UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 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: April 4, 2004

                         COMMISSION FILE NUMBER: 1-10827


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


DELAWARE                                                              22-3122182
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                               Identification No.)


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 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes   X      No ___
                                       ----

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act): Yes   X    No____
                                                ----


         Number of shares of Common Stock outstanding as of May 11, 2004:
                                    34,239,891


<PAGE>


                         PART I - FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS

                         PHARMACEUTICAL RESOURCES, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (In Thousands, Except Share Data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                APRIL 4,            DECEMBER 31,
         ASSETS                                                                   2004                  2003
         ------                                                                   ----                  ----

<S>                                                                             <C>                   <C>
Current assets:
  Cash and cash equivalents                                                      $95,416              $162,549
  Available for sale securities                                                  290,668               195,500
  Accounts receivable, net of allowances of
   $31,917 and $40,357                                                           168,948               157,707
  Inventories, net                                                                78,434                66,713
  Prepaid expenses and other current assets                                       18,979                10,033
  Deferred income tax assets                                                      32,681                34,473
                                                                                  ------                ------
   Total current assets                                                          685,126               626,975

Property, plant and equipment, at cost less
 accumulated depreciation and amortization                                        48,582                46,813
Investment - Advancis                                                              9,160                 7,500
Intangible assets, net                                                            34,052                35,564
Goodwill                                                                          24,662                24,662
Deferred charges and other assets                                                  6,641                 6,899
Non-current deferred income tax assets, net                                       13,487                14,399
                                                                                  ------                ------
   Total assets                                                                 $821,710              $762,812
                                                                                 =======               =======

         LIABILITIES AND STOCKHOLDERS' EQUITY
         ------------------------------------

Current liabilities:
  Current portion of long-term debt                                                 $225                  $122
  Accounts payable                                                                35,207                20,157
  Payables due to distribution agreement partners                                 95,195                88,625
  Accrued salaries and employee benefits                                           3,962                 7,363
  Accrued expenses and other current liabilities                                  16,591                24,654
  Income taxes payable                                                            36,278                26,252
                                                                                  ------                ------
     Total current liabilities                                                   187,458               167,173

Long-term debt, less current portion                                             200,410               200,211
Other long-term liabilities                                                          347                   347
Commitments and contingencies
Stockholders' equity:
  Preferred Stock, par value $.0001 per share; authorized 6,000,000 shares;
    none issued and outstanding                                                        -                     -
  Common stock, par value $.01 per share; authorized: 90,000,000 shares;
    issued and outstanding: 34,496,449 and 34,318,163 shares                         345                   343
  Additional paid-in capital                                                     179,067               171,931
  Retained earnings                                                              254,686               224,480
  Accumulated other comprehensive loss                                              (603)               (1,673)
                                                                                 -------               -------
    Total stockholders' equity                                                   433,495               395,081
                                                                                 -------               -------
 Total liabilities and stockholders' equity                                     $821,710              $762,812
                                                                                 =======               =======

         The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                                        2

<PAGE>

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


<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED
                                                                          ------------------
                                                                      APRIL 4,           MARCH 30,
                                                                        2004               2003
                                                                        ----               ----
<S>                                                                   <C>               <C>
Revenues:
   Net product sales                                                  $211,039          $100,684
   Other product related revenues                                          728             5,728
                                                                           ---             -----
Total revenues                                                         211,767           106,412
Cost of goods sold                                                     141,215            51,109
                                                                       -------            ------
Gross margin                                                            70,552            55,303
Operating expenses (income):
   Research and development                                              6,478             6,469
   Selling, general and administrative                                  14,255            11,890
                                                                        ------            ------
       Total operating expenses                                         20,733            18,359
       Operating income                                                 49,819            36,944
Other expense                                                              (22)              (34)
Interest (expense) income, net                                            (279)              169
                                                                           ---               ---
Income before provision for income taxes                                49,518            37,079
Provision for income taxes                                              19,312            14,646
                                                                        ------            ------
Net income                                                              30,206            22,433
Retained earnings, beginning of period                                 224,480           101,947
                                                                       -------           -------
Retained earnings, end of period                                      $254,686          $124,380
                                                                       =======           =======

Net income per share of common stock:
   Basic                                                                  $.88              $.68
                                                                       =======           =======
   Diluted                                                                $.85              $.67
                                                                       =======           =======

Weighted average number of
   common shares outstanding:
   Basic                                                                34,498            32,886
                                                                        ======            ======
   Diluted                                                              35,555            33,634
                                                                        ======            ======


    The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                       3
<PAGE>


                                           PHARMACEUTICAL RESOURCES, INC.
                                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                   (In Thousands)
                                                     (Unaudited)
<TABLE>
<CAPTION>
                                                                                          THREE MONTHS ENDED
                                                                                          ------------------
                                                                                        APRIL 4,       MARCH 30,
                                                                                          2004           2003
                                                                                          ----           ----
<S>                                                                                    <C>             <C>
Cash flows provided by operating activities:
   Net income                                                                           $30,206        $22,433
   Adjustments to reconcile net income
    to net cash provided by operating activities:
     Deferred income taxes                                                                2,704          5,477
     Depreciation and amortization                                                        2,911          1,750
     Inventory reserves                                                                     284           (881)
     Allowances against accounts receivable                                              (8,440)         3,762
     Gain on sale of property                                                            (2,812)             -
     Stock option activity                                                                  392            456
     Other                                                                                 (692)             -
   Changes in assets and liabilities:
     Increase in accounts receivable                                                     (2,801)       (20,921)
     (Increase) decrease in inventories                                                 (12,005)         1,075
     Decrease in prepaid expenses and other assets                                        1,307          2,379
     Increase in accounts payable                                                        15,021            916
     Increase in payables due to distribution agreement partners                          6,570            223
     (Decrease) increase in accrued expenses and other liabilities                      (11,509)           487
     Increase in income taxes payable                                                    12,327          7,544
                                                                                       --------        -------
       Net cash provided by operating activities                                         33,463         24,700
                                                                                       --------        -------

Cash flows from investing activities:
   Capital expenditures                                                                  (5,156)        (4,086)
   Note receivable                                                                      (10,000)             -
   Acquisition of available for sale investments                                        (95,168)             -
   Proceeds from sale of fixed assets                                                     4,980              -
                                                                                       --------        -------
       Net cash used in investing activities                                           (105,344)        (4,086)
                                                                                       --------        -------
Cash flows from financing activities:
   Proceeds from issuances of Common Stock                                                4,445            696
   Issuance of debt                                                                         399              -
   Principal payments under long-term debt and other borrowings                             (96)          (944)
                                                                                       --------        -------
       Net cash provided by (used in) financing activities                                4,748           (248)
                                                                                       --------        -------

Net (decrease) increase in cash and cash equivalents                                    (67,133)        20,366
Cash and cash equivalents at beginning of period                                        162,549         65,121
                                                                                       --------        -------
Cash and cash equivalents at end of period                                              $95,416        $85,487
                                                                                       ========        =======

Supplemental disclosure of cash flow information:
Cash paid during the year for:
   Taxes                                                                                 $4,929         $1,625
                                                                                       ========        =======
   Interest                                                                              $2,922            $33
                                                                                       ========        =======
Non-cash transactions:
   Tax benefit from exercise of stock options                                            $2,301         $1,092
                                                                                       ========        =======
   Increase in fair value of available for sale securities                               $1,688         $ -
                                                                                       ========        =======

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

                                                        4
</TABLE>

<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  April 4, 2004
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)


     Pharmaceutical  Resources, Inc. (the "Company" or "PRX") operates primarily
through its wholly owned subsidiary,  Par  Pharmaceutical,  Inc. ("Par"), in one
business segment,  the manufacture and distribution of generic  pharmaceuticals,
principally  in the  United  States.  In  addition,  the  Company  develops  and
manufactures,  in small  quantities,  complex  synthetic  active  pharmaceutical
ingredients  through its wholly owned  subsidiary,  FineTech  Laboratories  Ltd.
("FineTech"), based in Haifa, Israel, and sells a limited number of mature brand
name drugs through an agreement  between Par and Bristol  Myers Squibb  ("BMS").
Marketed products are principally in the 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 product in oral suspension form. In April
2004,  the  Company  entered  into  a  definitive   agreement  to  acquire  Kali
Laboratories,  Inc. ("Kali"), a generic pharmaceutical  research and development
company located in Somerset,  New Jersey,  for up to  approximately  $135,000 in
cash and warrants.  Under the terms of the agreement,  the Company will purchase
all of the capital stock of Kali. The acquisition  will not require the approval
of PRX's stockholders.  The transaction will be accounted for using the purchase
method and is expected to close in the second quarter of 2004.

NOTE 1 - BASIS OF PREPARATION:

     The accompanying consolidated financial statements at April 4, 2004 and for
the three-month periods ended April 4, 2004 and March 30, 2003 are unaudited; in
the opinion of the Company's  management,  however,  such statements include all
adjustments  (consisting only of normal recurring accruals) necessary to present
fairly the information  presented  therein.  The  consolidated  balance sheet at
December 31, 2003 was derived from the Company's audited consolidated  financial
statements at such date.

     Pursuant  to  accounting   requirements  of  the  Securities  and  Exchange
Commission (the "Commission")  applicable to quarterly reports on Form 10-Q, the
accompanying  consolidated  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 consolidated
financial statements.

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

NOTE 2 - STOCK-BASED COMPENSATION:

     The Company accounts for stock-based employee compensation  arrangements in
accordance  with the provisions of Accounting  Principles  Board ("APB") Opinion
No. 25,  "Accounting  for Stock Issued to Employees"  ("APB  Opinion  25"),  and
complies with the  disclosure  provisions  of Statement of Financial  Accounting
Standards  ("SFAS") No. 123,  "Accounting for Stock-Based  Compensation"  ("SFAS
123"). Under APB Opinion 25, compensation expense is based on any difference, as
of the date of a stock  option  grant,  between the fair value of the  Company's
common stock and the option's per share exercise price.

     In December 2002, the Financial  Accounting Standards Board ("FASB") issued
SFAS  No.  148,  "Accounting  for  Stock-Based  Compensation  -  Transition  and
Disclosure - an Amendment of FASB  Statement No. 123" ("SFAS  148"),  to provide
alternative methods of transition for a voluntary change to the fair value-based
method of accounting for stock-based employee compensation.  SFAS 148 amends the
disclosure  requirements  of SFAS 123 to require  prominent  disclosure  in both
annual and  interim  financial  statements  about the method of  accounting  for
stock-based employee compensation and the effects of the method used on reported
results.

                                       5
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  April 4, 2004
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

     The following  table  illustrates  the effects on net income and net income
per share of common stock if the Company had applied the fair value  recognition
provisions of SFAS 123 to its stock-based employee compensation:

<TABLE>
<CAPTION>
                                                                                    THREE MONTHS ENDED
                                                                                    ------------------
                                                                                  APRIL 4,       MARCH 30,
                                                                                    2004           2003
                                                                                    ----           ----
<S>                                                                               <C>             <C>
Net income, as reported                                                           $30,206         $22,433
Deduct: Stock-based employee compensation expense determined
     under the fair value- based method, net of related tax effects                (7,634)         (2,638)
                                                                                    -----           -----

Pro forma net income                                                              $22,572         $19,795
                                                                                   ======          ======

Net income per share of common stock:
   As reported -Basic                                                                $.88            $.68
                                                                                   ======          ======
   As reported -Diluted                                                              $.85            $.67
                                                                                   ======          ======

   Pro forma -Basic                                                                  $.65            $.60
                                                                                   ======          ======
   Pro forma -Diluted                                                                $.63            $.59
                                                                                   ======          ======


     As  permitted  under  SFAS 123,  the  Company  has  elected to follow  APB  Opinion  25 and  related
interpretations  in accounting  for  stock-based  compensation  to its employees.  Pro forma  information
regarding net income is required by SFAS 123, as amended by SFAS 148. This required  information is to be
determined as if the Company had accounted for its  stock-based  compensation to employees under the fair
value-based  method of SFAS 148.  The fair value of the options  granted  during each of the  three-month
periods has been estimated at the date of grant using the Black-Scholes stock option pricing model, based
on the following assumptions:
</TABLE>

<TABLE>
<CAPTION>
                                                                                    THREE MONTHS ENDED
                                                                                    ------------------
                                                                                  APRIL 4,       MARCH 30,
                                                                                    2004           2003
                                                                                    ----           ----

<S>                                                                              <C>             <C>
Risk-free interest rate                                                             4.0%           4.3%
Expected term                                                                    5.0 years       4.9 years
Expected volatility                                                                59.0%          63.7%


     It is assumed  that no  dividends  will be paid for the entire  term of the  options.  The  weighted
average per share fair values of options  granted in the first quarter of fiscal years 2004 and 2003 were
$32.85 and $17.88, respectively.

