UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

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

                                    FORM 10-Q

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

                  For the quarterly period ended: July 3, 2005

                         COMMISSION FILE NUMBER: 1-10827


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


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


300 TICE BOULEVARD, WOODCLIFF LAKE, NEW JERSEY                             07677
      (Address of principal executive offices)                        (Zip Code)


      (Registrant's telephone number, including area code: (201) 802-4000)



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

     Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act): Yes x  No
                                               ---   ---



       Number of shares of Common Stock outstanding as of August 8, 2005:
                                   34,199,198

<PAGE>

                                TABLE OF CONTENTS
                       PAR PHARMACEUTICAL COMPANIES, INC.
                                    FORM 10-Q
                    FOR THE FISCAL QUARTER ENDED JULY 3, 2005

                                                                            PAGE

PART I       FINANCIAL INFORMATION

     Item 1. Financial Statements

             Consolidated balance sheets as of July 3, 2005 and December 31,
             2004..............................................................3

             Consolidated statements of operations for the three months and
             six months ended July 3, 2005 and July 4, 2004....................4

             Consolidated statements of cash flows for the six months ended
             July 3, 2005 and July 4, 2004.....................................5

             Notes to consolidated financial statements.....................6-18


     Item 2. Management's Discussion and Analysis of Financial Condition and
             Results of Operations.........................................19-28

     Item 3. Quantitative and Qualitative Disclosures about Market
             Risk.............................................................29

     Item 4. Controls and Procedures..........................................30

 PART II     OTHER INFORMATION

     Item 1. Legal Proceedings.............................................30-32

     Item 4. Submission of Matters to a Vote of Security Holders...........32-33

     Item 6. Exhibits.........................................................33


     SIGNATURES...............................................................34

                                       2
<PAGE>
<TABLE>
<CAPTION>

                         PART I - FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS
                       PAR PHARMACEUTICAL COMPANIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (In Thousands, Except Share Data)
                                   (Unaudited)
<S><C>               <C>                                                         <C>            <C>
                                                                                 JULY 3,         DECEMBER 31,
                     ASSETS                                                       2005              2004
                     ------                                                       ----            --------
Current assets:
  Cash and cash equivalents                                                      $32,093          $36,534
  Available for sale securities                                                   97,523          151,854
  Accounts receivable, net of allowances of
    $27,906 and $42,316                                                          189,143          149,107
  Inventories, net                                                               101,793           86,835
  Prepaid expenses and other current assets                                       14,725           17,072
  Deferred income tax assets                                                      36,731           52,580
                                                                                  ------           ------
  Total current assets                                                           472,008          493,982

Property, plant and equipment, at cost less
 accumulated depreciation and amortization                                        75,424           66,642
Investments                                                                       44,008           25,271
Intangible assets, net                                                            48,783           51,491
Goodwill                                                                          77,821           77,919
Deferred charges and other assets                                                  8,142           11,234
Non-current deferred income tax assets, net                                       37,580           42,465
                                                                                  ------           ------
Total assets                                                                    $763,766         $769,004
                                                                                 =======          =======

                     LIABILITIES AND STOCKHOLDERS' EQUITY
                     ------------------------------------
Current liabilities:
  Short-term and current portion of long-term debt                                  $997           $4,348
  Accounts payable                                                                46,160           45,832
  Payables due to distribution agreement partners                                 36,432           40,149
  Accrued salaries and employee benefits                                          10,494            8,745
  Accrued expenses and other current liabilities                                  17,667           16,554
  Income taxes payable                                                            22,820           39,116
                                                                                  ------           ------
  Total current liabilities                                                      134,570          154,744

Long-term debt, less current portion                                             200,172          200,275
Other long-term liabilities                                                          395              395
Commitments and contingencies
Stockholders' equity:
  Preferred stock, par value $.0001 per share;
   authorized 6,000,000 shares; no shares issued and outstanding                       -                -
  Common stock, par value $.01 per share; authorized 90,000,000 shares;
    issued 35,041,453 and 34,759,265 shares                                          350              348
  Additional paid-in capital                                                     204,993          193,686
  Deferred compensation - restricted stock                                        (8,654)          (1,455)
  Retained earnings                                                              255,082          253,726
  Accumulated other comprehensive income (loss)                                    9,036             (689)
  Treasury stock, at cost, 848,588 and 843,700 shares                            (32,178)         (32,026)
                                                                                  ------           ------
 Total stockholders' equity                                                      428,629          413,590
                                                                                 -------          -------
 Total liabilities and stockholders' equity                                     $763,766         $769,004
                                                                                 =======          =======

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

                                       3
<PAGE>



                       PAR PHARMACEUTICAL COMPANIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In Thousands, Except Per Share Amounts)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                     SIX MONTHS ENDED                  THREE MONTHS ENDED
                                                     ----------------                  ------------------
                                                  JULY 3,         JULY 4,              JULY 3,       JULY 4,
                                                   2005            2004                 2005          2004
                                                   ----            ----                 ----        --------
<S><C>                                            <C>            <C>                 <C>            <C>

Revenues:
   Net product sales                              $207,815       $423,243            $116,727       $212,204
   Other product related revenues                    6,726          1,055                 313            327
                                                     -----          -----                 ---            ---
Total revenues                                     214,541        424,298             117,040        212,531
Cost of goods sold                                 126,552        280,629              68,203        139,414
                                                   -------        -------              ------        -------
Gross margin                                        87,989        143,669              48,837         73,117
Operating expenses (income):
   Research and development                         33,387         16,662              17,398         10,184
   Selling, general and administrative              46,506         33,548              25,154         16,481
   Settlements, net                                      -         (2,846)                  -         (2,846)
   Gain on sale of facility                              -         (2,812)                  -              -
                                                    ------         ------              ------         ------
   Total operating expenses                         79,893         44,552              42,552         23,819
   Operating income                                  8,096         99,117               6,285         49,298

Other income (expense), net                          2,851            (75)              1,528            (53)
Investment impairment                               (8,280)             -              (8,280)             -
Interest expense, net                                 (514)          (573)               (368)          (294)
                                                       ---            ---                 ----           ---
Income (loss) before provision for income taxes      2,153         98,469                (835)        48,951
Provision (benefit) for income taxes                   797         38,403                (214)        19,091
                                                       ---         ------                 ---         ------
Net income (loss)                                   $1,356        $60,066               $(621)       $29,860
                                                     =====         ======                =====        ======
Net income (loss) per share of common stock:
   Basic                                             $0.04          $1.75              $(0.02)         $0.87
                                                      ====           ====                ====           ====
   Diluted                                           $0.04          $1.70              $(0.02)         $0.85
                                                      ====           ====                ====           ====
Weighted average number of
   common shares outstanding:
   Basic                                            34,081         34,359              34,186         34,267
                                                    ======         ======              ======         ======
   Diluted                                          34,487         35,247              34,186         34,930
                                                    ======         ======              ======         ======




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

                                                      4
<PAGE>

                       PAR PHARMACEUTICAL COMPANIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                           SIX MONTHS ENDED
                                                                                           ----------------
                                                                                         JULY 3,        JULY 4,
                                                                                          2005           2004
                                                                                          ----           ----
<S><C>                                                                                  <C>            <C>
Cash flows from operating activities:
   Net income                                                                            $1,356        $60,066
   Adjustments to reconcile net income
    to net cash (used in) provided by operating activities:
     Deferred income taxes                                                               14,691         (3,528)
     Investment impairment                                                                8,280              -
     Depreciation and amortization                                                        7,120          5,681
     Inventory reserves                                                                   2,873            196
     Allowances against accounts receivable                                             (14,410)         1,601
     Gain on sale of fixed assets                                                             -         (2,812)
     Gain on sale of investments                                                         (2,841)             -
     Stock compensation expense                                                           1,785            397
     Other                                                                                  (58)            77

   Changes in assets and liabilities:
     Increase in accounts receivable                                                    (25,626)       (22,472)
     Increase in inventories                                                            (17,831)        (7,196)
     Decrease (increase) in prepaid expenses and other assets                             5,439         (1,514)
     (Decrease) increase in accounts payable                                               (248)         6,755
     (Decrease) increase in payables due to distribution agreement partners              (3,141)         6,256
     Increase (decrease) in accrued expenses and other liabilities                        2,862         (7,833)
     (Decrease) increase in income taxes payable                                        (15,898)        15,437
                                                                                         ------         ------
     Net cash (used in) provided by operating activities                                (35,647)        51,111
                                                                                         ------         ------

Cash flows from investing activities:
   Capital expenditures                                                                 (13,138)       (11,243)
   Acquisition of subsidiary, net of cash acquired                                            -       (138,366)
   Proceeds from sale of investments                                                      4,310              -
   Proceeds from sales of available for sale securities                                  90,189        248,650
   Purchases of available for sale securities                                           (36,577)      (252,871)
   Purchase of investment                                                               (12,000)             -
   Proceeds from sale of fixed assets                                                         2          4,980
   Other                                                                                     98              -
                                                                                             --        -------
   Net cash provided by (used in) investing activities                                   32,884       (148,850)
                                                                                         ------        -------

Cash flows from financing activities:
   Proceeds from issuances of common stock                                                1,928          6,122
   Purchases of treasury stock                                                             (152)       (20,077)
   Issuance of long term debt                                                                 -            399
   Principal payments under long-term debt and other borrowings                          (3,454)          (166)
                                                                                          -----            ---
   Net cash used in financing activities                                                 (1,678)       (13,722)
                                                                                          -----         ------

Net decrease in cash and cash equivalents                                                (4,441)      (111,461)
Cash and cash equivalents at beginning of period                                         36,534        162,549
                                                                                         ------        -------
Cash and cash equivalents at end of period                                              $32,093        $51,088
                                                                                         ======         ======

Supplemental disclosure of cash flow information:
Cash paid during the period for:
   Taxes                                                                                 $1,998        $26,492
                                                                                          =====         ======
   Interest                                                                              $2,955         $2,962
                                                                                          =====          =====
Non-cash transactions:
   Tax benefit from exercise of stock options                                              $398         $2,767
                                                                                            ===          =====
   Issuance of warrants                                                                      $-         $2,530
                                                                                              =          =====
   Increase (decrease) in fair value of available for sale securities                    $7,257          $(815)
   and investments                                                                        =====           ====

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

</TABLE>
                                       5
<PAGE>

                       PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 3, 2005
                    (In Thousands, Except Per Share Amounts)
                                   (Unaudited)


     Par  Pharmaceutical  Companies,  Inc. (the  "Company")  operates  primarily
through its wholly owned subsidiary,  Par  Pharmaceutical,  Inc. ("Par"), in one
business  segment,  the manufacture and distribution of generic  pharmaceuticals
principally  in the United States.  The Company  wholly owns Kali  Laboratories,
Inc. ("Kali"), a generic pharmaceutical research and development company located
in Somerset,  New Jersey,  which it acquired on June 10, 2004. Marketed products
are  principally  in the solid oral dosage form  (tablet,  caplet and  two-piece
hard-shell capsule).  The Company also distributes one product in the semi-solid
form of a cream and one oral suspension product.

NOTE 1 - BASIS OF PREPARATION:

     The accompanying  consolidated financial statements at July 3, 2005 and for
the  six-month and  three-month  periods ended July 3, 2005 and July 4, 2004 are
unaudited; in the opinion of the Company's management,  however, such statements
include all adjustments  necessary to present fairly the  information  presented
therein.  The  consolidated  balance sheet at December 31, 2004 was derived from
the Company's audited consolidated financial statements at such date.

     On June 10, 2004,  the Company  purchased all of the capital stock of Kali.
The  acquisition  was accounted for as a purchase  under  Statement of Financial
Accounting  Standards  ("SFAS")  No.  141,  "Business   Combinations,"  and  the
accompanying  consolidated financial statements include the operating results of
Kali from the date of its acquisition.

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

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

NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS:

     In May 2005, the Financial  Accounting Standards Board ("FASB") issued SFAS
No. 154, "Accounting Changes and Error Corrections" ("SFAS 154"),  effective for
accounting  changes and  corrections  of errors made in fiscal  years  beginning
after  December 15,  2005.  SFAS 154 requires  voluntary  changes in  accounting
principle be  retrospectively  applied to  financial  statements  from  previous
periods  unless  such  application  is  impracticable.  Under the  newly  issued
standard  changes in  depreciation,  amortization,  or depletion for long-lived,
non-financial  assets should be accounted for as a change in accounting estimate
that is affected by a change in accounting principle.  The Company believes that
the adoption of this standard  will not have a material  impact on the Company's
results of operations, financial position or cash flows.

     In December 2004, the FASB issued SFAS No. 153,  "Exchanges of Non-monetary
Assets", an amendment of Accounting Principles Board ("APB") Opinion No. 29. The
Company  does not expect that the  adoption  of this  statement,  effective  for
fiscal  periods  beginning  after  June 15,  2005,  will have any  impact on the
Company's results of operations, financial position or cash flows.

     In November  2004, the FASB issued SFAS No. 151,  "Inventory  Costs" ("SFAS
151"), to clarify the accounting for abnormal amounts of idle facility  expense,
freight,  handling  costs   and  wasted  material.  SFAS  151 is  effective  for
inventory  costs incurred during fiscal years beginning after June 15, 2005. The
Company is currently assessing the impact that SFAS 151 will have on its results
of operations, financial position or cash flows.

                                       6
<PAGE>

                       PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 3, 2005
                    (In Thousands, Except Per Share Amounts)
                                   (Unaudited)

     In  December  2004,   the  FASB  issued  SFAS  No.  123R  (Revised   2004),
"Share-Based Payment" ("SFAS 123R"). SFAS 123R requires all share-based payments
made to employees,  including grants of employee stock options and shares issued
under employee stock purchase  plans,  to be recognized in the income  statement
based on their grant-date fair values. In April 2005, the Commission amended the
date for  compliance  with SFAS 123R.  The  Company is required to adopt the new
accounting  provision  beginning in its first  quarter of fiscal year 2006.  The
Company is currently evaluating the provisions of SFAS 123R.

