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

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

                                    FORM 10-Q

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

                  For the quarterly period ended June 30, 2002

                         COMMISSION FILE NUMBER 1-10827


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


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


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


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



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


                                   32,492,490

       Number of shares of Common Stock outstanding as of August 9, 2002.




<PAGE>


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

                                                        JUNE 30,    DECEMBER 31,
                           Assets                        2002          2001
                           ------                     (UNAUDITED)    (AUDITED)
                                                      -----------    ---------

Current assets:
  Cash and cash equivalents                            $ 24,447      $ 67,742
  Accounts receivable, net of allowances of
   $29,787 and $47,168                                   56,980        38,009
  Inventories                                            46,017        31,458
  Prepaid expenses and other current assets               4,886         4,156
  Deferred income tax assets                             43,222        34,485
                                                       --------      --------
    Total current assets                                175,552       175,850

Property, plant and equipment, at cost less
 accumulated depreciation and amortization               27,608        24,345

Deferred charges and other assets                        12,971         8,426

Intangible assets                                        25,554         8,305

Goodwill                                                 24,626            --
                                                       --------      --------
   Total assets                                        $266,311      $216,926
                                                       ========      ========

           LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt                    $    212      $    239
  Accounts payable                                       24,211        18,007
  Payables due to distribution agreement partners        15,644        32,295
  Accrued salaries and employee benefits                  3,996         2,859
  Accrued expenses and other current liabilities          4,853         4,817
  Income taxes payable                                   34,094        14,766
                                                       --------      --------
     Total current liabilities                           83,010        72,983

Long-term debt, less current portion                        964         1,060

Accrued pension liability                                   331           331

Deferred income tax liabilities, net                      3,999         4,129

Commitments and contingencies

Shareholders' equity:
  Common Stock, par value $.01 per share; authorized
   90,000,000 shares; issued and outstanding
   32,161,303 and 32,035,189 shares                         322           320
  Additional paid-in capital                            114,052       115,610
  Retained earnings                                      63,633        22,493
                                                       --------      --------
    Total shareholders' equity                          178,007       138,423
                                                       --------      --------
Total liabilities and shareholders' equity             $266,311      $216,926
                                                       ========      ========

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



                                     --2--

<PAGE>

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

                                                   SIX MONTHS ENDED              THREE MONTHS ENDED
                                                   ----------------             ---------------------
                                                             (*RESTATED)                    (*RESTATED)
                                               JUNE 30,        JUNE 30,       JUNE 30,        JUNE 30,
                                                 2002            2001           2002           2001
                                                 ----            ----           ----         ---------
<S>                                           <C>             <C>            <C>             <C>
Net sales                                     $ 182,263       $ 55,001       $ 101,755       $ 29,297
Cost of goods sold                               96,573         35,452          55,340         18,176
                                              ---------       --------       ---------       --------
       Gross margin                              85,690         19,549          46,415         11,121
Operating expenses:
   Research and development                       6,937          3,657           4,063          2,119
   Selling, general and administrative           16,363          8,954           8,847          4,759
                                              ---------       --------       ---------       --------
       Total operating expenses                  23,300         12,611          12,910          6,878
                                              ---------       --------       ---------       --------
       Operating income                          62,390          6,938          33,505          4,243
Settlements                                       9,051             --              --             --
Other (expense) income                           (4,380)           364            (223)            45
Interest income (expense)                           381           (442)            127           (222)
                                              ---------       --------       ---------       --------
Income before provision for income taxes         67,442          6,860          33,409          4,066
Provision for income taxes                       26,302          3,160          13,029          1,862
                                              ---------       --------       ---------       --------
NET INCOME                                       41,140          3,700          20,380          2,204
Retained earnings (accumulated deficit):
Beginning of period                              22,493        (31,429)         43,253        (29,933)
                                              ---------       --------       ---------       --------
End of period                                 $  63,633       $(27,729)      $  63,633       $(27,729)
                                              =========       ========       =========       ========

NET INCOME PER SHARE OF COMMON STOCK:
   BASIC                                      $    1.28       $    .12       $     .64       $    .07
                                              =========       ========       =========       ========
   DILUTED                                    $    1.25       $    .12       $     .62       $    .07
                                              =========       ========       =========       ========

WEIGHTED AVERAGE NUMBER OF COMMON AND
   COMMON EQUIVALENT SHARES OUTSTANDING:
   BASIC                                         32,069         29,725          32,089         29,790
                                              =========       ========       =========       ========
   DILUTED                                       32,869         31,442          32,898         31,637
                                              =========       ========       =========       ========

* Restated as described in Notes to Consolidated Financial Statements.



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


                                                 --3--
<PAGE>

<TABLE>
<CAPTION>
                           PHARMACEUTICAL RESOURCES, INC.
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (In Thousands)
                                     (Unaudited)
                                                                SIX MONTHS ENDED
                                                                            (*RESTATED)
                                                             JUNE 30,         JUNE 30,
                                                               2002            2001
                                                               ----           ------
<S>                                                          <C>            <C>
Cash flows from operating activities:
   Net income                                                $ 41,140       $ 3,700

   Adjustments to reconcile net income to net cash
   used in operating activities:
     Deferred income taxes                                     (8,867)        1,444
     Depreciation and amortization                              2,358         1,625
     Write-off of inventories                                   2,742           466
     Allowances against accounts receivable                   (17,381)        1,819
     Settlements                                               (9,651)           --
     Tax effect from exercise of stock options                 (2,254)        1,716
     Other                                                        (23)          149

 Changes in assets and liabilities:
     Increase in accounts receivable                           (1,331)       (9,166)
     Increase in inventories                                  (17,233)       (3,101)
     Increase in prepaid expenses and other assets             (7,298)       (1,439)
     Increase (decrease) in accounts payable                    6,105        (2,027)
     Decrease in payables due to distribution agreement
       partners                                               (16,651)          (78)
     Increase (decrease) in accrued expenses and other
       liabilities                                              1,250          (151)
     Increase in income taxes payable                          19,328           101
                                                             --------       -------
       Net cash used in operating activities                   (7,766)       (4,942)
Cash flows from investing activities:
     Capital expenditures                                      (3,551)       (1,569)
     Acquisition of FineTech                                  (32,581)           --
     Proceeds from sale of fixed assets                            28            17
                                                             --------       -------
       Net cash used in investing activities                  (36,104)       (1,552)
 Cash flows from financing activities:
     Proceeds from issuances of Common Stock                      698           929
     Net proceeds from revolving credit line                       --         5,712
     Principal payments under long-term debt and other
      borrowings                                                 (123)         (134)
                                                             --------       -------
       Net cash provided by financing activities                  575         6,507

Net (decrease) increase in cash and cash equivalents          (43,295)           13
Cash and cash equivalents at beginning of period               67,742           222
                                                             --------       -------
Cash and cash equivalents at end of period                   $ 24,447       $   235
                                                             ========       =======

Supplemental disclosure of cash flow information
  Cash paid during the year for:
   Taxes                                                     $ 18,095       $   182
                                                             ========       =======
   Interest                                                  $     76       $   447
                                                             ========       =======

* Restated as described in Notes to Consolidated Financial Statements.

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



                                       --4--
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002
                                   (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 in the United States. Marketed products are principally in solid
oral dosage form (tablet,  caplet and two-piece hard-shell capsule). The Company
also  distributes  one  product in the  semi-solid  form of a cream and one oral
suspension.

BASIS OF PREPARATION:

       The accompanying  consolidated  financial statements at June 30, 2002 and
for the  six-month  and  three-month  periods  ended June 30,  2002 and 2001 are
unaudited;  however, in the opinion of the Company's management, such statements
include all adjustments  (consisting of normal recurring  accruals) necessary to
present a fair statement of the information  presented therein. The consolidated
balance  sheet at  December  31,  2001 was derived  from the  Company's  audited
consolidated financial statements at such date.

       On April 17,  2002,  the  Company  purchased  a portion of  International
Specialty Products' ("ISP's") fine chemical business, FineTech Ltd. ("FineTech")
based in Haifa,  Israel.  The  acquisition was accounted for as a purchase under
Statement  of  Financial   Accounting  Standards  ("SFAS")  No.  141,  "Business
Combinations" and the consolidated  financial  statements  include the operating
results from the date of acquisition.