NOTE 3 - AVAILABLE FOR SALE SECURITIES:

     At April 4, 2004 and December 31, 2003, all of the Company's  investments  in marketable  securities
were classified as  available-for-sale  and, as a result, were reported at fair value. The following is a
summary of the Company's available-for-sale securities at April 4, 2004:
</TABLE>

<TABLE>
<CAPTION>
                                                                                  UNREALIZED
                                                                                  ----------          FAIR
                                                                 COST          GAIN        LOSS       VALUE
                                                                 ----          ----        ----       ------

<S>                                                            <C>              <C>        <C>      <C>
     Debt securities issued by various state and local
       municipalities and agencies                             $230,998         $-         $(48)    $230,950
     Securities issued by United States
       government and agencies                                   59,642         76            -       59,718
                                                                -------         --            -       ------
     Total                                                     $290,640         76         $(48)    $290,668
                                                                =======         ==           ==      =======
</TABLE>

                                                        6
<PAGE>

                                         PHARMACEUTICAL RESOURCES, INC.
                                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                  April 4, 2004
                                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                   (UNAUDITED)

       The following is a summary of the Company's available-for-sale securities
at December 31, 2003:

<TABLE>
<CAPTION>
                                                                                   UNREALIZED
                                                                                   ----------            FAIR
                                                                   COST         GAIN         LOSS       VALUE
                                                                   ----         ----         ----       -----
<S>                                                              <C>              <C>        <C>      <C>
       Debt securities issued by various state and local
         municipalities and agencies                             $185,450         $-           $-     $185,450
       Securities issued by United States
         government and agencies                                   10,080          -          (30)      10,050
                                                                   ------       ----           --       ------
       Total                                                     $195,530          -         $(30)    $195,500
                                                                  =======       ====         ====      =======

     All of the securities are available for immediate sale and have been classified as short-term. There were
no proceeds from the sale of  securities in fiscal years 2004 or 2003.  The  following  table  summarizes  the
contractual maturities of debt securities at April 4, 2004 and December 31, 2003:
</TABLE>

<TABLE>
<CAPTION>
                                                       APRIL 4, 2004                    DECEMBER 31, 2003
                                                       -------------                    -----------------
       <S>                                      <C>               <C>               <C>              <C>
                                                                    FAIR                                FAIR
                                                   COST             VALUE             COST              VALUE
                                                   ----             -----             ----              -----
       Less than one year                        $59,642           $59,718           $10,080          $10,050
       Due in 1-2 years                                -                 -                 -                -
       Due in 2-5 years                                -                 -                 -                -
       Due after 5 years                         230,998           230,950           185,450          185,450
                                                 -------           -------           -------          -------
       Total                                    $290,640          $290,668          $195,530         $195,500
                                                 =======           =======           =======          =======

     In addition to the  short-term  investments  described  above,  the Company paid $10,000 to purchase one
million shares of the common stock of Advancis  Pharmaceutical  Corporation  ("Advancis"),  a  pharmaceutical
company based in Germantown,  Maryland, at $10 per share in its initial public offering of six million shares
on October 16, 2003.  The  transaction  closed on October 22, 2003. The Company's  investment  represented an
ownership position of 4.4% of the outstanding  common stock of Advancis.  As of April 4, 2004, the fair value
of the Company's investment in Advancis was $9,160, based on the market value of the common stock of Advancis
at that date. To date, the Company has recorded an unrealized loss on the investment of $840 that was charged
to accumulated other comprehensive loss, net of taxes of $327, at April 4, 2004.
</TABLE>

<TABLE>
<CAPTION>
NOTE 4 - ACCOUNTS RECEIVABLE:
                                                                                    APRIL 4,         DECEMBER 31,
                                                                                      2004               2003
                                                                                      ----               ----

       <S>                                                                          <C>              <C>
       Trade accounts receivable, net of customer rebates and chargebacks           $200,144         $196,888
       Other accounts receivable                                                         721            1,176
                                                                                    --------         --------
       Allowances:
       Doubtful accounts                                                               1,847            1,756
       Returns                                                                        12,895           13,256
       Price adjustments and allowances                                               17,175           25,345
                                                                                      ------           ------
                                                                                      31,917           40,357
                                                                                      ------           ------
       Accounts receivable,
       net of allowances                                                            $168,948         $157,707
                                                                                    ========          =======

     The trade accounts  receivable amounts presented above at April 4, 2004 and December 31, 2003 are net of
provisions  for  customer  rebates of $22,530  and  $23,793,  and of  chargebacks  of  $72,286  and  $75,598,
respectively.  Customer rebates are price reductions generally given to customers as an incentive to increase
sales  volume.  Rebates are  generally  based on a customer's  volume of purchases  made during an applicable
monthly,  quarterly or annual period.  Chargebacks are price adjustments  provided to wholesale customers for
product  that they resell to specific  healthcare  providers  on the basis of prices  negotiated  between the
Company and the providers.
</TABLE>
                                       7
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  April 4, 2004
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

     The  accounts   receivable   allowances  include  provisions  for  doubtful
accounts,  returns  and price  adjustments  and  allowances.  Price  adjustments
include cash discounts,  sales promotions and shelf-stock  adjustments.  Cash or
terms  discounts  are given to customers  that pay within a specified  period of
time.  The Company may conduct  sales or  trade-show  promotions  through  which
additional  discounts may be given on a new product or certain existing products
as an added  incentive  for the  customer to purchase  the  Company's  products.
Shelf-stock  adjustments  are typically  provided to a customer when the Company
lowers its invoice pricing and provides a credit for the difference  between the
old and new invoice  prices for the  inventory  that the customer has on hand at
the time of the price reduction.

     The Company will generally offer price  protection for sales of new generic
drugs  for  which it has  market  exclusivity  periods.  Such  price  protection
accounts  for the fact that the prices of such  drugs  typically  will  decline,
sometimes  substantially,  when additional generic  manufacturers  introduce and
market a comparable  generic product  following the expiration of an exclusivity
period. Such price protection plans, which are common in the Company's industry,
generally  provide for shelf-stock  adjustments to customers with respect to the
customer's  remaining  inventory at the expiration of the exclusivity period for
the  difference  between  the  Company's  new  price  and the price at which the
Company  originally sold the product to the customer.  In addition,  the Company
may offer  price  protection  with  respect to  existing  products  for which it
anticipates significant price erosion through increases in competition.

     The Company's exclusivity period for megestrol acetate oral suspension, the
generic version of BMS's Megace(R) Oral Suspension, expired in mid-January 2002.
Two  generic   competitors  have  been  granted  United  States  Food  and  Drug
Administration  ("FDA") approval to market generic versions of megestrol acetate
oral suspension,  but, as of December 31, 2003, had only a minimal impact on the
Company's  net sales of the  product.  The Company  expects that sales and gross
margins on  megestrol  acetate oral  suspension  will begin to decline in fiscal
year 2004 due to the effects of competition. Net sales of megestrol acetate oral
suspension were approximately  $18,700 for the first quarter of 2004, decreasing
$1,870  compared  to the first  quarter of 2003.  The Company  will  continue to
evaluate the effects of competition and will record a price  protection  reserve
when, if and to the extent that it deems necessary.

     As a result of generic  competition  beginning in the first quarter of 2002
following the expiration of the Company's 180-day marketing  exclusivity period,
the sales  price  for  fluoxetine  10 mg and 20 mg  tablets  and 40 mg  capsules
substantially  declined  from the price that the Company had charged  during the
exclusivity  period.  Despite pricing declines,  fluoxetine 40 mg capsules was a
significant sales and gross margin contributor in fiscal years 2002 and 2003. In
the first quarter 2004,  however,  competitive factors led to additional pricing
pressure on  fluoxetine  40 mg capsules,  resulting in lower net sales and gross
margins. Net sales of fluoxetine were approximately $14,900, for the most recent
quarter,  decreasing $5,027 compared to the first quarter of the prior year. The
Company will continue to evaluate the effects of  competition  and will record a
price protection reserve when, if and to the extent that it deems necessary.

     In fiscal year 2003, Par obtained the marketing  rights to paroxetine,  the
generic  version of  GlaxoSmithKline's  ("GSK")  Paxil(R),  in connection with a
litigation  settlement  (the "GSK  Settlement")  between  the  Company,  GSK and
certain of its affiliates, and Pentech Pharmaceuticals,  Inc. ("Pentech").  As a
result of the GSK  Settlement,  Par and GSK entered into an agreement  (the "GSK
Supply Agreement")  pursuant to which Par began marketing  paroxetine,  supplied
and licensed  from GSK, in the  Commonwealth  of Puerto Rico in May 2003 and the
United States in September  2003.  The Company  believes that other generic drug
manufacturers have filed Abbreviated New Drug Applications  ("ANDAs") in respect
of paroxetine and that the marketing  exclusivity period ended on March 8, 2004.
In May 2004,  one  additional  competitor  announced it would launch a competing
paroxetine  product  shortly;  however,  the  Company  cannot now  predict  with
certainty the timing of launches by any additional  competitors or the potential
effect of such  competition on its sales.  The Company will continue to evaluate
the effects of competition and will record a price  protection  reserve when, if
and to the extent that it deems necessary.

                                       8
<PAGE>

                                         PHARMACEUTICAL RESOURCES, INC.
                                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                  April 4, 2004
                                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                   (UNAUDITED)
<TABLE>
NOTE 5 -INVENTORIES, NET:
                                                                                        APRIL 4,        DECEMBER 31,
                                                                                          2004              2003
                                                                                          ----              ----
       <S>                                                                               <C>              <C>
       Raw materials and supplies, net                                                   $23,252          $21,551
       Work-in-process and finished goods, net                                            55,182           45,162
                                                                                          ------           ------
                                                                                         $78,434          $66,713
                                                                                          ======           ======

NOTE 6 - PREPAID EXPENSES  AND OTHER CURRENT ASSETS:

     In March 2004, the Company made a loan to Kali that is included in prepaid expenses and other current assets
on the Company's  consolidated  balance sheets. The loan, evidenced by a note in the principal amount of $10,000,
bears  interest at the annual rate of 2.3%.  The  principal  of and all of the accrued  interest on the note will
become due and payable in full on the  earlier of March 30, 2005 and  immediately  upon the  consummation  of any
transaction  that  results in a change of control of Kali,  as defined in the note.  In April  2004,  the Company
entered  into a  definitive  agreement  to acquire  all of the  capital  stock of Kali (see  "Note  12-Subsequent
Events").

NOTE 7 - INTANGIBLE ASSETS, NET:
                                                                                         APRIL 4,        DECEMBER 31,
                                                                                           2004              2003
                                                                                           ----              ----
       Trademark licensed from BMS                                                        $5,000           $5,000
       BMS Asset Purchase Agreement, net of accumulated amortization
           of $3,482 and $3,064                                                            8,218            8,636
       Product license fees, net of accumulated amortization of $1,562 and $1,135          8,743            9,170
       Genpharm Distribution Agreement, net of accumulated amortization
           of $4,153 and $3,972                                                            6,680            6,861
       Intellectual property, net of accumulated amortization of $1,383 and $1,202         5,198            5,378
       Genpharm Profit Sharing Agreement, net of accumulated amortization
           of $2,287 and $1,981                                                              213              519
                                                                                             ---              ---
                                                                                         $34,052          $35,564
                                                                                          ======           ======

     The Company recorded  amortization expense related to intangible assets of $1,512 and $1,009,  respectively,
for the  three-month  periods  ended  April 4, 2004 and March  30,  2003.  Amortization  expense  related  to the
intangible  assets currently being amortized is expected to total  approximately  $5,147 in 2004, $3,773 in 2005,
$3,115 in 2006,  $3,115 in 2007, $3,115 in 2008 and $5,300  thereafter.  Intangible assets not being amortized at
April 4, 2004 and  December 31, 2003 were product  license  fees of $6,999 and a trademark  licensed  from BMS of
$5,000.

     The product  license fees of $6,999 consist of payments made by Par pursuant to agreements  with Breath Ltd.
of the Arrow Group  ("Breath")  and FineTech  related to  latanoprost  ophthalmic  solution  0.005%,  the generic
equivalent of Pharmacia  Corporation's  Xalatan(R),  a glaucoma  medication.  In April 2004, the trial related to
Par's ANDA filing of latanoprost  has concluded and the parties are awaiting the District  Court's  decision (see
"Note 11 -Commitments, Contingencies and Other Matters-Legal Proceedings").

