ELITE PHARMACEUTICALS INC /DE/, 424B5, 1998-08-20

ELITE PHARMACEUTICALS INC /DE/
424B5, 1998-08-20
PHARMACEUTICAL PREPARATIONS

Previous: ANCHOR GLASS CONTAINER CORP /NEW, 10-12G/A, 1998-08-20

Next: ESSCO USA INC, 10-12G/A, 1998-08-20

Filed Pursuant to: Rule 424(B) 5
Registration Statement Number 333-45241

PROSPECTUS SUPPLEMENT
- ------------------------------------------
(TO PROSPECTUS DATED AUGUST 14, 1998)

ELITE PHARMACEUTICALS, INC.
3,725,000 VOTING COMMON SHARES
(includes 1,525,000 Common Shares
Underlying Class A Common Stock Purchase Warrants)
1,525,000 CLASS A COMMON STOCK PURCHASE WARRANTS
(PAR VALUE $.01 PER SHARE)

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

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The securities are being offered for cash as follows:

Underwriting discounts Proceeds to issuer
Price to public(1) and commissions(1) or other persons(1)
Per Share of Common Stock unknown unknown unknown
Per Warrant unknown unknown unknown
Total unknown unknown unknown

</TABLE>

(1) The securities offered hereunder will be offered by the Selling Security
Holders at market price; Elite Pharmaceuticals is unaware of any arrangements
entered into between such Selling Security Holders and any broker or dealer, or
underwriter. It is anticipated that the securities will be offered through the
over the counter market.

---------------------------------------
The date of this Prospectus Supplement is August 19, 1998

S-1

<PAGE>

SUMMARY INFORMATION

The following material, which is presented herein solely to furnish
limited introductory information regarding the Company, has been selected from,
or is based upon the detailed information and financial statements included in
or incorporated by reference into this Prospectus Statement and the accompanying
Prospectus, is qualified in its entirety by reference thereto, and, therefore
should be read together therewith. Each prospective investor is urged to read
this Prospectus Summary and the
accompanying Prospectus in their entirety.

ON MARCH 30, 1998, ELITE PHARMACEUTICALS, INC. UNDERWENT A 1 FOR 2
REVERSE SPLIT OF ITS COMMON STOCK. ALL NUMBERS USED THROUGHOUT THIS PROSPECTUS
SUMMARY, INCLUDING THOSE DESCRIBING EVENTS THAT OCCURRED PRIOR TO MARCH 30,
1998, REFLECT THIS 1 FOR 2 REVERSE SPLIT.

THE OFFERING

COMPANY Elite Pharmaceuticals, Inc.

SECURITIES OFFERED BY THE None. All are offered by Selling Security
COMPANY Holders. (as defined in the Prospectus)

SECURITIES COVERED BY 3,725,000 shares of Common Stock
PROSPECTUS 1,525,000 Class A Common Stock Purchase
Warrants

SHARES OF COMMON STOCK 7,237,613 shares, as well as options and
OUTSTANDING AT AUGUST 18, 1998 warrants exercisable for an additional
2,875,000 shares

THE COMPANY

Elite Pharmaceuticals, Inc. ("Elite Pharmaceuticals") is a Delaware Corporation
with its principal offices located at 230 W.Passaic Street, Maywood, New Jersey
07607 its telephone number is (201) 845-6611. The business of Elite
Pharmaceuticals is to own one hundred percent of the shares of Elite
Laboratories, Inc. ("Elite Labs"), a Delaware corporation engaged in the
research, development, licensing, manufacturing and marketing of both new and
generic, controlled-release pharmaceutical products.

USE OF PROCEEDS

The Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Security Holders. The Company will receive proceeds
only upon the exercise of the Warrants or the Placement Agent Warrants (as
defined in the Prospectus) by the holders thereof.

S-2

<PAGE>

RISK FACTORS

The Securities offered hereby are highly speculative and involve a high
degree of risk and should not be purchased by investors who cannot
afford the loss of their entire investment. Prospective investors should
carefully review and consider the factors set forth under "Risk Factors" in the
Prospectus as well as all other information contained therein and herein, before
subscribing for any of the Securities.

BULLETIN BOARD LISTING

Elite Pharmaceuticals' Common Stock is currently listed on the
Over-the-Counter Bulletin Board under the ticker symbol "ELIP". There can be no
assurance that the Company will continue to meet the requirements for
continued quotation or that a public trading factor will develop or be
sustained. See "Risk Factors".

CORRECTIONS

The references contained on pages 5 and 9 of the Prospectus to the
"NASDAQ Bulletin Board" should, in fact refer to the "over-the-counter" bulletin
board.

The reference to "Rules 10b-6 and 10b-7" contained on page 19 of the
Prospectus, in the section entitled "Plan of Distribution", should, in fact,
refer to Regulation M of the Code of Federal Regulations.

S-3
<PAGE>

Dated August 14, 1998

PROSPECTUS
ELITE PHARMACEUTICALS, INC.

3,725,000 VOTING COMMON SHARES (includes 1,525,000
Common Shares Underlying Class A
Common Stock Purchase Warrants)
1,525,000 CLASS A COMMON STOCK PURCHASE WARRANTS

This Prospectus covers an aggregate of 3,725,000 shares of the common
stock of ("Common Stock"), $.01 par value, and 1,525,000 Class A Common Stock
Purchase Warrants ("Warrants") of Elite Pharmaceuticals, Inc. ("Elite
Pharmaceuticals" or the "Company"), a Delaware corporation, on behalf of certain
selling security holders of the Company ("Selling Security Holders"). Of the
securities offered hereunder (i) 2,000,000 shares of Common Stock and 1,000,000
Warrants were heretofore issued in a private offering beginning on September 15,
1997 and ending on November 30, 1997 ("Private Placement"); (ii) 200,000 shares
of Common Stock and 100,000 Warrants are issuable pursuant to warrants issued to
the placement agent of the Private Placement ("Placement Agent Warrants"); (iii)
425,000 Warrants were issued in connection with the following private
placements: (x) 250,000 Warrants issued to Bridge Ventures on August 1, 1997,
(y) 100,000 Warrants issued to Saggi Capital on August 1, 1997, and (z) 75,000
Warrants issued to Jerome Belson on June 5, 1997; and (iv) 1,525,000 shares of
Common Stock are issuable upon the exercise of the Warrants referred to in items
(i) through (iii) above. See "Selling Security Holders." Each Warrant entitles
the holder to purchase one share of Common Stock at an exercise price of $6.00
commencing November 30, 1997 and continuing until November 29, 2002. See
"Description of Securities." The offering price will be determined by the
Selling Security Holders. See "Selling Security Holders" "Plan of Distribution"
and "Underwriting." The Company will receive proceeds only upon the exercise of
the Warrants or the Placement Agent Warrants. If each Warrant and Placement
Agent Warrant were exercised, the Company would receive $9,870,000.00. See "Use
of Proceeds".

Elite Pharmaceuticals' Common Stock is currently listed for quotation
on the Nasdaq Bulletin Board ("Bulletin Board"). There can be no assurance
that an active trading market will develop in these securities. See "Risk
Factors."

AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
INVESTORS SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD
TO LOSE THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 6.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

The securities are being offered for cash as follows:
Underwriting discounts Proceeds to issuer
Price to public(1) and commissions(1) or other persons(1)
Per Share of unknown unknown unknown
Common Stock unknown unknown unknown
Per Warrant unknown unknown unknown
Total

<PAGE>

Elite Pharmaceuticals intends to furnish its shareholders and holders of
Warrants with annual reports containing audited financial statements, examined
by an independent accounting firm, and such interim reports as it may determine
to furnish or as may be required by law.

Where any document is incorporated by reference in the Prospectus but not
delivered therewith, Elite Pharmaceuticals will undertake to provide without
charge to each person, including any beneficial owner, to whom a prospectus is
delivered, upon oral or written request of such person, a copy of any and all of
the information incorporated by reference in the Prospectus (not including
exhibits to the information incorporated by reference unless the exhibits are
specifically incorporated by reference into the information that the Prospectus
contains). Requests should be addressed to Catherine A. Barnes at (704)
372-9870.

Elite Pharmaceuticals is not currently a reporting company under the Securities
Exchange Act of 1934, but upon approval of the Registration Statement will have
a reporting obligation under Section 15(d) thereof and will file reports
electronically pursuant thereto, and such reports will be available upon the
Securities and Exchange Commission's web site, at http://www.sec.gov.

UNTIL 90 DAYS AFTER THE LATER TO OCCUR OF (i) THE EFFECTIVE DATE OF THE
REGISTRATION STATEMENT OR (ii) THE DATE ON WHICH THE SECURITIES REGISTERED
HEREUNDER ARE BONA FIDE OFFERED TO THE PUBLIC, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

<PAGE>

PROSPECTUS SUMMARY
------------------

The following summary is qualified in its entirety by the detailed
information financial statements appearing elsewhere in this Memorandum. Each
prospective investor is urged to read this Memorandum in its entirety. All
statements other than statements of historical fact contained in this Memorandum
are forward-looking statements. Forward-looking statements in this Memorandum
generally are accompanied by words such as "intend," "anticipate," "believe,"
"estimate," "project," or "expect" or similar statements. Although Elite
Pharmaceuticals believes that the expectations reflected in such forward-looking
statements are reasonable, no assurance can be given that such expectations will
prove correct. Factors that could cause the Company's results to differ
materially from the results discussed in such forward-looking statements include
the risks described under "Risk Factors." All forward-looking statements in this
Memorandum are expressly qualified in their entirety by the cautionary
statements in this paragraph.

ON MARCH 30, 1998, ELITE PHARMACEUTICALS, INC. UNDERWENT A 1 FOR 2
REVERSE SPLIT OF ITS COMMON STOCK. ALL NUMBERS USED THROUGHOUT THIS PROSPECTUS,
INCLUDING THOSE DESCRIBING EVENTS THAT OCCURRED PRIOR TO MARCH 30,
1998, REFLECT THIS 1 FOR 2 REVERSE SPLIT.

THE COMPANY

The business of Elite Pharmaceuticals, Inc. ("Elite Pharmaceuticals")
is to own one hundred percent of the shares of Elite Laboratories, Inc.
("Elite Labs"). Therefore, before discussing the history of Elite
Pharmaceuticals, this Prospectus will first describe the history and nature of
this wholly owned subsidiary.

ELITE LABORATORIES, INC.

Elite Labs was incorporated in the State of Delaware on August 23,
1990. It engages in the research, development, licensing, manufacturing and
marketing of both new and generic, controlled-release pharmaceutical products.
Controlled drug delivery involves releasing a drug into the bloodstream or
delivering it to a target site in the body over an extended period of time, or
at predetermined times. Since its inception in 1990, Elite Labs has established
a research and development laboratory and has developed six oral controlled
release pharmaceutical products to varying stages of the development process.
There is no assurance that any of Elite Labs's products will be approved by the
United States Food and Drug Administration ("FDA"), be marketed, or be
commercially viable products. Furthermore, there are no agreements in effect
requiring the payment of royalties to Elite Labs, except under certain
conditions, which may not be fulfilled. Elite Labs has also conducted several
research and development projects on behalf of large pharmaceutical companies.
These activities have generated only limited revenues to date.

ELITE PHARMACEUTICALS, INC.

Elite Pharmaceuticals is the successor to Prologica International,
Inc. Prologica was incorporated in the State of Pennsylvania on April 20,1984.
Following its incorporation and completion of its initial public
offering in August 1988, Prologica did not possess any

significant assets or engage in any business other than searching for suitable
acquisitions. Until it began discussions with Elite Labs in the spring of 1997
it had not identified any such acquisitions. In order to facilitate the
acquisition of Elite Labs, Prologica undertook the following steps: (i) on
October 9, 1997, it underwent a three-for-one reverse split of its issued and
outstanding stock; (ii) on October 1, 1997, it caused the incorporation of a
subsidiary, Elite Pharmaceuticals, Inc., a Delaware corporation ("Elite
Pharmaceuticals"), into which it merged on October 28, 1997 in order to change
its name and its state of incorporation; and (iii) on August 1, 1997, it caused
the incorporation of a subsidiary, HMF Enterprises, Inc. ("HMF") with the intent
that HMF would merge into Elite Labs, and thus effect the acquisition.

The merger of Prologica with Elite Pharmaceuticals and the merger of
Elite Labs with HMF were made in conjunction with a private offering of the
common stock and warrants to purchase common stock of Prologica beginning on
September 15, 1997 and continuing through November 30, 1997 (the "Private
Placement"). Through the Private Placement new investors purchased 2,000,000
shares and 1,000,000 warrants of Elite Pharmaceuticals. Under the terms of the
offering and merger agreements, Elite Labs and HMF merged on October 30, 1997,
with Elite Labs surviving the merger. In the merger, each shareholder of Elite
Labs received one share of Elite Pharmaceuticals for each share of Elite Labs
that he or she owned.

As of the date of the merger of Elite Labs and HMF (which was the date
that Elite Pharmaceuticals acquired Elite Labs), Prologica had assets equal to
$1,134 and a shareholder deficiency equal to $12,588; Elite Labs had assets
equal to $114,521 and shareholder deficit equal to $135,479.

In summation, as a result of the merger between Prologica and Elite
Pharmaceuticals, Prologica changed its name to Elite Pharmaceuticals, Inc. and
its state of incorporation to Delaware. As a result of the merger between Elite
Labs and HMF, Elite Labs became the wholly owned subsidiary of Elite
Pharmaceuticals. In addition, as a result of the mergers and the Private
Placement, the former equity holders of Prologica received 450,000 shares (6%)
of Elite Pharmaceuticals; the former equity holders of Elite Labs received
4,787,600 shares (66%) of Elite Pharmaceuticals, plus options or warrants to
purchase an additional 1,175,000 shares; and new investors purchased 2,000,000
shares (28%) of Elite Pharmaceuticals, plus warrants to purchase an additional
1,000,000 shares. In addition, the placement agent received Placement Agent
Warrants entitling it to purchase ten units, at $72,000 each, of 20,000 shares
and 10,000 Warrants. In the Private Placement, the new investors invested a
total of $6,000,000 in Elite Pharmaceuticals. A portion of these funds were used
to pay the legal fees, filing fees and commissions associated with the private
placement and mergers and the present registration, and the balance have been
and will be used to fund certain capital improvements, research and, development
and general operating expenses of Elite Labs.

All of the numbers of shares, options and warrants referred to in the
above paragraph and throughout this Prospectus reflect the March 1998 reverse
split of Elite Pharmaceuticals.

For purposes of convenience, Elite Pharmaceuticals and Elite Labs may
be referred to collectively hereinafter as the "Company", however any references
to the "Registrant" shall refer exclusively to Elite Pharmaceuticals.