NOTE 3 - STOCK-BASED COMPENSATION:

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

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

<TABLE>
<CAPTION>
                                                                               SIX MONTHS ENDED        THREE MONTHS ENDED
                                                                               ----------------        ------------------
                                                                             JULY 3,     JULY 4,      JULY 3,   JULY 4,
                                                                              2005        2004         2005      2004
                                                                              ----        ----         ----      ----
<S>                                                                          <C>        <C>            <C>      <C>

Net income (loss), as reported                                               $1,356     $60,066        $(621)   $29,860

Add:  Stock-based employee compensation expense included in
      reported net income, net of related tax effects                           833           -          450          -

Deduct:  Stock-based employee compensation expense determined
         under the fair value-based method, net of related tax effects      (23,976)    (11,185)      (3,242)    (3,551)
                                                                             ------      ------        -----      -----

Pro forma net (loss) income                                                $(21,787)    $48,881      $(3,413)   $26,309
                                                                             ======      ======        =====    =======

Net income (loss) per share of common stock:

  As reported - Basic                                                         $0.04       $1.75       $(0.02)     $0.87
                                                                               ====        ====         ====       ====
  As reported - Diluted                                                       $0.04       $1.70       $(0.02)     $0.85
                                                                               ====        ====         ====       ====

  Pro forma - Basic                                                          $(0.64)      $1.42       $(0.10)     $0.77
                                                                               ====        ====         ====       ====
  Pro forma - Diluted                                                        $(0.64)      $1.39       $(0.10)     $0.75
                                                                               ====        ====         ====       ====
</TABLE>



     In February 2005, the Company  accelerated the vesting of 820  outstanding,
non-vested stock options,  which represented all outstanding stock option grants
with per share exercise  prices  exceeding $60. The fair value of these options,
using the  Black-Scholes  stock option  pricing  model and the  Company's  stock
option assumptions at the date of their grants was approximately  $27,869.  This
action increased pro forma compensation  expense in the first quarter of 2005 by
approximately  $16,552,  net of related tax  effects.  The Company  considered a
number  of  factors  in  making  this  decision,   including  the  issuance  and
anticipated  implementation  of SFAS  123R  requiring  the  expensing  of  stock
options,  which is expected to be effective for the Company in the first quarter
of 2006.

                                       7
<PAGE>
                       PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 3, 2005
                    (In Thousands, Except Per Share Amounts)
                                   (Unaudited)

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


                               SIX MONTHS ENDED         THREE MONTHS ENDED
                               ----------------         ------------------
                          JULY 3, 2005  JULY 4, 2004  JULY 3, 2005  JULY 4, 2004
                          ------------  ------------  ------------  ------------
Risk-free interest rate    3.7%         4.0%            4.0%         4.0%
Expected term              4.9 years    4.9 years       5.0 years    4.9 years
Expected volatility          58.6%        62.1%           57.7%        61.9%


     It is assumed that no dividends  will be paid during the entire term of the
options.  The weighted  average per share fair values of options  granted in the
six-month  periods  ending July 3, 2005 and July 4, 2004 were $20.24 and $33.27,
respectively.  The weighted average per share fair values of the options granted
in the  three-month  periods ended July 3, 2005 and July 4, 2004 were $17.12 and
$24.46, respectively.

NOTE 4 - AVAILABLE FOR SALE SECURITIES:

     At July 3, 2005 and December 31, 2004, all of the Company's  investments in
marketable  securities  were  classified as available for sale and, as a result,
were  reported  at fair  value.  The  following  is a summary  of the  Company's
available for sale securities, classified as current, at July 3, 2005:

                                                      UNREALIZED           FAIR
                                                      ----------           ----
                                                   COST    GAIN LOSS       VALUE
                                                   ----    ---------       -----
  Debt securities issued by various state
   and local municipalities and agencies         $68,309   $-   $(502)   $67,807
  Securities issued by United States
   government and agencies                        30,368    -    (652)    29,716
                                                  ------    -     ---     ------
  Total                                          $98,677   $- $(1,154)   $97,523
                                                  ======    =   =====     ======

     The following is a summary of the Company's  available for sale securities,
classified as current, at December 31, 2004:

                                                      UNREALIZED           FAIR
                                                      ----------           ----
                                                   COST  GAIN LOSS        VALUE
                                                   ----  ---------        -----
  Debt securities issued by various state
   and local municipalities and agencies         $82,894   $-   $(216)   $82,678
  Securities issued by United States
   government and agencies                        69,642    -    (466)    69,176
                                                  ------ ----     ---     ------
       Total                                    $152,536   $-   $(682)  $151,854
                                                 =======    =     ===    =======

     The Company had $376 and $36 of unrealized  losses related to available for
sale  securities  that had been in a loss position for greater than a year as of
July 3, 2005 and December  31, 2004,  respectively.  All of the  securities  are
available for immediate  sale and have been  classified as current.  The Company

                                       8
<PAGE>


                       PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 3, 2005
                    (In Thousands, Except Per Share Amounts)
                                   (Unaudited)


sold $90,189 and $46,524 of these  securities for the six-month and  three-month
periods  ended July 3, 2005.  The following  table  summarizes  the  contractual
maturities  of the  Company's  debt  securities at July 3, 2005 and December 31,
2004:

                                JULY 3, 2005              DECEMBER 31, 2004
                                ------------              -----------------
                                          FAIR                         FAIR
                               COST       VALUE            COST       VALUE
                               ----       -----            ----       -----
  Less than one year         $79,640     $78,945          $93,907   $93,250
  Due between 1-2 years            -           -                -         -
  Due between 2-5 years        8,812       8,740            3,592     3,594
  Due after 5 years           10,225       9,838           55,037    55,010
                              ------       -----           ------    ------
  Total                      $98,677     $97,523         $152,536  $151,854
                              ======      ======          =======   =======
NOTE 5 - INVESTMENTS:

     The  Company  has  investments  in New  River  Pharmaceuticals  Inc.  ("New
River"),    Advancis    Pharmaceutical    Corporation    ("Advancis"),    Abrika
Pharmaceuticals,  LLLP ("Abrika") and Optimer Pharmaceuticals, Inc. ("Optimer").
The Company has determined that all of these investments are available for sale;
therefore,   unrealized  gains  and  losses  are  reported  as  a  component  of
accumulated  other   comprehensive   income  (loss)  in  stockholders'   equity.
Additionally, the Company assesses whether declines in fair value are considered
other-than-temporary  and records impairment expense on any of those investments
that the Company determines are other-than-temporary.

     In April 2005,  the  Company  acquired  3,333  shares of Series C preferred
stock of Optimer, a privately held  biotechnology  company located in San Diego,
California,  for $12,000. The 3,333 shares represent approximately 13% ownership
in  Optimer.  Because  Optimer  is  privately-held,  the  Company  monitors  the
investment  on a periodic  basis to  evaluate  whether any changes in fair value
become other-than-temporary.

     In December 2004, the Company acquired a 5% partnership interest in Abrika,
a privately-held  specialty generic  pharmaceutical  company located in Sunrise,
Florida for  $8,361,  including  costs.  The  Company  also holds a  convertible
promissory  note in the principal  amount of $3,000,  with interest  accruing at
8.0% annually,  for money it loaned to Abrika. Because Abrika is privately-held,
the Company monitors this investment on a periodic basis to evaluate whether any
changes in fair value become other-than-temporary.

     In August  2004,  the Company  purchased 875 shares of common stock of  New
River for $7,000 in its initial  public  offering at $8 per share.  In the first
six months of 2005,  the Company  sold 144 shares of New River  common stock for
$4,310 and  recorded  a gain on the sale of $3,156  which is  recorded  in other
income (expense),  net. The Company's current investment represents an ownership
position of approximately  4.1% of the outstanding common stock of New River. As
of July 3,  2005  and  December  31,  2004,  the  fair  value  of the  Company's
investment  in New River was $21,927  and  $13,090,  respectively,  based on the
market  value of the  common  stock of New River on those  dates.  To date,  the
Company has recorded  unrealized  gains on this  investment  of $16,080,  with a
corresponding  credit of $9,919 to  accumulated  other  comprehensive  gains and
$6,161 to deferred income taxes.

     In October 2003,  the Company paid $10,000 to purchase  1,000 shares of the
common  stock  of  Advancis,  a  pharmaceutical  company  based  in  Germantown,
Maryland,  at $10 per share in its initial public offering of 6,000 shares.  The
Company's current  investment  represents  approximately 3.4% of the outstanding
common stock of Advancis. In the second quarter of 2005, the Company recorded an
investment  impairment of $8,280 related to its investment in Advancis.  In June
and July  2005,  Advancis  announced  that it  failed  to  achieve  the  desired
microbiological  and clinical  endpoints in their  Amoxicillin  PULSYS phase III
clinical trials for the treatment of pharyngitis/tonsillitis. Due to the results
of the clinical trials, and the continued significant decline in the stock price
of Advancis, the Company has determined that the decline in fair market value of
its  investment is other-than-temporary and as  such has written the  investment
down to its fair market value as of July 3, 2005,  which was $1,720 based on the
market value of the common stock of Advancis at that date.  At December 31, 2004
the fair value of the Company's investment in Advancis was $3,820.

                                       9
<PAGE>

                       PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 3, 2005
                    (In Thousands, Except Per Share Amounts)
                                   (Unaudited)


NOTE 6 - ACCOUNTS RECEIVABLE:
                                                      JULY 3,    DECEMBER 31,
                                                       2005          2004
                                                       ----          ----
  Gross trade accounts receivable                    $286,141     $294,030
  Allowances for rebates and chargebacks               69,440      102,607
                                                       ------      -------
  Trade accounts receivable, net of customer
   rebates and chargebacks                            216,701      191,423
  Other accounts receivable                               348            -
                                                          ---      -------
                                                      217,049      191,423
  Allowances:
    Doubtful accounts                                   1,847        1,847
    Returns                                            13,205       23,392
    Price adjustments and allowances                   12,854       17,077
                                                       ------       ------
                                                       27,906       42,316
                                                       ------       ------
  Accounts receivable,
    net of allowances                                $189,143      $149,107
                                                      =======       =======

     At  the  time  the  Company  recognizes  revenues  for  product  sales,  it
simultaneously  records estimates for sales allowances,  the most significant of
which are  described  below and include  rebates,  chargebacks,  returns,  price
adjustments  and other sales  allowances,  as reductions to its gross  revenues,
with corresponding adjustments to the accounts receivable allowances.

     Customer  rebates  are price  reductions  that are  provided  to  customers
generally as an incentive for them to continue to carry the  Company's  products
or to  substitute  the  Company's  products  for  competing  products to be sold
through the customers'  distribution channels. This incentive is based generally
on a customer's volume of purchases made during an applicable monthly, quarterly
or annual period.

     Chargebacks  are  provided to the  wholesale  customer  for product that it
resells  to  specific  healthcare  providers  on the basis of prices  negotiated
between  the  Company  and the  providers.  Chargeback  credits  are  issued  to
wholesalers  for the  difference  between the  Company's  invoice  price and the
contract price through which the wholesaler resells the product.

     The Company accepts returns of product according to the following criteria:
(i) the  returns  must be  approved  by  authorized  personnel  in writing or by
telephone with the lot number and expiration date accompanying any request; (ii)
the Company generally will accept returns of products from any customer and will
provide the customer a credit for such return if such product is returned within
six months prior to, and until 12 months  following,  such product's  expiration
date;  and (iii) any product that has more than six months until its  expiration
date may be returned to the  Company;  however,  no credit will be issued to the
customer unless the product can be resold.

     Price adjustments and allowances  include term discounts,  sales promotions
and shelf-stock  adjustments.  Term discounts are provided to customers that pay
within a specific  period of time.  The Company may conduct  sales or trade show
promotions  where  additional  discounts  may be  provided  on a new  product or
certain existing products as an added incentive to stock the Company's  products
or for the customer to substitute the Company's products for competing products.
The Company may also, from time to time,  provide price and/or volume incentives
on new products that have multiple  competitors and/or on existing products that
confront new  competition in order to secure or maintain a certain market share.
The Company does not provide  incentives  designed to increase  shipments to its
customers  that it  believes  would  result  in  out-of-the  ordinary  course of
business inventory for them. Shelf-stock adjustments typically are provided to a
customer when the Company  lowers its invoice  pricing and provides the customer
with a credit for the difference  between the old and new invoice prices for the
inventory that the customer has on hand at the time of the price reduction.

     Due to competitive  factors, the Company may also provide price protection.
The Company will generally offer price protection for sales of new generic drugs
for which its market  exclusivity period has expired or with respect to products

                                       10
<PAGE>
                       PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 3, 2005
                    (In Thousands, Except Per Share Amounts)
                                   (Unaudited)


for  which  it  anticipates  significant  price  erosion  through  increases  in
competition.  Such price  protection  reflects  the fact that the prices of such
drugs typically will decline,  sometimes substantially,  when additional generic
manufacturers  introduce and market a comparable  generic product  following the
expiration of an  exclusivity  period or at the time of a price  decrease.  Such
price protection plans, which are common in the Company's industry, are provided
through  lower  contract  pricing to the  wholesalers,  which could result in an
increased   chargeback  per  unit  on  existing  inventory  levels,  or  through
shelf-stock adjustments.  At July 3, 2005 and December 31, 2004, the Company did
not have any material  price  protection  reserves,  but had issued  significant
price protection  credits and had generally  lowered contract pricing on its key
products  in the  first  half of 2005 and  throughout  fiscal  year  2004 due to
competition.

     The following table  summarizes  activity for the three-month and six-month
periods  ended July 3, 2005 in the accounts  affected by the accruals  described
above:


                                                   THREE MONTHS     SIX MONTHS
                                                       ENDED           ENDED
  RESERVES FOR REBATES AND CHARGEBACKS:            JULY 3, 2005    JULY 3, 2005
  -------------------------------------            ------------    ------------
  Balance, beginning of the period                   $(91,150)    $(102,607)
  Provision recorded                                 (154,171)     (303,517)
  Credits processed                                   175,881       336,684
                                                      -------       -------
  Balance, end of the period                         $(69,440)     $(69,440)
                                                       ======        ======

  RESERVES FOR DOUBTFUL ACCOUNTS, RETURNS,
   PRICE ADJUSTMENTS AND OTHER SALES ALLOWANCES:
   ---------------------------------------------
  Balance, beginning of the period                   $(35,729)     $(42,316)
  Provision recorded                                  (35,480)      (70,938)
  Credits processed                                    43,303        85,348
                                                       ------        ------
  Balance, end of the period                         $(27,906)     $(27,906)
                                                       ======        ======

NOTE 7 - INVENTORIES, NET:
                                                       JULY 3,     DECEMBER 31,
                                                        2005          2004
                                                        ----          ----
  Raw materials and supplies, net                     $31,003       $30,773
  Work-in-process, net                                  8,225        11,041
  Finished goods, net                                  62,565        45,021
                                                       ------        ------
                                                     $101,793       $86,835
                                                      =======        ======
NOTE 8 - ACQUISITION:

     On June 10, 2004, the Company acquired all of the capital stock of Kali for
$142,763 in cash and  warrants to purchase  150 shares of the  Company's  common
stock  valued at $2,530.  The  acquisition  did not require the  approval of the
Company's stockholders.  The Company acquired the physical facilities,  acquired
in-process  research  and  development  and  intellectual  property  of Kali and
retained  all of its  employees.  The  acquisition  of  Kali  has  significantly
expanded the  Company's  research and  development  capabilities.  The Company's
acquisition  of Kali is  consistent  with its  long-term  strategy to supplement
internal  growth  through  acquisitions,  joint  ventures and product  licensing
agreements.

