Back to GetFilings.com



================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


-------------
FORM 10-K
-------------


[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the Fiscal Year Ended December 31, 2004.


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

For the transition period from _________ to _________.

COMMISSION FILE NUMBER 1-11352



ABLE LABORATORIES, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 04-3029787
--------------------------------- -------------------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

1 ABLE DRIVE 08512
CRANBURY, NJ ----------
- ---------------------------------------- (Zip Code)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)


Registrant's telephone number: (609) 495-2800

Securities registered pursuant to Section 12(b) of the Act: None

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

TITLE OF CLASS
--------------
Common Stock, $.01 par value

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].

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

Indicate by check mark whether the registrant is an "accelerated
filer" (as defined in Exchange Act Rule 12b-2). Yes [X] No [ ].

The aggregate market value of the common stock, $0.01 par value per
share held by non-affiliates, based on the last sale price of the common stock
on June 30, 2004, as reported on the Nasdaq National Market, was approximately
$351,337,648.

As of February 15, 2005, there were 18,425,119 outstanding shares of
common stock.
================================================================================


TABLE OF CONTENTS

Page No.
PART I.

Item 1. Business .................................................... 4
Item 2. Properties .................................................. 12
Item 3. Legal Proceedings ........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders.......... 13

PART II

Item 5. Market for Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities ....................... 14
Item 6. Selected Financial Data...................................... 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk... 24
Item 8. Financial Statements and Supplementary Data.................. 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures.................................. 25
Item 9A. Controls and Procedures...................................... 25

PART III

Item 10. Directors and Executive Officers............................. 47
Item 11. Executive Compensation....................................... 47
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters................. 47
Item 13. Certain Relationships and Related Transactions............... 47
Item 14. Principal Accountant Fees and Services....................... 47

PART IV

Item 15. Exhibits and Financial Statement Schedules................... 48

Signatures ............................................................. 52
Exhibit Index ............................................................. 53


DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement for its 2005
annual meeting of stockholders, which will be filed with the Securities and
Exchange Commission within 120 days after the end of the registrant's fiscal
year, are incorporated by reference into Items 10, 11, 12, 13 and 14 of this
Report.

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

Certain statements contained in this Annual Report on Form 10-K,
including information with respect to our future business plans, constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "plans," "expects," and similar expressions are intended to
identify forward-looking statements. There are a number of important factors
that could cause our results to differ materially from those indicated by such
forward-looking statements. We cannot guarantee any future results, levels of
activity, performance or achievements. Moreover, we assume no obligation to
update forward-looking statements or update the reasons actual results could
differ materially from those anticipated in forward-looking statements, except
as required by law. You should not place undue reliance on forward-looking
statements. Factors that may cause our actual results to differ materially from
the expectations we describe in our forward-looking statements

2


include those set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Item 7 of this report, under the heading
"Certain Factors That May Affect Future Results."

AVAILABLE INFORMATION

We file annual reports, quarterly reports, current reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any of our SEC filings at the SEC's public reference room
at 450 Fifth Street, N.W., Washington D.C. 20549. You may call the SEC at
1-800-SEC-0330 for further information about the public reference room. Our SEC
filings are also available to the public on the SEC's website at
http://www.sec.gov. Our principal internet address is www.ablelabs.com. Our
website provides a link to the SEC's website through which our annual, quarterly
and current reports, and amendments to those reports, are available free of
charge. We believe these reports are made available as soon as reasonably
practicable after we electronically file them with, or furnish them to, the SEC.




















3


PART I

ITEM 1. BUSINESS

INTRODUCTION

Able Laboratories, Inc., referred to in this Report as "Able," "we"
or "us," develops, makes and sells generic drugs. We manufacture and sell a
broad range of prescription pharmaceutical products in solid oral dosage and
suppository forms. Recently, we acquired a liquid dosage manufacturing company
and are now working on adding liquid dosage forms to our product line. Generic
drugs are the chemical and therapeutic equivalents of brand-name drugs. They
must meet the same governmental quality standards as the brand-name drugs they
replace, and they must meet all U.S. Food and Drug Administration, or FDA,
regulations before they can be made or sold. Generally, we can manufacture and
market a generic drug only if the patent or other government-mandated market
exclusivity period for the brand-name equivalent has expired. Generic drugs are
typically sold under their generic chemical names at prices significantly below
those of their brand-name equivalents.

We estimate that the U.S. generic or multi-source drug market
approximates $18 billion in annual sales. We believe that this market has grown
due to a number of factors, including:

o a significant number of widely prescribed brand-name drugs are at or near
the end of their period of patent protection, making it legally permissible
for generic manufacturers to produce and market competing generic drugs;

o managed care organizations, which typically prefer lower-cost generic drugs
to brand-name products, continue to grow in importance and impact in the
U.S. health care market;

o physicians, pharmacists and consumers increasingly accept generic drugs;
and

o the efforts of the federal government and local government agencies to
mandate increased use of generic drugs in order to lower the public cost of
purchasing necessary pharmaceutical products.

OUR STRATEGY

Our strategy is to focus on developing generic drugs that either
have large established markets or are niche products with limited or no
competition. We also intend to focus on products that have extended release
dosage forms, which are difficult to develop and, therefore, likely to face less
competition from other generic drug manufacturers. We also intend to leverage
our research and development efforts of our solid dosage and semi-solid
formulations by developing liquid formulations of some of our currently marketed
drugs. We believe that this approach will allow us to offer our customers a line
of products that reduces their overall acquisition cost.

BACKGROUND

We were organized in 1988 as a Delaware corporation under the name
DynaGen, Inc. In 1996, we acquired Able Laboratories, Inc., our generic drug
development and manufacturing business. In 1997 and 1998, respectively, we
acquired Superior Pharmaceutical Company ("Superior") and Generic Distributors,
Inc. ("GDI"), our former distribution operations.

Our distribution businesses sold mostly our competitors' products.
After careful analysis, we decided to divest our distribution operations and
continue as a generic drug development and manufacturing company selling only
our own products. We sold the assets of GDI on December 29, 2000 and sold
Superior on February 23, 2001. In 2001, after we completed the sale of the
distribution subsidiaries, we merged Able Laboratories, Inc. into DynaGen, Inc.
and changed our company name to "Able Laboratories, Inc." In November 2003, we
acquired substantially all the assets of LiquiSource, Inc., a privately-held
developer and manufacturer of prescription generic liquid pharmaceuticals.

4


In the section of this Report entitled "Certain Factors That May
Affect Future Results," we have described several risk factors that we believe
are significant. We consider each of these risks specific to us, although some
are industry or sector related issues that could also impact, to some degree,
other businesses in our market sector. You should give very careful
consideration to these factors when you evaluate our company.

PRODUCT LINE INFORMATION

We manufacture and market prescription generic drugs in the form of
tablets, capsules, suppositories and liquids. In November 2000 we received our
first FDA approval to manufacture and sell Diphenoxylate Hydrochloride and
Atropine Sulfate tablets. Our current FDA-approved products are listed below:

EQUIVALENT BRAND NAME
PRODUCT STRENGTH CLASS PRODUCT(1)(2)
- ------- -------- ----- -------------

Acetaminophen & Codeine Phosphate 300mg/30mg Analgesic Tylenol(R) with Codeine # 3
Tablets, USP CIII

Acetaminophen & Codeine Phosphate 300mg/60mg Analgesic Tylenol(R) with Codeine # 4
Tablets, USP CIII

Atenolol Tablets, USP 25mg, 50mg, 100mg Antihypertensive Tenormin(R)

Bethanechol Chloride Tablets, USP 5mg, 10mg, 25mg, Parasympathomimetic Urecholine(R)
50mg (Urinary Tract)


Butalbital, Acetaminophen, Caffeine 50mg/500mg/40mg Analgesic Esgic-PlusTM (2)
Tablets, USP

Butalbital, Acetaminophen, Caffeine 50mg/325mg/40mg Analgesic Fioricet(R) (2)
Tablets, USP

Butalbital, Acetaminophen, Caffeine 50mg/325mg/40mg/ Analgesic Fioricet(R) with codeine
and Codeine Phosphate Capsules CIII 30mg

Carisoprodol Tablets, USP 350mg Muscle Relaxant Soma(R) (2)

Clorazepate Dipotassium Tablets, USP CIV 3.75mg, 7.5mg, 15mg Anti-anxiety Tranxene(R) (2)

Dextroamphetamine Sulfate Extended- 5mg, 10mg, 15mg Stimulant Dexedrene(R) Spansules
Release Capsules CII

Diphenoxylate Hydrochloride and 2.5mg/0.025mg Anti-diarrheal Lomotil(R) (2)
Atropine Sulfate Tablets, USP CV

Hydrocodone Bitartrate and Acetaminophen 5mg/500mg Analgesic Vicodin(R)
Tablets, USP CIII

Hydrocodone Bitartrate and Acetaminophen 7.5mg/750mg Analgesic Vicodin ES(R)
Tablets, USP CIII

Hydrocodone Bitartrate and Acetaminophen 10mg/500mg, Analgesic Lortab(R)
Tablets, USP CIII 7.5mg/500mg

Hydrocodone Bitartrate and Acetaminophen 7.5mg/325mg, Analgesic Norco(R)
Tablets, USP CIII 10mg/325mg,
5mg/325mg

Hydrocodone Bitartrate and Acetaminophen 7.5mg/650mg, Analgesic Hydrocodone Bitartrate and
Tablets, USP CIII 10mg/650mg Acetaminophen Tablets, USP
(Lorcet(R) Plus)

5


EQUIVALENT BRAND NAME
PRODUCT STRENGTH CLASS PRODUCT(1)(2)
- ------- -------- ----- -------------

Hydroxyzine Hydrochloride Tablets, USP 10mg, 25mg, 50mg Antihistamine Hydroxyzine Hydrochloride
Tablets, USP

Hydrocortisone Acetate Suppository 25mg Corticosteriod (rectal) Anusol(R)

Indomethacin Capsules, USP 25mg, 50mg NSAID Indocin(R)

Indomethacin Extended-Release Capsules, USP 75mg NSAID Indocin(R) SR (2)

Lithium Carbonate Capsules, USP 300mg Antipsychotic ESKALITH(R) (2)

Lithium Carbonate Extended-Release 300mg Antipsychotic LITHOBID(R)
Tablets, USP

Lithium Carbonate Capsules, USP 150mg, 300mg, Antipsychotic Lithium Carbonate Capsules, USP
600mg

Methamphetamine HCl Tablets, USP 5mg CII 5mg Stimulant Desoxyn(R)

Methocarbamol Tablets, USP 500mg, 750mg Muscle Relaxant Robaxin(R)

Methylphenidate Hydrochloride Tablets, 5mg, 10mg and 20mg Stimulant Ritalin(R)
USP CII

Methylphenidate Hydrochloride Extended- 20mg Stimulant Metadate-SR(R) (2)
Release Tablets, USP CII

Metronidazole Tablets, USP 250mg, 500mg Antibiotic Flagyl(R)

Metronidazole Extended-Release Tablets 750mg Antibiotic Flagyl ER(R)

Metronidazole Capsules 375mg Antibiotic Flagyl(R) 375

Naproxen Sodium Tablets, USP 275mg NSAID Anaprox(R)

Naproxen Sodium Tablets, USP 550mg NSAID Anaprox (R) DS

Nitrotab(R) Nitroglycerin Sublingual 0.3mg, 0.4mg, 0.6mg Vasodilator Nitrostat(R)
Tablets, USP

Phenazopyridine HCl Tablets, USP 95mg, 100mg, 200mg Urinary Analgesic Pyridium(R)

Phentermine HCl Capsules, USP (beads) CIV 30mg Anorexiant Phentermine Hydrochloride
Capsules (2)

Phentermine HCl Capsules, USP (powder) CIV 15mg, 30mg Anorexiant Phentermine Hydrochloride
Capsules (2)

Phentermine HCl Tablets, USP CIV 37.5mg Anorexiant Adipex-P(R)

Prochlorperazine Suppositories, USP 2.5mg, 5mg, 25mg Antiemetic Compazine(R)

Promethazine HCl Suppositories, USP 12.5mg, 25mg, 50mg Antihistamine/Antiemetic Phenergan(R)

Promethazine Hydrochloride Tablets, USP 12.5mg, 25mg, 50mg Antihistamine/Antiemetic PHENERGAN(R)


6


EQUIVALENT BRAND NAME
PRODUCT STRENGTH CLASS PRODUCT(1)(2)
- ------- -------- ----- -------------

Propoxyphene Napsylate and Acetaminophen 100mg/650mg Analgesic Darvocet-N(R) (2)
Tablets, USP CIV

Salsalate Tablets, USP 500mg, 750mg NSAID Disalcid(R)

Theophylline ER Tablets 300mg, 450mg Antiasthmatic Theophylline Extended-Release
Tablets

Theophylline ER Tablets 400mg, 600mg Antiasthmatic Uniphyl(R)

- --------------------
(1) All brand names in the table above are trademarks or registered trademarks
of their respective owners.
(2) Refers to the reference listed drug. A reference listed drug (21 CFR
314.94(a)(3)) means the listed drug identified by the FDA as the drug
product upon which an applicant relies in seeking approval of its
Abbreviated New Drug Application.


RESEARCH AND DEVELOPMENT

We are working on developing additional generic products in the form
of tablets, capsules, suppositories and liquids. The research, development,
bioavailability testing and the FDA review process leading to approvals takes
approximately two years for each product. As discussed in the section titled
"Government Regulation," some products require no review or limited laboratory
testing, in which case the time required to complete the process can be less
than two years. Typically, our research and development activities consist of:

o identifying brand-name drugs for which patent protection has expired
or will expire in the near future;

o conducting research (including patent and market research) and
developing new product formulations based upon such drugs;

o developing and testing our formulations in laboratory and comparative
bioavailability (biostudies) in human subjects as necessary;

o compiling and submitting all the information to the FDA; and

o obtaining approval from the FDA for our new product formulations.

As part of the approval process, we contract with outside
laboratories to conduct biostudies that are required for FDA approval. We use
biostudies to demonstrate that the rate and extent of absorption of a generic
drug are not significantly different from that achieved by the corresponding
brand-name drug. These biostudies are subject to rigorous standards set by the
FDA. They may cost up to and, in limited cases, more than, $500,000 each and are
a significant part of the overall cost of our drug development work.

As of February 15, 2005, we have six Abbreviated New Drug
Applications ("ANDAs") pending approval at the FDA. Prior to FDA approval of an
ANDA, we may undergo an on-site inspection, known as a pre-approval inspection
or PAI, by the district office of the FDA. Between January 2001 and February 15,
2005, we have had several cGMP and pre-approval inspections, covering several
products. Our product development program includes several active projects in
various stages of completion. We intend to develop and file ANDA applications
covering additional products this year. We can, however, give no assurance that
we will receive approval from the FDA to market the products covered by these
pending and planned applications and, if we do, there is no assurance that we
will be able to penetrate the market and achieve reasonable levels of sales or
profits from the products.

7

For the fiscal year ended December 31, 2004, we spent $15,231,815 on
research and development activities, compared with $11,212,418 for the fiscal
year ended December 31, 2003 and $6,944,952 for the fiscal year ended December
31, 2002.

GENERIC DRUG PRICING

The generic drug industry is extremely competitive and there is
persistent downward pressure on price. Over the last two years the number of
competitors has increased as offshore manufacturers with lower operating costs
are entering the US market and are basically competing on price. With the
addition of each new competitor the price and market share equilibrium gets
affected and this results in further downward pressure on price and reduction in
gross margins. Occasionally the price can be even below cost which results in a
few manufacturers exiting the market. There is no assurance that even after this
the prices would increase. We routinely receive requests from our customers to
offer them competitive pricing on our existing business as they receive offers
for product at lower prices. This price erosion is expected to continue and may
even increase as lower cost producers cut prices further to achieve market
entry.

SALES AND MARKETING

Our products are sold primarily through direct sales efforts to drug
wholesalers, distributors and retail drug chains. We market our generic drug
products under our "Able Laboratories" label as well as under private label
arrangements. The majority of our sales are to customers who purchase under firm
purchase order commitments. Excluding seasonal trade show purchases, these
purchase orders range from $1,000 to $1,700,000 and are typically filled within
a few days to three months from the time we receive them. For 2004, sales to two
wholesalers, McKesson Corporation and Cardinal Health, were approximately 17%
and 12% of our sales, respectively. The gross dollar amount of backlog orders,
as of February 15, 2005, was approximately $7,500,000, compared to a backlog of
approximately $4,672,000 as of March 1, 2004. Because the level of our
customers' purchases can fluctuate over the course of an operating period,
backlog historically has not been a meaningful indicator of revenues for a
particular period or for future periods.

We have eight senior and experienced executives in our sales
department, supported by four associates. From January 2001 to January 2004 we
used Bi-Coastal Pharmaceutical Corporation ("Bi-Coastal") as our representative.
The agreement expired in January 2004 and was not renewed.

SUPPLIERS

We manufacture our generic products at our facilities in South
Plainfield, New Jersey. The principal components used in the manufacture of
generic products are active and inactive pharmaceutical ingredients and certain
packaging materials. The FDA must approve our sources for almost all of the
materials. In many instances, only one source may have been approved. We
purchase active raw material ingredients primarily from United States
distributors of bulk pharmaceutical materials manufactured by the U.S. or
foreign companies. If active raw materials from an approved supplier were to
become unavailable, we would have to file and obtain FDA approval of a
supplement to the applicable ANDA. Delays in obtaining new materials and new
regulatory approvals could result in the loss of revenues and could have a
material adverse effect on our business, financial condition and results of
operations.