Elite Pharmaceuticals' and Elite Labs' principal offices are located at 230 W.
Passaic Street, Maywood, New Jersey 07607 its telephone number is (201)
845-6611.

THE OFFERING

Although this is the initial public offering of the stock of Elite
Pharmaceuticals, the Company itself is issuing no securities. All of the
securities registered in connection with this offering are currently held by,
and will be offered by, current Selling Security Holders, or are subject to
execution of Warrants currently held by Selling Security Holders. (See "Terms of
the Offering", and "Description of Securities").

SECURITIES OUTSTANDING

There are 7,237,613 shares of common stock of Elite Pharmaceuticals,
Inc. ("Common Stock") issued and outstanding. In addition, there are Warrants
and options outstanding to purchase an additional 2,875,000 shares of Common
Stock.

USE OF PROCEEDS

RISK FACTORS

The Securities offered hereby are highly speculative and involve a high
degree of risk and should not be purchased by investors who cannot afford the
loss of their entire investment. Prospective investors should carefully review
and consider the factors set forth under "Risk Factors" as well as all other
information contained herein, before subscribing for any of the Securities.

NASDAQ LISTING

Elite Pharmaceuticals's Common Stock is currently listed on the Nasdaq
Bulletin Board under the ticker symbol "ELIP". There can be no assurance that
the Company will continue to meet the requirements for continued quotation or
that a public trading factor will develop or be sustained. See "Risk Factors".

<PAGE>

RISK FACTORS
------------

The securities offered hereby are highly speculative in nature and
investment therein involves a high degree of risk. Therefore each prospective
investor should consider very carefully the risks and speculative factors
inherent in and affecting the business of, and investment in, Elite
Pharmaceuticals prior to the purchase of any of the securities offered hereby,
as well as all of the other matters set forth elsewhere in this Memorandum.
Investors should be prepared to suffer a loss of their entire investment.
Hereinafter Elite Pharmaceuticals and Elite Labs shall sometimes collectively be
referred to as the "Company." The material risks and speculative factors
involved are as follows:

1. Limited Operating History - Anticipated Future Losses.

Since the inception in 1984, of Elite Pharmaceutical's predecessor,
Prologica, neither Prologica nor Elite Pharmaceuticals has carried on any
business or generated any revenues. Its sole source of income is income received
through its ownership of Elite Labs. The Company expects to realize significant
losses in the next year of operation. Since Elite Labs' inception in 1990, it
has not generated any significant revenues. As of its fiscal year ended March
31, 1998, the Company has consolidated net assets of $4,641,868, stockholders'
equity of $4,512,022, an accumulated earnings deficit of (2,396,759) and working
capital of $4,301,289. The Company's operations are subject to all of the risks
inherent in the establishment of a new commercial enterprise and the likelihood
of the success of the Company must be considered in light of various factors,
including working capital deficits, competition with established and well
financed entities, anticipated negative cash flow in the period following
completion of this offering, the absence of substantial written commitments for
purchase of Elite Labs' services and the need for further development of the its
products. The Company expects to continue to incur losses until it is able to
generate sufficient revenues to support its operations and offset operating
costs. There can be no assurance of revenues or of the Company's eventual
profitability.

2. Significant Capital Requirements; Need for Additional Financing.

The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations, and after acquiring its new building
facility, that it currently has sufficient operating capital to satisfy its
contemplated cash requirements for its normal operating cycle. After such time,
the completion of the Company's development activities will require significant
funding other than that which is otherwise currently available to the Company,
although the Company is currently negotiating a commercial line of credit and
mortgage financing for the building facility with various institutions. The
Company has no current arrangements with respect to sources of additional
financing other than with respect to the potential exercise of the options and
warrants currently outstanding. There can be no assurance that any of the
warrants will be exercised or that other additional financing will be available
to the Company on commercially reasonable terms, or at all. The inability of the
Company to obtain additional financing, when needed, would have a material
adverse effect on the Company, including possibly requiring the Company to
curtail or cease its operations. To the extent that any future financing
involves the sale of the Company's equity securities, the Company's
then-existing stockholders' equity, including investors in this Offering, could
be substantially diluted. On the other hand, to the extent the Company recurs
indebtedness or

otherwise issues debt securities, the Company will be subject to risks
associated with indebtedness, including the risk that interest rates may
fluctuate and cash flow may be insufficient to pay principal and interest on
such indebtedness.

3. Possible Earlier Need for Additional Financing.

In the event the Company's plans change, its assumptions change or
prove to be inaccurate, or its cash flow proves to be insufficient to fund the
Company's operations (due to unanticipated expenses, delays, problems,
difficulties or otherwise), the Company would be required to seek additional
financing sooner than anticipated. There can be no assurance that any of such
warrants will be exercised or that the Company would be able to secure
additional financing to fund its operations.

4. No Assurance of Successful Product Development.

Elite Labs has not yet developed a product to the stage of generating
commercial sales. While Elite Labs' President has successfully developed
controlled release products for his prior employers, Elite Labs' research
activities are characterized by the inherent risk that the research will not
yield results which will receive FDA approval or otherwise be suitable for
commercial exploitation.

5. No Assurance of Successful Licensing and Marketing.

Initially, the Company plans to market its products, once developed,
either directly or through agreements with third parties and by way of licensing
agreements with other pharmaceutical companies. There can be no assurance that
such third-party arrangements can be successfully negotiated or that any such
arrangements, if available, will be on commercially reasonable terms. Even if
acceptable and timely marketing arrangements are entered into, there can be no
assurance that products developed by the Company will be competitive and
profitable in the marketplace. Because the Company's clients will in many cases
make all or many material marketing and other commercialization decisions
regarding such products, a significant number of the variables that affect the
Company's royalties and fees, and, in turn, profitability, are not exclusively
within the Company's control. Achieving market acceptance for the Company's
products and services requires additional funding for which a portion of the
proceeds of this Offering have been allocated. The Company's business strategy
is to expand its client relations for various new pharmaceutical products.
However, to date, the Company has had only a limited number of clients.
Implementation of the Company's growth will depend upon, among other things, the
Company's ability to hire and retain skilled marketing personnel.

6. Government Regulation.

The design, development and marketing of pharmaceutical
compounds are reviewed, and manufacturing facilities are inspected, by
government regulatory agencies, including the United States Food and Drug
Administration and comparable agencies in other countries (collectively
"Agency"). The Company is unable to predict the effect that reviews by any
Agency will have on the development, clinical testing, manufacturing, marketing
or sale of its pharmaceutical products. Failure to obtain Agency approvals in a
timely fashion or on the terms and with the scope or breadth contemplated by the
Company could adversely affect the Company. In addition, in certain cases, the
Company's license agreements for new

<PAGE>

formulations of pharmaceutical compounds may provide that the licensees, rather
than the Company, are responsible for obtaining the Agency approval of new
formulations. In such cases, the timing of the submission of applications for
Agency approval and of any supplementary data requested by an Agency is not
within the Company's control. Any delays in the submission of such applications
and supplementary data requested could adversely affect the business of the
Company. Continued growth in the Company's revenues and profits will depend, in
large part if not exclusively, on successful introduction and marketing of
products subject to Agency approval. There can be no assurance as to when or
whether such approvals from such regulatory authorities will be received. See
"Business-Governmental Regulation."

7. Competition.

In recent years, an increasing number of pharmaceutical companies have
become interested in the development and commercialization of products
incorporating advanced or novel drug delivery systems. The Company expects that
competition in the field of drug delivery will significantly increase in the
future since smaller specialized research and development companies are
beginning to concentrate on this aspect of the business. Some of the major
pharmaceutical companies have invested and are continuing to invest significant
resources in the development of their own drug delivery systems and technologies
and some have invested funds in such specialized drug delivery companies. Many
of these companies have greater financial and other resources as well as more
experience than the Company in commercializing pharmaceutical products. Such
companies may develop new drug formulations and products or may improve existing
drug formulations and products more efficiently than the Company. While the
Company's product development capabilities and patent protection may help the
Company to maintain its market position in the field of advanced drug delivery,
there can be no assurance that others will not be able to develop such
capabilities or alternative technologies outside the scope of the Company's
patents if any, or that even if patent protection is obtained, such patents will
not be successfully challenged in the future.

8. Proprietary Technology: Unpredictability of Patent Protection.

The Company's success, competitive position and amount of royalty
income will depend in part on its ability to obtain patent protection in various
jurisdictions related to the technologies, processes and products it develops.
The Company may file patent applications seeking such protection. There can be
no assurance that these applications will result in the issuance of patents(s),
or if any patent(s) are issued, that litigation will not be commenced seeking to
challenge such patent protection or that such challenges will fail. In addition,
there can be no assurance that the scope and validity of the Company's patents
will prevent third parties from developing similar or competing products. The
expenses involved in litigation regarding patent protection or a challenge
thereto can be significant and cannot be estimated by the Company.

Furthermore, there can be no assurance that the Company's activities
will not infringe on patents owned by others. The Company could incur
substantial costs in defending itself in suits brought against it, or in suits
in which the Company may assert, against others, claiming infringement of the
Company's patents. There can be no assurance that the Company would possess
sufficient funds to protect its patents from infringement. Should the products
be found

<PAGE>

to infringe upon patents issued to third parties, the manufacture, use
and sale of such products could be enjoined and the Company could be required to
pay substantial damages. In addition, the Company may be required to obtain
licenses to patents, or other proprietary rights of third parties, in connection
with the development and use of the Company's products and technologies as they
relate to other persons' technologies. No assurance can be given that any
licenses required under any such patents or proprietary rights would be
available on acceptable terms, if at all.

The Company also relies, and will continue to rely, upon trade secrets
and proprietary know-how, which it seeks to protect in part, by confidentiality
agreements. The Company consistently requires its employees and potential
business partners to execute confidentiality agreements prior to doing business
with the Company, and it is currently a party to well over one hundred such
agreements. Representative samples of such agreements are attached hereto.
However, there can be no assurance that such employees or others, will maintain
the confidentiality of such trade secrets or proprietary information or that
trade secrets or proprietary know-how of the Company will not otherwise become
known or be independently developed in such manner that the Company will have no
practical recourse. See "Business-Patents."

9. Key Research Personnel.

The Company is heavily dependent upon the scientific expertise of Dr.
Atul M. Mehta, President and CEO of Elite Pharmaceuticals and Elite Labs.
Although Elite Labs now employs and will in the future continue to employ other
qualified scientists, as of the date of this Prospectus, only Dr. Mehta has the
advanced knowledge, knowhow and track record of having successfully developed
controlled-release products for other companies. The loss of Dr. Mehta's
services would have a material adverse effect on the Company's business.
Therefore, Elite Labs entered into a five-year employment contract with Dr.
Mehta which ends on December 31, 2000. The key terms of the agreement are a
salary currently set at $200,000 with provisions for annual increases, incentive
commissions, a discretionary bonus, health insurance, and term life insurance
for the benefit of Dr. Mehta's family. Additionally, Elite Labs has obtained
insurance coverage with respect to Dr. Mehta's life in an amount of $1,000,000,
payable to the Company. The details of these arrangements are described in
detail in "Management."

10. Lack of Trading Market.

Purchasers of the securities offered hereby must be aware of the
long-term nature of their investment and be able to bear the economic risks of
their investment for an indefinite period of time. Currently no trading market
exists for the Warrants. A very limited trading market exists in the in the
over-the-counter market for the Common Stock, which is listed for quotation on
the Nasdaq Bulletin Board ("Bulletin Board). A somewhat broader market in the
Common Stock may develop, although there can be no assurance of such an
occurrence. Even if such a market developed, it would still be more difficult
for an investor to dispose of, or to obtain quotations as to, the price of the
Common Stock than a security traded on a national securities exchange.

<PAGE>

11. Bulletin Board Listing Requirements.

The Registrant intends to apply for a listing on the Bulletin Board for
the Warrants, but has not yet done so. In order to be considered for listing on
the Bulletin Board, the Registrant will not have to meet any financial or
minimum capital requirements, but will have to comply with Section 240.15c2-11
of the Code of Federal Regulations, which requires the provision of material
information concerning the issuer, including information regarding the issuers
corporate structure, business, finances, and securities, as well as other
information. There can be no assurance that the application for the Warrants
will be approved or that if it is and the Warrants are listed, that a market for
the Warrants will ever develop.

12. Penny Stock Regulation.

The trading of the Company's Common Stock, if any, will be subject to
Rule 15g-9 promulgated under the Exchange Act for non-Nasdaq and non-exchange
listed securities. Under such rule, brokers-dealers who recommend such
securities to persons other than established customers and accredited investors
must make a special written suitability determination for the purchaser and
receive the purchaser's written agreement to a transaction prior to sale.
Securities are exempt from this rule if the market price is at least $5.00 per
share. The Commission 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. Such exceptions include equity securities listed on Nasdaq and
equity securities issued by an issuer that has (i) net tangible assets of at
least $2,000,000, if such issuer has been in continuous operation for more than
three years, or (ii) net tangible assets of at least $5,000,000, if such issuer
has been in continuous operation for less than three years, or (iii) average
revenue of at least $6,000,000 for the preceding three years. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a risk of disclosure schedule explaining
the penny stock market and the risks associated therewith. Elite
Pharmaceuticals' Common Stock is currently a penny stock as defined in the
Exchange Act and as such, the market liquidity for the Common Stock will be
limited to the ability of broker-dealers to sell the Common Stock in compliance
with the above-mentioned disclosure requirements.

13. Outstanding Warrants and Options.

There are outstanding warrants and options to purchase an aggregate of
2,875,000 shares of Common Stock for prices ranging from $2.00 to $7.00, for a
weighted average offering price of $4.55. Of these options and warrants,
1,331,250 are held by officers, directors and/or five-percent shareholders. To
the extent that outstanding warrants or options are exercised, dilution of the
interests of Elite Pharmaceuticals' stockholders will occur. Moreover, the terms
upon which the Company will be able to obtain additional equity may be adversely
affected since the holders of the outstanding warrants can be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain capital on terms more favorable to the Company than those provided by
such securities.

<PAGE>

14. No Dividends.

Elite Pharmaceuticals has not paid any cash dividends to date and does
not expect to pay cash dividends in the foreseeable future.

15. Potential Anti-Takeover Effects of Delaware Law.

Certain provisions of Delaware law could make more difficult a merger,
tender offer or proxy contest involving the Company, even if such events could
be beneficial to the interests of the shareholders. These provisions include
Section 2.03 of the Delaware General Corporation law. Such provisions could
limit the price that certain investors might be willing to pay in the future for
shares of the Company's Common Stock.