                                       11

<PAGE>
                      PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 3, 2005
                    (In Thousands, Except Per Share Amounts)
                                   (Unaudited)

NOTE 9 - INTANGIBLE ASSETS, NET:
                                                          JULY 3,   DECEMBER 31,
                                                           2005         2004
                                                           ----         ----
  FSC Laboratories, Inc. agreement, net of
    accumulated amortization of of $460 and $0               $14,540   15,000
  Trademark licensed from Bristol-Myers Squibb                 5,000    5,000
  Bristol-Myers Squibb asset purchase agreement,
    net of accumulated amortization of $5,571 and $4,736       6,129    6,964
  Product license fees, net of accumulated amortization
    of $3,713 and $3,480                                       7,292    7,525
  Genpharm, Inc. distribution agreement, net of
     accumulated amortization  of $5,055 and $4,694            5,778    6,139
  Intellectual property, net of accumulated amortization
    of $2,579 and $2,071                                       6,726    7,234
  Other intangibles assets, net of accumulated amortization
    of $502 and $191                                           3,318    3,629
                                                               -----    -----
                                                             $48,783   $51,491
                                                              ======    ======

     The Company recorded  amortization  expense related to intangible assets of
$2,708 and $3,204,  respectively,  for the six-month  periods ended July 3, 2005
and July 4, 2004 and $1,406 and $1,692 for the  three-months  periods ended July
3, 2005 and July 4,  2004,  respectively.  In July  2005,  The  Company  made an
additional  payment of $5,000 to Bristol-Myers  Squibb ("BMS") in regards to the
trademark  license  above.  In the  third  quarter  of 2005,  Par will  begin to
amortize  the $10,000  over its  estimated  useful  life as the  Company  begins
shipping  Megace(R) ES for which this trademark  license  relates.  Amortization
expense related to intangible assets is expected to total  approximately  $7,788
in 2005,  $9,472  in 2006,  $8,621 in 2007,  $8,610 in 2008,  $7,286 in 2009 and
$7,714  thereafter.  Intangible  assets not being amortized at July 3, 2005 were
product license fees of $6,999.

     The product license fees of $6,999 consist of payments made by Par pursuant
to  agreements  with Breath Ltd. of the Arrow Group and  FineTech  Laboratories,
Ltd. related to latanoprost  ophthalmic  solution 0.005%, the generic equivalent
of Pharmacia Corporation's  ("Pharmacia") Xalatan(R), a glaucoma medication. The
Company and Pharmacia  were in litigation  over alleged patent  infringement  in
regards to  latanoprost.  On August 10, 2005, the United States Court of Appeals
for the Federal  Circuit  denied Par's  appeal and  affirmed  the lower  court's
decision. (see "Note 14 - Subsequent Events").

 NOTE 10 - INCOME TAXES:

     The Company  accounts for income taxes in accordance with the provisions of
SFAS No. 109,  "Accounting  for Income  Taxes,"  which  requires  the Company to
recognize  deferred tax assets and liabilities  for the future tax  consequences
attributable to differences  between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Current deferred
income tax assets at July 3, 2005 and December  31, 2004  consisted of temporary
differences,  primarily related to accounts receivable reserves, and non-current
deferred  income tax assets at both such dates included the tax benefit  related
to purchased call options and acquired in-process research and development.  The
decline in  deferred  tax assets from  December  31, 2004 to July 3, 2005 is due
primarily  to lower  accounts  receivable  reserves  in the current period.  The
Company's  effective  tax rate for the six months ended July 3, 2005 and July 4,
2004 was 37.0% and 39.0%, respectively. The Company's effective tax rate for the
three  months  ended  July 3,  2005  and  July 4,  2004  was  25.6%  and  39.0%,
respectively.
                                       12

<PAGE>

                      PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 3, 2005
                    (In Thousands, Except Per Share Amounts)
                                   (Unaudited)

NOTE 11 - CHANGES IN STOCKHOLDERS' EQUITY:

     Changes in the Company's Common stock, Additional paid-in capital, Deferred
compensation  - restricted  stock and  Accumulated  other  comprehensive  income
(loss) accounts during the six-month period ended July 3, 2005 were as follows:

<TABLE>
<CAPTION>
                                                                                         DEFERRED      ACCUMULATED
                                                                           ADDITIONAL   COMPENSATION      OTHER
                                                        COMMON STOCK        PAID-IN      RESTRICTED    COMPREHENSIVE
                                                    SHARES      AMOUNT       CAPITAL       STOCK        INCOME (LOSS)
                                                    -----       -------      -------       -----        ------------
<S> <C>                                              <C>        <C>       <C>           <C>              <C>
    Balance, January 1, 2005                         34,759     $348      $193,686      $(1,455)         $(689)
      Comprehensive income:
        Net gains on investments,
          net of tax                                      -        -             -            -           4,653
        Reversal of other than temporary
          unrealized loss, net of tax                     -        -             -            -           5,072
      Exercise of stock options                          75        -         1,712            -               -
      Tax benefit from exercise of stock options          -        -           398            -               -
      Issuance of restricted stock                      200        2         8,519       (8,521)              -
      Employee stock purchase program                     7        -           213            -               -
      Compensatory arrangements                           -        -           436        1,322               -
      Other                                               -        -            29            -               -
                                                     ------    -----          ----        -----           -----
    Balance, July 3, 2005                            35,041     $350      $204,993      $(8,654)         $9,036
                                                     ======      ===       =======        =====           =====
</TABLE>
<TABLE>
<CAPTION>
                                                                        SIX MONTHS ENDED            THREE MONTHS ENDED
                                                                   JULY 3, 2005  JULY 4, 2004   JULY 3, 2005  JULY 4, 2004
<S>                                                                  <C>             <C>           <C>        <C>
COMPREHENSIVE INCOME:
  Net income (loss)                                                   $1,356         $60,066       $(621)       $29,860
  Other comprehensive income (loss):
   Unrealized gains (losses) on investments,
    net of tax                                                         9,725            (815)      4,975         (1,885)
                                                                       -----             ---       -----          -----
  Comprehensive income                                               $11,081         $59,251      $4,354        $27,975
                                                                     =======         =======      ======        =======
</TABLE>

     In April 2004, the Company's  board of directors  (the "Board")  authorized
the repurchase of up to $50,000 of the Company's  common stock.  The repurchases
may be made, subject to compliance with applicable securities laws, from time to
time in the open market or in privately  negotiated  transactions.  Common stock
acquired  through the  repurchase  program is and will be available  for general
corporate  purposes.  In fiscal year 2004, the Company repurchased 844 shares of
its common stock for approximately  $32,026 pursuant to the program. The Company
repurchased  5 shares of its  common  stock in the  second  quarter  of 2005 for
approximately $152. The Company may still repurchase up to approximately $17,822
of its common stock under the above plan.

     In the first  quarter of 2005 and the second  quarter of 2004,  the Company
granted 206 and 45 restricted shares of common stock,  respectively,  to certain
key employees. The restrictions expire over a four-year period from the dates of
grant.  Compensation  expense is recognized  over the related  vesting period as
restrictions lapse.

                                       13
<PAGE>

                      PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 3, 2005
                    (In Thousands, Except Per Share Amounts)
                                   (Unaudited)


NOTE 12 - EARNINGS PER SHARE:

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

<TABLE>
<CAPTION>
                                                       SIX MONTHS ENDED              THREE MONTHS ENDED
                                                       ----------------              ------------------
                                                 JULY 3, 2005  JULY 4, 2004    JULY 3, 2005   JULY 4, 2004
                                                 ------------  ------------    ------------   ------------
<S>                                                  <C>          <C>              <C>            <C>
Net income (loss)                                    $1,356       $60,066          $(621)         $29,860

Basic:
Weighted average number of
common shares outstanding                            34,081        34,359         34,186           34,267

Net income per share of common stock                  $0.04         $1.75         $(0.02)           $0.87
                                                      =====         =====         ======            =====

Assuming dilution:
Weighted average number of
common shares outstanding                            34,081        34,359         34,186           34,267
 Effect of dilutive options                             406           888              -              663
                                                        ---           ---              -              ---
Weighted average number of common
shares outstanding                                   34,487        35,247         34,186           34,930

Net income (loss) per share of common
stock                                                 $0.04         $1.70         $(0.02)           $0.85
                                                      =====         =====         ======            =====
</TABLE>

     Outstanding  options  and  warrants  of 2,108  and  1,270 at the end of the
six-month periods ended July 3, 2005 and July 4, 2004,  respectively,  and 2,554
and 1,420 at the end of the  three-month  periods ended July 3, 2005 and July 4,
2004, respectively, were not included in the computation of diluted earnings per
share because their  exercise  prices were greater than the average market price
of the Common stock during the  respective  periods and their  inclusion  would,
therefore,  have been anti-dilutive.  Also, in the three month period ended July
3,  2005,  the  effect of 281  dilutive  instruments  were not  included  in the
computation  of diluted  earnings per share because their  inclusion  would have
been  anti-dilutive  due to the  Company's  loss  in the  period.  In  addition,
outstanding  warrants  sold  concurrently  with the sale of senior  subordinated
convertible  notes in  September  2003 were not included in the  computation  of
diluted  earnings  per  share  for  all  periods  presented.  The  warrants  are
exercisable for an aggregate of 2,253 shares at an exercise price of $105.20 per
share.

NOTE 13 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:

PENSION PLAN:

     The Company  maintains a defined  benefit  plan (the  "Pension  Plan") that
covers eligible employees,  as defined in the Pension Plan. The Pension Plan has
been frozen since October 1, 1989. Since the benefits under the Pension Plan are
based on the  participants'  length of service and compensation  (subject to the
Employee  Retirement  Income  Security Act of 1974 and Internal  Revenue Service
limitations),  service  costs  subsequent  to October 1, 1989 are excluded  from
benefit accruals under the Pension Plan. The funding policy for the Pension Plan
is  to  contribute  amounts  actuarially  determined  as  necessary  to  provide
sufficient assets to meet the benefit requirements of the Pension Plan retirees.
For fiscal year 2005, the Company's contribution is estimated to be $27.

                                       14
<PAGE>

                      PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 3, 2005
                    (In Thousands, Except Per Share Amounts)
                                   (Unaudited)


     Net pension expense for the six-month and three-month periods ended July 3,
2005 and July 4, 2004 included the components set forth in the table below:

<TABLE>
<CAPTION>
                                                               SIX MONTHS ENDED             THREE MONTHS ENDED
                                                               ----------------             ------------------
                                                           JULY 3, 2005   JULY 4, 2004   JULY 3, 2005  JULY 4, 2004
                                                           -----------    ------------   ------------  ------------
<S>                                                        <C>            <C>          <C>          <C>

Interest cost                                                      $62         $62         $   31          $31
Expected return on Pension Plan assets                             (66)        (68)           (33)         (34)
Amortization of initial unrecognized transition obligation          26          26             13           13
                                                            ----------   ---------     ----------    ---------
Net pension expense                                                $22         $20            $11          $10
                                                            ==========   =========     ==========    =========
</TABLE>


LEGAL PROCEEDINGS:

     On November 1, 2004,  Morton Grove  Pharmaceuticals,  Inc. ("Morton Grove")
filed a lawsuit  against the Company in the United States District Court for the
Northern  District of Illinois,  seeking a  declaratory  judgment  that four Par
patents relating to megestrol acetate oral suspension are invalid, unenforceable
and not  infringed  by a Morton  Grove  product  that was launched in the fourth
quarter of 2004.  Par is asserting  counterclaims  that the Morton Grove product
infringes  three  patents and that such  infringement  was willful.  The Company
intends to defend  vigorously this action and pursue its  counterclaims  against
Morton Grove.

     On May 3, 2004, Pentech  Pharmaceutical,  Inc.  ("Pentech") filed an action
against  the  Company  in the  United  States  District  Court for the  Northern
District of Illinois. This action alleges that the Company breached its contract
with Pentech relating to the supply and marketing of paroxetine (Paxil(R)).  The
Company and Pentech are in dispute over the amount of gross profit  share.  This
case is currently in discovery.  The Company  intends to defend  vigorously this
action.

     On March 9, 2004,  the  Congress of  California  Seniors  brought an action
against  GlaxoSmithKline,  plc ("GSK") and the  Company  concerning  the sale of
paroxetine  in the State of  California.  This action  alleges  that the sale of
paroxetine by GSK and the Company in California constitutes, among other things,
unfair business practices. The Company intends to defend vigorously this action.

     On  September  10,  2003,  Par and a number  of  other  generic  and  brand
pharmaceutical  companies  were sued by a New York  State  county  (the suit has
since been joined by additional New York counties) which has alleged  violations
of laws  (including  the Racketeer  Influenced  and Corrupt  Organizations  Act,
common  law  fraud  and  obtaining  funds  by  false   statements)   related  to
participation in the Medicaid program.  The complaint seeks declaratory  relief;
actual,  statutory and treble  damages,  with  interest;  punitive  damages;  an
accounting and  disgorgement of any illegal  profits;  a constructive  trust and
restitution;  and  attorneys'  and  experts'  fees and costs.  These  cases were
transferred   to  the  United  States   District   Court  for  the  District  of
Massachusetts  for  coordinated  and  consolidated  pre-trial  proceedings.  The
complaint filed by Erie County in New York was not included in the  consolidated
complaint  and has been  removed to federal  district  court.  In  addition,  on
September 25, 2003, the Office of the Attorney  General of the  Commonwealth  of
Massachusetts filed a complaint in the District of Massachusetts against Par and
12 other leading generic pharmaceutical companies, alleging principally that Par
and such other companies violated,  through their marketing and sales practices,
state and federal laws, including allegations of common law fraud and violations
of Massachusetts false statements statutes, by inflating generic  pharmaceutical
product  prices  paid for by the  Massachusetts  Medicaid  program.  Par  waived
service of process with respect to the complaint. The complaint seeks injunctive
relief,  treble damages,  disgorgement of excessive  profits,  civil  penalties,
reimbursement  of investigative  and litigation costs (including  experts' fees)
and attorneys' fees. On January 29, 2004, Par and the other defendants  involved
in  the  litigation  brought  by  the  Office  of the  Attorney  General  of the
Commonwealth of Massachusetts filed a motion to dismiss,  which has not yet been
ruled on.  The  Commonwealth  of  Massachusetts  subsequently  filed an  amended
complaint, and the defendants, including Par, have filed a motion to dismiss the
amended  complaint.  On August 4, 2004,  Par and a number of other  generic  and
brand pharmaceutical companies were also sued by the City of New York, which has
alleged  violations of laws  (including  common law fraud and obtaining funds by
false  statements)  related  to  participation  in  its  Medicaid  program.  The
complaint seeks declaratory relief;  actual,  statutory and treble damages, with
interest;  punitive  damages;  an  accounting  and  disgorgement  of any illegal

                                       15
<PAGE>

                      PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 3, 2005
                    (In Thousands, Except Per Share Amounts)
                                   (Unaudited)


profits; a constructive trust and restitution;  and attorneys' and experts' fees
and costs. This case was transferred to the U.S. District Court for the District
of Massachusetts  for coordinated and  consolidated  pre-trial  proceedings.  In
addition to Massachusetts,  the Commonwealth of Kentucky,  the State of Illinois
and  the  State  of  Alabama  have  filed  similar  suits  in  their  respective
jurisdictions,  all of which have been removed to federal  district  court.  Par
intends to defend vigorously these actions.

