemption of previously issued tax exempt bonds issued by the Authority in September 1999 and to refinance equipment financing, as well as provide approximately $1,000,000 of capital for the purchase of additional equipment for the manufacture and development at our facility of pharmaceutical products and the maintenance of a $415,500 debt service reserve. All of the restricted cash, other than the debt service was expended within the year ended March 31, 2008. Pursuant to the terms of the related bond indenture agreement, the Registrant is required to observe certain covenants, including covenants relating to the incurrence of additional indebtedness, the granting of liens and the maintenance of certain financial covenants. As of September 30, 2009, we were in compliance with the bond covenants.

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

Derivative Financial Instruments and Foreign Exchange

We had no investments in marketable securities as of September 30, 2009 or assets and liabilities, which are denominated in a currency other than U.S. dollars or involve commodity price risks.

Interest Rates

Our exposure to market risk for changes in interest rates relates primarily to short-term instruments and short-term obligations; thus, fluctuations in interest rates do not have a material impact on the fair value of these securities. At September 30, 2009, we had approximately $180 thousand in cash and cash equivalents. A hypothetical 5% increase or decrease in either short-term or long-term interest rates would not have a material impact on our earnings or loss, or the fair market value or cash flows of these instruments.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, based on an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), the acting Chief Executive and Chief Financial Officer of the Company concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in its Exchange Act reports is recorded, processed, summarized and reported within the applicable time periods specified by the SEC’s rules and forms.

There have been no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s 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.

Midsummer Investments, Ltd., et al. v. Elite Pharmaceuticals, Inc. – On or about September 22, 2009, Midsummer Investments, Ltd. and Bushido Capital Master Fund, LP (collectively, “Plaintiffs”) filed a complaint against the Company in the United States District Court, Southern District of New York (Case No. 09 CIV 8074). The Plaintiffs asserted claims for breach of contract (injunctive relief and damages), anticipatory breach of contract (injunctive relief), conversion (injunctive relief and damages), and attorneys’ fees, arising out of a Securities Purchase Agreement and Certificate of Designation of Preferences, Rights and Limitations of Series D 8% Convertible Preferred Stock. Plaintiffs claim that they are entitled to a reduced conversion price of their Series D Preferred Stock, as a result of the Epic Strategic Alliance Agreement. With their complaint, the Plaintiffs concurrently filed a request for preliminary injunction. A hearing was held on the Plaintiffs’ request for a preliminary injunction on October 15, 2009. At the hearing, Plaintiffs claimed that they had a substantial likelihood of succeeding on the merits of their claims and requested the delivery of 1,000,000 shares of common stock and a declaration that the conversion price of their Series D Preferred Stock is $0.05. The Company opposed Plaintiffs’ contentions, claiming that Plaintiffs cannot establish a substantial likelihood of success, among other things. After reviewing the evidence presented at the hearing, the Court agreed with the Company’s position at the hearing. Accordingly, Plaintiffs’ request was denied pursuant to order of the Court entered on October 16, 2009. Thereafter, Plaintiffs filed an amended complaint, asserting claims for breach of contract (injunctive relief and damages), anticipatory breach of contract (injunctive relief), conversion (damages) and attorneys’ fees, seeking compensatory damages of $7,455,363.00, delivery of 1,000,000 shares of common stock, a declaration that all future conversions of the Elite Series D Convertible Preferred Stock held by Plaintiffs is at a conversion price of $0.05, attorneys’ fees, interest and costs. The Company disputes the claims, believes the lawsuit is without merit, and intends to vigorously defend against them. The case is presently in the discovery stage. Trial is presently scheduled to commence on February 22, 2010.

ITEM 1A. Risk Factors

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

Risks Related to Our Business

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

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

	●	develop new products;
	●	obtain regulatory approval of our products;

	●	manage our growth, control expenditures and align costs with revenues;
	●	attract, retain and motivate qualified personnel; and

●

respond to competitive developments.

