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 September 28, 2003

                         COMMISSION FILE NUMBER 1-10827


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


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


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


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


     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant  was required to file such  reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes x No___

     Indicate by check mark whether the Registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act). Yes x No___

      Number of shares of Common Stock outstanding as of November 7, 2003:

                                   34,021,021
<PAGE>

                          PART I. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS

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

                                                       SEPT. 28,       DEC. 31,
                      ASSETS                             2003            2002
                      ------                             ----            ----
Current assets:
  Cash and cash equivalents                            $157,529        $65,121
  Receivable due from convertible debt, net             177,945              -
  Accounts receivable, net of allowances of
   $44,828 and $36,257                                  176,893         55,310
  Inventories, net                                       58,542         51,591
  Prepaid expenses and other current assets               8,749          6,089
  Deferred income tax assets                             38,477         32,873
                                                        -------        -------
    Total current assets                                618,135        210,984

Property, plant and equipment, at cost less
 accumulated depreciation and amortization               41,426         27,055

Unexpended industrial revenue bond proceeds                   -          2,000

Intangible assets, net                                   37,460         35,692

Goodwill                                                 24,662         24,662

Deferred charges and other assets                         6,488          1,064

Non-current deferred income tax assets, net              14,277              -
                                                        -------        -------
   Total assets                                        $742,448       $301,457
                                                        =======        =======
         LIABILITIES AND STOCKHOLDERS' EQUITY
         ------------------------------------
Current liabilities:
  Current portion of long-term debt                      $1,807           $596
  Accounts payable                                       15,211         14,637
  Payables due to distribution agreement partners        84,269         18,163
  Accrued salaries and employee benefits                  6,617          5,175
  Accrued expenses and other current liabilities         16,619         10,034
  Income taxes payable                                   72,543         26,074
                                                        -------        -------
     Total current liabilities                          197,066         74,679
                                                        -------        -------

Long-term debt, less current portion                    200,000          2,426
                                                        -------        -------
Deferred income tax liabilities, net                          -          3,562
                                                              -        -------
Commitments and contingencies

Stockholders' equity:
  Preferred Stock, par value $.0001 per share;
    authorized 6,000,000 shares; none issued
    and outstanding
  Common Stock, par value $.01 per share;
    authorized 90,000,000 shares;
    33,923,803 and 32,804,480 shares issued and
    outstanding                                             339            328
  Additional paid-in capital                            158,775        118,515
  Retained earnings                                     186,268        101,947
                                                        -------        -------
    Total stockholders' equity                          345,382        220,790
                                                        -------        -------
Total liabilities and stockholders' equity             $742,448       $301,457
                                                        =======        =======

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

                                      -2-
<PAGE>

<TABLE>

                              PHARMACEUTICAL RESOURCES, INC.
                         CONSOLIDATED STATEMENTS OF OPERATIONS AND
                                     RETAINED EARNINGS
                         (In Thousands, Except Per Share Amounts)
                                        (Unaudited)
<CAPTION>
                                             NINE MONTHS ENDED           THREE MONTHS ENDED
                                           SEPT. 28,   SEPT. 30,        SEPT. 28,   SEPT. 30,
                                             2003        2002             2003        2002
                                             ----        ----             ----        ----
<S>                                        <C>         <C>              <C>         <C>
Revenues:
  Net product sales                        $424,418    $282,500         $214,933    $100,237
  Other revenues                             14,490           -            1,702           -
                                            -------     -------          -------     -------
Total revenues                              438,908     282,500          216,635     100,237
Cost of goods sold                          237,709     149,858          131,709      53,285
                                            -------     -------          -------     -------
      Gross margin                          201,199     132,642           84,926      46,952

Operating expenses (income):
  Research and development                   17,908      10,590            6,788       3,653
  Selling, general and administrative        44,246      27,457           14,141      11,094
  Settlements                                     -      (9,051)               -           -
  Acquisition termination charges                 -       4,254                -         (24)
                                            -------     -------          -------     -------
      Total operating expenses               62,154      33,250           20,929      14,723
                                            -------     -------          -------     -------
      Operating income                      139,045      99,392           63,997      32,229

Other expense, net                             (145)       (238)            (101)       (136)
Interest income, net                            474         490              141         109
                                            -------     -------          -------     -------
Income before provision for income taxes    139,374      99,644           64,037      32,202
Provision for income taxes                   55,053      38,861           25,295      12,559
                                            -------     -------          -------     -------
Net income                                   84,321      60,783           38,742      19,643

Retained earnings, beginning of period      101,947      22,493          147,526      63,633
                                            -------     -------          -------     -------
Retained earnings, end of period           $186,268    $ 83,276         $186,268    $ 83,276
                                            =======     =======          =======     =======
Net income per share of common stock:
  Basic                                       $2.53       $1.89            $1.15        $.60
                                               ====        ====             ====         ===
  Diluted                                     $2.45       $1.84            $1.11        $.59
                                               ====        ====             ====         ===
Weighted average number of
  common shares outstanding:
  Basic                                      33,269     32,194            33,758      32,476
                                             ======     ======            ======      ======
  Diluted                                    34,368     32,962            35,004      33,152
                                             ======     ======            ======      ======

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

                                      -3-
<PAGE>

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

                                                             NINE MONTHS ENDED
                                                           SEPT. 28,   SEPT. 30,
                                                             2003        2002
                                                             ----        ----
Cash flows from operating activities:
  Net income                                                $84,321     $60,783

  Adjustments to reconcile net income to net
    cash provided by operating activities:
    Deferred income taxes                                    (3,943)    (10,972)
    Depreciation and amortization                             6,681       3,857
    Inventory reserves                                          220       1,280
    Allowances against accounts receivable                    8,571      (5,813)
    Settlements                                                  -       (9,051)
    Stock option activity                                     3,690          37
    Other                                                         6         (23)

 Changes in assets and liabilities:
    Increase in accounts receivable                        (130,154)    (20,802)
    Increase in inventories                                  (7,171)    (17,971)
    Increase in prepaid expenses and other assets            (6,940)     (9,343)
    Increase in accounts payable                                574       4,398
    Increase (decrease) in payables due to
      distribution agreement partners                        66,106     (13,044)
    Increase in accrued expenses and other liabilities        8,027       3,916
    Increase in income taxes payable                         57,233      14,116
                                                             ------      ------
      Net cash provided by operating activities              87,221       1,368
                                                             ------       -----
Cash flows from investing activities:
    Capital expenditures                                    (16,720)     (4,736)
    Acquisition of FineTech                                       -     (32,598)
    Proceeds from sale of fixed assets                            -          28
                                                             ------          --
      Net cash used in investing activities                 (16,720)    (37,306)
                                                             ------      ------
 Cash flows from financing activities:
    Proceeds from issuances of Common Stock                  23,122       2,148
    Principal payments under long-term debt and other
      borrowings                                             (1,215)       (170)
                                                              -----         ---
      Net cash provided by financing activities              21,907       1,978
                                                             ------       -----

Net increase (decrease) in cash and cash equivalents         92,408     (33,960)
Cash and cash equivalents at beginning of period             65,121      67,742
                                                             ------      ------
Cash and cash equivalents at end of period                 $157,529     $33,782
                                                            =======      ======

Supplemental disclosure of cash flow information
Cash paid during the nine months for:
  Income taxes                                               $1,762     $35,717
                                                              =====      ======
  Interest                                                     $104       $102
                                                                ===        ===

Non-cash transactions:
  Receivable due from convertible debt, net                $177,945          -
                                                            =======          =
  Tax benefit from exercise of stock options                $10,764     $3,028
                                                             ======      =====

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

                                      -4-
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 28, 2003
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

     Pharmaceutical  Resources, Inc. (the "Company" or "PRX") operates primarily
through its wholly-owned  subsidiary,  Par Pharmaceutical,  Inc. ("Par"), in one
business  segment,  the manufacture and distribution of generic  pharmaceuticals
principally  in the  United  States.  In  addition,  the  Company  develops  and
manufactures,  in small  quantities,  complex  synthetic  active  pharmaceutical
ingredients  through its wholly-owned  subsidiary,  FineTech  Laboratories  Ltd.
("FineTech"), based in Haifa, Israel, and sells a limited number of mature brand
name drugs through an agreement  between Par and Bristol  Myers Squibb  ("BMS").
Marketed products are principally in the solid oral dosage form (tablet,  caplet
and two-piece hard-shell  capsule).  The Company also distributes one product in
the semi-solid form of a cream and one oral suspension.

     As of June 24, 2003, the Company  changed its state of  incorporation  from
New Jersey to  Delaware.  The  reincorporation  was approved by the holders of a
majority of the Company's  outstanding shares of common stock,  voting in person
or by proxy,  at its Annual Meeting of  Shareholders  held on June 19, 2003. The
reincorporation was effected by merging the Company with and into Pharmaceutical
Resources,  Inc., a Delaware  corporation and then a wholly-owned  subsidiary of
the  Company,  with the  Delaware  corporation  surviving  (the  "Merger").  The
reincorporation  was effected primarily because the Company's board of directors
believed that  governance  under Delaware law would permit the Company to manage
its corporate  affairs more  effectively and  efficiently  than under New Jersey
law. The reincorporation did not result in any change in the Company's business,
management,  assets,  liabilities,  board  of  directors  or  locations  of  its
principal facilities or headquarters.

     Pursuant  to the  Merger,  each  share of  common  stock of the New  Jersey
corporation was automatically converted into one share of common stock, $.01 par
value, of the Delaware corporation.

     As a result of its reincorporation, the Company became the successor issuer
to the New Jersey  corporation  under the  Securities  Exchange Act of 1934,  as
amended (the  "Exchange  Act"),  and  succeeded to the New Jersey  corporation's
reporting obligations  thereunder.  Pursuant to Rule 12g-3(a) under the Exchange
Act, the Company's common stock is deemed  registered under Section 12(b) of the
Exchange Act.

     On May 23,  2003,  Par also  changed  its state of  incorporation  from New
Jersey to Delaware. The Par reincorporation was effected by merging Par with and
into  Par  Pharmaceutical,  Inc.,  a  Delaware  corporation  and a  wholly-owned
subsidiary  of the Company,  with the Delaware  corporation  surviving.  The Par
reincorporation  was approved by the Company as the sole  shareholder of each of
the merging entities. In connection with and prior to Par's reincorporation, Par
contributed  its New Jersey  operations to Par,  Inc., a  newly-formed  Delaware
corporation  and a wholly-owned  subsidiary of Par. Par, Inc.  provides  certain
managerial and administrative services to Par on a fee basis.

NOTE 1 - BASIS OF PREPARATION:

     The accompanying  consolidated  financial  statements at September 28, 2003
and for the  nine-month  and  three-month  periods ended  September 28, 2003 and
September 30, 2002, respectively,  are unaudited; however, in the opinion of the
Company's management,  such statements include all adjustments  (consisting only
of normal  recurring  accruals)  necessary  to provide a fair  statement  of the
information  presented therein.  The consolidated  balance sheet at December 31,
2002 was derived from the Company's audited consolidated financial statements at
such date.

