UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                ________________

                                    FORM 10-Q

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

                  For the quarterly period ended March 31, 2002

                         COMMISSION FILE NUMBER 1-10827


                         PHARMACEUTICAL RESOURCES, INC.
             (Exact name of registrant as specified in its charter)


          NEW JERSEY                                            22-3122182
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                           Identification Number)


ONE RAM RIDGE ROAD, SPRING VALLEY, NEW YORK                      10977
  (Address of principal executive offices)                     (Zip Code)


       Registrant's telephone number, including area code: (845) 425-7100



     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  twelve  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 T No___



                                   32,077,163
         Number of shares of Common Stock outstanding as of May 8, 2002.

          This is page 1 of 87 pages. The exhibit index is on page 24.


<PAGE>

                          PART I. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS
                         PHARMACEUTICAL RESOURCES, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (In Thousands, Except Share Data)

                                                     MARCH 31,    DECEMBER 31,
                       ASSETS                          2002           2001
                       ------                          ----           ----
                                                    (Unaudited)    (Audited)
Current assets:
  Cash and cash equivalents                           $77,546        $67,742
  Accounts receivable, net of allowances of
   $30,607 and $47,168                                 17,834         38,009
  Inventories                                          44,304         31,458
  Prepaid expenses and other current assets             5,555          4,156
  Deferred income tax assets                           34,578         34,485
                                                       ------         ------
   Total current assets                               179,817        175,850

Property, plant and equipment, at cost less
 accumulated depreciation and amortization             25,785         24,345

Deferred charges and other assets                       1,375          1,427

Intangible assets                                      29,184         15,304
                                                       ------         ------
   Total assets                                      $236,161       $216,926
                                                     ========       ========


                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------

Current liabilities:
  Current portion of long-term debt                      $224           $239
  Accounts payable                                     22,860         18,007
  Payables due to distribution agreement partners      21,932         32,295
  Accrued salaries and employee benefits                3,717          2,859
  Accrued expenses and other current liabilities        5,700          4,817
  Income taxes payable                                 16,776         14,766
                                                       ------         ------
     Total current liabilities                         71,209         72,983

Long-term debt, less current portion                    1,016          1,060

Accrued pension liability                                 331            331

Deferred income tax liabilities, net                    4,077          4,129

Commitments and contingencies

Shareholders' equity:
  Common Stock, par value $.01 per share; authorized
  90,000,000 shares; issued and outstanding
  32,058,332 and 32,035,189 shares                        321            320
  Additional paid-in capital                          115,954        115,610
  Retained earnings                                    43,253         22,493
                                                       ------         ------
    Total shareholders' equity                        159,528        138,423
                                                      -------        -------
    Total liabilities and shareholders' equity       $236,161       $216,926
                                                     ========       ========





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


                                       2
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                    CONSOLIDATED STATEMENTS OF OPERATIONS AND
                     RETAINED EARNINGS (ACCUMULATED DEFICIT)
                    (In Thousands, Except Per Share Amounts)
                                   (Unaudited)



                                                       THREE MONTHS ENDED
                                                       ------------------
                                                                  (*AS RESTATED)
                                                     MARCH 31,       MARCH 31,
                                                        2002            2001
                                                        ----            ----
Net sales                                             $80,508        $25,704
Cost of goods sold                                     41,233         17,276
                                                       ------         ------
Gross margin                                           39,275          8,428
Operating expenses:
  Research and development                              2,874          1,538
  Selling, general and administrative                   7,516          4,195
                                                        -----          -----
     Total operating expenses                          10,390          5,733
                                                       ------          -----
     Operating income                                  28,885          2,695
Settlements                                             9,051              -
Other (expense) income                                 (4,157)           319
Interest income (expense)                                 254           (220)
                                                          ---           ----
Income before provision for income taxes               34,033          2,794
Provision for income taxes                             13,273          1,298
                                                       ------          -----

NET INCOME                                             20,760          1,496

Retained earnings (accumulated deficit), beginning
  of period                                            22,493        (31,429)
                                                       ------         ------
Retained earnings (accumulated deficit), end
  of period                                           $43,253       $(29,933)
                                                       ======        =======

NET INCOME PER SHARE OF COMMON STOCK:
  BASIC                                                  $.65           $.05
                                                          ===            ===
  DILUTED                                                $.63           $.05
                                                          ===            ===

WEIGHTED AVERAGE NUMBER OF COMMON AND
  COMMON EQUIVALENT SHARES OUTSTANDING:
  BASIC                                                32,048         29,661
                                                       ======         ======
  DILUTED                                              32,868         31,235
                                                       ======         ======

*Restated as described in the Notes to Consolidated Financial Statements.












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


                                       3
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)
                                   (Unaudited)

                                                       THREE MONTHS ENDED
                                                       ------------------
                                                                  (*AS RESTATED)
                                                     MARCH 31,       MARCH 31,
                                                        2002            2001
                                                        ----            ----
Cash flows from operating activities:
  Net income                                          $20,760         $1,496
  Adjustments to reconcile net income
   to net cash provided by (used) in operating
     activities:
   Deferred income taxes                                 (145)         1,024
   Depreciation and amortization                          930            831
   Write-off of inventories                             1,765            285
   Allowances against accounts receivable             (16,561)           566
   Settlements                                         (9,651)             -
   Tax benefit from exercise of stock options             170            188
   Other                                                    5             64
  Changes in assets and liabilities:
   Decrease (increase) in accounts receivable          36,736         (2,558)
   (Increase) decrease in inventories                 (14,611)            41
   Increase in prepaid expenses and other assets       (5,896)          (946)
   Increase (decrease) in accounts payable              4,853         (2,164)
   Decrease in payables due to distribution agreement
     partners                                         (10,363)          (303)
   Increase (decrease) in accrued expenses and other
     liabilities                                        1,741           (189)
   Increase in income taxes payable                     2,010             86
                                                        -----             --
       Net cash provided by (used in) operating
         activities                                    11,743         (1,579)

Cash flows from investing activities:
      Capital expenditures                             (2,055)          (456)
      Proceeds from sale of fixed assets                    -             17
                                                        -----             --
     Net cash used in investing activities             (2,055)          (439)

Cash flows from financing activities:
    Proceeds from issuances of Common Stock               175              5
    Net proceeds from revolving credit line                 -          2,128
    Principal payments under long-term debt and other
      borrowings                                          (59)           (85)
                                                          ---            ---
       Net cash provided by financing activities          116          2,048

Net increase in cash and cash equivalents               9,804             30
Cash and cash equivalents at beginning of period       67,742            222
                                                       ------            ---
Cash and cash equivalents at end of period            $77,546           $252
                                                       ======            ===


* RESTATED AS DESCRIBED IN THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.










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

                                       4
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2002
                                   (UNAUDITED)

     Pharmaceutical Resources, Inc. (the "Company" or "PRI") operates, primarily
through its wholly owned subsidiary,  Par  Pharmaceutical,  Inc. ("Par"), in one
business segment, the manufacture and distribution of generic pharmaceuticals in
the United States.  Marketed  products are principally in solid oral dosage form
(tablet,  caplet and two-piece hard-shell capsule). The Company also distributes
one product in the semi-solid form of a cream and one oral suspension.

*restatement of results

     Certain items in the consolidated  financial statements for the three-month
period ended March 31, 2001 have been restated to change the manner in which the
Company  accounted for its transactions  with Merck KGaA in fiscal year 1998. In
June 1998, the Company sold to Merck KGaA 10,400,000 shares of its Common Stock,
and entered into a distribution agreement, dated March 1998, with Genpharm, Inc.
("Genpharm"),  a Canadian  subsidiary  of Merck  KGaA.  Previously,  the Company
accounted  for the sale of the Common  Stock and the  distribution  agreement as
separate transactions.  In restating its consolidated financial statements,  the
Company has  accounted  for the two  agreements  as a single  transaction  under
Emerging  Issues Task Force Issue  ("EITF")  No.  96-18  "Accounting  for Equity
Instruments  that are  Issued  to Other  than  Employees  for  Acquiring,  or in
Conjunction with Selling Goods or Services". Under EITF 96-18, the fair value of
the Common Stock sold, to the extent it exceeded the cash consideration received
for such Common Stock,  must be attributed to the  distribution  agreement.  The
Company  determined  the fair value of the Common Stock sold to Merck KGaA to be
$27,300,000, which exceeded the cash consideration of $20,800,000 by $6,500,000.
That $6,500,000 has therefore been assigned to the distribution agreement,  with
a corresponding  increase in  shareholders'  equity.  Additionally,  the Company
recorded a deferred tax liability, and a corresponding increase in the financial
reporting basis of the distribution  agreement, of $4,333,000 to account for the
difference  between  the  basis  in the  distribution  agreement  for  financial
reporting  and income  tax  purposes  as  required  by  Statement  of  Financial
Accounting  Standards  ("SFAS") No. 109,  "Accounting  for Income  Taxes" ("SFAS
109"). The aggregate of $10,833,000  assigned to the  distribution  agreement is
included in intangible  assets,  and beginning in the third calendar  quarter of
1998 is  being  amortized  on a  straight-line  basis  over  fifteen  years as a
non-cash charge included in selling,  general and administrative  expenses.  The
impact  of the  restatement  for the three  months  ended  March 31,  2001 is as
follows:

                                                       Three Months Ended
CONSOLIDATED STATEMENTS OF                                March 31, 2001
--------------------------                          ----------------------------
OPERATIONS AND ACCUMULATED DEFICIT                  As Reported     Restated
----------------------------------                  -----------     ------------
Selling, general and administrative                       $4,014        $4,195

Net income                                                $1,677        $1,496

Accumulated deficit                                     ($27,946)     ($29,933)

Net income per share of common stock:
  Basic                                                    $0.06         $0.05
  Diluted                                                  $0.05         $0.05

BASIS OF PREPARATION:

     The accompanying  consolidated  financial  statements at March 31, 2002 and
for the  three-month  periods  ended  March  31,  2002 and  March  31,  2001 are
unaudited;  however, in the opinion of the Company's management, such statements
include all adjustments  (consisting of normal recurring  accruals) necessary to
present a fair statement of the information  presented therein. The consolidated
balance  sheet at  December  31,  2001 was derived  from the  Company's  audited
consolidated financial statements at such date.

     Pursuant  to  accounting   requirements  of  the  Securities  and  Exchange
Commission  applicable  to  quarterly  reports  on Form 10-Q,  the  accompanying
financial  statements and these notes do not include all disclosures required by
accounting  principles  generally  accepted  in the United  States  for  audited
financial   statements.   Accordingly,   these  statements  should  be  read  in
conjunction with the Company's most recent annual financial statements.