MANUFACTURING FACILITIES

In 2004 we manufactured over 1.3 billion tablets, capsules, and
suppositories at our 6 Hollywood Court, South Plainfield, NJ manufacturing
operation. Our facilities currently consist of approximately 300,000 square feet
of manufacturing, warehousing, laboratory and office space contained in five
buildings, which includes our December 2003 purchase of 6 Hollywood Court. As a
result of our growth, in September 2003, we leased an additional 225,000 square
feet at 1 Able Drive in Cranbury, NJ. Our intention is to keep this and our
current manufacturing location at 6 Hollywood Court in South Plainfield, NJ as
the only two operating locations. We are in the process of exiting the locations
that served as our raw material, packaging material and finished goods
warehousing facilities.
8

1 Able Drive, Cranbury, NJ will be our primary manufacturing and
administrative facility. We started construction and leasehold improvements on
this facility in January 2004. Phase I of this project consisted of relocating
research and development, quality control, raw material and finished goods
warehousing, and all administrative offices to 1 Able Drive. We have completed
this phase and have approximately 50% of our workforce in this location. Over
the past two years, we have invested approximately $35,300,000 in property and
equipment, with the majority of the investment in 2004 at 1 Able Drive.

Phase II of the project includes building the manufacturing
infrastructure at 1 Able Drive. Work on phase II is proceeding to our
satisfaction and we expect to start manufacturing in this location in the second
quarter of 2005 and to transfer approximately 60 to 70% of our production by the
end of the third quarter 2005. We intend to continue to make additional
investments in our facilities and expect that our new manufacturing and
laboratory facilities will increase our capacity 300 to 400% from current
levels. See "Liquidity and Capital Resources" and "Certain Factors That May
Affect Future Results -- We may have difficulty managing our growth" below.

COMPETITION

We compete primarily with other generic manufacturers. Many of our
competitors have substantially greater financial resources than we have, as well
as other resources such as expertise in formulations of technologically advanced
delivery systems and marketing that are required to commercialize a
pharmaceutical product.

In the generic drug market, we compete with other off-patent drug
manufacturers, brand-name pharmaceutical companies that also manufacture
off-patent drugs, the original manufacturers of brand-name drugs, and
manufacturers of new drugs that may be used for the same indications as our
products.

Revenues and gross profit derived from generic drugs tend to follow
a pattern based upon regulatory and competitive factors unique to the generic
pharmaceutical industry. As patents for brand-name products and related
exclusivity periods mandated by regulatory authorities expire, the first generic
manufacturer to receive regulatory approval for generic equivalents of such
products is usually able to achieve relatively high revenues and gross profit.
As other generic manufacturers receive regulatory approvals on competing
products, prices and revenues typically decline. Accordingly, the level of
revenues and gross profit we can achieve from developing and manufacturing
generic products depends, in part, on our ability to develop and introduce new
generic products, the timing of regulatory approvals of our products, and the
number and timing of regulatory approvals of competing products.

Competition in the United States generic pharmaceutical market
continues to intensify as the pharmaceutical industry adjusts to increased
pressures to contain health care costs. Brand-name drug manufacturers are
increasingly selling their products into the generic market directly by
acquiring or forming strategic alliances with generic pharmaceutical companies.
No regulatory approvals are required for a brand-name manufacturer to sell
directly or through a third party to the generic market, nor do such
manufacturers face any other significant barriers to entry into such market.
These competitive factors may have a material adverse effect upon our ability to
sell our generic pharmaceutical products.

Recently several foreign companies, primarily from Europe and India,
have entered the US generic market. These companies have either established
manufacturing subsidiaries or have formed marketing alliances with some of the
leading US generic companies. Foreign companies, especially those from India,
enjoy lower manufacturing costs, labor costs and tax rates. They may also
leverage these advantages over U.S. manufacturers through backward integration,
by combining the research and development talent necessary to develop active
drug ingredients with the ability to efficiently make the finished dosage
products. The result is increased competition and downward pressure on prices.
In certain cases, foreign companies' prices could become so low that competing
U.S. companies could not profitably manufacture certain drugs and therefore be
forced to discontinue the products. The result is increased competition and
downward pressure on prices.

For these reasons, there can be no assurance that we will be able to
successfully compete in the generic drug business. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Certain Factors
That May Affect Future Results -- We face intense competition from other
manufacturers of generic drugs."
9

GOVERNMENT REGULATION

Our products and business activities are highly regulated,
principally by the FDA, the U.S. Drug Enforcement Administration, or DEA, state
governments and governmental agencies of other countries. Federal and state
regulations and statutes impose certain requirements on the testing,
manufacturing, labeling, storage, recordkeeping, approval, advertising and
promotion of our products. Failure to comply with applicable requirements can
result in judicially and administratively imposed sanctions, including seizure
of adulterated or misbranded products, injunctive actions, fines and criminal
prosecutions. Administrative enforcement measures can also involve product
recalls and the refusal by the government to approve new and/or abbreviated new
drug applications, known as NDAs, or ANDAs. In order to conduct clinical tests
and produce and market products for human therapeutic use, we must comply with
mandatory procedures and safety standards established by the FDA and comparable
state regulatory agencies. Typically, standards require that products be
approved by the FDA as safe and effective for their intended indications prior
to being marketed for human use. We believe that we are currently in compliance
with all applicable FDA requirements.

Because we purchase drug substances and manufacture and market drug
products containing controlled substances, we must meet the requirements and
regulations of the Controlled Substances Act which are administered by the DEA.
These regulations include stringent requirements for manufacturing controls and
security to prevent diversion of or unauthorized access to controlled substances
in each stage of the production and distribution process. The DEA also
regulates, based on our historical sales data, allocation of certain raw
materials that we use in the production of controlled substances. We believe
that we are currently in compliance with all applicable DEA requirements.

Reimbursement legislation, such as Medicaid, Medicare, Veterans
Administration and other programs, governs reimbursement levels. All
pharmaceutical manufacturers rebate to individual states a percentage of their
revenues arising from Medicaid-reimbursed drug sales. Generic drug manufacturers
currently rebate 11% of average net sales price for products marketed under
ANDAs. Makers of NDA-approved products are required to rebate the greater of
15.2% of average net sales price or the difference between average net sales
price and the lowest net sales price during a specified period. We believe that
the federal and state governments may continue to enact measures in the future
aimed at reducing the cost of drugs and devices to the public. We cannot predict
the nature of such measures or their impact on our profitability.

ANDA PROCESS

We must obtain FDA approval before we make or sell a generic
equivalent of an existing reference listed drug. We obtain such approvals by
submitting abbreviated new drug applications, or ANDAs. The process for
obtaining an ANDA approval is set by the provisions of the Hatch-Waxman Act of
1984, which established a statutory procedure for the submission, FDA review and
approval of ANDAs for generic versions of drugs previously approved by the FDA.
Each of our proposed generic drug products must be therapeutically equivalent to
the corresponding referenced listed drug. Generic drug products are considered
therapeutically equivalent if they are pharmaceutical equivalents, and meet the
requirements for bioequivalence, when required, and stability throughout the
proposed shelf life.

"Bioavailability" means the rate and extent of absorption and levels
of concentration of a drug product in the blood stream needed to produce a
therapeutic effect. "Bioequivalence" compares the bioavailability of one drug
product with another, and when established, indicates that the rate of
absorption and levels of concentration of a generic drug in the body are the
same as the previously approved reference listed drug. An ANDA may be submitted
for a drug on the basis that it is either the equivalent to a previously
approved referenced listed drug or a new dosage form that is suitable for use as
indicated in the approved labeling. The FDA waives the requirement of conducting
complete clinical studies of safety and efficacy and, instead, typically
requires the applicant to submit data illustrating that the generic drug
formulation is "bioequivalent" to a previously approved drug. For some drugs,
the FDA may require other means of demonstrating that the generic drug is
bioequivalent to the original drug product. The ANDA approval process on average
takes 16 to 18 months, though we have received approvals in less than a year,
and involves the expenditure of substantial resources.

10

The timing of final FDA approval of ANDA applications depends on a
variety of factors, including whether the ANDA applicant challenges any listed
patents for the drug and/or its use and whether the maker of the reference
listed drug is entitled to the protection of one or more statutory exclusivity
periods, during which the FDA is prohibited from approving generic equivalents.
The Hatch-Waxman Act establishes several such statutory exclusivity periods for
certain drugs. Exclusivity periods are available for both patented and
non-patented drug products, and in the case of patented drug products can extend
beyond the life of a patent, and so they can preclude submission, or delay the
approval, of a competing ANDA. Examples of these protections include:

o a provision allowing a five-year market exclusivity period for NDAs
involving new chemical compounds and a three-year market exclusivity
period for NDAs (including different dosage forms) containing data
from new clinical investigations essential to the approval of the
application;
o a provision that extends the term of a patent as compensation for
reducing the effective market life of the patent due to the time
involved in the FDA regulatory review process; and
o the so-called pediatric extension, whereby the FDA may extend an
existing exclusivity period or effectively extend the expiration date
of a patent for a given product by six months if the innovator company
submits studies demonstrating the effect of their product in sectors
of the pediatric population. More than one pediatric extension can be
obtained.

To obtain approval of ANDAs, we must also comply with the FDA's current Good
Manufacturing Practices, or cGMP, regulations, relating to the manufacture and
other processing of drugs. The FDA may inspect our facilities to assure
compliance prior to approving an ANDA application or at any other reasonable
time. To comply with the cGMP requirements, we must continue to expend
significant time and resources in the areas of development, production, quality
control and quality assurance.

Penalties for failure to comply with cGMP standards can include the
suspension of manufacturing approval, the seizure of drug products or the FDA's
refusal to approve additional applications. Penalties for wrongdoing in
connection with the development or submission of an ANDA were established by the
Generic Drug Enforcement Act of 1992, authorizing the FDA to permanently or
temporarily bar companies or individuals from submitting or assisting in the
submission of any new drug application. The FDA can also significantly delay the
approval of a pending ANDA under its "Fraud, Untrue Statements of Material
Facts, Bribery, and Illegal Gratuities Policy." The FDA may also suspend the
distribution of all drugs approved or developed in connection with certain
wrongful conduct and, under certain circumstances, also has the authority to
withdraw approval of a new drug application and to seek civil penalties. We do
not expect the law to have a material impact on the review or approval of our
ANDAs.

We currently manufacture and distribute several products that were
initially introduced to the U.S. market before 1938, and during the period
between 1938 and 1962. These products are referred to respectively as
"grandfather drugs" and Drug Efficacy Study Implementation, or DESI, drugs.
These products are not covered by an NDA or ANDA. They are, however, subject to
the same cGMP requirements as our NDA and ANDA products. While the FDA presently
allows the continued marketing of these products under certain conditions
(including defined ingredients, dosage levels, labeling content and indications
for use), the marketing status of these products could change as a result of the
FDA's continued implementation of the DESI process or development of formal
policies regarding the marketing of grandfather drugs.

The Prescription Drug User Fee Act of 1992, enacted to expedite drug
approval by providing the FDA with resources to hire additional medical
reviewers, imposes three types of user fees on manufacturers of NDA-approved
prescription drugs. Applicants that submit only ANDAs and most other off-patent
drug manufacturers, including Able, are not currently subject to any of the
three user fees. If we were to submit NDAs in the future, then we might be
subject to user fees.

We can give no assurance that we will obtain the requisite approvals
from the FDA for any of our proposed products or processes, that the process to
obtain such approvals will not be excessively expensive or lengthy, or that we
will have sufficient funds to pursue such approvals. Our failure to receive the
requisite approvals for our products or processes, when and if developed, or
significant delays in obtaining such approvals, would prevent us

11


from commercializing our products as anticipated and would have a materially
adverse effect on our business, financial condition and results of operations.
See "Certain Factors That May Affect Future Results -- Intense regulation by
government agencies may delay our efforts to commercialize our proposed drug
products."

PRODUCT LIABILITY INSURANCE COVERAGE

We presently maintain product liability insurance in the amount of
$10,000,000 for the products we market. The product liability insurance has a
$500,000 deductible. We also maintain product liability insurance for products
in clinical investigations. Although we intend to obtain product liability
insurance prior to the commercialization of certain products that are not
presently covered, we can give no assurance that we will obtain such insurance
at favorable rates, or that any such insurance, even if obtained, will be
adequate to cover potential liabilities. As a supplement to our product
liability insurance, we have added product recall insurance in the amount of
$1,000,000. The product recall insurance has a $100,000 deductible and covers
all costs associated with the recall in excess of the deductible, up to the
policy limit.

In the event of a successful lawsuit against us, insufficient
insurance coverage could have a materially adverse impact on our operations and
financial condition. Furthermore, the costs of defending or settling a product
liability claim and any attendant negative publicity may have a materially
adverse affect upon us, even if we ultimately prevailed. Furthermore, certain
food and drug retailers require minimum product liability insurance coverage as
a precondition to purchasing or accepting products for commercial distribution.
Failure to satisfy these insurance requirements could impede our ability to
achieve broad commercial distribution of our proposed products, which could have
a materially adverse effect upon our business and financial condition.

PROPRIETARY TECHNOLOGY

Our generic business relies upon unpatented trade secrets and
proprietary technologies and processes. There is no assurance that others will
not independently develop substantially equivalent proprietary information and
techniques, or gain access to our trade secrets or proprietary technology, or
that we can meaningfully protect unpatented trade secrets. We require employees,
consultants and other advisors to execute confidentiality agreements. However,
these agreements may not provide meaningful protection for our trade secrets, or
adequate remedies in the event of unauthorized use or disclosure of such
information. The manufacture and sale of certain of our products may also
involve the use of proprietary processes, products or information owned by
others. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Certain Factors That May Affect Future Results -- We
depend on third parties to supply the raw materials used in our products."

EMPLOYEES

As of February 15, 2005, we had 421 full-time employees, of whom 53
were employed in selling, general and administrative activities, 113 were
employed in quality roles, 81 were employed in research and development and 174
were employed in manufacturing. None of our employees is represented by a union.
We believe our relationship with our employees is good.

ITEM 2. PROPERTIES

Our principal executive offices are located at 1 Able Drive,
Cranbury, New Jersey, the location of our 225,000 square foot manufacturing,
research and development, and administrative facility.


SQUARE
ADDRESS FOOTAGE USE(S) LEASE EXPIRATION
- ------- ------- ------ ----------------

6 Hollywood Court 50,000 Manufacturing Owned
S. Plainfield, NJ

1 Able Drive 225,000 Manufacturing, Research & Development, September 16, 2015
Cranbury, NJ Administrative


12



5 Hollywood Court 12,700 Manufacturing, Research & Development June 14, 2005
S. Plainfield, NJ

200 Highland Ave. 2,580 Administrative Tenant-at-Will
Needham, MA

789 Jersey Ave. 10,400 Manufacturing October 31, 2005
New Brunswick, NJ


We believe that our present facilities are adequate to meet our
current needs. If new or additional space is required, we believe that adequate
facilities are available at competitive prices in the respective areas.

ITEM 3. LEGAL PROCEEDINGS

We are involved in certain legal proceedings from time to time
incidental to our normal business activities. While the outcome of any such
proceedings cannot be accurately predicted, we do not believe the ultimate
resolution of any existing matters should have a material adverse effect on our
financial position or results of operations.

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

No matters were submitted to a vote of our security holders during
the last fiscal quarter of the year ended December 31, 2004.
















13


PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES

(a) Market Price of Common Stock

Our common stock is traded on the Nasdaq National Market under the
symbol "ABRX." On February 15, 2005, based upon information from American Stock
Transfer & Trust Company, our transfer agent, there were approximately 1,786
holders of record of common stock. We believe that there are a substantial
number of additional beneficial owners that hold common stock in "street name"
through brokerage firms. The following table sets forth, for the periods
indicated, the range of quarterly high and low sale prices for the common stock
as reported on the Nasdaq SmallCap Market from January 1, 2003 to February 26,
2003 and on the Nasdaq National Market from February 27, 2003 to December 31,
2004.

COMMON STOCK
------------
HIGH LOW
---- ---
FISCAL 2003:
January 1 to March 31, 2003 $ 15.46 $ 10.00
April 1 to June 30, 2003 24.25 13.76
July 1 to September 30, 2003 25.32 18.70
October 1 to December 31, 2003 20.53 17.15

FISCAL 2004:
January 1 to March 31, 2004 20.74 15.60
April 1 to June 30, 2004 21.33 17.51
July 1 to September 30, 2004 22.10 17.78
October 1 to December 31, 2004 23.24 18.21


We have never paid dividends to common stockholders since inception
and do not intend to pay dividends to common stockholders in the foreseeable
future. We intend to retain earnings to finance our operations.

(b) Sales of Unregistered Securities

None.

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data set forth below has been derived from
our audited financial statements. The information set forth below should be read
in conjunction with the financial statements and notes thereto, as well as other
information contained in this Report which could have a material adverse effect
on our financial condition and results of operations. In particular, refer to
the matters described under the heading "Certain Factors That May Affect Future
Results" in this Report.