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

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

                                      -5-
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 28, 2003
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

NOTE 2 - STOCK-BASED COMPENSATION:

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

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

     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>
                                               NINE MONTHS ENDED         THREE MONTHS ENDED
                                             SEPT. 28,    SEPT. 30,     SEPT. 28,    SEPT. 30,
                                               2003         2002          2003         2002
                                               ----         ----          ----         ----
<S>                                           <C>         <C>            <C>         <C>
Net income as reported                        $84,321     $60,783        $38,742     $19,643
Add:Total stock-based employee
  compensation expense included in
  reported net income, net of related
  tax effects                                   1,263           -              -           -

Deduct: Total stock-based employee
  compensation expense determined under
  fair value based method for all awards,
  net of related tax effects                   (7,884)     (5,376)        (2,573)     (1,936)
                                                -----       -----          -----       -----
Pro forma net income                          $77,700     $55,407        $36,169     $17,707
                                               ======      ======         ======      ======

As reported-Basic                               $2.53       $1.89          $1.15        $.60
                                                 ====        ====           ====         ===
As reported-Diluted                             $2.45       $1.84          $1.11        $.59
                                                 ====        ====           ====         ===

Pro forma-Basic                                 $2.34       $1.72          $1.07        $.55
                                                 ====        ====           ====         ===
Pro forma-Diluted                               $2.26       $1.68          $1.03        $.53
                                                 ====        ====           ====         ===
</TABLE>

     As permitted  under SFAS 123, the Company  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 method of that Standard. The fair value of the options granted during
each of the nine- and three-month periods ended September 28, 2003 and September
30,  2002,  respectively,  has been  estimated  at the date of grant  using  the
Black-Scholes stock option pricing model, based on the following assumptions:
<TABLE>
<CAPTION>
                                               NINE MONTHS ENDED         THREE MONTHS ENDED
                                             SEPT. 28,    SEPT. 30,     SEPT. 28,    SEPT. 30,
                                               2003         2002          2003         2002
                                               ----         ----          ----         ----
<S>                                         <C>         <C>            <C>         <C>
Risk free interest rate                         4.0%        4.3%           4.0%        4.3%
Expected term                               4.8 years   5.5 years      5.0 years   5.0 years
Expected volatility                            61.3%       73.3%          61.0%       71.9%
</TABLE>
                                             -6-
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 28, 2003
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

     It was also assumed  that no dividends  will be paid during the entire term
of the  options.  The  weighted  average  fair values of options  granted in the
nine-month  periods ended  September 28, 2003 and September 30, 2002 were $18.08
and $15.52, respectively. The weighted average fair values of options granted in
the  three-month  periods  ended  September 28, 2003 and September 30, 2002 were
$29.55 and $16.25, respectively.

NOTE 3 - ACCOUNTS RECEIVABLE:                            SEPT. 28,      DEC. 31,
                                                           2003           2002
                                                           ----           ----
                                                              (IN THOUSANDS)
      Trade accounts receivable, net of customer
        rebates and chargebacks                         $220,018        $90,812
      Other accounts receivable                            1,703            755
                                                           -----            ---
      Allowances:
        Doubtful accounts                                  1,606          1,156
        Returns and allowances                            16,766         18,868
        Price adjustments                                 26,456         16,233
                                                          ------         ------
                                                          44,828         36,257
                                                          ------         ------
      Accounts receivable,
      net of allowances                                 $176,893        $55,310
                                                         =======         ======

     The trade accounts receivable amounts presented above at September 28, 2003
and December 31, 2002 are net of provisions for customer  rebates of $26,068 and
$13,610, and for chargebacks of $80,263 and $63,141, respectively. The increases
are primarily  due to the  Company's  introduction  of  paroxetine,  the generic
version of GlaxoSmithKline's ("GSK") Paxil(R), in the United States in September
2003  through a  distribution  agreement  with GSK.  Customer  rebates are price
reductions  generally  given to  customers  as an  incentive  to increase  sales
volume.  Rebates are generally  based on a customer's  volume of purchases  made
during an applicable monthly,  quarterly or annual period. Chargebacks are price
adjustments  provided to wholesale customers for product they resell to specific
healthcare  providers on the basis of prices negotiated  between the Company and
the providers.

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

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

     The Company's exclusivity period for megestrol acetate oral suspension, the
generic version of BMS's Megace(R) Oral Suspension, expired in mid-January 2002.
Two  generic   competitors  have  been  granted  United  States  Food  and  Drug
Administration  ("FDA") approval to market generic versions of megestrol acetate
oral  suspension,  but, as of September 28, 2003,  had not captured  significant
market share. Under its accounting policies,  the Company did not record a price
protection  reserve for such product as of September 28, 2003.  The Company will
continue  to  evaluate  the  effects  of  competition  and  will  record a price
protection reserve when, if and to the extent it deems necessary.

                                      -7-
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 28, 2003
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

NOTE 4 - INVENTORIES, NET:
                                                         SEPT. 28,      DEC. 31,
                                                           2003           2002
                                                           ----           ----
    Raw materials and supplies                           $18,925        $17,400
    Work in process and finished goods                    39,617         34,191
                                                          ------         ------
                                                         $58,542        $51,591
                                                          ======         ======

     Included in selling,  general and  administrative  expenses  were  shipping
costs of $1,990 and $2,144,  respectively,  for the nine-month periods, and $641
and $807, respectively, for the three-month periods ended September 28, 2003 and
September 30, 2002.

NOTE 5 - INTANGIBLE ASSETS, NET:                         SEPT. 28,     DEC. 31,
                                                           2003          2002
                                                           ----          ----
    BMS Asset Purchase Agreement, net of
      accumulated amortization of $2,646 and $1,393       $9,054       $10,307
    Product License fees, net of accumulated
      amortization of $715 and $0                          9,590         9,199
    Genpharm Distribution Agreement, net of
      accumulated amortization of $3,792 and $3,250        7,041         7,583
    Intellectual property, net of accumulated
      amortization of $1,022 and $451                      5,558         6,129
    Trademark licensed from BMS                            5,000             -
    Genpharm Profit Sharing Agreement, net of
      accumulated amortization of $1,283 and $26           1,217         2,474
                                                           -----         -----
                                                         $37,460       $35,692
                                                          ======        ======

     The Company recorded  amortization  expense related to intangible assets of
$4,338 and $1,798,  respectively,  for the  nine-month  periods,  and $1,881 and
$767,  respectively,  for the three-month periods,  ended September 28, 2003 and
September  30,  2002.  Amortization  expense  related to the  intangible  assets
currently  being  amortized is expected to total  approximately  $5,690 in 2003,
$5,467 in 2004,  $3,967  in 2005,  $3,115  in 2006,  $3,115  in 2007 and  $8,445
thereafter.  Intangible  assets not being amortized were product license fees of
$6,999 and a trademark  licensed  from BMS of $5,000 at  September  28, 2003 and
product license fees of $9,199 at December 31, 2002.

     The Company  entered into an agreement with BMS and one of its  affiliates,
dated August 6, 2003,  to license the "brand" name  Megace(R) for use in respect
of  a  potential  new  product  currently  in  development.   The  product,   if
successfully  developed,  would be a line  extension of the Company's  megestrol
oral  suspension  products.  Pursuant to this  agreement,  the Company  paid BMS
$5,000 in August 2003, which was included in intangible  assets on the Company's
consolidated  balance  sheets.  As part of this  agreement,  the Company is also
providing  BMS with  funding of up to $2,000 to support the active  promotion of
the "brand"  during the  remainder  of 2003 and  throughout  2004 to help retain
"brand" equity and awareness  among  physicians.  In the third quarter 2003, the
Company expensed $420 related to the sampling  program,  which has been included
in selling,  general and administrative  expenses on the consolidated statements
of operations.

     In January 1999, the Company and Genpharm,  Inc.  ("Genpharm"),  a Canadian
subsidiary of Merck KGaA, entered into a profit sharing agreement (the "Genpharm
Profit Sharing  Agreement")  pursuant to which the Company receives a portion of
the profits,  as such term is defined in the agreement,  generated from sales of
omeprazole, the generic version of Astra Zeneca's ("Astra") Prilosec(R),  and 15
other  products  sold  under  a  separate  agreement  between  Genpharm  and  an
unaffiliated  United  States-based  pharmaceutical  company  in  exchange  for a
non-refundable fee of $2,500,  included in intangible assets, net of accumulated
amortization,  on the Company's  consolidated  balance sheets.  Pursuant to this
agreement,   the  Company   recorded  other  revenues  of  $14,490  and  $1,702,
respectively,  in the nine- and  three-month  periods  ended  September 28, 2003
related to its share of Genpharm's  omeprazole gross profits.  Through early May
2003,  Genpharm  had  received an initial 15% share of profits,  as such term is
defined in their  agreement  with Kremers Urban  Development  Co.  ("KUDCo"),  a
subsidiary of Schwarz  Pharma AG of Germany,  with a subsequent  reduction  over
time based on a number of factors. In fiscal year 2002, the Company had agreed

                                      -8-
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 28, 2003
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

to reduce its share of Genpharm's profit derived from omeprazole pursuant to the
Genpharm  Profit  Sharing  Agreement  from 30% to 25%. In December  2002,  KUDCo
launched  omeprazole  following a district court decision in which it prevailed,
but before any decision  was reached on appeal.  Astra has appealed the district
court's  patent  infringement  decision.  In the third quarter 2003, two generic
competitors  began  selling  forms of  omeprazole  that  also  compete  with the
prescription form of Prilosec(R),  significantly reducing the Company's share of
profits from omeprazole. The Company expects that the impact of this competition
will  continue to have an adverse  effect on its  revenues  from  omeprazole  in
future periods.

NOTE 6 - SHORT-TERM DEBT:

     In December 1996, Par entered into a Loan and Security Agreement (the "Loan
Agreement")  with  General  Electric  Capital  Corporation  ("GECC").  The  Loan
Agreement,  as amended in December  2002,  provided Par with a revolving line of
credit expiring in March 2005,  pursuant to which Par was permitted to borrow up
to the lesser of (i) the borrowing base established  under the Loan Agreement or
(ii) $30,000.  As of September 28, 2003, no debt was outstanding  under the Loan
Agreement. The Company terminated the Loan Agreement in October 2003.

NOTE 7 - LONG-TERM DEBT:

     In  September  2003,  the Company  sold an  aggregate  principal  amount of
$200,000  of senior  subordinated  convertible  notes  ("convertible  notes") in
transactions pursuant to Rule 144A under the Securities Act of 1933, as amended.
The initial offering of $160,000 of convertible notes were sold on September 25,
2003 in a private,  unregistered offering to "qualified  institutional  buyers",
along with the subsequent exercise by the initial purchasers of such offering of
their  option to  purchase  an  additional  $40,000 of  convertible  notes.  The
transactions  closed on  September  30,  2003.  Proceeds of $177,945  due to the
Company are net of underwriting costs of $5,250 and the net payment for the call
options  and  warrant  transactions  described  below,  and were  recorded  as a
receivable  due from  convertible  debt on the  Company's  consolidated  balance
sheets as of  September  28, 2003.  The  convertible  notes bear  interest at an
annual rate of 2.875% payable semi-annually on March 30 and September 30 of each
year,  with the first interest  payment due on March 30, 2004.  The  convertible
notes are convertible into the Company's common stock (the "Common Stock") at an
initial  conversion  price of $88.76 per share,  upon the  occurrence of certain
events.  The convertible notes will mature on September 30, 2010, unless earlier
converted or repurchased. The Company may not redeem the convertible notes prior
to their maturity date.