NOTE 8 - INCOME TAXES:

     The Company  accounts for income taxes in accordance  with the provisions of SFAS No. 109,  "Accounting  for
Income Taxes",  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 April 4, 2004 and December 31, 2003, the Company had net current
deferred income tax assets of $32,681 and $34,473 and net  non-current  deferred income tax assets of $13,487 and
$14,399,  respectively.  Current  deferred  income tax assets in both  periods  consisted  primarily of temporary
differences related to accounts receivable  reserves,  and non-current deferred income tax assets in both periods
included the tax benefit related to purchased call options.
</TABLE>
                                       9
<PAGE>

                                         PHARMACEUTICAL RESOURCES, INC.
                                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                  April 4, 2004
                                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                   (UNAUDITED)

NOTE 9 - CHANGES IN SHAREHOLDERS' EQUITY:
<TABLE>
     Changes in the Company's  Common Stock and Additional  Paid-in  Capital  accounts  during the three-month
period ended April 4, 2004 were as follows:

                                                                                                    ACCUMULATED
                                                                                     ADDITIONAL        OTHER
                                                                  COMMON STOCK         PAID-IN     COMPREHENSIVE
                                                              SHARES       AMOUNT      CAPITAL    GAINS (LOSSES)
                                                              ------       ------      -------    --------------
       <S>                                                    <C>            <C>      <C>             <C>
       Balance, January 1, 2004                               34,318         $343     $171,931        $(1,673)
         Comprehensive income:
           Unrealized gains on marketable
           securities, net of tax                                  -            -            -          1,070
         Exercise of stock options                               177            2        4,385              -
         Tax benefit from exercise of stock options                -            -        2,301              -
         Employee stock purchase program                           1      -                 58              -
         Compensatory arrangements                                 -            -          392              -
                                                              ------        -----          ---       --------
       Balance, April 4, 2004                                 34,496         $345     $179,067          $(603)
                                                              ======          ===      =======            ===
</TABLE>
<TABLE>

                                                                                        THREE MONTHS ENDED
                                                                                        ------------------
                                                                                       APRIL 4,      MARCH 30,
COMPREHENSIVE INCOME:                                                                    2004          2003
                                                                                         ----          ----
       <S>                                                                             <C>            <C>
       Net income                                                                      $30,206        $22,433
       Other comprehensive gains:
         Unrealized gains on marketable securities, net of tax                           1,070              -
                                                                                         -----      ---------
       Comprehensive income                                                            $31,276        $22,433
                                                                                        ======         ======

NOTE 10 - EARNINGS PER SHARE:

       The following is a reconciliation of the amounts used to calculate basic and diluted earnings per share:

                                                                                         THREE MONTHS ENDED
                                                                                       APRIL 4,       MARCH 30,
                                                                                         2004           2003
                                                                                         ----           ----
Net income                                                                             $30,206         $22,433
Basic:
Weighted average number of common
  shares outstanding                                                                    34,498          32,886
Net income per share of common stock                                                      $.88            $.68
                                                                                           ===             ===
Assuming dilution:
Weighted average number of common
  shares outstanding                                                                    34,498          32,886
Effect of dilutive options                                                               1,057             748
                                                                                         -----             ---
Weighted average number of common
   shares outstanding                                                                   35,555          33,634
Net income per share of common stock                                                      $.85            $.67
                                                                                           ===             ===

     Outstanding  options  of 1,244  and 29 as of April 4, 2004 and March  30,  2003,  respectively,  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 during the respective periods. In addition, outstanding warrants sold
concurrently with the prior sale of senior subordinated  convertible notes in September 2003 were not included
in the  computation  of diluted  earnings per share as of April 4, 2004. The warrants are  exercisable  for an
aggregate of 2,253 shares at an exercise price of $105.20 per share.
</TABLE>

                                       10
<PAGE>

NOTE 11 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:

LEGAL PROCEEDINGS:

     On March 9, 2004,  the  Congress of  California  Seniors  brought an action
against GSK and the Company  concerning  the sale of  paroxetine in the State of
California. On April 28, 2004, GSK, with the consent of the Company, removed the
action from state court to federal court in California.  The Company  intends to
defend vigorously the claims set forth in the complaint.

     On  September  25,  2003,  the  Office  of  the  Attorney  General  of  the
Commonwealth  of  Massachusetts  filed a complaint in federal  district court in
Boston  against  Par and 12  other  leading  generic  pharmaceutical  companies,
alleging  principally that Par and such other companies violated,  through their
marketing and sales practices,  state and federal laws, including allegations of
common law fraud and violations of Massachusetts false statements  statutes,  by
inflating  generic  pharmaceutical  product prices paid for by the Massachusetts
Medicaid  program.  Par has  waived  service  of  process  with  respect  to the
complaint.  The complaint seeks injunctive relief, treble damages,  disgorgement
of excessive  profits,  civil  penalties,  reimbursement  of  investigative  and
litigation costs (including experts' fees) and attorneys' fees. In addition,  on
September 25, 2003,  Par and a number of other generic and brand  pharmaceutical
companies were sued by a New York county,  which has alleged  violations of laws
(including the Racketeer  Influenced and Corrupt  Organizations  Act, common law
fraud and obtaining funds by false  statements)  related to participation in the
Medicaid program. The complaint seeks declaratory relief; actual,  statutory and
treble damages, with interest;  punitive damages; an accounting;  a constructive
trust and  restitution;  attorneys'  and experts' fees and costs.  This case was
transferred to the District of  Massachusetts  for coordinated and  consolidated
pre-trial  proceedings.  Par and the other defendants involved in the litigation
filed a motion to dismiss on January 29, 2004. Par intends to defend  vigorously
the  claims  asserted  in both  complaints.  The  Company  cannot  predict  with
certainty  at this  time the  outcome  or the  effects  on the  Company  of such
litigations. Accordingly, no assurance can be given that such litigations or any
other similar litigation by other states or jurisdictions,  if instituted,  will
not have a material adverse effect on the Company's financial condition, results
of operations, prospects or business.

     In October 2003, Apotex Pharmaceutical Healthcare,  Inc. ("Apotex") filed a
complaint  against  Par in the  United  States  District  Court for the  Eastern
District of  Pennsylvania,  alleging  violations of state and federal  antitrust
laws as a  result  of the  Company's  settlement  with  GSK  and the GSK  Supply
Agreement.  Par filed a motion to dismiss the action in its entirety in December
2003 and a briefing on that motion was  completed in April 2004.  Par intends to
defend vigorously this action, and may assert  counterclaims  against Apotex and
claims against third parties.

     In August 2003, Teva Pharmaceuticals USA, Inc. ("Teva USA") filed a lawsuit
against the Company and Par in the United States District Court for the District
of Delaware  after  having  received  approval  from the FDA to launch a generic
version of BMS's  Megace(R),  which generic product  competes with the Company's
megestrol  acetate oral  suspension  product.  In the lawsuit,  Teva USA seeks a
declaration  that its product has not  infringed  and will not  infringe  any of
Par's four patents relating to megestrol acetate oral suspension.  On August 22,
2003, Par filed a counterclaim against Teva USA alleging willful infringement of
one of Par's four patents  relating to megestrol  acetate oral  suspension.  Par
moved to dismiss the action with respect to the other three  patents for lack of
subject matter  jurisdiction and the motion was granted.  The Company intends to
pursue its counterclaim  against Teva USA and vigorously  defend the lawsuit.  A
trial date has been scheduled by the Court for April 2005.

     On July 15,  2003,  the  Company  and Par  filed a lawsuit  against  Roxane
Laboratories,  Inc.  ("Roxane")  in the  United  States  District  Court for the
District of New Jersey.  The Company and Par alleged  that Roxane had  infringed
Par's U.S.  Patents  numbered  6,593,318  and  6,593,320  relating to  megestrol
acetate  oral   suspension.   Roxane  has  denied  these   allegations  and  has
counterclaimed for declaratory  judgments of non-infringement  and invalidity of
both patents.

     On May 28,  2003,  Asahi  Glass  Company  ("Asahi  Glass")  filed a lawsuit
against Par and several other parties in the United  States  District  Court for
the Northern District of Illinois  alleging,  among other things,  violations of
state and federal  antitrust  laws  relating to the  settlement  of GSK's patent
action against Pentech in respect of paroxetine.  Pentech had granted Par rights
under  Pentech's ANDA for paroxetine  capsules.  Pursuant to the GSK Settlement,

                                       11
<PAGE>

                       PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  April 4, 2004
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)


reached between the parties on April 18, 2003, Pentech and Par acknowledged that
the  patent  held by GSK is valid  and  enforceable  and would be  infringed  by
Pentech's  proposed capsule product and GSK agreed to allow Par to distribute in
Puerto Rico substitutable  generic paroxetine immediate release tablets supplied
and licensed from GSK for a royalty payable to GSK. In addition, Par was granted
the right under the GSK  Settlement to distribute  the drug in the United States
if another generic version fully  substitutable for Paxil(R) became available in
the United States.  Par denied any wrongdoing in connection with the Asahi Glass
antitrust  action and it filed a motion to dismiss the  complaint  on August 22,
2003.  In  October  2003,  the court  dismissed  all of the  state  and  federal
antitrust  claims  against Par.  Subsequent  to the October 2003 decision in the
District Court, the remaining state law claims were dismissed with prejudice and
Asahi  filed an appeal with the United  States  Court of Appeals for the Federal
Circuit, which is presently pending. Briefing in that appeal should be concluded
later this year.

     In February  2003,  Abbott,  Fornier  Industrie  et Sante and  Laboratoires
Fournier  S.A.  filed a complaint in the United  States  District  Court for the
District of New Jersey  against  Par,  alleging  that Par's  generic  version of
TriCor(R)  (fenofibrate)  infringes  one or more  claims of their  patents.  The
Company had filed an ANDA for the product in October 2002. Par intends to defend
vigorously  this  lawsuit and has filed an answer and a  counterclaim,  alleging
non-infringement and patent invalidity. At this time, it is not possible for the
Company to predict the outcome of this litigation with any certainty.

     On November 25, 2002, Ortho-McNeil  Pharmaceutical,  Inc.  ("Ortho-McNeil")
filed a  lawsuit  against  Kali in the  United  States  District  Court  for the
District of New Jersey. Ortho-McNeil alleged that Kali infringed U.S. Patent No.
5,336,691 (the "691 patent") by submitting a Paragraph IV  certification  to the
FDA for approval of tablets containing tramadol hydrochloride and acetaminophen.
Par is Kali's  exclusive  marketing  partner for these tablets.  Kali has denied
Ortho-McNeil's allegation,  asserting that the `691 patent was not infringed and
is  invalid  and/or  unenforceable,  and that the  lawsuit  is barred by unclean
hands.   Kali   also   has   counterclaimed   for   declaratory   judgments   of
non-infringement, invalidity and unenforceability of the `691 patent.

     Breath  filed an ANDA  (currently  pending  with the FDA) for  latanoprost,
which was developed by Breath  pursuant to a joint  manufacturing  and marketing
agreement  with the  Company,  seeking  approval  to  engage  in the  commercial
manufacture,  sale and use of one latanoprost drug product in the United States.
Par subsequently  acquired  ownership of the ANDA, which includes a Paragraph IV
certification  that the patents in  connection  with  Xalatan(R)  identified  in
"Approved Drug Products with Therapeutic  Equivalence  Evaluations" are invalid,
unenforceable  and/or  will  not  be  infringed  by  Par's  generic  version  of
Xalatan(R).  Par  believes  that its ANDA is the first to be filed for this drug
with a  Paragraph  IV  certification.  Pursuant  to  agreements  with Breath and
FineTech,  the Company had recorded  product  license fees of $6,999,  which are
included in intangible assets on its consolidated balance sheets. As a result of
the  filing  of  the  ANDA,  Pharmacia  Corporation,   Pharmacia  AB,  Pharmacia
Enterprises, S.A., Pharmacia and Upjohn Company (collectively,  "Pharmacia") and
the Trustees of Columbia University in the City of New York ("Columbia"),  filed
a lawsuit  against Par on December 21, 2001 in the United States  District Court
for the District of New Jersey,  alleging  patent  infringement.  Pharmacia  and
Columbia sought an injunction  enjoining  approval of the Company's ANDA and the
marketing of its generic  product prior to the expiration of their  patents.  On
February 8, 2002,  Par answered the  complaint and filed a  counterclaim,  which
sought a declaration that the patents-in-suit are invalid,  unenforceable and/or
not infringed by Par's products and that the extension of the term of one of the
patents  was  invalid.  All  parties  are  seeking to recover  their  respective
attorneys'  fees. The trial concluded in April 2004 and the parties are awaiting
the District Court's decision.