                                       5
<PAGE>
                        PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2002
                                   (UNAUDITED)

     Results of operations for interim periods are not necessarily indicative of
those to be achieved for full fiscal years.  Certain  items on the  consolidated
financial statements for the prior year have been reclassified to conform to the
current year financial statement presentation.

ACCOUNTS RECEIVABLE:
                                                        MARCH 31, DECEMBER 31,
                                                          2002        2001
                                                          ----        ----
                                                           (IN THOUSANDS)
     Accounts receivable                                $48,441     $85,177
                                                        -------     -------

     Allowances:
     Doubtful accounts                                      689         998
     Returns and allowances                               8,409       4,847
     Price adjustments                                   21,509      41,323
                                                         ------      ------
                                                         30,607      47,168
                                                         ======      ======
     Accounts receivable,
     net of allowances                                  $17,834     $38,009

     The accounts receivable amounts at March 31, 2002 and December 31, 2001 are
net of  provisions  for customer  rebates of  $8,121,000  and  $14,081,000,  and
chargebacks of $54,786,000 and $41,830,000,  respectively.  Customer rebates are
price reductions  generally given to customers as an incentive to increase sales
volume.  This incentive is based on a customer's  volume of purchases  during an
applicable   monthly,   quarterly  or  annual  period.   Chargebacks  are  price
adjustments  given to the wholesale  customer for product it resells to specific
healthcare  providers on the basis of prices negotiated  between the Company and
the  provider.  Where the provider has  negotiated  with the Company for a price
below the normal resale price,  the Company  adjusts its price to the wholesaler
supplying that provider accordingly. The adjustment is based on the wholesaler's
actual resales to that provider.

     The accounts  receivable  allowances include price adjustments that consist
of  cash  discounts,  sales  promotions  and  price  protection  or  shelf-stock
adjustments. The Company may offer price protection, or shelf-stock adjustments,
with respect to sales of new generic drugs for which it has a market exclusivity
period.  To  account  for the fact that the price of such drugs  typically  will
decline when additional generic manufacturers  introduce and market a comparable
generic  product at the end of the  exclusivity  period,  such plans,  which are
common in the industry,  generally provide that the Company credit its customers
with respect to the quantity remaining on the customer's shelf at the end of the
exclusivity period for the difference between the Company's new price at the end
of the exclusivity  period and the price at which the Company sold the customers
the product.  In the  Company's  experience,  the amount by which the price of a
drug may decline at the end of an exclusivity  period will depend in part on the
number  of  additional  generic   manufacturers  that  introduce  and  market  a
comparable  product.  The  Company  estimates  the amount by which  prices  will
decline by monitoring the number and status of U.S. Food and Drug Administration
("FDA") applications and tentative approvals and its historical  experience with
other drugs for which the Company had market exclusivity.  The Company estimates
the amount of shelf stock that will remain at the end of an  exclusivity  period
based on both its  knowledge of the  inventory  practices  for  wholesalers  and
retail  distributors and  conversations  it has with its major customers.  Using
these factors,  the Company  estimates the total price protection credit it will
have to issue at the end of an exclusivity  period.  The Company records charges
(reductions of sales) to accrue this amount for specific product sales that will
be subject to price  protection  based on the  Company's  estimate  of  customer
inventory levels and market prices at the end of the exclusivity period.

     The  Company's  exclusivity  period for megestrol  acetate oral  suspension
ended in  mid-January  2002.  The Company has  recently  learned  that a generic
competitor  was  granted  FDA  approval  to market  another  generic  version of
megestrol  acetate oral  suspension  and began shipping the product to a limited
number of  customers  in the  second  quarter  of 2002.  In  addition,  a second
potential generic  competitor  entered into a settlement  agreement with Bristol
Myers Squibb ("BMS") pursuant to which the public record states that the present
formulation of the generic  company's  product infringes a BMS patent related to
megestrol  acetate.  However,  at this time the Company has no information as to
whether the settlement  agreement  provides for the generic  competitor to enter
the market at some point in the future.  The Company has patents  that cover its
unique  formulation for megestrol  acetate oral suspension and will avail itself
of all legal  remedies and will take all of the  necessary  steps to protect its
intellectual property rights. Although competitors may be taking the necessary


                                       6
<PAGE>

                        PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2002
                                   (UNAUDITED)

steps to enter  the  market,  the  Company  believes  they  are less  likely  to
successfully  enter this market  because of patents owned by BMS or the Company.
Megestrol  acetate oral  suspension  is still  anticipated  to be a  significant
profit   contributor   during  fiscal  year  2002,   despite  the  potential  of
competition.  Based  on these  factors  and the  Company  not  experiencing  any
significant  competition to date, the Company did not record a price  protection
reserve for megestrol  acetate oral  suspension  as of March 31, 2002,  but will
continue evaluating the effect of potential  competition and will record a price
protection reserve when it deems necessary.

     The Company's exclusivity period for fluoxetine ended in late-January 2002.
With respect to fluoxetine,  the Company  established a price protection reserve
during  the  exclusivity  period  of  approximately  $34,400,000,  based  on its
estimate  that between  eight and ten  additional  generic  manufacturers  would
introduce  and market  comparable  products  for the 10 mg and 20 mg tablets and
between one and three  additional  manufacturers  would  introduce  and market a
comparable  product for the 40 mg capsules.  As a result of the  introduction of
these  competing  generic  products  during the first quarter of 2002, the sales
price for  fluoxetine  has  substantially  declined  from the price the  Company
received during the exclusivity  period and the Company issued price  protection
credits of approximately $23,500,000 through March 31, 2002. The Company expects
that the remaining price  protection  reserve at March 31, 2002 of approximately
$10,900,000  will be sufficient and fully utilized.  Accordingly,  the Company's
sales and gross  margins  generated by  fluoxetine in fiscal year 2002 have been
and will continue to be adversely affected in future periods. Although there can
be no  assurance,  the Company  expects to continue to  introduce  new  products
throughout  fiscal year 2002 and increase sales of certain existing  products to
offset the loss of sales and gross margin on its fluoxetine products.

CHANGES IN SHAREHOLDERS' EQUITY:

     Changes  in the  Company's  Common  Stock and  Additional  Paid-in  Capital
accounts during the three months ended March 31, 2002 were as follows:

                                                                  ADDITIONAL
                                                COMMON STOCK        PAID-IN
                                            SHARES       AMOUNT     CAPITAL
                                            ------       ------     -------
     Balance, December 31, 2001        32,035,189    $320,000  $115,610,000
      Exercise of stock options            22,008       1,000       117,000
      Compensatory arrangements             1,135           -       227,000
                                            -----       -----       -------
     Balance, March 31, 2002           32,058,332    $321,000  $115,954,000
                                       ==========    ========  ============

RESEARCH AND DEVELOPMENT AGREEMENT:

     The Company,  Israel  Pharmaceutical  Resources L.P. ("IPR"),  and Generics
(UK) Ltd.  ("Generics"),  a subsidiary of Merck KGaA,  entered into an agreement
(the "Development  Agreement"),  dated as of August 11, 1998,  pursuant to which
Generics  agreed to fund one-half the costs of the operating  budget of IPR, the
Company's  research and  development  operation  in Israel,  in exchange for the
exclusive distribution rights outside of the United States to products developed
by IPR after the date of the Development Agreement. In addition, Generics agreed
to pay IPR a perpetual  royalty for all sales of the products by Generics or its
affiliates  outside  the United  States.  To date,  no such  products  have been
brought to market by  Generics  and no royalty  has been paid.  The  Development
Agreement  has an  initial  term of five  years  and  automatically  renews  for
additional  periods of one year subject to earlier  termination upon six months'
notice in certain circumstances. Pursuant to the Development Agreement, Generics
funded  approximately  $788,000  for fiscal year 2001 and $170,000 for the first
three months of fiscal year 2002,  fulfilling their funding requirements through
March 31, 2002.  Under the  Development  Agreement,  Generics is not required to
fund more than $1,000,000 in any one calendar year.

INTANGIBLE ASSETS:

     On March 5, 2002 the  Company  acquired  the United  States  rights to five
products from BMS. The products  include the  antihypertensives  Capoten(R)  and
Capozide(R),  the  cholesterol-lowering  medications  Questran(R)  and  Questran
Light(R), and Sumycin(R), an antibiotic. Based on the Company's market research,
these  products  are  expected  to  generate  annual net sales of  approximately
$10,000,000.  The product  acquisition  agreement is  retroactive  to January 1,
2002. To obtain the rights to the five products,  the Company paid approximately
$1,024,000  in  March  2002  and  agreed  to  make  an  additional   payment  of


                                       7
<PAGE>

                        PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2002
                                   (UNAUDITED)

approximately  $1,025,000 in the first quarter of 2003.  The Company also agreed
to terminate its outstanding  litigation against BMS involving megestrol acetate
oral  suspension and buspirone.  The Company  determined,  through a third party
appraisal, the fair value of the agreement to be $11,700,000, which exceeded the
cash consideration of $2,049,000 and associated costs of $600,000 by $9,051,000.
The $9,051,000  value was assigned to the litigation  settlement and included in
the  settlement  income in the first quarter of 2002.  The value assigned to the
agreement  was  included  in  intangible  assets  and  will  be  amortized  on a
straight-line  basis over seven years as a non-cash charge that will be included
in cost of goods sold.

     In  November  2001,  the  Company  entered  into a  joint  development  and
marketing  agreement with Breath Ltd. of the Arrow Group to pursue the worldwide
distribution of latanoprost  ophthalmic  solution 0.005%, the generic equivalent
of Pharmacia Corporation's ("Pharmacia") Xalatan(R), a glaucoma medication. As a
result of this agreement, Par filed an Abbreviated New Drug Application ("ANDA")
for  latanoprost,  including  a Paragraph  IV  certification  that the  existing
patents for the product will not be infringed by Par's generic product.  Par has
reason  to  believe  that its ANDA is the first to be filed for this drug with a
Paragraph IV certification. In December 2001, Pharmacia, among others, initiated
a patent  infringement  action against Par and Par intends to vigorously  defend
its  position  in its  pending  litigation  with  Pharmacia.  Pursuant  to  this
agreement Par made payments to Breath Ltd. of $2,500,000 in fiscal year 2001 and
$2,500,000  in the first  quarter of fiscal  year 2002,  which are  included  in
intangible assets on the consolidated balance sheets (see "-Legal Proceedings").

     In April 1999,  the Company  entered into an agreement  with  FineTech Ltd.
("FineTech")  for the right to use a process for a  pharmaceutical  bulk active.
Pursuant to this agreement, the Company paid FineTech approximately  $2,000,000,
included in intangible  assets on the  consolidated  balance  sheets,  in fiscal
years  2000  and 2001  for a  completed  process  together  with its  technology
transfer package and patent. The Company will pay royalties to FineTech on gross
margins from sales of all products developed pursuant to this agreement.

