<PAGE>
 
                       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 June 28, 1997



                        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: (914) 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  X   No
                                                   -----   -----


                                   18,683,998
       Number of shares of Common Stock outstanding as of August 6, 1997.

         This is page 1 of 28 pages.  The exhibit index is on page 15.
<PAGE>
 
                         PART I. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS

                         PHARMACEUTICAL RESOURCES, INC.
                          CONSOLIDATED BALANCE SHEETS
                       (In Thousands, Except Share Data)
<TABLE>
<CAPTION>
 
                                                                           JUNE 28,   SEPTEMBER 30,
                                 ASSETS                                      1997          1996
                                 ------                                    ---------  --------------
                                                                          (Unaudited)    (Audited)
<S>                                                                        <C>        <C>
Current assets:
  Cash and cash equivalents                                                       -         $   299
  Temporary investments                                                    $     15             158
  Accounts receivable, net of allowances of
   $4,320 and $2,643                                                          7,325           7,645
  Inventories                                                                16,110          19,352
  Prepaid expenses and other current assets                                   1,811           3,894
                                                                           --------         -------
    Total current assets                                                     25,261          31,348
 
Property, plant and equipment, at cost less
 accumulated depreciation and amortization                                   24,371          26,068
 
Deferred charges and other assets                                             1,591           1,222
 
Investments                                                                   4,871           8,672
 
Investment in joint venture                                                   2,418           3,028
 
Non-current deferred tax benefit                                             14,608          14,608
                                                                           --------         -------
 
   Total assets                                                            $ 73,120         $84,946
                                                                           ========         =======
 
                   LIABILITIES AND SHAREHOLDERS' EQUITY
                   ------------------------------------
Current liabilities:
  Current portion of long-term debt                                        $    220         $ 2,142
  Short term debt                                                             9,415               -
  Accounts payable                                                            3,315           4,163
  Accrued salaries and employee benefits                                      2,253           3,299
  Accrued expenses and other current liabilities                              1,400           1,028
                                                                           --------         -------
 
     Total current liabilities                                               16,603          10,632
 
Long-term debt, less current portion                                          1,185           2,971
 
Accrued pension liability                                                       719             719
 
Shareholders' equity:
  Common Stock, par value $.01 per share; authorized 60,000,000 shares;
    issued and outstanding 18,682,135 and 18,661,869 shares                     187             187
  Additional paid in capital                                                 67,138          67,081
  Accumulated (deficit)                                                     (15,088)         (1,509)
  Additional minimum liability related to defined benefit pension plan         (117)           (117)
  Unrealized gain on investment                                               2,493           4,982
                                                                           --------         -------
 
    Total shareholders' equity                                               54,613          70,624
                                                                           --------         -------
 
    Total liabilities and shareholders' equity                             $ 73,120         $84,946
                                                                           ========         =======
 
</TABLE>
        The accompanying notes are an integral part of these statements.

                                      -2-
<PAGE>
 
                         PHARMACEUTICAL RESOURCES, INC.
     CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
                    (In Thousands, Except Per Share Amounts)
                                  (Unaudited)

<TABLE>
<CAPTION>
 
                                                              NINE MONTHS ENDED     THREE MONTHS ENDED
                                                              -----------------     ------------------
                                                               JUNE 28,  JUNE 29,   JUNE 28,   JUNE 29,
                                                                 1997      1996       1997       1996
                                                               --------  --------   --------   --------
<S>                                                         <C>         <C>        <C>        <C>
Net sales                                                     $ 36,001    $45,008   $ 11,749    $14,788
Cost of goods sold                                              34,626     34,031     11,132     12,078
                                                              --------    -------   --------    -------
  Gross margin                                                   1,375     10,977        617      2,710
 