     Concurrently with the sale of the convertible  notes, the Company purchased
call  options on its Common Stock (the  "purchased  call  options")  designed to
mitigate the potential  dilution from conversion of the convertible notes. Under
the terms of the purchased  call options,  the Company has the right to purchase
from an affiliate of one of the initial  purchasers  (the  "counterparty")  at a
purchase  price of  $88.76  per share the  aggregate  number of shares  that the
Company would be obligated to issue upon  conversion of the  convertible  notes,
which is a maximum of 2,253  shares.  The Company  also has the option to settle
the purchased call options with the counterparty  through a net share settlement
or net cash  settlement,  either of which  would be based on the extent to which
the then-current  market price of the Common Stock exceeds $88.76 per share. The
cost of the  purchased  call  options of $49,368 was  recognized  in  additional
paid-in-capital  on the Company's  consolidated  balance sheets. The cost of the
purchased  call options was partially  offset by the sale of warrants (the "sold
warrants") to acquire shares of the Common Stock to the  counterparty  with whom
the Company  entered into the  purchased  call  options.  The sold  warrants are
exercisable for an aggregate of 2,253 shares at an exercise price of $105.20 per
share. The sold warrants may be settled, at the Company's option, either through
a net share settlement or a net cash settlement,  either of which would be based
on the extent to which the then-current market price of the Common Stock exceeds
$105.20  per share.  The gross  proceeds  from the sale of the sold  warrants of
$32,563  were  recognized  in  additional   paid-in-capital   on  the  Company's
consolidated  balance  sheets.  The net effect of the purchased call options and
the sold warrants is to either reduce the potential dilution from the conversion
of the  convertible  notes if the Company  elects a net share  settlement  or to
increase the net cash  proceeds of the  offering,  if a net cash  settlement  is
elected if the  convertible  notes are converted at a time when the market price
of the Common Stock exceeds $88.76 per share.  If the market price of the Common
Stock at the  maturity  of the  sold  warrants  exceeds  $105.20,  the  dilution
mitigation  under the purchased call options will be capped,  meaning that there

                                      -9-
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 28, 2003
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

would be dilution  from the  conversion of the  convertible  notes to the extent
that the then market price per share of the Common Stock exceeds  $105.20 at the
time of conversion.

     The Company  intends to use the net  proceeds  from the offering to support
the expansion of its business, including increasing its research and development
activities,  entering into product license  arrangements and possibly  acquiring
complementary businesses and products, and for general corporate purposes.

NOTE 8 - INCOME TAXES:

     The Company  accounts for income taxes in accordance with the provisions of
SFAS No. 109,  "Accounting  for Income  Taxes",  which  requires  the Company to
recognize  deferred tax assets and liabilities  for the future tax  consequences
attributable to differences  between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. At September 28,
2003, the Company had net current  deferred income tax assets of $38,477 and net
non-current  deferred  income  tax  assets of $14,277  compared  to net  current
deferred income tax assets of $32,873 and net deferred income tax liabilities of
$3,562 at December 31, 2002.  Current  deferred income tax assets of $36,265 and
$32,873,  respectively,  at September  28, 2003 and December 31, 2002  consisted
primarily of temporary  differences related to accounts receivable reserves.  In
addition,  the Company  recorded  current and  non-current  deferred  income tax
assets of $2,212 and $17,288,  respectively,  at September  28, 2003 for the tax
benefit  related to the  purchased  call options  described  above.  Non-current
deferred income tax liabilities of $3,011 and $3,562,  at September 28, 2003 and
December  31,  2002,  respectively,  were  primarily  related to a  distribution
agreement with Genpharm.

NOTE 9 - CHANGES IN SHAREHOLDERS' EQUITY:

     Changes  in the  Company's  Common  Stock and  Additional  Paid-in  Capital
accounts during the nine-month period ended September 28, 2003 were as follows:

                                                                  ADDITIONAL
                                                COMMON STOCK         PAID-IN
                                             SHARES      AMOUNT      CAPITAL

  Balance, December 31, 2002                 32,804        $328     $118,515
   Exercise of stock options                  1,115          11       22,921
   Sold warrants                                  -           -       32,563
   Purchased call options                         -           -      (49,368)
   Tax benefit from purchased call options        -           -       19,500
   Tax benefit from exercise of stock options     -           -       10,764
   Compensatory arrangements                      5           -        3,880
                                             ------         ---      -------
  Balance, September 28, 2003                33,924        $339     $158,775
                                             ======         ===      =======

NOTE 10 - RESEARCH AND DEVELOPMENT AGREEMENTS:

ADVANCIS PHARMACEUTICAL CORPORATION:
     Par  entered  into  a  licensing   agreement   (the   "Advancis   Licensing
Agreement"),  dated September 4, 2003, with Advancis Pharmaceutical  Corporation
("Advancis"), a pharmaceutical company based in Germantown,  Maryland, to market
the antibiotic  Clarithromycin  XL.  Clarithromycin  XL is being  developed as a
generic equivalent to Abbott Laboratories'  ("Abbott") Biaxin XL(R). Pursuant to
the  Advancis  Licensing  Agreement,   Advancis  will  be  responsible  for  the
development  and  manufacture of the product,  while Par will be responsible for
marketing,  sales and distribution.  Provided certain conditions in the Advancis
Licensing  Agreement are met, Par agreed to pay Advancis an aggregate  amount of
up to $6,000 based on the  achievement  of certain  milestones  contained in the
agreement.  An  Abbreviated  New Drug  Application  ("ANDA")  for the product is
expected to be submitted to the FDA in the near future. Pursuant to the Advancis
Licensing Agreement, the Company has agreed to pay Advancis a certain percentage
of the gross profits,  as defined in the agreement,  on all sales of the product
if the product is successfully developed and introduced into the market.

                                      -10-
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 28, 2003
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

NOTE 11 - DISTRIBUTION AND SUPPLY AGREEMENTS:

SMITHKLINE BEECHAM CORPORATION.
     In  connection  with  the  legal  settlement  referred  to  in  Note  14  -
"Commitments,  Contingencies and Other Matters-Legal  Proceedings",  Par and GSK
and certain of its affiliates  entered into a license and supply  agreement (the
"GSK  Supply  Agreement"),  dated  April  16,  2003,  pursuant  to which  Par is
marketing  paroxetine,  supplied and licensed from GSK, in the United States and
the Commonwealth of Puerto Rico. Under the GSK Supply Agreement,  GSK has agreed
to  manufacture  the product and Par has agreed to pay GSK a percentage of Par's
net sales of the  product,  as defined  in the  agreement.  Pursuant  to the GSK
Supply  Agreement,  GSK  is  entitled  to  suspend  Par's  right  to  distribute
paroxetine  if at any time  another  generic  version of  Paxil(R)  is not being
marketed.

PENTECH PHARMACEUTICALS, INC.:
     In November  2002,  the  Company  amended its  agreement  (the  "Supply and
Marketing  Agreement") with Pentech  Pharmaceuticals,  Inc.  ("Pentech"),  dated
November  2001, to market  paroxetine  hydrochloride  capsules.  Pursuant to the
Supply and  Marketing  Agreement,  the  Company  was  responsible  for all legal
expenses  up to  $2,000,  which  were  expensed  as  incurred,  to obtain  final
regulatory  approval.  Legal  expenses  in  excess  of  $2,000  were to be fully
creditable  against future profit payments.  The Company had agreed to reimburse
Pentech  for costs  associated  with the project of up to $1,300 for fiscal year
2003,  which were  charged to  research  and  development  expenses as they were
incurred.  Pursuant to the Supply and Marketing Agreement, the Company agreed to
pay Pentech a percentage of the gross profits, as defined in such agreement,  on
all its sales of paroxetine.  In October 2003, the Company  reached an agreement
in principle with Pentech  further  amending the Supply and Marketing  Agreement
concerning  the  profit  split   percentages,   reimbursement  of  research  and
development expenses and sharing of legal expenses related to paroxetine.

NOTE 12 - EARNINGS PER SHARE:

     The Company had outstanding  stock options of 4,166 and 1,877 at the end of
the nine-month periods and 3,860 and 1,991 at the end of the three-month periods
ended  September  28,  2003 and  September  30,  2002,  respectively,  that were
included  in the  computation  of its  diluted  earnings  per share  because the
exercise  prices were lower than the average  market  price of the Common  Stock
during the respective periods. Outstanding options of 40 and 2,108 at the end of
the nine-month periods ended September 28, 2003 and September 30, 2002 and 2,089
at the end of the  three-month  period ended  September 30, 2002,  respectively,
were not included in the  computation of diluted  earnings per share because the
exercise  prices were greater than the average  market price of the Common Stock
during the respective periods.  The following is a reconciliation of the amounts
used to calculate basic and diluted earnings per share:

<TABLE>
<CAPTION>
                                               NINE MONTHS ENDED          THREE MONTHS ENDED
                                             SEPT. 28,    SEPT. 30,     SEPT. 28,    SEPT. 30,
                                               2003         2002          2003         2002
                                               ----         ----          ----         ----
<S>                                           <C>         <C>            <C>         <C>
Net income                                    $84,321     $60,783        $38,742     $19,643

BASIC:
Weighted average number of common
  shares outstanding                           33,269      32,194         33,758      32,476

Net income per share of common stock            $2.53       $1.89          $1.15        $.60
                                                 ====        ====           ====         ===
ASSUMING DILUTION:
Weighted average number of common
  shares outstanding                           33,269      32,194         33,758      32,476
Effect of dilutive options                      1,099         768          1,246         676
                                                -----         ---          -----         ---
Weighted average number of common and common
   equivalent shares outstanding               34,368      32,962         35,004      33,152

Net income per share of common stock            $2.45       $1.84          $1.11        $.59
                                                 ====        ====           ====         ===
</TABLE>

                                      -11-
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 28, 2003
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

NOTE 13 - NEW ACCOUNTING PRONOUNCEMENTS:

     In June  2003,  the FASB  issued  SFAS No.  150,  "Accounting  for  Certain
Financial  Instruments  with  Characteristics  of Both  Liabilities  and Equity"
("SFAS 150").  SFAS 150 establishes  standards for how an issuer  classifies and
measures certain financial  instruments with characteristics of both liabilities
and  equity.  This  statement  requires  that an  issuer  classify  a  financial
instrument  that is  within  its  scope  as a  liability  (or an  asset  in some
circumstances).  SFAS 150 is effective for financial instruments entered into or
modified  after May 31, 2003 and is otherwise  effective at the beginning of the
first interim  period  beginning  after June 15, 2003. The Company has completed
its evaluation of the impact of the adoption of this statement and determined it
will not have a material impact on the Company's consolidated financial position
or results of operations.