       Pursuant  to  accounting  requirements  of the  Securities  and  Exchange
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 financial statements.

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

RESTATEMENT OF PRIOR YEAR RESULTS

       Certain items in the  consolidated  financial  statements for the six and
three-month  periods ended June 30, 2001 have been restated to change the manner
in which the Company  accounted for its  transactions  with Merck KGaA in fiscal
year 1998. In June 1998, the Company sold to Merck KGaA 10,400,000 shares of its
Common  Stock,  and  entered  into  a  distribution   agreement  (the  "Genpharm
Distribution Agreement"),  dated March 1998, with Genpharm, Inc. ("Genpharm"), a
Canadian  subsidiary of Merck KGaA.  Previously,  the Company  accounted for the
sale  of  the  Common   Stock  and  the   distribution   agreement  as  separate
transactions.  In restating its consolidated  financial statements,  the Company
has accounted  for the two  agreements as a single  transaction  under  Emerging
Issues Task Force ("EITF") Issue No. 96-18  "Accounting  for Equity  Instruments
that are Issued to Other than  Employees for Acquiring,  or in Conjunction  with
Selling Goods or Services". Under EITF Issue 96-18, the fair value of the Common
Stock sold, to the extent it exceeded the cash  consideration  received for such
Common  Stock,  must be attributed to the  distribution  agreement.  The Company
determined  the  fair  value  of the  Common  Stock  sold  to  Merck  KGaA to be
$27,300,000, which exceeded the cash consideration of $20,800,000 by $6,500,000.
That  $6,500,000  has  therefore  been  assigned  to the  Genpharm  Distribution
Agreement, with a corresponding increase in shareholders' equity.  Additionally,
the Company recorded a deferred tax liability,  and a corresponding  increase in
the financial  reporting basis of the distribution  agreement,  of $4,333,000 to
account for the difference  between the basis in the distribution  agreement for
financial  reporting  and income  tax  purposes  as  required  by SFAS No.  109,
"Accounting  for Income  Taxes"  ("SFAS  109").  The  aggregate  of  $10,833,000
assigned to the Genpharm Distribution Agreement is included in intangible assets
net of amortization  that began in the third calendar quarter of 1998. The total
value is being  amortized  on a  straight-line  basis  over  fifteen  years  and
included as a non-cash charge in selling,  general and administrative  expenses.
The impact of the restatement for the six and three-month periods ended June 30,
2001 is as follows:


                                     --5--
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002
                                   (UNAUDITED)

<TABLE>
                                               Six Months Ended                       Three Months Ended
CONSOLIDATED STATEMENTS OF                       June 30, 2001                          June 30, 2001
                                        ----------------------------------      ----------------------------------
OPERATIONS AND ACCUMULATED DEFICIT         As Reported        Restated            As Reported          Restated
                                        ----------------  ----------------      ----------------   ---------------
                                                                      (In Thousands)
<S>                                            <C>               <C>                  <C>               <C>
Selling, general and administrative              $8,592            $8,954               $4,578            $4,759

Net income                                       $4,062            $3,700               $2,385            $2,204

Accumulated deficit                            ($25,561)         ($27,729)            ($25,561)         ($27,729)

Net income per share of common stock:
  Basic                                           $0.14             $0.12                $0.08             $0.07
  Diluted                                         $0.13             $0.12                $0.08             $0.07
</TABLE>


ACCOUNTS RECEIVABLE:
                                                    JUNE 30,        DECEMBER 31,
                                                      2002              2001
                                                      ----              ----
                                                          (IN THOUSANDS)
       Accounts receivable                           $86,767          $85,177
                                                      ------           ------

       Allowances:
       Doubtful accounts                                 856              998
       Returns and allowances                         11,726            4,847
       Price adjustments                              17,205           41,323
                                                      ------           ------
                                                      29,787           47,168
                                                      ------           ------
       Accounts receivable,
       net of allowances                             $56,980          $38,009
                                                      ======           ======

       The  accounts  receivable  amounts at June 30, 2002 and December 31, 2001
are net of provisions for customer rebates of $13,259,000 and  $14,081,000,  and
chargebacks of $104,218,000 and $41,830,000,  respectively. Customer rebates are
price reductions  generally given to customers as an incentive to increase sales
volume.  This incentive is based on a customer's  volume of purchases  during an
applicable   monthly,   quarterly  or  annual  period.   Chargebacks  are  price
adjustments  given to the wholesale  customer for product it resells to specific
healthcare  providers on the basis of prices negotiated  between the Company and
the provider.  The increase in chargebacks  is due to lower contract  pricing on
fluoxetine  and a  larger  volume  of  sales  through  the  Company's  wholesale
customers, primarily due to new product awards and trade show promotions.

       The accounts receivable allowances include price adjustments that consist
of  cash  discounts,  sales  promotions  and  price  protection  or  shelf-stock
adjustments. The Company may offer price protection, or shelf-stock adjustments,
with respect to sales of new generic drugs for which it has a market exclusivity
period.  To  account  for the fact that the price of such drugs  typically  will
decline when additional generic manufacturers  introduce and market a comparable
generic  product at the end of the  exclusivity  period,  such plans,  which are
common in the industry,  generally provide that the Company credit its customers
with respect to the customer's  inventory at the end of the  exclusivity  period
for the difference between the Company's new price at the end of the exclusivity
period and the price at which the Company sold the customers the product.

       The Company's  exclusivity period for fluoxetine,  the generic version of
Eli Lilly and Company's  Prozac(R),  ended in late-January 2002. With respect to
fluoxetine,  the  Company  established  a price  protection  reserve  during the
exclusivity  period of  approximately  $34,400,000,  based on an  estimate  that
between  eight and ten  additional  generic  manufacturers  would  introduce and
market  comparable  products for the 10 mg and 20 mg tablets and between one and
three additional  manufacturers  would introduce and market a comparable product
for the 40 mg  capsules.  As a result  of the  introduction  of these  competing
generic  products  during  the  first  quarter  of 2002,  the  sales  price  for
fluoxetine has  substantially  declined from the sales price the Company charged


                                     --6--
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002
                                   (UNAUDITED)

during the exclusivity  period.  Through June 30, 2002, the Company issued price
protection  credits of  approximately  $26,200,000  and  adjusted the reserve by
approximately  $5,800,000,  which due to a profit split with a strategic partner
had a  favorable  affect of  approximately  $1,160,000  on the  Company's  gross
margins in the  quarter,  for price  protection  on the 40 mg it  believes is no
longer  necessary.  The Company  expects  that the  remaining  price  protection
reserve at June 30, 2002 of  approximately  $2,400,000  will be  sufficient  and
fully utilized.  Accordingly,  sales and gross margin generated by fluoxetine in
fiscal year 2002 have been and will continue to be adversely  affected in future
periods.  The affect of gross margin  declines  from lower  pricing on the 40 mg
capsule  have been  offset,  however,  by an  increase in the  Company's  profit
sharing percentage.  Although there can be no assurance,  the Company expects to
continue to introduce new products  throughout  fiscal year 2002 and to increase
sales of certain existing  products to offset any loss of sales and gross margin
on its fluoxetine products.

       The Company's  exclusivity  period for megestrol acetate oral suspension,
the generic version of Bristol Myers Squibb's ("BMS") Megace(R) Oral Suspension,
ended in mid-January 2002. One generic competitor was granted U.S. Food and Drug
Administration  ("FDA")  approval to market another generic version of megestrol
acetate oral  suspension  and began  shipping the product to a limited number of
customers in the second quarter of 2002. In addition, a second potential generic
competitor  entered into a settlement  agreement  with BMS pursuant to which the
public  record  states that the  present  formulation  of the generic  company's
product infringes a BMS patent related to megestrol  acetate.  However,  at this
time the  Company has no  information  as to whether  the  settlement  agreement
provides  for the  generic  competitor  to enter the market at some point in the
future.  The Company has patents that cover its unique formulation for megestrol
acetate oral  suspension  and will avail  itself of all legal  remedies and will
take all of the necessary  steps to protect its  intellectual  property  rights.
Although  competitors may be taking the necessary steps to enter the market, the
Company believes they are less likely to successfully  enter this market because
of patents  owned by BMS or the Company.  Megestrol  acetate oral  suspension is
still  anticipated to be a significant  profit  contributor for the remainder of
fiscal year 2002, despite potential competition.  Based on these factors and the
Company not experiencing any significant  price competition to date on megestrol
acetate oral suspension,  the Company did not record a price protection  reserve
for such product as of June 30, 2002,  but will  continue to evaluate the effect
of  potential  competition  and will record a price  protection  reserve when it
deems necessary.