     In January 1999, the Company  entered into a profit sharing  agreement (the
"Genpharm Profit Sharing Agreement") with Genpharm pursuant to which the Company
will receive a portion of the profits  generated  from the sale of products sold
under a separate  agreement  between Genpharm and an unaffiliated  United States
based pharmaceutical  company in exchange for a non-refundable fee of $2,500,000
paid by the Company.  The fee, included in intangible assets on the consolidated
balance  sheets,  will be  amortized  over a projected  revenue  stream from the
products  when  launched  by the third  party.  To date  there are two ANDAs for
potential  products covered under the Genpharm Profit Sharing Agreement awaiting
FDA approval.  The agreement  between Genpharm and the unaffiliated  third party
covers 15 products  that are not included in the  Company's  other  distribution
agreements with Genpharm as described below.

     On June 30, 1998,  the Company  completed a strategic  alliance  with Merck
KGaA, a  pharmaceutical  and chemical  company  located in  Darmstadt,  Germany.
Pursuant to a Stock Purchase Agreement, dated March 25, 1998, the Company issued
10,400,000  shares of the  Company's  Common  Stock to Merck  KGaA,  through its
subsidiary EMD, Inc. ("EMD" formerly known as Lipha Americas,  Inc.) in exchange
for cash of $20,800,000 and the exclusive United States distribution rights to a
portfolio of products covered by a distribution agreement, dated March 25, 1998,
with Genpharm (the "Genpharm  Distribution  Agreement").  The Company determined
the fair value of the Common  Stock  sold to Merck KGaA was  $27,300,000,  which
exceeded the cash  consideration  of $20,800,000  by $6,500,000.  The $6,500,000
value was assigned to the Genpharm Distribution Agreement,  with a corresponding
increase in shareholders' equity. Additionally,  the Company recorded a deferred
tax liability,  and a corresponding increase in the financial reporting basis of
the distribution  agreement, of $4,333,000 to account for the difference between
the basis in the distribution  agreement for financial  reporting and income tax
purposes as required by SFAS 109. The aggregate of  $10,833,000  assigned to the
distribution  agreement is included in intangible  assets,  and beginning in the
third calendar quarter of 1998, is being amortized on a straight-line basis over
fifteen  years  as  a  non-cash   charge   included  in  selling,   general  and
administrative expenses.

     Under  the  Genpharm  Distribution  Agreement,  the  Company  obtained  the
exclusive  distribution rights within the United States and certain other United
States territories to approximately 40 generic pharmaceutical products. To date,
16 of such  products  have  obtained  FDA approval  and 15 are  currently  being
marketed by Par. The remaining  products are either being  developed,  have been
identified  for  development,  or have been  submitted to the FDA for  approval.


                                       8
<PAGE>

                        PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2002
                                   (UNAUDITED)

Currently,  there are eight ANDAs for potential products (two of which have been
tentatively  approved) that are covered by the Genpharm  Distribution  Agreement
pending with, and awaiting  approval from, the FDA.  Genpharm is required to use
commercially  reasonable  efforts to develop the products and is responsible for
the completion of product  development  and obtaining all applicable  regulatory
approvals.  The Company pays  Genpharm a percentage  of the gross profits on all
sales of products covered by the Genpharm Distribution Agreement.

     On July  31,  2001,  Alphapharm  Pty  Ltd.  ("Alphapharm"),  an  Australian
subsidiary of Merck KGaA,  was granted final  approval by the FDA for flecainide
acetate  tablets,  the generic  version of  Minnesota  Mining and  Manufacturing
Companys' ("3Ms'")  Tambocor(R),  which will be distributed by the Company under
the Genpharm Distribution  Agreement.  Since Alphapharm was the first-to-file an
ANDA and obtained Paragraph IV certification,  the Company anticipates receiving
up to 180 days of marketing exclusivity for the product. The Company anticipates
commencing  the  marketing  of the product in the second  quarter of fiscal year
2002.

     On September 5, 2001,  Merck KGaA and certain of its affiliates  sold their
entire holdings of 13,634,012 shares of Common Stock, representing approximately
43% of the Company's  total number of outstanding  shares of Common Stock at the
close of the  transaction  in  September  2001,  to  unaffiliated  institutional
investors in a private placement. The selling of these shares did not change the
terms of any existing distribution or development agreements between the Company
and Merck KGaA or its affiliates.

LEASE AGREEMENT:

     In  March  1999,  Par  entered  into an  agreement  to  lease  (the  "Lease
Agreement")  its  manufacturing  facility and related  machinery  and  equipment
located in Congers,  New York (the "Congers  Facility") to Halsey Drug Co., Inc.
("Halsey"),  a  manufacturer  of  generic  pharmaceutical  products.  The  Lease
Agreement has an initial term of three years,  subject to an additional two-year
renewal period and contains a purchase option  permitting Halsey to purchase the
Congers Facility and  substantially all the equipment thereof at any time during
the lease terms for a specified amount.  The Lease Agreement provides for annual
fixed rent during the initial  term of $500,000  per year and  $600,000 per year
during the renewal period.

DISTRIBUTION AND SUPPLY AGREEMENTS:

DR. REDDY'S LABORATORIES LTD.
     In April 2001, the Company and Dr. Reddy's  Laboratories Ltd. ("Reddy"),  a
producer  of bulk  active  ingredients  for the  pharmaceutical  industry  and a
developer and  manufacturer of finished  dosage forms located in India,  entered
into  a  broad-based   co-marketing   and  development   agreement  (the  "Reddy
Development  and Supply  Agreement")  covering  up to 14 generic  pharmaceutical
products,  five of which have been filed with,  and awaiting  approval from, the
FDA, to be marketed  exclusively  by Par in the United  States and certain other
United  States  territories.  Reddy is required to use  commercially  reasonable
efforts to develop  the  products  covered by the Reddy  Development  and Supply
Agreement,  and is responsible for the completion of product development and for
obtaining  all  applicable  regulatory  approvals.  The Company will pay Reddy a
percentage  of the  gross  profits  on  sales  of the  products  sold  by Par in
accordance with the Reddy Development and Supply  Agreement.  On August 2, 2001,
the  Company  received  180-day  marketing  exclusivity  for  fluoxetine  40  mg
capsules, the generic version of Eli Lilly and Company's Prozac(R),  pursuant to
the Reddy  Development and Supply Agreement and began  immediately  shipping the
product.

     The products  covered by the Reddy  Development and Supply Agreement are in
addition to five products  currently  being  marketed by the Company under prior
agreements with Reddy.  Pursuant to these  agreements,  the Company pays Reddy a
certain  percentage of the gross profits on sales of any products  covered under
such agreements.

GENPHARM, INC.:
     The  Company  and  Genpharm  entered  into a  distribution  agreement  (the
"Genpharm Additional Product  Agreement"),  dated November 27, 2000, pursuant to
which  Genpharm  granted the Company  exclusive  distribution  rights within the
United States and certain other United States  territories  with respect to five
generic pharmaceutical products not included in the Company's other distribution
agreements with Genpharm (see  "-Intangible  Assets" and "-Subsequent  Events").
The products are either being  developed,  have been identified for development,


                                       9
<PAGE>

                        PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2002
                                   (UNAUDITED)

or have been  submitted to the FDA for  approval.  Currently,  there is one ANDA
(tentatively   approved)  for  a  potential  product  covered  by  the  Genpharm
Additional  Product Agreement pending with, and awaiting approval from, the FDA.
Genpharm  and the Company are sharing the costs of  developing  the products and
for obtaining all applicable regulatory approvals. The Company will pay Genpharm
a  percentage  of the gross  profits on all sales of  products  included  in the
Genpharm  Additional Product Agreement.  On August 2, 2001, the Company received
180-day  marketing  exclusivity  for  fluoxetine  (Prozac(R))  10 mg  and  20 mg
tablets, covered under the Genpharm Additional Product Agreement and immediately
began shipping the product.

BASF CORPORATION:
     In April 1997, Par entered into a Manufacturing  and Supply  Agreement (the
"BASF Supply  Agreement")  with BASF  Corporation  ("BASF"),  a manufacturer  of
pharmaceutical products. Under the BASF Supply Agreement, Par agreed to purchase
minimum  quantities of certain  products  manufactured by BASF, and to phase out
Par's  manufacturing  of  those  products.  As  part  of  the  agreement,   BASF
discontinued  its direct sale of those  products.  The  agreement had an initial
term of three years and would have renewed automatically for successive two-year
periods  until  December 31, 2005, if Par had met certain  purchase  thresholds.
Since Par did not meet the minimum  purchase  requirement  of one product in the
third and final  year of the  agreement,  BASF had the  right to  terminate  the
agreement  with a notice period of one year.  BASF has not given Par such notice
and to ensure continuance of product supply, BASF and the Company have agreed to
continue to operate under terms similar to those of the BASF Supply Agreement.

PAYABLES DUE TO DISTRIBUTION AGREEMENT PARTNERS:
     As of March 31, 2002 and December 31, 2001, the Company had payables due to
distribution agreement partners of $21,932,000 and $32,295,000, respectively.

SHORT-TERM DEBT:

     In December 1996, Par entered into a Loan and Security Agreement (the "Loan
Agreement")  with  General  Electric  Capital  Corporation  ("GECC").  The  Loan
Agreement,  as amended,  provides Par with a revolving  line of credit  expiring
March 2005. Pursuant to the Loan Agreement, Par is permitted to borrow up to the
lesser of (i) the borrowing  base  established  under the Loan Agreement or (ii)
$30,000,000.  The  borrowing  base  is  limited  to  85%  of  eligible  accounts
receivable  plus 50% of eligible  inventory of Par, each as determined from time
to time by GECC. The interest rate charged on the line of credit is based upon a
per annum rate of 2.25% above the 30-day  commercial  paper rate for  high-grade
unsecured notes adjusted monthly. The line of credit with GECC is secured by the
assets of Par, PRI and certain  subsidiaries,  other than real property,  and is
guaranteed  by PRI and  certain of its  subsidiaries.  In  connection  with such
facility,  Par, PRI and their  subsidiaries  have  established a cash management
system pursuant to which all cash and cash  equivalents  received by any of such
entities are deposited into a lockbox account over which GECC has sole operating
control if there are amounts  outstanding under the line of credit. The deposits
would then be applied on a daily basis to reduce the amounts  outstanding  under
the line of credit.  The revolving credit facility is subject to covenants based
on various  financial  benchmarks.  As of March 31, 2002, the borrowing base was
approximately  $26,700,000.  To  date,  no debt is  outstanding  under  the Loan
Agreement.