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

We have not been profitable and expect future losses.

To date, we have not been profitable and we may never be profitable or, if we become profitable, we may be unable to sustain profitability. We have sustained losses in each year since our incorporation in 1990. We incurred net losses of $6,604,708, $13,893,060, $11,803,512, $6,883,914, and $5,906,890 for the years ended March 31, 2009, 2008, 2007, 2006 and 2005, respectively. We expect to incur losses for the current year of operation and to continue to incur losses until we are able to generate sufficient revenues to support our operations and offset operating costs.

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

As of September 30, 2009, after giving effect to the initial closing of the Epic Strategic Alliance Agreement, we had cash reserves of $181,000 which permits us to continue at our anticipated level of operations, including, but not limited to, the continued development of our pipeline products, through October 2009. The completion of all transactions contemplated by the Epic Strategic Alliance Agreement, including the consummation of the second and third closings 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 ANDA for a pain management generic product that we submitted last year with our co-development partner, The Pharma Network, Elite could be profitable. In addition, the commercialization of the Epic 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 $1.75 million. Even if we were able to successfully complete the third closings of the Epic Strategic Alliance Agreement, we still may be required to seek additional capital in the future and there can be no assurances that we will be able to obtain such additional capital on favorable terms, if at all. For additional information regarding the Epic Strategic Alliance Agreement, please see our disclosures under “Epic Strategic Alliance Agreement” in this report, in Note 10 to the financial statements in this report, 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 and June 5, 2009, which such disclosures are incorporated herein by reference.

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

We continue to require additional financing to ensure that we will be able to meet our expenditures to develop and commercialize our products. As of September 30, 2009, after giving effect to the initial closing of the Epic Strategic Alliance Agreement, we had cash and cash equivalents of $181,000. We believe that our existing cash and cash equivalents plus revenues from sale of our Lodrane 24® and Lodrane 24D® products and successful completion of the second closing of the Epic Strategic Alliance Agreement on October 30, 2009 will be sufficient to fund our anticipated operating expenses and capital requirements through June 2010. We will require additional funding in order to continue to operate thereafter. If the third closing of the transactions contemplated by the Epic Strategic Alliance Agreement is not closed on a timely basis, or if another financing or strategic alternative providing sufficient resources to allow us to continue operations is not consummated upon exhaustion of our current capital, we will be required to cease operations and liquidate our assets. No assurance can be given that we will be able to consummate the second and third closings under the Epic Strategic Alliance Agreement on a timely basis, or consummate such other financing or strategic alternative in the time necessary to avoid the cessation of our operations and liquidation of our assets. Moreover, even if we consummate the second and third closings under the Epic Strategic Alliance Agreement, or such other financing or strategic alternative, we may be required to seek additional capital in the future and there can be no assurances that we will be able to obtain such additional capital on favorable terms, if at all.

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

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

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

ELI-154 and ELI-216 are pre-Phase III and two of our generic products are still at an early stage of development. Other than Lodrane 24® and Lodrane 24D®, which are commercial drug products, and a generic drug product for which an ANDA was filed in 2008, we will need to perform additional development work for the additional product candidates in our pipeline before we can seek the regulatory approvals necessary to begin commercial sales.

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

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

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

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

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

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

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

	●	ineffectiveness of our product candidate or perceptions by physicians that the product candidate is not safe or effective for a particular indication;
	●	inability to manufacture sufficient quantities of the product candidate for use in clinical trials;

	●	delay or failure in obtaining approval of our clinical trial protocols from the FDA or institutional review boards;
	●	slower than expected rate of patient recruitment and enrollment;

	●	inability to adequately follow and monitor patients after treatment;
	●	difficulty in managing multiple clinical sites;

	●	unforeseen safety issues;
	●	government or regulatory delays; and

●

clinical trial costs that are greater than we currently anticipate.