16. Arbitrary Offering Price.

The Securities offered hereunder will be offered by the Selling
Security Holders at a price or prices to be determined by such Selling Security
Holders. The Company does not know that the offering price of the Common Stock
and Warrants will be; the offering price will be arbitrarily determined by the
Selling Security Holders and will bear no relation to Elite Pharmaceuticals'
book value, assets, or any other objective criteria of value. There can be no
assurance that the Securities offered hereby can be resold at or near the
offering price. In addition, the exercise price of the Warrants bears no
relation to Elite Pharmaceuticals' book value, assets, or any other objective
criteria of value. The Company does not know whether all, or even any, of the
Selling Security Holders will sell their securities, or when they will do so.
See "Selling Security Holders" and "Plan of Distribution".

17. Limitation on Personal Liability of Directors.

The Articles of Incorporation and Bylaws of the Company contain
provisions reducing the potential personal liability of the directors of the
Company for certain monetary damages and providing for indemnity of directors.
The Company is unaware of any present, pending or threatened litigation which
would result in any liability for which a director would seek such
indemnification or protection. The provisions affecting personal liability
provide that the Company will indemnify its directors to the fullest extent
permitted by Section145 of the Delaware Corporation Law against (a) expenses
(including attorney's fees) reasonably incurred in connection with any
threatened, pending or completed civil, criminal, administrative, investigative
or arbitrative action, suit or proceeding (and appeal therefrom) against any
director, whether or not brought by or on behalf of the Company seeking to hold
the director liable by reason of the fact that he was acting in such capacity;
and (b) any reasonable payments made by him in satisfaction of any judgment,
money decree, fine, penalty or settlement in such action, suit or proceeding. In
that respect, the provisions diminish the potential right of action which might
otherwise be available to shareholders by affording indemnification by the
Company against most damages and settlement amounts paid by a director.

18. Product Liability.

The design, development and manufacture of the Company's Products
involve an inherent risk of product liability claims. The Company has applied
for, but has not yet

<PAGE>

received, product liability insurance. A successful claim against the
Company could have a material adverse effect upon the Company's results of
operations and financial position to the extent the Company does not have such
coverage. To the best of the Company's knowledge, no claim has been made against
the Company as of July 14, 1998.

19. Forward Looking Statements.

All statements other than statements of historical fact contained in
this Memorandum are forward-looking statements. Forward-looking statements in
this Memorandum generally are accompanied by words such as "intend,"
"anticipate," "believe," "estimate," "project," or "expect" or similar
statements. Although Elite Pharmaceuticals believes that the expectations
reflected in such forward-looking statements are reasonable, no assurance can be
given that such expectations will prove correct. Factors that could cause the
Company's results to differ materially from the results discussed in such
forward-looking statements include the risks described hereinabove. All
forward-looking statements in this Memorandum are expressly qualified in their
entirety by the cautionary statements in this paragraph.

20. Control by Directors.

There are currently 7,237,613 shares of Company stock issued and
outstanding, as well as options and warrants to purchase an additional 2,875,000
shares. Of the shares issued and outstanding, officers and/or directors of the
Company hold 1,887,600 shares (26%), and options or warrants to purchase an
additional 895,214 shares. If every holder of an option or warrant exercised his
or her rights under such option or warrant, there would be 10,112,600 shares
issued and outstanding, of which the officers and directors of the Company would
own 2,782,814, or 28 percent. However, if only the officers and directors
exercised such rights, there would be 8,132,814 shares issued and outstanding,
of which the officers' and directors' 2,782,814 shares would equal 34 percent.

SELLING SECURITY HOLDERS
------------------------

Any securities offered and sold pursuant hereto will be offered and
sold from time to time by existing security holders of the Company ("Selling
Security Holders") for their own accounts. The securities offered may be sold
directly by the Selling Security Holders; alternatively, the Selling Security
Holders may offer such securities through underwriters, dealers or agents. The
distribution of securities by Selling Security Holders may be effected in one or
more transactions that may take place on the over-the-counter market, including
broker's transactions, privately-negotiated transactions or through sales to one
or more broker-dealers for resale of such securities as principals, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. Usual and customary or specifically
negotiated brokerage fees or commissions may be paid by the Selling Security
Holders in connection with such sales of securities. The Selling Security
Holders and intermediaries through whom such securities are sold may be deemed
"underwriters" within the meaning of the Securities Act with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation.

At the time a particular offer of securities is made by a Selling
Security Holder, the Selling Security Holder must, to the extent required by
law, deliver a prospectus setting forth the number of shares being offered, and
the terms of the offering, including the name or names of any underwriters,
dealers or agents, if any, the purchase price paid by any underwriter for shares
purchased from the Selling Security Holder, and any discounts, commissions, or
concessions allowed or reallowed or paid to dealers, and the proposed selling
price to the public. The Selling Security Holders will be subject to the
applicable provisions of the Exchange Act and the rules and regulations
thereunder, which provisions may limit the time of purchases and sales by the
Selling Security Holders.

The following table shows the names of Selling Security Holders, along
with any material relationships such security holders have or have had with the
Company and the amount of securities held by such security holder and available
to be offered.

Column A shows the name of the Selling Security Holder; Column B
describes any positions or offices held by the Selling Security Holder within
the last three years with the Company, its predecessor or its affiliates; Column
C shows number of Shares being offered that are owned by the Security Holder
prior to the offering; Column D shows the number of Warrants being offered that
are owned by the Selling Security Holder. As used in the preceding sentence
"Shares" means shares of Common Stock of Elite Pharmaceuticals, Inc., and
"Warrants" mean Class A Common Stock Purchase Warrants, each warrant entitling
the holder to purchase one share of Common Stock at an exercise price of $6.00
exercisable for five years from November 30, 1997. As stated above, the Company
does not know which, if any, Security Holders will be offering their securities
for sale, when they intend to do so, or what percentage of their securities will
be offered.

(See Note 1 for method used in calculating securities held.)
<CAPTION>

Securities issued in Private Placement.
- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>

A. B. C. D. E. F. G.
# of Percent # of Total Percent
Positions Shares of Warrants # of of
Name of Security Holder Held Owned Owned Owned Securities Total

Maurice J. Abadi None 10,000 * 5,000 15,000 *
Robert G. Ackerly None 10,000 * 5,000 15,000 *
Hymie Akst None 10,000 * 5,000 15,000 *
Joan F. Albrecht None 10,000 * 5,000 15,000 *
All American Funding None 20,000 * 10,000 30,000 *
David Altschuler None 10,000 * 5,000 15,000 *
The Aquidneck Trust, Marielle
T. Reilly and Michael
Plunkett TTEES None 20,000 * 10,000 30,000 *
Marcel Aronheim None 20,000 * 10,000 30,000 *
Joan Rich Baer, Inc. Pension
Plan and Trust U/A/D 1/1/78,
Joan Rich Baer and Arthur
Bugs Baer TTEE None 20,000 * 10,000 30,000 *
Robert W. Baird & Co.
TTEE, FBO Albert L.
Saphier IRA None 20,000 * 10,000 30,000 *
Mayer Ballas, M.D. None 10,000 * 5,000 15,000 *
Norman Barrie and Laurel Barrie None 10,000 * 5,000 15,000 *
B&B Management, Ltd. None 52,000 * 26,000 78,000 1.5%
Jerome Belson None 140,000 2% 70,000 210,000 Note 2
Susan J. Bender None 20,000 * 10,000 30,000 *
Birchcrest Industries, Inc.
Employee Profit
Sharing Plan and Trust None 10,000 * 5,000 15,000 *
Harvey Blitz None 20,000 * 10,000 30,000 *
Dr. Daniel Scott Brandwein None 10,000 * 5,000 15,000 *
Bridge Ventures, Inc. See Note 1 50,000 * 25,000 75,000 Note 3
Susan Brauser None 10,000 * 5,000 15,000 *
Michael E. Bushey DDS Inc.
Profit Sharing Trust None 10,000 * 5,000 15,000 *
C. Ames Byrd and
Donna M. Byrd, JT None 10,000 * 5,000 15,000 *
Joseph Michael Cafiero and
Veronica Walsh Cafiero JT None 5,000 * 2,500 7,500 *
McDonald & Company
Securities, Inc. FBO Frank
B. Carr IRA None 30,000 * 15,000 90,000 *
Chillington Corporation N.V. None 70,000 * 35,000 105,000 *
Alan R. Cohen None 10,000 * 5,000 15,000 *
Israel Cohen None 10,000 * 5,000 15,000 *
Phyllis J. Cohen None 5,000 * 2,500 7,500 *

<PAGE>

Irving W. Davies None 5,000 * 2,500 7,500 *
Ronny Lee Doran None 5,000 * 2,500 7,500 *
Joseph A. Dussich None 20,000 * 10,000 30,000 *
Sidney Dworkin None 20,000 * 10,000 30,000 *
Anita Elias Living Trust, Anita
and Jack Elias, TTEES None 10,000 * 5,000 15,000 *
Dr. Edward R. Falkner, Inc.
Profit Sharing Trust None 10,000 * 5,000 15,000 *
Alan Feldman None 10,000 * 5,000 15,000 *
Cary Fields None 40,000 * 20,000 60,000 *
Stuart Flaum None 10,000 * 5,000 15,000 *
F&N Associates, Inc. None 6,667 * 3,333 10,000 *
Gary W. Funk None 20,000 * 10,000 30,000 *
Joseph Giamanco None 80,000 1.5% 40,000 120,000 2%
Lawrence and Diane Gorelick None 20,000 * 10,000 30,000 *
Edward A. Harycki None 10,000 * 5,000 15,000 *
Hasenfield-Stein, Inc.
Pension Trust None 6,667 * 3,333 10,000 *
Delaware Charter Gurantee
& Trust Co. FBO Ronald I.
Heller IRA None 15,000 * 7,500 45,000 *
Richard A. Horstmann None 40,000 * 20,000 60,000 *
Intergalactic Growth Fund, Inc. None 40,000 * 20,000 60,000 *
Barbara Kantor None 10,000 * 5,000 15,000 *
Robert Karsten, D.D.S. None 20,000 * 10,000 30,000 *
Richard Katz None 10,000 * 5,000 15,000 *
E. Gerald Kay None 20,000 * 10,000 30,000 *
Kentucky National Ins. Co. None 10,000 * 5,000 15,000 *
Keys Foundation None 80,000 1.5% 40,000 120,000 2%
Ali H. Khin and
Mariam K. Ohn None 20,000 * 10,000 30,000 *
Ernest Howard King, Jr. None 10,000 * 5,000 15,000 *
Marvin Kogod and
Muriel Kogod JTWROS None 10,000 * 5,000 15,000 *
Jay Lieberman None 20,000 * 10,000 30,000 *
Andrew Licari None 20,000 * 10,000 30,000 *
James Lynch None 10,000 * 5,000 15,000 *
Leonard Makowka None 40,000 * 20,000 60,000 *
Virginia Meade None 5,000 * 2,500 7,500 *
Beno Michel M.D. Trust None 10,000 * 5,000 15,000 *
Harold Miller None 10,000 * 5,000 15,000 *
Farrell Moore and
Ann Moore JT None 10,000 * 5,000 15,000 *
Gee Gee Morgan None 5,000 * 2,500 7,500 *
Morgan Steel Limited None 40,000 * 20,000 60,000 *
Delaware Charter Guarantee
& Trust Co. FBO David S.
Nagelberg IRA None 15,000 * 7,500 22,500 *
Daniel Orenstein None 28,000 * 14,000 42,000 *
Donald Orenstein None 10,000 * 5,000 15,000 *

Seymour Orenstein None 16,000 * 8,000 24,000 *
The Chandrakant and
Krishna Patel Family
Trust Dtd. 8/25/92 None 20,000 * 10,000 30,000 *
Sanjay K. Patel None 20,000 * 10,000 30,000 *
Vijay Patel None 30,000 * 15,000 90,000 *
James M. Persky None 5,000 * 2,500 7,500 *
Stephen J. Posner None 20,000 * 10,000 30,000 *
Delaware Charter Guaranty
Trust TTEE FBO
Paul Prager IRA None 30,000 * 15,000 45,000 *
Tis Prager None 20,000 * 10,000 30,000 *
R. Capital II, Ltd. None 40,000 * 20,000 60,000 *
Kenneth M. Reichle, Jr. None 10,000 * 5,000 15,000 *
Fahnestock & Co., Inc.
C/F Gerald Richter IRA None 10,000 * 5,000 15,000 *
R&J Trust Dtd. 7/1/93,
Roger P. Siegel and
Joan K. Siegel TTEES None 20,000 * 10,000 30,000 *
Kenneth M. Robbins None 10,000 * 5,000 15,000 *
Wayne Robbins None 20,000 * 10,000 30,000 *
Joseph Roselle None 40,000 * 20,000 60,000 *
Carl Rosen None 20,000 * 10,000 30,000 *
Robert M. Rosin None 10,000 * 5,000 15,000 *
Harvey L. Ross None 20,000 * 10,000 30,000 *
Irving Russo None 10,000 * 5,000 15,000 *
Rutgers Casualty Ins. Co. None 10,000 * 5,000 15,000 *
Ronald Schaffer None 24,000 * 12,000 36,000 *
Harry Schwartz None 10,000 * 5,000 15,000 *
Mark Schwartz None 10,000 * 5,000 15,000 *
Merton J. Segal None 20,000 * 10,000 30,000
Nrman Seiden None 40,000 * 20,000 60,000 *
Robert Shiff None 10,000 * 5,000 15,000 *
Barbara Snyder None 20,000 * 10,000 30,000 *
Nachum Stein None 6,667 * 3,333 10,000 *
Myron M. Teitelbaum, M.D. None 5,000 * 2,500 7,500 *
Edmund Tennenhaus None 20,000 * 10,000 30,000 *
Tissera Overseas Fund N.V. None 20,000 * 10,000 30,000 *
Robert and Sarah Wax None 20,000 * 10,000 15,000 *

Securities Underlying Placement Agent Warrants
- ----------------------------------------------

Norman Gottlieb Note 4 52,290 * 26,145 78,435 1.5%
Dino Liso None 52,290 * 26,145 78,435 1.5%
First Montauk Securities Corp. None 29,240 * 14,620 43,860 *
Ameriprop, Inc. None 18,340 * 9,170 27,510 *
Cantella & Company, Inc. None 4,520 * 2,260 6,780 *
Lawrence Zaslow None 12,600 * 6,300 18,900 *
Nathan Low None 5,400 * 2,700 8,100 *
Susan Bender None 1,500 * 750 2,250 *

<PAGE>

M.H. Meyerson None 2,240 * 1,120 3,360 *
Z/A Associates None 5,400 * 2,700 8,100 *
Comprehensive Capital None 1,500 * 750 2,250 *
First National Fund Corp None 6,000 * 3,000 9,000 *
Stephen J. Posner None 4,740 * 2,370 7,110 *
Donald Orenstein None 2,380 * 1,190 3,570 *
Benjamin Leifer None 1,184 * 592 1,776 *
Southwall Capital None 296 * 148 444 *
To be determined (Note 5) None 80 * 40 120 *

Other Private Placements.
- -------------------------

Jerome Belson None 0 * 75,000 75,000 Note 2
Bridge Ventures Note 6 0 * 250,000 250,000 Note 3
Saggi Captial Corporation Note 7 0 * 100,000 100,000 1.5%

* Less than 1%
</TABLE>

Note 1. For purposes of computing the percentage of securities held by each
person, any security which such person or persons has the right to acquire
within sixty days of March 31, 1998 is deemed to be outstanding but is not
deemed to be outstanding for the purpose of computing the percentage ownership
of any other person. Percentages are rounded up to the nearest one-half percent.