     On July 15,  2003,  the  Company  and Par  filed a lawsuit  against  Roxane
Laboratories,  Inc.  ("Roxane")  in the  United  States  District  Court for the
District of New Jersey.  The Company and Par alleged  that Roxane had  infringed
Par's U.S.  Patents  numbered  6,593,318  and  6,593,320  relating to  megestrol
acetate oral suspension (Megace Oral Suspension(R)) and that the infringement is
willful.  Roxane  has  denied  these  allegations  and  has  counterclaimed  for
declaratory  judgments of  non-infringement  and invalidity of both patents.  In
addition,  Roxane has recently filed an amended  complaint  asserting that Par's
patents in the litigation are  unenforceable  due to inequitable  conduct before
the U.S. Patent Office. Par intends to vigorously pursue this action.

     In February  2003,  Abbott,  Fournier  Industrie et Sante and  Laboratoires
Fournier S.A.  ("Abbott")  filed a complaint in the United States District Court
for the District of New Jersey against Par,  alleging that Par's generic version
of TriCor(R) (fenofibrate) infringes one or more claims of four of their patents
based on Par having filed an Abbreviated New Drug  Application  ("ANDA") for the
accused product with the Food and Drug  Administration (the "FDA"). Par filed an
answer and a counterclaim,  alleging  non-infringement  and invalidity.  Par has
filed a request  with the FDA to convert its  Paragraph  IV  certification  to a
Paragraph  III  certification  and the  case  is  subject  to an  administrative
dismissal.

     On November 25, 2002, Ortho-McNeil  Pharmaceutical,  Inc.  ("Ortho-McNeil")
filed a lawsuit against Kali, a wholly-owned  subsidiary of the Company,  in the
United  States  District  Court for the  District  of New  Jersey.  Ortho-McNeil
alleged that Kali  infringed  U.S.  Patent No.  5,336,691 (the "`691 patent") by
submitting  a  Paragraph  IV  certification  to the FDA for  approval of tablets
containing  tramadol  hydrochloride and  acetaminophen.  Par is Kali's exclusive
marketing partner for these tablets through an agreement entered into before the
Company's  acquisition  of Kali.  Kali  has  denied  Ortho-McNeil's  allegation,
asserting  that  the  `691  patent  was  not  infringed  and is  invalid  and/or
unenforceable,  and that the lawsuit is barred by unclean  hands.  Kali also has
counterclaimed  for declaratory  judgments of  non-infringement,  invalidity and
unenforceability  of the `691  patent.  Summary  judgment  papers were served on
opposing  counsel on May 28, 2004. The referenced  summary  judgment  motion was
fully  briefed and  submitted to the Court as of August 23, 2004.  The Court has
stated that it will hold oral argument,  which has not as of yet been scheduled.
The Company received FDA approval and began shipping  tramadol in April 2005 and
is still awaiting an answer from the court  regarding the referenced  motion for
summary judgment. Ortho-McNeil has stated that it will pursue its claims against
Kali and will seek  damages  for lost  profits.  The  Company  intends to defend
vigorously this action.

     As a result  of Par's  filing  of the  ANDA for  latanoprost  (Xalatan(R)),
Pharmacia Corporation and the Trustees of Columbia University (collectively, the
"Plaintiffs")  filed a lawsuit  against Par on  December  21, 2001 in the United
States  District  Court  for  the  District  of  New  Jersey,   alleging  patent
infringement.  The  Plaintiffs  sought an injunction  enjoining  approval of the
Company's ANDA and the marketing of its generic  product prior to the expiration
of their  patents.  On February 8, 2002,  Par answered the complaint and filed a
counterclaim,  which sought a declaration that the  patents-in-suit are invalid,
unenforceable  and/or not infringed by Par's  products and that the extension of
the term of one of the patents was  invalid.  The trial  concluded in March 2004
and on July 6, 2004 the Court issued an opinion and order ordering that judgment
be entered in favor of the  Plaintiffs on their claims of  infringement  of U.S.
Patent Nos.  4,599,353  (expires July 28, 2006) and 5,296,504 (expires March 22,
2011);  that the effective  date of approval of Par's ANDA shall be a date which
is not earlier than the dates of  expiration of those  patents;  and that Par is
enjoined from engaging in the  commercial  manufacture,  use,  offer to sell, or
sale within the United  States,  or importation  into the United States,  of any
drug  product  covered by, or the use of which is covered by, those two patents.
As to the third patent  asserted by the Plaintiffs,  U.S. Patent No.  5,422,368,
the Court  dismissed the Plaintiffs'  infringement  claims and declared that the
patent is unenforceable due to inequitable  conduct. The Court further dismissed
all of the parties' claims for attorneys' fees. Both Par and the Plaintiffs have
filed  notices of appeal which are pending in the United States Court of Appeals

                                       16
<PAGE>

                      PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 3, 2005
                    (In Thousands, Except Per Share Amounts)
                                   (Unaudited)


for the Federal  Circuit.  Par has appealed the Court's decision only insofar as
it relates to U.S.  Patent No.  5,296,504.  The appeals  were argued on June 10,
2005.  On August 10,  2005,  the United  States Court of Appeals for the Federal
Circuit  denied Par's appeal and affirmed the lower court's  decision (see "Note
14 - Subsequent Events").

     Par entered into a licensing agreement with developer Paddock Laboratories,
Inc.  ("Paddock")  to market  testosterone  1% gel, a generic  version of Unimed
Pharmaceuticals,   Inc.'s  ("Unimed")  product  Androgel(R).  Pursuant  to  this
agreement,  Par is  responsible  for management of any litigation and payment of
all legal fees  associated  with this  product.  The  product,  if  successfully
brought to market, would be manufactured by Paddock and marketed by Par. Paddock
has filed an ANDA (that is  pending  with the FDA) for the  testosterone  1% gel
product.  As a result of the filing of the ANDA, Unimed and Laboratories  Besins
Iscovesco  ("Besins"),  co-assignees  of the  patent-in-suit,  filed  a  lawsuit
against Paddock in the United States District Court for the Northern District of
Georgia,  alleging  patent  infringement on August 22, 2003. Par has an economic
interest in the outcome of this litigation by virtue of its licensing  agreement
with Paddock.  Unimed and Besins are seeking an  injunction  to prevent  Paddock
from  manufacturing the generic product.  On November 18, 2003, Paddock answered
the  complaint  and filed a  counterclaim,  which seeks a  declaration  that the
patent-in-suit is invalid and/or not infringed by Paddock's  product.  Discovery
has recently  been  completed  and the parties are briefing  issues  relating to
claim construction. The Company intends to defend vigorously this action.

     Endo  Pharmaceuticals  Holding  Inc  ("Endo")  has  brought an  arbitration
against the Company  pursuant  to the rules of the CFR, an  alternative  dispute
resolution forum similar to the American  Arbitration  Association.  Endo claims
that Par has breached a  contractual  obligation  to share Paxil  revenues  with
Endo. Par has denied these  allegations in their entirety and has also contested
the  arbitration's  jurisdiction.  In the  event  that the  matter  proceeds  in
arbitration, Par intends to defend vigorously this action.

     In addition, following the arbitration brought by Endo, Par filed a lawsuit
against Endo in the United States District Court for the District of New Jersey.
This case alleges that Endo's efforts to collect monies it alleges are due under
the  agreement  between Par and Endo which is referred to in Endo's  arbitration
against Par constitutes,  among other things,  patent misuse.  Endo has moved to
dismiss the complaint on jurisdictional grounds, among other things. Par intends
to vigorously pursue this action.

     The Company  cannot  predict with certainty at this time the outcome or the
effects on the Company of the above listed actions.  Accordingly,  no assurances
can be given that such  actions will not have a material  adverse  effect on the
Company's financial condition, results of operations, prospects or business.

     The Company  and/or Par are,  from time to time,  parties to certain  other
litigations,  including  product  liability  and  patent  actions.  The  Company
believes that these actions are part of the ordinary  course of its business and
that their ultimate  resolution  will not have a material  adverse effect on its
financial condition,  results of operations or liquidity. The Company intends to
vigorously  defend or, in cases where the  Company is  plaintiff,  to  prosecute
these actions.

  OTHER MATTERS:

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

                                       17
<PAGE>

                      PAR PHARMACEUTICAL COMPANIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JULY 3, 2005
                    (In Thousands, Except Per Share Amounts)
                                   (Unaudited)


NOTE 14 - SUBSEQUENT EVENTS:

     In the third quarter of 2005,  the Company  received FDA approval and began
shipping  Megace(R)  ES, a  concentrated  oral  suspension  for the treatment of
anorexia, cachexia, or an unexplained,  significant weight loss in patients with
a diagnosis  of acquired  immunodeficiency  syndrome  ("AIDS").  The approval of
Megace(R) ES is the first branded  pharmaceutical product developed by Par to be
approved for marketing by the FDA.

     In August 2005,  the Company  terminated  its  partnership  agreement  with
Advancis.  The Company had entered into the  agreement  with Advancis to develop
and market a novel formulation of the antibiotic  amoxicillin.  In June and July
2005,  Advancis announced that it failed to achieve the desired  microbiological
and clinical endpoints in their Amoxicillin PULSYS phase III clinical trials for
the  treatment  of  pharyngitis/tonsillitis.   By  terminating  the  partnership
agreement, the Company has agreed to pay $4,750 due in the third quarter of 2005
but is no longer  responsible  for the fourth  quarter  payment of $4,750  which
would have been the final payment to Advancis.

     On August 10,  2005 the United  States  Court of  Appeals  for the  Federal
Circuit  denied  Par's appeal and  affirmed  the lower  court's  decision in the
Pharmacia Corporation and the Trustees of Columbia University in the City of New
York v. Par  Pharmaceutical,  Inc. The court affirmed that  Pharmacia's  patent,
U.S. Patent No.  5,422,368,  is unenforceable  due to inequitable  conduct.  The
court also affirmed that Pharmacia's patent, U.S Patent No. 5,296,504,  is valid
and is infringed by Par. Par is thus  prohibited from engaging in any commercial
activity the United States relating to any drug product covered by that patent.

                                       18
<PAGE>

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

     CERTAIN  STATEMENTS  IN  THIS  DOCUMENT  MAY  CONSTITUTE   "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE  SECURITIES  LITIGATION REFORM ACT
OF 1995,  INCLUDING THOSE CONCERNING  MANAGEMENT'S  EXPECTATIONS WITH RESPECT TO
FUTURE FINANCIAL PERFORMANCE, TRENDS 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,"  "INTENDS,"  "BELIEVES," OR
SIMILAR  WORDS AND  PHRASES.  FACTORS  THAT MIGHT  AFFECT  SUCH  FORWARD-LOOKING
STATEMENTS SET FORTH IN THIS DOCUMENT INCLUDE (I) INCREASED COMPETITION FROM NEW
AND  EXISTING   COMPETITORS,   AND  PRICING   PRACTICES  FROM  SUCH  COMPETITORS
(PARTICULARLY  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, DELAYS INVOLVED IN AND OUTCOME OF ANY THREATENED
OR  PENDING  LITIGATIONS,  INCLUDING  PATENT  AND  INFRINGEMENT  CLAIMS,  (VIII)
UNANTICIPATED  COSTS, DELAYS AND LIABILITIES IN INTEGRATING  ACQUISITIONS,  (IX)
OBTAINING OR LOSING 180-DAY  MARKETING  EXCLUSIVITY  PERIODS ON PRODUCTS AND (X)
GENERAL  INDUSTRY  AND  ECONOMIC  CONDITIONS.   ANY  FORWARD-LOOKING  STATEMENTS
INCLUDED  IN THIS  DOCUMENT  ARE  MADE AS OF THE  DATE  HEREOF  ONLY,  BASED  ON
INFORMATION  AVAILABLE  TO THE COMPANY AS OF THE DATE  HEREOF,  AND,  SUBJECT TO
APPLICABLE LAW TO THE CONTRARY,  THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY
FORWARD-LOOKING STATEMENTS.

       THE FINANCIAL DATA CONTAINED IN THIS SECTION IS IN THOUSANDS.

OVERVIEW

     For the three-month  period ended July 3, 2005, the Company's  revenues and
gross  margin  dollars  decreased  44.9%  and  33.2%,  respectively,   from  the
corresponding  period of 2004.  Revenue and gross margin dollars decreased 49.4%
and 38.8%,  respectively,  for the six-month  period ended July 3, 2005 from the
corresponding period of 2004.  Increased  competition has continued to adversely
affect pricing and volumes of the Company's key products  leading to lower sales
and gross margin dollars. Also, the Company's increased spending on research and
development,   higher  sales  and  marketing  costs  and  increased  legal  fees
contributed to decreased  earnings when comparing both the second fiscal quarter
of 2005 to the second fiscal quarter of 2004 and the first six months of 2005 to
the first six  months of 2004.  Critical  to the  growth of the  Company  is its
introduction of new manufactured and distributed products at selling prices that
generate adequate gross margins.  The Company,  through its internal development
program  and  various  strategic  alliances  and  relationships,  is  seeking to
introduce new products  that have limited  competition  and longer  product life
cycles. As part of this effort, the Company received final approval from the FDA
and began shipping tramadol HCl and acetaminophen tablets (Ultracet(R)) in April
2005 and Megace(R) ES, the Company's first branded  pharmaceutical  product,  in
the third  quarter of 2005.  The Company had expected to receive FDA approval of
several  additional  products in the first six months of 2005,  but have not yet
received such  approvals.  At this time, the Company is unable to determine,  if
and when any such products will be approved. In addition to expected new product
introductions as part of its various strategic alliances and relationships,  the
Company  plans to continue to invest in its internal  research  and  development
efforts and brand  marketing  strategy  throughout  fiscal year 2005 and beyond.
Also, the Company will continue seeking additional products for sale through new
and existing distribution  agreements or acquisitions of complementary  products
and businesses,  additional first-to-file  opportunities and unique dosage forms
to differentiate its products in the marketplace.