INVENTORIES:
                                                    JUNE 30,        DECEMBER 31,
                                                      2002              2002
                                                      ----              ----
                                                          (IN THOUSANDS)
       Raw materials and supplies                    $17,256          $11,574
       Work in process and finished goods             28,761           19,884
                                                      ------           ------
                                                     $46,017          $31,458
                                                      ======           ======

DEFERRED CHARGES AND OTHER ASSETS:

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

       In April 2002,  the Company  entered into an agreement  (the "Genpharm 11
Product Agreement") to expand its strategic product partnership with Merck KGaA.
Under the terms of the  Genpharm  11 Product  Agreement,  Par has  licensed  the
exclusive  rights  to  11  generic   pharmaceutical   products  currently  under
development and not included in any other  distribution  agreements  between the


                                     --7--
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002
                                   (UNAUDITED)

Company and Genpharm (see "-Distribution  Agreements-Genpharm,  Inc."). Pursuant
to the  Genpharm  11 Product  Agreement,  Genpharm  has  agreed to  develop  the
products, submit all corresponding ANDAs to the FDA and subsequently manufacture
the products. 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  Genpharm a
percentage  of the gross  profits on all sales of  products  covered  under this
agreement.  Pursuant to the  Genpharm  11 Product  Agreement,  the Company  paid
Genpharm a non-refundable fee of $2,000,000 in the second quarter of 2002, which
is included in deferred  charges and other  assets on the  consolidated  balance
sheets,  for two of the  products,  loratadine  10 mg  tablets  and  mirtazapine
tablets,  which are  tentatively  approved and expected to be marketed in fiscal
years  2003 to  2004.  In  addition,  the  Company  will be  required  to pay an
additional  non-refundable  fee of up to $414,000  based upon FDA  acceptance of
filings for six of the nine remaining products.

INTANGIBLE ASSETS:

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

ACQUISITION OF FINETECH:

       On March 15, 2002, the Company  announced the termination of negotiations
with ISP  related  to its  purchase  of the entire ISP  FineTech  fine  chemical
business,  based in Haifa, Israel and Columbus,  Ohio. At that time, the Company
discontinued   negotiations   with  ISP  as  a  result  of  various  events  and
circumstances that occurred after the announcement of the proposed  transaction.
Pursuant to the  termination of the purchase,  the Company paid ISP a $3,000,000
break-up  fee in March 2002,  which was subject to certain  credits and offsets,
and incurred  approximately  $1,278,000 in related  acquisition  costs,  both of
which were  included in other  expense in the first  quarter of 2002.

       The  Company  subsequently  purchased  a portion of ISP's  fine  chemical
business,  FineTech,  based  in  Haifa,  Israel,  from  ISP in  April  2002  for
approximately  $32,000,000 and $1,200,000 in related  acquisition costs financed
by its  cash-on-hand.  The Company has  acquired the  physical  facilities,  the
intellectual  property  and patents of FineTech  and has  retained  all FineTech
employees.  FineTech  specializes  in the design and  manufacture of proprietary
synthetic chemical processes used in the production of complex organic compounds
for the pharmaceutical  industry.  FineTech also manufactures  complex synthetic
active  pharmaceutical  ingredients  for  companies  in the  branded and generic
pharmaceutical  industries at its manufacturing  facility in Haifa, Israel. This
facility  operates in compliance with FDA current good  manufacturing  practices
(cGMP)  standards.  FineTech had revenues of  approximately  $6,000,000 in 2001;
however, the purchase is not expected to have a material effect on the Company's
earnings  in fiscal  year 2002.  The  Company  expects to  transfer a portion of
FineTech's personnel and technological resources to a laboratory facility in the
northeastern United States. FineTech will be operated as an independent,  wholly
owned  subsidiary  of  PRI  and  will  provide  immediate   chemical   synthesis
capabilities and strategic opportunities to the Company and other customers.

       The  purchase  price  for  FineTech  has been  allocated  to  assets  and
liabilities based on management's  estimates of fair value through a third party
valuation  firm.  The following  table sets forth the allocation of the purchase
price (in thousands):


                                     --8--
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002
                                   (UNAUDITED)

                  Current assets                                         $971
                  Property, plant and equipment                         1,045
                  Intellectual property                                 6,580
                  Goodwill                                             24,626
                                                                       ------
                    Total assets acquired                              33,222

                  Current liabilities                                      22
                                                                           --
                    Total liabilities assumed                              22
                                                                           --

                  Net assets acquired                                 $33,200
                                                                       ======

       In accordance with SFAS No. 142, "Goodwill and Other Intangible  Assets",
goodwill will not be amortized,  however will be tested for  impairment  using a
fair value approach at least annually.  The intellectual  property,  included in
intangible  assets on the consolidated  balance sheets,  consists of trademarks,
patents,  product and core  technology,  and research  contracts.  The values of
these  intangible  assets  are being  amortized  on a  straight-line  basis over
estimated useful lives of 6 to 10 years.

CHANGES IN SHAREHOLDERS' EQUITY:

       Changes in the  Company's  Common Stock and  Additional  Paid-in  Capital
accounts during the six months ended June 30, 2002 were as follows:

                                                              ADDITIONAL
                                      COMMON STOCK             PAID-IN
                                  SHARES        AMOUNT         CAPITAL
                                  ------        ------         -------
Balance, December 31, 2001      32,035,189     $320,000     $ 115,610,000
  Exercise of stock options        122,689        2,000           594,000
  Compensatory arrangements          3,425           --        (2,152,000)
                                ----------     --------     -------------
Balance, June 30, 2002          32,161,303     $322,000     $ 114,052,000
                                ==========     ========     =============

RESEARCH AND DEVELOPMENT AGREEMENTS:

  GENERICS (UK) LTD.:

       The Company,  Israel Pharmaceutical  Resources L.P. ("IPR"), and Generics
(UK) Ltd.  ("Generics"),  a subsidiary of Merck KGaA,  entered into an agreement
(the "Development  Agreement"),  dated as of August 11, 1998,  pursuant to which
Generics  agreed to fund one-half the costs of the operating  budget of IPR, the
Company's  research and  development  operation  in Israel,  in exchange for the
exclusive distribution rights outside of the United States to products developed
by IPR after the date of the Development Agreement. In addition, Generics agreed
to pay IPR a perpetual  royalty for all sales of the products by Generics or its
affiliates  outside  the United  States.  To date,  no such  products  have been
brought to market by  Generics  and no royalty  has been paid.  The  Development
Agreement  has an  initial  term of five  years  and  automatically  renews  for
additional  periods of one year subject to earlier  termination upon six months'
notice in certain circumstances. Pursuant to the Development Agreement, Generics
funded  approximately  $788,000 for fiscal year 2001 and approximately  $340,000
for the  first  six  months  of  fiscal  year  2002,  fulfilling  their  funding
requirements through June 30, 2002. Under the Development Agreement, Generics is
not required to fund more than $1,000,000 in any one calendar year.

  RHODES TECHNOLOGIES, INC.:

       In  April  2002,  the  Company  entered  into an  agreement  with  Rhodes
Technologies,  Inc.  ("RTI"),  an  associated  company of Purdue Pharma L.P., to
establish  a joint  venture  partnership  in the  United  States.  The new joint
venture will be named SVC Pharma and will be owned equally by both parties.  SVC
Pharma will utilize, on a case-by-case basis, advanced technologies and patented
processes  to  develop,  manufacture,  market  and  distribute  certain  unique,
proprietary pharmaceutical products. Under the terms of the agreement, when both
partners  agree to pursue a  specific  project,  each  partner  will  contribute
resources to the new enterprise.  RTI will provide  scientific and technological
expertise in the development of non-infringing,  complex molecules.  In addition
to providing chemical synthesis capabilities, RTI will provide the manufacturing
capacity for sophisticated  intermediate and active pharmaceutical  ingredients.
Par  will  provide  development  expertise  in  dosage  formulation  and will be


                                        --9--
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002
                                   (UNAUDITED)

responsible  for  marketing,  sales and  distribution.  The companies will share
equally in expenses and profits.  SVC Pharma has identified  several  candidates
for drug development, the first of which has the potential to be marketed by the
Company in either fiscal year 2003 or 2004. The Company expects to begin funding
the first project pursuant to the agreement in the latter part of this year.