Note 2. When Belson's holdings under the Private Placement are added with his
warrants issued July 14, 1998, he owns 4.0% of the total issued and outstanding
securities.

Note 3. When Bridge Ventures' holdings under the Private Placement are added
with warrants issued July 14, 1997, it owns 3.5% of the total issued and
outstanding securities.

Note 4: Norman Gottleib is a principal of Normandy Securities, which is a
consultant under terms of a Consulting Agreement entered into between Elite
Laboratories, Inc. and Normandy Securities, Inc., dated as of October 31, 1997,
and effective through October 31, 1998. Under the terms of said agreement,
Normandy Securities, Inc. provides to Elite Labs consulting services relating to
corporate finance in exchange for monthly payments of $3,000.

Note 5. A total of ten Placement Agent Warrants (granting in the aggregate the
right to purchase 200,000 Shares and 100,000 Warrants) were issued to Normandy
Securities, Inc. ("Normandy Securities"), the placement agent for the private
placement. Normandy Securities allocated the Placement Agent Warrants among the
broker-dealers involved in the Private Placement. The numbers reflected above
are the numbers as reported by counsel for Normandy Securities; however, they
represent the right to purchase in the aggregate 199,920 Shares and 99,960
Warrants. The difference has been reflected by the entry "Uncertain".

Note 6: Consultant under terms of Consulting Agreement entered into between
Elite Laboratories, Inc. and Bridge Ventures, Inc., dated as of August 1,
1997, and assumed by Elite Pharmaceuticals, Inc. as of November 7, 1997.

Note 7: Consultant under terms of Consulting Agreement entered into between
Elite Laboratories, Inc. and Saggi Capital Corporation, dated as of
August 1, 1997, and assumed by Elite Pharmaceuticals, Inc. as of November 7,
1997.

<PAGE>

USE OF PROCEEDS
---------------

The Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Shareholders. See "Selling Shareholders". The
Company will receive proceeds only upon the exercise of the Warrants or the
Placement Agent Warrants by the holders thereof. If all of the Warrants (other
than those underlying the Placement Agent Warrants) are exercised (each Warrant
entitling the holder thereof to purchase one share of Common Stock at 6.00 per
share), the proceeds generated therefrom will be $8,550,000. If all the
Placement Agent Warrants are exercised (each Placement Agent Warrant entitling
the holder thereof to purchase 20,000 shares of Common Stock and 10,000 Warrants
for $72,000), the proceeds therefrom will be $720,000. If, subsequent to the
exercise of the Placement Agent Warrants, the holders of the underlying Warrants
exercise such warrants, the proceeds therefrom will be $600,000. There can be no
assurance as to when, if ever, any or all of such securities will be exercised.
Proceeds, if any, received from the exercise of the Warrants, Placement Agent
Warrants and Warrants underlying the Placement Agent Warrants will be used for
working capital requirements and other general corporate purposes.

DILUTION
--------

There will be no dilution of the book value of the Common Stock since
no additional shares are being issued as a result of this offering. There are
outstanding options and warrants not offered hereunder which entitle the holders
thereof to purchase shares of Common Stock at exercise prices ranging from $2.00
to $7.00; exercise of such options or warrants by the holders thereof may dilute
the book value of the Common Stock if such warrants or options are exercised at
a time when the book value of the Common Stock exceeds the exercise price.

PLAN OF DISTRIBUTION
--------------------

Any securities offered and sold pursuant hereto will be offered and
sold from time to time by Selling Security Holders for their own accounts. The
securities offered may be sold from directly by the Selling Security Holders, or
the Selling Security Holders may offer such securities through underwriters,
dealers or agents. The distribution of securities by Selling Security Holders
may be effected in one or more transactions that may take place on the
over-the-counter market, including broker's transactions, privately-negotiated
transactions or through sales to one or more broker-dealers for resale of such
securities as principals, at market prices prevailing at the time, at prices
related to such prevailing market prices or at negotiated prices. Usual and
customary or specifically negotiated fees or commissions may be paid by the
Selling Security Holders in connection with such sales of securities. The
Selling Security Holders and intermediaries through whom such securities are
sold may be deemed "underwriters" within the meaning of the Securities Act with
respect to the securities offered, and any profits realized or commissions
received may be deemed underwriting compensation.

<PAGE>

The Company is unaware of securities being offered other than for cash.
No Selling Security Holder has the right to designate any of the Company's Board
of Directors. No persons are or have been indemnified against liability arising
under the Securities Act with respect to this offering of the Common Stock and
Warrants, except to the extent that the Articles of Incorporation and Bylaws of
the Company indemnify the members of its Board of Directors generally against
civil, criminal and administrative actions against any director by reason of
action taken by such person in his or her capacity as director. (See "Risk
Factors - Limitation on Personal Liability of Directors"). The Company is
unaware any contracts that any Selling Security Holder may have entered into
with any dealer, underwriter or finder, or of any passive market making activity
being contemplated or undertaken by any Selling Security Holder.

Pursuant to the provisions under the Exchange Act and the rules and
regulations thereunder, any persons engaged in a distribution of the Common
Stock offered by this Prospectus may not simultaneously engage in market making
activities with regard to the Common Stock of the Company during applicable
"cooling off" periods prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the Selling Security Holders will
be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder including, without limitation, Rules 10b-6 and 10b-7,
which provisions may limit the timing of purchases and sales of Common Stock by
the Selling Security Holders.

MANAGEMENT
----------

Identification of Directors and Executive Officers.
- ---------------------------------------------------

The directors and executive officers of the Elite Pharmaceuticals and Elite Labs
are identical, and are:

Name Age Position
---- --- --------
Atul M. Mehta 49 President, Chief Executive Officer
and Director
Barri M. Blauvelt 44 Director
John W. Jackson 53 Director
Mark Gittelman 38 Treasurer

Atul M. Mehta has been a director of Elite Labs since its inception in
1990, and a director of Elite Pharmaceuticals since 1997. Barri Blauvelt has
served as a director of Elite Labs since 1992, and as a director of Elite
Pharmaceuticals since 1997. John Jackson has served as a director of Elite Labs
since 1995, and as a director of Elite Pharmaceuticals since 1997. There are no
arrangements between any director or executive officer and any other person,
pursuant to which the director or officer is to be selected as such. There is no
family relationship between the directors, executive officers, or persons
nominated or chosen by the Company to become directors or executive officers.

Dr. Mehta, the founder of Elite Labs, has been employed as the
President of Elite Labs since 1990, and President of Elite Pharmaceuticals since
1997. Prior to that, he was Vice President at Nortec Development Associates, a
company specializing in the development of food, pharmaceutical and chemical
specialty products, from 1984 to 1989. From 1981 to 1984, he was associated with
Ayerst Laboratories, a division of American Home Products Corporation in the
solids formulation section as Group Leader. His responsibilities included
development of formulations of ethical drugs for conventional and
controlled-release dosage forms for both USA and international markets. He
received his B.S. degree in Pharmacy with honors from Shivaii University,
KoIhapur, India, and a BS, MS, and a Doctorate of Philosophy in Pharmaceutics
from the University of Maryland in 1981. Other than Elite Labs, no company with
which Mr. Mehta was affiliated in the past was a parent, subsidiary or other
affiliate of the Company.

Barri M. Blauvelt, Director of Elite, has been employed since 1983 as the
President of Innovara, Inc., a company engaged in pharmaceutical marketing and
management. Prior to forming Innovara, Inc. in 1983, Mrs. Blauvelt had ten years
of marketing and management experience at Pfizer (USA) and American Cyanamid
Company (International). Mrs. Blauvelt holds an MBA in Marketing from Columbia
University, and was an instructor in the Pharmaceutical Degree Program, Graduate
School of Business, at Farleigh Dickensen University. Other than Elite Labs, no
company with which Ms. Blauvelt was affiliated in the past was a parent,
subsidiary or other affiliate of the Company.

John W. Jackson, Director of Elite, is Chairman and CEO of Celgene Corporation,
a reporting company under the Securities Exchange Act (Nasdaq:CELG), and has
been employed as such since 1996. Celgene Corporation uses proprietary expertise
in small molecule chemistry to serve the pharmaceutical, agricultural and allied
industries. From 1991 to 1996 he was President of Gemini Medical, a company
engaged in providing consulting to medical

<PAGE>

companies, inventors and investors. From 1986 to 1991 he was President of
Medical Device Division of American Cyanamid Company and from 1978-1986 he was
VP International for Medical Products. From 1971-1978 he worked for Merck &
Company in international marketing. Mr. Jackson obtained an MBA from the
European Institute of Business Administration, France, a BA in Political Science
from Yale University and graduated from Gordonstoun School in Scotland. Other
than Elite Labs, no company with which Mr. Jackson was affiliated in the past
was a parent, subsidiary or other affiliate of the Company.

Mark Gittelman, CPA, Treasurer of Elite, is the President of Goldman &
Gittelman, P.C., an accounting firm. Prior to forming Goldman & Gittelman in
1984, he worked as a certified public accountant with the international
accounting firm of KPMG Peat Marwick, LLP. Mr. Gittelman holds a B.S. in
accounting from New York University, and is currently completing his Masters of
Science in Taxation at Farleigh Dickinson University. He is a Certified Public
Accountant licensed in New Jersey and New York, and is a member of the American
Institute of Certified Public Accountants ("AICPA"), the Securities and Exchange
Practice Section of the AICPA, and the New Jersey State and New York States
Societies of CPAs. Other than Elite Labs, no company with which Mr. Gittelman
was affiliated in the past was a parent, subsidiary or other affiliate of the
Company.

Involvement in Certain Legal Proceedings.
- -----------------------------------------

No director, executive officer, or person nominated to become an executive
officer or director, or control person has been the subject of any of the
following actions taken during the past ten years and not subsequently reversed,
suspended, vacated, annulled or otherwise rendered of no effect: (a) bankruptcy
or insolvency proceedings as described in Reg. Section 228.401(d)(1)(i); (b)
criminal proceedings as described in Reg. Section 228.401(d)(1)(ii); (c) civil
or administrative proceedings as described in Reg. Section 228.401(d)(1)(iii);
or (d) self-regulatory organization proceedings as described in Reg. Section
228.401(d)(1)(i).

Disclosure Of Commission Position On Indemnification For Securities Act
- -----------------------------------------------------------------------
Liabilities.
- ------------

The provisions affecting personal liability provide that the Company
will indemnify its directors to the fullest extent permitted by Section 145 of
the Delaware Corporation Law against (a) expenses (including attorney's fees)
reasonably incurred in connection with any threatened, pending or completed
civil, criminal, administrative, investigative or arbitrative action, suit or
proceeding (and appeal therefrom) against any director, whether or not brought
by or on behalf of the Company seeking to hold the director liable by reason of
the fact that he was acting in such capacity; and (b) any reasonable payments
made by him in satisfaction of any judgment, money decree, fine, penalty or
settlement in such action, suit or proceeding. In that respect, the provisions
diminish the potential right of action which might otherwise be available to
shareholders by affording indemnification by the Company against most damages
and settlement amounts paid by a director.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.

Compensation.
- -------------

Summary Executive Compensation Table for years 1995, 1996 and 1997.
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>

a b c d e f g h i
Name and Calendar Base Bonus Other Restricted Securities LTIP All other
principal Year(1) Salary(2) Annual stock Underlying payouts compen-
position Compen- awards options sation
sation

Atul M. Mehta 1997 $180,000 $0 $1,795 (3) -- 545,214(5) -- --
President 1996 $165,000 $0 $1,795 (3) -- 100,000 -- --
1995 $150,000 $0 $ 870 (4) -- _________ -- --
</TABLE>

(1) Dr. Mehta's compensation is paid on a calendar year basis. The Company's
fiscal year is from April 1 through March 31. (2) In fiscal years 1998 and 1997,
Dr. Mehta's salary was allocated 75% to research and development and 25% to
general administrative. (3) Represents use of a company car, and premiums on
life insurance Dr. Mehta's life for the benefit of his wife paid by the Company.
(4) Represents premiums on life insurance Dr. Mehta's life for the benefit of
his wife paid by the Company. (5) 400,000 of the above options were initially to
vest at the rate of 100,000 per year each year from 1996 through 2001; however,
upon completion of the Private Placement, they became 100% vested; the remaining
125,000 options were initially to vest at the rate of 41,667 per year for each
year from 1997 through 1999; however upon completion of the Private Placement,
they became 100% vested. <TABLE>
<CAPTION>

Executive Option Grants Table for fiscal year ended March 31, 1998.
- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
a b c d e
Number of Securities % Grant Represents Per-Share Exercise
Name Underlying Options of Options to Employees or Base Price Expiration date

Atul M. Mehta 420,214(1) 100% $2.00 1/1/2007
125,000(2) 100% $7.00 9/1/2002
</TABLE>

(1) The number of securities underlying the options were initially shares of
Elite Labs; however under the terms of the Private Placement, they have been
replaced with shares of Elite Pharmaceuticals. The options were initially to
vest at the rate of 100,000 per year each year from 1996 through 2001; however,
upon completion of the Private Placement, they became 100% vested.

(2) Granted under Incentive Stock Option Plan. The number of securities
underlying the options were initially shares of Elite Labs; options were
initially to vest at the rate of 41,667 per year for each year from 1997 through
1999; however upon completion of the Private Placement, they became 100% vested.