     In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative  Instruments and Hedging Activities." This Statement amends Statement
133 for  decisions  made  (1) as part of the  Derivatives  Implementation  Group
process that effectively required amendments to Statement 133, (2) in connection
with  other  FASB  projects  dealing  with  financial  instruments  and  (3)  in
connection with  implementation  issues raised in relation to the application of
the  definition of a derivative,  in  particular,  the meaning of an initial net
investment  that is smaller  than would be required for other types of contracts
that would be expected to have a similar  response to changes in market factors,
the meaning of underlying, and the characteristics of a derivative that contains
financing components.  This Statement is effective for contracts entered into or
modified  after  June  30,  2003,   except  as  stated  below  and  for  hedging
relationships  designated  after June 30, 2003.  In  addition,  except as stated
below,  all provisions of this Statement  should be applied  prospectively.  The
provisions of this Statement that relate to Statement 133 Implementation  Issues
that have been effective for fiscal  quarters that began prior to June 15, 2003,
should  continue to be applied in  accordance  with their  respective  effective
dates. In addition,  certain  provisions,  which relate to forward  purchases or
sales of  when-issued  securities  or other  securities  that do not yet  exist,
should be applied to both  existing  contracts  and new  contracts  entered into
after June 30,  2003.  The  adoption of this  standard is not expected to have a
material impact on the Company's  consolidated  financial position or results of
operations.

     In January 2003, the FASB issued  Financial  Interpretation  Number ("FIN")
No. 46,  "Consolidation  of  Variable  Interest  Entities"  ("FIN  46").  FIN 46
addresses  whether certain types of entities,  referred to as variable  interest
entities ("VIEs"), should be consolidated in a company's financial statements. A
VIE is an  entity  that  either  (1) has  equity  investors  that  lack  certain
essential  characteristics of a controlling  financial  interest  (including the
ability to control the entity,  the  obligation to absorb the entity's  expected
losses and the right to receive the entity's expected residual returns),  or (2)
lacks sufficient equity to finance its own activities  without financial support
provided by other  entities,  which in turn would be expected to absorb at least
some of the expected losses of the VIE. An entity should consolidate a VIE if it
stands  to  absorb a  majority  of the VIE's  expected  losses  or to  receive a
majority of the VIE's expected residual  returns.  The Company has evaluated the
impact of the  adoption  of FIN 46, and does not believe it will have a material
impact on its consolidated financial position or results of operations.

     In November 2002, the FASB issued FIN No. 45,  "Guarantor's  Accounting and
Disclosure  Requirements  for  Guarantees,   Including  Indirect  Guarantees  of
Indebtedness to Others" ("FIN 45"), an  interpretation of FASB Statements No. 5,
57 and 107 and a rescission of FASB  Interpretation No. 34. FIN 45 elaborates on
the  disclosures  to be made by a guarantor in its interim and annual  financial
statements  about its obligations  under certain  guarantees that it has issued.
The initial recognition and measurement provisions of FIN 45 are applicable on a
prospective  basis to guarantees issued or modified after December 31, 2002. The
adoption of this  interpretation did not have a material impact on the Company's
consolidated financial position or results of operations.

NOTE 14 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:

LEGAL PROCEEDINGS:
     On  September  25,  2003,  the  Office  of  the  Attorney  General  of  the
Commonwealth  of  Massachusetts  filed a complaint in federal  district court in
Boston  against  Par  and 12  other  leading  generic  pharmaceutical  companies

                                      -12-
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 28, 2003
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

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.  The Company has waived service of process with respect to the
complaint.  The complaint seeks injunctive relief, treble damages,  disgorgement
of excessive  profits,  civil  penalties,  reimbursement  of  investigative  and
litigation costs (including experts' fees) and attorneys' fees. In addition,  on
September  25,  2003,  the  Company  and a number  of other  generic  and  brand
pharmaceutical  companies  were sued by a New York  county,  which  has  alleged
violations of laws (including the Racketeer Influenced and Corrupt Organizations
("RICO") Act, common law fraud and obtaining funds by false statements), related
to  participation  in the Medicaid  program.  The  complaint  seeks  declaratory
relief; actual,  statutory and treble damages, with interest;  punitive damages;
an  accounting;  a  constructive  trust  and  restitution;  attorneys'  fees and
experts' fees, and costs.  Par intends to defend  vigorously the claims asserted
in both  complaints.  The Company cannot predict with any certainty at this time
the outcome or the effect on the Company of such  litigations.  Accordingly,  no
assurance can be given that such litigations or any other similar  litigation by
other states or jurisdictions,  if instituted,  will not have a material adverse
effect on the Company's financial condition, results of operations or business.

     In October 2003,  Apotex Inc. filed a complaint  against Par in the federal
district court in the Eastern  District of Pennsylvania  alleging  violations of
state and federal  antitrust laws as a result of the Company's  settlement  with
GSK and the GSK Supply  Agreement.  Par  intends to file a motion to dismiss the
action in its entirety in December 2003 and to otherwise defend  vigorously this
action,  and may assert  counterclaims  against  Apotex and claims against third
parties.

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

     On May 28,  2003,  Asahi  Glass  Company  ("Asahi  Glass")  filed a lawsuit
against Par and several other parties in the United  States  District  Court for
the Northern District of Illinois  alleging,  among other things,  violations of
state and federal  antitrust  laws  relating to the  settlement  of GSK's patent
action  against  Pentech in respect of  paroxetine  hydrochloride.  Pentech  had
granted Par rights under Pentech's ANDA for paroxetine  hydrochloride  capsules.
Pursuant to the  settlement,  reached  between  the  parties on April 18,  2003,
Pentech  and  Par  acknowledged  that  the  patent  held  by  GSK is  valid  and
enforceable and would be infringed by Pentech's proposed capsule product and GSK
agreed  to  allow  Par  to  distribute  in  Puerto  Rico  substitutable  generic
paroxetine  hydrochloride  immediate  release tablets supplied and licensed from
GSK for a royalty  payable to GSK. In addition,  Par was granted the right under
the  settlement to distribute  the drug in the United States if another  generic
version fully  substitutable for Paxil(R) became available in the United States.
Par has denied any wrongdoing in connection with the Asahi antitrust  action and
filed a motion to dismiss the complaint on August 22, 2003. In October 2003, the
court dismissed all of the state and federal  antitrust  claims against Par. The
only remaining claim in this action  involving Par is a state law contract claim
relating to the payment of certain  attorneys' fees to Asahi Glass in connection
with the prior lawsuit.  Par intends to defend  vigorously  this lawsuit and may
assert counterclaims against Asahi Glass and claims against third parties.

     In February  2003,  Abbott  Laboratories,  Fornier  Industrie  et Sante and
Laboratoires Fournier S.A. filed a complaint in the United States District Court
for the District of New Jersey against Par,  alleging that Par's generic version
of TriCor(R) (fenofibrate) infringes on one or more claims of their patents. The
Company had filed an ANDA for the product in October 2002. Par intends to defend

                                      -13-
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 28, 2003
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

vigorously  this  lawsuit and has filed an answer and a  counterclaim,  alleging
non-infringement and patent invalidity.

     Breath Ltd. of the Arrow Group filed an ANDA  (currently  pending  with the
FDA) for latanoprost  (Xalatan(R)),  which was developed by Breath Ltd. pursuant
to a joint  manufacturing  and  marketing  agreement  with the Company,  seeking
approval  to  engage  in  the  commercial  manufacture,  sale  and  use  of  one
latanoprost  drug  product  in the  United  States.  Par  subsequently  acquired
ownership  of the ANDA,  which  includes a Paragraph IV  certification  that the
patents in connection with Xalatan(R) identified in "Approved Drug Products with
Therapeutic Equivalence Evaluations" are invalid,  unenforceable and/or will not
be infringed by Par's generic  product.  Par believes that its ANDA is the first
to be filed for this drug with a Paragraph IV certification.  As a result of the
filing of the ANDA, Pharmacia Corporation,  Pharmacia AB, Pharmacia Enterprises,
S.A.,  Pharmacia  and  Upjohn  Company,  or,  collectively,  Pharmacia,  and the
Trustees of Columbia  University in the City of New York,  or Columbia,  filed a
lawsuit against Par on December 21, 2001 in the United States District Court for
the District of New Jersey, alleging patent infringement. Pharmacia and Columbia
are  seeking 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
seeks 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  is  invalid.  All  parties  are  seeking to  recover  their  respective
attorneys'  fees.  Discovery in the case has now been  completed  and a pretrial
conference  has been  scheduled for November 12, 2003. A trial date has not been
set.  Par  intends  to defend  vigorously  against  the claims and to pursue its
counterclaim.  At this time,  it is not  possible for the Company to predict the
outcome of this litigation with any certainty.

     Par,  among others,  was a defendant in three  lawsuits filed in the United
States  District  Court for the  Eastern  District of North  Carolina  (filed on
August 1, 2001,  October  30,  2001 and  November  16,  2001,  respectively)  by
aaiPharma Inc.,  involving patent  infringement  allegations  connected to three
patents related to polymorphic forms of fluoxetine  (Prozac(R)).  In March 2003,
Par settled its  lawsuits  with  aaiPharma  Inc.  The  settlement  has not had a
material  adverse  effect on the  Company's  financial  position  or  results of
operation.

     The  Company  and/or Par is a party in certain  other  litigation  matters,
including  product  liability and patent actions,  and the Company believes that
these  actions  are  incidental  to the conduct of its  business  and that their
ultimate  resolution  thereof  will not have a  material  adverse  effect on its
financial condition,  results of operations or liquidity. The Company intends to
vigorously  defend or, in cases where the Company is plaintiff,  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.  Because the investigation
has only recently begun,  it is premature to speculate what action,  if any, the
federal  government  may take and what  impact  such  action  could  have on our
business, prospects or financial condition.

     On July  15,  2003,  the  Company  announced  that two  additional  patents
relating to megestrol acetate oral suspension have been issued to it by the U.S.
Patent  Office.  The Patent  Office has issued U.S.  Patent Nos.  6,593,318  and
6,593,320 to the Company.  The Company  presently holds four patents relating to
megestrol oral suspension.  The first two patents, U.S. Patent No. 6,028,065 and
U.S. Patent No.  6,268,356,  were issued on February 22, 2000 and July 31, 2001,
respectively.

     The Company's chairman,  president and chief executive officer,  Kenneth I.
Sawyer, has retired, effective July 2003, and resigned from the board, effective
September  2003.  Mr. Sawyer will be available to consult with the Company.  The
Company  recorded  a  charge  of  $3,712,  included  in  selling,   general  and
administrative  expenses on  the  consolidated statements of operations, in 2003

                                      -14-
<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 28, 2003
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

for Mr.  Sawyer's  retirement  package,  consisting of expenses for  accelerated
stock  options,  a  severance  payment,  the  remainder  of his 2003  salary and
benefits.  In September  2003,  the  Company's  board of directors  elected Mark
Auerbach  to the  position  of  executive  chairman  of the  Company's  board of
directors and Scott  Tarriff to the  positions of president and chief  executive
officer of the Company,  effective immediately.  Mr. Tarriff and Arie L. Gutman,
Ph.D.,   President  and  Chief  Executive  Officer  of  the  Company's  FineTech
subsidiary, both report to Mr. Auerbach.