     The Company's business plan includes its strategy to enter the branded drug
market in an effort to market  products  with  longer  life  cycles  and  higher
profitability.  In the third quarter of 2005, the Company  received FDA approval
for its first New Drug Application ("NDA"),  filed pursuant to Section 505(b)(2)
of the Federal Food, Drug and Cosmetic Act ("FFDC Act"),  and immediately  began
marketing   megestrol   acetate  oral   suspension   NanoCrystal(R)   Dispersion
("Megace(R) ES"). The new  NanoCrystal(R)  Dispersion  ("NCD")  formulation is a
line extension of Par's currently  marketed  megestrol  acetate oral suspension.
This advanced formulation utilizes NCD technology to improve the bioavailability
of the drug as compared to currently available  formulations of the product. NCD
is a  trademark  of Elan  Corporation,  plc,  Dublin  Ireland.  Megace(R)  ES is
indicated for the treatment of anorexia, cachexia or any unexplained significant

                                       19
<PAGE>

weight loss in patients  with a diagnosis of AIDS and will utilize the Megace(R)
brand name that Par has licensed from BMS.

     As part of the Company's  brand market business  strategy,  Par had entered
into an agreement  with Advancis to develop and market a low dose pulsatile form
of  the  antibiotic  amoxicillin,  utilizing  Advancis'  proprietary  PULSYS(TM)
technology.  In June and July 2005, Advancis announced that it failed to achieve
the desired  microbiological  and clinical endpoints in their Amoxicillin PULSYS
phase III  clinical  trials for the  treatment  of  pharyngitis/tonsillitis.  In
August,  the Company  terminated its  partnership  agreement with Advancis.  The
Company  has  agreed to pay  $4,750  due in the third  quarter of 2005 but is no
longer  responsible  for the fourth  quarter  payment of $4,750 which would have
been the final payment to Advancis.

     Net sales and gross margins  derived from generic  pharmaceutical  products
often follow a pattern  based on  regulatory  and  competitive  factors that are
believed by the Company's management to be unique to the generic  pharmaceutical
industry.  As the patent(s) for a brand name product and the related exclusivity
period expire,  the first generic  manufacturer to receive  regulatory  approval
from the FDA for a generic  equivalent of the product is often able to capture a
substantial share of the market. At that time, however,  the branded company may
license  an  authorized  generic  product to a  competing  generic  company.  As
additional  generic  manufacturers  receive  regulatory  approvals for competing
products,  the  market  share  and the  price  of that  product  have  typically
declined,  often  significantly,  depending on several  factors,  including  the
number of competitors,  the price of the brand product and the pricing  strategy
of the new  competitors.  In recent  years,  a large  portion  of the  Company's
revenue  growth had been derived from sales of generic  drugs during the 180-day
marketing  exclusivity  period  or from the sale of  generic  products  that had
limited  competition.   These  drugs  included  paroxetine  tablets  (Paxil(R)),
megestrol acetate oral suspension  (Megace Oral  Suspension(R)),  and fluoxetine
(Prozac(R)),  which all have experienced significant declines in sales and gross
margins from prior years.

     In April 2005,  the Company  received final approval from the FDA to market
tramadol  HCl  and  acetaminophen  tablets  and has  been  awarded  180  days of
marketing  exclusivity.  Tramadol  sales  in the  second  quarter  of 2005  were
$30,600.

     The marketing exclusivity period in respect of paroxetine ended on March 8,
2004 and the Company  currently  has three  competitors  for this  product.  The
additional  competition has led to significant  pricing and, to a lesser extent,
sales  volume  declines.  Paroxetine  sales in the  second  quarter of 2005 have
decreased to $10,000 from  $77,300,  in the second  quarter of 2004.  Paroxetine
sales in the first six months of 2005 have  decreased to $21,600 from  $181,900,
in the first six months of 2004.  The Company is currently  experiencing  supply
issues with paroxetine and is evaluating what affect,  if any, these issues will
have on future paroxetine sales and gross margins. In spite of these issues, the
Company believes that it currently has sufficient  paroxetine  inventory on hand
to fill projected orders over the upcoming quarter.

     The Company  currently has three generic  competitors for megestrol acetate
oral  suspension.  In July 2004,  Par entered into a settlement  with one of the
competitors,  Teva  Pharmaceuticals USA, Inc. ("Teva USA") pursuant to which Par
granted a license to Teva USA for a limited number of units and Par is receiving
a royalty on Teva USA's net sales of megestrol  acetate oral  suspension  in the
United  States.  Sales and gross margins for megestrol  acetate oral  suspension
have declined due  principally to the adverse  effects of competition on pricing
and volume.  Megestrol  acetate  oral  suspension  net sales were $7,100 for the
second  quarter  of 2005  compared  to $18,300  for the second  quarter of 2004.
Megestrol acetate oral suspension net sales were  approximately  $15,700 for the
first six months of 2005 compared to $37,000 for the first six months of 2004.

     There are four  competitors  currently  in the market  with  products  that
compete  with the  Company's  fluoxetine  40 mg  product  and a large  number of
competitors  on the 10 mg and 20 mg  products.  Net  sales of  fluoxetine  40 mg
capsules  and 10 mg and 20 mg tablets were  approximately  $6,500 for the second
quarter of 2005 compared to approximately $8,400 for the second quarter of 2004.
Net  sales  of  fluoxetine  40 mg  capsules  and 10 mg and  20 mg  tablets  were
approximately $12,600 for the first six months of 2005 compared to approximately
$23,200 for the first six months of 2004.

     Generic  drug  pricing  at  the  wholesale  level  can  create  significant
differences  between  the invoice  price and the  Company's  net selling  price.
Wholesale  customers  purchase  product from the Company at invoice price,  then
resell  the  product to  specific  healthcare  providers  on the basis of prices
negotiated  between the Company and the providers,  and the wholesaler submits a
chargeback  credit to the  Company  for that  difference.  The  Company  records
estimates for these chargebacks, along with estimates for sales returns, rebates
or other  sales  allowances,  for all its  customers  at the  time of  sale,  as

                                       20
<PAGE>

reductions to invoice  price,  with  corresponding  adjustments  to its accounts
receivable allowances.

     The Company  will  generally  offer price  protection  for sales of generic
drugs for which the market  exclusivity period has expired because the prices of
such drugs will typically  decline,  sometimes  substantially,  when  additional
generic  manufacturers  introduce and market  comparable  generic  products.  In
addition,  the Company may offer price  protection  with respect to products for
which it anticipates  significant price erosion through  increased  competition.
Such  price  protection  plans,  which  are  common in the  Company's  industry,
generally  provide for shelf-stock  adjustments or lower contract pricing to the
wholesalers,  which could result in an increased chargeback per unit on existing
inventory levels.  The Company recorded no material price protection  credits in
the second quarter of 2005. In the first quarter of 2005,  the Company  provided
for and issued price protection  credits of approximately  $11,100 primarily due
to competition with respect to paroxetine, megestrol acetate oral suspension and
glyburide & metformin HCl (Glucovance(R)).

     The  Company  has the  historical  experience  and  access to  information,
including  rebate  agreements  with each  customer,  resales by its customers to
end-users having contracts with the Company, total demand for each drug that the
Company  manufactures  or  distributes,  the Company's  market share,  recent or
pending  new  drug  introductions  and  inventory  practices  of  the  Company's
customers,  that it believes are necessary to reasonably estimate the amounts of
such reductions to invoice price.  Some of the  assumptions  used by the Company
for  certain  of its  estimates  are based on  information  received  from third
parties, such as customers' inventories at a particular point in time and market
data,  or other  market  factors  beyond  the  Company's  control.  The  Company
regularly  reviews the  information  related to these  estimates and adjusts its
reserves  accordingly,  if and when  actual  experience  differs  from  previous
estimates.  There were no material changes to any of the underlying  assumptions
used by the Company to estimate such sales returns, rebates, chargebacks,  price
adjustments or other sales allowances for the three-month and six-month  periods
ended  July 3,  2005 and July 4,  2004.  In  addition,  the  Company's  critical
accounting  estimates related to those reserves were accurate as of July 3, 2005
and no material  adjustments  were made to such estimates  during the applicable
period.

     The following table summarizes  activity for the three-months ended July 3,
2005 and July 4, 2004 in the accounts affected by the accruals described above:


                                                      FOR THE THREE MONTHS ENDED
                                                      --------------------------
                                                       JULY 3,           JULY 4,
  RESERVES FOR REBATES AND CHARGEBACKS:                 2005              2004
  -------------------------------------                 ----              ----
  Balance, beginning of the period                     $(91,150)       $(94,816)
  Provision recorded                                   (154,171)       (207,280)
  Credits processed                                     175,881         139,294
                                                        -------         -------
  Balance, end of the period                           $(69,440)      $(162,802)
                                                         ======         =======

  RESERVES FOR DOUBTFUL ACCOUNTS, RETURNS,             JULY 3,           JULY 4,
    PRICE ADJUSTMENTS AND OTHER SALES ALLOWANCES:       2005              2004
    ---------------------------------------------       ----              ----
  Balance, beginning of the period                     $(35,729)       $(31,917)
  Provision recorded                                    (35,480)        (85,213)
  Credits processed                                      43,303          75,172
                                                         ------          ------
  Balance, end of the period                           $(27,906)       $(41,958)
                                                         ======          ======

     The following table  summarizes  activity for the six-months  ended July 3,
2005 and July 4, 2004 in the accounts affected by the accruals described above:


                                                      FOR THE SIX MONTHS ENDED
                                                      ------------------------
                                                       JULY 3,           JULY 4,
  RESERVES FOR REBATES AND CHARGEBACKS:                 2005              2004
  -------------------------------------                 ----              ----
  Balance, beginning of the period                    $(102,607)       $(99,391)
  Provision recorded                                   (303,517)       (337,391)
  Credits processed                                     336,684         273,980
                                                        -------         -------
  Balance, end of the period                           $(69,440)      $(162,802)
                                                         ======         =======

  RESERVES FOR DOUBTFUL ACCOUNTS, RETURNS,              JULY 3,          JULY 4,
    PRICE ADJUSTMENTS AND OTHER SALES ALLOWANCES:        2005             2004
    ---------------------------------------------        ----             ----
  Balance, beginning of the period                     $(42,316)       $(40,357)
  Provision recorded                                    (70,938)       (118,432)
  Credits processed                                      85,348         116,831
                                                         ------         -------
  Balance, end of the period                           $(27,906)       $(41,958)
                                                         ======          ======

                                       21
<PAGE>

     In addition to its own product development program, the Company has several
strategic alliances through which it co-develops and distributes products. These
strategic  alliances  afford the Company many advantages,  including  additional
resources  for  increased   activity,   expertise  on  dissimilar   products  or
technologies,  and a  sharing  of  both  the  costs  and  risks  of new  product
development.  The Company pays a percentage  of the gross profits or of sales to
its  strategic  partners  on  sales  of  products  covered  by its  distribution
agreements.  Generally,  products that the Company develops  internally,  and to
which it is not  required  to split any  profits  with its  strategic  partners,
contribute  higher  gross  margins  than  products  covered  under  distribution
agreements.  The Company is engaged in various efforts,  subject to FDA approval
and  other  factors,   to  introduce  new  products  through  its  research  and
development efforts and through its distribution and development agreements with
third parties.

     In addition to the substantial  costs of product  development,  the Company
may incur  significant  legal  costs in  bringing  certain  products  to market.
Litigation  concerning  patents and proprietary  rights is often  protracted and
expensive.   Pharmaceutical   companies   with  patented   brand   products  are
increasingly  suing companies that produce generic forms of their patented brand
name  products  for  alleged  patent   infringement   or  other   violations  of
intellectual  property  rights,  which  could delay or prevent the entry of such
generic products into the market.  Generally, a generic drug may not be marketed
until the applicable  patent(s) on the brand name drug expires.  When an ANDA is
filed with the FDA for approval of a generic drug, the filing person may certify
either  that the patent  listed by the FDA as covering  the  branded  product is
about to  expire,  in which case the ANDA will not  become  effective  until the
expiration  of such  patent,  or that the patent  listed as covering the branded
drug is invalid or will not be infringed by the manufacture,  sale or use of the
new drug for  which the ANDA is filed.  In either  case,  there is a risk that a
branded  pharmaceutical  company may sue the filing  person for  alleged  patent
infringement  or other  violations  of  intellectual  property  rights.  Because
substantially  all of the Company's  current business involves the marketing and
development of generic versions of brand products, the threat of litigation, the
outcome of which is inherently uncertain,  is always present. Such litigation is
often costly and time-consuming,  and could result in a substantial delay in, or
prevent,  the  introduction  and/or  marketing of  products,  which could have a
material  adverse  effect  on  the  Company's  business,   financial  condition,
prospects and results of operations.

RESULTS OF OPERATIONS

GENERAL

     The Company's  net income of $1,356 for the six-month  period ended July 3,
2005 decreased $58,710, from $60,066 for the six-month period ended July 4, 2004
primarily  due to revenue  declines  and  increased  operating  expenses.  Total
revenues of $214,541 and gross margin dollars of $87,989 in the first six months
of 2005  decreased  from $424,298 and $143,669,  respectively,  in the first six
months of 2004,  due  primarily to  competition  on the  Company's key products.
Research  and  development  spending  in the first six months of 2005 of $33,387
increased $16,725 over the same period of the prior year due to expenses for the
development of  proprietary  pharmaceutical  products and  additional  personnel
costs, including the addition of Kali. Selling, general and administrative costs
in the first six months of 2005 were  $46,506  compared  to $33,548 in first six
months of 2004 as the Company  prepared for the third  quarter of 2005 launch of
Megace(R)  ES. Net income in the first six months of 2005 includes an investment
impairment of $8,280 related to the Company's  investment in Advancis,  recorded
in the second quarter of 2005. The first six months of 2004 net income  included
a $2,812 gain on the sale of a Company facility recorded in the first quarter of
2004 and net settlement income of $2,846 recorded in the second quarter of 2004.