     Par entered into a licensing agreement with developer Paddock  Laboratories
("Paddock")  to  market  testosterone  1%  gel,  a  generic  version  of  Unimed
Pharmaceuticals,   Inc.'s  ("Unimed")  product  Androgel(R).   The  product,  if
successfully brought to market, would be manufactured by Paddock and marketed by
Par. Paddock has filed an ANDA (which is currently pending with the FDA) for the
testosterone 1% gel product.  As a result of the filing of the ANDA,  Unimed and
Laboratories  Besins Iscovesco  ("Besins"),  co-assignees of the patent-in-suit,
filed a lawsuit  against  Paddock in the United  States  District  Court for the
Northern  District of Georgia  alleging patent  infringement on August 22, 2003.
Par has an economic  interest in the outcome of this litigation by virtue of its
licensing agreement with Paddock. Unimed and Besins are seeking an injunction to
prevent Paddock from  manufacturing  the generic product.  On November 18, 2003,
Paddock  answered  the  complaint  and  filed  a  counterclaim,  which  seeks  a
declaration that the patent-in-suit is invalid and/or not infringed by Paddock's
product.  This case is currently in discovery.  At this time, the Company is not


                                       12
<PAGE>

                       PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  April 4, 2004
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

able to predict with any certainty the outcome of this litigation.

     The Company  and/or Par are parties to certain  other  litigation  matters,
including product liability and patent actions;  the Company believes that these
actions are  incidental  to the conduct of its business and that their  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 or, in cases where the Company is plaintiff, to prosecute these actions.

OTHER MATTERS:

     In June 2003, the Company  received notice from the U.S.  Congress that the
Committee on Energy and Commerce (the  "Committee")  had begun an  industry-wide
(brand and generic product) investigation into pharmaceutical reimbursements and
rebates under Medicaid, to which the Company has responded.  In order to conduct
the   investigation,   the  Committee   requested   certain  pricing  and  other
information,  which the Company  delivered in August  2003,  relating to certain
drugs produced by these pharmaceutical manufacturers.  Because the investigation
has only recently begun,  it is premature to speculate what action,  if any, the
federal  government  may take and what impact any such action  could have on the
Company's business, prospects or financial condition.

NOTE 12 - SUBSEQUENT EVENTS:

     In April 2004, the Company's marketing partner, Three Rivers Pharmaceutical
LLC ("Three Rivers"),  received final approval from the FDA for ribavirin 200 mg
capsules,  the generic version of Schering-Plough  Corporation's  ("Schering's")
Rebetol(R),  which is indicated  for the treatment of chronic  hepatitis.  Three
Rivers was  awarded  180 days of shared  marketing  exclusivity,  commencing  at
launch,  for  being  the  first  to file  an  ANDA  containing  a  Paragraph  IV
certification.  Under the terms of its  agreement  with  Three  Rivers,  Par has
exclusive  marketing rights to sell Three Rivers' ribavirin  product,  which Par
launched  in early  April  2004.  In  addition  to the  competitor  with  shared
exclusivity, Warrick Pharmaceuticals,  a subsidiary of Schering, also launched a
generic  ribavirin  product in the United  States in April 2004.  As a result of
launching the product,  Schering will not receive a royalty from Three Rivers on
net sales of Three Rivers' and Par's generic  ribavirin.  Due to the  additional
competition,  the pricing  pressure on ribavirin at launch was more  substantial
than the Company had previously anticipated.

     In April 2004, the Company  entered into a definitive  agreement to acquire
Kali for up to approximately  $135,000 in cash and warrants.  Under the terms of
the  agreement,  the Company will purchase all of the capital stock of Kali. The
acquisition   will  not  require  the  approval  of  PRX's   stockholders.   The
transaction, which is subject to certain conditions, will be accounted for using
the purchase method and is expected to close in the second quarter of 2004. With
25 products in development,  another 14 filed and awaiting regulatory  approval,
and a research and development  organization of 55 employees, the acquisition of
Kali would  immediately  and  significantly  expand the  Company's  research and
development capabilities.  Included as part of the Company's purchase of Kali is
a lease, with a purchase option, of a 45,000-square foot manufacturing  facility
in Somerset, New Jersey.

     L. William  Seidman was selected to the Company's  board of directors  (the
"board"),  effective  April 15,  2004.  For more than the past five  years,  Mr.
Seidman has been Chief  Commentator  for  CNBC-TV,  Publisher  of Bank  Director
magazine and an independent consultant in the financial services industry.

     In April 2004, the board  authorized the purchase of up to $50,000 worth of
the Company's  common stock.  The purchases are expected to be made,  subject to
compliance with applicable securities laws, from time to time in the open market
or in  privately  negotiated  transactions.  Common stock  acquired  through the
buyback program will be available for general  corporate  purposes.  Pursuant to
the buyback  program,  the Company had  purchased 275 shares of its common stock
for approximately $11,053 through May 11, 2004.

     On May 3, 2004,  Pentech filed an action  against the Company in the United
States District Court for the Northern District of Illinois. This action alleges
that the  Company is in breach of its  contract  with  Pentech  relating  to the
supply  and  marketing  of  paroxetine.  The  Company  believes  that  it  is in
compliance with its agreement with Pentech and intends to vigorously defend this
action.


                                       13
<PAGE>

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

     CERTAIN  STATEMENTS  IN  THIS  DOCUMENT  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, TRENDS
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
DOCUMENT INCLUDE (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  LITIGATIONS,  INCLUDING  PATENT AND  INFRINGEMENT
CLAIMS,  (VIII)  UNANTICIPATED  COSTS,  DELAYS AND  LIABILITIES  IN  INTEGRATING
ACQUISITIONS, (IX) OBTAINING OR LOSING 180-DAY MARKETING EXCLUSIVITY ON PRODUCTS
AND (X) GENERAL INDUSTRY AND ECONOMIC CONDITIONS. ANY FORWARD-LOOKING STATEMENTS
INCLUDED  IN THIS  DOCUMENT  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.

       THE FINANCIAL DATA CONTAINED IN THIS SECTION IS IN THOUSANDS.

OVERVIEW

     In the first quarter 2004,  the Company  increased  sales and earnings over
the corresponding period of 2003; however, due to competition  involving certain
key products,  including  fluoxetine  40 mg capsules and megestrol  acetate oral
suspension,  and delays in expected new product approvals such as ribavirin, the
Company  could not match its results for the third and fourth  quarters of 2003.
Net sales of the Company's top selling  product,  paroxetine,  which the Company
began selling in the United States through a distribution  agreement with GSK in
September 2003, remained strong,  increasing over the immediately  preceding two
quarters.  The Company is making an effort to  introduce  new products in fiscal
year 2004 to offset sales and gross margin declines  resulting from  competition
involving certain of its significant  products.  The Company seeks to reduce its
dependence on its top selling products,  by adding  additional  products through
its internal development program,  new and existing  distribution  agreements or
acquisitions of complementary products or businesses.

     Net sales and gross margin  derived from  generic  pharmaceutical  products
often follow a pattern based on regulatory and competitive  factors  believed by
management to be unique to the generic pharmaceutical industry. As the patent(s)
for a brand name product and the related  exclusivity period expires,  the first
generic  manufacturer to receive regulatory approval for a generic equivalent of
the product is often able to capture a substantial share of the market. However,
as other  generic  manufacturers  receive  regulatory  approvals  for  competing
products,  the market  share,  and the price,  of that product,  will  typically
decline, often significantly, depending on several factors, including the number
of competitors,  the price of the brand product and the pricing  strategy of the
new competitors.  A large portion of the Company's  historical revenues has been
derived from the sales of generic drugs during the 180-day marketing exclusivity
period and from the sale of generic products where there is limited competition.

     In fiscal year 2003,  Par obtained the  marketing  rights to  paroxetine in
connection with the GSK Settlement.  As a result of the GSK Settlement,  Par and
GSK entered into the GSK Supply Agreement, pursuant to which Par began marketing
paroxetine,  supplied and licensed  from GSK, in the United  States in September
2003  and the  Commonwealth  of  Puerto  Rico in May  2003.  The GSK  Settlement
provides that the Company's right to distribute paroxetine will be suspended if,
at any time, there is not another generic version fully  substitutable for Paxil
available  for purchase in the United  States.  On  September  8, 2003,  another
generic drug manufacturer,  Apotex,  launched a generic version of Paxil(R).  In
April 2002, GSK launched a  longer-lasting,  newly patented version of the drug,
Paxil CR(R).  The Company expects Paxil CR(R)'s market share to continue to grow
in fiscal year 2004,  which may cause the Company's sales of paroxetine  tablets
to decrease. The Company believes that other generic drug manufacturers have

                                       14
<PAGE>


filed ANDAs in respect of paroxetine and that the marketing  exclusivity  period
ended on March 8, 2004.  In May 2004,  one  additional  competitor  announced it
would launch a competing paroxetine product shortly; however, the Company cannot
now predict with certainty the timing of launches by any additional  competitors
or the potential effect of such competition on its sales and gross margins.

     The Company's exclusivity period for megestrol acetate oral suspension, the
generic version of BMS's Megace(R) Oral Suspension, expired in mid-January 2002.
Two  generic  competitors  have been  granted  FDA  approval  to market  generic
versions of megestrol acetate oral suspension, but, as of December 31, 2003, had
only a minimal  impact on the  Company's  net sales of the product.  The Company
expects sales and gross margins on megestrol  acetate oral suspension will begin
to decline in fiscal year 2004 due to the effects of  competition.  Net sales of
megestrol  acetate  oral  suspension  were  approximately  $18,700 for the first
quarter of 2004,  decreasing  $1,870  compared to the first quarter of 2003. The
Company will continue to evaluate the effects of  competition  and will record a
price protection reserve when, if and to the extent that it deems necessary.

     As a result of generic  competition  beginning in the first quarter of 2002
following the expiration of the Company's 180-day marketing  exclusivity period,
the sales prices for  fluoxetine  10 mg and 20 mg tablets and 40 mg capsules had
substantially  declined from the prices that the Company had charged  during the
exclusivity  period.  Despite pricing declines,  fluoxetine 40 mg capsules was a
significant sales and gross margin contributor in fiscal years 2002 and 2003. In
the first quarter 2004,  competitive  factors led to additional pricing pressure
on fluoxetine  40 mg capsules  resulting in lower sales and gross  margins.  The
Company will continue to evaluate the effects of  competition  and will record a
price protection reserve when, if and to the extent that it deems necessary.

     In April 2004,  the Company's  marketing  partner,  Three Rivers,  received
final  approval  from the FDA for  ribavirin  200 mg capsules.  Three Rivers was
awarded 180 days of shared  marketing  exclusivity,  commencing  at launch,  for
being the first to file an ANDA containing a Paragraph IV  certification.  Under
the terms of its agreement with Three Rivers, Par has exclusive marketing rights
to sell Three Rivers' ribavirin product, which Par launched in early April 2004.
In addition to the competitor with shared exclusivity,  Warrick Pharmaceuticals,
a subsidiary  of Schering,  launched a generic  ribavirin  product in the United
States in April 2004.  As a result of launching  the product,  Schering will not
receive a royalty  from  Three  Rivers on net sales of Three  Rivers'  and Par's
generic ribavirin.  Due to the additional  competition,  the pricing pressure on
ribavirin  at  launch  was more  substantial  than the  Company  had  previously
anticipated.

     Critical  to  the  growth  of  the  Company  is  the  introduction  of  new
manufactured   and   distributed   products  at  selling  prices  that  generate
significant gross margins. The Company, through its internal development program
and  strategic  alliances  and  relationships,  is committed to  developing  new
products  that have limited  competition  and longer  product  life  cycles.  In
addition to expected new product  introductions as part of its various strategic
alliances   and   relationships,   the  Company  plans  to  continue  to  invest
significantly  in its internal  research and  development  efforts while, at the
same  time,  seeking  additional  products  for sale  through  new and  existing
distribution   agreements  or   acquisitions  of   complementary   products  and
businesses,   additional   first-to-file   opportunities,   selective   vertical
integration with raw material suppliers and unique dosage forms to differentiate
its products in the marketplace.