      In December 2001, the Company made its first payment of a potential equity
investment of up to $2,438 to be made over a period of time in HighRapids,  Inc.
("HighRapids"),  a Delaware corporation. High Rapids is a software developer and
the owner of patented rights to an artificial intelligence  generator.  Pursuant
to an agreement between the Company and HighRapids,  effective December 1, 2001,
the Company,  subject to its ongoing evaluation of HighRapids'  operations,  has
agreed to purchase  units,  consisting of secured debt,  evidenced by 7% secured
promissory  notes,  up to an aggregate  principal  amount of $2,425 and up to an
aggregate of 1,330 shares of the common stock of  HighRapids.  HighRapids is the
surviving   corporation  of  a  merger  with   Authorgenics,   Inc.,  a  Florida
corporation.  HighRapids is to utilize the  Company's  cash infusion for working
capital and operating  expenses.  Through  September  28, 2003,  the Company had
invested $1,199.  Due to HighRapids'  current operating losses and the Company's
evaluation of its  short-term  prospects for  profitability,  the  investment is
expensed  as  incurred  and  included  in  other  expense  on  the  consolidated
statements  of   operations.   As  of  September  28,  2003,  the  Company  held
approximately 40% of the outstanding common stock of HighRapids,  and it has the
exclusive  right to market to the  pharmaceutical  industry  certain  regulatory
compliance  and laboratory  software  currently in  development.  HighRapids has
provided and is currently providing certain software services to the Company.

      The Company and Three Rivers Pharmaceuticals, LLC ("Three Rivers") entered
into a license and distribution  agreement under which the Company has agreed to
market  and  distribute  ribavirin  200 mg  capsules,  the  generic  version  of
Schering-Plough's   ("Schering's")  Rebetol(R),   which  is  indicated  for  the
treatment of chronic  hepatitis,  following its approval by the FDA. In February
2003,  Three Rivers  reached a settlement  with Schering in a patent  litigation
case involving  Rebetol(R) brand  ribavirin.  Under the terms of the settlement,
Schering  provided  a  non-exclusive  license  to Three  Rivers for all its U.S.
patents relating to this product.  In return for this license,  Three Rivers has
agreed  to pay  Schering  a  reasonable  royalty  based  upon net sales of Three
Rivers' and Par's generic ribavirin  product.  The parties were in litigation in
the U.S. District Court for the Western District of Pennsylvania.

      On July 16, 2003, the Company  announced  that the United States  District
Court for the Central  District of California  had granted  summary  judgment of
non-infringement  regarding  ribavirin  to  Three  Rivers.  The  district  court
determined that the Three Rivers' product does not infringe any of three patents
asserted  by ICN  Pharmaceuticals  Inc.  ("ICN")  in  the  litigation.  Par  has
exclusive marketing rights for the Three Rivers' ribavirin product. Three Rivers
had earlier  reached a settlement of its patent  litigation with Schering Plough
Pharmaceuticals,  so this  decision  appears to resolve  the  remaining  ongoing
patent barriers to FDA approval of the ANDA filed by Three Rivers. The timing of
Par's launch of this  product is  uncertain  at this time.  Three Rivers has not
obtained FDA approval of the ANDA, and the FDA has not made a  determination  of
whether a generic 180-day exclusivity period will be awarded solely to a generic
competitor  involved in the lawsuit or Three Rivers  jointly with one or both of
the other two generic  competitors  involved in the lawsuit.  The patent holder,
ICN, has appealed the court decision.

NOTE 15 - SUBSEQUENT EVENTS:

      In October  2003,  the Company  purchased  1,000 shares of common stock of
Advancis in its initial public offering of 6,000 shares on October 16, 2003. The
purchase price was $10 per share and the transaction closed on October 22, 2003.
The  Company's  investment  represents  an  ownership  position  of  4.4% of the
outstanding  common  stock of Advancis.  Advancis'  focus is on  developing  and
commercializing  pulsatile drug products that fulfill  substantial unmet medical
needs  in  the  treatment  of  infectious  disease.   Unlike  immediate  release
antibiotics,  Advancis'  antibiotics  are delivered in three to five  sequential
pulses within the first six to eight hours following initial dosing. As referred
to in Note 10 - "Research and Development  Agreements",  Par and Advancis have a

                                      -15-

<PAGE>

                         PHARMACEUTICAL RESOURCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 28, 2003
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

licensing  agreement  providing  Par  the  marketing  rights  to the  antibiotic
Clarithromycin XL.  Clarithromycin XL is being developed as a generic equivalent
to Abbott's Biaxin XL(R).

     In October 2003,  the Company  terminated its revolving line of credit with
GECC. The Company also paid the remaining  outstanding balance on its industrial
revenue bond in October 2003 and,  accordingly,  reclassified  the proceeds from
the unexpended  industrial  revenue bond to other current assets and the related
long-term  portion of the debt to the current  portion of the long-term  debt on
the Company's consolidated balance sheets at September 28, 2003.

                                      -16-
<PAGE>

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

      CERTAIN  STATEMENTS  IN  THIS  DOCUMENT  MAY  CONSTITUTE  "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE  SECURITIES  LITIGATION REFORM ACT
OF 1995,  INCLUDING THOSE CONCERNING  MANAGEMENT'S  EXPECTATIONS WITH RESPECT TO
FUTURE FINANCIAL  PERFORMANCE AND FUTURE EVENTS,  PARTICULARLY RELATING TO SALES
OF CURRENT  PRODUCTS  AND THE  INTRODUCTION  OF NEW  MANUFACTURED,  LICENSED AND
DISTRIBUTED PRODUCTS. SUCH STATEMENTS INVOLVE RISKS,  UNCERTAINTIES,  TRENDS AND
CONTINGENCIES,  MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY, WHICH COULD
CAUSE ACTUAL RESULTS AND  PERFORMANCE 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,"  "COULD,"  "ONGOING,"  "EXPECTS,"  "BELIEVES" OR SIMILAR WORDS AND
PHRASES. FACTORS THAT MIGHT AFFECT SUCH FORWARD-LOOKING  STATEMENTS SET FORTH IN
THIS  DOCUMENT   INCLUDE  (i)  INCREASED   COMPETITION  FROM  NEW  AND  EXISTING
COMPETITORS  AND  PRICING  PRACTICES  FROM  SUCH  COMPETITORS  (ESPECIALLY  UPON
COMPLETION OF EXCLUSIVITY  PERIODS),  (ii) PRICING PRESSURES  RESULTING FROM THE
CONTINUED CONSOLIDATION BY THE COMPANY'S DISTRIBUTION CHANNELS, (iii) THE AMOUNT
OF FUNDS  AVAILABLE  FOR  INTERNAL  RESEARCH  AND  DEVELOPMENT  AND RESEARCH AND
DEVELOPMENT  JOINT  VENTURES,  (iv) RESEARCH AND  DEVELOPMENT  PROJECT DELAYS OR
DELAYS  AND  UNANTICIPATED  COSTS  IN  OBTAINING   REGULATORY   APPROVALS,   (v)
CONTINUATION  OF  DISTRIBUTION  RIGHTS UNDER  SIGNIFICANT  AGREEMENTS,  (vi) THE
CONTINUED ABILITY OF DISTRIBUTED PRODUCT SUPPLIERS TO MEET FUTURE DEMAND,  (vii)
THE COSTS AND OUTCOME OF ANY THREATENED OR PENDING LITIGATIONS, INCLUDING PATENT
AND INFRINGEMENT CLAIMS,  (viii) UNANTICIPATED COSTS IN ABSORBING  ACQUISITIONS,
(ix)  OBTAINING  OR LOSING  180-DAY  MARKETING  EXCLUSIVITY  ON PRODUCTS AND (x)
GENERAL  INDUSTRY  AND  ECONOMIC  CONDITIONS.   ANY  FORWARD-LOOKING  STATEMENTS
INCLUDED  IN THIS  DOCUMENT  ARE  MADE  ONLY AS OF THE  DATE  HEREOF,  BASED  ON
INFORMATION  AVAILABLE TO THE COMPANY AS OF THE DATE HEREOF, AND, SUBJECT TO ANY
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.

RESULTS OF OPERATIONS

GENERAL

      The Company's net income  increased  $23,538 to $84,321 for the nine-month
period ended  September  28, 2003 from $60,783 for the  nine-month  period ended
September  30, 2002.  Total  nine-month  revenues of $438,908 in 2003  increased
$156,408  from  $282,500  in the  corresponding  period  of  fiscal  year  2002,
primarily due to the September 2003 introduction of paroxetine (Paxil(R)) in the
United States through a distribution agreement with GSK, additional net sales of
new products  introduced  following the end of the second quarter 2002 and other
revenues from a profit  sharing  agreement  with Genpharm  related to omeprazole
(Prilosec(R)).  The revenue growth produced higher gross margin, which increased
$68,557 to  $201,199  in the most  recent  nine  months,  from  $132,642  in the
corresponding  nine-month period of 2002. In addition,  the Company continued to
invest in its  research  and  development  activities.  Spending on research and
development  of $17,908  for the first nine  months of 2003  increased  69% from
$10,590 for the corresponding  nine-month period of 2002.  Selling,  general and
administrative  costs of $44,246 for the  current  nine-month  period  increased
$16,789  from the  corresponding  period of the prior year,  primarily  due to a
charge of $3,712 in 2003  related  to a  retirement  package  for the  Company's
former  chairman,  president  and chief  executive  officer,  higher legal fees,
insurance  costs and expenses that the Company  believes are required to support
its growth,  including  expenses related to assessments of information  systems,
additional  facilities,  personnel  and  strategic  analysis.  Fiscal  year 2002
results  included  income from  settlements  of $9,051  related to the Company's
termination of its litigation  with BMS and acquisition  termination  charges of
$4,254 in connection  with its termination of  negotiations  with  International
Specialty Products ("ISP") related to the Company's purchase of the combined ISP
FineTech fine chemical business based in Haifa, Israel and Columbus, Ohio.

      The Company's net income of $38,742 for the third quarter ended  September
28, 2003  increased  $19,099 from $19,643 for the third quarter ended  September
30, 2002, due principally to the revenue growth from paroxetine and, to a lesser
extent,  increased sales of certain existing products.  Revenues of $216,635 and
gross  margins of $84,926 for the third  quarter  2003  increased  $116,398  and
$37,974,  respectively,  from the prior year's third quarter  revenues and gross
margins.  The Company's  research and  development  spending for the most recent
quarter of $6,788  rose 86% from such  expenses  incurred  in the  corresponding
quarter of 2002. Selling,  general and administrative  costs increased $3,047 to
$14,141 in the third quarter 2003 from $11,094 in the  corresponding  quarter of
the prior  year due  primarily  to higher  costs for  insurance,  marketing  and
additional costs required to support the Company's growth.

                                      -17-

<PAGE>

      In  addition  to its own  product  development  program,  the  Company has
several  strategic  alliances  through  which  it  co-develops  and  distributes
products. As a result of its internal program and these strategic alliances, the
Company's  pipeline of potential  products includes 24 ANDAs (four of which have
been tentatively  approved),  pending with, and awaiting approval from, the FDA.
The Company pays a percentage  of net sales or the gross profits on net sales of
products  covered by its  distribution  agreements  to its  strategic  partners.
Generally,  products that the Company develops internally, and therefore without
the requirement to share product profits with any strategic partners, contribute
higher gross margins than products covered under its distribution agreements.