INCOME TAXES:

     The Company  accounts for income taxes in accordance with the provisions of
SFAS 109,  which  requires  the  Company to  recognize  deferred  tax assets and
liabilities for the future tax consequences  attributable to differences between
the financial  statement carrying amounts of existing assets and liabilities and
their respective tax bases. At March 31, 2002 and December 31, 2001, the Company
had deferred  income tax assets of $34,578,000  and  $34,485,000,  respectively,
consisting of temporary  differences,  primarily related to accounts  receivable
reserves,  and net deferred income tax liabilities of $4,077,000 and $4,129,000,
respectively, primarily related to the Genpharm Distribution Agreement.

                                       10
<PAGE>

                        PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2002
                                   (UNAUDITED)

EARNINGS PER SHARE:

     The Company  presents  earnings per share data in accordance  with SFAS No.
128,  "Earnings Per Share" ("SFAS 128"), which establishes the standards for the
computation and presentation of basic and diluted earnings per share data. Under
SFAS 128, the dilutive  effect of stock options is excluded from the calculation
of basic earnings per share but included in diluted earnings per share except in
periods of net loss where inclusion would be  anti-dilutive.  The following is a
reconciliation  of the amounts used to calculate basic and diluted  earnings per
share:

                                                    THREE MONTHS ENDED
                                                    ------------------
                                                          (*AS RESTATED)
                                                   MARCH 31, MARCH 31,
                                                     2002      2001
                                                     ----      ----
                                        (In Thousands, Except Per Share Amounts)
NET INCOME                                          $20,760     $1,496
BASIC:
Weighted average number of common
  shares outstanding                                 32,048     29,661

NET INCOME PER SHARE OF COMMON STOCK                   $.65       $.05
                                                        ===        ===
ASSUMING DILUTION:
Weighted average number of common
  shares outstanding                                 32,048     29,661
Effect of dilutive options                              820      1,574
                                                        ---      -----
Weighted average number of common and common
   equivalent shares outstanding                     32,868     31,235

NET INCOME PER SHARE OF COMMON STOCK                   $.63       $.05
                                                        ===        ===

     The Company had outstanding  options of 2,034,125 as of March 31, 2002 that
were not included in the  computation of diluted  earnings per share because the
exercise  prices were greater than the average  market price of the Common Stock
in the period. As of March 31, 2001, incremental shares from assumed conversions
of all of the  Company's  outstanding  options and warrants were included in the
computation of diluted earnings per share.

NEW ACCOUNTING STANDARDS:

     In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business  Combinations"  ("SFAS 141"), and SFAS No. 142, "Goodwill and
Other  Intangible  Assets"  ("SFAS 142").  SFAS 141 changes the  accounting  for
business combinations, requiring that all business combinations be accounted for
using  the  purchase  method  and is  effective  for all  business  combinations
initiated after June 30, 2001.  SFAS 142 specifies the financial  accounting and
reporting  for  acquired  goodwill  and other  intangible  assets.  Goodwill and
intangible  assets that have  indefinite  useful lives will not be amortized but
rather will be tested at least  annually for  impairment.  SFAS 142 is effective
for fiscal years beginning after December 15, 2001.

     SFAS 142 requires that the useful lives of intangible assets acquired on or
before  June 30,  2001 be  reassessed  and the  remaining  amortization  periods
adjusted  accordingly.  Previously  recognized  intangible assets deemed to have
indefinite  lives should be tested for  impairment.  Goodwill  recognized  on or
before June 30, 2001 shall be tested for  impairment  as of the beginning of the
fiscal year in which SFAS 142 is initially applied in its entirety.

     In  August of 2001,  the FASB  issued  SFAS No.  144,  "Accounting  for the
Impairment  or Disposal of Long Lived  Assets,"  ("SFAS 144") which is effective
for fiscal years  beginning  after  December 15, 2001.  SFAS 144  addresses  the
financial  accounting and reporting for the impairment or disposal of long lived
assets and supersedes  SFAS 121 and the  accounting and reporting  provisions of
the APB  Opinion No. 30,  "Reporting  the  Results of  Operations-Reporting  the
Effects of the Disposal of a Segment of a Business, and Extraordinary,  Unusual,


                                       11
<PAGE>

                        PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2002
                                   (UNAUDITED)

and  Infrequently  Occurring  Events and  Transactions,"  for the  disposal of a
segment of a business.

     The  adoption  of these new  accounting  standards  did not have a material
impact on the Company's consolidated  financial position,  results of operations
and cash flows.

COMMITMENTS, CONTINGENCIES AND:

RETIREMENT PLANS:
     The  Company  has  a  defined   contribution   social  security  integrated
retirement plan (the "Retirement  Plan") which provides  retirement  benefits to
eligible  employees as defined in the  Retirement  Plan.  The Company  suspended
employer  contributions  to the  Retirement  Plan  effective  December 30, 1996.
Consequently,  participants in the Retirement Plan will no longer be entitled to
any employer  contributions  under such plan for 1996 or subsequent  years.  The
Company also maintains a retirement savings plan (the "Retirement Savings Plan")
whereby  eligible  employees are permitted to contribute from 1% to 25% of their
compensation to the Retirement  Savings Plan. The Company  contributes an amount
equal  to 50% of the  first  6% of  compensation  contributed  by the  employee.
Participants of the Retirement Savings Plan become vested with respect to 20% of
the Company's  contributions  for each full year of employment  with the Company
and thus become  fully vested  after five full years.  In fiscal year 1998,  the
Company merged the Retirement Plan into the Retirement Savings Plan.

LEGAL PROCEEDINGS:
     Par has  filed an ANDA  (currently  pending  with the FDA) for  latanoprost
(Xalatan(R)),  which was developed by Breath Ltd. of the Arrow Group pursuant to
a joint manufacturing and marketing agreement with the Company, seeking approval
to engage in the commercial manufacture, sale and use of the latanoprost product
in the United States.  Par's ANDA includes a Paragraph IV certification that the
existing  patents in connection  with Xalatan(R) are invalid,  unenforceable  or
will not be infringed by Par's generic  product.  Par has reason to believe that
its  ANDA  is  the  first  to be  filed  for  this  drug  with  a  Paragraph  IV
certification.  As a result of the  filing of the ANDA,  Pharmacia  Corporation,
Pharmacia AB, Pharmacia Enterprises,  S.A., Pharmacia and Upjohn Company and the
Trustees of Columbia  University in the City of New York filed lawsuits  against
the Company on December  14, 2001 in the United  States  District  Court for the
District of  Delaware  and on December  21, 2001 in the United  States  District
Court for the District of New Jersey alleging patent infringement. Pharmacia and
Columbia  are  seeking an  injunction.  On February 8, 2002,  Par  answered  the
complaint brought in the District of New Jersey and filed a counterclaim,  which
seeks a declaration that the patents-in-suit are invalid,  unenforceable and not
infringed by Par's  products.  Par also seeks a  declaratory  judgment  that the
extension of judgment  concerning the term of one of the patents is invalid,  as
well as reimbursement for attorneys' fees. In addition, on February 25, 2002 the
lawsuit  brought  in the  District  of  Delaware  was  dismissed  pursuant  to a
stipulation of the parties.  Par intends to vigorously  defend the lawsuits.  At
this time,  it is not  possible  for the  Company to predict the outcome of this
litigation and the impact, if any, that it might have on the Company.

     Par, among others,  is a defendant in three lawsuits filed in United States
District Court for the Eastern  District of North  Carolina  (filed on August 1,
2001,  October 30, 2001 and November 16, 2001,  respectively) by aaiPharma Inc.,
involving patent infringement  allegations connected to a total of three patents
related  to  polymorphic  forms  of  fluoxetine  (Prozac(R)).   Par  intends  to
vigorously  litigate  these  cases.  While the  outcome of  litigation  is never
certain, Par believes that it will prevail in these litigations.

     On July 16, 2001, the Federal  Circuit Court of Appeals in Washington  D.C.
affirmed the Company's summary judgment victory in its patent  infringement case
with BMS over megestrol  acetate oral  suspension,  the generic version of BMS's
Megace(R) Oral  Suspension.  On July 25, 2001, the FDA granted the Company final
approval for megestrol acetate oral suspension with marketing  exclusivity until
mid-January 2002 and the Company  immediately  began shipping the product to its
customers.  Although the Court had disposed of all of BMS's infringement issues,
Par's  counterclaims  for patent  invalidity,  unfair  competition  and tortuous
interference  seeking an injunction  and an award of  compensatory  and punitive
damages  remained.  In March 2002 BMS sold the rights to five products to Par in
exchange for a payment of $2,049,000  and the  termination  of all the Company's
outstanding  litigation against BMS involving  megestrol acetate oral suspension
and buspirone.

                                       12
<PAGE>
                        PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2002
                                   (UNAUDITED)

     On March 30, 2001, the Company reached an agreement with 3M with respect to
a  previous  product   agreement  (the  "Product   Co-development,   Supply  and
Distribution  Agreement")  entered  into between the parties on January 6, 1994.
Under the terms of the agreement, 3M agreed to pay the Company $750,000 in April
2001 in  exchange  for the mutual  termination  of the  Product  Co-development,
Supply and Distribution Agreement.

     On August 1, 2001 Alpharma USPD, Inc. filed a lawsuit in the U.S.  District
Court  for  the  District  of  Maryland  seeking  a  declaratory  judgment  that
Alpharma's  megestrol  acetate  formulation  does not infringe  U.S.  Patent No.
6,028,065 granted to the Company and/or that the Company's patent is invalid.

     The Company is  involved in certain  other  litigation  matters,  including
certain product  liability and patent actions,  and actions by former employees,
and believes  these  actions are  incidental  to the conduct of its business and
that the ultimate  resolution thereof will not have a material adverse effect on
its financial condition, results of operations or liquidity. The Company intends
to vigorously defend these actions.

OTHER MATTERS:

     In December 2001, the Company  committed to making an equity  investment of
up to $2,400,000  over a period of time in HighRapids,  Inc.  ("HighRapids"),  a
Delaware  corporation  and  software  developer.  HighRapids  is  the  surviving
corporation  of  a  merger  with  Authorgenics,  Inc.,  a  Florida  corporation.
HighRapids  will utilize the  Company's  cash  infusion for working  capital and
operating expenses.  Through March 31, 2002 the Company had invested $259,000 of
its planned  investment in  HighRapids.  The Company has the exclusive  right to
market to the pharmaceutical  industry certain laboratory  software currently in
development.  PRI's Chief Executive Officer and a director of the Company,  each
holds  shares of  HighRapids  common stock (less than 1%),  which were  acquired
prior to the Company acquiring a controlling interest in HighRapids.