14


YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
2004 2003 2002 2001 2000
-------------------------------------------------------------
(In thousands, except per share data)

STATEMENT OF OPERATIONS DATA:
Sales, net..................................................... $ 103,194 $ 77,561 $ 52,930 $ 19,594 $ 31,456
Cost of sales.................................................. 51,434 41,355 27,362 12,533 25,711
--------- --------- --------- --------- ---------
Gross profit............................................. 51,760 36,206 25,568 7,061 5,745
Operating expenses............................................. 29,233 21,909 14,699 8,262 12,358
--------- --------- --------- --------- ---------
Operating income (loss).................................. 22,527 14,297 10,869 (1,201) (6,613)
Other income (expense), net.................................... (452) (397) (2,553) (3,272) (1,839)
--------- --------- --------- --------- ---------
Income (loss) before income taxes.............................. 22,075 13,900 8,316 (4,473) (8,452)
Income tax provision (benefit)................................. 7,423 5,412 (15,130) -- --
--------- --------- --------- --------- ---------
Net income (loss) ....................................... 14,652 8,488 23,446 (4,473) (8,452)
Returns to preferred stockholders.............................. (90) (275) (481) (9,060) (1,443)
--------- --------- --------- --------- ---------
Net income (loss) applicable to common stockholders...... $ 14,562 $ 8,213 $ 22,965 $ (13,533) $ (9,895)
========= ========= ========= ========= =========
Net income (loss) per share:
Basic.................................................... $0.84 $0.56 $1.98 $(1.57) $(1.89)
========= ========= ========= ========= =========
Diluted.................................................. $0.75 $0.46 $1.44 $(1.57) $(1.89)
========= ========= ========= ========= =========
Weighted average shares outstanding:
Basic.................................................... 17,402 14,709 11,588 8,629 5,232
========= ========= ========= ========= =========
Diluted.................................................. 19,433 18,375 16,322 8,629 5,232
========= ========= ========= ========= =========


AT DECEMBER 31,
-------------------------------------------------------------
2004 2003 2002 2001 2000
-------------------------------------------------------------
(In thousands)
BALANCE SHEET DATA:
Current assets................................................. $ 56,978 $ 51,698 $ 25,617 $ 11,304 $ 11,239
Total assets................................................... 104,291 85,364 51,128 17,638 16,914
Current liabilities............................................ 5,012 4,647 10,353 5,155 15,529
Long-term debt................................................. 3,000 3,935 6,083 2,291 2,700
Stockholders' equity (deficit)................................. 96,280 76,782 34,692 8,895 (1,315)
Working capital (deficit)...................................... 51,967 47,051 15,264 6,149 (4,290)


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

We develop, make and sell generic drugs. In 2005, we expect to
continue to increase our sales of generic drug products by attempting to
increase sales of our existing products and by obtaining approvals from the FDA
for new products. To accomplish these objectives, in 2003, we entered into a
long-term lease for our new facility in Cranbury, New Jersey, which we intend to
use for our solid and semi-solid dosage manufacturing operations and our
executive offices. In 2004, we moved our executive

15

offices to our new facility and we plan to move our manufacturing operations to
the new facility in 2005. Also, in 2003, we purchased the building and leasehold
improvements at our facility located at 6 Hollywood Court, South Plainfield, New
Jersey, where we currently house all of our manufacturing operation and which we
intend to use in the future for our liquids manufacturing business. See
"Liquidity and Capital Resources" below. In November 2003, we acquired
substantially all the assets of LiquiSource, Inc., a privately-held developer
and manufacturer of prescription liquid pharmaceuticals. We intend to continue
development of our liquids formulation ability and position ourselves to add
liquids products to our product line, through our utilization of the acquired
assets.

In the section of this Report entitled "Certain Factors That May
Affect Future Results," we have described several risk factors which we believe
are significant. We consider each of these risks specific to us, although some
are industry or sector related issues which could also impact, to some degree,
other businesses in our market sector. You should give very careful
consideration to these risks when you evaluate us.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our significant accounting policies are more fully described in Note
1 to our financial statements. However, certain of our accounting policies are
particularly important to the portrayal of our financial position and results of
operations and require the application of significant judgment by our
management. As a result, these policies are subject to an inherent degree of
uncertainty. In applying these policies, our management makes estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses and related disclosures. We base our estimates and judgments on our
historical experience, the terms of existing contracts, our observance of trends
in the industry, information that we obtain from our customers and outside
sources, and on various other assumptions that we believe to be reasonable and
appropriate under the circumstances, the results of which form the basis for
making judgments about our reported operating results and the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions. Our significant accounting policies include:

INVENTORIES. We state inventories at the lower of average cost or
market, with cost being determined based upon the first-in first-out method. In
evaluating whether inventory is to be stated at cost or market, management
considers such factors as the amount of inventory on hand, estimated time
required to sell existing inventory and expected market conditions, including
levels of competition. We establish reserves, when necessary, for slow-moving
and obsolete inventories based upon our historical experience and management's
assessment of current product demand. We evaluate the adequacy of these reserves
quarterly. If we were to determine that our inventory was overvalued based upon
the above factors, then we would have to increase our reserves.

REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE. We recognize revenue on
product sales when persuasive evidence of an arrangement exists, the price is
fixed and final, delivery has occurred and there is reasonable assurance that we
will collect the sales proceeds. We obtain written purchase authorizations from
our customers for a specified amount of product at a specified price and
consider delivery to have occurred at the time of shipment. Thus, we principally
recognize revenue upon shipment and, in certain cases, recognize revenue when
customers receive shipments.

ALLOWANCES FOR RETURNS AND PRICE ADJUSTMENTS. Our product revenues
are typically subject to agreements with customers allowing chargebacks,
rebates, rights of return, pricing adjustments and other allowances. Based on
our agreements and contracts with our customers, we calculate allowances for
these items when we recognize revenue and we book the allowances as reserves
against accounts receivable. Chargebacks, primarily from wholesalers, are the
most significant of these items. Chargebacks result from arrangements we have
with customers establishing prices for products for which the customers
independently select a wholesaler from which to purchase. A chargeback
represents the difference between our invoice price to the wholesaler, which is
typically stated at wholesale acquisition cost, and the end customer's contract
price, which is lower. We credit the wholesaler for purchases by end customers
at the lower price. Therefore, we record these chargebacks at the time we
recognize revenue in connection with our sales to wholesalers. We base these
reserves primarily on our contractual arrangements and, to a lesser extent,
historical chargeback experience. The majority of our sales are made to
wholesalers. For 2004, two wholesalers, McKesson Corporation and Cardinal
Health, accounted for approximately 17% and 12% of our sales, respectively. We
continually monitor the wholesaler inventory levels and the corresponding
reserve estimates and compensate for contractual changes, giving consideration
to our observations of current pricing trends and we make adjustments to our
provisions for chargebacks and similar items when we believe that the actual
credits will differ from our original provisions. To date, actual amounts have
not differed materially from our estimates.

16


Consistent with industry practice, we maintain a policy that allows
our customers to return product. Our estimate of the provision for returns is
based upon our historical experience with actual returns.

Price adjustments, also referred to as "shelf stock adjustments" are
credits issued to reflect decreases in the selling prices of our products which
our customer has remaining in its inventory at the time of the price reduction.
Decreases in our selling prices are discretionary decisions made by us to
reflect market conditions. Amounts recorded for estimated shelf stock
adjustments are based upon specified terms with direct customers, estimated
launch dates of competing products, estimated declines in market price and
inventory held by the customer.

ALLOWANCE FOR DOUBTFUL ACCOUNTS. We have historically provided
financial terms to customers in accordance with what management views as
industry norms. Financial terms, for credit-approved customers, are generally on
a net 30-60 day basis, though most customers are entitled to a prompt payment
discount. Management periodically and regularly reviews customer account
activity in order to assess the adequacy of allowances for doubtful accounts,
considering factors such as economic conditions and each customer's payment
history and creditworthiness. If the financial condition of our customers were
to deteriorate, or if they were otherwise unable to make payments in accordance
with management's expectations, we might have to increase our allowance for
doubtful accounts.

INCOME TAXES. Deferred tax assets and liabilities are recorded for
temporary differences between the financial statement and tax bases of assets
and liabilities using the currently enacted income tax rates expected to be in
effect when the taxes are actually paid or recovered. A deferred tax asset is
also recorded for net operating loss, capital loss and tax credit carryforwards
to the extent their realization is more likely than not. Generally, the deferred
tax benefit or expense for the period represents the change in the deferred tax
asset or liability from the beginning to the end of the period.

As of December 31, 2002, we had a net operating loss carryforward of
approximately $51.6 million for federal income tax purposes. During the fourth
quarter of 2002, management determined that it was more likely than not that
these benefits will be realized in future periods prior to expiration of the
carryforward period. Therefore, we recognized the related deferred tax asset for
this and other temporary differences, which resulted in an income tax benefit
that increased net income by $15,130,000, or $0.93 per diluted share, for 2002.
Since we recognized this tax benefit during the fourth quarter of 2002, we have
reported net income as if we were fully taxed. We do not, however, expect to pay
federal income taxes, other than the alternative minimum tax, until we fully
utilize our net operating loss carryforwards.

In the fourth quarter of 2004, management determined that it was
more likely than not that certain additional deferred income tax benefits will
be realized in the future. Therefore, we recognized additional income tax
benefits of $864,000, or $0.04 per diluted share, for 2004.

If, in future periods, we determine that we are not likely to
realize these tax benefits, then we would increase our reserve against the
asset, the amount of which would be deducted from income during the period in
which we increase the reserve.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31,
2003

SALES. Sales for the year ended December 31, 2004 were $103,193,652,
compared to $77,561,115 for the year ended December 31, 2003. The increase in
sales of $25,632,537, or 33%, is primarily due to a greater number of products
available for sale. In 2004, we received 16 FDA approvals for eight new product
families in 22 different product strengths. At December 31, 2004, we had 30
FDA-approved product families in 70 different product strengths available for
sale.

COST OF SALES. Cost of sales was $51,433,991, or 49.8% of sales, for
the year ended December 31, 2004, compared to $41,355,192, or 53.3% of sales,
for the year ended December 31, 2003. The increase in the gross profit

17

margin to 50.2% from 46.7% is primarily due to a favorable product mix including
sales of an increased number of first-to-market products.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the year ended December 31, 2004 were $14,001,498,
or 13.6% of net sales, compared to $10,696,864, or 13.8% of net sales, for the
year ended December 31, 2003. Our expenses increased by $3,304,634 for the year
ended December 31, 2004 compared to the prior year, primarily due to increases
in salaries and benefits, business insurance, and advertising expenses of
approximately $2,125,000, $631,000 and $1,747,000, respectively. These increased
expenses were partially offset by cost savings of approximately $890,000 and
$209,000 in sales commissions and investor relations fees, respectively. We
added several new employees during 2004 to support our growth effort. The
increased expenses for business insurance relate to increased product sales
which require additional insurance coverage. We increased our presence at a
number of industry trade shows, in addition to increasing our marketing and
promotional expenses. The cost reductions are the direct result of our increased
focus on reducing our dependence on third party vendors. The expiration of our
sales agreement with Bi-Coastal Pharmaceutical Corporation contributed to the
commissions cost savings. Our decision to move the majority of our investor
relations activities in-house resulted in the investor relations cost savings.
As of December 31, 2004, we had 50 full-time employees in selling, general and
administrative positions compared to 38 full-time employees in similar positions
at December 31, 2003.

RESEARCH AND DEVELOPMENT. Research and development expenses for the
year ended December 31, 2004 were $15,231,815, or 14.8% of net sales, compared
to $11,212,418, or 14.5% of net sales, for the year ended December 31, 2003. A
significant portion of these expenses relate to research which is currently
being conducted to develop generic drugs. The increase of $4,019,397 is
primarily due to an increase in salaries expense of approximately $2,043,000, as
well as milestone payments to raw material suppliers and independent contract
research organizations working with us to develop new products and biostudies
and outside assays of approximately $726,000. The balance of the increase,
approximately $1,250,000, is due to increased activity in supporting a higher
number of research projects, offset by various cost savings in other areas.
These support activities include quality assurance, stability testing and
regulatory support. We received FDA approval for 16 new products during the year
ended December 31, 2004. As of December 31, 2004, we had six ANDA applications
pending approval with the FDA.

OPERATING INCOME. Our operating income for the year ended December
31, 2004 increased by $8,229,707 to $22,526,348, compared to operating income of
$14,296,641 for the year ended December 31, 2003. The increase in operating
income resulted from increased net sales and gross margins, which exceeded the
greater operating expenses incurred to support our continued growth.

OTHER INCOME (EXPENSE). Interest and financing expenses for the year
ended December 31, 2004 were $188,463, compared to $543,849 for the year ended
December 31, 2003. Our interest and financing expenses decreased by $355,386.
Interest expense decreased as we paid down debt obligations in July 2003 with
our June 2003 private placement proceeds and as we paid off $1,030,000 in New
Jersey Economic Development Authority bonds and unsecured notes payable of
$150,000 in May 2004 and June 2004, respectively. Miscellaneous income (expense)
was $(144,612) for the year ended December 31, 2004, compared to $388,755 for
the year ended December 31, 2003. The decrease is primarily due to a decrease of
$238,045 in interest income on the RxBazaar note receivable and decreased
interest on cash balances.

INCOME TAXES. Income tax expense for the year ended December 31,
2004 was $7,423,000, compared to income tax expense of $5,412,000 for the year
ended December 31, 2003. Our effective tax rate for the year ended December 31,
2004 and 2003 was 33.6% and 38.9%, respectively. The decrease in our effective
tax rate is due to a lower effective rate for state taxes, adjustment of the
valuation allowance, and the recognition of $864,000 of additional deferred
income tax benefits. The recognition of the additional deferred income tax
benefits increased diluted earnings per share by $0.04. Our income tax expense
is primarily a non-cash expense. We do not expect to pay federal income tax,
other than the alternative minimum tax, until we fully utilize our net operating
loss carryforwards.

NET INCOME. We recorded net income of $14,651,833 for the year ended
December 31, 2004, compared to net income of $8,487,548 for the year ended
December 31, 2003. We recorded net income applicable to common stockholders of
$14,562,191, or $0.84 per share, for the year ended December 31, 2004, compared
to net income

18


applicable to common stock of $8,212,989, or $0.56 per share, for the year ended
December 31, 2003. Diluted earnings per share were $0.75 for the year ended
December 31, 2004, compared to diluted earnings per share of $0.46 for the year
ended December 31, 2003.

YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31,
2002

SALES. Sales for the year ended December 31, 2003 were $77,561,115,
compared to $52,930,121 for the year ended December 31, 2002. The increase in
sales of $24,630,994, or 46.5%, is primarily due to a greater number of products
available for sale as well as higher demand for our products. From June 30, 2001
to December 31, 2003, we have received FDA approval for 17 new product families
in 39 different product strengths. During the year ended December 31, 2003, we
had 22 FDA approved product families in 48 different strengths available for
sale, compared to 14 FDA approved product families in 30 different strengths
available for sale during the year ended December 31, 2002.

COST OF SALES. Cost of sales was $41,355,192, or 53.3% of sales, for
the year ended December 31, 2003, compared to $27,361,610, or 51.7% of sales,
for the year ended December 31, 2002. The decrease in the gross profit margin to
46.7% from 48.3% is primarily attributable to sub-optimal utilization of our
manufacturing capacity in the first quarter of 2003. A part of our capacity
expansion, our 6 Hollywood Court manufacturing facility underwent substantial
reconfiguration resulting in downtime and unabsorbed labor costs and other
overhead in the first quarter of 2003. All current manufacturing upgrades,
relocations and additional equipment installations to this location are now
complete, allowing us to resume normal manufacturing operations. However, we
continue to face labor inefficiencies due to capacity constraints within the 6
Hollywood Court manufacturing facility. These inefficiencies also contributed to
the decrease in gross profit margin. Finally, the 2003 product mix also
contributed to the decline in gross profit margins.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the year ended December 31, 2003 were $10,696,864,
compared to $7,754,153 for the year ended December 31, 2002. Our expenses
increased by $2,942,711 for the year ended December 31, 2003 compared to the
prior year. The increase is primarily due to increases in salaries and benefits,
sales commissions, advertising and trade show expenses, and professional fees of
approximately $667,000, $223,000, $1,389,000 and $663,000, respectively. As of
December 31, 2003, we had 38 full-time employees in selling, general and
administrative positions compared to 35 full-time employees in similar positions
at December 31, 2002. We expect to add additional employees in the future to
support our anticipated sales growth.

RESEARCH AND DEVELOPMENT. Research and development expenses for the
year ended December 31, 2003 were $11,212,418, compared to $6,944,952 for the
year ended December 31, 2002. A significant portion of these expenses relate to
research which is currently being conducted to develop generic drugs. The
increase of $4,267,466 is primarily due to an increase in laboratory supplies,
milestone payments to raw material suppliers working in conjunction with us to
develop new products and biostudies conducted by independent contract research
organizations of approximately $282,000, $1,110,000 and $658,000, respectively.
The balance of approximately $2,217,000 is due to increased activity in
supporting a higher number of research projects. These support activities
include quality assurance, stability testing and regulatory support. At this
time approximately 40 quality and regulatory employees are providing the support
function for the primary research and development activity. As of December 31,
2003, we had 16 new products pending approval with the FDA and expect to
increase our research and development activities for a broad range of products
over the next several months.

OPERATING INCOME. Our operating income for the year ended December
31, 2003 increased by $3,427,235 to $14,296,641, compared to our operating
income of $10,869,406 for the year ended December 31, 2002. The increase in
operating income resulted from increased net sales and gross margins, which
exceeded the greater operating expenses incurred to support our continued
growth.

OTHER INCOME (EXPENSE). Interest and financing expenses for the year
ended December 31, 2003 were $543,849, compared to $517,723 for the year ended
December 31, 2002. Other expenses also includes a $241,999 loss on early
retirement of debt. Miscellaneous income of $388,755 for the year ended December
31, 2003 primarily consists of interest income from cash deposits resulting from
the sale of common stock and the RxBazaar note receivable partially offset by
miscellaneous expenses.

19


INCOME TAXES. As of December 31, 2002, we had a net operating loss
carryforward for federal income tax purposes of approximately $51.6 million.
During the fourth quarter of 2002, management determined that it was more likely
than not that these benefits will be realized in future periods prior to
expiration of the carryforward period. Therefore, we recognized the related
deferred tax asset for this and other temporary differences, which resulted in a
net income tax benefit that increased net income by $15,130,000, or $0.93 per
diluted share, for 2002.

Income tax expense for the year ended December 31, 2003 was
$5,412,000 or $0.29 per diluted share and our effective tax rate was 38.9%.
Because of our ability to use the net operating loss carryforwards, our income
tax expense is primarily a non-cash expense. We do not expect to pay federal
income taxes, other than the alternative minimum tax, until we fully utilize our
net operating loss carryforwards.