Operating expenses:
 Research and development                                        4,627      4,319        850      2,737
 Selling, general and administrative                             9,478     12,876      3,132      4,366
 Restructuring charge                                                -        549          -        549
                                                              --------    -------   --------    -------
  Total operating expenses                                      14,105     17,744      3,982      7,652
  Operating (loss)                                             (12,730)    (6,767)    (3,365)    (4,942)
Other income (expense)                                             (28)       631       (277)       160
Interest expense                                                  (411)      (310)      (193)      (104)
                                                              --------    -------   --------    -------
(Loss) before provision (credit) for income taxes              (13,169)    (6,446)    (3,835)    (4,886)
Provision (credit) for income taxes                                410     (2,578)         -     (1,956)
                                                              --------    -------   --------    -------
NET (LOSS)                                                     (13,579)    (3,868)    (3,835)    (2,930)
Retained earnings (deficit), beginning of period                (1,509)     6,783    (11,253)     5,845
                                                              --------    -------   --------    -------
Retained earnings (deficit), end of period                    $(15,088)   $ 2,915   $(15,088)   $ 2,915
                                                              ========    =======   ========    =======
 
 NET (LOSS) PER SHARE OF COMMON STOCK                            $(.73)     $(.21)     $(.21)     $(.16)
                                                              ========    =======   ========    =======
Weighted average number of common and
 common equivalent shares outstanding                           18,687     18,453     18,679     18,505
                                                              ========    =======   ========    =======
 
</TABLE>



        The accompanying notes are an integral part of these statements.

                                      -3-
<PAGE>
 
                         PHARMACEUTICAL RESOURCES, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                                   NINE MONTHS ENDED
                                                                                   -----------------
                                                                                   JUNE 28,  JUNE 29,
                                                                                     1997      1996
                                                                                   --------  --------
<S>                                                                              <C>        <C>
Cash flows from operating activities:                                  
  Net (loss)                                                                      $(13,579)  $ (3,868)
                                                                       
Adjustments to reconcile net (loss) to net                             
  cash (used in) operating activities:                                 
  (Credit) for income tax expense                                                        -     (2,578)
  Joint venture research and development                                               610        324
  Restructuring charge                                                                   -        549
  Depreciation and amortization                                                      2,059      2,138
  Allowances against accounts receivable                                            (1,677)       274
  Write-off of inventories                                                           1,148        932
  Other                                                                                  -        (12)
                                                                       
Changes in assets and liabilities:                                     
  Decrease in accounts receivable                                                    1,997         37
  Decrease (increase) in inventories                                                 2,094     (5,536)
  Decrease in prepaid expenses and other assets                                      2,068        936
  (Decrease) in accounts payable                                                      (848)    (1,371)
  (Decrease) increase in accrued expenses and other liabilities                       (674)       288
                                                                                  --------   --------
  Net cash (used in) operating activities                                           (6,802)    (7,887)
                                                                       
Cash flows from investing activities:                                  
  Capital expenditures                                                                (716)    (3,650)
  Decrease (increase) in investments                                                 1,312     (2,470)
  Decrease in temporary investments                                                    143         82
                                                                                  --------   --------
Net cash provided by (used in) investing activities                                    739     (6,038)
                                                                       
Cash flows from financing activities:                                  
  Proceeds from issuance of capital stock                                               57      1,797
  Net proceeds from revolving credit line, proceeds from issuance      
  of notes payable and other debt                                                    9,415      4,342
  Principal payments under long-term debt and other borrowings                      (3,708)    (5,032)
  Payments due to stock conversion                                                       -         (5)
                                                                                   --------   --------
  Net cash provided by financing activities                                          5,764      1,102
                                                                       
Net (decrease) in cash and cash equivalents                                           (299)   (12,823)
Cash and cash equivalents at beginning of period                                  $    299     17,986
                                                                                  --------   --------
Cash and cash equivalents at end of period                                               -   $  5,163
                                                                                  ========   ========
 
</TABLE>


        The accompanying notes are an integral part of these statements.

                                      -4-
<PAGE>
 
                        PHARMACEUTICAL RESOURCES, INC.
                         NOTES TO FINANCIAL STATEMENTS
                                 JUNE 28, 1997
                                  (UNAUDITED)


          Pharmaceutical Resources, Inc. (the "Company" or "PRI") operates in
one business segment, the manufacture and distribution of generic
pharmaceuticals.  Marketed products are principally in oral solid (tablet,
caplet and capsule) form, with a small number of products in the form of creams
and liquids.