     In addition to its own product development program, the Company has several
strategic alliances through which it co-develops and distributes products. These
strategic  alliances  afford the Company many advantages,  including  additional
resources  for  increased   activity,   expertise  for  dissimilar  products  or
technologies,  and a  sharing  of  both  the  costs  and  risks  of new  product
development.  As a result of its internal program and these strategic alliances,
the Company's  pipeline of potential  products  includes 25 ANDAs (five of which
have been tentatively  approved),  three of which are for products  developed by
Kali,  pending with,  and awaiting  approval  from,  the FDA. The Company pays a
percentage of the gross  profits or sales to its strategic  partners on sales of
products covered by its distribution  agreements.  Generally,  products that the
Company  develops  internally,  without  having  to split any  profits  with its
strategic partners,  contribute higher gross margins than products covered under
distribution  agreements.  The  Company is engaged  in  efforts,  subject to FDA
approval and other factors,  to introduce new products  through its research and
development  efforts and  distribution  and  development  agreements  with third
parties.

     In April 2004, the Company  entered into a definitive  agreement to acquire
Kali for up to approximately  $135,000 in cash and warrants.  Under the terms of
the agreement,  the Company will purchase all of the capital stock of Kali. With
25 products in  development,  another 14 filed and awaiting FDA approval,  and a
research and development  organization of 55 employees,  the acquisition of Kali


                                       15
<PAGE>


would   immediately  and  significantly   expand  the  Company's   research  and
development  capabilities.  Kali's 14 ANDAs include  three  products the Company
plans to market. The Company will be due royalty income from the other potential
products,  which are subject to  licensing  agreements  entered  into before the
Company's  acquisition  of Kali.  Included as part of the Company's  purchase of
Kali is a lease, with a purchase option, of a 45,000-square  foot  manufacturing
facility in Somerset, New Jersey.

     The  Company   believes  its   acquisition  of  Kali  would  fit  into  its
comprehensive  business  plan  by  significantly   expanding  its  research  and
development  capabilities and  substantially  increasing the size of its product
portfolio.  The acquisition  would  immediately  increase the Company's  pending
ANDAs from 25 to 36. The  Company  now  expects  to  submit,  together  with its
strategic  partners,  at least 20 ANDAs in 2004. The acquisition  would also add
diversity to the Company's  development  pipeline and provides  four  additional
first-to-file  product opportunities  strategically  enhancing the prospects for
sustained long-term growth.

     The  Company  also plans to submit its first New Drug  Application  ("NDA")
early in the third quarter of 2004 for a next-generation  megestrol acetate oral
suspension  product.  If cleared for  marketing,  the product  will  utilize the
Megace(R)  brand  name,  which Par  licensed  from BMS.  In  addition,  a second
505(b)(2) NDA submission is planned for 2005 through Advancis. The Company has a
signed a letter  of  intent  with  Advancis  to  develop  and  market a low dose
pulsatile form of the antibiotic  amoxicillin,  utilizing Advancis'  proprietary
PULSYS(TM) technology.  If successfully developed,  amoxicillin PULSYS(TM) would
be a once-daily  version of the antibiotic  amoxicillin that is administered for
fewer days with improved therapeutic effect.

RESULTS OF OPERATIONS

GENERAL

     The Company's net income of $30,206 for the three-month  period ended April
4, 2004 increased $7,773,  from $22,433,  for the three-month period ended March
30, 2003.  Total  revenues of $211,767 in the first quarter 2004  increased 99%,
from $106,412 in the first quarter 2003,  primarily due to additional  net sales
of paroxetine. The revenue growth resulted in higher gross margin dollars, which
increased to $70,552, or 33% of total revenues, in the most recent quarter, from
$55,303,  or 52% of  total  revenues,  in the  corresponding  quarter  of  2003.
Research and  development  spending of $6,478 in the first quarter 2004 remained
at approximately the same level as the corresponding  quarter of the prior year;
however,  the  Company  expects  to  significantly  increase  its  research  and
development  spending  over the  remainder of 2004.  First quarter 2004 selling,
general  and  administrative  costs  were  $14,255  compared  to  $11,890 in the
corresponding quarter of 2003. Selling, general and administrative costs in 2004
are net of a $2,812 gain on the sale of the Company's  facility in Congers,  New
York.

     Sales and gross margins of the Company's products are principally dependent
upon (i) the pricing  practices  of  competitors  and any  removal of  competing
products  from  the  market,   (ii)  the  introduction  of  other  generic  drug
manufacturers'  products in direct  competition  with the Company's  significant
products,  (iii) the ability of generic  competitors to quickly enter the market
after  patent or  exclusivity  period  expirations,  diminishing  the amount and
duration of  significant  profits to the Company from any one product,  (iv) the
continuation of existing  distribution  agreements,  (v) the introduction of new
distributed products,  (vi) the consolidation among distribution outlets through
mergers,  acquisitions and the formation of buying groups, (vii) the willingness
of generic drug customers,  including wholesale and retail customers,  to switch
among  generic  pharmaceutical  manufacturers,  (viii) the approval of ANDAs and
introduction  of new  manufactured  products,  (ix) the  granting  of  potential
marketing  exclusivity  periods,  (x) the extent of market  penetration  for the
existing product line and (xi) the level and amount of customer service.

REVENUES

     Revenues in the first quarter 2004 of $211,767 increased $105,355,  or 99%,
from first quarter 2003 revenues of $106,412,  primarily due to additional sales
from  paroxetine  and other new  products.  Net sales of  paroxetine,  which the
Company  launched in September 2003 in the United States and is sold through the
GSK Supply  Agreement,  totaled  approximately  $104,544 in the first quarter of
2004.  Additionally,  net sales of other new  products,  including  metformin ER
(Glucophage XR(R)), introduced in December 2003, mercaptopurine (Purinethol(R)),
introduced  in February  2004,  and  torsemide  (Demadex(R)),  introduced in the
second  quarter  of 2003,  contributed  to the  growth of  revenues  in 2004 and
partially  offset  lower  sales  of  certain  existing  products,   particularly
tizanidine  (Zanaflex(R)).  Net sales of fluoxetine  and megestrol  acetate oral
suspension were approximately  $14,900 and $18,700,  respectively,  for the most


                                       16
<PAGE>


recent  quarter,  decreasing  $5,027 and $1,870,  respectively,  compared to the
first  quarter of the prior year.  In  addition,  the  Company's  other  product
related  revenues  in the first  quarter  2004 of $728  generated  from a profit
sharing  agreement with Genpharm related to omeprazole  decreased from $5,728 in
the  corresponding  period of 2003.  Net sales of  distributed  products,  which
consist of products  manufactured  under  contract and licensed  products,  were
approximately 79% and 54%, respectively, of the Company's net sales in the first
quarter of fiscal years 2004 and 2003.  Presently,  the Company is substantially
dependent  upon  distributed  products for its overall sales and, as the Company
continues  to introduce  new  products  under its  distribution  agreements,  it
expects that this  dependence  will continue.  Any inability by its suppliers to
meet expected demand could adversely affect the Company's future sales.

     At this time,  it is  difficult  to predict  with  accuracy  the effects of
potential   competition   on  future  sales  of   paroxetine.   Several   market
uncertainties exist,  including the possibility and timing of additional generic
competitors  entering  the  market  or the right of GSK,  under  the GSK  Supply
Agreement,  to suspend  Par's right to  distribute  paroxetine  if, at any time,
another  generic  version of Paxil(R) is not being  marketed.  In May 2004,  one
additional  competitor  announced it would launch a competing paroxetine product
shortly.  In addition,  further pricing  pressure due to competitive  factors on
fluoxetine 40 mg and megestrol  acetate oral suspension is expected to adversely
affect net sales and gross margins on these products in future periods.

     Pursuant to an agreement with Genpharm,  the Company  receives a portion of
the  profits,  as  defined  in  the  agreement,  generated  from  Kremers  Urban
Development Co.'s ("KUDCo"), a subsidiary of Schwarz Pharma AG of Germany, sales
of omeprazole,  the generic version of Astra Zeneca's Prilosec(R).  In the third
quarter of 2003, two generic  competitors began selling forms of omeprazole that
also compete with the prescription form of Prilosec(R),  significantly  reducing
the Company's share of profits related to omeprazole from approximately  $12,800
for the first six months of fiscal  year 2003 to $2,900 for the last  six-months
of 2003. The Company expects that the impact of this  competition  will continue
to have an adverse effect on its omeprazole sales in future periods.

GROSS MARGIN

     The Company's  gross margin of $70,552 (33% of total revenues) in the first
quarter 2004  increased  $15,249 from  $55,303 (52% of total  revenues)  for the
first quarter 2003. The gross margin dollar increase was achieved primarily as a
result of contributions  from sales of new products.  In accordance with the GSK
Settlement and the Pentech Supply and Marketing Agreement, Par pays royalties to
GSK and Pentech on sales of  paroxetine.  As a result of these  agreements,  the
Company's  gross margin as a percentage  of its total  revenues  declined as net
sales  of  paroxetine   after  the   allocation  of  profit  splits   yielded  a
significantly  lower gross margin  percentage  than the Company's  average gross
margin  as a  percentage  of  total  revenues  of  its  other  products  in  the
corresponding quarter of 2003.

     As discussed above, the Company  experienced  lower sales and gross margins
for fluoxetine 40 mg capsules and megestrol acetate oral suspension in the first
quarter 2004.  The Company's  gross  margins for  paroxetine  could also decline
when,  if and as,  additional  manufacturers  introduce  and  market  comparable
generic  products.  Despite the  possibility of additional  competition on these
products,  the Company anticipates all three products will remain as significant
contributors to its overall performance in fiscal year 2004.

     Inventory  write-offs  of $1,980 in the first quarter 2004  increased  from
$412 in the first quarter 2003.  The inventory  write-offs,  taken in the normal
course of business,  were related primarily to the disposal of finished products
due to short shelf lives and work in process inventory not meeting the Company's
quality control standards.  The write-offs in the first quarter of 2004 included
the write-off of inventory  for a product  whose launch was delayed,  as well as
normally occurring  write-offs  resulting from increased  production required to
meet higher sales and inventory levels.  The Company maintains  inventory levels
that it believes are appropriate to optimize its customer service.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT

     The  Company's  first  quarter   expenditure  of  $6,478  in  research  and
development  in 2004 was  comparable to $6,469 spent in the first quarter of the
prior fiscal year. The Company expects its research and development  spending to
increase  substantially  over the last three  quarters  of 2004.  As  previously
discussed,  the Company executed a definitive agreement in April 2004 to acquire


                                       17
<PAGE>

Kali. The Company  expects to utilize Kali, when acquired,  to develop  products
principally  for its own new  product  pipeline.  Although  there can be no such
assurance,  the Company  believes that,  with the addition of Kali, its research
and development expenses could approach $55,000 for fiscal year 2004.

     The Company currently has 11 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 expects that at least eight of the
potential  products in active  development  will be the  subjects of  biostudies
during fiscal year 2004.

     The Company and Genpharm have entered into a  distribution  agreement  (the
"Genpharm 11 Product  Agreement"),  dated April 2002, pursuant to which Genpharm
is developing  products and submitting the  corresponding  ANDAs to the FDA and,
subsequently, has agreed to manufacture the potential products covered under the
Agreement. Par is to serve as the 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 by this Agreement. Currently,
there are two ANDAs for  potential  products  covered by the Genpharm 11 Product
Agreement  pending with, and awaiting approval from, the FDA. Under the Genpharm
11 Product  Agreement,  the  Company is  currently  marketing  one  product  and
receiving royalties on another product marketed by an unaffiliated company.

     The Company and Genpharm  have also entered into a  distribution  agreement
(the  "Genpharm  Distribution  Agreement"),  dated  March  25,  1998.  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  (three
tentatively  approved) that are covered by the Genpharm  Distribution  Agreement
pending  with,  and awaiting  approval  from,  the FDA. The Company is currently
marketing 19 products under the Genpharm Distribution Agreement.

     Genpharm and the Company  share the costs of  developing  products  covered
under an agreement (the "Genpharm Additional Product Agreement"), dated November
27, 2000.  Currently,  there is one ANDA for a potential  product covered by the
Genpharm  Additional Product Agreement pending with, and awaiting approval from,
the FDA. The Company is  currently  marketing  two  products  under the Genpharm
Additional Product Agreement.