NET INCOME. We recorded net income of $8,487,548 for the year ended
December 31, 2003, compared to net income of $23,445,940 for the year ended
December 31, 2002. We recorded net income applicable to common stockholders of
$8,212,989, or $0.56 per basic share, for the year ended December 31, 2003,
compared to net income applicable to common stock of $22,964,797, or $1.98 per
basic share, for the year ended December 31, 2002. Diluted earnings per share
were $0.46 for the year ended December 31, 2003, compared to diluted earnings
per share of $1.44 for the year ended December 31, 2002.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2004, we had working capital of $51,966,837,
compared to working capital of $47,050,765 at December 31, 2003. Cash was
$11,650,886 as of December 31, 2004, compared to $20,065,248 at December 31,
2003. The $4,916,072 increase in our working capital is primarily due to our net
income of $14,651,833 for the year ended December 31, 2004, non-cash expenses
for deferred taxes, depreciation and amortization of $9,535,073 and net proceeds
of $2,174,719 received on exercise of options and warrants being offset by our
additional investment of $24,277,008 in property and equipment. The repayment of
our New Jersey Economic Development Authority bonds in May 2004 decreased
working capital by $409,000 as we used deposits held by the bond trustee to
repay the majority of the outstanding $1,030,000 debt. We expect to make
additional investments of approximately $5,000,000 in property and equipment in
2005. Most of the expected additional investments in 2005 will be made on our
newly leased Cranbury manufacturing facility. Our new facility should allow us
to expand our current manufacturing capabilities and alleviate certain current
manufacturing constraints. In addition, the new facility should allow us to
consolidate a portion of our existing operations upon expiration of current
lease obligations.

Other significant changes in our working capital components in 2004
include increases of $9,252,357 in accounts receivable and $1,502,667 in
inventory. The 107% increase in accounts receivable is primarily due to the
$8,683,547 increase in sales for the fourth quarter of 2004 compared to the
fourth quarter of 2003. The accounts receivable allowance at December 31, 2004
includes allowances for customer chargebacks, rebates, returns, other pricing
adjustments and doubtful accounts. Our allowance consists primarily of
allowances stipulated by contracts with major drug wholesalers that are
customary in the generic drug industry. We establish these allowances as we
recognize the sales and monitor these allowances on an ongoing basis. To date,
actual amounts have not differed materially from our estimates. The increase in
inventory was primarily due to an increase of $1,372,292 in raw materials
necessary to support our increased level of production to meet sales increases.
Management expects accounts receivable and inventory will continue to increase
over the near term as sales continue to increase. Our stated working capital,
accounts receivable and inventory values depend on various estimates and
judgments of management. See "Critical Accounting Policies."

During the year ended December 31, 2003, we sold 1,627,500 shares of
common stock for gross proceeds of $30,922,500 and converted $2,150,000 of
unsecured notes payable into common stock. The remaining proceeds from the
issuance of common stock are being used for our planned investments in property
and equipment and the expansion of our research and development activities.

On March 2, 2004, we entered into a new $20 million revolving credit
agreement with our existing lender. This new revolver replaced the existing
revolving credit facility of $10 million. The new revolver bears interest at
LIBOR plus 1.25% based upon our current leverage ratio and requires no monthly
principal payments. In addition,

20


the new revolver is expandable to $30 million upon our request and the approval
of the bank. The revolver matures in March 2007.

A summary of our contractual obligations at December 31, 2004 is as
follows:


PAYMENTS DUE BY PERIOD
CONTRACTUAL ---------------------------------------------------------------
OBLIGATIONS TOTAL 2005 2006-2007 2008-2009 AFTER 2009
----------- ---------- ---------- ---------- ----------

Debt Obligations $ 3,000,000 $ -- $3,000,000 $ -- $ --

Operating Leases 14,107,438 1,560,540 2,620,667 2,575,264 7,350,967
----------- ---------- ---------- ---------- ----------
Total $17,107,438 $1,560,540 $5,620,667 $2,575,264 $7,350,967
=========== ========== ========== ========== ==========


In addition to the contractual obligations listed in the above
chart, at December 31, 2004 we had several open purchase orders for raw
materials, supplies, and ongoing construction activities. We do not believe the
open purchase orders were materially significant, either individually or in
aggregate, and are a normal part of our daily operations.

We expect to fund our working capital needs from operations and from
amounts available from borrowings under our secured working capital credit
facility. If we need additional working capital to fund future expansion, we
will seek an increase in our line of credit or other debt financing before
selling additional equity securities, although there is no guarantee that we
will be able to secure such financing.

ENVIRONMENTAL LIABILITY

We have no known material environmental violations or assessments.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 123R, Share-Based Payment
("SFAS No. 123R"). SFAS No. 123R establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. This statement focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions.
SFAS No. 123R requires that the fair value of such equity instruments be
recognized as an expense in the historical financial statements as services are
performed. Prior to SFAS No. 123R, only certain pro forma disclosures of fair
value were required. The statement also expands the models that are allowed in
calculating the expense. SFAS No. 123R is effective for public entities that do
not file as small business issuers as of the beginning of the first interim or
annual reporting period that begins after June 15, 2005. Accordingly we will
adopt the provisions of this statement commencing with the quarter ending
September 30, 2005. If we had included the fair value of employee stock options
in our financial statements, our net income for the years ended December 31,
2004, 2003 and 2002 would have been as disclosed in Note 1 to our audited
financial statements. Accordingly, the adoption of SFAS No. 123R is expected to
have an effect on our financial statements.

In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 151 ("SFAS No. 151") Inventory Costs - an Amendment of ARB No. 43,
Chapter 4. SFAS No. 151 clarifies the accounting for inventory when there are
abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials. Under existing accounting principles, items such as idle facility
expense, excessive spoilage, double freight, and re-handling costs may be "so
abnormal" as to require treatment as current period charges rather than recorded
as adjustments to the value of the inventory. SFAS No. 151 requires that those
items be recognized as current-period charges regardless of whether they meet
the criterion of "so abnormal." In addition, this statement requires that
allocation of fixed production overheads to the costs of conversion be based on
the normal capacity of the production facilities. The provisions of this
statement shall be effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. The adoption of SFAS No. 151 is not expected to
have a material effect on our financial position or results of operations.

21


CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH.

We have been experiencing a period of rapid growth that has placed a
strain on our resources. Revenue from our operations for the year ended December
31, 2004 increased by 33% to $103,193,652. The number of our employees increased
from 95 in March 2001 to 421 as of February 15, 2005. We anticipate that our
revenues and business activities will continue to grow in 2005. To manage future
growth effectively, we must maintain and enhance our financial and accounting
systems and our manufacturing processes and compliance programs, as well as the
operational and administrative tasks associated with integrating new personnel
and managing expanding operations. The challenges inherent in managing growth
are significant. If we are unable to meet these challenges, we could experience
a material adverse effect on the quality of our products, our ability to retain
key personnel, our operating results and financial condition.

IF WE ARE UNABLE TO RETAIN OUR KEY PERSONNEL OR CONTINUE TO ATTRACT
ADDITIONAL QUALIFIED PROFESSIONALS WE MAY BE UNABLE TO CARRY OUT OUR PLANS
TO MAINTAIN OR EXPAND OUR BUSINESS.

Our future success depends, to a significant degree, on the skill,
experience and efforts of our chief executive officer and the other members of
our senior management team. The loss of any member of our senior management team
could have a material adverse effect on our business. Also, because of the
nature of our business, our ability to develop new generic drug products and to
compete with our current and future competitors depends to a large extent upon
our ability to attract and retain qualified scientific, technical and
professional personnel. The loss of key scientific, technical or professional
personnel or our failure to recruit additional key personnel could materially
and adversely affect our business. There is intense competition for qualified
personnel in the areas of our activities, and we cannot assure you that we will
be able to continue to attract and retain the qualified personnel necessary for
the development of our business.

WE FACE INTENSE COMPETITION FROM OTHER MANUFACTURERS OF GENERIC DRUGS.

In order to succeed in the generic drug business, we need to achieve
a significant share of the market for each generic drug we market. The generic
drug manufacturing and distribution business is highly competitive. We compete
with several companies that are better capitalized than we are and that have
financial and human resources significantly greater than ours. Because we
manufacture generic drugs, our products, by their very nature, are chemically
and biologically equivalent to the products of our larger and profitable
competitors. Also, we believe that, as a rule, the first one or two companies to
bring a generic alternative to the market will capture the highest market share
for that product. We intend to compete by, among other things, being the first
to market certain new generic drug products. These larger companies, with their
greater resources, could bring products to market before us and could capture a
significant share of the market at our expense, preventing us from executing
this business strategy.

Recently several foreign companies, primarily from Europe and India,
have entered the U.S. generic market either by establishing manufacturing
subsidiaries or by forming marketing alliances with U.S. generic companies.
Foreign companies, especially those from India, enjoy lower manufacturing costs,
labor costs and tax rates. They may also leverage these advantages over U.S.
manufacturers through backward integration, by combining the research and
development talent necessary to develop active drug ingredients with the ability
efficiently to make the finished dosage products. The result is increased
competition and downward pressure on prices. In certain cases, foreign
companies' prices could become so low that competing U.S. companies could not
profitably manufacture certain drugs and therefore be forced to discontinue the
products. Almost all these companies also operate in less stringent patent and
intellectual property protection environments and lead US companies in R&D
timings. These factors are present in the US generic drug industry today and are
likely to have continued increasing influence, resulting in intensified
competition, lower prices and lower margins industry-wide over the next several
years. We may seek opportunities to form an alliance with one or more foreign
companies. Whether we would succeed in forming such an agreement, and the exact
nature of any such arrangement, is unknown.

22


OUR REVENUES AND GROSS PROFIT FROM INDIVIDUAL GENERIC DRUG PRODUCTS ARE
LIKELY TO DECLINE AS COMPETING FIRMS INTRODUCE THEIR OWN GENERIC
EQUIVALENTS.

Revenues and gross profit derived from generic drug products tend to
follow a pattern based on regulatory and competitive factors that we believe to
be unique to the generic pharmaceutical industry. As patents or other
exclusivity periods for brand name products expire, the first generic
manufacturer to receive regulatory approval for a generic equivalent of the
product often is able to capture a substantial share of the market. However, as
other generic manufacturers receive regulatory approvals for the product, the
first manufacturer's market share and the price of the product will typically
decline. Therefore, our revenues and gross profits from individual generic
pharmaceutical products are likely to decline over time as a result of increased
competition. We can give no assurance that we will be able to develop new
generic drug products that we believe will be necessary to achieve sufficient
gross profit margins.

IN SOME CIRCUMSTANCES, WE MAY RETROACTIVELY REDUCE THE PRICE OF PRODUCTS
THAT WE HAVE ALREADY SOLD TO CUSTOMERS BUT THAT HAVE NOT BEEN RESOLD BY
SUCH CUSTOMERS.

In some circumstances, we may issue to our customers credits for
products that we previously sold to them but that have not been resold by them.
These credits effectively constitute a retroactive reduction of the price of
products already sold. We estimate and record reserves with respect to these
potential credits based on historical experience, our observations of buying
patterns and current pricing trends. Actual credits claimed by our customers
could differ significantly from those estimates.

OUR ABILITY TO DEVELOP LIQUID FORMULATIONS IS UNPROVEN.

In November 2003, we acquired the assets of LiquiSource, Inc., a
developer of liquid pharmaceutical products. We intend to use the LiquiSource
assets to leverage our ongoing research and development efforts. We will seek
opportunities to develop liquid formulations for solid and semi-solid dosage
products that we currently manufacture. However, we have not previously
developed or sold liquid formulations and we expect that it will be some time
before we can bring any new liquid products to market. We can give no assurance
that we will successfully integrate the LiquiSource business into our ongoing
operations or that we will develop the ability to manufacture and sell liquid
products on a profitable basis.

WE ARE OBLIGATED TO ISSUE A LARGE NUMBER OF SHARES OF COMMON STOCK AT
PRICES LOWER THAN MARKET VALUE WHICH MAY REDUCE THE MARKET PRICE OF OUR
OUTSTANDING COMMON STOCK.

We are obligated to issue a large number of shares of common stock
at prices below market value. Therefore, our common stock could lose value if a
large number of these shares are issued into the market. As of February 15,
2005, 18,425,119 shares of common stock were issued and outstanding. We have
reserved 2,860,250 shares of common stock for issuance pursuant to options and
warrants granted to our employees, officers, directors and investors. The
holders of these convertible securities likely would only exercise their rights
to acquire common stock at times when the exercise price is lower than the price
at which they could buy the common stock on the open market. Because we would
likely receive less than current market price for any shares of common stock
issued upon exercise of options and warrants, the exercise of a large number of
these convertible securities could reduce the per-share market price of common
stock held by existing investors.

Specifically, public resales of shares of our common stock following
exercises may depress the prevailing market price of our common stock. Even
prior to the time of actual exercises of derivative securities, the perception
of a significant market "overhang" resulting from the existence of our
obligation to honor such exercises could depress the market price of our common
stock.

THE VALUE OF OUR COMMON STOCK HAS FLUCTUATED WIDELY AND INVESTORS COULD
LOSE MONEY ON THEIR INVESTMENTS IN OUR STOCK.

The price of our common stock has fluctuated widely in the past and
it is likely that it will continue to do so in the future. The market price of
our common stock could fluctuate substantially based upon a variety of factors
including:

23


o quarterly fluctuations in our operating results;
o announcements of new products by us or our competitors;
o key personnel losses;
o sales of common stock;
o developments or announcements with respect to industry standards,
regulatory matters, patents or proprietary rights; and
o general economic and political conditions.

During 2004, the market price of our common stock fluctuated between
approximately $15.60 and approximately $23.24, and was approximately $20.66 on
February 15, 2005. These broad market fluctuations could adversely affect the
market value of our common stock in that, at the current price, any fluctuation
in the dollar price per share could constitute a significant percentage decrease
in the value of a stockholder's investment.

WE MAY FACE PRODUCT LIABILITY FOR WHICH WE MAY NOT BE ADEQUATELY INSURED.

The testing, marketing and sale of drug products for human use is
inherently risky. Liability might result from claims made directly by consumers
or by pharmaceutical companies or others selling our products. We presently
carry product liability insurance in amounts that we believe to be adequate, but
we can give no assurance that such insurance will remain available at a
reasonable cost or that any insurance policy would offer coverage sufficient to
meet any liability arising as a result of a claim. We can give no assurance that
we will be able to obtain or maintain adequate insurance on reasonable terms or
that, if obtained, such insurance will be sufficient to protect us against such
potential liability or at a reasonable cost. The obligation to pay any product
liability claim or a recall of a product could have a material adverse affect on
our business, financial condition and future prospects.

INTENSE REGULATION BY GOVERNMENT AGENCIES MAY DELAY OUR EFFORTS TO
COMMERCIALIZE OUR PROPOSED DRUG PRODUCTS.

Our products and business activities are highly regulated,
principally by the FDA, the U.S. Drug Enforcement Agency, state governments and
governmental agencies of other countries. Federal and state regulations and
statutes impose certain requirements on the testing, manufacturing, labeling,
storage, recordkeeping, approval, advertising and promotion of our products.
Also, some of our products contain narcotic ingredients. Regulations pertaining
to the sale of such drugs may prove difficult or expensive to comply with, and
we and other pharmaceutical companies may face lawsuits. If we are alleged to be
out of compliance with applicable requirements, then we would face judicial and
administrative sanctions, including seizures of adulterated or misbranded
products, injunction actions, fines and criminal prosecutions. Any of these
events could disrupt our business and our ability to supply products to our
customers. In April 2004, we received a warning letter from the FDA regarding
our reporting of adverse drug events. We believe that we have responded to the
FDA's observations in a timely and effective manner and do not expect this event
to materially affect our operations. However, we can give no assurance that this
or other regulatory actions by the FDA or other agencies will not impede or
delay our efforts to commercialize our proposed products.

WE DEPEND ON THIRD PARTIES TO SUPPLY THE RAW MATERIALS USED IN OUR
PRODUCTS; ANY FAILURE TO OBTAIN A SUFFICIENT SUPPLY OF RAW MATERIALS FROM
THESE SUPPLIERS COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS.

Before we can market any generic drug, we must first obtain FDA
approval of our proposed drug and, also, of the active drug raw materials that
we use. We rely on third parties to supply all raw materials used in our
products. All of our third-party suppliers and contractors are subject to FDA
and other regulatory oversight. In many instances, our FDA approvals cover only
one source of raw materials. If raw materials from that approved supplier were
to become unavailable, we would be required to file a supplement to our
Abbreviated New Drug Application to use a different manufacturer and revalidate
the manufacturing process using a new supplier's materials. This could cause a
delay of several months in the manufacture of the drug involved and the
consequent loss of potential revenue and market share.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not use any derivative financial instruments. All of our
direct sales are in the United States and denominated in U.S. dollars. Our
exposure to market risk for a change in interest rates relates primarily to our
debt instruments. Our debt instruments, at December 31, 2004, are subject to
variable interest rates, which float based

24


upon a spread over LIBOR or U.S. bank prime rate. Management does not believe
that any risk inherent in these instruments is likely to have a material effect
on our financial statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our audited financial statements and the related reports of our
independent registered public accounting firm are presented in the following
pages. The financial statements and reports filed in this Item 8 are as follows:

Report of Independent Registered Public Accounting Firm on
Management's Report on Internal Control Over Financial Reporting.......... 27

Report of Independent Registered Public Accounting Firm on
Financial Statements....................................................... 28

Financial Statements:
Balance Sheets - December 31, 2004 and 2003............................... 29
Statements of Income - Years Ended December 31, 2004, 2003 and 2002....... 30
Statements of Changes in Stockholders' Equity - Years Ended
December 31, 2004, 2003 and 2002........................................ 31
Statements of Cash Flows - Years Ended December 31, 2004, 2003 and 2002... 32

Notes to Financial Statements............................................... 33


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

"Disclosure controls and procedures" are controls and other
procedures designed to ensure that we timely record, process, summarize and
report the information that we are required to disclose in the reports that we
file or submit with the SEC. These include controls and procedures designed to
ensure that such information is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.