BASIS OF PREPARATION:

          The accompanying financial statements at June 28, 1997 and for the
nine-month and three-month periods ended June 28, 1997 and June 29, 1996 are
unaudited; however, in the opinion of management of PRI, such statements include
all adjustments (consisting of normal recurring accruals) necessary to a fair
statement of the information presented therein.  The balance sheet at September
30, 1996 was derived from the audited 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
generally accepted accounting principles for audited financial statements.
Accordingly, these statements should be read in conjunction with PRI's most
recent annual financial statements.

          Results of operations for interim periods are not necessarily
indicative of those to be achieved for full fiscal years.

SHORT TERM DEBT:

          In December 1996, Par Pharmaceutical, Inc., the Company's operating
subsidiary ("Par"), entered into a Loan and Security Agreement (the "Loan
Agreement") with General Electric Capital Corporation ("GECC") which provides
Par with a three-year revolving line of credit.  The Loan Agreement was amended
in May 1997.  Pursuant to the Loan Agreement, as amended, Par is permitted to
borrow up to the lesser of (i) the borrowing base established under the Loan
Agreement or (ii) $20,000,000.  The borrowing base is limited to 85% of eligible
accounts receivable plus 50% of eligible inventory of Par as determined from
time to time by GECC.  The interest rate charge on the line of credit is based
upon a per annum rate of 3.50% 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 and PRI other than real property and is guaranteed by PRI.
In connection with such facility, Par, PRI, and their affiliates 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 and which are applied on a
daily basis to reduce amounts outstanding under the line of credit. The
revolving credit facility is subject to covenants based on various financial
benchmarks.  Under the May 1997 amendment, GECC waived events of default related
to financial covenants and amended the financial covenants of Par.  As of June
28, 1997, the borrowing base was approximately $12,300,000 and $9,415,000 was
outstanding under such line of credit.  Any significant reduction in the
borrowing base from current levels will adversely affect the Company's
liquidity.

INCOME TAXES:

          Based on the Company's recent performance and the uncertainty of the
generic business in which it operates, management believes that future operating
income might not be sufficient to recognize fully the net operating loss
carryforwards of the Company.  Therefore, the Company is not recognizing a
benefit for its operating loss in the nine-month period ended June 28, 1997.  If
the Company is unable to generate sufficient taxable income in the future,
increases in the valuation allowance will be required through a charge to
expense.  The Company incurred income tax expense of $410,000 in the first
quarter of fiscal 1997 due to interest relating to a settlement with the
Internal Revenue Service in fiscal 1995 for the disallowance of the Company's
tax credit in prior periods with respect to certain research and development
credits.

                                      -5-
<PAGE>
 
                         PHARMACEUTICAL RESOURCES, INC.
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
                                 JUNE 28, 1997
                                  (UNAUDITED)

EARNINGS PER SHARE:

          In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS
128"), which is effective for financial statements for periods ending after
December 15, 1997, and requires retroactive restatement of all earnings per
share data.  SFAS 128 requires replacement of primary and fully diluted earnings
per share with basic and diluted earnings per share.  For the current nine and
three-month periods and the comparative periods of the prior year, SFAS 128
would not have had an impact on earnings per share.

COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:

Retirement Plans:

          The Company has a defined contribution, social security integrated
Retirement Plan providing retirement benefits to eligible employees as defined
in the Retirement Plan.  The Board of Directors of Par authorized the cessation
of employer contributions 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 whereby eligible employees are permitted to
contribute from 1% to 12% of pay to this Plan. The Company contributes an amount
equal to 50% of the first 6% of the pay contributed by the employee.  In
calendar 1997, the Company intends to merge the Retirement Plan into the
Retirement Savings Plan.

Legal Proceedings:

          The Company is involved in certain litigation matters, including
certain product liability actions and actions by two former officers for, among
other things, breach of contract.  Such actions seek damages from the Company,
including compensatory and punitive damages.  The Company intends to defend
these actions vigorously.  The Company believes that 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 or
results of operations.