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

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

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

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

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

	●	collaborations and licensing arrangements may be terminated, in which case we will experience increased operating expenses and capital requirements if we elect to pursue further development of the related product candidate;
	●	collaborators and licensees may delay clinical trials and prolong clinical development, under-fund a clinical trial program, stop a clinical trial or abandon a product candidate;

	●	expected revenue might not be generated because milestones may not be achieved and product candidates may not be developed;
	●	collaborators and licensees could independently develop, or develop with third parties, products that could compete with our future products;

	●	the terms of our contracts with current or future collaborators and licensees may not be favorable to us in the future;
	●	a collaborator or licensee with marketing and distribution rights to one or more of our products may not commit enough resources to the marketing and distribution of our products, limiting our potential revenues from the commercialization of a product;

	●	disputes may arise delaying or terminating the research, development or commercialization of our product candidates, or result in significant and costly litigation or arbitration;
	●	one or more third-party developers could obtain approval for a similar product prior to the collaborator or licensee resulting in unforeseen price competition in connection with the development product; and
	●	Epic may decide that the further or continuing development of one or more of the eight designated drug products being developed by Epic at our Facility is no longer commercially feasible, delaying a potential source of revenue to us pursuant to the Epic Strategic Alliance Agreement; in addition, there can be no assurance that any drug product designated by the parties as a replacement would be as strong a candidate for commercial viability as the drug product that it replaced.

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

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

We currently hold five patents and we have three patents pending. We intend to file further patent applications in the future. We cannot be certain that our pending patent applications will result in the issuance of patents. If patents are issued, third parties may sue us to challenge our patent protection, and although we know of no reason why they should prevail, it is possible that they could. It is likewise possible that our patent rights may not prevent or limit our present and future competitors from developing, using or commercializing products that are similar or functionally equivalent to our products.

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

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

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

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

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

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

The pharmaceutical industry is highly competitive and subject to rapid and significant technological change, which could impair our ability to implement our business model.

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

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

	●	obtaining new patents on drugs whose original patent protection is about to expire;
	●	filing patent applications that are more complex and costly to challenge;

	●	filing suits for patent infringement that automatically delay approval of the FDA;
	●	filing citizens’ petitions with the FDA contesting approval of the generic versions of products due to alleged health and safety issues;

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

	●	developing and marketing as over-the-counter products those branded products which are about to face generic competition; and
	●	making arrangements with managed care companies and insurers to reduce the economic incentives to purchase generic pharmaceuticals.

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

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

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

	●	acceptable evidence of safety and efficacy;
	●	relative convenience and ease of administration;

	●	the prevalence and severity of any adverse side effects;
	●	availability of alternative treatments;

	●	pricing and cost effectiveness;
	●	effectiveness of sales and marketing strategies; and

●

ability to obtain sufficient third-party coverage or reimbursement.

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

We are dependent on a small number of suppliers for our raw materials and any delay or unavailability of raw materials can materially adversely affect our ability to produce products.

The FDA requires identification of raw material suppliers in applications for approval of drug products. If raw materials were unavailable from a specified supplier, FDA approval of a new supplier could delay the manufacture of the drug involved. In addition, some materials used in our products are currently available from only one supplier or a limited number of suppliers.

Further, a significant portion of our raw materials may be available only from foreign sources. Foreign sources can be subject to the special risks of doing business abroad, including:

	●	greater possibility for disruption due to transportation or communication problems;
	●	the relative instability of some foreign governments and economies;

	●	interim price volatility based on labor unrest, materials or equipment shortages, export duties, restrictions on the transfer of funds, or fluctuations in currency exchange rates; and
	●	uncertainty regarding recourse under dependable legal system for the enforcement of contracts and other rights.

In addition, recent changes in patent laws in certain foreign jurisdictions (primarily in Europe) may make it increasingly difficult to obtain raw materials for research and development prior to expiration of applicable United States or foreign patents. Any delay or inability to obtain raw materials on a timely basis, or any significant price increases that cannot be passed on to customers, can materially adversely affect our ability to produce products. This can materially adversely affect our business and operations.