     Net loss for the three-month  period ended July 3, 2005 was $(621) compared
to net income of $29,860 for the  three-month  period ended July 4, 2004.  Total
revenues of $117,040 and gross margin  dollars of $48,837 in the second  quarter
of 2005 decreased from $212,531 and $73,117, respectively, in the second quarter
of 2004, due primarily to  competition  on the Company's key products.  Research
and  development  spending  in the second  quarter of 2005 of $17,398  increased
$7,214  from  the  same  period  of the  prior  year and  selling,  general  and
administrative  costs in the second  quarter of 2005 were  $25,154  compared  to
$16,481 in the second  quarter  of 2004.  The net loss in the second  quarter of
2005 included the investment impairment related to Advancis, while net income in
the second quarter of 2004 included the net settlement income.

     Sales and gross margins of the Company's products are dependent principally
upon the: (i)  introduction  of other  generic drug  manufacturers'  products in
direct  competition  with the Company's  significant  products;  (ii) ability of

                                       22
<PAGE>

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

REVENUES

     Total  revenues for the six-month  period ended July 3, 2005 were $214,541,
decreasing $209,757, or 49.4%, from total revenues of $424,298 for the six-month
period  ended July 4, 2004,  due  primarily  to lower sales of certain  existing
products sold under various distribution agreements,  including paroxetine which
decreased  by  approximately  $160,300,  metformin ER  (Glucophage  XR(R)) which
decreased by $17,200,  glyburide & metformin HC1 which  decreased by $13,500 and
fluoxetine which decreased by $10,600.  Also contributing to the lower sales was
the  Company's  top  selling  manufactured   product,   megestrol  acetate  oral
suspension,   which  decreased  $21,300.   Increased  competition  continues  to
adversely  affect  both  volume  and  pricing on the above  mentioned  products.
Partially  offsetting  these  decreases  were the  introduction  of new products
including  tramadol HCl and  acetaminophen  tablets which was  introduced in the
second quarter of 2005 and generated sales of $30,600,  quinapril  (Accupril(R))
which was  introduced  in the  fourth  quarter  of 2004 and  generated  sales of
$7,000.  Total  revenues in the first six months of 2005 also  included a $6,000
payment from a business partner to conclude a product  manufacturing  and supply
agreement, which was recorded in other product related revenues.

     Net sales of distributed  products,  which consist of products manufactured
under contract and licensed products,  were approximately  $108,600, or 50.6% of
the Company's  total revenues in the first six months of 2005, and $328,900,  or
77.5% of the  Company's  total  revenues  in the first six  months of 2004.  The
Company is  substantially  dependent upon  distributed  products for its overall
sales and,  because the Company  continues to introduce  new products  under its
distribution  agreements,  it expects that this  dependence  will continue.  Any
inability by its suppliers to meet demand could  adversely  affect the Company's
future sales.

     The Company's gross revenues  before  deductions for  chargebacks,  rebates
(including  rebates  paid  under  federal  and state  government  Medicaid  drug
reimbursement  programs),  price  adjustments,  sales  returns  and other  sales
allowances were $600,910 in the first six months of 2005 compared to $903,841 in
the first six months of 2004.  Deductions  from gross  revenues were $386,369 in
the first six-months of 2005 and $479,543 in the first six months of 2004. These
deductions are discussed in "Notes to Consolidated Financial Statements - Note 6
- Accounts  Receivable." The gross-to-net revenue percentage spread increased to
64.3% in the first six months of 2005  compared to 53.1% in the first six months
of 2004,  primarily  due to the  effects  of the  issuance  of price  protection

                                       23
<PAGE>

credits and increased  chargeback  dollars due to lower contract pricing related
to  paroxetine,  Glyburide  &  Metformin  HC1 (which was  launched in the second
quarter of 2004), megestrol acetate oral suspension and metformin ER.

     Total revenues for the three month period ended July 3, 2005 were $117,040,
decreasing  $95,491,  or 44.9%,  from total  revenues of $212,531  for the three
month period  ended July 4, 2004,  due  primarily  to lower sales of  paroxetine
which  decreased  by  approximately  $67,300,  glyburide &  metformin  HCl which
decreased by $16,400 and megestrol  acetate oral suspension,  which decreased by
$11,200.  Increased  competition  continues to adversely  affect both volume and
pricing on the above mentioned  products.  Partially  offsetting these decreases
were the introduction of new products  including  tramadol HCl and acetaminophen
tablets which was  introduced  in the quarter and had net sales of $30,600.  Net
sales of  distributed  products,  which consist of products  manufactured  under
contract and licensed  products,  were  approximately  $55,200,  or 47.2% of the
Company's  total revenues in the second quarter of 2005, and $164,400,  or 77.3%
of the Company's total revenues in the second quarter of 2004.

     The Company's gross revenues  before  deductions for  chargebacks,  rebates
(including  rebates  paid  under  federal  and state  government  Medicaid  drug
reimbursement  programs),  price  adjustments,  sales  returns  and other  sales
allowances  were $312,704 in the second  quarter of 2005 compared to $518,677 in
the second quarter of 2004.  Deductions from gross revenues were $195,664 in the
second  quarter  of 2005 and  $306,146  in the  second  quarter  of 2004.  These
deductions are discussed in "Notes to Consolidated Financial Statements - Note 6
- Accounts  Receivable." The gross-to-net  revenue  percentage  spread increased
slightly to 62.6% in the second  quarter of 2005 compared to 59.0% in the second
quarter   of   2004.   The   effects   of   price   declines   for   paroxetine,
glyburide/metformin  (which  was  launched  in  the  second  quarter  of  2004),
megestrol  acetate oral suspension and metformin ER, were partially  offset by a
lower gross-to-net spread on sales of tramadol HCl and acetaminophen tablets.

     As discussed  above, net sales of the Company's key products have decreased
primarily as a result of increased generic competition and its effect on pricing
and market share.  When competition  enters the market,  there are circumstances
under which the Company may determine to not afford price  protection to certain
customers  and  consequently,  as a matter of business  strategy,  to lose sales
volume to competitors  rather than to reduce its pricing.  When there is general
market pressure for lower pricing due to many competitors entering the market at
the same time,  the Company  decides  which  customers  will be  afforded  price
protection and a price protection  reserve may be established based on estimated
or actual  existing  customer  inventories.  Competitors  on the  Company's  key
products have been entering the market over an extended period of time,  thereby
reducing  the need for broad price  protection  and  material  price  protection
reserves  at the end of any one  reporting  period;  however,  the  Company  has
generally  lowered the pricing on these products over time and significant price
protection credits have been granted and processed within the reporting periods,
including  the six month  period  ended July 3, 2005.  The  Company did not have
material  reserves for additional price protection as of July 3, 2005 because it
did not believe that there would be any additional  significant price protection
credits to be issued with respect to sales of these products  through that date.
The Company will  continue to evaluate the effects of  competition  and the need
for price protection reserves in future periods.

GROSS MARGIN

     The  Company's  gross  margin of $87,989  (41.0% of total  revenues) in the
first  six  months  of 2005  decreased  $55,680  from  $143,669  (33.9% of total
revenues)  in the  corresponding  period of 2004.  The lower gross margin is due
primarily  to the lower  net  sales  discussed  above,  partially  offset by the
increase  of other  product  related  revenue.  The  increase  in  gross  margin
percentage   is  due  primarily  to  the   introduction   of  tramadol  HCl  and
acetaminophen  tablets,  which due to the exclusivity  period contributed a high
gross margin percentage than most of the Company's other products,  the increase
of the  other  product  related  revenue  and the  lower  sales  of  paroxetine,
glyburide/metformin  and metformin ER which after profit  splits with  partners,
have significantly lower gross margin percentages than other products.

     Inventory  write-offs  were $4,773 in the first six months of 2005 compared
to $5,036 in the first six months of 2004. These inventory write-offs,  taken in
the normal  course of  business,  were  related  primarily  to the  disposal  of
finished  products due to short shelf lives and  work-in-process  inventory that
did not meet the Company's  quality  control  standards.  The write-offs in both
periods  included  the  write-off  of  inventory  of a product  whose  launch is
delayed. The Company maintains inventory levels that it believes are appropriate
to optimize its customer service.

     The  Company's  gross  margin of $48,837  (41.7% of total  revenues) in the
second quarter of 2005 decreased  $24,280 from $73,117 (34.4% of total revenues)
in the  corresponding  period of 2004.  The lower margin is due primarily to the
lower net sales discussed  above.  The gross margin  percentage  increase is due
primarily to the introduction of tramadol HCl and acetaminophen  tablets and the
lower sales of paroxetine, glyburide/metformin and metformin ER.

     Inventory write-offs of $4,390 in the second quarter of 2005 increased from
$3,056 in the second  quarter of 2004.  The increase in inventory  write-offs in
the second  quarter of 2005 was  primarily  due to an  increase  in  short-dated
write-offs  related to one  product  and the  write-off  of a raw  material  for
another product.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT

     The  Company's  research  and  development  expenses of $33,387 for the six
months ended July 3, 2005 increased $16,725,  or 100.4%,  from the corresponding
period of last year. The increase was primarily  attributable  to higher outside
development  projects of $6,100,  including increased payments that began in the
second  quarter of 2004 to Advancis in order to fund the  development of a novel
formulation of the antibiotic  amoxicillin,  additional expenses related to Kali
of $4,451 and increased domestic development operations of $4,138, primarily due
to additional  personnel  costs. As previously  discussed,  the Company acquired
Kali in June 2004. The Company is utilizing Kali to develop additional  products
for its product pipeline.

                                       24
<PAGE>

     The Company's  research and  development  expenses of $17,398 for the three
months ended July 3, 2005 increased  $7,214,  or 70.8%,  from the  corresponding
period of last year.  The  increase  was  primarily  attributable  to  increased
domestic  operations  of $2,455  primarily due to  additional  personnel  costs,
increased raw material costs of $1,739,  additional  expenses related to Kali of
$1,634 and increased outside development projects of $1,064.  Although there can
be no such assurance,  annual research and development  expenses for fiscal year
2005, including payments to be made to unaffiliated  companies,  are expected to
increase by approximately 20% to 25% from fiscal year 2004.

     In June 2004,  Par entered into an agreement  with  Advancis to develop and
market a novel  formulation  of the  antibiotic  amoxicillin.  Pursuant  to this
agreement,  Par paid  Advancis  $14,000,  which  was  charged  to  research  and
development  expense in fiscal year 2004.  Par paid an additional  $9,500 in the
first six months of 2005, which was charged to research and development  expense
during the period. In August, the Company  terminated its partnership  agreement
with Advancis.  The Company has agreed to pay $4,750 due in the third quarter of
2005 but is no longer  responsible  for the  fourth  quarter  payment of $4,750,
which would have been the final payment to Advancis.

     As a result of its product development  program,  the Company currently has
20 ANDAs pending with the FDA, four of which have received  tentative  approval,
for  potential  products  that are not  subject  to any  distribution  or profit
sharing agreements.  In addition,  there are 29 ANDAs pending with the FDA, four
of which have received tentative  approval,  that have been filed by the Company
or its strategic partners for potential products covered by various distribution
agreements.  No assurances can be given that the Company or any of its strategic
partners will  successfully  complete the  development  of any of these products
either  under  development  or proposed for  development,  that they will obtain
regulatory  approvals  for any such product,  that any approved  product will be
produced  in  commercial  quantities  or that any  approved  product can be sold
profitably.

SELLING,  GENERAL AND  ADMINISTRATIVE  EXPENSES

     Total selling,  general and administrative  expenses were $46,506 (21.7% of
total  revenues) in the first six months of 2005 as compared to $33,548 (7.9% of
total  revenues)  in the first  six  months of 2004.  The  increase  in 2005 was
primarily  attributable  to  higher  sales  and  marketing  costs of  $6,509  in
anticipation of the Company's  Megace(R) ES launch in the third quarter of 2005,
increased legal fees of $3,859 and higher general and  administrative  personnel
costs of $2,658.  Distribution  costs included those related to shipping product
to the  Company's  customers,  primarily  through the use of common  carriers or
external  distribution  services.  Shipping costs were approximately  $3,000 and
$2,700  for the first six  months of 2005 and 2004,  respectively.  The  Company
anticipates  that it will  continue to incur a high level of legal  expenses for
litigation,   relating  to  existing   products   and   potential   new  product
introductions  (see  "Notes to  Consolidated  Financial  Statements  - Note 13 -
Commitments,  Contingencies  and Other Matters - Legal  Proceedings").  Although
there can be no such assurance,  selling general and administrative  expenses in
fiscal  year 2005 are  expected to increase by up to 25% to 30% from fiscal year
2004 primarily due to continued brand drug marketing activities.

     Total selling,  general and administrative  expenses were $25,154 (21.5% of
total  revenues) in the second  quarter of 2005 as compared to $16,481  (7.8% of
total  revenues)  in the  second  quarter  of  2004.  The  increase  in 2005 was
primarily  attributable to higher sales and marketing costs of $5,030 related to
pre-launch  activities  for  Megace(R)  ES,  increased  legal fees of $2,818 and
higher general and administrative  personal costs of $1,333. Shipping costs were
approximately  $1,500  and  $1,400  in the  second  quarters  of 2005 and  2004,
respectively.

NET SETTLEMENTS

     In the second quarter of 2004, net settlement income of $2,846 was recorded
pursuant to the settlement of claims against Akzo Nobel NV and Organon USA Inc.,
relating  to  anti-competitive   practices  that  delayed  the  availability  of
mirtazapine,  partially offset by legal expenses  associated with the settlement
of litigation with Asahi related to paroxetine.

GAIN ON SALE OF FACILITY

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

                                       25
<PAGE>

OTHER INCOME/EXPENSE

     Other income was $2,851 for the first six months of 2005  compared to other
expense  of $75 for the first six  months  of 2004.  In the first six  months of
2005,  the Company  sold 144 shares of New River stock for $4,310 and recorded a
gain on the sale of $3,156.

     Other  income was $1,528 for the second  quarter of 2005  compared to other
expense of $53 for the second  quarter of 2004.  In the second  quarter of 2005,
the Company  sold 82 shares of New River stock for $2,464 and recorded a gain on
the sale of $1,804.