We maintain a system of disclosure controls and procedures that is
designed to provide reasonable assurance that information which is required to
be disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934, as amended, is accumulated and communicated to management,
including our principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure. Our
principal executive officer and principal financial officer have evaluated this
system of disclosure controls and procedures and have concluded that our
disclosure controls and procedures are effective as of the end of the period
covered by this Annual Report.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate
internal control over financial reporting for the company. "Internal control
over financial reporting" refers to the process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles, and includes those policies and procedures that:

(1) Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of our
assets;

(2) Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that our

25


receipts and expenditures are being made only in accordance with
authorization of our management and directors; and

(3) Provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial statements.

The process of designing and reviewing our system of internal
accounting controls involves, among other things, management's judgments with
respect to the relative cost and expected benefits of specific control measures.
Because of its inherent limitations, a system of internal control over financial
reporting can provide only reasonable assurance and may not prevent or detect
misstatements.

Our management, with the participation of our principal executive
officer and principal financial officer, assessed the effectiveness of our
internal control over financial reporting as of December 31, 2004. In making
this assessment, it used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control--Integrated
Framework. From our assessment we believe that, as of December 31, 2004, our
internal control over financial reporting is effective based on those criteria.

Our independent registered public accounting firm, Wolf & Company,
P.C., issued an attestation report on our assessment of our internal control
over financial reporting. This report appears on page 27.

CHANGES TO INTERNAL CONTROL OVER FINANCIAL REPORTING

During 2004, we began and partially completed the process of moving
to new facilities. In connection with this move, we adapted our internal control
over financial reporting to account for our expanded operations. Also, in 2004
we migrated to a new and advanced Oracle(R) enterprise resource planning (ERP)
system, designed to align and integrate various information gathering, analysis
and reporting processes through software applications. The new system has been
designed to allow us to retain the control and integrity of our information
systems as we grow in the future. The new system includes financial reporting
applications, such as general ledger, accounts receivable, accounts payable,
inventory management, sales order processing and purchasing. We believe that
throughout the implementation process, we maintained internal accounting control
systems that are adequate to provide reasonable assurance that assets are
safeguarded from loss or unauthorized use, and that produce adequate records for
preparation of financial information. There were no other significant changes in
our internal controls over financial reporting during 2004.

Except as referred to above there has been no change in our internal
controls over financial reporting during our most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, our internal
controls over financial reporting.





26


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Board of Directors and Stockholders
Able Laboratories, Inc.
Cranbury, New Jersey

We have audited management's assessment, included in the
accompanying Management's Report on Internal Control Over Financial Reporting,
that Able Laboratories, Inc. maintained effective internal control over
financial reporting as of December 31, 2004, based on criteria established in
Internal Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Able Laboratories, Inc.'s
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the company's
internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.

A company's internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that Able Laboratories, Inc.
maintained effective internal control over financial reporting as of December
31, 2004, is fairly stated, in all material respects, based on criteria
established in Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Also in our opinion,
Able Laboratories, Inc. maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2004, based on criteria
established in Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the balance sheets of Able
Laboratories, Inc. as of December 31, 2004 and 2003, and the related statements
of income, changes in stockholders' equity and cash flows for each of the three
years in the period ended December 31, 2004 and our report dated February 10,
2005 expressed an unqualified opinion on those statements.

/s/ Wolf & Company, P.C.

Boston, Massachusetts
February 10, 2005

27

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENTS


The Board of Directors and Stockholders
Able Laboratories, Inc.
Cranbury, New Jersey

We have audited the accompanying balance sheets of Able
Laboratories, Inc. as of December 31, 2004 and 2003, and the related statements
of income, changes in stockholders' equity and cash flows for each of the three
years in the period ended December 31, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Able Laboratories,
Inc. as of December 31, 2004 and 2003 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2004 in
conformity with accounting principles generally accepted in the United States of
America.

We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of Able
Laboratories, Inc.'s internal control over financial reporting as of December
31, 2004, based on criteria established in Internal Control--Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and our report dated February 10, 2005 expressed an
unqualified opinion on management's assessment of the effectiveness of Able
Laboratories, Inc.'s internal control over financial reporting and an
unqualified opinion on the effectiveness of Able Laboratories, Inc.'s internal
control over financial reporting.


/s/ Wolf & Company, P.C.

Boston, Massachusetts
February 10, 2005


28

ABLE LABORATORIES, INC.
BALANCE SHEETS

DECEMBER 31,
----------------------------
2004 2003
------------ ------------

ASSETS

Current assets:
Cash and cash equivalents $ 11,650,886 $ 20,065,248
Accounts receivable, net of allowances of $38,272,886 and $24,007,583 17,878,380 8,626,023
Inventory 18,105,275 16,602,608
Deferred income tax asset 7,500,000 4,760,000
Prepaid expenses and other current assets 1,843,882 1,644,068
------------ ------------
Total current assets 56,978,423 51,697,947
------------ ------------

Property and equipment, net 40,228,942 18,953,744
------------ ------------
Other assets:
Debt financing costs, net of accumulated amortization -- 91,708
Cash deposits with bond trustee -- 525,907
Deferred income tax asset 2,743,000 9,709,000
Goodwill 3,922,655 3,904,094
Deposits and other assets 418,082 481,755
------------ ------------
Total other assets 7,083,737 14,712,464
------------ ------------
$104,291,102 $ 85,364,155
============ ============


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Notes payable and current portion of long-term debt $ -- $ 239,038
Accounts payable 2,742,823 3,293,168
Accrued expenses 2,268,763 1,114,976
------------ ------------
Total current liabilities 5,011,586 4,647,182
Long-term debt, less current portion 3,000,000 3,935,000
------------ ------------
Total liabilities 8,011,586 8,582,182
------------ ------------
Commitments and contingencies

Stockholders' equity :
Preferred stock, $.01 par value, 10,000,000 shares authorized,
none and 17,025 shares of Series Q outstanding (liquidation
value $1,702,500 at December 31, 2003) -- 171
Common stock, $.01 par value, 25,000,000 shares authorized,
18,353,281 and 16,761,216 shares issued and outstanding 183,532 167,611
Additional paid-in capital 120,804,537 116,060,210
Accumulated deficit (24,644,108) (39,295,941)
Unearned stock-based compensation (64,445) (150,078)
------------ ------------
Total stockholders' equity 96,279,516 76,781,973
------------ ------------
$104,291,102 $ 85,364,155
============ ============


See accompanying notes to financial statements.

29

ABLE LABORATORIES, INC.
STATEMENTS OF INCOME



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

Sales, net $103,193,652 $ 77,561,115 $ 52,930,121
Cost of sales 51,433,991 41,355,192 27,361,610
------------ ------------ ------------
Gross profit 51,759,661 36,205,923 25,568,511
------------ ------------ ------------
Operating expenses:
Selling, general and administrative 14,001,498 10,696,864 7,754,153
Research and development 15,231,815 11,212,418 6,944,952
------------ ------------ ------------
Total operating expenses 29,233,313 21,909,282 14,699,105
------------ ------------ ------------

Operating income 22,526,348 14,296,641 10,869,406
------------ ------------ ------------
Other income (expense):
Loss on investment in RxBazaar -- -- (1,993,403)
Loss on early retirement of debt (118,440) (241,999) --
Interest and financing expense (188,463) (543,849) (517,723)
Miscellaneous income (expense), net (144,612) 388,755 (42,340)
------------ ------------ ------------
Other income (expense), net (451,515) (397,093) (2,553,466)
------------ ------------ ------------

Income before income taxes 22,074,833 13,899,548 8,315,940
Income tax provision (benefit) 7,423,000 5,412,000 (15,130,000)
------------ ------------ ------------
Net income 14,651,833 8,487,548 23,445,940

Dividends on preferred stock 89,642 274,559 481,143
------------ ------------ ------------
Net income applicable to common stockholders $ 14,562,191 $ 8,212,989 $ 22,964,797
============ ============ ============
Net income per share:
Basic $ 0.84 $ 0.56 $ 1.98
============ ============ ============
Diluted $ 0.75 $ 0.46 $ 1.44
============ ============ ============
Weighted average shares outstanding:
Basic 17,401,740 14,709,040 11,587,905
============ ============ ============
Diluted 19,433,451 18,374,894 16,322,234
============ ============ ============



See accompanying notes to financial statements.

30

ABLE LABORATORIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002


Preferred Stock Common Stock Unearned
-------------------- ---------------------- Paid-In Accumulated Stock-Based
Shares Amount Shares Amount Capital Deficit Compensation Total
-------- -------- ---------- --------- ------------ ------------- ---------- -----------

Balance at
December 31, 2001 67,910 $ 679 11,301,976 $ 113,020 $ 80,011,072 $ (71,229,429) $ -- $ 8,895,342
Stock options
and warrants
exercised -- -- 686,067 6,860 277,591 -- -- 284,451
Conversion of
preferred
stock (14,760) (147) 566,163 5,662 (5,515) -- -- --
Warrants issued
with debt -- -- -- -- 375,314 -- -- 375,314
Cash dividends
on preferred
stock -- -- -- -- (476,572) -- -- (476,572)
Stock-based
compensation -- -- -- -- 111,900 -- (111,900) --
Amortization of
unearned
stock-based
compensation -- -- -- -- -- -- 37,300 37,300
Tax benefit on
stock options -- -- -- -- 2,130,000 -- -- 2,130,000
Net income -- -- -- -- -- 23,445,940 -- 23,445,940
-------- -------- ---------- --------- ------------ ------------- ---------- -----------

Balance at
December 31, 2002 53,150 532 12,554,206 125,542 82,423,790 (47,783,489) (74,600) 34,691,775
Stock options
and warrants
exercised -- -- 332,834 3,328 925,071 -- -- 928,399
Shares issued
in private
placement -- -- 1,627,500 16,275 28,937,060 -- -- 28,953,335
Conversion of
preferred
stock (36,125) (361) 2,120,579 21,206 (20,845) -- -- --
Conversion of
debt -- -- 126,097 1,260 2,148,693 -- -- 2,149,953
Cash dividends
on preferred
stock -- -- -- -- (274,559) -- -- (274,559)
Stock-based
compensation -- -- -- -- 145,000 -- (145,000) --
Amortization of
unearned
stock-based
compensation -- -- -- -- -- -- 69,522 69,522
Tax benefit on
stock options -- -- -- -- 1,776,000 -- -- 1,776,000
Net income -- -- -- -- -- 8,487,548 -- 8,487,548
-------- -------- ---------- --------- ------------ ------------- ---------- -----------

Balance at
December 31, 2003 17,025 171 16,761,216 167,611 116,060,210 (39,295,941) (150,078) 76,781,973
Stock options
and warrants
exercised -- -- 592,676 5,927 2,168,792 -- -- 2,174,719
Conversion of
preferred
stock (17,025) (171) 999,389 9,994 (9,823) -- -- --
Cash dividends
on preferred
stock -- -- -- -- (89,642) -- -- (89,642)
Amortization
of unearned
stock-based
compensation -- -- -- -- -- -- 85,633 85,633
Tax benefit on
stock options -- -- -- -- 2,675,000 -- -- 2,675,000
Net income -- -- -- -- -- 14,651,833 -- 14,651,833
-------- -------- ---------- --------- ------------ ------------- ---------- -----------
Balance at
December 31, 2004 -- $ -- 18,353,281 $ 183,532 $120,804,537 $ (24,644,108) $ (64,445) $96,279,516
======== ======== ========== ========= ============ ============= ========== ===========

See accompanying notes to financial statements.

31

ABLE LABORATORIES, INC.
STATEMENTS OF CASH FLOWS


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

Cash flows from operating activities:
Net income $ 14,651,833 $ 8,487,548 $ 23,445,940
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income tax expense (benefit) 6,438,000 4,640,000 (15,880,000)
State tax benefit for stock options 463,000 307,000 370,000
Loss on investment in RxBazaar -- -- 1,993,403
Loss on early retirement of debt 118,440 241,999 --
Amortization of unearned compensation 85,633 69,522 37,300
Depreciation and amortization 3,011,440 2,185,139 1,049,101
(Increase) decrease in operating assets:
Accounts receivable (9,252,357) (752,497) (3,227,323)
Inventory (1,502,667) (3,448,669) (8,185,030)
Prepaid expenses and other current assets (199,814) (1,490,964) 660,378
Deposits and other assets 589,580 (321,986) (69,964)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 661,899 (5,278,912) 5,116,712
------------ ------------ ------------
Net cash provided by operating activities 15,064,987 4,638,180 5,310,517
------------ ------------ ------------

Cash flows from investing activities:
Purchase of property and equipment (24,277,008) (11,042,935) (6,376,122)
Purchase of LiquiSource net assets (18,561) (4,163,798) --
Purchase of RxBazaar note receivable -- -- (2,250,000)
------------ ------------ ------------
Net cash used for investing activities (24,295,569) (15,206,733) (8,626,122)
------------ ------------ ------------

Cash flows from financing activities:
Net proceeds from stock warrants and options 2,174,719 928,399 284,451
Net proceeds from private stock placements -- 28,953,335 --
Net proceeds from debt obligations -- 11,589,422 5,246,745
Payment of debt obligations (1,200,600) (12,226,146) (1,143,974)
Preferred stock dividends paid (157,899) (412,336) (425,756)
------------ ------------ ------------
Net cash provided by financing activities 816,220 28,832,674 3,961,466
------------ ------------ ------------

Net change in cash and cash equivalents (8,414,362) 18,264,121 645,861
Cash and cash equivalents at beginning of year 20,065,248 1,801,127 1,155,266
------------ ------------ ------------
Cash and cash equivalents at end of year $ 11,650,886 $ 20,065,248 $ 1,801,127
============ ============ ============

Supplemental cash flow information:
Interest paid $ 185,700 $ 456,970 $ 414,988
Income taxes paid 248,232 770,500 137,976
Conversion of debt into common stock -- 2,149,953 --


Additional cash flow information is included in Note 2.

See accompanying notes to financial statements.

32

ABLE LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

The financial statements include the accounts of Able Laboratories,
Inc. ("Able"), which is engaged in the development, manufacture and sale of
generic pharmaceuticals.

USE OF ESTIMATES

In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
balance sheet date and reported amounts of revenues and expenses during the
reporting period. Material estimates, that are particularly susceptible to
significant change in the near term, relate to the carrying values of
receivables, including allowances for chargebacks, rebates and returns,
inventory, the estimated lives of property and equipment and the valuation of
deferred income tax assets. Actual results could differ from those estimates.

CASH EQUIVALENTS

Cash equivalents include interest-bearing deposits with original
maturities of three months or less.

ACCOUNTS RECEIVABLE

ALLOWANCES FOR RETURNS AND PRICE ADJUSTMENTS. Our product revenues
are typically subject to agreements with customers allowing chargebacks,
rebates, rights of return, pricing adjustments and other allowances. Based on
our agreements and contracts with our customers, we calculate allowances for
these items when we recognize revenue and we book the allowances as reserves
against accounts receivable. Chargebacks, primarily from wholesalers, are the
most significant of these items. They result from arrangements we have with
customers establishing prices for products for which the customers independently
select a wholesaler from which to purchase. A chargeback represents the
difference between our invoice price to the wholesaler, which is typically
stated at wholesale acquisition cost, and the end customer's contract price,
which is lower. We credit the wholesaler for purchases by end customers at the
lower price. Therefore, we record these chargebacks at the time we recognize
revenue in connection with our sales to wholesalers. We base these reserves
primarily on our contractual arrangements and, to a lesser extent, historical
chargeback experience. We continually monitor the wholesaler inventory levels
and the corresponding reserves and compensate for contractual changes, giving
consideration to our observations of current pricing trends and we make
adjustments to our provisions for chargebacks and similar items when we believe
that the actual credits will differ from our original provisions.

Consistent with industry practice, we maintain a policy that allows
our customers to return product. Our estimate of the provision for returns is
based upon our historical experience with actual returns.

Price adjustments, also referred to as "shelf stock adjustments" are
credits issued to reflect decreases in the selling prices of our products which
our customer has remaining in its inventory at the time of the price reduction.
Decreases in our selling prices are discretionary decisions made by us to
reflect market conditions. Amounts recorded for estimated shelf stock
adjustments are based upon specified terms with direct customers, estimated
launch dates of competing products, estimated declines in market price and
estimates of inventory held by the customer.

ALLOWANCE FOR DOUBTFUL ACCOUNTS. We have historically provided
financial terms to customers in accordance with what management views as
industry norms. Financial terms, for credit-approved customers, are generally on
a net 30-60 day basis, though most customers are entitled to a prompt payment
discount. Management periodically and regularly reviews customer account
activity in order to assess the adequacy of allowances for doubtful accounts,
considering factors such as economic conditions and each customer's payment
history and creditworthiness. If the financial condition of our customers were
to deteriorate, or if they were otherwise unable to

33

make payments in accordance with management's expectations, we might have to
increase our allowance for doubtful accounts.

INVENTORY

Inventory is valued at the lower of average cost or market on a
first-in first-out (FIFO) method.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation expense is
provided over the estimated useful lives of the assets using the straight-line
method. Leasehold improvements are amortized on the straight-line method over
the shorter of the estimated useful life of the asset or the life of the related
lease term.

DEBT FINANCING COSTS

Debt financing costs are being amortized on a straight-line basis
over the term of the debt. The related amortization expense for 2004, 2003 and
2002 was $3,668, $11,136 and $14,400, respectively.