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

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

If key personnel were to leave us or if we are unsuccessful in attracting qualified personnel, our ability to develop products could be materially harmed.

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

If we were sued on a product liability claim, an award could exceed our insurance coverage and cost us significantly.

The design, development and manufacture of our products involve an inherent risk of product liability claims. We have procured product liability insurance; however, a successful claim against us in excess of the policy limits could be very expensive to us, damaging our financial position. The amount of our insurance coverage, which has been limited due to our limited financial resources, may be materially below the coverage maintained by many of the other companies engaged in similar activities. To the best of our knowledge, no product liability claim has been made against us as of September 30, 2009.

Risks Related to Our Common Stock

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

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

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

The market price for the publicly traded stock of pharmaceutical companies is generally characterized by high volatility. There has been significant volatility in the market prices for our Common Stock. For the twelve months ended March 31, 2009, the closing sale price on the American Stock Exchange (“AMEX”) of our Common Stock fluctuated from a high of $0.83 per share to a low of $0.03 per share. The price per share of our Common Stock may not exceed or even remain at current levels in the future. The market price of our Common Stock may be affected by a number of factors, including:

	●	Results of our clinical trials;
	●	Approval or disapproval of our ANDAs or NDAs;

	●	Announcements of innovations, new products or new patents by us or by our competitors;
	●	Governmental regulation;

	●	Patent or proprietary rights developments;
	●	Proxy contests or litigation;

	●	News regarding the efficacy of, safety of or demand for drugs or drug technologies;
	●	Economic and market conditions, generally and related to the pharmaceutical industry;

	●	Healthcare legislation;
	●	Changes in third-party reimbursement policies for drugs;

	●	Fluctuations in our operating results;
	●	Commercial success of the eight drug products of Epic identified under the Epic Strategic Alliance Agreement; and

●

Our ability to consummate the second and third closings of the transactions contemplated by the Epic Strategic Alliance Agreement

The voluntary delisting from the American Stock Exchange listing of our Common Stock in order to commence quotation of our Common Stock on the OTC Bulletin Board could have a material adverse affect on the market for our Common Stock and our market price.

On May 21, 2009, we announced that our Common Stock would begin trading on the over-the-counter markets, on the OTC Bulletin Board, under the symbol ELTP:US. We believe that our commencement of the quotation of our Common Stock on the OTC Bulletin Board, in accordance with the terms of the Epic Strategic Alliance Agreement, is an important step in our continuing efforts to reduce costs. However, our voluntary delisting from the American Stock Exchange listing of the Common Stock in order to commence quotation the Common Stock on the OTC Bulletin Board could have a material adverse affect on the market for our Common Stock and our market price.

The OTC Bulletin Board market is a regulated quotation service that displays real-time quotes, last-sale prices and volume information for over 3,000 companies. Our move to the OTC Bulletin Board market does not affect our business operations and will not change our SEC reporting requirements.

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

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

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

If Elite and Epic consummate the second and third closings under the Epic Strategic Alliance Agreement, Elite will have issued to Epic an aggregate of 2,000 shares of Series E Preferred Stock, convertible into an aggregate of 40,000,000 shares of Common Stock, and warrants to purchase an additional 80,000,000 shares of Common Stock. If Epic converts such shares of Series E Preferred Stock into shares of Common Stock and exercises such warrants shares of Common Stock, the existing holders of our Common Stock will experience substantial dilution.

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

The issuance of additional shares of our Common Stock or our preferred stock could make a change of control more difficult to achieve.

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

If penny stock regulations become applicable to our Common Stock they will impose restrictions on the marketability of our Common Stock and the ability of our stockholders to sell shares of our stock could be impaired.

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

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

	●	Control of the market for the security by one or a few broker-dealers;
	●	“Boiler room” practices involving high-pressure sales tactics;

	●	Manipulation of prices through prearranged matching of purchases and sales;
	●	The release of misleading information;

	●	Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
	●	Dumping of securities by broker-dealers after prices have been manipulated to a desired level, which hurts the price of the stock and causes investors to suffer loss.