<PAGE>

Aggregated Executive Option Exercises and Fiscal Year End Option Value Table for
fiscal year ended March 31, 1998.
- --------------------------------------------------------
<S> <C> <C> <C> <C>

a b c d e
# of Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options/
at FY-End at FY-End

Name Shares Acquired Value Exercisable/ Exercisable/
on Exercise Realized Unexercisable(1) Unexercisable

Atul M. Mehta None $0 520,214 $520,214(2)
Exercisable

None $0 125,000 $0(2)
</TABLE>

(1) The number of securities underlying the options were initially shares of
Elite Labs; however under the terms of the Private Placement, they have been
replaced with shares of Elite Pharmaceuticals. The number of shares reflects the
two-for-one split of Elite Labs' stock undertaken on August 14, 1997.

(2) The market value of the shares of Common Stock is unknown and uncalculable.
However, in the Private Placement, units consisting of 20,000 shares of Common
Stock and 10,000 Warrants were issued for $60,000 per unit. Based on that
offering price, the maximum amount the shares of Common Stock could be worth is
$6.00. It is on this hypothetical value that the figure in column (e) is
calculated. This figure may have no relation to the actual value of the
unexercised options. <TABLE>

Director Compensation for Fiscal Year Ending March 31, 1998
- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>

a b c d e f
Cash Compensation Security Grants
------------------------------------------ ----------------------------
Annual Consulting or Number Number of Securities
Name Retainer Fee Meeting Fees Other Fees of Shares Underlying Options

Barri M. Blauvelt $0 $1,000(1) $0 0 65,000 shares(2)

John W. Jackson $0 $1,000(1) $0 0 105,000 shares(3)
</TABLE>

(1) Pursuant to a resolution of the Board of Directors of the company as of
February 11, 1998, under the terms of which all non-affiliated directors will
receive $1,000 as compensation for each meeting personally attended.

(2) Exercisable until December 21, 2005, at an exercise price of $2.00. The
securities underlying the options were initially shares of Elite Labs; however
under the terms of the Private Placement, they have been replaced with shares of
Elite Pharmaceuticals. The options were awarded on December 21, 1995, and were
to vest at the rate of 40,000 immediately, and 20,000 on December 21 of each of
1996, 1997 and 1998; however, upon completion of the Private Placement, the
remaining 40,000 unvested options vested immediately. In addition, Ms. Blauvelt
was awarded an additional 25,000 on August 7, 1997 in connection with the
twenty-five percent upgrade of all optionsholders awarded on that date.

(3) Exercisable until December 21, 2005, at an exercise price of $2.00. The
securities underlying the options were initially shares of Elite Labs; however
under the terms of the Private Placement, they have been replaced with shares of
Elite Pharmaceuticals. The options were awarded on December 21, 1995, and were
to vest at the rate of 20,000 on December 21 of each of 1996, 1997 and 1998;

<PAGE>

however, upon completion of the Private Placement, the remaining 40,000 unvested
options vested immediately. In addition, Mr. Jackson was awarded an additional
40,000 shares on August 7, 1997, and was awarded an additional 25,000 on August
7, 1997 in connection with the twenty-five percent upgrade of all optionsholders
awarded on that date.

Employment Contracts and Termination of Employment and Change-in-Control
- ------------------------------------------------------------------------
Arrangements.
- -------------

The Company entered into an employment contract with Atul M. Mehta,
effective January 1, 1996. Pursuant to the employment agreement, as amended, Dr.
Mehta is employed full time as President and CEO of the company. The agreement
will remain in effect until December 31, 2000, and will then be renewed for an
additional five years unless notice is given by either party, in which case it
will be renewed for successive one year terms. Under the terms of the agreement,
Dr. Mehta agrees to devote a sufficient amount of his business time to
diligently perform his obligations. His base salary under the agreement is
$165,000 in 1996, $180,000 in 1997, $200,000 in 1998, with a raise in 1999 and
2000 to be determined by the Board of Directors, but not to be less than 5% of
the preceding year's salary. (In fiscal years 1998 and 1997, Dr. Mehta's salary
was allocated 75% to research and development and 25% to general
administrative.) Under the agreement, Dr.Mehta is entitled to a bonus equal to
five percent of the net profits of the company; to health insurance for him and
his dependents; term life insurance in a minimum amount of $300,000 for the
benefit of his spouse or estate; and any benefits provided to employees
generally, including any incentive stock option plans. He also became entitled
to receive options on January 1 of each year beginning with January 1, 1996
through January 1, 2001, to purchase 100,000 shares of Common Stock at $2.00 per
share; upon completion of the Private Placement, these options immediately
vested. The agreement provides that, in the event that Dr. Mehta loses his job
as a result of a change of control in the Company, he will be entitled to the
present value of all salary, bonuses and deferred compensation through the
earlier of May 22, 2001 or three years following his termination.

Dr. Mehta is required to refrain from competing with the Company during
the term of the Agreement.

PRINCIPAL SHAREHOLDERS

The following table sets forth the security ownership of certain
beneficial owners(1) and management as of the date of this prospectus with
respect to the beneficial ownership of the Companies Common Stock by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
Company's Common Stock; (ii) each director of the Company; (iii) each executive
officer of the Company; and (iv) the officers and directors of the Company as a
group.
<TABLE>
<CAPTION>
<S> <C> <C> <C>

a b c d
Title of Class Name and Address of Amount and Nature of Percent of Class
Beneficial Owner Beneficial Ownership

Voting Common Atul M. Mehta, Director/Officer 2,357,814 (2) 29.9%
252 E. Crescent Avenue
Ramsey, NJ 07446

Voting Common John de Neufville, Trustee 925,000 (3) 12.7%
Margaret deNeufville Revocable Trust
197 Meister Avenue
North Branch, NJ 08876

Voting Common Bakul and Dilip Mehta 630,000 8.7%
P.O. Box 438
Muscat, Sultanate of Oman

Voting Common Bridge Ventures, Inc. 591,667 (4) 7.9%
575 Lexington Avenue, Ste. 410
New York, NY 10022

Voting Common Vijay Patel 441,036 (5) 6.0%
19139 Pebble Court
Woodbridge, CA 95258

Voting Common Barri M. Blauvelt, Director 300,000 (6) 4.1%
175 Cherry Lane
Amherst, MA 01022

Voting Common John W. Jackson, Director 125,000 (7) 1.7%
32 Gregory Lane
Warren, NJ 07059

Voting Common Officers and Directors as a Group 2,782,814 (8) 34.2%
</TABLE>

(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of Common Stock which such person has the
right to acquire within 60 days of January 28, 1998. For purposes of computing
the percentage of outstanding shares of Common Stock held by each person or
group of persons named above, any security which such person or persons has or
have the right to acquire within such date is deemed to be outstanding but is
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person. Except

<PAGE>

as indicated in the footnotes to this table and pursuant to applicable community
property laws, the Company believes based on information supplied by such
persons, that the persons named in this table have sole voting and investment
power with respect to all shares of Common Stock which they beneficially own.

(2) Includes (i) 100,000 shares of Common Stock held by Asha Mehta, Dr. Mehta's
wife; (ii) 6,300 shares held by Dr. Mehta C/F Amar Mehta; (iii) 6,300 shares
held by Dr. Mehta C/F Anand Mehta; and (iv) options to purchase 645,214 shares
of Common Stock.

(3) Represents (i) 900,000 shares of Common Stock held by the Margaret de
Neufville Revocable Trust, of which Mr. de Neufville is Trustee, and (ii)
options held by Mr. de Neufville to purchase 25,000 shares of Common Stock

(4) Includes (i) 133,333 shares owned by SMACs Holding Company, an Affiliate of
Bridge Ventures, Inc., and (ii) warrants to purchase 275,000 shares of Common
Stock held by Bridge Ventures, Inc.

(5) Includes options to purchase 18,750 shares of Common Stock and warrants to
purchase 117,286 shares of Common Stock.

(6) Includes (i) 10,000 shares of Common Stock held by G.C. and Barri Blauvelt
C/F Heather Blauvelt; (ii) 10,000 shares held by G.C. and Barri Blauvelt C/F
Meghaan Blauvelt; (iii) 10,000 shares held by G.C. and Barri Blauvelt C/F Chris
Blauvelt; and (iv) options to purchase 125,000 shares of Common Stock.

(7) Represents options to purchase 125,000 shares of Common Stock.

(8) Includes options to purchase 895,214 shares of Common Stock.

DESCRIPTION OF SECURITIES
-------------------------

Elite Pharmaceuticals increased the number of authorized shares of its
Common Stock from 10,000,000 to 25,000,000 by amendment to its Articles of
Incorporation filed June 1, 1998. There are 7,237,613 shares of Common Stock
outstanding, and an additional 2,955,000 shares of Common Stock are subject to
outstanding options or warrants to purchase said shares. Of such shares,
4,787,600 shares of such Common Stock could be sold pursuant to Rule 144 under
the Securities Act, subject to the volume and time limitations contained
therein; it is currently registering 3,725,000 shares under the Securities Act
for sale by Security Holders (1,525,000 of which such shares underlie Warrants
held by such Security Holders); and 448,791 shares of Common Stock of the Elite
Pharmaceuticals have been previously registered under the name of Prologica
International, Inc. The shares, options and warrants are held by approximately
188 security holders.

Description of Common Stock.
- ----------------------------

The Common Stock registered is the sole class of stock in the Company.
The holders of Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders and do not have
cumulative voting rights for the election of directors. The Common Stock has no
conversion rights and includes no preemptive subscription, conversion,
redemption or other rights to subscribe for additional securities. The holders
of the Common Stock will be entitled to receive dividends, if any, as may be
declared by the Board of Directors out of legally available funds and to share
pro rata in any distribution to the stockholders, including any distribution
upon liquidation, dissolution or winding up of the Company subject to the rights
of any holders of Preferred Stock, if any Preferred Stock is ever issued. All
outstanding Common Stock and the Shares issuable upon exercise of the Warrants,
upon issuance and when paid for, will be duly authorized, validly issued, fully
paid and nonassessable.

The Company has not, to date, paid any cash dividends upon its Common
Stock and does not expect to declare or pay any dividends.

Warrants.
- ---------

The Company is also registering 1,525,000 Warrants, each of which
entitles the holder to purchase one share of Common Stock at an exercise price
of $6.00 during the five-year period commencing November 30, 1997. There are
currently warrants and options issued and outstanding exercisable for 2,950,000
shares of Common Stock, including the Warrants being Registered (and including
75,000 options issued to an employee on April 1, 1998), although not all
warrants or options outstanding have the same exercise rights, exercise period
or exercise price as those being Registered. No fractional shares will be issued
upon exercise of the Warrants. However, if a Warrant Holder exercises all
Warrants then owned of record by him or her, the Company will pay to such
holder, in lieu of the issuance of any fractional share which is otherwise
issuable, an amount in cash based on the market value of the Common Stock on the
last trading day prior to the exercise date

Placement Agent Warrants.
- -------------------------

Ten Placement Agent Warrants were issued to the placement agent and
its designees in connection with the Private Placement of the Company's
securities. Each Placement Agent

<PAGE>

Warrant entitles the holder(s) thereof to purchase for the sum of
$72,000 one unit consisting of 20,000 shares of Common Stock and 10,000 Warrants
exercisable at $6.00 per share. The Placement Agent Warrants are not themselves
being registered or offered hereunder; however the securities underlying them
are being registered and, if the Placement Agent Warrants are exercised and the
holders thereof become the holders of the underlying securities, such securities
may be offered by the holders thereof in the same manner as any other Security
Holder. See "Use of Proceeds" and "Plan of Distribution".

Transfer Agent.
- ---------------

The transfer agent and registrar for the Company's Common Stock and
Warrants registered hereunder is Jersey Transfer and Trust Company, 201
Bloomfield Avenue, Verona, New Jersey, 07044.

Trading Market.
- ---------------

There is currently no established trading market for Common Stock or
Warrants.

EXPERTS AND COUNSEL
-------------------

Counsel.
- --------

The legality of the securities offered hereby and certain other legal
matters will be passed upon for the Company by James, McElroy & Diehl, P.A, 600
South College Street, Charlotte, North Carolina 28202.

Experts.
- --------

The consolidated financial statements of Elite Pharmaceuticals, Inc. and
Subsidiary included in the Company's Prospectus for the years ended March 31,
1998 and 1997, have been audited by Miller, Ellin & Company, LLP, independent
auditors, to the extent and for the periods set forth in their report dated May
28, 1998, appearing elsewhere herein, and is included in reliance upon the
report of said firm given upon their authority as experts in accounting and
auditing.

Interests of Experts and Counsel
- --------------------------------

Neither (a) any expert named in the Registration Statement as having
prepared or certified any part of the Registration Statement or a report, or
valuation to be used in connection with the Registration Statement, nor (b) any
counsel for the Company named in the Prospectus as having given an opinion on
the validity of the securities being registered or on other legal matters in
connection with the Registration or the Offering, (i) was employed for that
purpose on a contingency basis; (ii) had at any time prior hereto, or is to
receive in connection with the offering; a substantial interest, direct or
indirect, in the Company, its parents or subsidiaries; or (iii) was connected
with the Company or any of its parents or subsidiaries as a promoter, managing
underwriter, or principal underwriter, voting trustee, director, officer or
employee.

<PAGE>

DESCRIPTION OF BUSINESS
-----------------------

Elite Pharmaceuticals, Inc.'s Business.
- ----------------------------- ---------

Elite Pharmaceuticals' predecessor, Prologica International, Inc., was
incorporated in the State of Pennsylvania on April 20, 1984. From the time of
its incorporation, and the completion of its initial public offering in August
1988, until the date of its merger with Elite Pharmaceuticals, Prologica engaged
in no business other than searching for suitable acquisitions. Except for Elite
Pharmaceuticals, it located no such acquisitions. Elite Pharmaceuticals was
incorporated in the State of Delaware on October 1, 1997, for the purpose of
merging with Prologica in order to change the name and state of incorporation of
Prologica. (Prior to the merger, Prologica underwent a three-for-one reverse
split on October 9, 1997.) Elite Pharmaceuticals survived the merger with
Prologica; Prologica ceased to exist at the time of the merger on October 24,
1997. Contemporaneous with the merger of Elite Pharmaceuticals and Prologica,
Elite Labs (the business of which is described below) merged with a wholly owned
subsidiary of Prologica, HMF. HMF was incorporated on August 1, 1997 for the
purpose of providing a vehicle into which Elite Labs could merge. Elite Labs and
HMF merged on October 30, 1997. (Prior to the merger, Elite Labs underwent a
two-for-one forward split on August 21, 1997.) Elite Labs survived the merger
with HMF and HMF ceased to exist subsequent to the merger. The net result of the
two mergers is that Prologica and HMF have ceased to exist, and Elite
Pharmaceuticals owns one hundred percent of the stock of Elite Labs. Such stock
ownership is Elite Pharmaceuticals' sole business.