     On March 15, 2002, the Company  announced the  termination of  negotiations
with International Specialty Products ("ISP") related to the purchase of the ISP
FineTech fine chemical business,  based in Haifa, Israel and Columbus,  Ohio. At
that time, the Company discontinued negotiations with ISP as a result of various
events and  circumstances  that occurred since the  announcement of the proposed
transaction. Pursuant to the termination of the purchase, the Company paid ISP a
$3,000,000  break-up fee in March 2002, which was subject to certain credits and
offsets,  and incurred  approximately  $1,268,000 in related  acquisition costs,
both of which were  included in other  expense in the first  quarter of 2002. As
part of the  termination  the  Company  received  the  rights to a raw  material
developed  by ISP FineTech  under a prior  agreement.  The Company  subsequently
purchased  FineTech  based in Haifa,  Israel in a separate  transaction in April
2002 (see "-Subsequent Events").

SUBSEQUENT EVENTS:

     In  April  2002,  the  Company   entered  into  an  agreement  with  Rhodes
Technologies,  Inc.  ("RTI"),  an  associated  company of Purdue Pharma L.P., to
establish  a joint  venture  partnership  in the  United  States.  The new joint
venture will be named SVC Pharma and will be owned equally by both parties.  SVC
Pharma will utilize, on a case-by-case basis, advanced technologies and patented
processes  to  develop,  manufacture,  market  and  distribute  certain  unique,
proprietary pharmaceutical products. Under the terms of the agreement, when both
partners  agree to pursue a  specific  project,  each  partner  will  contribute
resources to the new enterprise.  RTI will provide  scientific and technological
expertise in the development of non-infringing,  complex molecules.  In addition
to providing chemical synthesis capabilities, RTI will provide the manufacturing
capacity for sophisticated  intermediate and active pharmaceutical  ingredients.
Par  will  provide  development  expertise  in  dosage  formulation  and will be
responsible  for  marketing,  sales and  distribution.  The companies will share
equally in  expenses  and  profits.  SVC Pharma has already  identified  several
candidates  for drug  development.  The first of these has the  potential  to be
marketed  by the  Company at the end of fiscal year 2003 or early in fiscal year
2004.

     In April 2002, the Company acquired FineTech from ISP for $32,000,000.  The
acquisition was financed by cash-on-hand  and is not expected to have a material
effect on  earnings  in fiscal  year  2002.  FineTech,  based in Haifa,  Israel,
specializes  in the design and  manufacture of  proprietary  synthetic  chemical
processes  used  in  the  production  of  complex  organic   compounds  for  the
pharmaceutical  industry. The Company has acquired the physical facilities,  the
intellectual  property  and patents of FineTech  and has  retained  all FineTech
employees.  FineTech also manufactures  complex synthetic active  pharmaceutical


                                       13
<PAGE>

                        PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2002
                                   (UNAUDITED)

     ingredients  for  companies  in  the  branded  and  generic  pharmaceutical
industries  at its  manufacturing  facility  in  Haifa,  Israel.  This  facility
operates in  compliance  with FDA current good  manufacturing  practices  (cGMP)
standards.  FineTech achieved revenues of approximately  $6,000,000 in 2001. The
Company expects to transfer a portion of FineTech's  personnel and technological
resources  to a  laboratory  facility in the  northeastern  United  States.  The
remaining physical assets in Haifa are valued at less than $2,000,000.  FineTech
will be operated as an  independent,  wholly  owned  subsidiary  of PRI and will
provide immediate chemical synthesis capabilities and strategic opportunities to
the Company and other customers.

     The Company has enjoyed a long-standing relationship with FineTech for more
than seven years.  Two of the Company's six  potential  first-to-file  products,
flecainide  and  latanoprost,  resulted  from the  Company's  relationship  with
FineTech. In addition,  the Company and FineTech are currently  collaborating on
three  additional  products.  ANDAs have already been submitted for two of these
products.

     In April  2002,  the  Company  entered  into an  agreement  to  expand  its
strategic  product  partnership  with  Merck  KGaA.  Under  the terms of the new
agreement,  Par has licensed the exclusive  rights to 11 generic  pharmaceutical
products  currently under development and not included in any other distribution
agreements  between the  Company  and  Genpharm  (see  "-Intangible  Assets" and
"-Distribution  and  Supply   Agreements-Genpharm,   Inc.").   Pursuant  to  the
agreement,  Genpharm is to develop the products,  submit all corresponding ANDAs
to the  FDA and  subsequently  manufacture  the  products.  Par  will  serve  as
exclusive  U.S.  marketer and  distributor  of the products,  pay a share of the
costs,  including  development  and legal  expenses  incurred  to  obtain  final
regulatory  approval,  and pay Genpharm a percentage of the gross profits on all
sales of products covered under this agreement.  Pursuant to the agreement,  the
Company  will pay  Genpharm a  non-refundable  fee of  $2,000,000  in the second
quarter  of  2002  for  two  of  the  products,  loratadine  10 mg  tablets  and
mirtazapine tablets,  which are tentatively approved and expected to be launched
in fiscal years 2003 to 2004. In addition, the Company will be required to pay a
non-refundable  fee of up to $414,000  based upon FDA  acceptance of filings for
six of the nine remaining products.

     According to the Company's  market research  loratadine 10 mg tablets,  the
generic version of Schering-Plough's non-sedating antihistamine Claritin(R), had
U.S. sales of  approximately  $1.8 billion in fiscal year 2001 and  mirtazapine,
the generic equivalent of Organon's antidepressant Remeron(R), had U.S. sales of
approximately $400 million in 2001. In fiscal year 2001, the cumulative sales of
the 11 branded  products  totaled  approximately  $7.8 billion.  The majority of
these products are expected to enter the U.S. market between 2003 and 2006.


                                       14
<PAGE>

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

     CERTAIN  STATEMENTS  IN THIS  FORM  10-Q  MAY  CONSTITUTE  "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE  SECURITIES  LITIGATION REFORM ACT
OF 1995,  INCLUDING THOSE CONCERNING  MANAGEMENT'S  EXPECTATIONS WITH RESPECT TO
FUTURE FINANCIAL  PERFORMANCE AND FUTURE EVENTS,  PARTICULARLY RELATING TO SALES
OF CURRENT  PRODUCTS AND THE  INTRODUCTION OF NEW  MANUFACTURED  AND DISTRIBUTED
PRODUCTS.  SUCH STATEMENTS  INVOLVE KNOWN AND UNKNOWN RISKS,  UNCERTAINTIES  AND
CONTINGENCIES,  MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY, WHICH COULD
CAUSE ACTUAL  RESULTS AND  OUTCOMES TO DIFFER  MATERIALLY  FROM THOSE  EXPRESSED
HEREIN.  THESE  STATEMENTS ARE OFTEN,  BUT NOT ALWAYS,  MADE TYPICALLY BY USE OF
WORDS  OR  PHRASES  SUCH  AS  "ESTIMATE,"  "PLANS,"  "PROJECTS,"  "ANTICIPATES,"
"CONTINUING,"  "ONGOING,"  "EXPECTS,"  "BELIEVES," OR SIMILAR WORDS AND PHRASES.
FACTORS THAT MIGHT AFFECT SUCH FORWARD-LOOKING STATEMENTS SET FORTH IN THIS FORM
10-Q INCLUDE,  AMONG OTHERS,  (I)  INCREASED  COMPETITION  FROM NEW AND EXISTING
COMPETITORS  AND  PRICING  PRACTICES  FROM  SUCH  COMPETITORS  (ESPECIALLY  UPON
COMPLETION OF EXCLUSIVITY  PERIODS),  (II) PRICING PRESSURES  RESULTING FROM THE
CONTINUED CONSOLIDATION BY THE COMPANY'S DISTRIBUTION CHANNELS, (III) THE AMOUNT
OF FUNDS  AVAILABLE  FOR  INTERNAL  RESEARCH  AND  DEVELOPMENT  AND RESEARCH AND
DEVELOPMENT  JOINT  VENTURES,  (IV) RESEARCH AND  DEVELOPMENT  PROJECT DELAYS OR
DELAYS  AND  UNANTICIPATED  COSTS  IN  OBTAINING   REGULATORY   APPROVALS,   (V)
CONTINUATION  OF  DISTRIBUTION  RIGHTS UNDER  SIGNIFICANT  AGREEMENTS,  (VI) THE
CONTINUED ABILITY OF DISTRIBUTED PRODUCT SUPPLIERS TO MEET FUTURE DEMAND,  (VII)
THE COSTS AND OUTCOME OF ANY THREATENED OR PENDING LITIGATION,  INCLUDING PATENT
AND INFRINGEMENT CLAIMS AND (VIII) GENERAL INDUSTRY AND ECONOMIC CONDITIONS. ANY
FORWARD-LOOKING  STATEMENTS  INCLUDED  IN THIS FORM 10-Q ARE MADE ONLY AS OF THE
DATE  HEREOF,  BASED ON  INFORMATION  AVAILABLE  TO THE  COMPANY  AS OF THE DATE
HEREOF,  AND, SUBJECT TO APPLICABLE LAW TO THE CONTRARY,  THE COMPANY ASSUMES NO
OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS.

RESULTS OF OPERATIONS

GENERAL

     The Company's net income of $20,760,000  for the  three-month  period ended
March 31, 2002 increased  $19,264,000 from $1,496,000 for the three-month period
ended March 31,  2001.  An increase in revenues of  $54,804,000,  or 213%,  from
those realized in the first quarter of 2001 led to the significant  improvement,
reflecting the successful launch of new products, particularly megestrol acetate
oral  suspension  (Megace(R) Oral  Suspension) and fluoxetine  (Prozac(R)) 40 mg
capsules,  over the prior nine months.  Net sales were  $80,508,000 in the first
quarter of 2002  compared to net sales of  $25,704,000  for the same period last
year.   Improved  gross  margins  followed  the  sales  growth,   increasing  to
$39,275,000, or 49% of net sales, in the first quarter of fiscal year 2002, from
$8,428,000,  or 33% of net  sales,  in the same  period of the prior  year.  The
improved results  included an 87% increase in research and development  spending
in the most recent three months to $2,874,000 from $1,538,000 for the comparable
period of 2001. First quarter 2002 selling,  general and administrative costs of
$7,516,000 increased $3,321,000 from the corresponding period of the prior year,
primarily due to additional  personnel  costs and marketing  programs,  shipping
costs and legal fees associated  with new product  launches.  Additionally,  the
Company  recorded net  settlement  income of  $9,051,000 in the first quarter of
2002 related to the  termination of its litigation with BMS and other expense of
$4,268,000 in connection  with its  termination  of the  acquisition  of the ISP
FineTech fine chemical business.