SELLING, GENERAL AND ADMINISTRATIVE

     Selling,  general and  administrative  expenses  were $14,255 for the first
quarter 2004,  which reflected total costs of $17,067 (8% of total revenues) net
of a gain of $2,812 on the sale of the Company's facility in Congers,  New York,
and  an  increase  of  $5,177  from  $11,890  (11%  of  total  revenues)  in the
corresponding  quarter  of  last  year.  The  increase  in  2004  was  primarily
attributable to higher legal fees of $1,334,  personnel costs of $997, including
those for  information  systems  assessments,  and, to a lesser extent,  product
liability   insurance,   and  marketing   costs   associated  with  new  product
introductions.  Distribution  costs include those related to shipping product to
the Company's  customers,  primarily  through the use of a common  carrier or an
external distribution service.  Shipping costs of $634 in the first quarter 2004
increased  from $607 in the  corresponding  quarter of the prior year.  Although
overall sales volumes increased in fiscal year 2004,  shipping costs remained at
approximately  the same  level as fiscal  year  2003 due to a reduced  amount of
reliance on an external  distribution  service.  The Company anticipates it will
continue  to incur a high  level  of  legal  expenses  related  to the  costs of
litigation  relating  to  potential  new  product  introductions  (see "Notes to
Consolidated Financial Statements-Note  11-Commitments,  Contingencies and Other
Matters-Legal Proceedings").  Although there can be no such assurance,  selling,
general  and  administrative  costs are  expected  to  increase by 10% to 20% in
fiscal year 2004 primarily due to increased legal fees and marketing activities.

     Par owned a facility of  approximately  33,000  square feet  located on six
acres in Congers, New York (the "Congers Facility").  In March 2004, the Company
sold the Congers Facility to Ivax  Pharmaceuticals  New York, LLC for $4,980 and
recorded a gain on the sale of $2,812.

                                       18
<PAGE>

INTEREST EXPENSE/INCOME

     Net interest  expense was $279 for the first  quarter 2004  compared to net
interest income of $169 for the first quarter 2003. Net interest expense for the
first quarter 2004 includes interest payable on the Company's convertible notes,
partially   offset  by  interest   income  derived   primarily  from  short-term
investments.  Net  interest  income in the first  quarter of 2003 was  primarily
derived from money market and other short-term investments.

INCOME TAXES

     The Company  recorded  provisions  for income taxes of $19,312 and $14,646,
respectively, for the three-month periods ended April 4, 2004 and March 30, 2003
based on the  applicable  federal  and state tax  rates for those  periods  (see
"Notes to Consolidated Financial Statements-Note 8-Income Taxes").

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

     The  Company's  critical  accounting  policies  are set forth in its Annual
Report on Form 10-K for the year  ended  December  31,  2003.  There has been no
change,  update  or  revision  to the  Company's  critical  accounting  policies
subsequent to the filing of the Company's  Form 10-K for the year ended December
31, 2003.

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

     Cash and cash  equivalents  of $95,416 at April 4, 2004  decreased  $67,133
from  $162,549  at  December  31,  2003,   primarily  due  to  the  purchase  of
available-for-sale  securities.  The Company had cash  provided by operations of
$33,463,  gross  proceeds of $4,980 from the sale of the  Congers  Facility  and
$4,445 from the  issuance of shares of Common  Stock upon the  exercise of stock
options.  In the first quarter 2004,  the Company made a loan to Kali of $10,000
and  invested  $5,156 in  capital  improvements,  primarily  for Phase II of the
expansion of its  laboratories  in Spring  Valley,  New York, and new production
machinery.  The Company's  cash balances are deposited  primarily with financial
institutions in money market funds and overnight investments.

     Working  capital,  which is current  assets minus current  liabilities,  of
$497,668 increased $37,866, from $459,802 at December 31, 2003, primarily due to
increases in the Company's available-for-sale securities,  partially offset by a
decrease in cash.  Increases in the Company's accounts receivables and inventory
were partially offset by higher accounts payable and amounts due to distribution
agreement  partners,  particularly  those  due to GSK.  The  available  for sale
securities includes debt securities issued by state and local municipalities and
agencies and securities  issued by the United States government and agencies and
all are  available for  immediate  sale.  The working  capital  ratio,  which is
calculated by dividing current assets by current liabilities, was 3.65x at April
4, 2004  compared to 3.75x at December 31, 2003.  The Company  believes that its
strong  working  capital  ratio  indicates  the  ability to meet its ongoing and
foreseeable obligations.

     In  September  2003,  the Company  sold an  aggregate  principal  amount of
$200,000 of senior  subordinated  convertible  notes pursuant to Rule 144A under
the Securities Act of 1933, as amended. Net proceeds of $177,945 from the notes,
which were net of  underwriting  costs of $5,250 and the net  payment of $16,805
from the purchase of call  options and sale of  warrants,  were used to purchase
available for sale  securities in October 2003.  The Company  intends to use its
current  liquidity  to support the  expansion  of its  business,  including  the
acquisition  of  Kali,  increasing  its  research  and  development  activities,
entering  into  product  license   arrangements  and  possibly  acquiring  other
complementary businesses and products, and for general corporate purposes.

     As of  April  4,  2004,  the  Company  had  payables  owed to  distribution
agreement  partners of $95,195  related  primarily  to amounts  due  pursuant to
profit sharing agreements,  particularly amounts owed to GSK on paroxetine.  The
Company  expects to pay these  amounts  out of its  working  capital  during the
second quarter of 2004.

                                       19
<PAGE>


     The dollar values of the Company's  material  contractual  obligations  and
commercial commitments as of April 4, 2004 were as follows:

<TABLE>
                                                                       Amounts Due by Period
                                                                       ---------------------
                                     Total Monetary    Apr.-Dec. 31      2005 to   2008 to     2010 and
     Obligation                      Obligation          2004            2007       2009     thereafter
     ----------                      ----------          ----            ----       ----     ----------
     <S>                             <C>                 <C>            <C>       <C>        <C>
     Operating leases                  $17,206           $2,343         $7,284    $4,485        $3,094
     Convertible notes*                200,000                -              -         -       200,000
     Other                                 635              171            464         -             -
                                           ---              ---            ---   -------      --------
     Total obligations                $217,841           $2,514         $7,748    $4,485      $203,094
                                       =======            =====          =====     =====       =======

     *The convertible notes mature on September 30, 2010, unless earlier converted or repurchased.

     In addition to its  internal  research and  development  costs,  the Company,  from time to time,
enters into  agreements with third parties for the  development of new products and  technologies.  To
date,  the Company has entered into  agreements  and advanced  funds or has  commitments  with several
non-affiliated  companies for products in various  stages of  development.  These types of payments or
commitments  are generally  dependent on a third party achieving  certain  milestones or the timing of
third-party  research and  development  or legal  expenses.  Due to the  uncertainty  of the timing or
realization of such commitments,  these obligations are not included in the table above;  however, the
agreements that contain such  commitments  that the Company believes are material are described below.
Payments  made  pursuant to these  agreements  are either  capitalized  or expensed  according  to the
Company's accounting policies.

     Par and Nortec  Development  Associates,  Inc.  (a Glatt  company)  ("Nortec"),  entered  into an
agreement,  dated October 22, 2003, in which the two companies agreed to develop  additional  products
that are not part of the two previous agreements between Par and Nortec. During the first two years of
the agreement,  Par is obligated to make aggregate initial research and development payments to Nortec
in the amount of $3,000,  of which $1,500 was paid by Par in fiscal year 2003, $1,000 is due in fiscal
year 2004 and $500 is due in fiscal year 2005.  On or before  October 15, 2005,  Par has the option to
either (i) terminate the arrangement  with Nortec,  in which case the initial research and development
payments will be credited against any development costs that Par shall owe Nortec at that time or (ii)
acquire all of the capital stock of Nortec over the  subsequent  two years,  including the first fifty
(50%)  percent of the capital  stock of Nortec over the third and fourth  years of the  agreement  for
$4,000, and the remaining 50% from its owners at the end of the fourth year for an additional $11,000.
The parties have agreed to certain  revenue and royalty  sharing  arrangements  before and after Par's
acquisition, if any, of Nortec.

     In the second quarter of 2002, the Company made non-refundable  payments totaling $1,000 pursuant
to other agreements with Nortec,  which were charged to research and development expenses as incurred.
Pursuant to the agreements,  the Company agreed to pay a total of $800 in various installments related
to the  achievement of certain  milestones in the  development of two potential  products and $600 for
each product on the day of its first commercial sale (if any).

     Par entered into the Advancis  Licensing  Agreement,  dated  September 4, 2003,  with Advancis to
market the antibiotic  Clarithromycin XL. Pursuant to this agreement,  Advancis is responsible for the
development  and manufacture of the product,  while Par will be responsible  for marketing,  sales and
distribution.  If certain  provisions  in the  agreement  are met,  Par has agreed to pay  Advancis an
aggregate  amount of up to $6,000,  based on the  achievement of certain  milestones  contained in the
agreement. An ANDA for the product is expected to be submitted to the FDA in the near future. Pursuant
to the agreement, Par has agreed to pay Advancis a certain percentage of the gross profits, as defined
in the Agreement,  on all sales of the product if it is successfully developed and introduced into the
market.

     Par entered into an agreement with BMS, dated August 6, 2003, to license the brand name Megace(R)
to be used for a potential  new  product  currently  in  development.  The  product,  if  successfully
developed,  would be a line extension of the Company's  megestrol  acetate oral  suspension  products.
Pursuant to this agreement, Par paid BMS $5,000 in August 2003, which is included in intangible assets
on the Company's  consolidated  balance sheets at April 4, 2004. As part of this  agreement,  Par also
provided BMS with funding of approximately $400 in fiscal year 2003 to support the active promotion of
the brand name, which was expensed as incurred,  and will provide an additional $1,600 throughout 2004
to help retain brand equity and awareness among physicians.
</TABLE>
                                       20
<PAGE>

     In November  2002,  the Company  amended the Pentech  Supply and  Marketing
Agreement,  dated November  2001,  with Pentech to market  paroxetine  capsules.
Pursuant to the  agreement,  the Company  paid all legal  expenses up to $2,000,
which were  expensed as incurred,  to obtain final  regulatory  approval.  Legal
expenses  in excess of $2,000 were fully  credited  against  profit  payments to
Pentech.  The Company had agreed to reimburse  Pentech for costs associated with
the  project of up to $1,300 for fiscal  year  2003.  In fiscal  year 2003,  the
Company paid  Pentech  $771 of these  costs,  which were charged to research and
development  expenses as incurred.  Pursuant to this agreement,  Par and Pentech
share in net profits on Par's sales of paroxetine.

     In July 2002,  the Company and Three  Rivers  entered into the Three Rivers
Distribution  Agreement,  which was  amended  in  October  2002,  to market  and
distribute  ribavirin  200  mg  capsules,  the  generic  version  of  Schering's
Rebetol(R).  Under the terms of the agreement, Three Rivers has agreed to supply
the product and was responsible  for managing the regulatory  process and patent
litigation.  Par has the  exclusive  right to sell the  product in  non-hospital
markets and has agreed to pay Three Rivers a percentage of the gross profits (as
defined in the  agreement).  The Company  paid Three  Rivers  $1,000 in November
2002,  which was charged to research  and  development  expense,  and paid Three
Rivers and additional $500 when Par launched the product in April 2004.

     Pursuant  to the  Genpharm  11 Product  Agreement,  Genpharm  has agreed to
develop  products,  submit all  corresponding  ANDAs to the FDA and subsequently
manufacture the products covered under the agreement. Par has agreed to 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 to Genpharm a percentage of the gross profits, as
defined in the agreement,  on all sales of products covered by the agreement. In
the second  quarter of 2002, the Company paid Genpharm a  non-refundable  fee of
$2,000, which is included in intangible assets, net of accumulated amortization,
on the Company's consolidated balance sheets, for two of the products.  Pursuant
to the agreement,  the Company's share of development and legal costs related to
the other  products  has been  expensed as  incurred.  The Company  will also be
required to make an additional  non-refundable  payment of up to $414 based upon
FDA acceptance of certain filings, as described in the agreement.

     In December 2001, the Company made its first payment of a potential  equity
investment of up to $2,438 to be made over a period of time in HighRapids,  Inc.
("HighRapids"),  a Delaware corporation.  HighRapids is a software developer and
the owner of patented rights to an artificial intelligence  generator.  Pursuant
to an agreement between the Company and HighRapids,  effective December 1, 2001,
the Company,  subject to its ongoing evaluation of HighRapids'  operations,  has
agreed to purchase  units,  consisting of secured debt,  evidenced by 7% secured
promissory  notes,  up to an aggregate  principal  amount of $2,425 and up to an
aggregate  of 1,330  shares of the common  stock of  HighRapids.  HighRapids  is
utilizing  the  Company's  cash  infusion  for  working  capital  and  operating
expenses.  Through  April 4,  2004,  the  Company  had  invested  $1,506  of its
potential  investment.  Due to  HighRapids'  current  operating  losses  and the
Company's  evaluation  of  its  short-term  prospects  for  profitability,   the
investments  were  expensed as  incurred  and  included in other  expense on the
Company's consolidated statements of operations.