Manufacturing Agreement:

          On April 30, 1997, Par entered into a Manufacturing and Supply
Agreement (the "Supply Agreement") with BASF Corporation ("BASF"), a
manufacturer of pharmaceutical products.  Under the Supply Agreement, Par agreed
to purchase certain minimum quantities of certain products manufactured by BASF
at one of its facilities, and Par will phase out its manufacturing of those
products.  BASF will discontinue its direct sale of those products at the
particular facility.  The agreement has an initial term of three years (subject
to earlier termination upon the occurrence of certain events as provided
therein) and thereafter renews automatically for successive two-year periods to
December 31, 2005, if Par has met certain purchase thresholds.  In the event
that Par's purchases do not equal or exceed the thresholds, BASF may elect to
terminate the Supply Agreement effective one year later.  The Company began
selling drugs manufactured by BASF and BASF has transferred to Par the marketing
and sales of certain products covered by the Supply Agreement in June 1997,
however the agreement will not be fully implemented until August 1997.

Restructuring and Cost Reductions:

          Primarily as a result of the Supply Agreement, the Company has further
reduced the work force during the third fiscal quarter by approximately forty
five employees, primarily in manufacturing functions and a smaller number in
administrative and product development positions.  The work force reduction
included a layoff of employees at the end of June 1997 and the elimination of
positions currently open.  The Company established a liability for the work
force reduction of $280,000 and subsequent charges are included in the current
quarter's operating results.  The charge includes $231,000 for severance pay,
employee benefits and out placement services and $49,000 in legal fees. The
Company began implementing measures during the fourth quarter of fiscal 1996,
which have continued in fiscal 1997, in an effort to reduce costs and increase
operating efficiencies.  Such measures have provided for a reduction in the work
force, changes in senior management, a reorganization of certain existing
personnel and reductions in certain expenses.

                                      -6-
<PAGE>
 
                         PHARMACEUTICAL RESOURCES, INC.
                    NOTES TO FINANCIAL STATEMENTS--CONTINUED
                                 JUNE 28, 1997
                                  (UNAUDITED)

SUBSEQUENT EVENTS:

Distribution Agreement:

          On July 28, 1997, PRI announced that it had amended a 1994
distribution agreement with Sano Corporation ("Sano"), a developer and
manufacturer of transdermal drug delivery products. Pursuant to the amendment,
the Company ceded its distribution rights to three products of which submissions
have not yet been filed with the Food and Drug Administration ("FDA"), while
retaining exclusive United States distribution rights to three products, a
nicotine and two nitroglycerin transdermal patches, currently filed with the FDA
and awaiting approval.  In addition, PRI has released distribution rights
outside the United States for the retained products.  In return for
relinquishing the rights described above, PRI received in July 1997 $1,950,000
in cash and an interest bearing promissory note for $1,950,000 which will be due
in September 1998.  PRI has also retained the rights to recover certain of its
prior payments to Sano, including $1,500,000 from the gross profits earned on
sales of two of the retained products.


                                      -7-
<PAGE>
 
                ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          CERTAIN STATEMENTS IN THIS FORM 10-Q 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 AS WELL AS 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.  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, (II) THE AMOUNT OF FUNDS CONTINUING TO BE AVAILABLE FOR INTERNAL
RESEARCH AND DEVELOPMENT AND RESEARCH AND DEVELOPMENT JOINT VENTURES, (III)
RESEARCH AND DEVELOPMENT PROJECT DELAYS OR DELAYS IN OBTAINING REGULATORY
APPROVALS, (IV) THE ABILITY OF THE COMPANY TO RETAIN AND ATTRACT MANAGEMENT
PERSONNEL IN KEY OPERATIONAL AREAS AND (V) CONTINUED AVAILABILITY OF BORROWINGS
UNDER THE COMPANY'S CREDIT LINE WITHOUT SIGNIFICANT REDUCTION.