     In July 2001 and August  2001,  the FDA  granted  approvals  for three ANDA
submissions,  one each by Par, Reddy and Alphapharm,  for megestrol acetate oral
suspension,  fluoxetine  40 mg capsules and  fluoxetine 10 mg and 20 mg tablets,
respectively,  which as  first-to-file  opportunities  entitled  the  Company to
180-days of marketing exclusivity for the products.  The Company began marketing
megestrol  acetate oral  suspension,  which is not subject to any profit sharing
agreements, in July 2001. In August 2001, the Company began marketing fluoxetine
40 mg capsules  covered  under the Reddy  Development  and Supply  Agreement and
fluoxetine 10 mg and 20 mg tablets covered under the Genpharm Additional Product
Agreement.  Generic  competitors  of the  Company  received  180-days  marketing
exclusivity  for another generic version of fluoxetine 10 mg and 20 mg capsules,
which the Company also began selling following the end of the exclusivity period
in the first quarter of 2002. As expected,  additional generic competitors, with
comparable  products to all three strengths of the Company's  fluoxetine,  began
entering the market in the first quarter of 2002,  severely  eroding the pricing
the Company received during the exclusivity  periods,  particularly on the 10 mg
and 20 mg  strengths.  Although  the  Company  has  recently  learned of another
generic  approval for megestrol  acetate oral suspension in the first quarter of
2002,  to  date  the  Company  had  not  experienced  any  significant   generic
competition   on  this   product   (see   "Notes   to   Consolidated   Financial
Statements-Accounts Receivable" ).

     Critical to sustaining the improvement in the Company's financial condition
is the  introduction of new  manufactured  and  distributed  products at selling
prices that generate significant gross margin. The Company, through its internal


                                       15
<PAGE>

development  program and strategic  alliances,  is committed to  developing  new
products  that have limited  competition  and longer  product  life  cycles.  In
addition to new product introductions  expected as part of its various strategic
alliances,  the Company plans to continue to invest in research and  development
efforts  while  seeking  additional  products  for sale through new and existing
distribution  agreements,   additional  first-to-file  opportunities,   vertical
integration with raw material suppliers and unique dosage forms and strengths to
differentiate  its  products  in the  marketplace.  The  Company  is  engaged in
efforts, subject to FDA approval and other factors, to introduce new products as
a  result  of  its  research  and  development   efforts  and  distribution  and
development  agreements  with third parties.  No assurance can be given that the
Company will obtain or develop any additional products for sale (see "-Financial
Condition-Liquidity and Capital Resources").

     The generic  drug  industry  in the United  States  continues  to be highly
competitive.  The factors  contributing to the intense competition and affecting
both the  introduction of new products and the pricing and profit margins of the
Company,  include,  among other things:  (i)  introduction of other generic drug
manufacturer's  products in direct  competition  with the Company's  significant
products,   (ii)  consolidation  among  distribution  outlets  through  mergers,
acquisitions  and the  formation  of buying  groups,  (iii)  ability  of generic
competitors  to quickly enter the market after patent  expiration or exclusivity
periods,  diminishing  the amount and  duration  of  significant  profits,  (iv)
willingness of generic drug customers, including wholesale and retail customers,
to  switch  among  pharmaceutical  manufacturers  and (v)  pricing  and  product
deletions by competitors

NET SALES

     First quarter 2002 net sales of $80,508,000 increased $54,804,000, or 213%,
from net sales of $25,704,000 for the corresponding  period of fiscal year 2001.
The sales  increase was  primarily  due to new products  introduced in the prior
year, particularly fluoxetine, sold under distribution agreements with Reddy and
Genpharm, and megestrol acetate oral suspension manufactured by the Company. Net
sales of fluoxetine and megestrol  acetate oral suspension for the first quarter
of 2002 were approximately $25,870,000 and $19,401,000,  respectively. Net sales
of distributed  products,  which consist of products manufactured under contract
and licensed  products,  were  approximately 56% and 58%,  respectively,  of the
Company's  net sales in the three month  periods  ended March 31, 2002 and March
31, 2001. The Company is substantially  dependent upon distributed  products for
its sales,  and as the Company  introduces new products  under its  distribution
agreements,  it is expected  that this trend will  continue.  Any  inability  by
suppliers to meet expected demand could adversely affect future sales.

     The  Company's  exclusivity  period for megestrol  acetate oral  suspension
ended in  mid-January  2002.  The Company has  recently  learned  that a generic
competitor  was  granted  FDA  approval  to market  another  generic  version of
megestrol  acetate oral  suspension  and began shipping the product to a limited
number of  customers  in the  second  quarter  of 2002.  In  addition,  a second
potential  generic  competitor  entered  into a  settlement  agreement  with BMS
pursuant to which the public record states that the present  formulation  of the
generic  company's  product  infringes a BMS patent.  However,  at this time the
Company has no information as to whether the settlement  agreement  provides for
the  generic  competitor  to enter the market at some point in the  future.  The
Company has patents that cover its unique formulation for megestrol acetate oral
suspension  and will avail itself of all legal remedies and will take all of the
necessary  steps  to  protect  its  intellectual   property   rights.   Although
competitors may be taking the necessary  steps to enter the market,  the Company
believes  they are less  likely to  successfully  enter this  market  because of
patents owned by BMS or the Company.  Megestrol acetate oral suspension is still
anticipated  to be a  significant  profit  contributor  during fiscal year 2002,
despite the potential of competition. Based on these factors and the Company not
experiencing  any significant  competition to date, the Company did not record a
price protection  reserve for megestrol  acetate oral suspension as of March 31,
2002, but will continue evaluating the effect of potential  competition and will
record a price protection reserve when it deems necessary.

     The Company's exclusivity period for fluoxetine ended in late-January 2002.
With respect to fluoxetine,  the Company  established a price protection reserve
during  the  exclusivity  period  of  approximately  $34,400,000,  based  on its
estimate  that between  eight and ten  additional  generic  manufacturers  would
introduce  and market  comparable  products  for the 10 mg and 20 mg tablets and
between one and three  additional  manufacturers  would  introduce  and market a
comparable  product for the 40 mg capsules.  As a result of the  introduction of
these  competing  generic  products  during the first quarter of 2002, the sales
price for  fluoxetine  has  substantially  declined  from the price the  Company
received during the exclusivity  period and the Company issued price  protection
credits of approximately $23,500,000 through March 31, 2002. The Company expects
that the remaining price  protection  reserve at March 31, 2002 of approximately
$10,900,000  will be sufficient and fully utilized.  Accordingly,  the Company's
sales and gross  margins  generated by  fluoxetine in fiscal year 2002 have been
and will continue to be adversely affected in future periods.

                                       16
<PAGE>


     Sales of the Company's products are principally dependent upon, among other
things,  (i) pricing levels and  competition,  (ii) market  penetration  for the
existing  product  line,   (iii)  the  continuation  of  existing   distribution
agreements, (iv) introduction of new distributed products, (v) approval of ANDAs
and introduction of new manufactured  products,  including potential exclusivity
periods,  and (vi) the  level of  customer  service.  Although  there  can be no
assurance,  the Company  anticipates  introducing new products throughout fiscal
year 2002 and increasing sales of certain  existing  products to offset the loss
of sales and gross margins from competition on any of its significant  products.
The Company will continue to implement  measures to reduce the overall impact of
its top products,  including adding additional products through new and existing
distribution agreements, manufacturing process improvements and cost reductions.

GROSS MARGIN

     The Company's gross margin of $39,275,000  (49% of net sales) for the first
quarter of 2002 increased  $30,847,000 from $8,428,000 (33% of net sales) in the
corresponding  period  of the  prior  year.  The gross  margin  improvement  was
achieved primarily as a result of additional  contributions from sales of higher
margin  new  products,   particularly  megestrol  acetate  oral  suspension  and
fluoxetine,  and  to a  lesser  extent,  increased  sales  of  certain  existing
products.

     In the  three-month  period  ended March 31, 2002,  megestrol  acetate oral
suspension contributed approximately $16,088,000 to the margin improvement while
fluoxetine,  which is subject to profit  sharing  agreements  with  Genpharm and
Reddy,  contributed  approximately  $10,198,000  to the margin  improvement.  As
discussed  above,  additional  generic  manufacturers  have introduced and began
marketing comparable fluoxetine products at the end of the Company's exclusivity
period adversely affecting the Company's sales volumes, selling prices and gross
margins for the products, particularly the 10mg and 20mg strengths. As a result,
the Company's gross margin from fluoxetine is expected to substantially  decline
in future  periods.  The  Company's  gross  margin for  megestrol  acetate  oral
suspension could also decline if additional  manufacturers  introduce and market
comparable generic products.

     Inventory  write-offs in the first quarter of 2002  increased to $1,765,000
from  $285,000  in the  first  quarter  of  2001.  The  increase  was  primarily
attributable  to the  write-off  of  inventory  for a product  whose  launch was
delayed due to unexpected patent issues and certain raw material not meeting the
Company's  quality control  standards.  The inventory  write-offs,  taken in the
normal course of business,  are related  primarily to work in process  inventory
not meeting the Company's quality control standards and the disposal of finished
products due to short shelf lives.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT
     For the  three-month  period  ended March 31,  2002,  the Company  incurred
research and development  expenses of $2,874,000  compared to $1,538,000 for the
corresponding  period of the prior  year.  The  increased  costs were  primarily
attributable to the following:  (i) payments to Elan  Transdermal  Technologies,
Inc.  ("Elan") related to the development of a clonidine  transdermal  patch and
other products, (ii) payments for formulation development work performed for PRI
by unaffiliated companies and (iii) higher costs for raw material and personnel.
The Company's domestic research and development  program is integrated with IPR,
its research operation in Israel.  Research and development  expenses at IPR for
the most recent  quarter were  $323,000,  net of Generics  funding,  compared to
expenses of $285,000 for the comparable  quarter of last year. The Company,  IPR
and Generics have an agreement pursuant to which Generics shares one-half of the
costs of IPR's operating budget up to a maximum payment of $1,000,000 in any one
calendar year in exchange for the exclusive  distribution  rights outside of the
United  States to the products  developed by IPR after the date of the agreement
(see  "Notes  to  Consolidated  Financial  Statements-Research  and  Development
Agreements").  Annual  research  and  development  costs in fiscal year 2002 are
expected to exceed the total for fiscal year 2001 by approximately 35%.

     The  Company   currently  has  five  ANDAs  for  potential   products  (two
tentatively  approved)  pending with,  and awaiting  approval from, the FDA as a
result of its own  product  development  program.  The Company has in process or
expects to commence  biostudies  for at least four  additional  products  during
fiscal year 2002. None of the potential  products described above are subject to
any profit sharing arrangements.

                                       17
<PAGE>

     Under the Genpharm Distribution  Agreement,  Genpharm pays the research and
development   costs  associated  with  the  products  covered  by  the  Genpharm
Distribution Agreement.  Currently, there are eight ANDAs for potential products
(two of which have been  tentatively  approved) that are covered by the Genpharm
Distribution  Agreement  pending with,  and awaiting  approval from, the FDA. To
date,  the Company is  marketing  15 products  under the  Genpharm  Distribution
Agreement. Flecainide acetate tablets (Tambocor(R)),  covered under the Genpharm
Distribution  Agreement,  received final approval from the FDA in July 2001. The
Company  anticipates  commencing  the  marketing  of the  product  in the second
quarter  of 2002 (see  "Notes to  Consolidated  Financial  Statements-Intangible
Assets").