     In April 2001,  Par  entered  into a  licensing  agreement  with Aveva Drug
Delivery Systems,  (formerly Elan Transdermal  Technologies,  Inc.) ("Aveva"), a
U.S. subsidiary of Nitto Denko, to market a generic clonidine  transdermal patch
(Catapres  TTS(R)).   Under  such  agreement,   Aveva  is  responsible  for  the
development  and  manufacture of the product,  while Par is responsible  for its
marketing,  sale and  distribution.  Pursuant to the  agreement,  Par paid Aveva
$1,167 in fiscal year 2001 and $833 in 2002,  which were charged to research and
development expenses in the respective years. In addition, Par has agreed to pay
Aveva  $1,000 upon FDA  approval of the  product and  royalties  on sales of the
product.

     The Company expects to continue to fund its operations,  including research
and  development  activities,  capital  projects and its  obligations  under the
existing distribution and development  arrangements discussed herein, out of its
working  capital,  including the proceeds  from the issuance of its  convertible
notes.  The Company  anticipates  that its capital  spending in fiscal year 2004
will not exceed the level in fiscal year 2003.  Implementation  of the Company's
business plan may require  additional debt and/or equity financing and there can
be no assurance that the Company will be able to obtain any additional  required
financing when needed and on terms acceptable or favorable to it.

                                       21
<PAGE>

FINANCING

     At April 4, 2004, the Company's total outstanding long-term debt, including
the current  portion,  was $200,635.  The amount  consisted  primarily of senior
subordinated  convertible  notes and capital leases for computer  equipment.  In
September  2003, the Company sold an aggregate  principal  amount of $200,000 of
senior subordinated convertible notes pursuant to Rule 144A under the Securities
Act of 1933,  as amended.  The notes bear  interest at an annual rate of 2.875%,
payable  semi-annually  on March 30 and  September  30 of each  year.  The first
payment of $2,875 was made on March 29,  2004.  The notes are  convertible  into
shares of Common Stock at an initial  conversion price of $88.76 per share, only
upon the occurrence of certain  events.  The notes mature on September 30, 2010,
unless earlier  converted or  repurchased.  The Company may not redeem the notes
prior to their maturity date.

SUBSEQUENT EVENTS

     In April 2004,  the Company's  marketing  partner,  Three Rivers,  received
final  approval  from the FDA for  ribavirin  200 mg capsules.  Three Rivers was
awarded 180 days of shared  marketing  exclusivity,  commencing  at launch,  for
being the first to file an ANDA containing a Paragraph IV  certification.  Under
the terms of its agreement with Three Rivers, Par has exclusive marketing rights
to sell Three Rivers' ribavirin product, which Par launched in early April 2004.
In addition to the competitor with shared exclusivity,  Warrick Pharmaceuticals,
a  subsidiary  of Schering,  also  launched a generic  ribavirin  product in the
United States in April 2004. As a result of its launching the product,  Schering
will not receive a royalty from Three  Rivers on net sales of Three  Rivers' and
Par's generic ribavirin. Due to the additional competition, the pricing pressure
on  ribavirin  at launch was more  substantial  than the Company had  previously
anticipated.


     In April 2004, the Company  entered into a definitive  agreement to acquire
Kali for up to approximately  $135,000 in cash and warrants.  Under the terms of
the  agreement,  the Company will purchase all of the capital stock of Kali. The
acquisition,  which is subject  to  various  conditions,  will not  require  the
approval of PRX's stockholders.  The transaction will be accounted for using the
purchase  method and is expected to close in the second quarter of 2004. With 25
products in development,  another 14 filed and awaiting regulatory approval, and
a research and  development  organization  of 55 employees,  the  acquisition of
Kali, if completed,  would  immediately and  significantly  expand the Company's
research  and  development  capabilities.  Included  as  part  of the  Company's
purchase of Kali is a lease,  with a purchase  option,  of a 45,000-square  foot
manufacturing facility in Somerset, New Jersey.

     L. William Seidman was selected to the board, effective April 15, 2004. For
more than the past five  years,  Mr.  Seidman  has been  Chief  Commentator  for
CNBC-TV,  Publisher of Bank Director  magazine and an independent  consultant in
the financial services industry.

     In April 2004, the board  authorized the purchase of up to $50,000 worth of
the Company's  common stock.  The purchases are expected to be made,  subject to
compliance with applicable securities laws, from time to time in the open market
or in  privately  negotiated  transactions.  Common stock  acquired  through the
buyback program will be available for general  corporate  purposes.  Pursuant to
the buyback  program,  the Company had  purchased 275 shares of its common stock
for approximately $11,053 through May 11, 2004.

     On May 3, 2004,  Pentech filed an action  against the Company in the United
States District Court for the Northern District of Illinois. This action alleges
that the  Company is in breach of its  contract  with  Pentech  relating  to the
supply  and  marketing  of  paroxetine.  The  Company  believes  that  it  is in
compliance with its agreement with Pentech and intends to vigorously defend this
action.

       ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     The Company is subject to market risk  primarily from changes in the market
values of its investments in marketable debt and government  agency  securities.
These  instruments are classified as available for sale securities for financial
reporting  purposes and have minimal or no interest risk due to their short-term
nature. Professional portfolio managers managed 100% of these available for sale
securities  at April  4,  2004.  Additional  investments  are made in  overnight
deposits and money market funds.  These  instruments  are classified as cash and
cash  equivalents  for  financial  reporting  purposes  and have  minimal  or no
interest risk due to their short-term nature.

                                       22
<PAGE>

     The following  table  summarizes  the available  for sale  securities  that
subject the Company to market risk at April 4, 2004 and December 31, 2003:

<TABLE>
                                                                                        APRIL 4,     DEC. 31,
                                                                                          2004         2003
                                                                                          ----         ----
     <S>                                                                              <C>           <C>
     Debt securities issued by various state and local
       municipalities and agencies                                                    $230,950      $185,450
     Securities issued by United States government and agencies                         59,718        10,050
                                                                                        ------        ------
     Total                                                                            $290,668      $195,500
                                                                                       =======       =======

AVAILABLE FOR SALE SECURITIES:

     The primary  objectives for the Company's  investment  portfolio are liquidity and safety of principal.
Investments  are made to achieve  the  highest  rate of return  while  retaining  safety of  principal.  The
Company's  investment policy limits  investments to certain types of instruments  issued by institutions and
governmental  agencies with  investment-grade  credit ratings.  A significant change in interest rates could
affect the market value of the $290,668 in  available-for-sale  securities that have a maturity greater than
one year.

     The Company is also subject to market risk in respect of its  investment in Advancis,  which is subject
to fluctuations in the price of Advancis common stock, which is publicly traded. The Company paid $10,000 to
purchase  one million  shares of the common  stock of  Advancis,  at $10 per share,  in its  initial  public
offering of six million shares on October 16, 2003. The transaction closed on October 22, 2003. The value of
the Company's investment in Advancis as of April 4, 2004 was $9,160.

                        ITEM 4. CONTROLS AND PROCEDURES.

     Based on an evaluation under the supervision and with the  participation  of the Company's  management,
the Company's  principal executive officer and principal financial officer have concluded that the Company's
disclosure  controls and  procedures  (as defined in Rules  13a-15(e)  and  15d-15(e)  under the  Securities
Exchange Act of 1934, as amended) were effective as of April 4, 2004 to ensure that information  required to
be  disclosed  by the  Company  in reports  that it files or submits  under the  Exchange  Act is  recorded,
processed, summarized and reported within the time periods specified in the Commission's rules and forms.

     There were no changes  in the  Company's  internal  control  over  financial  reporting  identified  in
management's  evaluation  during  the first  quarter of fiscal  2004 that have  materially  affected  or are
reasonably likely to materially affect the Company's internal controls over financial reporting.
</TABLE>

                                       23
<PAGE>

                           PART II. OTHER INFORMATION

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

     On March 9, 2004,  the  Congress of  California  Seniors  brought an action
against GSK and the Company  concerning  the sale of  paroxetine in the State of
California. On April 28, 2004, GSK, with the consent of the Company, removed the
action from state court to federal court in California.  The Company  intends to
defend vigorously the claims set forth in the complaint.

     On  September  25,  2003,  the  Office  of  the  Attorney  General  of  the
Commonwealth  of  Massachusetts  filed a complaint in federal  district court in
Boston  against  Par and 12  other  leading  generic  pharmaceutical  companies,
alleging  principally that Par and such other companies violated,  through their
marketing and sales practices,  state and federal laws, including allegations of
common law fraud and violations of Massachusetts false statements  statutes,  by
inflating  generic  pharmaceutical  product prices paid for by the Massachusetts
Medicaid  program.  Par has  waived  service  of  process  with  respect  to the
complaint.  The complaint seeks injunctive relief, treble damages,  disgorgement
of excessive  profits,  civil  penalties,  reimbursement  of  investigative  and
litigation costs (including experts' fees) and attorneys' fees. In addition,  on
September 25, 2003,  Par and a number of other generic and brand  pharmaceutical
companies were sued by a New York county,  which has alleged  violations of laws
(including the Racketeer  Influenced and Corrupt  Organizations  Act, common law
fraud and obtaining funds by false  statements)  related to participation in the
Medicaid program. The complaint seeks declaratory relief; actual,  statutory and
treble damages, with interest;  punitive damages; an accounting;  a constructive
trust and  restitution;  attorneys'  and experts' fees and costs.  This case was
transferred to the District of  Massachusetts  for coordinated and  consolidated
pre-trial  proceedings.  Par and the other defendants involved in the litigation
filed a motion to dismiss on January 29, 2004. Par intends to defend  vigorously
the  claims  asserted  in both  complaints.  The  Company  cannot  predict  with
certainty  at this  time the  outcome  or the  effects  on the  Company  of such
litigations. Accordingly, no assurance can be given that such litigations or any
other similar litigation by other states or jurisdictions,  if instituted,  will
not have a material adverse effect on the Company's financial condition, results
of operations, prospects or business.

     In October 2003,  Apotex filed a complaint against Par in the United States
District Court for the Eastern District of Pennsylvania  alleging  violations of
state and federal  antitrust laws as a result of the Company's  settlement  with
GSK and the GSK Supply  Agreement.  Par filed a motion to dismiss  the action in
its  entirety in December  2003 and a briefing on that motion was  completed  in
April  2004.  Par  intends  to defend  vigorously  this  action,  and may assert
counterclaims against Apotex and claims against third parties.

     In August 2003, Teva USA filed a lawsuit against the Company and Par in the
United States  District Court for the District of Delaware after having received
approval  from the FDA to launch a generic  version  of BMS's  Megace(R),  which
generic product  competes with the Company's  megestrol  acetate oral suspension
product.  In the lawsuit,  Teva USA seeks a declaration that its product has not
infringed and will not infringe any of Par's four patents  relating to megestrol
acetate oral  suspension.  On August 22, 2003, Par filed a counterclaim  against
Teva USA alleging willful  infringement of one of Par's four patents relating to
megestrol acetate oral suspension.  Par moved to dismiss the action with respect
to the other  three  patents  for lack of subject  matter  jurisdiction  and the
motion was granted.  The Company intends to pursue its counterclaim against Teva
USA and  vigorously  defend the lawsuit.  A trial date has been scheduled by the
Court for April 2005.

     On July 15, 2003, the Company and Par filed a lawsuit against Roxane in the
United States District Court for the District of New Jersey. The Company and Par
alleged that Roxane had  infringed  Par's U.S.  Patents  numbered  6,593,318 and
6,593,320 relating to megestrol acetate oral suspension. Roxane has denied these
allegations and has counterclaimed for declaratory judgments of non-infringement
and invalidity of both patents.