IMPAIRMENT OF LONG-LIVED AND INTANGIBLE ASSETS

We continually evaluate whether events and circumstances have
occurred that indicate that the remaining estimated useful life of long-lived
assets may require revision or that the remaining net book value may not be
recoverable. When factors indicate that an asset may be impaired, we use various
methods to estimate the future cash flows expected to result from the use of the
asset and its eventual disposition. If the sum of the expected future
undiscounted cash flows is less than the carrying amount of the asset, an
impairment loss is recognized based on the excess of the carrying amount over
the estimated fair value of the asset. Any impairment amount is charged to
operations.

Goodwill is evaluated using a two-step impairment process, which we
perform annually, as well as when an event triggering impairment may have
occurred. The first step tests for impairment while the second step, if
necessary, measures the impairment. We have elected to perform the required
annual impairment test of our goodwill on the first day of our fiscal fourth
quarter.

REVENUE RECOGNITION

Revenues from product sales are principally recognized when products
are shipped and in certain cases revenues are recognized when shipments are
received by customers. Revenues from sales may be subject to agreements allowing
chargebacks, rebates, rights of return and other allowances. We provide
allowances for potential uncollectible accounts, chargebacks, rebates, returns
and other allowances. Allowances for chargebacks, rebates, returns and other
allowances are established concurrently with the recognition of revenue.

Shipping and handling fees billed to customers are recognized in net
sales. Shipping and handling costs we incur are included in cost of sales.

ADVERTISING COSTS

Advertising costs are charged to expense when incurred. Advertising
expense for 2004, 2003 and 2002 was $3,137,934, $1,390,889 and $113,603,
respectively.

INCOME TAXES

Deferred tax assets and liabilities are recorded for temporary
differences between the financial statement and tax bases of assets and
liabilities using the currently enacted income tax rates expected to be in
effect when the taxes are actually paid or recovered. A deferred tax asset is
also recorded for net operating loss, capital loss and tax credit carryforwards
to the extent their realization is more likely than not. Generally, the deferred
tax benefit or

34

expense for the period represents the change in the deferred tax asset or
liability from the beginning to the end of the period.

STOCK-BASED COMPENSATION

Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" encourages all entities to adopt a
fair value based method of accounting for employee stock compensation plans,
whereby compensation cost is measured at the grant date based on the value of
the award and is recognized over the service period, which is usually the
vesting period. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees," whereby compensation cost is the excess, if any, of the quoted
market price of the stock at the grant date (or other measurement date) over the
amount an employee must pay to acquire the stock. Stock options issued under our
stock option plans generally have no intrinsic value at the grant date, and
under Opinion No. 25 no compensation cost is recognized for them. In 2005, we
plan to adopt the fair value accounting model for stock-based employee
compensation under SFAS No. 123 as revised in December 2004 (see Recent
Accounting Pronouncements).

At December 31, 2004, we had two stock-based compensation plans and
stock options issued outside of the plans, which are described more fully in
Note 9. We apply APB Opinion No. 25 and related Interpretations in accounting
for stock options issued to employees and directors. Had compensation cost for
stock options issued to employees and directors been determined based on the
fair value at the grant dates consistent with SFAS No. 123, our net income and
net income per share would have been adjusted to the pro forma amounts indicated
below:

Years Ended December 31,
---------------------------------------------
2004 2003 2002
------------ ------------ ------------

Net income as reported $ 14,651,833 $ 8,487,548 $ 23,445,940
Add stock-based compensation under APB No. 25 85,633 69,522 37,300
Deduct stock-based compensation under SFAS No. 123 (2,815,718) (957,330) (366,910)
------------ ------------ ------------
Pro forma net income 11,921,748 7,599,740 23,116,330
Less returns to preferred stockholders 89,642 274,559 481,143
------------ ------------ ------------
Pro forma net income applicable to common stockholders $ 11,832,106 $ 7,325,181 $ 22,635,187
============ ============ ============
Net income per share:
Basic - as reported $ 0.84 $ 0.56 $ 1.98
============ ============ ============
Basic - Pro forma $ 0.68 $ 0.50 $ 1.95
============ ============ ============
Diluted - as reported $ 0.75 $ 0.46 $ 1.44
============ ============ ============
Diluted - Pro forma $ 0.61 $ 0.41 $ 1.42
============ ============ ============


EARNINGS PER SHARE

Basic earnings per share represents income available to common
stockholders divided by the weighted-average number of common shares outstanding
during the period. Diluted earnings per share reflects additional common shares
that would have been outstanding if dilutive potential common shares had been
issued, as well as any adjustment to income applicable to common stockholders
that would result from the assumed issuance.

COMPREHENSIVE INCOME

Accounting principles generally require that recognized revenue,
expenses, gains and losses be included in net income. Certain statements,
however, require entities to report specific changes in assets and liabilities,
such as unrealized gains and losses on available-for-sale securities, as a
separate component of the equity section of the balance sheet. Such items, along
with net income, are components of comprehensive income. There were no other
items of comprehensive income during 2004, 2003 and 2002.

35

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 123R, Share-Based Payment
("SFAS No. 123R"). SFAS No. 123R establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. This statement focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions.
SFAS No. 123R requires that the fair value of such equity instruments be
recognized as an expense in the historical financial statements as services are
performed. Prior to SFAS No. 123R, only certain pro forma disclosures of fair
value were required. The statement also expands the models that are allowed in
calculating the expense. SFAS No. 123R is effective for public entities that do
not file as small business issuers as of the beginning of the first interim or
annual reporting period that begins after June 15, 2005. Accordingly we will
adopt the provisions of this statement commencing with the quarter ending
September 30, 2005. If we had included the fair value of employee stock options
in our financial statements, our net income for the years ended December 31,
2004, 2003 and 2002 would have been as disclosed in Note 1. Accordingly, the
adoption of SFAS No. 123R is expected to have an effect on our financial
statements.

In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 151 ("SFAS No. 151") Inventory Costs - an Amendment of ARB No. 43,
Chapter 4. SFAS No. 151 clarifies the accounting for inventory when there are
abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials. Under existing accounting principles, items such as idle facility
expense, excessive spoilage, double freight, and re-handling costs may be "so
abnormal" as to require treatment as current period charges rather than recorded
as adjustments to the value of the inventory. SFAS No. 151 requires that those
items be recognized as current-period charges regardless of whether they meet
the criterion of "so abnormal." In addition, this statement requires that
allocation of fixed production overheads to the costs of conversion be based on
the normal capacity of the production facilities. The provisions of this
statement shall be effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. The adoption of SFAS No. 151 is not expected to
have a material effect on our financial position or results of operations.

2. BUSINESS ACQUISITION AND DISPOSITION

ACQUISITION OF LIQUISOURCE, INC.

On November 17, 2003, we acquired substantially all the net assets
of LiquiSource, Inc. for cash of $4,182,359. LiquiSource was a privately held
developer and manufacturer of prescription generic liquid pharmaceuticals. The
acquisition has been accounted for as a purchase and the results of operations
of LiquiSource have been included in our financial statements since the date of
acquisition. We acquired inventory of $250,000, property and equipment of
$68,565 and other assets totaling $30,000, net of accounts payable and accrued
expenses of $88,861. We recorded goodwill of $3,922,655 for the excess of the
purchase price over the net assets acquired, which includes acquisition costs of
$63,770. Goodwill will not be amortized but will be tested at least annually for
impairment. For income tax purposes, we expect the full amount of the goodwill
to be deductible over its fifteen-year amortization period.

Unaudited pro forma operating results, assuming the acquisition of
LiquiSource had been made as of the beginning of 2002, are as follows:

Unaudited
-----------------------------
Year Ended December 31,
-----------------------------
2003 2002
------------ ------------
Sales, net $ 79,488,499 $ 53,541,999
============ ============
Net income applicable to common stockholders $ 8,659,385 $ 23,004,518
============ ============
Net income per share:
Basic $ 0.59 $ 1.99
============ ============
Diluted $ 0.49 $ 1.44
============ ============


36

SUPERIOR PHARMACEUTICAL COMPANY

On February 23, 2001, we sold Superior Pharmaceutical Company to
RxBazaar, Inc. for a cash payment of $4,000,000 and the assumption by RxBazaar
of our existing 13.5% senior subordinated debt in the amount of $2,248,875. We
remained liable for the debt as a guarantor. On June 14, 2002, we purchased the
senior subordinated debt of RxBazaar for $2,250,000. The 13.5% notes were due on
June 17, 2004, were secured by a third lien on accounts receivable and a second
lien on substantially all other assets of RxBazaar, and were subject to an
inter-creditor agreement with RxBazaar's asset-based lender. Interest income on
the notes for 2004, 2003 and 2002 was $65,705, $303,750 and $166,219,
respectively. Due to RxBazaar's financial condition at December 31, 2002,
management increased its reserve for the notes receivable to cover the full
carrying value of the notes, resulting in a $1,993,403 charge to income. In
August 2004, RxBazaar notified us that it had commenced an orderly wind-down of
its operations, and on September 10, 2004, RxBazaar filed an assignment for the
benefit of creditors. We subsequently assigned the notes receivable to another
secured creditor, conditioned on that creditor paying us a portion of the
proceeds it receives from the liquidation.

3. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

December 31,
----------------------------
2004 2003
------------ ------------

Accounts receivable $ 56,151,266 $ 32,633,606
Allowances for returns and price adjustments (38,073,201) (24,003,684)
Allowance for doubtful accounts (199,685) (3,899)
------------ ------------
Accounts receivable, net $ 17,878,380 $ 8,626,023
============ ============


A summary of the activity in accounts receivable allowances is as
follows:

Returns
and Price Doubtful Total
Adjustments Accounts Allowances
------------ ------------ ------------

Balance at December 31, 2001 $ 7,966,237 $ 150,585 $ 8,116,822
Additions charged to net sales 56,097,504 -- 56,097,504
Additions charged to operating expenses -- 491,120 491,120
Deductions allowed to customers (51,651,200) -- (51,651,200)
Write-off of uncollectible accounts -- -- --
------------ ------------ ------------

Balance at December 31, 2002 12,412,541 641,705 13,054,246
Additions charged to net sales 95,914,875 -- 95,914,875
Additions charged (recoveries credited)
to operating expenses -- (89,805) (89,805)
Deductions allowed to customers (84,323,732) -- (84,323,732)
Write-off of uncollectible accounts -- (548,001) (548,001)
------------ ------------ ------------

Balance at December 31, 2003 24,003,684 3,899 24,007,583
Additions charged to net sales 96,315,082 -- 96,315,082
Additions charged to operating expenses -- 195,786 195,786
Deductions allowed to customers (82,245,565) -- (82,245,565)
Write-off of uncollectible accounts -- -- --
------------ ------------ ------------
Balance at December 31, 2004 $ 38,073,201 $ 199,685 $ 38,272,886
============ ============ ============


37

4. INVENTORY

Inventory consists of the following:

December 31,
----------------------------
2004 2003
------------ ------------

Raw materials $ 10,619,845 $ 9,247,553
Work-in-progress 2,124,380 2,153,363
Finished goods 5,361,050 5,201,692
------------ ------------
$ 18,105,275 $ 16,602,608
============ ============


5. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

December 31,
---------------------------- Estimated
2004 2003 Useful Lives
------------ ------------ ------------

Machinery and equipment $ 15,377,613 $ 10,671,907 3-10 years
Furniture, fixtures and computers 4,057,958 1,678,832 1-7 years
Building and leasehold improvements 22,632,148 9,107,877 1-40 years
Land 561,000 561,000
Construction in process 5,203,886 1,535,981
------------ ------------
47,832,605 23,555,597
Less accumulated depreciation and amortization (7,603,663) (4,601,853)
------------ ------------
$ 40,228,942 $ 18,953,744
============ ============


Depreciation and amortization expense for 2004, 2003 and 2002 was
$3,001,810, $2,090,279 and $939,110, respectively.

6. DEBT

Debt consists of the following:

December 31,
----------------------------
2004 2003
------------ ------------

Revolving credit agreement $ 3,000,000 $ 3,000,000
NJEDA bonds -- 1,030,000
Unsecured notes payable, net of discount -- 144,038
------------ ------------
Total 3,000,000 4,174,038
Less current portion -- 239,038
------------ ------------
Long-term debt $ 3,000,000 $ 3,935,000
============ ============


EQUIPMENT LOANS AND REVOLVING CREDIT AGREEMENT

On February 16, 2001, we borrowed $770,000 in an equipment financing
transaction. The borrowed amount was payable over a five-year term at an
interest rate of 15%. Interest expense for 2002 was $76,216. In October 2002, we
repaid the loan.

In October 2002, we entered into a $4,000,000 equipment loan
agreement with a commercial bank. On February 24, 2003, we entered into a new
$4,000,000 revolving credit agreement and increased the equipment loan to
$5,800,000 by amending the existing loan agreement. In April 2003, we increased
the amount available under

38

our revolving credit agreement to $10,000,000 and increased the amount available
under our equipment loan to $10,000,000. In July 2003, we repaid the equipment
loan in full.

On March 2, 2004, we entered into a new $20 million revolving credit
agreement (see Note 8) with our existing lender. This new revolver replaces the
existing revolving credit facility of $10 million and terminated the equipment
loan. In addition, the new revolver is expandable to $30 million upon our
request and the approval of the bank. The revolver is secured by substantially
all of our assets including accounts receivable, inventory, furniture, fixtures,
equipment and intellectual property. The loan is subject to certain financial
covenants, including a fixed charge coverage ratio, a leverage ratio and a net
worth test. We were in compliance with these covenants at December 31, 2004.

The revolver bears interest at 3.56% at December 31, 2004 (LIBOR
plus 1.25% based upon our current leverage ratio), requires no monthly principal
payments and matures in March 2007. Interest expense for 2004, 2003 and 2002 was
$133,511, $211,930 and $23,803, respectively.

NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY BONDS

On June 23, 1999, we completed a $2,000,000 Industrial Development
Revenue Bond offering issued by the New Jersey Economic Development Authority
for the acquisition of machinery and equipment. Interest expense for 2004, 2003
and 2002 was $34,333, $105,594 and $147,121, respectively. The total cost of the
bond issue was $216,140 and was being amortized over 15 years. Amortization
expense for 2004, 2003 and 2002 was $3,668, $11,136 and $14,400, respectively.
In May 2003, we repurchased $670,000 of outstanding bonds for $656,600 upon
completion of a tender offer. We recorded a loss on early retirement of debt of
$51,962 after the write-off of $65,362 of deferred debt financing costs. In May
2004, we repaid the $1,030,000 balance of the bonds. We paid a call premium of
$20,600, other fees and expenses of $9,800 and wrote off the $88,040 balance of
deferred debt financing costs resulting in a loss on early retirement of
$118,440.

In connection with these bonds, we entered into various agreements
with the New Jersey Economic Development Authority and the bondholders,
including an escrow agreement pursuant to which we deposited amounts intended to
cover our obligations under the bond indenture. These amounts were included in
other assets.

UNSECURED NOTES PAYABLE

In June 2002, we borrowed $2,300,000 from existing institutional and
accredited investors, including certain officers of Able and RxBazaar, all of
whom were related parties. The 12% unsecured notes matured on June 14, 2004. We
also issued immediately exercisable three-year warrants to purchase 170,200
shares of common stock at $5.10 per share to the investors. Proceeds of $375,314
were allocated to the warrants based on their estimated fair value and credited
to additional paid-in capital. This amount was reflected as a discount against
the notes payable and was amortized, as a component of interest expense, over
the life of the notes. Proceeds of this financing were used to purchase the
13.5% senior subordinated notes receivable from RxBazaar. In June 2003, we
converted $2,150,000 of notes into 126,097 shares of common stock at $17.05 per
share, the fair value of the stock on the transaction date, and repaid $47 of
notes in cash. We also wrote off $190,037 of unamortized discount on the notes
as a loss on early retirement of debt. The $150,000 balance of the notes was
repaid in June 2004. Interest expense for 2004, 2003 and 2002 was $9,000,
$128,870 and $150,267, respectively. Discount amortization for 2004, 2003 and
2002 was $5,962, $83,724 and $95,591, respectively.

39

7. INCOME TAXES

In 2002, we recorded an income tax benefit due to our assessment
that it is more likely than not that deferred tax assets (resulting primarily
from net operating losses) would be realized in the future. Allocation of
federal and state income taxes between current and deferred portions is as
follows:

Years Ended December 31,
------------------------------------------
2004 2003 2002
------------ ------------ ------------

Current tax provision:
Federal $ 97,000 $ 142,000 $ --
State 888,000 630,000 750,000
------------ ------------ ------------
Total current 985,000 772,000 750,000
------------ ------------ ------------
Deferred tax provision (benefit):
Federal 6,203,000 4,333,000 (15,850,000)
State 235,000 307,000 (30,000)
------------ ------------ ------------
Total deferred 6,438,000 4,640,000 (15,880,000)
------------ ------------ ------------
Total provision (benefit) $ 7,423,000 $ 5,412,000 $(15,130,000)
============ ============ ============




The reasons for the differences between the statutory federal income
tax rate and the effective tax rates are summarized as follows:

Years Ended December 31,
------------------------------------------
2004 2003 2002
------------ ------------ ------------

Statutory rate 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
Change in valuation reserve (3.9) -- (202.0)
State taxes, net of federal tax benefit 4.1 4.4 6.0
Rate differential and other, net (0.6) 0.5 (19.9)
------------ ------------ ------------
Effective tax rate 33.6% 38.9% (181.9)%
============ ============ ============




The components of the net deferred tax asset are as follows:

December 31,
---------------------------
2004 2003
------------ ------------

Deferred tax asset:
Federal $ 14,730,000 $ 19,451,000
State 1,814,000 1,784,000
------------ ------------
16,544,000 21,235,000
Valuation reserve (6,301,000) (6,766,000)
------------ ------------
Net deferred tax asset $ 10,243,000 $ 14,469,000
============ ============



The current portion of the deferred tax asset includes the benefit
for the utilization of a portion of the net operating loss carryforwards and
other current temporary differences. The valuation reserve is allocated between
the current and non-current classifications pro-rata based upon when the
underlying temporary differences are expected to reverse.