PRODUCT DEVELOPMENT AGREEMENTS:

  NORTEC DEVELOPMENT ASSOCIATES, INC.:

       In  May  2002,  the  Company   entered  into  an  agreement  with  Nortec
Development Associates, Inc. (a Glatt company) ("Nortec") to develop an extended
release  generic  version  of a  currently  marketed  branded  extended  release
pharmaceutical  product,  which according to the Company's market research,  had
sales of  approximately  $300 million during the last twelve  months.  Under the
terms of the  agreement,  the Company  obtained an exclusive  license to utilize
Glatt's  CPS(TM)  Technology in its ANDA  submission  for the potential  product
covered in the agreement.  If formulation and  development  are successful,  the
ANDA for the drug  will be  submitted  to the FDA in 2003  and  will  include  a
Paragraph IV certification.  CPS(TM)  Technology is Glatt's new proprietary drug
delivery  system  for  the  development  and  production  of drug  pellets  with
controlled release properties. The Company and Nortec have agreed to collaborate
on the  formulation,  while  Par  will  serve  as  the  exclusive  marketer  and
distributor  of the product.  As part of the  agreement,  the product  selection
criteria took into consideration  Nortec's ability to develop difficult extended
release  formulations and Par's  experience in patent  challenge  opportunities.
Glatt is  considered  by many in the  pharmaceutical  industry to be a leader in
fluid  bed  technology  for  the  pharmaceutical  and  related   industries.   A
significant  percentage  of currently  marketed  generic and branded  controlled
release products utilize Glatt's technology.

       In June 2002,  the  Company  expanded  its  collaboration  with Nortec to
develop an  extended  release  generic  version of another  currently  marketed,
branded  extended  release  pharmaceutical   product,  which  according  to  the
Company's  market research,  had sales of approximately  $150 million during the
last twelve months. Under the terms of the new agreement,  Par has also obtained
an exclusive license to utilize  Nortec/Glatt's  CPS(TM)  Technology in its ANDA
submission for the potential product covered in the agreement.  If successful in
development, the Company expects to submit an ANDA to the FDA for the product in
2003.  The Company and Nortec have  agreed to  collaborate  on the  formulation,
while Par will serve as the exclusive marketer and distributor of the product.

       Pursuant to these agreements with Nortec, the Company made non-refundable
payments  totaling  $625,000,  which were  charged to research  and  development
expenses in the second quarter of 2002. In addition, the Company agreed to pay a
total of  $1,175,000  in  various  installments  related to the  achievement  of
certain milestones in the development of the two potential products and $600,000
for each product on the day of the first commercial sale.

DISTRIBUTION AND SUPPLY AGREEMENTS:

  GENPHARM, INC.

       Pursuant  to the  Genpharm  Distribution  Agreement,  the Company has the
exclusive  distribution rights within the United States and certain other United
States territories to approximately 40 generic pharmaceutical products. To date,
18 of such products have obtained FDA approval and are currently  being marketed
by Par. The remaining products are either being developed,  have been identified
for  development,  or have been  submitted to the FDA for  approval.  Currently,
there are seven ANDAs for potential products (two of which have been tentatively
approved) that are covered by the Genpharm Distribution  Agreement pending with,
and awaiting  approval from, the FDA.  Genpharm is required to use  commercially
reasonable efforts to develop the products and is responsible for the completion
of product development and obtaining all applicable  regulatory  approvals.  The
Company pays Genpharm a percentage of the gross profits on all sales of products
covered by the Genpharm Distribution Agreement.

       On July 31,  2001,  Alphapharm  Pty Ltd.  ("Alphapharm"),  an  Australian
subsidiary of Merck KGaA,  was granted final  approval by the FDA for flecainide
acetate  tablets,  the generic  version of  Minnesota  Mining and  Manufacturing
Companys'  ("3Ms'")  Tambocor(R),   which  according  to  the  Company's  market
research,  had sales of  approximately  $110  million in 2001.  In June 2002 the
Company began shipping flecainide acetate, which is indicated for the prevention
of paroxysmal  supraventricular  tochycardias (PSUT) and documented  ventricular
arrhythmia.  Flecainide  acetate  is  covered  under the  Genpharm  Distribution


                                       --10--
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002
                                   (UNAUDITED)

Agreement.  The FDA awarded generic marketing exclusivity for flecainide acetate
to Par through October 2002. Par's launch of flecainide acetate is under license
from 3M. Under terms of the agreement,  Par will pay 3M a licensing fee based on
a percentage of Par's flecainide  sales. The parties have also agreed to dismiss
all outstanding  claims in settling patent  litigation  between them and counter
claims between the parties, thereby allowing Par to ship flecainide without risk
of any future litigation from 3M.

       The Company and  Genpharm  entered  into a  distribution  agreement  (the
"Genpharm Additional Product  Agreement"),  dated November 27, 2000, pursuant to
which  Genpharm  granted the Company  exclusive  distribution  rights within the
United States and certain other United States  territories  with respect to five
generic pharmaceutical products not included in the Company's other distribution
agreements  with  Genpharm.  To date,  two of such  products  have  obtained FDA
approval and are currently  being  marketed by Par. The  remaining  products are
either being developed or have been identified for development. Genpharm and the
Company are sharing the costs of  developing  the products and for obtaining all
applicable regulatory  approvals.  The Company will pay Genpharm a percentage of
the gross  profits on all sales made by the Company of products  included in the
Genpharm Additional Product Agreement.

  DR. REDDY'S LABORATORIES LTD.

       In April 2001, the Company and Dr. Reddy's Laboratories Ltd. ("Reddy"), a
producer  of bulk  active  ingredients  for the  pharmaceutical  industry  and a
developer and  manufacturer of finished  dosage forms located in India,  entered
into  a  broad-based   co-marketing   and  development   agreement  (the  "Reddy
Development  and Supply  Agreement")  covering  up to 14 generic  pharmaceutical
products,  three of which have been filed with, and awaiting  approval from, the
FDA, to be marketed  exclusively  by Par in the United  States and certain other
United  States  territories.  Reddy is required to use  commercially  reasonable
efforts to develop  the  products  covered by the Reddy  Development  and Supply
Agreement,  and is responsible for the completion of product development and for
obtaining  all  applicable  regulatory  approvals.  The Company will pay Reddy a
percentage  of the  gross  profits  on  sales  of the  products  sold  by Par in
accordance with the Reddy  Development and Supply  Agreement.  To date, three of
such  products have  obtained FDA  approval,  two of which are  currently  being
marketed by Par.

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

  BASF CORPORATION:

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

  PAYABLES DUE TO DISTRIBUTION AGREEMENT PARTNERS:

       As of June 30, 2002 and December  31, 2001,  the Company had payables due
to  all  distribution  agreement  partners  of  approximately   $15,644,000  and
$32,295,000, respectively.

SHORT-TERM DEBT:

       In December  1996,  Par entered into a Loan and Security  Agreement  (the
"Loan Agreement") with General Electric Capital Corporation  ("GECC").  The Loan
Agreement,  as amended,  provides Par with a revolving  line of credit  expiring
March 2005. Pursuant to the Loan Agreement, Par is permitted to borrow up to the
lesser of (i) the borrowing  base  established  under the Loan Agreement or (ii)
$30,000,000.  The  borrowing  base  is  limited  to  85%  of  eligible  accounts


                                       --11--
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002
                                   (UNAUDITED)

receivable  plus 50% of eligible  inventory of Par, each as determined from time
to time by GECC. The interest rate charged on the line of credit is based upon a
per annum rate of 2.25% above the 30-day  commercial  paper rate for  high-grade
unsecured notes adjusted monthly. The line of credit with GECC is secured by the
assets of Par, PRX and certain  subsidiaries,  other than real property,  and is
guaranteed  by PRX and  certain of its  subsidiaries.  In  connection  with such
facility,  Par, PRX and their  subsidiaries  have  established a cash management
system pursuant to which all cash and cash  equivalents  received by any of such
entities are deposited into a lockbox account over which GECC has sole operating
control if there are amounts  outstanding under the line of credit. The deposits
would then be applied on a daily basis to reduce the amounts  outstanding  under
the line of credit.  The revolving credit facility is subject to covenants based
on various  financial  benchmarks.  As of June 30, 2002,  the borrowing base was
approximately  $27,000,000.  To  date,  no debt is  outstanding  under  the Loan
Agreement.