INVESTMENT IMPAIRMENT

     In  the  second  quarter  of  2005,  the  Company  recorded  an  investment
impairment of $8,280 related to its investment in Advancis. On October 16, 2003,
Par purchased 1,000 shares of the common stock of Advancis for $10,000.  In June
and July  2005,  Advancis  announced  that it  failed  to  achieve  the  desired
microbiological  and clinical  endpoints in their  Amoxicillin  PULSYS phase III
clinical trials for the treatment of pharyngitis/tonsillitis. Due to the results
of the clinical trial, and the continued  significant decline in the stock price
of  Advancis,  which is publicly  traded,  the Company has  determined  that the
decline in fair market value of its  investment  is other than  temporary and as
such has written the  investment  down to its fair  market  value,  based on the
market value of the common stock at July 3, 2005.

INTEREST EXPENSE

     Net interest expense was $514 and $368, respectively, for the six and three
months  ended July 3, 2005  compared to net  interest  expense of $573 and $294,
respectively, for the corresponding periods of 2004. Net interest expense in all
periods  principally  includes  interest  payable on the  Company's  convertible
notes,  partially offset by interest income derived  primarily from money market
and other short-term investments.

INCOME TAXES

     The Company  recorded  provisions  for income taxes of $797 and $38,403 for
the first six  months of 2005 and 2004,  respectively.  The  Company  recorded a
benefit  for income  taxes of $214 for the second  quarter of 2005  compared  to
provision  for income  taxes of  $19,091  for the  second  quarter of 2004.  The
provisions  were based on the  applicable  federal and state tax rates for those
periods  (see "Notes to  Consolidated  Financial  Statements  - Note 10 - Income
Taxes").


FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

     Cash and cash  equivalents  of $32,093 at July 3, 2005  decreased by $4,441
from $36,534 at December 31, 2004,  primarily  due to net cash used in operating
activities, capital expenditures and purchases of investments,  partially offset
by the net proceeds  from the sales of  available  for sale  securities.  In the
first six months of 2005,  the Company  had $35,647 of cash used in  operations,
primarily due to the increase in accounts receivable and inventories. Cash flows
provided by investing  activities were $32,884 for the first six months of 2005,
as net proceeds of $53,612 from  available for sale  securities  were  partially
offset by capital  expenditures  of  $13,138  and the  investment  in Optimer of
$12,000.  The capital  expenditures  included  the  expansion  of the  Company's
laboratories  located in Spring Valley,  New York and new production  machinery.
The  Company  also used  $1,678 in  financing  activities  as it paid  $3,454 of
principal payments under long-term debt and other borrowings and obtained $1,928
from the issuance of shares of common stock upon the exercise of stock options.

     There were no  significant  changes in credit  terms,  collection  efforts,
credit   utilization  or  delinquencies   related  to  the  Company's   accounts
receivable. There are a number of timing issues that can cause fluctuations when
measuring accounts receivable days based on the previous quarter's average days'
sales in accounts receivable.  Because of these issues, the Company measures its
days' sales in accounts  receivable  on a rolling  twelve month  average.  Days'
sales in accounts receivable based on this calculation  increased to 116 days at
July 3, 2005 from 85 days at December  31,  2004.  Generally,  the Company has a
customer  base  that  pays  within  60 to 90 days and the  Company's  management
expects days' sales in accounts  receivables to fluctuate within that range. The
days sales outstanding was adversely affected by a higher than expected accounts

                                       26
<PAGE>
receivable  balance of $189,143 due to customer  payments of $37,179 received on
July 5 and 6 of 2005.

     The Company's working capital, current assets minus current liabilities, of
$337,438  decreased  $1,800,  from  $339,238 at December 31,  2004.  The working
capital  ratio,  which is  calculated  by  dividing  current  assets by  current
liabilities,  was 3.51x at July 3, 2005  compared to 3.19x at December 31, 2004.
The Company believes that its strong working capital ratio indicates its ability
to meet its ongoing and foreseeable obligations.

     In April 2004, the Board  authorized the repurchase of up to $50,000 of the
Company's  common stock.  The repurchases  are made,  subject to compliance with
applicable securities laws, from time to time in the open market or in privately
negotiated transactions.  Shares of common stock acquired through the repurchase
program are  available  for general  corporate  purposes.  The Company can still
repurchase approximately $17,822 of its common stock under the plan.

     In  September  2003,  the Company  sold an  aggregate  principal  amount of
$200,000 of senior  subordinated  convertible  notes pursuant to Rule 144A under
the Securities Act of 1933. Net proceeds of $177,945 from the notes,  which were
net of  underwriting  costs of $5,250 and the net  payment  of $16,805  from the
purchase of call options and sale of warrants,  were used to purchase  available
for sale securities in October 2003. Available for sale securities of $97,523 at
July 3, 2005 were all  available  for  immediate  sale.  The Company  intends to
continue to use its current  liquidity to support the expansion of its business,
increasing  its  research  and  development  activities,  entering  into product
license arrangements,  potentially acquiring other complementary  businesses and
products and for general corporate purposes.

     As of July 3, 2005, the Company had payables due to distribution  agreement
partners  of $36,432  related  primarily  to amounts  due under  profit  sharing
agreements,  particularly  amounts  owed to  Pentech  and GSK  with  respect  to
paroxetine.  The Company expects to pay these amounts, with the exception of the
payables  due to Pentech as a result of current  litigation,  out of its working
capital during the third quarter of 2005. In the second quarter of 2004, Pentech
filed a legal action against the Company  alleging that the Company breached its
contract with Pentech. The Company and Pentech are in dispute over the amount of
gross profit share.

     The dollar values of the Company's  material  contractual  obligations  and
commercial commitments as of July 3, 2005 were as follows:

<TABLE>
<CAPTION>
                                                                   AMOUNTS DUE BY PERIOD
                                 TOTAL MONETARY    JULY 4-DEC. 31,   2006  TO  2009 TO     2011 AND
  OBLIGATION                      OBLIGATION           2005           2008       2010     THEREAFTER
  ----------                      ----------           ----           ----       ----     ----------
<S>                                 <C>               <C>           <C>        <C>          <C>
  Operating leases                  $26,221           $1,934        $12,018    $6,564        $5,705
  Convertible notes*                200,000              -              -     200,000             -
  Advancis development expenses       4,750            4,750              -         -             -
  License agreement                   5,000            5,000
  Insurance obligations                 791              791              -         -             -
  Pension obligation                     22               22              -         -             -
  Other                                 378              103            275         -             -
                                        ---              ---            ---   -------       -------
  Total obligations                $237,162          $12,600        $12,293  $206,564        $5,705
                                    =======           ======         ======   =======         =====
</TABLE>

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

     In addition to its internal  research and development  costs,  the Company,
from time to time, enters into agreements with third parties for the development
of new  products  and  technologies.  To date,  the  Company  has  entered  into
agreements and advanced funds and has commitments or contingent liabilities with
several non-affiliated  companies for products in various stages of development.
These  contingent  payments or commitments are generally  dependent on the third
party  achieving  certain  milestones or the timing of third-party  research and
development  or legal  expenses.  Due to the  uncertainty  of the timing  and/or
realization of such contingent  commitments,  these obligations are not included
in the above  table.  Payments  made  pursuant  to these  agreements  are either
capitalized  or expensed  according to the Company's  accounting  policies.  The
total  amount  that  could  become  due under  these  contingent  agreements  is
approximately $37,773.

     As part of the  consideration  for the acquisition of Kali, the former Kali
stockholders  are  entitled  to  up to  $10,000  from  the  Company  if  certain

                                       27
<PAGE>

product-related  performance  criteria  are met over the next four years.  As of
December  31,  2004,  the former  Kali  stockholders  had earned  $2,500 of this
contingent payout and were paid in January 2005.

     The  Company  expects to  continue to fund its  operations,  including  its
research and development activities,  capital projects and obligations under its
existing distribution and development  arrangements discussed herein, out of its
working  capital,  including  proceeds from the issuance of its 2003 convertible
notes.  The Company  anticipates  that its total capital spending in fiscal year
2005 will increase  approximately  20% from fiscal year 2004.  Implementation of
the Company's  business plan may require additional debt and/or equity financing
and there  can be no  assurance  that the  Company  will be able to  obtain  any
additional financing when needed on terms acceptable or favorable to it.

FINANCING

     At July 3, 2005, the Company's total  outstanding  short-term and long-term
debt,  including  the  current  portion,  was  $201,169.  The  amount  consisted
primarily  of senior  subordinated  convertible  notes,  financing  for  product
liability insurance and capital leases of computer equipment. In September 2003,
the  Company  sold  an  aggregate   principal   amount  of  $200,000  of  senior
subordinated convertible notes pursuant to Rule 144A under the Securities Act of
1933. The notes bear interest at an annual rate of 2.875%, payable semi-annually
on March 30 and September 30 of each year. The notes are convertible into shares
of Common Stock at an initial  conversion  price of $88.76 per share,  only upon
the occurrence of certain events. Upon conversion,  the Company has the right to
deliver,  in lieu of Common  Stock,  cash or a  combination  of cash and  Common
Stock. It is the Company's current intention to satisfy the Company's obligation
upon a  conversion  of the  notes in cash in an  amount  equal to the  principal
amount of the notes  converted.  The notes mature on September 30, 2010,  unless
earlier converted or repurchased.  The Company may not redeem the notes prior to
the maturity date.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

     The  Company's  critical  accounting  policies  are set forth in its Annual
Report on Form 10-K for the fiscal year ended December 31, 2004.  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 fiscal year ended
December 31, 2004.


SUBSEQUENT EVENTS

     In July  2005,  the  Company  received  FDA  approval  and  began  shipping
Megace(R)  ES, a  concentrated  oral  suspension  for the treatment of anorexia,
cachexia,  or an  unexplained,  significant  weight  loss  in  patients  with  a
diagnosis  of  AIDS.   The  approval  of  Megace(R)  ES  is  the  first  branded
pharmaceutical product developed by Par to be approved for marketing by the FDA.

     In August 2005,  the Company  terminated  its  partnership  agreement  with
Advancis.  The Company had entered into the  agreement  with Advancis to develop
and market a novel formulation of the antibiotic  amoxicillin.  In June and July
2005,  Advancis announced that it failed to achieve the desired  microbiological
and clinical endpoints in their Amoxicillin PULSYS phase III clinical trials for
the  treatment  of  pharyngitis/tonsillitis.   By  terminating  the  partnership
agreement, the Company has agreed to pay $4,750 due in the third quarter of 2005
but is no longer  responsible  for the fourth  quarter  payment of $4,750  which
would have been the final payment to Advancis.

     On August 10,  2005 the United  States  Court of  Appeals  for the  Federal
Circuit  denied  Par's appeal and  affirmed  the lower  court's  decision in the
Pharmacia Corporation and the Trustees of Columbia University in the City of New
York v. Par  Pharmaceutical,  Inc. The court affirmed that  Pharmacia's  patent,
U.S. Patent No.  5,422,368,  is unenforceable  due to inequitable  conduct.  The
court also affirmed that Pharmacia's patent, U.S Patent No. 5,296,504,  is valid
and is infringed by Par. Par is thus  prohibited from engaging in any commercial
activity the United States relating to any drug product covered by that patent.

                                       28
<PAGE>

     ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     The  Company  is  subject to market  risk  primarily  due to changes in the
market  values of its  investments  in  marketable  debt and  government  agency
securities.  These  instruments  are classified as available for sale securities
for  financial  reporting  purposes and have minimal or no interest  risk due to
their short-term natures.  Professional portfolio managers managed 100% of these
available for sale securities at July 3, 2005.  Additional  investments are made
in overnight  deposits and money market funds.  These instruments are classified
as cash and cash equivalents for financial  reporting  purposes and have minimal
or no interest risk due to their short-term natures.

     The following  table  summarizes  the available  for sale  securities  that
subject the Company to market risk at July 3, 2005 and December 31, 2004:

                                                     JULY 3,     DEC. 31,
                                                      2005         2004
                                                      ----         ----
  Debt securities issued by various state
   and local municipalities and agencies              67,807      $82,678
  Securities issued by United States government
   and agencies                                       29,716       69,176
                                                      ------       ------
  Total                                              $97,523     $151,854
                                                      ======      =======

AVAILABLE FOR SALE SECURITIES:

     The primary objectives for the Company's investment portfolio are liquidity
and safety of principal.  Investments  are made to achieve a high rate of return
while  retaining  safety of principal.  The Company's  investment  policy limits
investments  to  certain  types  of  instruments   issued  by  institutions  and
governmental agencies with investment-grade credit ratings. A significant change
in interest  rates could affect the market value of the $97,523 in available for
sale securities that have a maturity greater than one year.

     In addition to the short-term  investments  described above, the Company is
also  subject to market  risk in respect to its  investments  in  Advancis,  New
River, Abrika and Optimer.

     In October 2003,  the Company paid $10,000 to purchase  1,000 shares of the
common  stock of  Advancis at $10 per share in its  initial  public  offering of
6,000 shares. The Company's investment in Advancis is subject to fluctuations in
the price of Advancis's  common stock,  which is publicly traded.  In the second
quarter of 2005, the Company recorded an investment impairment of $8,280 related
to its investment in Advancis. In June and July 2005, Advancis announced that it
failed to achieve the desired  microbiological  and clinical  endpoints in their
Amoxicillin   PULSYS   phase  III   clinical   trials  for  the   treatment   of
pharyngitis/tonsillitis.  Due to the  results  of the  clinical  trial,  and the
significant  decline in the stock price of Advancis,  the Company has determined
that the decline in fair market value of its  investment is other-than-temporary
and as such has written the investment  down to its fair market value as of July
3, 2005,  which was  $1,720  based on the  market  value of the common  stock of
Advancis at that date.

     The Company  purchased 875 shares of common stock of New River on August 5,
2004 in its initial public offering for $8 per share, for a total purchase price
of $7,000.  The  Company  sold 144  shares of the common  stock in the first six
months of 2005 for $4,310.  This  investment is subject to  fluctuations  in the
price of New River's common stock,  which is also publicly traded. As of July 3,
2005, the fair value of the Company's investment in New River was $21,927, based
on the market value of the common stock of New River at that date.

     In December 2004, the Company acquired a 5% partnership interest in Abrika,
a privately-held  specialty generic  pharmaceutical  company located in Sunrise,
Florida, for $8,361,  including costs. The investment is monitored on a periodic
basis to evaluate whether any changes in fair value become other-than-temporary.

     In April 2005,  the Company  acquired a 13% equity  interest in Optimer,  a
privately-held  biotechnology  company  located  in San Diego,  California,  for
$12,000. The investment is monitored on a periodic basis to evaluate whether any
changes in fair value become other-than-temporary.