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

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

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

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

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

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

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

In addition, pursuant to the Epic Strategic Alliance Agreement and the Series E Certificate, Elite has agreed that, between the date of the initial closing under the Epic Strategic Alliance Agreement and the date which is the earlier of (x) the date the Epic Directors constitute a majority of the Board of Directors and (y) ninety days following the fifth anniversary of the Initial Closing Date, except as Epic otherwise agrees in writing, Elite may conduct its operations only in the ordinary and usual course of business consistent with past practice. Further, pursuant to the Epic Strategic Alliance Agreement and the Series E Certificate, Elite must obtain the prior written consent of Epic in order to take the certain actions specifically enumerated therein. Notwithstanding the foregoing, if at any time after Epic has acquired 25% or more of the shares of the capital stock of Elite, on an as-converted basis, pursuant to the terms of Alliance Agreement or the Warrants, the Epic’s ownership percentage of the shares of capital stock of Elite falls below 20% of the shares of the capital stock of Elite, on an as-converted basis, as a result of transfers made by Epic, then the prior written consent of Epic will not be required prior to the consummation of such actions under the Epic Strategic Alliance Agreement.

Pursuant to the Epic Strategic Alliance Agreement, subject to the satisfaction of certain conditions precedent contained therein, the purchaser will not, without the prior written consent of Elite, transfer any Common Stock acquired by it upon conversion of the Series E Preferred Stock or otherwise acquired or purchased under the Alliance Agreement or the other transaction documents for a period commencing on the Initial Closing Date and ending on the later of (a) the date immediately following the first anniversary of the Initial Closing Date and (b) the Third Closing Date (such period, the “Lock-Up Period”).

Section 203 of the Delaware General Corporation Law may deter a third party from acquiring us.

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

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

On June 3, 2009, Elite issued and sold to one accredited investor, in a private placement pursuant to an exemption from registration under Section 4(2) of the Securities Act, 1,000 shares of its Series E Convertible Preferred Stock, par value $0.01 per share (the “Series E Preferred Stock”), at a price of $1,000 per share, each share convertible, at $0.05 per share (the “Conversion Price”), into 20,000 shares of Common Stock, par value $0.01 per share. In addition, on June 3, 2009 Elite issued a warrant to the same investor for the purchase 20,000,000 shares of Common Stock (the “Initial Warrant”), exercisable on or prior to June 3, 2016, at a per share exercise price of $0.0625 (the “Exercise Price”), subject to adjustments for certain events, including, but not limited to, dividends, stock splits, combinations and the like. For additional details concerning these securities, please refer the paragraph entitled “Infusion of Additional Capital Necessary for Product Development” in Part I, Item 2 above.

In July 2009, we issued 4,236,856 shares of our common stock to the holders of our Series B, C and D Preferred Stock. These shares were issued pursuant to an exemption from registration under Regulation D. The shares were issued in satisfaction of our obligation to pay $299,460 in dividends earned and accrued during the quarter ended June 30, 2009. We did not receive any proceeds in exchange for the issuance of these securities.

We expect to also pay the dividends to the holders of our Series C Preferred Stock relating to the quarters ended December 31, 2008 and March 31, 2009 by means of the issuance of common shares and is in the process of executing the necessary waivers to do so. We expect to have such required waivers executed subsequent to the filing of this Report.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

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

10.1	Employment Agreement with Chris Dick, President & COO dated November 13, 2009

10.2	Employment Agreement with Carter J. Ward, Chief Financial Officer, dated November 13, 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 by Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements 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.

Date:	November 13, 2009	/s/ Jerry Treppel
		Jerry Treppel
		Chief Executive Officer
		(Principal Executive Officer)

Date:	November 13, 2009	/s/ Carter J. Ward
		Carter J. Ward
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

Attached files

ELITE PHARMACEUTICALS INC /NV/ Reports

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