INCOME TAXES:

       The Company  accounts for income taxes in accordance  with the provisions
of SFAS 109,  which  requires the Company to  recognize  deferred tax assets and
liabilities for the future tax consequences  attributable to differences between
the financial  statement carrying amounts of existing assets and liabilities and
their  respective tax bases. At June 30, 2002 and December 31, 2001, the Company
had deferred  income tax assets of $43,222,000  and  $34,485,000,  respectively,
consisting of temporary  differences,  primarily related to accounts  receivable
reserves,  and net deferred income tax liabilities of $3,999,000 and $4,129,000,
respectively, primarily related to the Genpharm Distribution Agreement.

EARNINGS PER SHARE:

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

<TABLE>
                                                   SIX MONTHS ENDED       THREE MONTHS ENDED
                                                   ----------------       ------------------
                                                           (*RESTATED)             (*RESTATED)
                                                 JUNE 30,    JUNE 30,   JUNE 30,     JUNE 30,
                                                   2002        2001       2002         2001
                                                   ----        ----       ----         ----
                                                  (In Thousands, Except Per Share Amounts)
<S>                                              <C>         <C>         <C>         <C>
NET INCOME                                       $41,140     $ 3,700     $20,380     $ 2,204

BASIC:
Weighted average number of common
  shares outstanding                              32,069      29,725      32,089      29,790

NET INCOME PER SHARE OF COMMON STOCK             $  1.28     $   .12     $   .64     $   .07
                                                 =======     =======     =======     =======

ASSUMING DILUTION:
Weighted average number of common
  shares outstanding                              32,069      29,725      32,089      29,790
Effect of dilutive options                           800       1,717         809       1,847
                                                 -------     -------     -------     -------
Weighted average number of common and common
   equivalent shares outstanding                  32,869      31,442      32,898      31,637

NET INCOME PER SHARE OF COMMON STOCK             $  1.25     $   .12     $   .62     $   .07
                                                 =======     =======     =======     =======
</TABLE>

* Restated as described in Notes to Consolidated Financial Statements.



                                            --12--
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002
                                   (UNAUDITED)

       The Company had outstanding options of 2,361,890 and 2,163,539 at the end
of the  six-month  and  three-month  periods  ended June 30,  2002 that were not
included in the  computation of diluted  earnings per share because the exercise
prices were  greater  than the average  market  price of the Common Stock in the
period.  As of June 30,  2002 and 2001,  all  incremental  shares  from  assumed
conversions of the Company's  outstanding  options and warrants were included in
the computation of diluted earnings per share in both periods.

NEW ACCOUNTING STANDARDS:

       In June 2002, the Financial  Accounting  Standards  Board ("FASB") issued
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS 146"), which is effective for the Company as of January 1, 2003. SFAS 146
addresses  financial  accounting and reporting for costs associated with exit or
disposal  activities and nullifies EITF Issue No. 94-3,  "Liability  Recognition
for Certain  Employee  Termination  Benefits and Other Costs to Exit an Activity
(including  Certain  Costs  Incurred  in  a  Restructuring)."   The  Company  is
evaluating  the impact of the adoption of SFAS 146, but does not believe it will
have a material impact on the Company's financial position, result of operations
and cash flows.

COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:

  RETIREMENT PLANS:

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

  LEGAL PROCEEDINGS:

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

         Par,  among others,  is a defendant in three  lawsuits  filed in United
States  District  Court for the  Eastern  District of North  Carolina  (filed on
August 1, 2001,  October  30,  2001 and  November  16,  2001,  respectively)  by
aaiPharma Inc., involving patent infringement  allegations  connected to a total
of three patents  related to polymorphic  forms of fluoxetine  (Prozac(R)).  Par


                                     --13--
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002
                                   (UNAUDITED)

intends to vigorously  litigate these cases.  While the outcome of litigation is
never certain, Par believes that it will prevail in these litigations.

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

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

  OTHER MATTERS:

       In December 2001, the Company committed to making an equity investment of
up to $2,437,000  over a period of time in HighRapids,  Inc.  ("HighRapids"),  a
Delaware  Corporation  and  software  developer.  HighRapids  is  the  surviving
corporation  of  a  merger  with  Authorgenics,  Inc.,  a  Florida  corporation.
HighRapids  will utilize the  Company's  cash  infusion for working  capital and
operating expenses. Through June 30, 2002 the Company had invested approximately
$438,000 of its planned  investment.  The  Company  has the  exclusive  right to
market to the pharmaceutical  industry certain laboratory  software currently in
development by HighRapids.  PRX's Chief Executive  Officer and a director of the
Company, each holds shares of HighRapids common stock (less than 1%), which were
acquired prior to the Company acquiring its interest in HighRapids.

SUBSEQUENT EVENTS:

       In July 2002,  the Company  entered into an  agreement  with Three Rivers
Pharmaceuticals  ("Three  Rivers")  to market and  distribute  ribavirin  200 mg
capsules, the generic version of Schering-Plough's  Rebetol(R),  which according
to the Company's  market research had U.S. sales of  approximately  $250 million
for the first six months of 2002.  Ribavirin,  a synthetic  nucleoside  analogue
with  antiviral  activity,  is  indicated  for the  treatment  of hepatitis C, a
chronic condition  suffered by approximately 4 million  Americans.  Three Rivers
filed an ANDA with a Paragraph IV certification  with the FDA in August 2001 and
is  currently  in  litigation  with the patent  holders.  Under the terms of the
agreement,  Three Rivers will supply the product to Par and will be  responsible
for managing the regulatory process and ongoing patent litigation. Par will have
the  exclusive  right to sell  the  product  in  non-hospital  markets  upon FDA
approval and final marketing clearance.  According to current FDA practice,  Par
believes  it may be  entitled  to  co-exclusively  market  the  generic  product
ribavirin for up to 180 days,  during which time only one other company could be
approved to market another generic version of the drug. If successful, Par could
introduce ribavirin in the 2003 to 2004 timeframe.















                                     --14--
<PAGE>

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

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

RESULTS OF OPERATIONS

GENERAL

       The Company  experienced  significant  sales, gross margin and net income
growth in both the six and three-month periods ended June 30, 2002 when compared
to the  corresponding  periods of the prior year. Net income of $41,140,000  for
the six-month period of 2002 increased  $37,440,000 from $3,700,000 for the same
period of 2001.  Revenue  increases of  $127,262,000,  or 231%, from fiscal year
2001 led to the significant  improvement,  reflecting the continuing  success of
new products,  particularly  megestrol  acetate oral suspension  (Megace(R) Oral
Suspension)  and fluoxetine  (Prozac(R)) 40 mg capsules,  introduced  since July
2001. Net sales were  $182,263,000 in the most recent  six-month period compared
to net sales of  $55,001,000  for the same period of last year.  Improved  gross
margins  followed the sales  growth,  increasing to  $85,690,000,  or 47% of net
sales, in fiscal year 2002, from  $19,549,000,  or 36% of net sales, in the same
period of the  prior  year.  Results  for the six  months  ended  June 30,  2002
included  increased  spending of  $3,280,000  on research  and  development  and
$7,409,000  on  selling,  general and  administrative  costs,  primarily  due to
additional personnel costs and marketing programs, shipping costs and legal fees
associated with new product  launches.  Additionally,  the Company  recorded net
settlement  income of  $9,051,000  in the first  quarter of 2002  related to the
termination  of its  litigation  with BMS and other  expense  of  $4,278,000  in
connection  with its  termination of the  acquisition of the entire ISP FineTech
fine chemical business.  The Company  subsequently  purchased a portion of ISP's
fine chemical business, FineTech based in Haifa, Israel, from ISP in April 2002.
FineTech had revenues of approximately $6,000,000 in 2001 however; this purchase
is not expected to have a material  effect on the  Company's  earnings in fiscal
year 2002.