     Genpharm and the Company share the costs of developing the products covered
under the Genpharm  Additional Product Agreement.  Currently,  there is one ANDA
for  a  potential  product  (tentatively   approved)  covered  by  the  Genpharm
Additional  Product Agreement pending with, and awaiting approval from, the FDA.
The Company began  marketing  fluoxetine 10 mg and 20 mg tablets,  covered under
the  Genpharm  Additional  Product  Agreement,  in August  2001  (see  "Notes to
Consolidated Financial  Statements-Distribution  and Supply Agreements-Genpharm,
Inc.").

SELLING, GENERAL AND ADMINISTRATIVE
     Selling,  general  and  administrative  costs of  $7,516,000  for the first
quarter of 2002 increased $3,321,000, or 79%, from $4,195,000 in the same period
of last year, however,  the costs as a percentage of net sales in the respective
periods  decreased to 9% in 2002 from 16% in 2001.  The higher  dollar amount in
the current quarter was primarily attributable to additional marketing programs,
shipping costs and legal fees associated with new product introductions,  and to
a lesser extent,  increased  personnel  costs.  The Company  anticipates it will
continue  to incur a high  level  of  legal  expenses  related  to the  costs of
litigation  connected  with certain  potential  new product  introductions  (see
"Notes to Consolidated Financial Statements-Commitments, Contingencies and Other
Matters-Legal Proceedings").

SETTLEMENTS

     On March 5, 2002 the  Company  acquired  the United  States  rights to five
products from BMS. The products  include the  antihypertensives  Capoten(R)  and
Capozide(R),  the  cholesterol-lowering  medications  Questran(R)  and  Questran
Light(R), and Sumycin(R), an antibiotic. Based on the Company's market research,
these  products  are  expected  to  generate  annual net sales of  approximately
$10,000,000.  The product  acquisition  agreement is  retroactive  to January 1,
2002. To obtain the rights to the five products,  the Company paid approximately
$1,024,000  in  March  2002  and  agreed  to  make  an  additional   payment  of
approximately  $1,025,000 in the first quarter of 2003.  The Company also agreed
to terminate its outstanding  litigation against BMS involving megestrol acetate
oral  suspension and buspirone.  The Company  determined,  through a third party
appraisal, the fair value of the agreement to be $11,700,000, which exceeded the
cash consideration of $2,049,000 and associated costs of $600,000 by $9,051,000.
The $9,051,000  value was assigned to the litigation  settlement and included in
the settlement income in the first quarter of 2002

OTHER (EXPENSE) INCOME

     Other expense of $4,157,000 in the three-month  period ended March 31, 2002
includes approximately $4,268,000 incurred in connection with the termination of
the acquisition of the ISP FineTech fine chemical  business in March 2002. Other
income of $319,000 in the  three-month  period  ended March 31, 2001  included a
payment  from 3M to the  Company  releasing  the  parties  from a prior  product
agreement  (see "Notes to Financial  Statements-Commitments,  Contingencies  and
Other Matters-Legal Proceedings").

INCOME TAXES

     The  Company  recorded  provisions  for  income  taxes of  $13,273,000  and
$1,298,000,  respectively,  for the three-month  period ended March 31, 2002 and
March 31, 2001 (see "Notes to Consolidated Financial Statements-Income Taxes").

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

     Cash and cash  equivalents  of  $77,546,000  at March  31,  2002  increased
$9,804,000  from  $67,742,000  at December  31,  2001. A portion of the net cash
generated by  operations  was used to fund capital  projects.  Working  capital,
which includes cash and cash equivalents  increased to $108,608,000 at March 31,
2002 from $102,867,000 at December 31, 2001,  primarily due to the increased net


                                       18
<PAGE>

cash  position  and  higher  inventories  partially  offset  by  lower  accounts
receivable.  The working  capital  ratio was 2.53x at March 31, 2002 compared to
2.41x at December 31, 2001.

     The Company,  from time to time,  enters into agreements with third parties
with respect to the development of new products and  technologies.  To date, the
Company has entered into agreements and advanced funds to several non-affiliated
companies for products in various stages of development. These types of payments
are expensed as incurred and included in research and development costs.  Annual
research  and  development   expenses,   including  payments  to  non-affiliated
companies, are expected to total approximately $15,000,000 for fiscal year 2002.

     On March 15, 2002, the Company  announced the  termination of  negotiations
with ISP related to the purchase of the ISP  FineTech  fine  chemical  business,
based  in  Haifa,  Israel  and  Columbus,   Ohio.  At  that  time,  the  Company
discontinued   negotiations   with  ISP  as  a  result  of  various  events  and
circumstances that occurred since the announcement of the proposed  transaction.
Pursuant to the  termination of the purchase,  the Company paid ISP a $3,000,000
break-up  fee in March 2002,  which was subject to certain  credits and offsets,
and incurred  approximately  $1,268,000 in related  acquisition  costs,  both of
which were included in other  expense in the first quarter of 2002.  The Company
subsequently  acquired FineTech based in Haifa, Israel in a separate transaction
with ISP in April 2002 for $32,000,000,  financed by the Company's  cash-on-hand
(see-"Subsequent Events").

     As of March 31, 2002 the Company had payables due to distribution agreement
partners of $21,932,000, related primarily to amounts due on fluoxetine pursuant
to profit sharing agreements with strategic partners. The Company expects to pay
these amounts out of its working capital in the second quarter of 2002.

     In December  2001,  Par entered  into an  agreement  with Elan to develop a
range of modified release drugs over the next five years. Under the terms of the
agreement,  the companies will identify two drug  candidates for  development at
the beginning of each year,  commencing in the first quarter of 2002.  Elan will
be responsible for the  development  and manufacture of all products,  while Par
will be responsible for marketing,  sales and  distribution.  Par will reimburse
Elan for research and development costs and Elan will receive a royalty from the
sale of the  products.  Pursuant  to the  agreement,  Par  will  pay  Elan up to
$1,500,000 per calendar year in monthly  installments  beginning the date of the
commencement of the development program for each product.  The Company paid Elan
$250,000 for products covered under this agreement in the first quarter of 2002.

     In December 2001, the Company  committed to making an equity  investment of
up to $2,400,000  over a period of time in HighRapids.  HighRapids  will utilize
the Company's cash infusion for working capital and operating expenses.  Through
March 31, 2002,  the Company had  invested  $259,000 of its  $2,400,000  planned
investment.

     In November 2001, the Company entered into joint  development and marketing
agreement  with  Breath  Ltd.  of  the  Arrow  Group  to  pursue  the  worldwide
distribution of latanoprost ophthalmic solution 0.005% (Xalatan(R)). Pursuant to
this  agreement,  Par paid  Breath  Ltd.  $2,500,000  in fiscal year 2001 and an
additional $2,500,000 in the first quarter of 2002.

     In November 2001, the Company entered into a license agreement with Pentech
Pharmaceuticals,  Inc. ("Pentech") to market paroxetine  hydrochloride capsules.
Pursuant to this  agreement,  Par paid Pentech  $200,000 in fiscal year 2001 and
will pay an additional $400,000 based on the achievement of certain milestones.

     In April 2001, Par entered into a licensing agreement with Elan to market a
generic clonidine  transdermal patch (Catapres TTS(R)). Elan will be responsible
for  the  development  and  manufacture  of all  products,  while  Par  will  be
responsible for marketing,  sales and  distribution.  Pursuant to the agreement,
the Company paid Elan  $1,167,000  in fiscal year 2001 and $500,000 in the first
quarter  of  2002 of a total  of  $2,000,000  due in  monthly  installments.  In
addition,  Par will pay Elan  $1,000,000  upon FDA approval of the product and a
royalty on all sales of the product.

     In March 1999,  the Company  entered into an  agreement  to lease,  with an
option to purchase,  its Congers  Facility to Halsey.  Halsey paid the Company a
purchase  option  of  $100,000  in March  1999 and is  obligated  to pay rent of
$500,000  annually during the initial  three-year term of the lease. The rent is
expected  to  continue to cover the  Company's  fixed  costs of the  facility in
subsequent periods.  Under the purchase option, Halsey may purchase the facility
and  substantially  all the machinery and equipment at any time during the lease
for a specified amount (see "Notes to Consolidated Financial  Statements-Leasing
Agreement").

                                       19
<PAGE>

     The Company, IPR and Generics entered into the Development Agreement, dated
August 11, 1998, pursuant to which Generics agreed to fund one-half of the costs
of IPR's  operating  budget in exchange for the  exclusive  distribution  rights
outside of the United States to the products  developed by IPR after the date of
the agreement.  In addition,  Generics agreed to pay IPR a perpetual royalty for
all sales of the  products  by  Generics  or its  affiliates  outside the United
States. To date, no such products have been brought to market by Generics and no
royalty has been paid to IPR.  Pursuant to the Development  Agreement,  Generics
funded  approximately  $788,000  for fiscal year 2001 and $170,000 for the first
three months of fiscal year 2002,  fulfilling their funding requirements through
March 31, 2002.  Under the  Development  Agreement,  Generics is not required to
fund more than  $1,000,000 in any one calendar year (see "Notes to  Consolidated
Financial Statements-Research and Development Agreements").

     The  Company  expects  to  fund  its  operations,  including  research  and
development  activities and its obligations under the existing  distribution and
development  arrangements  discussed herein,  out of its working capital and, if
necessary,  with available  borrowings  against its line of credit with GECC, if
and to  the  extent  available  (see  "-Financing").  Although  there  can be no
assurance,  the Company anticipates  introducing new products during fiscal year
2002 and  increasing  sales of certain  existing  products to offset the loss of
sales and gross margins from competition on any of its significant products. The
Company will continue to implement  measures to reduce the overall impact of its
top products,  including  adding  additional  products  through new and existing
distribution agreements, manufacturing process improvements and cost reductions.

FINANCING

     At  March  31,  2002,  the  Company's  total  outstanding  long-term  debt,
including  the current  portion,  amounted to  $1,240,000.  The amount  consists
primarily of an  outstanding  mortgage  loan with a bank and capital  leases for
computer equipment.