40

The following differences give rise to deferred income taxes:

December 31,
----------------------------
2004 2003
------------ ------------

Net operating loss carryforward $ 14,624,000 $ 16,205,000
Capital loss carryforward 4,459,000 3,040,000
Research and investment tax credit carryforward 550,000 580,000
Other, net (3,089,000) 1,410,000
------------ ------------
16,544,000 21,235,000
Valuation reserve (6,301,000) (6,766,000)
------------ ------------
Net deferred tax asset $ 10,243,000 $ 14,469,000
============ ============



There was no significant change to the valuation reserve in 2003. At
December 31, 2004, we decreased the valuation reserve by $864,000 based on our
assessment that additional deferred tax assets would be realized in the future.

As of December 31, 2004, we have the following tax carryforwards:

Net Operating Losses
--------------------------- Federal
Expiration Date Federal State Tax Credits
--------------- ------------ ------------ ------------
(In thousands)

December 31, 2005 $ -- $ 67 $ 20
December 31, 2006 -- 2,982 100
December 31, 2007 -- 2,689 171
December 31, 2008 -- 3,403 138
December 31, 2009 -- 3,117 121
December 31, 2010 2,532 3,462 --
December 31, 2011 4,446 -- --
December 31, 2017 10,783 -- --
December 31, 2018 5,862 -- --
December 31, 2019 6,350 -- --
December 31, 2020 7,534 -- --
December 31, 2021 2,629 -- --
------------ ------------ ------------
Total $ 40,136 $ 15,720 $ 550
============ ============ ============



In addition, we have alternative minimum tax credit carryforwards of
approximately $241,000 at December 31, 2004.

Use of net operating loss and tax credit carryforwards may be
subject, in future periods, to annual limitations based on ownership changes in
our common stock as defined by the Internal Revenue Code. Capital loss
carryforwards of approximately $7,920,000 expire on December 31, 2006 and
$3,770,000 expire on December 31, 2010. We determined that the future
utilization of the state net operating loss, the capital loss carryforwards and
the tax credits is less than "more likely than not" and therefore a substantial
portion of the valuation reserve has been allocated to these items.


41

8. COMMITMENTS AND CONTINGENCIES

LEASE AGREEMENTS

We lease offices and warehouse facilities under operating leases
expiring in various years through September 16, 2015 that require us to pay
certain costs such as maintenance and insurance. The following is a schedule of
future minimum lease payments for all operating leases (with initial or
remaining terms in excess of one year) as of December 31, 2004:


Years Ending December 31, Amount
------------------------- ------------
2005 $ 1,560,540
2006 1,333,035
2007 1,287,632
2008 1,287,632
2009 1,287,632
Thereafter 7,350,967
------------
Total minimum future lease payments $ 14,107,438
============


Rent expense, net of subleases for 2004, 2003 and 2002, was
$1,793,308, $812,320 and $572,631, respectively.

LETTER OF CREDIT

During September 2004, our bank issued a letter of credit for
$1,287,632 as a security deposit under a lease agreement. The letter of credit
will expire in September 2005, at which time we have the option to post a new
letter of credit or provide a cash deposit. The amount available under our
revolving credit agreement (see Note 6) is reduced by the full amount of the
letter of credit.

EMPLOYMENT AGREEMENTS

As of December 31, 2004, we have employment agreements with certain
of our officers that provide for minimum annual salaries, reimbursement of
business related expenses and participation in other employee benefit programs.
The agreements also include confidentiality, non-disclosure, severance,
automatic renewal and non-competition provisions. Salary levels are subject to
periodic review by the Compensation Committee.

CONTINGENCIES

Legal claims arise from time to time in the normal course of
business which, in the opinion of management, will have no material effect on
our financial position or results of operations.


9. PREFERRED STOCK, COMMON STOCK, OPTIONS AND WARRANTS

PREFERRED STOCK

The Series L Preferred Stock was convertible into common stock at
the average of the closing bid price for the three trading days prior to
conversion and accrued dividends at the rate of 13.5% per annum. In January
2002, the balance of Series L was converted into 96,555 shares of common stock.

In August 2001, we sold 61,150 shares of Series Q Preferred Stock
for $6,115,000 in cash and conversion of outstanding debt. The Series Q carries
an 8% dividend and is convertible into common stock at approximately 58.70
shares of common stock for each share of Series Q. We registered the shares of
common stock issuable on conversion of the Series Q in July 2002. During 2002,
8,000 shares of Series Q were converted into 469,608 shares of common stock.
During 2003, 36,125 shares of Series Q were converted into 2,120,579 shares of
common stock. During 2004, the outstanding 17,025 shares of Series Q were
converted into 999,389 shares of common stock.

42

COMMON STOCK

In June 2003, we sold 1,600,000 shares of common stock at $19.00 per
share for gross proceeds of $30,400,000. Net proceeds were $28,473,000 after
commissions and expenses. We granted the investors rights to purchase up to an
additional 440,000 shares at $19.00 per share. In August 2003, investors
exercised rights to purchase 27,500 additional shares for net proceeds of
$480,335 after commissions and expenses. The balance of the rights expired on
October 14, 2003.

STOCK OPTION PLANS

We have two stock option plans and have reserved shares of common
stock for issuance to employees, officers, directors and consultants. In June
2004, our stockholders approved an amendment to one of the plans, increasing the
number of shares reserved for issuance from 600,000 to 1,200,000. Under the
plans, the Board of Directors may grant options and establish the terms of the
grant in accordance with the provisions of the plans. Plan options are
exercisable for up to ten years from the date of issuance and certain options
contain a net exercise provision. The following table summarizes the activity of
options granted under the plans:

Years Ended December 31,
--------------------------------------------------------------------------
2004 2003 2002
---------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- -------- ---------- -------- ---------- --------

Outstanding at beginning of year 121,667 $ 11.98 53,334 $ 1.88 57,467 $ 1.95
Granted 809,000 18.77 75,000 18.27 -- --
Exercised (27,500) 11.50 (6,666) 1.88 (4,133) 2.71
Canceled (5,000) 18.48 (1) 1.88 -- --
---------- ---------- ----------
Outstanding at end of year 898,167 17.69 121,667 11.98 53,334 1.88
========== ========== ==========
Exercisable at end of year 217,334 14.37 46,667 1.88 53,334 1.88
========== ========== ==========
Reserved for future grants at end of year 401,333 605,333 80,333
========== ========== ==========
Weighted average fair value of options
granted during the year 6.17 8.73 --

The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants during 2004 and 2003, respectively; dividend
yield of 0%; risk-free interest rates of 3.2% and 3%, respectively; expected
volatility of 33% and 59%, respectively; and expected lives of 4.7 and 4 years,
respectively.

Information pertaining to stock options outstanding at December 31,
2004 is as follows:

Outstanding Exercisable
--------------------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Number Remaining Exercise Number Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
- ------------------------ ----------- ----------- ----------- ----------- -----------

$ 1.88 46,667 0.9 years $ 1.88 46,667 $ 1.88
$11.50 - $20.82 851,500 9.2 years 18.55 170,667 17.78
----------- -----------
898,167 8.8 years $ 17.69 217,334 $ 14.37
=========== ===========

CONSULTANT STOCK PLAN

We adopted the Consultant Stock Plan in June 1998 which provides for
stock grants for services rendered to us. We reserved 166,667 shares of common
stock for issuance and registered the shares. At December 31, 2004, we had
43,567 shares reserved under this plan.

43

OTHER STOCK OPTIONS AND WARRANTS

During 2002, we granted stock options to purchase 336,600 shares to
employees and directors at a weighted average exercise price of $5.31 per share.
The weighted average fair value of these options was $2.86 per share on the date
of grant. We also recorded unearned stock-based compensation of $111,900 for
certain of these options which were granted at below market prices. The unearned
stock-based compensation is being amortized over the vesting periods of the
options.

During 2003, we granted stock options to purchase 238,000 shares to
employees and directors at a weighted average price of $11.15 per share. The
weighted average fair value of these options was $6.80 per share on the grant
date. We also recorded unearned stock-based compensation of $145,000 for certain
of these options which were granted at below market prices. The unearned
stock-based compensation is being amortized over the vesting periods of the
options.

During 2004, we granted inducement stock options to purchase 400,000
shares to employees at a weighted average exercise price of $19.16 per share.
The weighted average fair value of these options was $6.60 per share on the
grant date.

A summary of the activity for other stock option and warrant shares,
including warrants issued in connection with debt and equity placements, is
presented below:

Years Ended December 31,
--------------------------------------
2004 2003 2002
---------- ---------- ----------

Outstanding at beginning of year 2,044,902 2,200,326 2,737,015
Granted 400,000 238,000 506,800
Exercised (602,686) (372,454) (986,130)
Expired/Canceled (99,833) (20,970) (57,359)
---------- ---------- ----------
Outstanding at end of year 1,742,383 2,044,902 2,200,326
========== ========== ==========



The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants during 2004, 2003 and 2002, respectively;
dividend yield of 0%; risk-free interest rates of 3%, 3% and 4%, respectively;
expected volatility of 33%, 77% and 65%, respectively; and expected lives of 5,
4 and 3.96 years, respectively.

Information pertaining to other stock options and warrants
outstanding at December 31, 2004 is as follows:


Outstanding Exercisable
--------------------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Number Remaining Exercise Number Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
- ------------------------ ----------- ----------- ----------- ----------- -----------

$ 1.88 - $ 3.30 358,333 3.3 years $ 3.21 358,333 $ 3.21
$ 3.75 - $ 8.30 815,700 4.7 years 4.14 746,945 3.99
$10.20 - $19.16 568,350 8.8 years 16.81 189,200 14.40
----------- -----------
1,742,383 5.8 years $ 8.08 1,294,478 $ 5.29
=========== ===========



44

COMMON STOCK RESERVED

We reserved shares of common stock at December 31, 2004 as follows:

Stock option plans 1,299,500
Other stock options and warrants 1,742,383
Consultant Stock Plan 43,567
-----------
Total 3,085,450
===========



10. SEGMENT INFORMATION, MAJOR CUSTOMERS AND MAJOR SUPPLIERS

We operate in one principal business segment, the manufacturing and
sale of generic pharmaceuticals. During 2004, approximately 17% and 12% of net
sales were to two major customers. During 2003, approximately 12% of net sales
was to one major customer. During 2002, approximately 37% of net sales was to
one major customer.

During 2004, we had one major supplier that provided us with
$8,060,000 of raw materials or 16% of cost of sales. During 2003, we had one
major supplier that provided us with approximately $12,516,000 of raw materials
or 30% of cost of sales. During 2002, we had two major suppliers that provided
us with approximately $6,334,000 and $5,360,000 of raw materials or 23% and 20%,
respectively, of cost of sales.


11. EMPLOYEE BENEFIT PLAN

We have a Section 401(k) Profit Sharing Plan (the "401(k) Plan") for
all employees. Employees who have attained the age of 21 may elect to reduce
their current compensation, subject to certain limitations, and have that amount
contributed to the 401(k) Plan. We match up to 25% of employee contributions not
to exceed 6% of employee compensation, subject to certain limitations. Employee
contributions to the 401(k) Plan are fully vested at all times and all company
contributions become vested over a period of five years.

For 2004, 2003 and 2002, we made matching contributions of $85,871,
$63,725 and $52,521, respectively. We did not make any profit-sharing
contributions in 2004, 2003 or 2002.


12. FAIR VALUE OF FINANCIAL INSTRUMENTS

At December 31, 2004 and 2003, our financial instruments include
notes receivable from RxBazaar that have been fully reserved for since December
31, 2002 (see Note 2) and debt obligations (see Note 6). The carrying value of
the notes receivable approximate their fair value based on RxBazaar's current
financial condition. The carrying value of debt obligations approximate fair
values based on their maturities and interest rates.






45

13. QUARTERLY DATA (UNAUDITED)


Years Ended December 31,
--------------------------------------------------------------------------------------------
2004 2003
-------------------------------------------- --------------------------------------------
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-------- -------- -------- -------- -------- -------- -------- --------

(In thousands, except per share data)

Sales, net $ 31,437 $ 27,300 $ 23,005 $ 21,452 $ 22,752 $ 20,865 $ 18,944 $ 15,000
Cost of sales 14,919 12,404 12,192 11,919 12,073 10,887 9,943 8,452
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit 16,518 14,896 10,813 9,533 10,679 9,978 9,001 6,548

Selling, general and administrative 3,817 3,556 3,630 2,998 3,309 2,699 2,274 2,415
Research and development 4,151 4,042 3,493 3,546 3,741 3,069 2,276 2,126
-------- -------- -------- -------- -------- -------- -------- --------
Operating income 8,550 7,298 3,690 2,989 3,629 4,210 4,451 2,007

Loss on debt retirement -- -- (118) -- -- -- (242) --
Interest and financing expense (38) (42) (51) (58) (55) (68) (220) (201)
Miscellaneous income (expense) (190) (56) 24 77 251 97 52 (11)
-------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes 8,322 7,200 3,545 3,008 3,825 4,239 4,041 1,795

Income tax provision (benefit) 2,144 2,764 1,360 1,155 1,394 1,693 1,614 711
-------- -------- -------- -------- -------- -------- -------- --------
Net income 6,178 4,436 2,185 1,853 2,431 2,546 2,427 1,084

Dividends on preferred stock 13 16 30 31 43 54 76 102
-------- -------- -------- -------- -------- -------- -------- --------
Net income applicable to common stock $ 6,165 $ 4,420 $ 2,155 $ 1,822 $ 2,388 $ 2,492 $ 2,351 $ 982
======== ======== ======== ======== ======== ======== ======== ========
Net income per share:
Basic $ 0.34 $ 0.25 $ 0.13 $ 0.11 $ 0.14 $ 0.16 $ 0.17 $ 0.08
======== ======== ======== ======== ======== ======== ======== ========
Diluted $ 0.32 $ 0.23 $ 0.11 $ 0.10 $ 0.13 $ 0.13 $ 0.14 $ 0.06
======== ======== ======== ======== ======== ======== ======== ========
Weighted average shares outstanding:
Basic 17,983 17,623 17,145 16,847 16,537 15,965 13,516 12,763
======== ======== ======== ======== ======== ======== ======== ========
Diluted 19,571 19,497 19,395 19,306 19,301 19,447 17,471 17,144
======== ======== ======== ======== ======== ======== ======== ========


46

PART III



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

The information required by this item in connection with directors
and officers is hereby incorporated by reference to the information set forth
under the captions "Election of Directors," "Executive Officers" and "Section
16(a) Beneficial Ownership Reporting Compliance" in our definitive proxy
statement for the 2005 annual meeting of stockholders, which we expect to file
on or before April 29, 2005 (the "2005 Annual Meeting Proxy Statement").


ITEM 11. EXECUTIVE COMPENSATION

The information required by this item with respect to executive
compensation is hereby incorporated by reference to the information set forth
under the caption "Executive Officer Compensation" in the 2005 Annual Meeting
Proxy Statement.


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

The information required by this item with respect to security
ownership is hereby incorporated by reference to the information set forth under
the captions "Security Ownership of Certain Beneficial Owners and Management"
and "Equity Compensation Plans" in the 2005 Annual Meeting Proxy Statement.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item with respect to certain
relationships and related transactions is hereby incorporated by reference to
the information set forth under the caption "Certain Relationships and Related
Transactions" in the 2005 Annual Meeting Proxy Statement.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND EXPENSES

The information required by this item with respect to principal
accountant fees and expenses is hereby incorporated by reference to the
information set forth under the caption "Principal Accountant Fees and Expenses"
in the 2005 Annual Meeting Proxy Statement.





47

PART IV


ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements

1. See Item 8 for an index to the consolidated financial
statements.

2. There are no financial statement schedules included in
this report.

3. Exhibits

The following exhibits are filed as part of this report:



EXHIBIT
NUMBER DESCRIPTION
- ------ -----------

3.1 Restated Certificate of Incorporation dated June 11, 1998 (filed as
Exhibit 3a to our Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998, as amended on September 14, 1998, and
incorporated herein by reference).

3.2 Certificate of Amendment of Certificate of Incorporation dated May
31, 2000 (filed as Exhibit 3.2 to our Quarterly Report on Form
10-QSB for the quarter ended June 30, 2000, and incorporated herein
by reference).

3.3 Amended and Restated By-laws dated May 26, 2000 (filed as Exhibit
3.3 to our Quarterly Report on Form 10-QSB for the quarter ended
June 30, 2000, and incorporated herein by reference).

3.4 Certificate of Amendment of Certificate of Incorporation dated May
9, 2001 (filed as Exhibit 3.3 to our Quarterly Report on Form 10-QSB
for the quarter ended June 30, 2001, and incorporated herein by
reference).

3.5 Certificate of Ownership and Merger dated May 18, 2001 (filed as
Exhibit 99.1 to our Current Report on Form 8-K, filed with the SEC
on May 24, 2001, and incorporated herein by reference).

3.6 Certificate of Amendment of Certificate of Incorporation dated May
31, 2002 (filed as Exhibit 3.7 to our Quarterly Report on Form 10-Q
for the quarter ended June 30, 2002, and incorporated herein by
reference).

4.1 Specimen common stock certificate (filed as Exhibit 4a to our
Registration Statement on Form S-18, SEC File No. 33-31836-B, and
incorporated herein by reference).

10.1 *Employment Agreement dated May 29, 2002 with Dhananjay G. Wadekar
(filed as Exhibit 10.6 to our Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002, and incorporated herein by reference).