There were no promotors of Elite Pharmaceuticals prior to its incorporation.

Neither Elite Pharmaceuticals nor Prologica had had any operating revenue for
the three years preceding the merger. At the present time, Elite Pharmaceuticals
has no plans to conduct any other business apart from the ownership of Elite
Labs. None of the proceeds of the current offering will inure to the benefit of
Elite Pharmaceuticals or Elite Labs.

Elite Laboratories, Inc.'s Business.
- ------------------------------------

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

Products and Markets
- --------------------

Elite Labs primarily engages in researching, developing, licensing,
manufacturing, and marketing proprietary drug delivery systems and products.
Elite Labs' drug delivery technology involves releasing a drug into the
bloodstream or delivering it to a target site in the body over an extended
period of time or at predetermined times. Such products are designed to allow
drugs to be administered less frequently, with reduced side effects and, in
certain circumstances, in reduced dosages. Elite Labs has concentrated on
developing orally administered controlled release products. Elite Labs'
primarily targets existing controlled release drugs that are reaching the end of
their exclusivity period, and works to develop cheaper generic
controlled-release version of those drugs. Six controlled release products
developed by Elite Labs are at various stages of testing. The products include
drugs which

<PAGE>

provides, therapeutic benefits for angina and hypertension, a nonsteroidal
analgesic drug, and one which appears to lower blood glucose by stimulating
insulin from the pancreas. None of these products have yet been approved by the
FDA, and Elite therefore does not yet market any products.

Elite Labs also engages in contract research and development activities
sponsored by several other pharmaceutical companies.

Controlled drug delivery of a pharmaceutical compound is a relatively new
concept which offers a safer and more effective means of administering drugs
through releasing a drug into the bloodstream or delivering it to a certain site
in the body at predetermined rates or predetermined times. Its goal is to
provide more effective drug therapy while reducing or eliminating many of the
side effects associated with conventional drug therapy.

In the United States and European health care communities, a great deal of
interest has been evident in the area of new drug delivery systems. Several
pharmaceutical products have been introduced as oral controlled-release dosage
forms, both as tablets and as capsules.

Research and Development Costs.
- -------------------------------

Elite Labs spent approximately $377,637 in fiscal year ending March 31,
1997 and $541,164 in fiscal year ending March 31, 1998, on company-sponsored
research and development activities. As Elite Labs does not yet sell any of its
products, no part of the cost of such research was passed on to consumers of
Elite Labs' products.

Distribution Methods of Products or Services. As yet, Elite Labs has not
- --------------------------------------------------
developed nor needed an elaborate method of distribution of products or
services.

Competitive Business Conditions and Issuer's Competitive Position.
- ------------------------------------------------------------------

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

In recent years, an increasing number of pharmaceutical companies have become
interested in the development and commercialization of products incorporating
advanced or novel drug delivery systems. The Company expects that competition in
the field of drug delivery will significantly increase in the future since
smaller specialized research and development companies are beginning to
concentrate on this aspect of the business. Some of the major pharmaceutical
companies have invested and are continuing to invest significant resources in
the development of their own drug delivery systems and technologies and some
have invested funds in such specialized drug delivery companies. Many of these
companies have greater financial and other resources as well as more experience
than the Company in commercializing pharmaceutical products. A comparatively
small number of companies have a track record of success in developing
controlled-release drugs. Significant among these are Alza Corporation, Andrx,
Elan Corporation, Biovail Corporation, Faulding, Schering, KV Pharmaceutical,
Forest Laboratories, etc. Each of these companies have developed expertise in
certain types of drug delivery systems, although such expertise does not carry
over to developing a

<PAGE>

controlled-release version of all drugs. Such companies may develop new drug
formulations and products or may improve existing drug formulations and products
more efficiently than the Company. While the Company's product development
capabilities and patent protection may help the Company to maintain its market
position in the field of advanced drug delivery, there can be no assurance that
others will not be able to develop such capabilities or alternative technologies
outside the scope of the Company's patents if any, or that even if patent
protection is obtained, such patents will not be successfully challenged in the
future. In addition, it must be noted that almost all of the Company's
competitors have vastly greater resources than the Company.

Sources and Availability of Raw Material.
- -----------------------------------------

The Company is not yet in the manufacturing phase of any product and therefore
does not have a requirement for significant amounts of raw materials. It
currently obtains what limited raw materials it needs from over twenty
suppliers.

Dependence on One or a Few Major Customers.
- -------------------------------------------

Each year, the Company has had some customers that have accounted for a large
percentage of its sales. It is the intention of the Company to expand its
business to service a greater number of customers at one time.

Patents, Trademarks, Royalty Agreements etc..
- ---------------------------------------------

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

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

<PAGE>

In addition, the Company consistently enters into confidentiality
agreements with its employees and business partners; it is currently a party to
well over one hundred such agreements. A representative copy of such an
agreement is attached hereto.

Government Regulation and Approval
- ----------------------------------

The design, development and marketing of pharmaceutical compounds, those
activities on which the Company's success depends, are intensely regulated by
governmental regulatory agencies, including the Food and Drug Administration.
Non-compliance with applicable requirements can result in fines and other
judicially imposed sanctions, including product seizures, injunction actions and
criminal prosecution based on products or manufacturing practices that violate
statutory requirements. In addition, administrative remedies can involve
voluntary withdrawal of products, as well as the refusal of the Government to
enter into supply contracts or to approve abbreviated new drug applications
("ANDAs") and new drug applications ("NDAs"). The FDA also has the authority to
withdraw approval of drugs in accordance with statutory due process procedures.

Before a drug may be marketed, it must be approved by the FDA. Because Elite
Labs has concentrated, during the first few years of its business operations, on
developing products which are intended to be bio-equivalent to existing
controlled-release formulations, the Company expects that most of its drug
products will require ANDA filings: FDA approval procedure for an ANDA relies on
bio-equivalency tests which compare the applicant's drug with an already
approved reference drug, rather than with clinical studies. There can be no
marketing in the United States of a product for which ANDA is required until it
has been approved by the FDA.

The FDA approval procedure for an NDA is a two-step process. During the Initial
Product Development stage, an investigational new drug ("IND") for each product
is filed with the FDA. A 30-day waiting period after the filing of each IND is
required by the FDA prior to the commencement of initial (Phase I) clinical
testing in healthy subjects. If the FDA does not comment on or question the IND
within such 30-day period, initial clinical studies may begin. If, however, the
FDA has comments or questions, the questions must be answered to the
satisfaction of the FDA before initial clinical testing can begin. In some
instances this process could result in substantial delay and expense. Phase I
studies are intended to demonstrate the functional characteristics and safety of
a product.

After Phase I testing, extensive efficacy and safety studies in patients must be
conducted. After completion of the required clinical testing, an NDA is filed,
and its approval, which is required for marketing in the United States, involves
an extensive review process by the FDA. The NDA itself is a complicated and
detailed document and must include the results of extensive clinical and other
testing, the cost of which is substantial. While the FDA is required to review
applications within 180 days of their filing, in the process of reviewing
applications, the FDA frequently requests that additional information be
submitted and starts the 180-day regulatory review period anew when the
requested additional information is submitted. The effect of such request and
subsequent submission can significantly extend the time for the NDA review
process. Until an NDA is actually approved, there can be no assurance that the
information requested and submitted will be considered adequate by the FDA to
justify approval. The packaging and labeling of all Company developed products
are also subject to FDA regulation.

<PAGE>

It is impossible to anticipate the amount of time that will be required to
obtain approval from the FDA to market any product. The time period to obtain
FDA approval of the ANDA may range from approximately 12 to 36 months while that
for an NDA may range from 12 to 24 months.

Whether or not FDA approval has been obtained, approval of the product by
comparable regulatory authorities in any foreign country must be obtained prior
to the commencement of marketing of the product in that country. All marketing
in territories other than the United States shall be conducted through other
pharmaceutical companies based in those countries. The approval procedure varies
from country to country, can involve additional testing, and the time required
may differ from that required for FDA approval. Although there are some
procedures for unified filings for certain European countries, in general each
country has its own procedures and requirements, many of which are time
consuming and expensive. Thus, there can be substantial delays in obtaining
required approvals from both the FDA and foreign regulatory authorities after
the relevant applications are filed. After such approvals are obtained, further
delays may be encountered before the products become commercially available.

All facilities and manufacturing techniques used for the manufacture of products
for clinical use or for sale must be operated in conformity with Good
Manufacturing Practice ("GMP") regulations. In the event the Company shall
engage in manufacturing, it will be required to operate its facilities in
accordance with GMP regulations. If the Company shall hire another company to
perform contract manufacturing for it, it must take steps to ensure that its
contractor's facilities conform to GMP regulations.

Under the Generic Drug Enforcement Act, ANDA applicants (including officers,
directors and employees) who are convicted of a crime involving dishonest or
fraudulent activity (even outside the FDA regulatory context) are subject to
debarment. Debarment is disqualification from submitting or participating in the
submission of future ANDAs for a period of years or permanently. The Generic
Drug Enforcement Act also authorizes the FDA to refuse to accept ANDAs from any
company which employs or uses the services of a debarred individual. The Company
does not believe that it receives any services from any debarred person.

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

<PAGE>

Employees.
- ----------

The Company has six full-time employees (one hired after the March 31, 1998
year-end) and three part-time employees. Its full-time employees are engaged in
administrative, research and development; its part-time employees are engaged in
research and development. In addition, the company has one summer intern, hired
after the March 31, 1998 year-end. Elite Pharmaceuticals does not have any
employees except its President/CEO. Elite Labs believes its employee relations
to be satisfactory; it is not a party to any labor agreements and none of its
employees are represented by a labor union. Atul M. Mehta is the sole
significant employee of the Company at this time. In fiscal years 1998 and 1997,
his salary was allocated 75% to research and development at 25% to general
administrative.

Employee Incentive Stock Option Plan. On August 7, 1997, the shareholders of the
Elite Labs approved the Company's Incentive Stock Option Plan ("Plan"). The
purpose of the Plan is to promote the success of the Company by providing a
method wherein eligible employees may be awarded additional remuneration for
services rendered. The Plan provides that the maximum number of shares of Common
Stock reserved for awards thereunder shall be 625,000. The purpose of this stock
option plan (this "Plan") is to secure for the company and its stockholders the
benefits which flow from providing key employees and officers with the incentive
inherent in common stock ownership. The stock options granted under the Plan are
intended to qualify as incentive stock options within the meaning of Internal
Revenue Code Section 422. The total number of shares of common stock to be
subject to the options granted pursuant to the Plan shall not exceed 625,000
shares. The plan is administered by the Board of Directors. The purchase price
per share of Stock purchasable under options granted pursuant to the Plan shall
not be less than 100% of the fair market value at the time the options are
granted. The purchase price per share of Stock purchasable under options granted
pursuant to the Plan to a person who owns more than 10 percent of the voting
power of the company's voting stock shall not be less than 110% of the fair
market value at the time the options are granted. No option granted pursuant to
this Plan shall be exercisable after the expiration of ten years from the date
it is first granted. No option granted pursuant to this Plan to a person who
owns more than 10 percent of the voting power of the company's voting stock will
be exercisable after the expiration of five years from the date it is first
granted.

In September 1997, Atul M. Mehta was awarded options to purchase
125,000 shares of Common Stock under the Incentive Stock Option Plan. The
options were to vest over three years; however, under their terms, they vested
immediately at the time the Company undertook the registration of its
securities. The exercise price for the options is $7.00 per share. In addition,
as of April 1, 1998, 75,000 options were awarded under the Plan to Manish Shah.
The exercise price for Mr. Shah is $6.00; one-third of his options will vest on
April 1, 1999, and one-third on each April 1 thereafter until fully vested.

Legal Proceedings
- -----------------

Neither Elite Pharmaceuticals nor Elite Labs is involved in or the
subject of any current or aware of any pending legal proceedings, nor is any of
the property of either company the subject of any such legal proceedings.

<PAGE>

Property
- --------

The Company has recently completed the purchase of a piece of real
property and improvements, suitable for use as a laboratory and offices, and
located at 165 Ludlow Avenue, Northvale, New Jersey. The purchase price for the
property was $1,050,000. Elite Labs currently leases approximately 5,000 sq.ft.
at 230 W. Passaic Street, Maywood, New Jersey, at a rental of $62,832 per annum.
The lease term expires on October 30, 1998. Given the purchase of the new
premises, Elite will not undertake to extend or renew the lease, but will use
the time remaining on its lease to move its operations to the new facility. The
Company's operations are not dependent on any specific location.

Elite Pharmaceuticals is located at 230 W. Passaic Street, Maywood, NJ 07607; at
the time that the operations of Elite Labs move, Elite Pharmaceuticals will move
to the same location.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION OF THE COMPANY AND ITS SUBSIDIARY

Introduction

Elite Pharmaceuticals' predecessor , Prologica International, Inc., was
incorporated in the State of Pennsylvania on April 20, 1984. From the time of
its incorporation, and the completion of its initial public offering in August
1988, until the date of its merger with Elite Pharmaceuticals, Prologica engaged
in no business other than searching for suitable acquisitions. Except for Elite
Pharmaceuticals, it located no such acquisitions. Elite Pharmaceuticals was
incorporated in the State of Delaware on October 1, 1997, for the purpose of
merging with Prologica in order to change the name and state of incorporation of
Prologica. (Prior to the merger with Elite Pharmaceuticals, Prologica underwent
a three-for-one reverse split of its stock.) Elite Pharmaceuticals survived the
merger with Prologica; Prologica ceased to exist at the time of the merger on
October 24, 1997. Contemporaneous with the merger of Elite Pharmaceuticals and
Prologica, Elite Labs (described below) merged with a wholly owned subsidiary of
Prologica, HMF. HMF was incorporated on August 1, 1997 for the purpose of
providing a vehicle into which Elite Labs could merge. Elite Labs and HMF merged
on October 30, 1997. (Prior to the merger with HMF, Elite Labs underwent a
two-for-one forward split of its stock.) Elite Labs survived the merger with HMF
and HMF ceased to exist subsequent to the merger. The net result of the two
mergers is that Prologica and HMF have ceased to exist, and Elite
Pharmaceuticals owns one hundred percent of the stock of Elite Labs. Such stock
ownership is Elite Pharmaceuticals' sole business.

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

In a private placement concluding on November 30, 1997, Elite
Pharmaceuticals raised $6,000,000. The private placement offering consisted of
100 units, each unit consisting of 20,000 shares of common stock of the Company
and 10,000 warrants, each warrant entitling

<PAGE>

the holder to purchase one share of common stock at an exercise price of $6.00
per share during the five year period commencing with the date of closing of the
Private Placement (November 30, 1997). The price per unit was $60,000.