      In September  2003,  the Company  began  selling  paroxetine,  the generic
version of GSK's Paxil(R), in the United States. The Company obtained the rights
to this product in connection with a litigation  settlement between the Company,
GSK and certain of its affiliates and Pentech. The litigation and the settlement
did not involve Paxil CR(TM). As a result of the settlement, Par and GSK entered
into the GSK Supply  Agreement,  pursuant to which Par is marketing  paroxetine,
supplied and licensed from GSK, in the United States and  Commonwealth of Puerto
Rico. Under the GSK Supply Agreement,  GSK has agreed to manufacture the product
and Par has agreed to pay GSK a percentage of Par's net sales of the product, as
defined in the agreement.  In addition, the Company pays Pentech a percentage of
the gross  profits,  as  defined in their  agreement,  on Par's net sales of the
product.

      In July 2001 and August  2001,  the FDA granted  approvals  for three ANDA
submissions,  one each by Par,  Dr.  Reddy's  Laboratories  Ltd.  ("Reddy")  and
Alphapharm  Pty Ltd.,  an  Australian  subsidiary  of Merck KGaA,  for megestrol
acetate oral  suspension,  fluoxetine 40 mg capsules and fluoxetine 10 mg and 20
mg tablets,  respectively,  which, as first-to-file opportunities,  entitled the
Company to 180-day marketing  exclusivity periods for the products.  The Company
began marketing  megestrol acetate oral suspension,  which is not subject to any
profit  sharing  agreement,  in July 2001.  In August  2001,  the Company  began
marketing  fluoxetine 40 mg capsules under a  distribution  agreement with Reddy
and  fluoxetine  10 mg and 20 mg tablets  under a  distribution  agreement  with
Genpharm.   Generic  competitors  of  the  Company  received  180-day  marketing
exclusivity  periods  for the  generic  version  of  fluoxetine  10 mg and 20 mg
capsules, which the Company began selling in the first quarter of 2002 following
the  expiration  of such other  parties'  exclusivity  periods.  As the  Company
expected,  additional generic competitors, with products comparable to all three
strengths of its  fluoxetine  products,  began  entering the market in the first
quarter of 2002,  eroding the pricing that the Company had  received  during the
exclusivity periods,  particularly on the 10 mg and 20 mg strengths. Despite FDA
approvals for two competing generic  megestrol acetate oral suspension  products
received  in the first  quarter  of 2002 and the  second  quarter  of 2003,  the
Company still  maintained a significant  share of the market for this product as
of September 28, 2003.  Although  megestrol oral suspension and fluoxetine 40 mg
capsules are expected to continue to contribute  significantly  to the Company's
overall  performance,  the growth of the  Company's  product  line  through  new
product  introductions  has  somewhat  reduced the  Company's  reliance on these
products.

      Critical to the continued growth of the Company is its introduction of new
manufactured   and   distributed   products  at  selling  prices  that  generate
significant gross margins. The Company, through its internal development program
and  strategic  alliances  and  relationships,  is committed to  developing  new
products  that have limited  competition  and longer  product  life  cycles.  In
addition to expected new product  introductions as part of its various strategic
alliances   and   relationships,   the  Company  plans  to  continue  to  invest
significantly  in its internal  research and  development  efforts while, at the
same  time,  seeking  additional  products  for sale  through  new and  existing
distribution   agreements  or   acquisitions  of   complementary   products  and
businesses,  additional first-to-file  opportunities,  vertical integration with
raw material  suppliers and unique  dosage forms and strengths to  differentiate
its products in the marketplace.  The Company is engaged in efforts,  subject to
FDA approval and other factors,  to introduce new products  through its research
and development  efforts and distribution and development  agreements with third
parties.  No assurance  can be given that the Company will obtain or develop any
additional  products  for  sale  or,  even  if  developed,  that  they  will  be
commercially  viable.  In order to secure financing to execute these strategies,
the Company  obtained  additional funds through the issuance of convertible debt
in September 2003.  Execution of these strategies could also require  additional
debt and/or equity financing and there can be no assurance that the Company will
be able to obtain any  additional  required  financing  when needed and on terms
acceptable or favorable to it.

      Sales  and  gross  margins  of  the  Company's  products  are  principally
dependent upon (i) the pricing of and product deletions by competitors, (ii) the
introduction of other generic drug manufacturers' products in direct competition
with  the  Company's  significant   products,   (iii)  the  ability  of  generic
competitors  to quickly  enter the market  after  patent or  exclusivity  period

                                      -18-

<PAGE>

expirations, diminishing the amount and duration of significant profits from any
one product, (iv) the continuation of existing distribution agreements,  (v) the
introduction  of  new  distributed   products,   (vi)  the  consolidation  among
distribution  outlets through mergers,  acquisitions and the formation of buying
groups, (vii) the willingness of generic drug customers, including wholesale and
retail customers, to switch among generic pharmaceutical  manufacturers,  (viii)
the approval of ANDAs and  introduction of new manufactured  products,  (ix) the
granting of potential marketing  exclusivity  periods,  (x) the extent of market
penetration  for the  existing  product  line  and (xi)  the  level of  customer
service.

REVENUES

      Total revenues of $438,908 for the nine-month  period ended  September 28,
2003 increased  $156,408,  or 55%, from $282,500 for the nine-month period ended
September 30, 2002. The revenue growth for the first nine months of the year was
driven  largely by the September 2003  introduction  of paroxetine in the United
States,   sold  through  the  GSK  Supply  Agreement,   which  totaled  $96,344.
Additionally,  net sales of new products,  including  tizanidine  (Zanaflex(R)),
introduced  in July 2002 and sold under a  distribution  agreement  with  Reddy,
torsemide  (Demadex(R)) and minocycline  (Minocin(R)),  introduced in the second
quarter  2003,  and revenues of $14,490  from a profit  sharing  agreement  with
Genpharm related to omeprazole (Prilosec(R)),  contributed to the strong revenue
growth in 2003.  Net sales of fluoxetine and megestrol  acetate oral  suspension
were $70,620 and $65,020, respectively, for the most recent nine months compared
to  $68,381  and  $62,709  for the  corresponding  period in 2002.  Net sales of
distributed products,  which consist of products manufactured under contract and
licensed  products,  were  approximately  64%  and  59%,  respectively,  of  the
Company's  total revenues in the first nine months of 2003 and 2002. The Company
is substantially  dependent upon distributed products for its overall sales and,
as the Company  continues  to  introduce  new  products  under its  distribution
agreements,  it expects that this  dependence  will  continue.  Any inability by
suppliers to meet expected  demand could adversely  affect the Company's  future
sales.

      Third quarter 2003 revenues of $216,635 increased $116,398,  or 116%, from
$100,237  for the  corresponding  quarter  of  2002,  primarily  due to sales of
paroxetine  and,  to a  lesser  extent,  increased  sales  of  certain  existing
products,  including  fluoxetine and megestrol acetate oral suspension,  and the
introduction  of other new products  throughout  the year.  Due primarily to the
paroxetine product launch during the quarter,  net sales of distributed products
increased to represent approximately 76% of the Company's total revenues for the
third  quarter  2003  compared to  approximately  62% of total  revenues for the
corresponding quarter of 2002.

      While  it is not  possible  to  predict  with  accuracy  future  sales  of
paroxetine,  the Company  believes that fourth quarter 2003 sales could approach
third quarter 2003 sales levels,  subject to certain market  uncertainties.  The
market  uncertainties  include the possibility of additional generic competitors
entering the market and the ability of GSK, under the GSK Supply  Agreement,  to
suspend  Par's right to  distribute  paroxetine  if at any time another  generic
version of Paxil(R) is not being marketed.

      Pursuant to the Genpharm Profit Sharing Agreement,  the Company receives a
portion of the profits, as defined in the agreement, generated from KUDCo's sale
of omeprazole.  In December 2002, KUDCo launched omeprazole following a district
court  decision in which it prevailed,  but before any decision had been reached
on appeal. Astra has appealed the district court's patent infringement decision.
In the third  quarter  2003,  two generic  competitors  began  selling  forms of
omeprazole  that  also  compete  with  the  prescription  form  of  Prilosec(R),
significantly  reducing the Company's share of profits from omeprazole to $1,702
for such quarter.  The Company expects that the impact of this  competition will
continue to have an adverse  affect on its revenues  from  omeprazole  in future
periods.

      The Company's  exclusivity  period for fluoxetine  expired in late-January
2002. As a result of generic competition beginning in the first quarter of 2002,
the sales price for  fluoxetine has  substantially  declined from the price that
the  Company  had  charged  during  the  exclusivity  period.  Accordingly,  the
Company's  sales  and  gross  margins  generated  by  fluoxetine  following  the
expiration  of the  exclusivity  period  have  been,  and will  continue  to be,
adversely affected.

      The Company's  exclusivity  period for megestrol  acetate oral  suspension
expired in  mid-January  2002.  Two generic  competitors  have been  granted FDA
approval to market generic versions of megestrol  acetate oral suspension,  but,
as of September 28, 2003,  had not captured  significant  market share.  At this
time,  the  Company  cannot  accurately   predict  the  effect  of  the  generic
competition  on future  periods;  however,  the Company  believes that megestrol

                                      -19-

<PAGE>

acetate oral suspension will be a significant sales and gross margin contributor
for the remainder of fiscal year 2003 and beyond,  despite the  competition.  In
accordance  with its  accounting  policies,  the  Company did not record a price
protection  reserve for  megestrol  acetate oral  suspension as of September 28,
2003. The Company will continue to evaluate the effect of  competition  and will
record a price protection reserve when, if and to the extent it deems necessary.

GROSS MARGIN

      The  Company's  gross margin of $201,199  (46% of total  revenues) for the
first nine months of fiscal year 2003  increased  $68,557 from  $132,642 (47% of
total  revenues)  for the  corresponding  period of fiscal year 2002.  The gross
margin increase was achieved  primarily as a result of additional  contributions
from sales of new products, as described above, and the additional revenues from
omeprazole pursuant to the Genpharm Profit Sharing Agreement.

      In the  nine-month  period ended  September  28, 2003,  lower gross margin
contributions  from  fluoxetine  10 mg and 20 mg,  which are  subject  to profit
sharing  agreements  with  Genpharm,  were more than  offset by a higher  margin
contribution  from  fluoxetine 40 mg due to an increase in the Company's  profit
sharing  percentage  under its  agreement  with Reddy  following  the end of the
Company's   exclusivity   period.   As  discussed  above,   additional   generic
manufacturers  introduced and began  marketing  comparable  fluoxetine  products
following the  expiration of the Company's  exclusivity  period in January 2002,
adversely  affecting  the  Company's  sales  volumes,  selling  prices and gross
margins  for  the  products,  particularly  the 10 mg and 20 mg  strengths.  The
Company's gross margin for megestrol  acetate oral suspension could also decline
when, and as, additional  manufacturers  introduce and market comparable generic
products. Megestrol acetate oral suspension contributed approximately $53,418 in
gross  margin  for the first nine  months of 2003  compared  to $51,517  for the
corresponding period of 2002.