10.2 *Amended and Restated Employment Agreement dated March 1, 2004 with
Nitin Kotak (filed as Exhibit 10.3 to our Annual Report on Form 10-K
for the year ended December 31, 2003, and incorporated herein by
reference).

10.3 *First Amendment to Amended and Restated Employment Agreement dated
November 30, 2004 with Robert Weinstein.

10.4 *Amended and Restated Employment Agreement dated December 22, 2004
with Shashikant Shah.


48

10.5 *Amended and Restated Employment Agreement dated March 1, 2004 with
Hemanshu N. Pandya (filed as Exhibit 10.7 to our Annual Report on
Form 10-K for the year ended December 31, 2003, and incorporated
herein by reference).

10.6 *Amended and Restated Employment Agreement dated March 1, 2004 with
Howard F. Schneider (filed as Exhibit 10.11to our Annual Report on
Form 10-K for the year ended December 31, 2003, and incorporated
herein by reference).

10.7 *Amended and Restated Employment Agreement dated April 26, 2004 with
Garth Boehm (filed as Exhibit 10.1 to our Quarterly Report on Form
10-Q for the quarter ended June 30, 2004, and incorporated herein by
reference).

10.8 *Stock Option issued to Garth Boehm dated April 26, 2004 (filed as
Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter
ended June 30, 2004, and incorporated herein by reference).

10.9 *Employment Agreement dated April 26, 2004 with Robert Mauro (filed
as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter
ended June 30, 2004, and incorporated herein by reference).

10.10 *Stock Option issued to Robert Mauro dated April 26, 2004 (filed as
Exhibit 10.4 to our Quarterly Report on Form 10-Q for the quarter
ended June 30, 2004, and incorporated herein by reference).

10.11 *Employment Agreement dated September 7, 2004 with Joan Janulis
(filed as Exhibit 10.1 to our Current Report on Form 8-K, filed with
the SEC on September 13, 2004, and incorporated herein by
reference).

10.12 *Employment Agreement dated September 7, 2004 with Janet Penner
(filed as Exhibit 10.1 to our Current Report on Form 8-K, filed with
the SEC on September 13, 2004, and incorporated herein by
reference).

10.13 *1998 Stock Option Plan (filed as Appendix A to our proxy statement,
filed with the SEC on January 30, 1998, and incorporated herein by
reference).

10.14 *1998 Consultant Stock Plan (filed as Exhibit 4.3 to our
Registration Statement on Form S-8, SEC File No. 33-57249, and
incorporated herein by reference).

10.15 *2003 Stock Incentive Plan (filed as Appendix A to our proxy
statement, filed with the SEC on April 28, 2003, and incorporated
herein by reference).

10.16 *Stock Option issued to Harry Silverman dated April 20, 2000 (filed
as Exhibit 10.39 to our Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2000, and incorporated herein by reference).

10.17 *Stock Option issued to Harry Silverman dated May 31, 2000 (filed as
Exhibit 10.40 to our Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2000, and incorporated herein by reference).

10.18 *Stock Option issued to Dhananjay G. Wadekar dated October 13, 2000
(filed as Exhibit 10.1 to our Quarterly Report on Form 10-QSB for
the quarter ended September 30, 2000, and incorporated herein by
reference).

10.19 *Stock Option issued to F. Howard Schneider dated February 24, 2001
(filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001, and incorporated herein by reference).


49

10.20 *Stock Option issued to Harry Silverman dated February 24, 2001
(filed as Exhibit 10.4 to our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001, and incorporated herein by reference).

10.21 *Stock Option issued to Dhananjay Wadekar dated February 24, 2001
(filed as Exhibit 10.5 to our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001, and incorporated herein by reference).

10.22 *Stock Option issued to Dhananjay G. Wadekar dated August 24, 2002
(filed as Exhibit 10.16 to our Annual Report on Form 10-K for the
fiscal year ended December 31, 2002, and incorporated herein by
reference).

10.23 *Stock Option issued to Harry Silverman dated August 24, 2002 (filed
as Exhibit 10.18 to our Annual Report on Form 10-K for fiscal year
ended December 31, 2002, and incorporated herein by reference).

10.24 *Stock Option issued to F. Howard Schneider dated August 24, 2002
(filed as Exhibit 10.19 to our Annual Report on Form 10-K for fiscal
year ended December 31, 2002, and incorporated herein by reference).

10.25 *Stock Option issued to Jerry Treppel dated October 28, 2002 (filed
as Exhibit 10.20 to our Annual Report on Form 10-K for fiscal year
ended December 31, 2002, and incorporated herein by reference).

10.26 *Stock Option issued to Robert Weinstein dated November 25, 2002
(filed as Exhibit 10.21 to our Annual Report on Form 10-K for fiscal
year ended December 31, 2002, and incorporated herein by reference).

10.27 Lease dated April 25, 2002 with P&R Fasteners, Inc. for 5 Hollywood
Court, South Plainfield, New Jersey (filed as Exhibit 10.7 to our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002,
and incorporated herein by reference).

10.28 Lease Agreement with Matrix Cranbury Associates, LLC dated September
17, 2003 for One Able Drive, Cranbury, New Jersey (filed as Exhibit
10.1 to the Quarterly Report on Form 10-Q for our quarter ended
September 30, 2003, and incorporated herein by reference).

10.29 Lease Agreement for 789 Jersey Avenue, New Brunswick, New Jersey
with HMCJ Realty, L.L.C. dated October 6, 2000 (filed as Exhibit
10.31 to our Annual Report on Form 10-K for the year ended December
31, 2003, and incorporated herein by reference).

10.30 Asset Purchase Agreement dated November 14, 2003 with LiquiSource,
Inc. (filed as Exhibit 10.33 to our Annual Report on Form 10-K for
the year ended December 31, 2003, and incorporated herein by
reference).

10.31 Credit Agreement with Citizens Bank of Massachusetts dated March 2,
2004 (filed as Exhibit 10.53 to our Annual Report on Form 10-K for
the year ended December 31, 2003, and incorporated herein by
reference).

10.32 Revolving Credit Note in favor of Citizens Bank of Massachusetts
dated March 2, 2004 (filed as Exhibit 10.54 to our Annual Report on
Form 10-K for the year ended December 31, 2003, and incorporated
herein by reference).

10.33 Security Agreement with Citizens Bank of Massachusetts dated March
2, 2004 (filed as Exhibit 10.55 to our Annual Report on Form 10-K
for the year ended December 31, 2003, and incorporated herein by
reference).

50

10.34 Pledge Agreement dated March 2, 2004 in favor of Citizens Bank of
Massachusetts (filed as Exhibit 10.56 to our Annual Report on Form
10-K for the year ended December 31, 2003, and incorporated herein
by reference).

10.35 Form of Warrant to Purchase Stock dated June 14, 2002 (filed as
Exhibit 4.9 to our Registration Statement on Form S-3, SEC File No.
333-90654, and incorporated herein by reference).

10.36 First Amendment to Credit Agreement dated June 30, 2004 with
Citizens Bank of Massachusetts (filed as Exhibit 10.5 to our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2004,
and incorporated herein by reference).

23.1 Consent of Wolf & Company, P.C.

31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 of the principal executive officer.

31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 of the principal financial officer.

32.1 Certification of principal executive officer and principal financial
officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


- ---------------------------
* Indicates a management contract or any compensatory plan, contract or
arrangement.








51

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.


ABLE LABORATORIES, INC.


By: /s/ Dhananjay G. Wadekar
------------------------
Dhananjay G. Wadekar
Chief Executive Officer
and Secretary

March 15, 2005


In accordance with the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated; and each of the undersigned
officers and directors of Able Laboratories, Inc. hereby severally constitute
and appoint Dhananjay G. Wadekar, Robert J. Mauro and Nitin V. Kotak our true
and lawful attorney-in-fact and agent, with full power to sign for us and in our
names in the capacity indicated below, all amendments to such report on Form
10-K, hereby ratifying and confirming our signatures as they may be signed by
our said attorneys to such report and any and all amendments thereto.



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

/S/ DHANANJAY G. WADEKAR March 15, 2005 Chief Executive Officer,
- ------------------------ Secretary and Director
DHANANJAY G. WADEKAR (PRINCIPAL EXECUTIVE OFFICER)


/S/ ROBERT J. MAURO March 15, 2005 President, Chief Operating
- ------------------------ Officer and Director
ROBERT J. MAURO


/S/ NITIN V. KOTAK March 15, 2005 Vice President, Finance and
- ------------------------ Accounting and Treasurer
NITIN V. KOTAK (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)

/S/ ELLIOT F. HAHN March 15, 2005 Director
- ------------------------
ELLIOT F. HAHN


/S/ HARRY SILVERMAN March 15, 2005 Director
- ------------------------
HARRY SILVERMAN


/S/ DAVID S. TIERNEY March 15, 2005 Director
- ------------------------
DAVID S. TIERNEY


/S/ JERRY I. TREPPEL March 15, 2005 Director
- ------------------------
JERRY I. TREPPEL


52

ABLE LABORATORIES, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------

3.1 Restated Certificate of Incorporation dated June 11, 1998 (filed as
Exhibit 3a to our Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998, as amended on September 14, 1998, and
incorporated herein by reference).

3.2 Certificate of Amendment of Certificate of Incorporation dated May
31, 2000 (filed as Exhibit 3.2 to our Quarterly Report on Form
10-QSB for the quarter ended June 30, 2000, and incorporated herein
by reference).

3.3 Amended and Restated By-laws dated May 26, 2000 (filed as Exhibit
3.3 to our Quarterly Report on Form 10-QSB for the quarter ended
June 30, 2000, and incorporated herein by reference).

3.4 Certificate of Amendment of Certificate of Incorporation dated May
9, 2001 (filed as Exhibit 3.3 to our Quarterly Report on Form 10-QSB
for the quarter ended June 30, 2001, and incorporated herein by
reference).

3.5 Certificate of Ownership and Merger dated May 18, 2001 (filed as
Exhibit 99.1 to our Current Report on Form 8-K, filed with the SEC
on May 24, 2001, and incorporated herein by reference).

3.6 Certificate of Amendment of Certificate of Incorporation dated May
31, 2002 (filed as Exhibit 3.7 to our Quarterly Report on Form 10-Q
for the quarter ended June 30, 2002, and incorporated herein by
reference).

4.1 Specimen common stock certificate (filed as Exhibit 4a to our
Registration Statement on Form S-18, SEC File No. 33-31836-B, and
incorporated herein by reference).

10.1 *Employment Agreement dated May 29, 2002 with Dhananjay G. Wadekar
(filed as Exhibit 10.6 to our Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002, and incorporated herein by reference).

10.2 *Amended and Restated Employment Agreement dated March 1, 2004 with
Nitin Kotak (filed as Exhibit 10.3 to our Annual Report on Form 10-K
for the year ended December 31, 2003, and incorporated herein by
reference).

10.3 *First Amendment to Amended and Restated Employment Agreement dated
November 30, 2004 with Robert Weinstein.

10.4 *Amended and Restated Employment Agreement dated December 22, 2004
with Shashikant Shah.

10.5 *Amended and Restated Employment Agreement dated March 1, 2004 with
Hemanshu N. Pandya (filed as Exhibit 10.7 to our Annual Report on
Form 10-K for the year ended December 31, 2003, and incorporated
herein by reference).

53

10.6 *Amended and Restated Employment Agreement dated March 1, 2004 with
Howard F. Schneider (filed as Exhibit 10.11 to our Annual Report on
Form 10-K for the year ended December 31, 2003, and incorporated
herein by reference).

10.7 *Amended and Restated Employment Agreement dated April 26, 2004 with
Garth Boehm (filed as Exhibit 10.1 to our Quarterly Report on Form
10-Q for the quarter ended June 30, 2004, and incorporated herein by
reference).

10.8 *Stock Option issued to Garth Boehm dated April 26, 2004 (filed as
Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter
ended June 30, 2004, and incorporated herein by reference).

10.9 *Employment Agreement dated April 26, 2004 with Robert Mauro (filed
as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter
ended June 30, 2004, and incorporated herein by reference).

10.10 *Stock Option issued to Robert Mauro dated April 26, 2004 (filed as
Exhibit 10.4 to our Quarterly Report on Form 10-Q for the quarter
ended June 30, 2004, and incorporated herein by reference).

10.11 *Employment Agreement dated September 7, 2004 with Joan Janulis
(filed as Exhibit 10.1 to our Current Report on Form 8-K, filed with
the SEC on September 13, 2004, and incorporated herein by
reference).

10.12 *Employment Agreement dated September 7, 2004 with Janet Penner
(filed as Exhibit 10.1 to our Current Report on Form 8-K, filed with
the SEC on September 13, 2004, and incorporated herein by
reference).

10.13 *1998 Stock Option Plan (filed as Appendix A to our proxy statement,
filed with the SEC on January 30, 1998, and incorporated herein by
reference).

10.14 *1998 Consultant Stock Plan (filed as Exhibit 4.3 to our
Registration Statement on Form S-8, SEC File No. 33-57249, and
incorporated herein by reference).

10.15 *2003 Stock Incentive Plan (filed as Appendix A to our proxy
statement, filed with the SEC on April 28, 2003, and incorporated
herein by reference).

10.16 *Stock Option issued to Harry Silverman dated April 20, 2000 (filed
as Exhibit 10.39 to our Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2000, and incorporated herein by reference).

10.17 *Stock Option issued to Harry Silverman dated May 31, 2000 (filed as
Exhibit 10.40 to our Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2000, and incorporated herein by reference).

10.18 *Stock Option issued to Dhananjay G. Wadekar dated October 13, 2000
(filed as Exhibit 10.1 to our Quarterly Report on Form 10-QSB for
the quarter ended September 30, 2000, and incorporated herein by
reference).

10.19 *Stock Option issued to F. Howard Schneider dated February 24, 2001
(filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001, and incorporated herein by reference).

10.20 *Stock Option issued to Harry Silverman dated February 24, 2001
(filed as Exhibit 10.4 to our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001, and incorporated herein by reference).

54

10.21 *Stock Option issued to Dhananjay Wadekar dated February 24, 2001
(filed as Exhibit 10.5 to our Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001, and incorporated herein by reference).

10.22 *Stock Option issued to Dhananjay G. Wadekar dated August 24, 2002
(filed as Exhibit 10.16 to our Annual Report on Form 10-K for the
fiscal year ended December 31, 2002, and incorporated herein by
reference).

10.23 *Stock Option issued to Harry Silverman dated August 24, 2002 (filed
as Exhibit 10.18 to our Annual Report on Form 10-K for fiscal year
ended December 31, 2002, and incorporated herein by reference).

10.24 *Stock Option issued to F. Howard Schneider dated August 24, 2002
(filed as Exhibit 10.19 to our Annual Report on Form 10-K for fiscal
year ended December 31, 2002, and incorporated herein by reference).

10.25 *Stock Option issued to Jerry Treppel dated October 28, 2002 (filed
as Exhibit 10.20 to our Annual Report on Form 10-K for fiscal year
ended December 31, 2002, and incorporated herein by reference).

10.26 *Stock Option issued to Robert Weinstein dated November 25, 2002
(filed as Exhibit 10.21 to our Annual Report on Form 10-K for fiscal
year ended December 31, 2002, and incorporated herein by reference).

10.27 Lease dated April 25, 2002 with P&R Fasteners, Inc. for 5 Hollywood
Court, South Plainfield, New Jersey (filed as Exhibit 10.7 to our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002,
and incorporated herein by reference).

10.28 Lease Agreement with Matrix Cranbury Associates, LLC dated September
17, 2003 for One Able Drive, Cranbury, New Jersey (filed as Exhibit
10.1 to the Quarterly Report on Form 10-Q for our quarter ended
September 30, 2003, and incorporated herein by reference).

10.29 Lease Agreement for 789 Jersey Avenue, New Brunswick, New Jersey
with HMCJ Realty, L.L.C. dated October 6, 2000 (filed as Exhibit
10.31 to our Annual Report on Form 10-K for the year ended December
31, 2003, and incorporated herein by reference).

10.30 Asset Purchase Agreement dated November 14, 2003 with LiquiSource,
Inc. (filed as Exhibit 10.33 to our Annual Report on Form 10-K for
the year ended December 31, 2003, and incorporated herein by
reference).

10.31 Credit Agreement with Citizens Bank of Massachusetts dated March 2,
2004 (filed as Exhibit 10.53 to our Annual Report on Form 10-K for
the year ended December 31, 2003, and incorporated herein by
reference).

10.32 Revolving Credit Note in favor of Citizens Bank of Massachusetts
dated March 2, 2004 (filed as Exhibit 10.54 to our Annual Report on
Form 10-K for the year ended December 31, 2003, and incorporated
herein by reference).

10.33 Security Agreement with Citizens Bank of Massachusetts dated March
2, 2004 (filed as Exhibit 10.55 to our Annual Report on Form 10-K
for the year ended December 31, 2003, and incorporated herein by
reference).

10.34 Pledge Agreement dated March 2, 2004 in favor of Citizens Bank of
Massachusetts (filed as Exhibit 10.56 to our Annual Report on Form
10-K for the year ended December 31, 2003, and incorporated herein
by reference).

55

10.35 Form of Warrant to Purchase Stock dated June 14, 2002 (filed as
Exhibit 4.9 to our Registration Statement on Form S-3, SEC File No.
333-90654, and incorporated herein by reference).

10.36 First Amendment to Credit Agreement dated June 30, 2004 with
Citizens Bank of Massachusetts (filed as Exhibit 10.5 to our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2004,
and incorporated herein by reference).

23.1 Consent of Wolf & Company, P.C.

31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 of the principal executive officer.

31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 of the principal financial officer.

32.1 Certification of principal executive officer and principal financial
officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

- -------------------
* Indicates a management contract or any compensatory plan, contract or
arrangement.






















56