       The  Company's  net  income  for  the  second   quarter  2002   increased
$18,176,000 to  $20,380,000  compared to $2,204,000 in the second quarter of the
prior year,  reflecting  the increased  sales and gross margin growth  described
above.  Second  quarter  2002  sales  and  gross  margins  of  $101,755,000  and
$46,415,000 (46% of net sales), respectively,  improved significantly over prior
year second quarter sales and gross margins of $29,297,000  and 11,121,000  (38%
of net sales).  Research and  development  expenses of  $4,063,000  for the most
recent three-month  period were 92% higher than $2,119,000  incurred in the same
quarter of 2001. Selling,  general and administrative costs of $8,847,000 in the
second  quarter  2002  increased  $4,088,000  from the same quarter of the prior
year, primarily due to increased legal, shipping, marketing and personnel costs.

       In July 2001 and August 2001,  the FDA granted  approvals  for three ANDA
submissions,  one each by Par, Reddy and Alphapharm,  for megestrol acetate oral
suspension,  fluoxetine  40 mg capsules and  fluoxetine 10 mg and 20 mg tablets,
respectively,  which as  first-to-file  opportunities  entitled  the  Company to
180-days of marketing exclusivity for the products.  The Company began marketing
megestrol  acetate oral  suspension,  which is not subject to any profit sharing


                                     --15--
<PAGE>

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

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

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

NET SALES

       Net  sales  of  $182,263,000  for the six  months  ended  June  30,  2002
increased  $127,262,000,  or 231%,  from net  sales of  $55,001,000  for the six
months ended June 30, 2001. The sales increase was primarily due to new products
introduced  since July of the prior year,  particularly  fluoxetine,  sold under
distribution  agreements  with Reddy and Genpharm,  and  megestrol  acetate oral
suspension  manufactured  by the Company.  Net sales of fluoxetine and megestrol
acetate  oral  suspension  for the first six  months of 2002 were  approximately
$57,052,000 and $43,715,000,  respectively.  Net sales of distributed  products,
which consist of products  manufactured  under  contract and licensed  products,
were approximately 58% and 56%, respectively,  of the Company's net sales in the
six-month  periods  ended June 30, 2002 and 2001.  The Company is  substantially
dependent upon distributed products for its sales, and as the Company introduces
new products under its distribution  agreements,  it is expected that this trend
will  continue.  Any  inability  by  suppliers  to meet  expected  demand  could
adversely affect future sales.

       Net sales in the second quarter of 2002 increased  $72,458,000,  or 247%,
from net sales of $29,297,000 for the corresponding  quarter of 2001,  primarily
due to  sales  of new  products.  The  sales  increase  included  net  sales  of
fluoxetine and megestrol  acetate oral suspension of  approximately  $31,182,000
and  $24,314,000,   respectively.   Net  sales  of  distributed   products  were
approximately  58% of the Company's  total net sales in the most recent  quarter
compared to approximately 54% of the total for the same quarter of last year.

      The Company's  exclusivity  period for  fluoxetine  ended in  late-January
2002.  With respect to fluoxetine,  the Company  established a price  protection
reserve during the exclusivity period of approximately $34,400,000, based on its
estimate  that between  eight and ten  additional  generic  manufacturers  would
introduce  and market  comparable  products  for the 10 mg and 20 mg tablets and
between one and three  additional  manufacturers  would  introduce  and market a
comparable  product for the 40 mg capsules.  As a result of the  introduction of
these  competing  generic  products  during the first quarter of 2002, the sales
price for  fluoxetine  has  substantially  declined  from the price the  Company
charged during the  exclusivity  period.  Accordingly,  the Company's  sales and


                                     --16--
<PAGE>

gross  margins  generated by  fluoxetine  in fiscal year 2002 have been and will
continue to be adversely affected in future periods.

       The Company's  exclusivity  period for megestrol  acetate oral suspension
ended in mid-January  2002.  One generic  competitor was granted FDA approval to
market another  generic  version of megestrol  acetate oral suspension and began
shipping the product to a limited  number of customers in the second  quarter of
2002.  In  addition,  a  second  potential  generic  competitor  entered  into a
settlement  agreement  with BMS pursuant to which the public  record states that
the present formulation of the generic company's product infringes a BMS patent.
However,  at  this  time  the  Company  has no  information  as to  whether  the
settlement  agreement provides for the generic competitor to enter the market at
some  point in the  future.  The  Company  has  patents  that  cover its  unique
formulation  for megestrol  acetate oral suspension and will avail itself of all
legal  remedies  and  will  take  all of the  necessary  steps  to  protect  its
intellectual  property rights.  Although competitors may be taking the necessary
steps to enter  the  market,  the  Company  believes  they  are less  likely  to
successfully  enter this market  because of patents owned by BMS or the Company.
Megestrol  acetate oral  suspension  is still  anticipated  to be a  significant
profit  contributor for the remainder of fiscal year 2002, despite the potential
of  competition.  Based on these  factors and the Company not  experiencing  any
significant  competition to date, the Company did not record a price  protection
reserve for  megestrol  acetate oral  suspension  as of June 30, 2002,  but will
continue to evaluate the effect of potential competition and will record a price
protection reserve when it deems necessary.

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

GROSS MARGIN

       The  gross  margin  for the  six-month  period  ended  June  30,  2002 of
$85,690,000  (47% of net sales)  increased  $66,141,000 from $19,549,000 (36% of
net  sales) in the  corresponding  period of the prior  year.  The gross  margin
improvement was achieved primarily as a result of additional  contributions from
sales of  higher  margin  new  products,  particularly  megestrol  acetate  oral
suspension and  fluoxetine,  and to a lesser extent,  increased sales of certain
existing products.

       In the  six-month  period  ended June 30,  2002,  megestrol  acetate oral
suspension contributed approximately $35,860,000 to the margin improvement while
fluoxetine,  particularly the 40 mg strength, which is subject to profit sharing
agreements with Reddy and Genpharm, contributed approximately $22,247,000 to the
margin  improvement.  As discussed  above,  additional  manufacturers of generic
drugs have introduced and began marketing comparable  fluoxetine products at the
end of the Company's  exclusivity period adversely affecting the Company's sales
volumes, selling prices and gross margins for the products,  particularly the 10
mg and 20 mg strengths.  As a result, the Company's gross margin from fluoxetine
is expected to decline in future  periods.  The affects of gross margin declines
from  lower  pricing  on the 40 mg  capsule  have been  offset,  however,  by an
increase in the Company's  profit  sharing  percentage  under an agreement  with
Reddy.  The Company's gross margin for megestrol  acetate oral suspension  could
also decline if additional manufacturers introduce and market comparable generic
products.

       The gross margin for the second quarter of 2002 was  $46,415,000  (46% of
net sales)  compared  to  $11,121,000  (38% of net  sales) in the  corresponding
quarter of the prior year.  Additional  gross margin  contributions  from higher
margin  new  products,   particularly  megestrol  acetate  oral  suspension  and
fluoxetine  which   contributed   approximately   $19,772,000  and  $12,049,000,
respectively, generated the higher margins in the second quarter of 2002.

       Inventory   write-offs  amounted  to  $2,742,000  and  $977,000  for  the
six-month and three-month periods ended June 30, 2002, respectively, compared to
$466,000  and  $181,000  in the  corresponding  periods of the prior  year.  The
increases in both periods were primarily attributable to increased production to
meet higher sales and  inventory  levels.  Part of the increase in the six-month
period  was also due to both the  write-off  of  inventory  for a product  whose
launch was delayed due to unexpected  patent issues and certain raw material not
meeting the Company's quality control standards. The inventory write-offs, taken


                                     --17--
<PAGE>

in the normal  course of  business,  are  related  primarily  to work in process
inventory not meeting the Company's  quality control  standards and the disposal
of finished products due to short shelf lives.

OPERATING EXPENSES

  RESEARCH AND DEVELOPMENT

       Research and development  expenses of $6,937,000 for the six months ended
June  30,  2002  increased   $3,280,000,   or  90%,  from   $3,657,000  for  the
corresponding  period of the prior  year.  The  increased  costs were  primarily
attributable to additional payments of $2,631,000 for development work performed
for  the  Company  by  unaffiliated  companies,  particularly  Elan  Transdermal
Technologies,   Inc.  ("Elan"),  related  to  the  development  of  a  clonidine
transdermal  patch and other products and, to a lesser extent,  higher costs for
personnel and the acquisition of FineTech.  The Company's  domestic research and
development  program is integrated  with IPR, its research  operation in Israel.
Research and development  expenses at IPR for the most recent  six-month  period
were $610,000, net of Generics funding, compared to expenses of $576,000 for the
comparable  period of last year. Annual research and development costs in fiscal
year 2002 are expected to exceed the total for fiscal year 2001 by approximately
44%.