                                       29
<PAGE>

     ITEM 4. CONTROLS AND PROCEDURES.

     Based on an evaluation under the supervision and with the  participation of
the  Company's  management,   the  Company's  principal  executive  officer  and
principal  financial  officer  have  concluded  that  the  Company's  disclosure
controls and procedures (as defined in Rules  13a-15(e) and 15d-15(e)  under the
Securities  Exchange  Act of  1934,  as  amended  (the  "Exchange  Act")),  were
effective as of July 3, 2005 to ensure that information required to be disclosed
by the Company in reports that it files with or submits to the Commission  under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Commission's rules and forms.

     There were no changes in the  Company's  internal  control  over  financial
reporting  identified in  management's  evaluation  during the second quarter of
fiscal  year 2005 that have  materially  affected  or are  reasonably  likely to
materially affect the Company's internal controls over financial reporting.

                           PART II. OTHER INFORMATION

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

     On November 1, 2004,  Morton  Grove filed a lawsuit  against the Company in
the United States District Court for the Northern District of Illinois,  seeking
a declaratory  judgment that four Par patents relating to megestrol acetate oral
suspension  are  invalid,  unenforceable  and not  infringed  by a Morton  Grove
product  that was  launched  in the  fourth  quarter of 2004.  Par is  asserting
counterclaims  that the Morton Grove  product  infringes  three patents and that
such  infringement  was willful.  The Company intends to defend  vigorously this
action and pursue its counterclaims against Morton Grove.

     On May 3, 2004,  Pentech filed an action  against the Company in the United
States District Court for the Northern District of Illinois. This action alleges
that the Company  breached its contract with Pentech  relating to the supply and
marketing of paroxetine.  The Company and Pentech are in dispute over the amount
of gross profit share. This case is currently in discovery.  The Company intends
to defend vigorously this action.

     On March 9, 2004,  the  Congress of  California  Seniors  brought an action
against GSK and the Company  concerning  the sale of  paroxetine in the State of
California.  This  action  alleges  that the sale of  paroxetine  by GSK and the
Company  in  California   constitutes,   among  other  things,  unfair  business
practices. The Company intends to defend vigorously this action.

     On  September  10,  2003,  Par and a number  of  other  generic  and  brand
pharmaceutical  companies  were sued by a New York  State  county  (the suit has
since been joined by additional New York counties) which has alleged  violations
of laws  (including  the Racketeer  Influenced  and Corrupt  Organizations  Act,
common  law  fraud  and  obtaining  funds  by  false   statements)   related  to
participation in the Medicaid program.  The complaint seeks declaratory  relief;
actual,  statutory and treble  damages,  with  interest;  punitive  damages;  an
accounting and  disgorgement of any illegal  profits;  a constructive  trust and
restitution;  and  attorneys'  and  experts'  fees and costs.  These  cases were
transferred   to  the  United  States   District   Court  for  the  District  of
Massachusetts  for  coordinated  and  consolidated  pre-trial  proceedings.  The
complaint filed by Erie County in New York was not included in the  consolidated
complaint  and has been  removed to federal  district  court.  In  addition,  on
September 25, 2003, the Office of the Attorney  General of the  Commonwealth  of
Massachusetts filed a complaint in the District of Massachusetts against Par and
12 other leading generic pharmaceutical companies, alleging principally that Par
and such other companies violated,  through their marketing and sales practices,
state and federal laws, including allegations of common law fraud and violations
of Massachusetts false statements statutes, by inflating generic  pharmaceutical
product  prices  paid for by the  Massachusetts  Medicaid  program.  Par  waived
service of process with respect to the complaint. The complaint seeks injunctive
relief,  treble damages,  disgorgement of excessive  profits,  civil  penalties,
reimbursement  of investigative  and litigation costs (including  experts' fees)
and attorneys' fees. On January 29, 2004, Par and the other defendants  involved
in  the  litigation  brought  by  the  Office  of the  Attorney  General  of the
Commonwealth of Massachusetts filed a motion to dismiss,  which has not yet been
ruled on.  The  Commonwealth  of  Massachusetts  subsequently  filed an  amended
complaint, and the defendants, including Par, have filed a motion to dismiss the
amended  complaint.  On August 4, 2004,  Par and a number of other  generic  and
brand pharmaceutical companies were also sued by the City of New York, which has
alleged  violations of laws  (including  common law fraud and obtaining funds by
false  statements)  related  to  participation  in  its  Medicaid  program.  The
complaint seeks declaratory relief;  actual,  statutory and treble damages, with
interest;  punitive  damages;  an  accounting  and  disgorgement  of any illegal
profits; a constructive trust and restitution;  and attorneys' and experts' fees

                                       30
<PAGE>

and costs. This case was transferred to the U.S. District Court for the District
of Massachusetts  for coordinated and  consolidated  pre-trial  proceedings.  In
addition to Massachusetts,  the Commonwealth of Kentucky,  the State of Illinois
and  the  State  of  Alabama  have  filed  similar  suits  in  their  respective
jurisdictions,  all of which have been removed to federal  district  court.  Par
intends to defend vigorously these actions.

     On July 15, 2003, the Company and Par filed a lawsuit against Roxane in the
United States District Court for the District of New Jersey. The Company and Par
alleged that Roxane had  infringed  Par's U.S.  Patents  numbered  6,593,318 and
6,593,320   relating  to  megestrol   acetate  oral   suspension  and  that  the
infringement   is  willful.   Roxane  has  denied  these   allegations  and  has
counterclaimed for declaratory  judgments of non-infringement  and invalidity of
both  patents.  In  addition,  Roxane has  recently  filed an amended  complaint
asserting  that  Par's  patents  in  the  litigation  are  unenforceable  due to
inequitable  conduct before the U.S.  Patent  Office.  Par intends to vigorously
pursue this action.

     In February  2003,  Abbott filed a complaint in the United States  District
Court for the District of New Jersey  against Par,  alleging  that Par's generic
version of TriCor(R) (fenofibrate) infringes one or more claims of four of their
patents based on Par having filed an ANDA for the accused  product with the FDA.
Par  filed  an  answer  and  a  counterclaim,   alleging   non-infringement  and
invalidity.  Par has filed a request  with the FDA to convert its  Paragraph  IV
certification  to a Paragraph  III  certification  and the case is subject to an
administrative dismissal.

     On  November  25,  2002,  Ortho-McNeil  filed a  lawsuit  against  Kali,  a
wholly-owned  subsidiary of the Company, in the United States District Court for
the District of New Jersey.  Ortho-McNeil  alleged that Kali  infringed the `691
patent by  submitting  a Paragraph IV  certification  to the FDA for approval of
tablets  containing  tramadol  hydrochloride  and  acetaminophen.  Par is Kali's
exclusive  marketing partner for these tablets through an agreement entered into
before  the  Company's  acquisition  of  Kali.  Kali has  denied  Ortho-McNeil's
allegation,  asserting  that the `691  patent was not  infringed  and is invalid
and/or unenforceable, and that the lawsuit is barred by unclean hands. Kali also
has counterclaimed for declaratory judgments of non-infringement, invalidity and
unenforceability  of the `691  patent.  Summary  judgment  papers were served on
opposing  counsel on May 28, 2004. The referenced  summary  judgment  motion was
fully  briefed and  submitted to the Court as of August 23, 2004.  The Court has
stated that it will hold oral argument,  which has not as of yet been scheduled.
The Company received FDA approval and began shipping  tramadol in April 2005 and
is still awaiting an answer from the court  regarding the referenced  motion for
summary judgment. Ortho-McNeil has stated that it will pursue its claims against
Kali and will seek  damages  for lost  profits.  The  Company  intends to defend
vigorously against this action.

     As a result of Par's  filing of the ANDA for  latanoprost,  the  Plaintiffs
filed a lawsuit  against Par on December 21, 2001 in the United States  District
Court  for  the  District  of New  Jersey,  alleging  patent  infringement.  The
Plaintiffs sought an injunction enjoining approval of the Company's ANDA and the
marketing of its generic  product prior to the expiration of their  patents.  On
February 8, 2002,  Par answered the  complaint and filed a  counterclaim,  which
sought a declaration that the patents-in-suit are invalid,  unenforceable and/or
not infringed by Par's products and that the extension of the term of one of the
patents was invalid.  The trial  concluded in March 2004 and on July 6, 2004 the
Court issued an opinion and order  ordering that judgment be entered in favor of
the Plaintiffs on their claims of  infringement  of U.S.  Patent Nos.  4,599,353
(expires  July 28,  2006)  and  5,296,504  (expires  March 22,  2011);  that the
effective  date of  approval  of Par's ANDA shall be a date which is not earlier
than the dates of  expiration  of those  patents;  and that Par is enjoined from
engaging in the commercial  manufacture,  use, offer to sell, or sale within the
United  States,  or  importation  into the United  States,  of any drug  product
covered  by, or the use of which is covered  by,  those two  patents.  As to the
third patent asserted by the Plaintiffs,  U.S. Patent No.  5,422,368,  the Court
dismissed the  Plaintiffs'  infringement  claims and declared that the patent is
unenforceable due to inequitable conduct. The Court further dismissed all of the
parties'  claims for attorneys'  fees.  Both Par and the  Plaintiffs  have filed
notices of appeal  which are pending in the United  States  Court of Appeals for
the Federal  Circuit.  Par has appealed the Court's  decision only insofar as it
relates to U.S. Patent No. 5,296,504.  The appeals were argued on June 10, 2005.
On August 10, 2005,  the United States Court of Appeals for the Federal  Circuit
denied  Par's  appeal and affirmed  the lower  court's  decision  (see "Notes to
Consolidated Financial Statements - Note 14 - Subsequent Events").

     Par entered into a licensing  agreement  with  developer  Paddock to market
testosterone 1% gel, a generic version of Unimed's product Androgel(R). Pursuant
to this  agreement,  Par is  responsible  for  management of any  litigation and

                                       31
<PAGE>

payment  of all  legal  fees  associated  with this  product.  The  product,  if
successfully brought to market, would be manufactured by Paddock and marketed by
Par.  Paddock  has  filed  an ANDA  (that  is  pending  with  the  FDA)  for the
testosterone 1% gel product.  As a result of the filing of the ANDA,  Unimed and
Besins,  co-assignees of the patent-in-suit,  filed a lawsuit against Paddock in
the United States District Court for the Northern District of Georgia,  alleging
patent  infringement  on August 22,  2003.  Par has an economic  interest in the
outcome of this  litigation by virtue of its licensing  agreement  with Paddock.
Unimed  and  Besins  are  seeking  an   injunction   to  prevent   Paddock  from
manufacturing  the generic product.  On November 18, 2003,  Paddock answered the
complaint  and  filed  a  counterclaim,  which  seeks  a  declaration  that  the
patent-in-suit is invalid and/or not infringed by Paddock's  product.  Discovery
has recently  been  completed  and the parties are briefing  issues  relating to
claim construction. The Company intends to defend vigorously this action.

     Endo has brought an arbitration  against the Company  pursuant to the rules
of the CFR, an  alternative  dispute  resolution  forum  similar to the American
Arbitration  Association.  Endo  claims  that  Par has  breached  a  contractual
obligation to share Paxil revenues with Endo.  Par has denied these  allegations
in their entirety and has also contested the arbitration's jurisdiction.  In the
event that the matter proceeds in arbitration,  Par intends to defend vigorously
this action.

     In addition, following the arbitration brought by Endo, Par filed a lawsuit
against Endo in the United States District Court for the District of New Jersey.
This case alleges that Endo's efforts to collect monies it alleges are due under
the  agreement  between Par and Endo which is referred to in Endo's  arbitration
against Par constitutes,  among other things,  patent misuse.  Endo has moved to
dismiss the complaint on jurisdictional grounds, among other things. Par intends
to vigorously pursue this action.

     The Company  cannot  predict with certainty at this time the outcome or the
effects on the Company of the above listed actions.  Accordingly,  no assurances
can be given that such  actions will not have a material  adverse  effect on the
Company's financial condition, results of operations, prospects or business.

     The Company  and/or Par are,  from time to time,  parties to certain  other
litigations,  including  product  liability  and  patent  actions.  The  Company
believes that these actions are part of the ordinary  course of its business and
that their ultimate  resolution  will not have a material  adverse effect on its
financial condition,  results of operations or liquidity. The Company intends to
vigorously  defend or, in cases where the  Company is  plaintiff,  to  prosecute
these actions.

OTHER MATTERS:

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

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

     The Company held its Annual  Meeting of  Stockholders  on May 24, 2005. The
following matters were voted upon at the Annual Meeting of Stockholders:

     PROPOSAL I

     The stockholders  voted in favor of the proposal to elect the three company
nominees for Class III directors  for a term to expire at the Annual  Meeting of
Stockholders to be held in 2008.

                           VOTES FOR        WITHHELD
                           ---------        --------
  Ronald M. Nordmann      30,588,878       2,987,112
  Dr. Arie Gutman         31,060,565       2,515,425
  Joseph E. Smith         30,699,795       2,876,193

                                       32
<PAGE>

PROPOSAL II

     The  holders of  15,661,167  shares of common  stock  voted in favor of the
proposal to adopt the  Company's  Amended and Restated 2004  Performance  Equity
Plan,  as set  forth in the proxy  statement  distributed  to the  stockholders,
10,797,674 shares voted against such proposal, and 632,603 shares abstained.  In
addition,  there were 6,484,546 broker non-votes.

ITEM 6.  EXHIBITS
------   --------


10.64     Series C Preferred  Stock Purchase  Agreement,  by and between Optimer
          Pharmaceuticals, Inc. and Par Pharmaceutical, Inc.

31.1      Certification of the Principal Executive Officer.

31.2      Certification of the Principal Financial Officer.

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

32.2      Certification  of 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.

                                       33
<PAGE>

                                   SIGNATURES


     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.



                                    PAR PHARMACEUTICAL COMPANIES, INC.
                                    ----------------------------------
                                    Registrant)


August 12, 2005                     /s/ Scott Tarriff
                                    -----------------
                                    Scott Tarriff
                                    PRESIDENT AND CHIEF EXECUTIVE OFFICER


August 12, 2005                     /s/ Dennis J. O'Connor
                                    ----------------------
                                    Dennis J. O'Connor
                                    VICE PRESIDENT AND CHIEF FINANCIAL OFFICER

                                       34

<PAGE>

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


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

     10.64     Series  C  Preferred  Stock  Purchase  Agreement  by and  between
               Optimer Pharmaceuticals, Inc. and Par Pharmaceutical, Inc.

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

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

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

     32.2      Certification  of 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.

                                       35