      The gross  margin for the third  quarter of 2003 of $84,926  (39% of total
revenues)  increased  $37,974 compared to $46,952 (47% of total revenues) in the
corresponding  quarter of the prior year.  Additional gross margin contributions
from paroxetine and certain existing products  generated the higher gross margin
dollars  in the  third  quarter  of 2003.  The  lower  gross  margin  percentage
principally  reflects the effect of paroxetine,  which, after profit splits with
GSK and Pentech,  had a lower gross margin  percentage  than the Company's other
significant products.

      Inventory   write-offs  were  $2,022  and  $705  for  the  nine-month  and
three-month periods ended September 28, 2003,  respectively,  compared to $3,085
and $343,  respectively,  for the  corresponding  periods of the prior year. The
higher  nine-month  write-offs in 2002 included the write-off of inventory for a
product whose launch was delayed due to unexpected patent issues and certain raw
material not meeting the  Company's  quality  control  standards.  The inventory
write-offs,  taken in the normal course of business,  were related  primarily to
work in process  inventory not meeting the Company's  quality control  standards
and the disposal of finished products due to short shelf lives.

OPERATING EXPENSES

RESEARCH AND DEVELOPMENT

      Research  and  development  expenses of $17,908 for the nine months  ended
September 28, 2003  increased  $7,318,  or 69%, from $10,590 for the nine months
ended  September 30, 2002. The higher  expenses were primarily  attributable  to
biostudies,  including the  Company's  share of  Genpharm's  biostudy  costs for
products covered under their distribution agreements.  In addition, higher costs
were incurred for raw material, personnel, development work done for the Company
by third  parties  and work done by SVC  Pharma,  the  Company's  joint  venture
partnership.

      Research and development  expenses  increased $3,135 for the third quarter
of 2003 to  $6,788  from  $3,653  for the  corresponding  quarter  of 2002.  The
increase was primarily  attributable  to increased  biostudy  activity and, to a
lesser  extent,  the  additional  expenses of SVC Pharma and higher  spending on
development work done by third parties and raw materials.

      Although  there can be such no  assurance,  the Company  expects its total
annual  research  and  development  expenses  for fiscal year 2003 to exceed the
total for fiscal year 2002 by approximately 30% to 40%. The increase is expected
as a result of increased  internal  development  activity,  projects  with third
parties and research and development joint venture activity.

                                      -20-

<PAGE>

      The  Company   currently  has  ten  ANDAs  for  potential   products  (one
tentatively  approved)  pending with,  and awaiting  approval from, the FDA as a
result of its own  product  development  program.  The Company has in process or
expects to commence biostudies for at least six additional products prior to the
end of fiscal year 2003. In fiscal year 2004, the Company  expects that at least
ten of the products in active  development  will be the  subjects of  biostudies
throughout the year.

      The Company and Genpharm have entered into a  distribution  agreement (the
"Genpharm 11 Product  Agreement"),  dated April 2002, pursuant to which Genpharm
is  developing  products,  submitting  the  corresponding  ANDAs to the FDA and,
subsequently, has agreed to manufacture the potential products covered under the
Agreement.  Par will serve as the exclusive U.S. marketer and distributor of the
products,  pay a share of the costs,  including  development  and legal expenses
incurred to obtain final regulatory  approval,  and pay Genpharm a percentage of
the gross profits on all sales of products covered by this Agreement. Currently,
there are three ANDAs for potential products that are covered by the Genpharm 11
Product Agreement pending with, and awaiting approval from, the FDA. The Company
is currently  marketing one product and  receiving a royalty on another  product
covered under the Genpharm 11 Product Agreement.

      The Company and Genpharm have also entered into a  distribution  agreement
(the  "Genpharm  Distribution  Agreement"),  dated  March  25,  1998.  Under the
Genpharm  Distribution  Agreement,  Genpharm  pays the research and  development
costs  associated  with  the  products  covered  by  the  Genpharm  Distribution
Agreement.  Currently,  there  are  six  ANDAs  for  potential  products  (three
tentatively  approved) that are covered by the Genpharm  Distribution  Agreement
pending  with,  and awaiting  approval  from,  the FDA. The Company is currently
marketing 19 products under the Genpharm Distribution Agreement.

      Genpharm and the Company  share the costs of developing  products  covered
under an agreement (the "Genpharm Additional Product Agreement"), dated November
27, 2000.  The Company is currently  marketing  two products  under the Genpharm
Additional Product Agreement.

SELLING, GENERAL AND ADMINISTRATIVE

      Selling,  general  and  administrative  costs  of  $44,246  (10% of  total
revenues) for the nine months ended  September 28, 2003  increased  $16,789 from
$27,457 (10% of total revenues) for the  corresponding  period of last year. The
increase in 2003 was primarily  attributable  to a charge of $3,712 related to a
retirement  package  for the  Company's  former  chairman,  president  and chief
executive officer, higher product liability and directors and officers insurance
costs of $3,693 and legal fees associated with potential new product launches of
$1,268.  In addition,  the Company incurred  increased  expenses it believes are
necessary  to support  the  Company's  growth,  including  costs for  additional
personnel  of  $2,916,  corporate  strategic  planning  of  $1,061,   additional
warehouse  and  administrative  office  facilities of $824,  information  system
assessments  of $678 and  accounting  fees of $507.  Distribution  costs include
those related to shipping product to the Company's customers,  primarily through
the use of common carriers or an external distribution  service.  Shipping costs
of $1,990 in the first nine months of 2003  approximated  costs of $2,144 in the
corresponding  period of the prior year.  The Company  anticipates  that it will
continue  to incur a high  level  of  legal  expenses  related  to the  costs of
litigation  connected  with potential new product  introductions  (see "Notes to
Consolidated Financial Statements-Note 14- Commitments,  Contingencies and Other
Matters-Legal  Proceedings").  Selling,  general  and  administrative  costs are
expected to continue to increase over the remainder of 2003 in absolute  dollars
but not as a percentage of sales.

      The Company's  former  chairman,  president and chief  executive  officer,
Kenneth I. Sawyer,  retired,  effective  July 2003, and resigned from the board,
effective  September  2003 and will continue to be available to consult with the
Company.  A one-time charge of $3,712  associated  with Mr. Sawyer's  retirement
package was recorded in 2003.  The retirement  package  consists of expenses for
accelerated  stock  options,  a severance  payment and the remainder of his 2003
salary and benefits.

      Selling,  general  and  administrative  costs  of  $14,141  (7%  of  total
revenues)  for the third quarter of 2003  increased  $3,047 from $11,094 (11% of
total revenues) for the corresponding  quarter of last year. The increased costs
in the third  quarter  2003  consisted  of higher  costs for  product  liability
insurance, marketing, personnel and information system assessments. Distribution
costs  include those  related to shipping  product to the  Company's  customers,
primarily  through  the  use of  common  carriers  or an  external  distribution
service. Shipping costs were $641 in the third quarter 2003 compared to costs of
$807 in the corresponding quarter of 2002.

                                      -21-

<PAGE>

SETTLEMENTS

      On March  5,  2002,  the  Company  entered  into  the BMS  Asset  Purchase
Agreement  and acquired the United  States rights to five products from BMS. The
products   were  the   antihypertensives   Capoten(R)   and   Capozide(R),   the
cholesterol-lowering   medications   Questran(R)  and  Questran  Light(R),   and
Sumycin(R),  an  antibiotic.  To obtain the rights to these five  products,  the
Company  agreed to terminate its  outstanding  litigation  against BMS involving
megestrol acetate oral suspension and buspirone,  and paid approximately  $1,024
in March 2002 and  $1,025 in April  2003.  The  Company  determined,  through an
independent third party appraisal, the fair value of the product rights received
to be $11,700,  which exceeded the cash  consideration  of $2,049 and associated
costs of $600 by  $9,051.  The  $9,051  value  was  assigned  to the  litigation
settlements and recorded as settlement  income in the first quarter of 2002. The
fair value of the product rights  received is being amortized on a straight-line
basis over the seven-year  period  beginning in March 2002,  with the net amount
included in intangible assets on the Company's consolidated balance sheets.

ACQUISITION TERMINATION CHARGES

      On March 15,  2002,  the  Company  terminated  its  negotiations  with ISP
related to the  Company's  purchase of the combined ISP FineTech  fine  chemical
business,  based in Haifa, Israel and Columbus,  Ohio. At that time, the Company
discontinued   negotiations   with  ISP  as  a  result  of  various  events  and
circumstances   that  occurred   following  the  announcement  of  the  proposed
transaction. Pursuant to the termination of negotiations, the Company paid ISP a
$3,000  break-up  fee in March 2002,  which was  subject to certain  credits and
offsets,  and incurred $1,254 in related  acquisition  costs, both of which were
included in acquisition  termination  charges on the consolidated  statements of
operations.

OTHER EXPENSE

      Other expense for the nine- and  three-month  periods ended  September 28,
2003 of $145 and $101, respectively, decreased from $238 and $136, respectively,
for the corresponding  periods of 2002. Included in other expense in all covered
periods was the Company's  investment in High Rapids, which was partially offset
by net rental income from the Company's Congers facility.  Other expenses in the
nine-month  period  of  the  prior  year  also  included  those  related  to the
withdrawal of the Company's shelf  registration  statement that were recorded in
the second quarter of 2002.

INTEREST INCOME

      Net  interest  income  of $474 and $141,  respectively,  for the nine- and
three-month  periods ended  September 28, 2003 and $490 and $109,  respectively,
for the  corresponding  periods of 2002 was primarily  derived from money market
and other short-term investments.

INCOME TAXES

      The Company  recorded  provisions for income taxes of $55,053 and $25,295,
respectively,   and  $38,861  and  $12,559,  respectively,  for  the  nine-  and
three-month periods ended September 28, 2003 and September 30, 2002 based on the
applicable  federal  and  state  tax rates  for  those  periods  (see  "Notes to
Consolidated Financial Statements-Note 8 - Income Taxes").

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

      The  Company's  critical  accounting  policies are set forth in its Annual
Report on Form 10-K for the year  ended  December  31,  2002.  There has been no
change,  update  or  revision  to the  Company's  critical  accounting  policies
subsequent to the filing of the Company's  Form 10-K for the year ended December
31, 2002.

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

      Cash and cash  equivalents  of $157,529 at  September  28, 2003  increased
$92,408 from $65,121 at December 31,  2002,  primarily  due to cash  provided by
operations and, to a lesser extent,  proceeds from the issuance of shares of the
Company's  common  stock,  primarily  from the  exercise of stock  options.  The
Company invested $16,720 in capital improvements during the first nine months of

                                      -22-

<PAGE>

2003,  primarily for the expansion of its  laboratories  in Spring  Valley,  New
York, its administrative offices in Woodcliff Lake, New Jersey and its warehouse
facilities  in  Montebello,  New York.  In addition,  the Company  purchased new
production  machinery  for its  packaging  lines  and made  improvements  in its
information technology. The Company's cash balances are deposited primarily with
financial institutions in money market funds and overnight investments.  Working
capital, which includes cash and cash equivalents,  of $421,069 at September 28,
2003  increased  $284,764 from $136,305 at December 31, 2002,  primarily  from a
receivable  due from its  convertible  debt net  proceeds  and  increases in the
Company's  cash  position and  accounts  receivable  partially  offset by higher
payables due to GSK and payments due for income taxes. The working capital ratio
of 3.14x at September 28, 2003 improved from such ratio of 2.83x at December 31,
2002.