       The Company purchased FineTech, based in Haifa, Israel, from ISP in April
2002.  FineTech  specializes  in  the  design  and  manufacture  of  proprietary
synthetic chemical processes used in the production of complex organic compounds
for the pharmaceutical  industry.  FineTech also manufactures  complex synthetic
active  pharmaceutical  ingredients  for  companies  in the  branded and generic
pharmaceutical  industries at its manufacturing  facility in Haifa,  Israel. The
Company expects to transfer a portion of FineTech's  personnel and technological
resources to a laboratory facility in the northeastern  United States.  FineTech
will be operated as an  independent,  wholly  owned  subsidiary  of PRX and will
provide immediate chemical synthesis capabilities and strategic opportunities to
the  Company  and  other  customers  (see  "Notes  to   Consolidated   Financial
Statements-Acquisition of FineTech").

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

       For the three-month period ended June 30, 2002,  research and development
expenses of $4,063,000 increased $1,944,000 from $2,119,000 for same three-month
period of the prior year primarily due to increased  outside  development  costs
for Elan and  Nortec.  Research  and  development  expenses  at IPR for the most
recent three months were $287,000, net of Generics funding, compared to expenses
of $291,000 in the same period of the prior year.

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

       Under the  Genpharm  11 Product  Agreement,  Genpharm  will  develop  the
products, submit all corresponding ANDAs to the FDA and subsequently manufacture
the products.  Par will serve as exclusive U.S.  marketer and distributor of the
products,  pay a share of the costs,  including  development  and legal expenses
incurred to obtain final regulatory  approval,  and pay Genpharm a percentage of
the gross  profits  on all  sales of  products  covered  under  this  agreement.
Currently there are two ANDA's for potential products covered under the Genpharm
11 Product  Agreement,  both of which have been  tentatively  approved,  pending
with, and awaiting approval from, the FDA (see "Notes to Consolidated  Financial
Statements-Deferred Charges and Other Assets").

       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 seven ANDAs for potential products
(two  tentatively  approved)  that  are  covered  by the  Genpharm  Distribution
Agreement  pending  with,  and awaiting  approval  from,  the FDA. To date,  the
Company is marketing  18 products  under the  Genpharm  Distribution  Agreement.
Flecainide   acetate   tablets   (Tambocor(R)),   covered   under  the  Genpharm
Distribution  Agreement,  received  final approval from the FDA in July 2001 and
the Company began marketing the product in June 2002 (see "Notes to Consolidated
Financial Statements-Distribution and Supply Agreements-Genpharm, Inc.").



                                     --18--
<PAGE>

       Genpharm  and the  Company  share the costs of  developing  the  products
covered under the Genpharm Additional Product Agreement. To date, the Company is
marketing two products  under the Genpharm  Additional  Product  Agreement  (see
"Notes   to   Consolidated   Financial    Statements-Distribution   and   Supply
Agreements-Genpharm, Inc.").

  SELLING, GENERAL AND ADMINISTRATIVE

       Selling,  general and  administrative  costs of  $16,363,000  for the six
months  ended  June  30,  2002  increased  $7,409,000  from  $8,954,000  in  the
corresponding  period ended June 30, 2001, however, the costs as a percentage of
net sales in the  respective  periods  decreased to 9% in 2002 from 16% in 2001.
The  higher  dollar  amount  in  the  current  six-month  period  was  primarily
attributable  to additional  legal fees,  marketing  programs and shipping costs
associated  with new product  introductions  and higher sales volumes,  and to a
lesser  extent,  increased  personnel  costs.  The Company  anticipates  it will
continue  to incur a high  level  of  legal  expenses  related  to the  costs of
litigation  connected  with certain  potential  new product  introductions  (see
"Notes to Consolidated Financial Statements-Commitments, Contingencies and Other
Matters-Legal Proceedings").

       For the second quarter of 2002, selling, general and administrative costs
of $8,847,000 (9% of net sales) increased $4,088,000 from $4,759,000 (16% of net
sales) for the  corresponding  quarter of the prior year primarily due to higher
legal, shipping, marketing and personnel expenses.

SETTLEMENTS

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

OTHER EXPENSE/INCOME

       Other  expenses  were  $4,380,000  and  $223,000  for the  six-month  and
three-month periods ended June 30, 2002, respectively,  compared to other income
of $364,000 and $45,000 in the corresponding  periods of 2001. Other expenses in
the current  six-month  period  included  approximately  $4,278,000  incurred in
connection  with the  acquisition  of the  entire  ISP  FineTech  fine  chemical
business in March 2002.  Other  expenses  recorded in the second quarter of 2002
are related to the  withdrawal of the  Company's  universal  shelf  registration
statement during the quarter. Included in other income in fiscal year 2001 was a
payment  from 3M to the  Company  releasing  the  parties  from a prior  product
agreement recorded in the first quarter of 2001.

INCOME TAXES

       The Company  recorded  provisions  for income  taxes of  $26,302,000  and
$3,160,000,  respectively, and $13,029,000 and $1,862,000, respectively, for the
six-month  and  three-month  periods  ended  June 30,  2002  and  2001  based on
applicable  federal  and state tax rates (see "Notes to  Consolidated  Financial
Statements-Income Taxes").

CRITICAL ACCOUNTING POLICIES ESTIMATES AND RISKS

       The Company's critical  accounting  policies are set forth in it's Annual
Report on Form 10-K for the year  ended  December  31,  2001.  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, 2001.




                                     --19--
<PAGE>

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

       Cash and cash  equivalents  of  $24,447,000  at June 30,  2002  decreased
$43,295,000 from $67,742,000 at December 31, 2001 due primarily to the Company's
use of funds to finance the acquisition of FineTech and, to a lesser extent,  to
fund operations and capital projects.  Working capital,  which includes cash and
cash equivalents  decreased to $92,542,000 at June 30, 2002 from $102,867,000 at
December 31, 2001. The working capital ratio was 2.11x at June 30, 2002 compared
to 2.41x at December 31, 2001.

       The Company, from time to time, enters into agreements with third parties
with respect to the development of new products and  technologies.  To date, the
Company has entered into agreements and advanced funds to several non-affiliated
companies for products in various stages of development. These types of payments
are expensed as incurred and included in research and development costs.  Annual
research  and  development   expenses,   including  payments  to  non-affiliated
companies, are expected to total approximately $16,000,000 for fiscal year 2002.

       The Company made  non-refundable  payments  totaling $625,000 pursuant to
its agreements  with Nortec  entered into in the second  quarter of 2002,  which
were  charged  to  research  and  development  expenses  during the  period.  In
addition,   the  Company  agreed  to  pay  a  total  of  $1,175,000  in  various
installments related to the achievement of certain milestones in the development
of the two  potential  products  and $600,000 for each product on the day of the
first commercial sale (see-"Notes to Consolidated  Financial  Statements-Product
Development Agreements-Nortec Development Associates, Inc.").

       On March 15, 2002, the Company  announced the termination of negotiations
with ISP  related  to the  purchase  of the entire ISP  FineTech  fine  chemical
business,  based in Haifa, Israel and Columbus,  Ohio. At that time, the Company
discontinued   negotiations   with  ISP  as  a  result  of  various  events  and
circumstances that occurred since the announcement of the proposed  transaction.
Pursuant to the  termination of the purchase,  the Company paid ISP a $3,000,000
break-up  fee in March 2002,  which was subject to certain  credits and offsets,
and incurred  approximately  $1,278,000 in related  acquisition  costs,  both of
which were included in other  expense in the first quarter of 2002.  The Company
subsequently purchased FineTech, a portion of ISP's fine chemical business based
in Haifa,  Israel,  from ISP in April  2002 for  approximately  $32,000,000  and
$1,200,000 in related acquisition costs financed by its cash-on-hand (see-"Notes
to Consolidated Financial Statements-Acquisition of FineTech").

       As of  June  30,  2002  the  Company  had  payables  due to  distribution
agreement  partners  of  $15,644,000,   related  primarily  to  amounts  due  on
fluoxetine  pursuant to profit sharing agreements with strategic  partners.  The
Company  expects to pay these  amounts out of its  working  capital in the third
quarter of 2002.