Elite Labs, now a wholly owned subsidiary of Elite Pharmaceuticals,
engages in the research, development, licensing, manufacturing and marketing of
both new and generic controlled-release pharmaceuticals products. Elite Labs is
a 100% owned subsidiary of Elite Pharmaceuticals, Inc. The Company has developed
six oral controlled release pharmaceutical products to varying states of the
development process. Elite Labs has granted an option on a one of its products
to a multinational company for the worldwide market, however the agreement does
not provide for any royalties or other payments to Elite Labs unless certain
conditions are met, which may or may not occur.

Elite Labs has also conducted several research and development projects
on behalf of several large pharmaceuticals companies. These activities have
generated only limited revenue for Elite Labs to date.

Elite Labs was founded by Dr. Atul M. Mehta who was Elite's President
and CEO. Dr. Mehta, who has extensive experience in controlled drug release
technology, is principally responsible for the development of all of Elite
Labs' products.

The Company intends to utilize the net proceeds from the private
placement offering of approximately $5,232,061 for research and development of
existing and new products, capital improvements, legal expenses and patent
filings, additional administrative and technical personnel, and general
corporate and working capital purpose.

Elite Labs expects that substantially all of its immediate and future
revenues will be dependent upon the sales and licensing of its current
controlled release pharmaceutical products, from the development of future new
products, and possibly from contract research and development work for other
companies.

Plan of Operations

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

To effectively achieve its goals, the Company has recently purchased an
office and laboratory facility in Northvale, New Jersey, and will be moving its
operations to the facility over the next months. This facility is larger and
better suited to Elite's needs than its prior,

<PAGE>

leased, space, and will increase the space available to conduct further research
and development and scale-up, and possibly for the eventual manufacturing of its
products.

Results of Consolidated Operations

Year Ended March 31, 1998 vs. Year Ended March 31, 1997.

Elite's revenues for the year ended March 31, 1998 were $51,958 a
decrease of $278,701 or approximately 84% over the comparable period of the
prior year. Net revenues primarily consisted of license fees of $20,000
(compared with $160,000 for the comparable period of the prior year), contract
research and development fees of $0 (compared with $153,000 for the comparable
period of the prior year), and consulting and test fees of $31,958 (compared
with $17,659 for the comparable period of the prior year).

General and administrative expenses for the year ended March 31, 1998
were $336,063 an increase of $179,392, or approximately 115% from the comparable
period of the prior year. The increase in general and administrative expenses
was substantially due to legal fees, consulting fees, salaries and interest paid
on a related party loan agreement. General and administrative expenses expressed
as a percentage of revenues was approximately 647% for the year ended March 31,
1998 as compared to 47% for the comparable period of the prior year.

Research and development costs for the year ended March 31, 1998, were
$541,164, an increase of $163,527, or approximately 43%, from the comparable
period of the prior year. The increase in research and development costs can be
attributed to increases in salaries, laboratory raw materials and supplies and
payments for biostudies on drug technologies developed by the Company. These
increases have been made possible principally because of the Company raising
equity in its recent private placement offering, and reflects increased efforts
to develop drug release products and technology in accordance with management's
plan of operations.

Elite's net loss for year ended March 31, 1998 was $788,591 as compared
to $260,111 for the comparable period of the prior year. The increase in the net
loss was primarily due to decreases in revenue derived from contract research
and development and licensing fees, and increased internal research and
development costs. The decrease in contract research and development fees
reflects a conscious decision on the part of the Company to turn away contract
work in order to be able to focus the resources of the Company on developing its
own proprietary products.

Liquidity and Capital Resources

From inception through March 31, 1997, cash flow from financing
activities principally came from the issuance of common stock, initially from a
private placement on August 15, 1991. Subsequently, the Company raised
additional funds from common stock issuance and received a loan from a related
party in the amount of $100,000. This loan was subsequently repaid during the
eight months ended November 30, 1997.

<PAGE>

During the fiscal year ended March 31, 1998, the Company raised an
additional $5,232,061 (net of offering costs of $767,939) in cash flows from
financing activities through the issuance of common stock and warrants in a
private placement offering beginning on September 15, 1997 and concluding on
November 30, 1997.

The Company estimates that the net proceeds from the private placement
offering will be sufficient to meet its cash requirements for a period of
between 18 and 24 months following the date of the closing of the private
placement offering. However, there can be no assurance that unexpected future
developments may result in the Company requiring additional financing or, that
if required, additional financing will be available to the Company.

For the year ended March 31, 1998, net cash of $739,l99 was used in
operating activities due to the Company's net loss of $788,591, decreased by
decreases in the Company's contract revenues receivable and increases in accrued
expenses and other liabilities. For the year ended March 31, 1997, net cash of
$211,550 was used in operating activities as a result of the Company's net loss
of $260,111.

CERTAIN TRANSACTIONS

Transactions With Management and Others.

Elite Laboratories, Inc. is a party to a three-year Consulting
Agreement entered into with Bridge Ventures, Inc. ("Bridge") on August 1, 1997,
under which Bridge provides the company with marketing and management consulting
services. Under the terms of the Consulting Agreement, Elite Labs pays Bridge
the sum of $10,000 per month and reimburses Bridge for all out-of-pocket
expenses incurred on behalf of Elite Labs. Bridge is an owner of at least five
percent of the Elite Pharmaceuticals' Common Stock, as described in more detail
in the section entitled Security Ownership of Certain Beneficial Owners and
Management.

Elite Pharmaceuticals, Inc. is a party to an agreement whereby fees are
paid to a company wholly owned by Mark Gittelman, the Company's Treasurer, in
consideration for services rendered by Mr. Gittelman in his capacity as
Treasurer. For the years ended March 31, 1998 and 1997, the fees paid to that
company were $18,338.00 and $9,715.00, respectively.

Other than as described above, the Company is not (and has not been in
the last two years) a party to any transaction in which any of the persons
described in Reg. Sec. 228.404(a) has or had a direct or indirect
material interest.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

<PAGE>

FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

Consolidated Financial Statements of Elite Pharmaceuticals, Inc. and Subsidiary

Fiscal Years Ending March 31, 1998 and 1997

Independent Auditor's Report

Consolidated Audited Balance Sheet

Consolidated Audited Statements of Operations

Consolidated Audited Statements of Cash Flows

Consolidated Audited Statements of Stockholders' Equity

Notes to Consolidated Financial Statements

<PAGE>

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

REPORT ON CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1998

F-1

<PAGE>

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

REPORT ON CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1998

CONTENTS

PAGE
----

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3

CONSOLIDATED BALANCE SHEET F-4

CONSOLIDATED STATEMENT OF OPERATIONS F-5

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY F-6

CONSOLIDATED STATEMENTS OF CASH FLOWS F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8 - F-18

F-2

<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors
Elite Pharmaceuticals, Inc.
Maywood, New Jersey

We have audited the accompanying consolidated balance sheet of Elite
Pharmaceuticals, Inc. and Subsidiary as of March 31, 1998, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the years ended March 31, 1998 and 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

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

In our opinion, the consolidated financial statements of the Company referred to
above present fairly, in all material respects, the financial position as of
March 31, 1998 and the results of their operations and their cash flows for the
periods presented in conformity with generally accepted accounting principles.

MILLER, ELLIN & COMPANY, LLP
CERTIFIED PUBLIC ACCOUNTANTS
May 28, 1998
New York, New York

F-3

<PAGE>

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

MARCH 31, 1998

ASSETS

CURRENT ASSETS:
Cash and cash equivalents $4,347,147
Consulting and test fees receivable 25,000
Prepaid expenses and other current assets 11,967
------
Total current assets 4,384,114

EQUIPMENT - net of accumulated
depreciation and amortization 107,481

INTANGIBLE ASSETS - net of accumulated amortization 18,216

OTHER ASSETS:
Deposits and related acquisition costs 132,057
$4,641,868

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current portion of capitalized lease obligation $42,331
Accounts payable 13,670
Accrued expenses and other current liabilities 26,824
------
Total current liabilities 82,825

CAPITALIZED LEASE OBLIGATION - net of current portion 47,021
Total liabilities 129,846

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Common stock - $.01 par value:
Authorized - 10,000,000 shares
Issued and outstanding - 7,237,613 shares 72,376
Additional paid-in capital 6,836,405
Accumulated deficit (2,396,759)
---------
Total stockholders' equity 4,512,022
$4,641,868

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

F-4

<PAGE>

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED
MARCH 31,
1998 1997
---- ----
REVENUES:
Licensing fees $ 20,000 $ 160,000
Contract research and development - 153,000
Consulting and test fees 31,958 17,659
------------ -------------
Total revenues 51,958 330,659
------------ -------------

OPERATING EXPENSES:
Research and development 541,164 377,637
General and administrative 336,063 156,671
Depreciation and amortization 25,160 35,701
------------ -------------
902,387 570,009
------------ -------------

LOSS FROM OPERATIONS (850,429) (239,350)
------------ -------------

OTHER INCOME (EXPENSE):
Interest income 86,794 852
Interest expense - related parties (9,956) (8,500)
------------ -------------
76,838 (7,648)
- --- ------------ -------------

LOSS BEFORE PROVISION FOR INCOME TAXES (773,591) (246,998)

PROVISION FOR INCOME TAXES 15,000 13,113
------------ -------------

NET LOSS $ (788,591) $(260,111)
============ ==========

NET LOSS PER COMMON SHARE $ (.13) $ (.06)
============ ==========

WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 5,858,238 4,685,149
============ ============

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

F-5

<CAPTION>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C>

ADDITIONAL TOTAL
*COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY

BALANCE AT MARCH 31, 1996 4,645,327 $46,453 $1,438,823 $(1,348,057) $137,219

Sale of securities 122,286 1,223 194,149 - 195,372
Net loss for the year ended
March 31, 1997 - - - (260,111) (260,111)
---- ---- ---- -------- ----------

BALANCE AT MARCH 31, 1997 4,767,613 47,676 1,632,972 (1,608,168) 72,480

Sale of securities 20,000 200 27,800 - 28,000
Sale of warrants - - 150 - 150
Sale of securities through
private placement 2,000,000 20,000 5,980,000 - 6,000,000
Offering costs in connection
with sale of securities - - (767,939) - (767,939)
Offering costs in connection
with registration of securities - - (32,078) - (32,078)
Common stock exchanged in
connection with merger 450,000 4,500 (4,500) - -
Net loss for the year ended
March 31, 1998 - - - (788,591) (788,591)
---- ---- ---- -------- --------

BALANCE AT MARCH 31, 1998 7,237,613 $72,376 $6,836,405 $(2,396,759) $4,512,022
========= ====== ========== =========== ==========

</TABLE>

* All references to shares and per share data have been restated for 1996 and
1997 to reflect a two for one stock split on August 21, 1997 and a reverse stock
split on March 30, 1998.

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

F-6

<PAGE>
<TABLE>
<CAPTION>
ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

<S> <C> <C>
YEARS ENDED
MARCH 31,

1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(788,591) $(260,111)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation 23,883 34,640
Amortization of intangibles 1,277 1,061
Deferred income taxes 14,800 12,900
Changes in assets and liabilities:
Consulting and test fees receivable (12,792) (3,408)
Prepaid expenses and other current assets (9,812) 5,951
Accounts payable 10,957 (824)
Accrued expenses and other
current liabilities 21,079 (1,759)
---------------- -------------

NET CASH USED IN OPERATING ACTIVITIES (739,199) (211,550)
---------------- -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for patent and trademark filings (2,100) -
Payment of building deposit and
related acquisition costs (123,057) -
Purchases of property and equipment (7,392) (6,704)
---------------- -------------

NET CASH USED IN INVESTING ACTIVITIES (132,549) (6,704)
---------------- -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable - related parties (100,000) -
Proceeds from issuance of common
stock and warrants 28,150 195,372
Proceeds from issuance of common
stock and warrants in connection
with private placement 6,000,000 -
Payments of offering costs in connection
with private placement (767,939) -
Payments of offering costs in connection
with registration filing (32,078) -
---------------- ----------

NET CASH PROVIDED BY FINANCING ACTIVITIES 5,128,133 195,372
---------------- -------------

NET CHANGE IN CASH AND CASH EQUIVALENTS 4,256,385 (22,882)

CASH AND CASH EQUIVALENTS - beginning 90,762 113,644
---------------- -------------

CASH AND CASH EQUIVALENTS - ending $ 4,347,147 $ 90,762
================ =============

SCHEDULE OF NON-CASH ACTIVITIES:
Purchase of property and equipment
by capital leases $ 89,352 $ -

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 11,240 $ 8,592
Cash paid for income taxes 200 213
</TABLE>

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

F-7

<PAGE>

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1998 AND 1997

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

Nature of Business

Elite Pharmaceuticals, Inc. was incorporated on October 1, 1997 under the Laws
of the State of Delaware, and its wholly-owned subsidiary Elite Laboratories,
Inc. was incorporated on August 23, 1990 under the Laws of the State of
Delaware, in order to engage in research and development activities for the
purpose of obtaining Food and Drug Administration approval, and, thereafter,
commercially exploiting generic and new controlled-release pharmaceutical
products. The Company also engages in contract research and development on
behalf of other pharmaceutical companies.

Merger Activities

In October 1997, concurrent with its private placement offering, Elite
Pharmaceuticals, Inc. merged with Prologica International, Inc. (APrologica@) (a
Pennsylvania Corporation (see Note 7), a publicly traded inactive corporation,
with Elite Pharmaceuticals, Inc. surviving the merger. In addition, in October
1997, Elite Laboratories, Inc. merged with a wholly-owned subsidiary of
Prologica, with the Company=s subsidiary surviving this merger. The former
shareholders of the Company=s subsidiary exchanged all of their shares of Class
A voting common stock for shares of the Company=s voting common stock in a tax
free reorganization under Internal Revenue Code Section 368. The result of the
merger activity qualifies as a reverse acquisition. In connection with the
reverse acquisition, options exercisable for shares of Class A voting and Class
B nonvoting common stock of the Company=s subsidiary were exchanged for options
exercisable for shares of the Company=s voting common stock.

On October 9, 1997, Prologica authorized a one for three reverse stock split,
which decreased the number of outstanding shares of common stock from 2,692,750
to 897,583 shares. The 20,000,000 shares of Prologica=s authorized common stock
remained unchanged.

Cash and Cash Equivalents

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

F-8

<PAGE>

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1998 AND 1997

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Equipment

Equipment is stated at cost. Depreciation is provided on the straight-line
method based on the estimated useful lives of the respective assets which range
from five to seven years. Major repairs or improvements are capitalized. Minor
replacements and maintenance and repairs which do not improve or extend asset
lives are expensed currently.