RESULTS OF OPERATIONS

GENERAL

          The Company incurred operating losses of $12,730,000 and $3,365,000,
respectively, for the nine-month and three-month periods ended June 28, 1997
compared to losses of $6,767,000 and $4,942,000 in the corresponding periods of
the prior fiscal year.  The losses are principally due to sales and gross margin
declines, as described below, partially offset by decreases in operating
expenses.  The Company's gross margins for the nine-month and three-month
periods ended June 28, 1997 were $1,375,000 and $617,000, respectively, compared
to $10,977,000 and $2,710,000 for the same periods in fiscal year 1996.  The
decreased gross margins experienced in the current periods reflect the
continuing trend of lower pricing on certain manufactured products.  If sales
declines are not offset by increased sales of new distributed or manufactured
products, net sales and gross margin declines will continue and, accordingly,
result in continuing losses.  As a result of the recent losses, the Company is
continuing to search for strategic alternatives to improve its financial
condition and product line while working on process improvements to reduce its
current manufacturing costs.

          The continued price and profit margin erosion on certain of the
Company's products reflects a continuing trend in the generic drug industry in
the United States.  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) competition from brand name drug manufacturers
selling generic versions of their drugs, (iii) increased ability of generic
competitors to enter the market after patent expiration, diminishing the amount
and duration of significant profits, and (iv) willingness of generic drug
customers, including wholesale and retail customers, to switch among
pharmaceutical manufacturers.

          During the current fiscal quarter, the Company has implemented
additional work force reductions primarily as a result of the manufacturing and
supply agreement described below.  The Company began implementing cost reduction
measures in the fourth quarter of fiscal 1996, which have continued in fiscal
1997, in response to recent results and industry trends (see "Notes to Financial
Statements-Commitments, Contingencies and Other Matters-Restructuring and Cost
Reductions").  These measures have reduced certain operating costs in fiscal
1997.  No assurances can be given that reduced costs will return the Company to
profitability.

          On July 28, 1997, PRI announced that it had amended a distribution
agreement with Sano Corporation ("Sano"), a developer and manufacturer of
transdermal drug delivery products, ceding its distribution rights, created
under a 1994 agreement, to three products of which submissions have not yet been
filed with the Food and Drug Administration ("FDA"), while retaining exclusive
United States distribution rights to three products, a nicotine and two
nitroglycerin transdermal patches, currently filed with the FDA and awaiting
approval (see "Notes to Financial Statements-Subsequent Events-Distribution
Agreement").  In addition, PRI has released distribution rights outside the
United States for the retained products.  In return for relinquishing the rights
described above, PRI received in July 1997 $1,950,000 in cash and an interest
bearing  promissory note for $1,950,000 which will be due in September 1998.
PRI has also retained the rights to recover certain of its prior payments to
Sano, including $1,500,000 from the gross profits earned on sales of two of the
retained products.

                                      -8-
<PAGE>
 
          On April 30, 1997, Par Pharmaceutical, Inc., the Company's operating
subsidiary ("Par"), entered into a Manufacturing and Supply Agreement (the
"Supply Agreement") with BASF Corporation ("BASF"), a manufacturer of
pharmaceutical products (see "Notes to Financial Statements-Commitments,
Contingencies and Other Matters-Manufacturing Agreement").  Under the Supply
Agreement, Par agreed to purchase certain minimum quantities of certain products
manufactured by BASF at one of its facilities, and Par will phase out its
manufacturing of those products.  BASF will discontinue its direct sale of those
products manufactured at the particular facility.  The Company commenced selling
certain products manufactured by BASF and BASF transferred the marketing and
sales of certain products covered by the Supply Agreement in June 1997, however
the agreement will not be fully implemented until August 1997.

          In April 1997, the Company entered into an agreement with Lek
Pharmaceutical and Chemical Company d.d. ("Lek"), a European manufacturer of
pharmaceutical products located in Slovenia, in which it had obtained rights to
distribute Acyclovir, the generic equivalent of Zovirax(R).  The non-exclusive
distribution agreement covers three dosage forms manufactured by Lek.  The
product, introduced in the current quarter of fiscal 1997, has experienced
intense pricing pressure from competitors and has not significantly added to
sales or gross margins.