       In December  2001,  Par entered into an agreement  with Elan to develop a
range of modified release drugs over the next five years. Under the terms of the
agreement,  the companies will identify two drug  candidates for  development at
the beginning of each year,  commencing in the first quarter of 2002.  Elan will
be responsible for the  development  and manufacture of all products,  while Par
will be responsible for marketing,  sales and  distribution.  Par will reimburse
Elan for research and development costs and Elan will receive a royalty from the
sale of the  products.  Pursuant  to the  agreement,  Par  will  pay  Elan up to
$1,500,000  per calendar year in monthly  installments  beginning on the date of
the commencement of the development  program for each product.  The Company paid
Elan $750,000 for products  covered under this agreement in the first six months
of 2002.

       In December 2001, the Company committed to making an equity investment of
up to $2,437,000  over a period of time in HighRapids.  HighRapids  will utilize
the Company's cash infusion for working capital and operating expenses.  Through
June 30, 2002,  the Company had invested  approximately  $438,000 of its planned
investment   (see-"Notes  to  Consolidated   Financial   Statements-Commitments,
Contingencies and Other Matters-Other Matters").

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



                                     --20--
<PAGE>

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

       In April 2001, Par entered into a licensing agreement with Elan to market
a  generic  clonidine   transdermal  patch  (Catapres  TTS(R)).   Elan  will  be
responsible for the development and manufacture of all products,  while Par will
be responsible for marketing, sales and distribution. Pursuant to the agreement,
the Company paid Elan $1,167,000 in fiscal year 2001 and $833,000 in fiscal year
2002. In addition, Par will pay Elan $1,000,000 upon FDA approval of the product
and a royalty on all sales of the product.

       The Company,  IPR and Generics  entered into the  Development  Agreement,
dated August 11, 1998, pursuant to which Generics agreed to fund one-half of the
costs of IPR's  operating  budget in  exchange  for the  exclusive  distribution
rights  outside of the United States to the products  developed by IPR after the
date of the  agreement.  In  addition,  Generics  agreed to pay IPR a  perpetual
royalty for all sales of the products by Generics or its affiliates  outside the
United States. To date, no such products have been brought to market by Generics
and no royalty  has been paid to IPR.  Pursuant  to the  Development  Agreement,
Generics funded approximately $788,000 for fiscal year 2001 and $340,000 for the
first six months of fiscal  year 2002,  fulfilling  their  funding  requirements
through June 30, 2002. Under the Development Agreement, Generics is not required
to  fund  more  than  $1,000,000  in  any  one  calendar  year  (see  "Notes  to
Consolidated Financial Statements-Research and Development Agreements").

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

FINANCING

       At June  30,  2002,  the  Company's  total  outstanding  long-term  debt,
including  the current  portion,  amounted to  $1,176,000.  The amount  consists
primarily of an  outstanding  mortgage  loan with a bank and capital  leases for
computer equipment.

      In December  1996, Par entered into the Loan Agreement with GECC. The Loan
Agreement,  as amended,  provides Par with a revolving  line of credit  expiring
March 2005. Pursuant to the Loan Agreement, Par is permitted to borrow up to the
lesser of (i) the borrowing  base  established  under the Loan Agreement or (ii)
$30,000,000.  The  borrowing  base  is  limited  to  85%  of  eligible  accounts
receivable  plus 50% of eligible  inventory of Par, each as determined from time
to time by GECC. The interest rate charged on the line of credit is based upon a
per annum rate of 2.25% above the 30-day  commercial  paper rate for  high-grade
unsecured notes adjusted monthly. The line of credit with GECC is secured by the
assets of Par, PRX and certain  subsidiaries,  other than real property,  and is
guaranteed  by PRX and  certain of its  subsidiaries.  In  connection  with such
facility,  Par, PRX and their  subsidiaries  have  established a cash management
system pursuant to which all cash and cash  equivalents  received by any of such
entities are deposited into a lockbox account over which GECC has sole operating
control if there are amounts  outstanding under the line of credit. The deposits
would then be applied on a daily basis to reduce the amounts  outstanding  under
the line of credit.  The revolving credit facility is subject to covenants based
on various  financial  benchmarks.  As of June 30, 2002,  the borrowing base was
approximately  $27,000,000.  To  date,  no debt is  outstanding  under  the Loan
Agreement.

SUBSEQUENT EVENTS:

       In July 2002,  the Company  entered into an  agreement  with Three Rivers
Pharmaceuticals  ("Three  Rivers")  to market and  distribute  ribavirin  200 mg
capsules, the generic version of Schering-Plough's  Rebetol(R),  which according
to the Company's  market research had U.S. sales of  approximately  $250 million
for the first six months of 2002.  Ribavirin,  a synthetic  nucleoside  analogue
with  antiviral  activity,  is  indicated  for the  treatment  of hepatitis C, a
chronic condition  suffered by approximately 4 million  Americans.  Three Rivers
filed an ANDA with a Paragraph IV certification  with the FDA in August 2001 and


                                     --21--
<PAGE>

is  currently  in  litigation  with the patent  holders.  Under the terms of the
agreement,  Three Rivers will supply the product to Par and will be  responsible
for managing the regulatory process and ongoing patent litigation. Par will have
the  exclusive  right to sell  the  product  in  non-hospital  markets  upon FDA
approval and final marketing clearance.  According to current FDA practice,  Par
believes  it may be  entitled  to  co-exclusively  market  the  generic  product
ribavirin for up to 180 days,  during which time only one other company could be
approved to market another generic version of the drug. If successful, Par could
introduce ribavirin in the 2003 to 2004 timeframe.

       ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

       Not applicable.




























                                     --22--
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

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

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

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

ITEM 5. OTHER INFORMATION.

       In June 2002 the Company's Board of Directors ("Board") determined it was
in the best  interests  of the  Company  and its  shareholders  to  request  the
withdrawal of PRX universal shelf registration  statement.  Since utilization of
the shelf  registration had become unlikely,  the Board decided to recommend its
withdrawal.  Furthermore,  PRX  believes  it now  has  adequate  cash  resources
available  for  general   corporate  and  other   purposes.   The  $110  million
registration  statement on Form S-3 was originally filed with the Securities and
Exchange  Commission ("SEC") in December 2002. The Company filed its request for
withdrawal on Form RW with the SEC on June 20, 2002.









                                     --23--
<PAGE>

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

       (a) Exhibits:

           11 Product Development  Agreement,  effective April 2002, between the
           Company and Genpharm, Inc. *

           SVC Pharma LP Limited  Partnership  Agreement dated April 2002, among
           the Company,  UDF LP, a Delaware limited  partnership,  and the other
           parties named therein.

           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.

           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.

           * Certain  portions of this  exhibit  have been omitted and have been
           filed with the SEC pursuant to a request for  confidential  treatment
           thereof.


       (b) Reports on Form 8-K:

           On May 2,  2002,  May 7,  2002 and May 9,  2002 the  Company  filed a
           Current Report on Form 8-K.
























                                     --24--
<PAGE>

                                                       SIGNATURE




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

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




August 14, 2002                   /s/ Kenneth I. Sawyer
                                  ------------------------------------------
                                  Kenneth I. Sawyer
                                  CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF
                                  THE BOARD OF DIRECTORS
                                  (Principal Executive Officer)




August 14, 2002                   /s/ Dennis J. O'Connor
                                  ------------------------------------------
                                  Dennis J. O'Connor
                                  VICE PRESIDENT - CHIEF FINANCIAL OFFICER
                                  AND SECRETARY
                                  (Principal Accounting and Financial Officer)




















                                     --25--
<PAGE>

                                  EXHIBIT INDEX

Exhibit
Number      Description                                            Page Number
-------     -----------                                            -----------
10.36       11 Product Development Agreement,
            effective April 2002, between the Company
            and Genpharm, Inc. *


10.37       SVC Pharma LP Limited Partnership Agreement,
            dated April 2002, among the Company, UDF LP.,
            a Delaware limited partnership, and the other
            parties named therein.

99.1        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.

99.2        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.




* Certain  portions of this  exhibit  have been omitted and have been filed with
the SEC pursuant to a request for confidential treatment thereof.











                                     --26--