     On May 28, 2003,  Asahi Glass filed a lawsuit against Par and several other
parties  in the  United  States  District  Court for the  Northern  District  of
Illinois alleging, among other things, violations of state and federal antitrust
laws  relating to the  settlement  of GSK's  patent  action  against  Pentech in
respect of paroxetine.  Pentech had granted Par rights under  Pentech's ANDA for
paroxetine capsules.  Pursuant to the GSK Settlement reached between the parties
on April 18, 2003,  Pentech and Par acknowledged  that the patent held by GSK is
valid and  enforceable  and would be  infringed by  Pentech's  proposed  capsule
product and GSK agreed to allow Par to distribute  in Puerto Rico  substitutable
generic paroxetine  immediate release tablets supplied and licensed from GSK for
a royalty  payable to GSK. In addition,  Par was granted the right under the GSK
Settlement  to  distribute  the drug in the  United  States if  another  generic
version fully  substitutable for Paxil(R) became available in the United States.

                                       24
<PAGE>

Par denied any wrongdoing in connection  with the Asahi Glass  antitrust  action
and it filed a motion to dismiss the  complaint on August 22,  2003.  In October
2003, the court dismissed all of the state and federal  antitrust claims against
Par.  Subsequent  to the  October  2003  decision  in the  District  Court,  the
remaining  state law claims were  dismissed  with  prejudice  and Asahi filed an
appeal with the United States Court of Appeals for the Federal Circuit, which is
presently pending. Briefing in that appeal should be concluded later this year.

     In February  2003,  Abbott,  Fornier  Industrie  et Sante and  Laboratoires
Fournier  S.A.  filed a complaint in the United  States  District  Court for the
District of New Jersey  against  Par,  alleging  that Par's  generic  version of
TriCor(R)  (fenofibrate)  infringes  one or more  claims of their  patents.  The
Company had filed an ANDA for the product in October 2002. Par intends to defend
vigorously  this  lawsuit and has filed an answer and a  counterclaim,  alleging
non-infringement and patent invalidity. At this time, it is not possible for the
Company to predict the outcome of this litigation with any certainty.

     On November  25,  2002,  Ortho-McNeil  filed a lawsuit  against Kali in the
United  States  District  Court for the  District  of New  Jersey.  Ortho-McNeil
alleged that Kali  infringed  U.S.  Patent No.  5,336,691 (the "`691 patent") by
submitting  a  Paragraph  IV  certification  to the FDA for  approval of tablets
containing  tramadol  hydrochloride and  acetaminophen.  Par is Kali's exclusive
marketing partner for these tablets. Kali has denied Ortho-McNeil's  allegation,
asserting  that  the  `691  patent  was  not  infringed  and is  invalid  and/or
unenforceable,  and that the lawsuit is barred by unclean  hands.  Kali also has
counterclaimed  for declaratory  judgments of  non-infringement,  invalidity and
unenforceability of the `691 patent.

     Breath  filed an ANDA  (currently  pending  with the FDA) for  latanoprost,
which was developed by Breath  pursuant to a joint  manufacturing  and marketing
agreement  with the  Company,  seeking  approval  to  engage  in the  commercial
manufacture,  sale and use of one latanoprost drug product in the United States.
Par subsequently  acquired  ownership of the ANDA, which includes a Paragraph IV
certification  that the patents in  connection  with  Xalatan(R)  identified  in
"Approved Drug Products with Therapeutic  Equivalence  Evaluations" are invalid,
unenforceable  and/or  will  not  be  infringed  by  Par's  generic  version  of
Xalatan(R).  Par  believes  that its ANDA is the first to be filed for this drug
with a  Paragraph  IV  certification.  Pursuant  to  agreements  with Breath and
FineTech,  the Company had recorded  product  license fees of $6,999,  which are
included in intangible assets on its consolidated balance sheets. As a result of
the  filing  of  the  ANDA,  Pharmacia  Corporation,   Pharmacia  AB,  Pharmacia
Enterprises, S.A., Pharmacia and Upjohn Company (collectively,  "Pharmacia") and
the Trustees of Columbia University in the City of New York ("Columbia"),  filed
a lawsuit  against Par on December 21, 2001 in the United States  District Court
for the District of New Jersey,  alleging  patent  infringement.  Pharmacia  and
Columbia sought an injunction  enjoining  approval of the Company's ANDA and the
marketing of its generic  product prior to the expiration of their  patents.  On
February 8, 2002,  Par answered the  complaint and filed a  counterclaim,  which
sought a declaration that the patents-in-suit are invalid,  unenforceable and/or
not infringed by Par's products and that the extension of the term of one of the
patents  was  invalid.  All  parties  are  seeking to recover  their  respective
attorneys'  fees. The trial concluded in April 2004 and the parties are awaiting
the District Court's decision.

     Par entered into a licensing  agreement  with  developer  Paddock to market
testosterone  1% gel, a generic  version of Unimed's  product  Androgel(R).  The
product, if successfully  brought to market, will be manufactured by Paddock and
marketed by Par. Paddock has filed an ANDA (which is currently  pending with the
FDA) for the testosterone 1% gel product. As a result of the filing of the ANDA,
Unimed and Besins,  co-assignees of the patent-in-suit,  filed a lawsuit against
Paddock in the United States District Court for the Northern District of Georgia
alleging  patent  infringement  on August 22,  2003.  Par has an interest in the
outcome of this  litigation by virtue of its licensing  agreement  with Paddock.
Unimed  and  Besins  are  seeking  an   injunction   to  prevent   Paddock  from
manufacturing  the generic product.  On November 18, 2003,  Paddock answered the
complaint  and  filed  a  counterclaim,  which  seeks  a  declaration  that  the
patent-in-suit is invalid and/or not infringed by Paddock's  product.  This case
is currently in discovery. At this time, the Company is not able to predict with
any certainty the outcome of this litigation.

     The Company  and/or Par are parties to certain  other  litigation  matters,
including product liability and patent actions;  the Company believes that these
actions are  incidental  to the conduct of its business and that their  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 or, in cases where the Company is plaintiff, to prosecute these actions.

                                       25
<PAGE>

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

       (a)  Exhibits:

31.1        Certification of Principal Executive Officer

31.2        Certification of Principal Financial Officer

32.1        Certification  by the Chief  Executive Officer pursuant to 18 U.S.C.
            Section   1350,   as  adopted   pursuant   to  Section  906  of  the
            Sarbanes-Oxley Act of 2002.

32.2        Certification  by the Chief Financial  Officer pursuant to 18 U.S.C.
            Section   1350,   as  adopted   pursuant   to  Section  906  of  the
            Sarbanes-Oxley Act of 2002.

       (b)  Reports on Form 8-K:

            Current Reports on Forms 8-K, dated March 9, 2004 (Item 7) and March
            11, 2004 (Item 7) reflect the  Commission's  decision  regarding the
            Company's  confidential  treatment  request  related to the  License
            Agreement, dated as of August 6, 2003, by and between Mead Johnson &
            Company, Bristol-Myers Squibb Company and Par Pharmaceutical, Inc.


                                       26

<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 14, 2004                    /s/ Scott L. Tarriff
                                ---------------------------------
                                Scott L. Tarriff
                                PRESIDENT AND CHIEF EXECUTIVE OFFICER





May 14, 2004                   /s/ Dennis J. O'Connor
                               ----------------------------------
                               Dennis J. O'Connor
                               VICE PRESIDENT AND CHIEF FINANCIAL OFFICER


                                       27
<PAGE>


                                  EXHIBIT INDEX
                                  -------------


Exhibit Number                   Description
--------------                   -----------

   31.1     Certification by the President and Chief Executive Officer pursuant
            to Rule 13a-14(a) of the Exchange Act.

   31.2     Certification by the Chief Financial Officer pursuant to Rule
            13a-14(a) of the Exchange Act.

   32.1     Certification by the President and Chief Executive Officer pursuant
            to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
            the Sarbanes-Oxley Act of 2002.

   32.2     Certification by the Chief Financial Officer pursuant to 18 U.S.C.
            Section 1350, as adopted pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002.


                                       28
<PAGE>


                                                                   EXHIBIT 31.1


          CERTIFICATION PURSUANT TO RULE 13A-14(A) OF THE EXCHANGE ACT


     I,  Scott  L.   Tarriff,   President   and  Chief   Executive   Officer  of
Pharmaceutical Resources, Inc., certify that:

1.   I have  reviewed  this  quarterly  report  on Form  10-Q of  Pharmaceutical
     Resources, Inc.;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules  13a-15(e) and  15d-15(e))  for the registrant and we
     have:

     a)  designed  such  disclosure  controls  and  procedures,  or caused  such
         disclosure   controls  and   procedures   to  be  designed   under  our
         supervision,  to  ensure  that  material  information  relating  to the
         registrant,  including its consolidated subsidiaries,  is made known to
         us by others within those entities,  particularly  during the period in
         which this quarterly report is being prepared;

     b)  evaluated the effectiveness of the registrant's disclosure controls and
         procedures  and  presented  in this  report our  conclusions  about the
         effectiveness of the disclosure controls and procedures,  as of the end
         of the period covered by this report, based on such evaluation; and

     c)  disclosed  in this  report  any  change  in the  registrant's  internal
         control over financial  reporting that occurred during the registrant's
         most  recent  fiscal  quarter  that  has  materially  affected,  or  is
         reasonably  likely  to  materially  affect  the  registrant's  internal
         control over financial reporting;

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors:

     a)  all significant  deficiencies and material  weaknesses in the design or
         operation  of internal  controls  over  financial  reporting  which are
         reasonably  likely to  adversely  affect  the  registrant's  ability to
         record, process, summarize and report financial information; and

     b)  any fraud,  whether or not material,  that involves management or other
         employees  who have a  significant  role in the  registrant's  internal
         control over financial reporting;


Date: May 14, 2004                              /s/ Scott L. Tarriff
                                                --------------------
                                                Scott L. Tarriff
                                          President and Chief Executive Officer



<PAGE>


                                                                   EXHIBIT 31.2


          CERTIFICATION PURSUANT TO RULE 13A-14(A) OF THE EXCHANGE ACT


     I, Dennis J. O'Connor, Chief Financial Officer of Pharmaceutical Resources,
Inc., certify that:

1.   I have  reviewed  this  quarterly  report  on Form  10-Q of  Pharmaceutical
     Resources, Inc.;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules  13a-15(e) and  15d-15(e))  for the registrant and we
     have:

     a)  designed  such  disclosure  controls  and  procedures,  or caused  such
         disclosure   controls  and   procedures   to  be  designed   under  our
         supervision,  to  ensure  that  material  information  relating  to the
         registrant,  including its consolidated subsidiaries,  is made known to
         us by others within those entities,  particularly  during the period in
         which this quarterly report is being prepared;

     b)  evaluated the effectiveness of the registrant's disclosure controls and
         procedures  and  presented  in this  report our  conclusions  about the
         effectiveness of the disclosure controls and procedures,  as of the end
         of the period covered by this report, based on such evaluation; and

     c)  disclosed  in this  report  any  change  in the  registrant's  internal
         control over financial  reporting that occurred during the registrant's
         most  recent  fiscal  quarter  that  has  materially  affected,  or  is
         reasonably  likely  to  materially  affect  the  registrant's  internal
         control over financial reporting;

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors:

     a)  all significant  deficiencies and material  weaknesses in the design or
         operation  of internal  controls  over  financial  reporting  which are
         reasonably  likely to  adversely  affect  the  registrant's  ability to
         record, process, summarize and report financial information; and

     b)  any fraud,  whether or not material,  that involves management or other
         employees  who have a  significant  role in the  registrant's  internal
         control over financial reporting;


Date: May 14, 2004                                  /s/ Dennis J. O'Connor
                                                    ----------------------
                                                      Dennis J. O'Connor
                                                    Chief Financial Officer



<PAGE>


                                                                  EXHIBIT  32.1

CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER




                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Pharmaceutical Resources, Inc. (the
"Company") on Form 10-Q for the period ended April 4, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Scott
L. Tarriff, President and Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to my knowledge:

      (1)   The Report fully complies with the requirements of Section 13(a) of
            the Securities Exchange Act of 1934; and

      (2)   The information  contained in  the Report  fairly  presents,  in all
            material respects, the  financial condition and result of operations
            of the Company.





/s/ Scott L. Tarriff
--------------------
Scott L. Tarriff
President and Chief Executive Officer
May 14, 2004


<PAGE>


                                                                   EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER




                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Pharmaceutical Resources, Inc. (the
"Company") on Form 10-Q for the period ended April 4, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Dennis
J. O'Connor, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to my knowledge:

      (1)   The Report fully complies  with the requirements of Section 13(a) of
            the Securities Exchange Act of 1934; and

      (2)   The information  contained in  the Report  fairly  presents, in  all
            material respects, the financial condition and result of operations
            of the Company.



/s/ Dennis J. O'Connor
----------------------
Dennis J. O'Connor
Chief Financial Officer
May 14, 2004