          The Company plans to continue to invest in research and development
efforts in addition to pursuing additional products for sale through new and
existing distribution agreements. There have been no significant sales of any
new manufactured or distributed products introduced in the first nine months of
the current fiscal year.  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 agreements.  Sano has advised
the Company that the FDA has not yet approved its previously submitted
Abbreviated New Drug Applications ("ANDAs") for the nicotine and nitroglycerine
patches and, accordingly, such patches may not be available for marketing in
fiscal 1997.  As the submission is at the FDA, Sano cannot determine when or if
approvals will be granted.  No assurance can be given that any additional
products for sale by the Company will happen or that sales of additional
products will reduce losses or return the Company to profitability.  Continuing
losses will adversely affect the Company's liquidity and, accordingly, its
ability to fund research and development or ventures relating to the sale of new
products (see "-Financial Condition-Liquidity and Capital Resources").

NET SALES

          Net sales for the nine-month period ended June 28, 1997 of $36,001,000
decreased $9,007,000, or 20%, from $45,008,000 for the nine-month period ended
June 29, 1996.  The decline is primarily due to decreased sales of manufactured
products which resulted, in large part, from lower pricing and decreases in
volume of one of the Company's significant products, and to a lesser extent, two
other significant products, partially offset by higher volumes of a lower margin
product.  The reduction in pricing and volume results from increased competition
from other drug manufacturers.  Sales of distributed product decreased slightly
compared to the levels achieved in the corresponding period of the prior fiscal
year.

          Net sales were $11,749,000 for the current three-month period compared
to $14,788,000 in the corresponding quarter of last year.  The decline of
$3,039,000, or 21% is principally attributable to the continuing lower sales of
certain significant products, partially offset by higher volumes of a lower
margin product.

          Levels of sales are principally dependent upon, among other things,
(i) pricing levels and competition, (ii) market penetration for the existing
product line, (iii) approval of ANDAs and introduction of new manufactured
products, (iv) introduction of new distributed products and (v) the level of
customer service.

GROSS MARGIN

          The Company's gross margin of $1,375,000 (4% of net sales) for the
nine-month period ended June 28, 1997 decreased by $9,602,000 from $10,977,000
(24% of net sales) in the corresponding period of the prior fiscal year.  The
gross margin decline is primarily due to lower selling prices and decreased
volumes of certain significant manufactured products resulting from the
introduction of other generic drug manufacturers' products in direct competition
with the Company's significant products.  The gross margin contribution from
distributed products was negligible in both periods.

                                      -9-
<PAGE>
 
          The gross margin in the current quarter of $617,000 (5% of net sales)
is $2,093,000 lower than the margin of $2,710,000 (18% of net sales) in the
corresponding quarter of the prior year.  The decline is primarily attributable
to the lower sales and pricing of certain manufactured products which continued
the trend of lower margins in the current period.

          Inventory write-offs, taken in the normal course of business, amounted
to $1,148,000 and $514,000, respectively, for the nine-month and three-month
periods ended June 28, 1997, compared to $932,000 and $303,000 in the
corresponding periods of the prior year.  The increase in inventory write-offs
are related principally to the disposal of finished products due to short shelf
life.

OPERATING EXPENSES

Research and Development

          Research and development expenses for the nine-month period ended June
28, 1997 were $4,627,000 versus $4,319,000 for the nine-month period ended June
29, 1996.  In the current period, advances to Sano amounted to $1,957,000, while
in the prior year payments of $2,942,000 were partially offset by a
reimbursement from Sano of $1,500,000.  The Company recorded its share of
research and development expenses from the joint venture with Clal
Pharmaceutical Industries, Ltd. ("Clal") for the current nine-month and three-
month periods of $610,000 and $231,000, respectively, compared to expense of
$324,000 and income of $29,000 for the corresponding periods of the prior year.