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

Research and Development

Research and development expenditures are charged to expense as incurred.

Patents and Trademarks

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

Concentration of Credit Risk

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

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

Use of Estimates

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

Income Taxes

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

F-9

<PAGE>

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1998 AND 1997

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Loss Per Common Share

The Company adopted SFAS No. 128, AEarnings Per Share,@ which establishes new
standards for computing and presenting earnings per share. The statement also
requires restatement of all prior period earnings per share data presented.

Net loss per common share is based on the weighted average number of shares
outstanding during the period. The weighted average number of shares outstanding
has been adjusted to reflect the recapitalization in connection with the private
placement as if it had occurred as of the beginning of the period for which loss
per share is presented as well as the effect of stock splits and reverse stock
splits issued during the periods. Common stock equivalents have not been
included as their effect would be antidilutive.

Revenue Recognition

Revenues are earned primarily by performing research and development services
under fixed price contracts. Such revenues are recorded as certain projected
goals are attained, as defined in the individual contract.

Recently Issued Pronouncements

SFAS No. 130, AReporting Comprehensive Income,@ requires an entity to report
comprehensive income and its components in a full set of financial statements
and is effective for fiscal years beginning after December 15, 1997.
Comprehensive income is the change in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources. The Company has elected to adopt SFAS No. 130 in 1999.

American Institute of Certified Public Accountants Statement of Position No.
96-1, AEnvironmental Remediation Liabilities,@ establishes specific criteria for
the recognition and measurement of environmental remediation liabilities. The
adoption of the statement in 1998 did not have a significant effect on the
Company=s financial condition or results of operations.

F-10

<PAGE>

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1998 AND 1997

NOTE 2 - EQUIPMENT

Equipment at March 31, 1998, consists of the following:

Laboratory equipment $ 270,884
Furniture and fixtures 8,521
Equipment under capital lease 94,714
----------
374,119
Less: Accumulated depreciation 266,638
$ 107,481

Depreciation expense amounted to $23,883 and $34,640 for the years ended March
31, 1998 and 1997, respectively.

NOTE 3 - INTANGIBLE ASSETS

Intangible assets at March 31, 1998, consists of the following:

Patents $ 13,384
Trademarks 7,170
----------
20,554
Less: Accumulated amortization 2,338
$ 18,216

Amortization amounted to $1,277 and $1,061 for the years ended March 31, 1998
and 1997, respectively.

NOTE 4 - CONTRACT FOR PURCHASE OF BUILDING

In February 1998, the Company entered into a contract to purchase a 15,000
square foot building to house its new office, laboratory and manufacturing
facility in Northvale, New Jersey. The contract purchase price is $1,050,000
plus certain closing and related acquisition costs. At March 31, 1998, the
Company paid a 10% deposit of $105,000 towards the purchase of the building in
addition to related acquisition costs and legal fees totaling $18,057. This
deposit and related costs totaling $123,057 are included in the consolidated
financial statements as of March 31, 1998 under other assets - deposits and
related acquisition costs.

On May 28, 1998, the Company purchased the building under contract.

F-11

<PAGE>

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1998 AND 1997

NOTE 5 - OBLIGATIONS UNDER CAPITAL LEASE

In March 1998, the Company acquired laboratory equipment under a capital lease
that expires on March 18, 2000. Lease obligations are due in monthly
installments of $4,146 including interest at approximately 10.5%. This lease is
collateralized by laboratory equipment with a net carrying value of $85,243 at
March 31, 1998.

Minimum future lease payments under this capitalized lease at March 31, 1998 is
as follows:

Year Ending March 31,

1999 $ 49,752
2000 49,750
----------
Total minimum lease payments 99,502
Less: Interest (10,150)
----------
Present value of minimum lease payments $ 89,352
==========

No interest has been expensed for the years ended March 31, 1998 and 1997.

NOTE 6 - INCOME TAXES

The components of provision for income taxes by taxing jurisdiction are as
follows:

1998 1997
- ----------------------------------------------- --------
Federal:
Current $ - $ -
Deferred 11,200 9,800
----------- -----------
11,200 9,800
- ----------------------------------------------- -----------
State:
Current 200 213
Deferred 3,600 3,100
----------- -----------
3,800 3,313
- ----------------------------------------------- -----------

$ 15,000 $ 13,113
=========== ===========

F-12

<PAGE>

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1998 AND 1997

NOTE 6 - INCOME TAXES (CONTINUED)

The major components of deferred tax assets at March 31, 1998 are as follows:

Net operating loss carryforwards $ 794,000
Valuation allowance (794,000)
-----------
$ -

At March 31, 1998, a 100% valuation allowance is provided as it is uncertain if
the deferred tax assets will be utilized.

At March 31, 1998, for income tax purposes, the Company has unused net operating
loss carryforwards of approximately $2,193,000 expiring in 1999 through 2013.

NOTE 7 - STOCKHOLDERS= EQUITY

Issuance of Common Stock

For the years ended March 31, 1998 and 1997, before its private placement
offering, the Company issued 142,286 shares of its common stock for a total of
$223,372. The shares were sold on various dates as follows:

Date Issued Shares Issued Amount

July 25, 1996 27,286 $ 54,572
October 24, 1996 13,000 26,000
March 20, 1997 82,000 114,800
May 20, 1997 20,000 28,000
-------- ----------
142,286 $ 223,372
======== ==========

During October 1997, in connection with the aforementioned Prologica merger,
450,000 shares of the Company's common stock were issued to the former
shareholders of Prologica.

Private Placement Offering

In a private placement concluding on November 30, 1997, the Company raised
$6,000,000 consisting of 100 units, each unit consisting of 40,000 shares of
common stock of the Company and 20,000 warrants, each warrant entitling the
holder to purchase one share of common stock at an exercise price of $3.00 per
share during the five year period commencing with the date of closing of the
private placement memorandum (November 30, 1997). The price per unit was
$60,000. This resulted in the issuance of 2,000,000 shares of common stock and
1,000,000 warrants to purchase common stock, at an exercise price of $6.00 per
share, after giving effect to the one for two reverse split on March 30, 1998.

The Company received net proceeds of $5,232,061 from the private placement after
underwriting costs, legal fees and sales commissions.

F-13

<PAGE>

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1998 AND 1997

NOTE 7 - STOCKHOLDERS' EQUITY (CONTINUED)

Placement Agent Agreement

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

a. Placement fees equal to ten percent (10%) of the gross proceeds. b.
Consulting fees in the amount of $3,000 per month. c. The issuance of ten
placement agent warrants, each made up of 20,000 shares of common stock and
10,000 warrants to purchase common stock, at an exercise price of $6.00 per
share, for a price of $72,000 per unit. Such warrants are exercisable for a
period of five years from the date of issuance.

For the year ended March 31, 1998, placement agent fees in the amount of
$618,000 have been charged to additional paid-in capital.

Warrants

The Company authorized the issuance of common stock purchase warrants, with
terms of five to six years, to various corporations and individuals, in
connection with the sale of securities, loan agreements and consulting
agreements. Exercise prices range from $4.00 to $6.00 per warrant. The warrants
expire at various times from August 1, 2002 to October 31, 2002.

A summary of warrant activity for the periods indicated were as follows:

1998 1997
--------- --------

Beginning balance 122,286 -
Warrants issued 1,745,000 122,286
Warrants exercised or expired - -
----------- ---------
Ending balance 1,867,286 122,286
=========== =========

There were no warrants exercised as of March 31, 1998.

F-14

<PAGE>

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1998 AND 1997

NOTE 7 - STOCKHOLDERS' EQUITY (CONTINUED)

Stock Split and Reverse Split

On August 21, 1997, Elite Laboratories, Inc. authorized a two for one stock
split, increasing its authorized common stock to 20,000,000 shares, and
increasing the number of outstanding shares of common stock from 4,787,613 to
9,575,226 shares.

On March 30, 1998, Elite Pharmaceuticals, Inc. authorized a one for two reverse
stock split, decreasing its authorized common stock to 10,000,000 shares, and
decreasing the number of outstanding shares of common stock from 14,475,226 to
7,237,613 shares.

Change in Authorized Common Shares

In May 1998, the Company increased the authorized common shares, par value $.01,
to 25,000,000.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

Lease

The Company leases its laboratory and office space in Maywood, New Jersey under
an operating lease, which expires on October 30, 1998, at $5,300 per month. The
leases provide for the landlord to pay all utility costs and for increases in
rent based on cost of living formulas. Future minimum payments under the lease
are as follows:

Year Ending March 31,

1999 $ 37,100
=========

Rent expense amounted to $63,240 and $62,083, for the years ended March 31, 1998
and 1997, respectively.

Employment Agreement

On February 11, 1998, the Company amended an employment agreement with its
President/CEO, originally entered into on May 23, 1991, and extended on December
28, 1995. The amended agreement runs for a term of five years through December
31, 2000. Minimum annual salary as of March 31, 1998 is as follows:

12 Months Ending December 31,

1998 (Remaining portion) $ 150,000
1999 210,000
2000 220,500
----------
$ 580,500

F-15

<PAGE>

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1998 AND 1997

NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

On December 31, 2000, this agreement will be automatically renewed for an
additional five years, unless written notice is given by December 31, 1999.
Annual compensation under the renewed agreement shall be equal to no less than
five percent (5%) of the previous years base salary.

Among other certain standard employee benefits, the agreement also provides for
the following:

a. Incentive commissions equal to five percent (5%) of net profit, as defined,
for each fiscal year. b. Options to purchase 520,214 shares of common stock at a
price of $2.00 per share, to be granted at the beginning of each calendar year
through December 31, 2000, in increments of 100,000 options each year. Such
options are exercisable from the date that they are granted through either one
year after termination of employment or ten years from the date of grant. c.
Incentive stock options to purchase 125,000 shares of common stock, at a price
of $7.00 per share. d. Certain additional compensation on termination as a
result of a change in control of the Company through the earlier of May 22, 2001
or three years following termination.

Compensation expense under this agreement amounted to $205,000 and $168,750 for
the years ended March 31, 1998 and 1997,
respectively.

Technology Agreement

On November 26, 1996, the Company entered into a formulation development
agreement with a multinational pharmaceutical company, which was subsequently
amended on May 23, 1997. The terms of the agreement provide for the right to
acquire the license of the developed product for sale, manufacture and
distribution worldwide, subject to licensing fees, royalties, and development
funds as defined, and annual royalty payments of net sales, as defined, subject
to minimum annual payments based on certain economic conditions.

As of March 31, 1998, this product has not yet reached a commercialization
stage.

On April 14, 1998, the Company terminated a development and license agreement,
originally entered into on September 21, 1993. In accordance with this
termination, the Company has retained all rights to the Aintellectual property,@
as defined in the agreement, including the rights to use, develop and market
such property.

On May 2, 1996, the Company entered into a research and development agreement to
undertake formulation of a new oral medication. The terms of the agreement
provide for revenues to be earned as certain projected goals, as defined in the
agreement, are attained.

F-16

<PAGE>

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1998 AND 1997

NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

Consulting Agreements

On August 1, 1997, the Company entered into two agreements with corporations
which provide various consulting services for a period of three years. Terms of
the agreements include the following:

a. Combined monthly fees of $15,000.
b. The issuance of 350,000 warrants to purchase common stock at an exercise
price of $6.00 per share for a period of five (5)years (see Note 7).

Consulting expenses under these agreements amounted to $120,000 for the year
ended March 31, 1998.

NOTE 9 - STOCK OPTION PLANS

Under various qualified and nonqualified plans, the Company may grant stock
options to officers, selected employees, as well as members of the board of
directors and advisory board members. The options must be granted at exercise
prices of not less than fair market value and expire within ten years from the
date of grant. All of these options are considered to be fully vested upon the
filing of the Company=s registration statement on Form SB-2 under the Securities
Act of 1933, as amended. Transactions under the various stock option and
incentive plans for the periods indicated were as follows:

Years Ended March 31, 1998 1997
--------------------- ------------- -----------

Outstanding at beginning of year 750,000 700,000
Granted 257,714 50,000
Exercised - -
----------- ---------
Outstanding at end of year 1,007,714 750,000
=========== =========

Options outstanding at March 31, 1998 and 1997 ranged in price from
$2.00 to $7.00. There were no options exercised as of
March 31, 1998.

F-17

<PAGE>

ELITE PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1998 AND 1997

NOTE 10 - PROPOSED PUBLIC OFFERING

The Company has filed a registration statement on Form SB-2 under the Securities
Act of 1933, as amended, for the purpose of registering securities previously
sold to and held by various corporations and individuals. Accordingly, the
Company will not receive any proceeds upon filing of Form SB-2.

The securities being registered consist of 3,725,000 shares of the Company's
$.01 par value common stock, including 1,525,000
redeemable common stock purchase warrants.

The Company incurred legal fees and other costs amounting to $32,078, in
connection with its public filing, which has been charged to additional paid-in
capital.

NOTE 11 - MAJOR CUSTOMERS

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

1998 1997
- ------------------------------------------------------------------------------

Customer A - 48.4%
Customer B 53.9% 46.4%
Customer C 38.5% -

As at March 31, 1998, consulting and test fees receivable from Customer B
amounted to $25,000, representing 100% of the total fees receivable.

F-18

<PAGE>
No dealer, salesperson, or any other person has been authorized to give any
information or to make any representations in connection with this offering
other than those contained in this Prospectus. Any information or presentations
not herein contained, if given or made, must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any security other than the securities
offered by this Prospectus, nor does it constitute an offer to sell or
solicitation for an offer to buy securities by any person in any jurisdiction
where such an offer or solicitation is not authorized, or in which the person
making such offer is not qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation. The delivery of this Prospectus
shall not, under any circumstances, create any implication that there has been
no change in the affairs of the Company since the date hereof.

TABLE OF CONTENTS

Prospectus Summary 3

Risk Factors 6

Selling Security Holders 13

Use of Proceeds 18

Dilution 18

Plan of Distribution 18

Management 20

Principal Shareholders 25

Description of Securities 27

Experts and Counsel 28

Description of Business 29

Management's Discussion and Analysis 35

Certain Transactions 38

Financial Statements 39

<PAGE>
`
3,725,000 VOTING COMMON SHARES
(includes 1,525,000 Common Shares Underlying
Class A Common Stock Purchase Warrants)
1,525,000 CLASS A COMMON STOCK PURCHASE WARRANTS

ELITE PHARMACEUTICALS, INC.

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

PROSPECTUS

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

August 14, 1998