     In December  1996,  Par entered into the Loan Agreement with GECC. The Loan
Agreement,  as amended,  provides Par with a revolving  line of credit  expiring
March 2005. Pursuant to the Loan Agreement, Par is permitted to borrow up to the
lesser of (i) the borrowing  base  established  under the Loan Agreement or (ii)
$30,000,000.  The  borrowing  base  is  limited  to  85%  of  eligible  accounts
receivable  plus 50% of eligible  inventory of Par, each as determined from time
to time by GECC. The interest rate charged on the line of credit is based upon a
per annum rate of 2.25% above the 30-day  commercial  paper rate for  high-grade
unsecured notes adjusted monthly. The line of credit with GECC is secured by the
assets of Par, PRI and certain  subsidiaries,  other than real property,  and is
guaranteed  by PRI and  certain of its  subsidiaries.  In  connection  with such
facility,  Par, PRI and their  subsidiaries  have  established a cash management
system pursuant to which all cash and cash  equivalents  received by any of such
entities are deposited into a lockbox account over which GECC has sole operating
control if there are amounts  outstanding under the line of credit. The deposits
would then be applied on a daily basis to reduce the amounts  outstanding  under
the line of credit.  The revolving credit facility is subject to covenants based
on various  financial  benchmarks.  As of March 31, 2002, the borrowing base was
approximately  $26,700,000.  To  date,  no debt is  outstanding  under  the Loan
Agreement.

SUBSEQUENT EVENTS

     In  April  2002,  the  Company  entered  into an  agreement  with  RTI,  an
associated  company  of  Purdue  Pharma  L.P.,  to  establish  a  joint  venture
partnership in the United States. The new joint venture will be named SVC Pharma
and will be owned  equally  by both  parties.  SVC  Pharma  will  utilize,  on a
case-by-case  basis,  advanced  technologies and patented  processes to develop,
manufacture,  market and distribute certain unique,  proprietary  pharmaceutical
products. Under the terms of the agreement, when both partners agree to pursue a
specific project,  each partner will contribute resources to the new enterprise.
RTI will provide  scientific and  technological  expertise in the development of
non-infringing,  complex molecules.  In addition to providing chemical synthesis
capabilities,  RTI will provide the  manufacturing  capacity  for  sophisticated
intermediate and active pharmaceutical ingredients. Par will provide development
expertise in dosage formulation and will be responsible for marketing, sales and
distribution.  The  companies  will share  equally in expenses and profits.  SVC
Pharma has already identified several candidates for drug development. The first
of these has the  potential  to be  marketed by the Company at the end of fiscal
year 2003 or early in fiscal year 2004.

     In April 2002, the Company acquired FineTech from ISP for $32,000,000.  The
acquisition was financed by cash-on-hand  and is not expected to have a material
effect on  earnings  in fiscal  year  2002.  FineTech,  based in Haifa,  Israel,
specializes  in the design and  manufacture of  proprietary  synthetic  chemical
processes  used  in  the  production  of  complex  organic   compounds  for  the
pharmaceutical  industry. The Company has acquired the physical facilities,  the


                                       20
<PAGE>

intellectual  property  and patents of FineTech  and has  retained  all FineTech
employees.  FineTech also manufactures  complex synthetic active  pharmaceutical
ingredients for companies in the branded and generic  pharmaceutical  industries
at its  manufacturing  facility  in Haifa,  Israel.  This  facility  operates in
compliance  with FDA current  good  manufacturing  practices  (cGMP)  standards.
FineTech  achieved  revenues of  approximately  $6,000,000 in 2001.  The Company
expects  to  transfer  a  portion  of  FineTech's  personnel  and  technological
resources  to a  laboratory  facility in the  northeastern  United  States.  The
remaining physical assets in Haifa are valued at less than $2,000,000.  FineTech
will be operated as an  independent,  wholly  owned  subsidiary  of PRI and will
provide immediate chemical synthesis capabilities and strategic opportunities to
the Company and other customers.

     The Company has enjoyed a long-standing relationship with FineTech for more
than seven years.  Two of the Company's six  potential  first-to-file  products,
flecainide  and  latanoprost,  resulted  from the  Company's  relationship  with
FineTech. In addition,  the Company and FineTech are currently  collaborating on
three  additional  products.  ANDAs have already been submitted for two of these
products.

     In April  2002,  the  Company  entered  into an  agreement  to  expand  its
strategic  product  partnership  with  Merck  KGaA.  Under  the terms of the new
agreement,  Par has licensed the exclusive  rights to 11 generic  pharmaceutical
products  currently under development and not included in any other distribution
agreements  between the  Company  and  Genpharm  (see  "-Intangible  Assets" and
"-Distribution  and  Supply   Agreements-Genpharm,   Inc.").   Pursuant  to  the
agreement,  Genpharm is to develop the products,  submit all corresponding ANDAs
to the  FDA and  subsequently  manufacture  the  products.  Par  will  serve  as
exclusive  U.S.  marketer and  distributor  of the products,  pay a share of the
costs,  including  development  and legal  expenses  incurred  to  obtain  final
regulatory  approval,  and pay Genpharm a percentage of the gross profits on all
sales of products covered under this agreement.  Pursuant to the agreement,  the
Company  will pay  Genpharm a  non-refundable  fee of  $2,000,000  in the second
quarter  of  2002  for  two  of  the  products,  loratadine  10 mg  tablets  and
mirtazapine tablets,  which are tentatively approved and expected to be launched
in fiscal years 2003 to 2004. In addition, the Company will be required to pay a
non-refundable  fee of up to $414,000  based upon FDA  acceptance of filings for
six of the nine remaining products.

     According to the Company's  market research  loratadine 10 mg tablets,  the
generic version of Schering-Plough's non-sedating antihistamine Claritin(R), had
U.S. sales of  approximately  $1.8 billion in fiscal year 2001 and  mirtazapine,
the generic equivalent of Organon's antidepressant Remeron(R), had U.S. sales of
approximately $400 million in 2001. In fiscal year 2001, the cumulative sales of
the 11 branded  products  totaled  approximately  $7.8 billion.  The majority of
these products are expected to enter the U.S. market between 2003 and 2006.


       ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Not applicable.

                                       21
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.
------  -----------------

     Par has  filed an ANDA  (currently  pending  with the FDA) for  latanoprost
(Xalatan(R)),  which was developed by Breath Ltd. of the Arrow Group pursuant to
a joint manufacturing and marketing agreement with the Company, seeking approval
to engage in the commercial manufacture, sale and use of the latanoprost product
in the United States.  Par's ANDA includes a Paragraph IV certification that the
existing  patents in connection  with Xalatan(R) are invalid,  unenforceable  or
will not be infringed by Par's generic  product.  Par has reason to believe that
its  ANDA  is  the  first  to be  filed  for  this  drug  with  a  Paragraph  IV
certification.  As a result of the  filing of the ANDA,  Pharmacia  Corporation,
Pharmacia AB, Pharmacia Enterprises,  S.A., Pharmacia and Upjohn Company and the
Trustees of Columbia  University in the City of New York filed lawsuits  against
the Company on December  14, 2001 in the United  States  District  Court for the
District of  Delaware  and on December  21, 2001 in the United  States  District
Court for the District of New Jersey alleging patent infringement. Pharmacia and
Columbia  are  seeking an  injunction.  On February 8, 2002,  Par  answered  the
complaint brought in the District of New Jersey and filed a counterclaim,  which
seeks a declaration that the patents-in-suit are invalid,  unenforceable and not
infringed by Par's  products.  Par also seeks a  declaratory  judgment  that the
extension of judgment  concerning the term of one of the patents is invalid,  as
well as reimbursement for attorneys' fees. In addition, on February 25, 2002 the
lawsuit  brought  in the  District  of  Delaware  was  dismissed  pursuant  to a
stipulation of the parties.  Par intends to vigorously  defend the lawsuits.  At
this time,  it is not  possible  for the  Company to predict the outcome of this
litigation and the impact, if any, that it might have on the Company.

     Par, among others,  is a defendant in three lawsuits filed in United States
District Court for the Eastern  District of North  Carolina  (filed on August 1,
2001,  October 30, 2001 and November 16, 2001,  respectively) by aaiPharma Inc.,
involving patent infringement  allegations connected to a total of three patents
related  to  polymorphic  forms  of  fluoxetine  (Prozac(R)).   Par  intends  to
vigorously  litigate  these  cases.  While the  outcome of  litigation  is never
certain, Par believes that it will prevail in these litigations.

     On July 16, 2001, the Federal  Circuit Court of Appeals in Washington  D.C.
affirmed the Company's summary judgment victory in its patent  infringement case
with BMS over megestrol  acetate oral  suspension,  the generic version of BMS's
Megace(R) Oral  Suspension.  On July 25, 2001, the FDA granted the Company final
approval for megestrol acetate oral suspension with marketing  exclusivity until
mid-January 2002 and the Company  immediately  began shipping the product to its
customers.  Although the Court had disposed of all of BMS's infringement issues,
Par's  counterclaims  for patent  invalidity,  unfair  competition  and tortuous
interference  seeking an injunction  and an award of  compensatory  and punitive
damages  remained.  In March 2002 BMS sold the rights to five products to Par in
exchange for a payment of $2,049,000  and the  termination  of all the Company's
outstanding  litigation against BMS involving  megestrol acetate oral suspension
and buspirone.

     On August 1, 2001 Alpharma USPD, Inc. filed a lawsuit in the U.S.  District
Court  for  the  District  of  Maryland  seeking  a  declaratory  judgment  that
Alpharma's  megestrol  acetate  formulation  does not infringe  U.S.  Patent No.
6,028,065 granted to the Company and/or that the Company's patent is invalid.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.
-------  ---------------------------------

     (a)  Exhibits:

          10.1.1 1997 Directors' Stock Option Plan, as amended.

          10.18.11 Eleventh Amendment to Loan and Security  Agreement,  dated as
          of March  29,  2002,  among  the  Company,  General  Electric  Capital
          Corporation, and the other parties named therein.

     (b)  Reports on Form 8-K:

          On January  14,  2002,  March 1, 2002 and March 22,  2002 the  Company
          filed a Current Report on Form 8-K.

                                       22
<PAGE>
                                    SIGNATURE




     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                                    PHARMACEUTICAL RESOURCES, INC.
                                    ------------------------------
                                    (Registrant)




May 15, 2002                        /s/ KENNETH I. SAWYER
                                    ---------------------
                                    Kenneth I. Sawyer
                                    CHIEF EXECUTIVE OFFICE AND CHAIRMAN OF THE
                                    BOARD OF DIRECTORS
                                    (Principal Executive Officer)




May 15, 2002                        /s/ DENNIS J. O'CONNOR
                                    ----------------------
                                    Dennis J. O'Connor
                                    VICE PRESIDENT - CHIEF FINANCIAL OFFICER
                                    AND SECRETARY
                                    (Principal Accounting and Financial Officer)





                                       23
<PAGE>
                                  EXHIBIT INDEX


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

10.2.1      1997 Directors' Stock Option Plan, as amended.

10.18.11    Eleventh Amendment to Loan and Security Agreement, dated as of March
            29, 2002, among the Company,  General Electric Capital  Corporation,
            and the other parties named therein.

                                       24