          Research and development expenses of $850,000 in the current three-
month period were lower than costs of $2,737,000 in the corresponding period in
the prior year primarily as a result of advances to Sano of $1,867,000 in the
prior quarter not incurred in the current quarter.

Selling, General and Administrative

          Selling, general and administrative costs are $9,478,000 (26% of net
sales) for the nine-month period ended June 28, 1997 compared to $12,876,000
(29% of net sales) for the corresponding period in the prior fiscal year.  The
decrease in the period is primarily attributable to a decline in personnel costs
resulting from recent headcount reductions and the amendment of a retirement
plan (see "Notes to Financial Statements-Commitments, Contingencies and Other
Matters-Retirement Plans" and "-Restructuring and Cost Reductions").  In
addition, fees for consulting and professional services, costs for advertising
and developmental marketing, and bad debt expense have been reduced in the
current fiscal year.

          In the current quarter, selling, general and administrative costs of
$3,132,000 (27% of net sales) decreased $1,234,000 from $4,366,000 (30% of net
sales) in the corresponding quarter of last year.  The decrease is primarily the
result of decreased personnel costs, professional fees and advertising and
marketing costs, as discussed above.

          In June 1997, the Company announced the appointment of a Chief
Operating Officer of Par.  As part of the management team of Par, the Chief
Operating Officer will assist in establishing corporate strategies, objectives
and goals while overseeing the Company's operations in an effort to achieve
those goals.

Restructuring Charges

          The Company recorded a restructuring charge of $549,000 in the prior
period to provide for costs associated with the reduction and reorganization of
personnel.  The implementation of the restructuring plan also included
reductions in spending on advertising, marketing, professional services and, to
a lesser extent, certain internal and external research and development
expenses.

OTHER INCOME (EXPENSE)

          Other expense of $28,000 and $277,000 for the nine and three-month
periods ended June 28, 1997, respectively, included gains on the sale of Sano
stock offset by a loss on the sale of Fine-Tech Ltd. stock (see "--Liquidity and
Capital Resources") compared to other income in the corresponding periods of the
prior year of $631,000 and $160,000, respectively, which consisted primarily of
interest on short term treasury obligations.

                                      -10-
<PAGE>
 
INCOME TAXES

          Management has determined, based on the Company's recent performance
and the uncertainty of the generic business in which it operates, that future
operating income might not be sufficient to recognize fully the net operating
loss carryforwards of the Company.  Therefore, the Company is not recognizing a
benefit for its operating loss for the nine-month period ended June 28, 1997.
The Company incurred income tax expense of $410,000 in the first quarter of
fiscal 1997 due to interest relating to a settlement with the Internal Revenue
Service in fiscal 1995 for the disallowance of the Company's tax credit for
prior periods with respect to certain research and development credits. The
Company recorded income tax benefits of $2,578,000 and $1,956,000 for the nine-
month and three-month periods of fiscal 1996, respectively, which were reversed
during the fourth quarter of the same year.


FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

          Working capital of $8,658,000 at June 28, 1997 decreased $12,058,000
from $20,716,000 at September 30, 1996. The decrease is principally due to the
use of funds to fund operating losses.  As a result of a cash management system
pursuant to the financing agreement that the Company entered into with General
Electric Capital Corporation ("GECC"), there is no cash balance at June 28, 1997
(see "-Financing").  The working capital ratio of 1.5x declined from 2.9x at
fiscal year end.

          During the nine months ended June 28, 1997, the Company sold 48,666
shares of Sano stock yielding net proceeds of approximately $668,000.  In July
and August of 1997 the Company sold an additional  235,000 shares of Sano stock
yielding net proceeds of approximately $3,725,000 which was used to reduce the
revolving credit balance.
 
          In return for relinquishing certain rights pursuant to the amendment
to the Company's distribution agreement with Sano (see "Notes to Financial
Statements-Subsequent Events-Distribution Agreement"), PRI has received
$1,950,000 in cash in the fourth quarter of 1997, which was used to reduce the
revolving credit line balance, and an interest bearing promissory note for
$1,950,000 which will be due in September 1998.

          The Company is committed to invest $3,920,000 (which includes the 
balance of the commitment from fiscal year 1996) in the Clal joint venture 
through fiscal 1997. The Company and Clal were negotiating the terms of their 
respective funding obligations, however a written agreement has not been 
reached.

          In June 1997, the Company sold all of its stock in Fine-Tech Ltd., an
Israeli chemical manufacturer, for $447,000.

          The Company expects to fund its research and development activities,
including its obligations under the existing distribution and development
arrangements discussed above, out of its working capital, and if necessary with
borrowings against its line of credit, to the extent then available (see "--
Financing").  If, however, the Company continues to experience significant
losses, its liquidity and, accordingly, its ability to fund research and
development or ventures relating to the distribution of new products will be
materially and adversely affected.

          The borrowing base related to the Company's credit line was
approximately $11,000,000 as of July 31, 1997.  As of such date, approximately
$5,300,000 was outstanding under the line of credit (see "---Financing").

FINANCING

          As of June 28, 1997, the Company's total outstanding short-term and
long-term debt amounted to $9,415,000 and $1,405,000, respectively.  The short-
term debt consists of the outstanding amount under the Company's line of credit
with GECC and the long-term debt consists primarily of an outstanding mortgage
loan with another bank.

                                      -11-
<PAGE>
 
          In December 1996, Par entered into a Loan and Security Agreement (the
"Loan Agreement") with GECC which provides Par with a three-year revolving line
of credit.  The Loan Agreement was amended in May 1997.  Pursuant to the Loan
Agreement, as amended, Par is permitted to borrow up to the lesser of (i) the
borrowing base established under the Loan Agreement or (ii) $20,000,000.  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 on the line of credit is based upon a per annum rate of 3.50%
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 and PRI
other than real property and is guaranteed by PRI.  In connection with such
facility, Par, PRI and their affiliates 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 and which are applied on a daily basis to reduce amounts outstanding
under the line of credit.  The revolving credit facility is subject to covenants
based on various financial benchmarks.  Under the May 1997 amendment, GECC
waived events of default related to the financial covenants and amended the
financial covenants of Par.  As of June 28, 1997, the borrowing base was
approximately $12,300,000.  Any significant reduction in the borrowing base from
its current levels will adversely affect the Company's liquidity.



                                      -12-
<PAGE>
 
                           PART II. OTHER INFORMATION



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

         (a)  Exhibits:

                10.41 -   First Amendment and Waiver to Loan and Security
                          Agreement, dated May 22, 1997, between Par
                          Pharmaceutical, Inc. and General Electric Capital
                          Corporation.

                10.42 -   Employment Agreement, dated as of May 30, 1997,
                          between Par Pharmaceutical, Inc. and Joseph Gokkes.

                11    -   Computation of per share data.

                27    -   Financial Data Schedule.

         (b)  Reports on Form 8-K:

                None.

                                      -13-
<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)



August 12, 1997           /s/ Kenneth I. Sawyer
                          ------------------------------------------------------
                          Kenneth I. Sawyer
                          President and Chief Executive Officer
                          (Principal Executive Officer)



 
August 12, 1997           /s/ Dennis J. O'Connor
                          ------------------------------------------------------
                          Dennis J. O'Connor
                          Vice President - Chief Financial Officer and Secretary
                          (Principal Accounting and Financial Officer)

                                      -14-
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------
<TABLE>
<CAPTION>
 
 
Exhibit Number     Description                                          Page Number
--------------     -----------                                          -----------
<S>                <C>                             <C>
                
 10.41             First Amendment and Waiver to Loan and
                   Security Agreement, dated May 22, 1997, between
                   Par Pharmaceutical, Inc. and General Electric
                   Capital Corporation.                                      16
                
 10.42             Employment Agreement, dated as of May 30, 1997,
                   between Par Pharmaceutical, Inc. and Joseph Gokkes.       23
 
 11                Computation of per share data.                            27
 
 27                Financial Data Schedule.                                  28
</TABLE>

                                      -15-