      In  September  2003,  the Company sold an  aggregate  principal  amount of
$200,000 of senior  subordinated  convertible  notes pursuant to Rule 144A under
the Securities Act of 1933, as amended.  Proceeds of $177,945 due to the Company
in October 2003 are net of underwriting  costs of $5,250 and the net payment for
the call option and warrant transactions described earlier, and were recorded as
a receivable due from  convertible  debt on the  consolidated  balance sheets at
September  28,  2003.  The  Company  intends to use the  proceeds to support the
expansion of its business,  including  increasing  its research and  development
activities,  entering into product license  arrangements and possibly  acquiring
complementary  businesses  and  products,  and for  general  corporate  purposes
(see "Notes to Consolidated Financial Statements-Note 7-Long-Term Debt").

      A summary of the Company's material contractual obligations and commercial
commitments as of September 28, 2003 are as follows:

<TABLE>
<CAPTION>
                                                      AMOUNTS DUE BY PERIOD
                                 TOTAL      OCT-DEC    2004 TO    2007 TO   2009 AND
  OBLIGATION                 OBLIGATION      2003        2006       2008   THEREAFTER
  ----------                 ----------      ----        ----       ----   ----------
<S>                             <C>        <C>         <C>        <C>        <C>
  Operating leases              $18,985      $745      $7,897     $4,278     $6,065
  Industrial revenue bond         1,728     1,728           -          -
  Other                              78        29          49          -          -
                                     --        --          --          -   --------

  Total obligations             $20,791    $2,502      $7,946     $4,278     $6,065
                                 ======     =====       =====      =====      =====
</TABLE>

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

      The Company entered into the Advancis Licensing Agreement, dated September
4,  2003,   with   Advancis  to  market  the   antibiotic   Clarithromycin   XL.
Clarithromycin XL is being developed as a generic  equivalent to Abbott's Biaxin
XL(R), which, according to the Company's market research, achieved U.S. sales of
approximately  $280 million during the 12 months ended September 2003.  Pursuant
to the  Advancis  Licensing  Agreement,  Advancis  will be  responsible  for the
development  and  manufacture of the product,  while Par will be responsible for
marketing,  sales  and  distribution.  If  certain  provisions  in the  Advancis
Licensing  Agreement are met, Par has agreed to pay Advancis an aggregate amount
of up to $6,000 based on the achievement of certain milestones  contained in the
Agreement. An ANDA for the product is expected to be submitted to the FDA in the
near future. Pursuant to the Advancis Licensing Agreement, the Company agreed to
pay  Advancis  a certain  percentage  of the gross  profits,  as  defined in the
Agreement,  on all sales of the product if the product is successfully developed
and introduced into the market.

      In October  2003,  the Company  purchased  1,000 shares of common stock of
Advancis in an initial  public  offering on October 16, 2003. The purchase price
was $10 per share and the transaction  closed on October 22, 2003. The Company's
investment  represents an ownership  position of 4.4 % of the outstanding common
stock of Advancis ( see "Subsequent Events").

      The Company  entered into an agreement  with BMS, dated August 6, 2003, to
license  the  "brand"  name  Megace(R)  to be used for a  potential  new product

                                      -23-

<PAGE>

currently in development.  The product,  if successfully  developed,  would be a
line extension of the Company's megestrol oral suspension products.  Pursuant to
this agreement,  the Company paid BMS $5,000 in August 2003,  which was included
in intangible  assets on the Company's  consolidated  balance sheets. As part of
this  agreement,  the Company is also providing BMS with funding of up to $2,000
to support the active  promotion of the "brand" during the remainder of 2003 and
throughout 2004 to help retain "brand" equity and awareness among physicians. In
the third  quarter  2003,  the Company  expensed  $420  related to the  sampling
program, which was included in selling,  general and administrative  expenses on
the consolidated statements of operations.

      The  Company and Nortec  Development  Associates,  Inc. (a Glatt  company)
("Nortec")  had entered into a binding  agreement in  principle,  dated March 3,
2003,  which was subject to final  negotiation  and  execution  of a  definitive
agreement in which the two companies agreed to develop additional  products that
are not part of the two previous  agreements between the Company and Nortec. The
execution of the definitive  agreement was completed on October 22, 2003. During
the first two years of the  agreement , Par will be obligated to make  aggregate
initial research and development  payments to Nortec in the amount of $3,000, of
which  $500 has  already  been paid and an  additional  $500 was paid in October
2003. On or before  October 15, 2005, the Company will have the option to either
(i) terminate the arrangement  with Nortec,  in which case the initial  research
and development payments will be credited against any development costs that the
Company  shall owe Nortec at that time or (ii) acquire all of the capital  stock
of Nortec over the subsequent two years, including the first fifty (50%) percent
of the capital  stock of Nortec over the third and fourth years of the agreement
for $4,000, and the remaining capital stock of Nortec from its owners at the end
of the fourth year for an additional $11,000.

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

      In November 2002, the Company amended its Supply and Marketing  Agreement,
dated November 2001, with Pentech to market paroxetine  hydrochloride  capsules.
Pursuant to the Supply and Marketing Agreement,  the Company was responsible for
all legal  expenses up to $2,000,  which were  expensed as  incurred,  to obtain
final  regulatory  approval.  Legal  expenses  in excess of  $2,000  were  fully
creditable  against future profit payments.  The Company had agreed to reimburse
Pentech  for costs  associated  with the project of up to $1,300 for fiscal year
2003,  which were  charged to  research  and  development  expenses as they were
incurred.  In the  first  nine  months of 2003,  the  Company  incurred  $896 in
research and development  costs pursuant to the Supply and Marketing  Agreement.
In October  2003,  the Company  reached an agreement  in principle  with Pentech
further  amending the Supply and  Marketing  Agreement  concerning  profit split
percentages,  reimbursement of research and development  expenses and sharing of
legal expenses related to paroxetine.

      In July 2002,  the Company and Three Rivers  entered  into a  distribution
agreement  (the "Three  Rivers  Distribution  Agreement"),  which was amended in
October 2002, to market and  distribute  ribavirin 200 mg capsules,  the generic
version of  Schering-Plough's  Rebetol(R).  Under the terms of the Three  Rivers
Distribution Agreement,  Three Rivers will supply the product and be responsible
for managing the regulatory process and ongoing patent litigation. Par will have
the  exclusive  right to sell  the  product  in  non-hospital  markets  upon FDA
approval and final marketing  clearance and pay Three Rivers a percentage of the
gross  profits (as defined in the  Agreement).  The  Company  paid Three  Rivers
$1,000 in November 2002,  which was charged to research and  development  during
the  period,  and has  agreed  to pay  Three  Rivers  $500  at such  time as Par
commercially launches the product.

      As of September 28, 2003,  the Company had payables  owed to  distribution
agreement  partners of $84,269,  related  primarily  to amounts due  pursuant to
profit sharing agreements,  particularly amounts owed to GSK on paroxetine.  The
Company  expects to pay these  amounts  out of its  working  capital  during the
fourth quarter of 2003.

      In December 2001, the Company made its first payment of a potential equity
investment  of up to  $2,438  to be made  over a period  of time in  HighRapids.
Pursuant to an agreement between the Company and HighRapids,  effective December
1,  2001,  the  Company,  subject  to  its  ongoing  evaluation  of  HighRapids'
operations,  has agreed to purchase units, consisting of secured debt, evidenced
by 7% secured  promissory  notes, up to an aggregate  principal amount of $2,425
and up to an  aggregate  of 1,330  shares  of the  common  stock of  HighRapids.
HighRapids  is to utilize the Company's  cash  infusion for working  capital and
operating expenses.  Through September 28, 2003, the Company had invested $1,199

                                      -24-

<PAGE>

of its potential investment. Due to HighRapids' current operating losses and the
Company's  evaluation  of  its  short-term  prospects  for  profitability,   the
investments  were  expensed as  incurred  and  included in other  expense on the
Company's  consolidated  statements of operations  (see "Notes  to  Consolidated
Financial Statements-Note 14-Commitments,  Contingencies and Other Matters-Other
Matters").

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

      The Company expects to continue to fund its operations, including research
and development  activities,  capital  projects,  and its obligations  under the
existing distribution and development  arrangements discussed herein, out of its
working  capital,  including the proceeds  from the issuance of its  convertible
debt. The Company expects its capital  spending to continue to increase over the
remainder  of fiscal year 2003,  due to the  expansion of its  laboratories  and
initiatives related to improvements to its information  systems.  Although there
can be no such assurance,  the Company anticipates it will continue to introduce
new products and attempt to increase sales of certain existing  products,  in an
effort  to  offset  the loss of sales  and any  erosion  of gross  margins  from
competition  on any of its  significant  products.  In addition to expected  new
product  introductions,  the Company plans to continue to invest in its internal
research and development  efforts while, at the same time, seeking  acquisitions
of   complementary   products   and   businesses,    additional    first-to-file
opportunities,  vertical  integration  with raw  material  suppliers  and unique
dosage forms and strengths to differentiate its products in the marketplace. The
Company also seeks to reduce the overall  impact of its top selling  products by
adding additional products through new and existing distribution agreements.  In
order to secure  financing to execute  these  strategies,  the Company  obtained
additional  funds through the issuance of  convertible  debt in September  2003.
Execution of these strategies  could also require  additional debt and/or equity
financing and there can be no assurance  that the Company will be able to obtain
any  additional  required  financing  when  needed  and on terms  acceptable  or
favorable to it.

FINANCING

      At September 28, 2003, the Company's  total  outstanding  long-term  debt,
including  the current  portion,  amounted  to  $201,807.  The amount  consisted
primarily of senior  subordinated  convertible notes, an industrial revenue bond
and capital leases for computer  equipment.  In September 2003, the Company sold
an aggregate  principal  amount of $200,000 of senior  subordinated  convertible
notes pursuant to Rule 144A under the  Securities  Act of 1933, as amended.  The
notes bear interest at an annual rate of 2.875% payable  semi-annually  on March
30 and September 30 of each year,  with the first payment due on March 30, 2004.
The  notes  are  convertible  into the  Company's  Common  Stock  at an  initial
conversion price of $88.76 per share, upon the occurrence of certain events. The
notes  will  mature  on  September  30,  2010,   unless  earlier   converted  or
repurchased.  The  Company  may not  redeem  the  notes  anytime  prior to their
maturity date.

      The  Company  has  altered  its  plans  to move a  portion  of  FineTech's
operation,  including  personnel  and  technological  resources  to a laboratory
facility in Rhode Island and, in October 2003, paid the remaining balance on the
industrial revenue bond that was to be used for this operation.

      In December  1996, Par entered into the Loan Agreement with GECC. The Loan
Agreement,  as amended in December  2002,  provided Par with a revolving line of
credit expiring in March 2005,  pursuant to which Par was permitted to borrow up
to the lesser of (i) the borrowing base established  under the Loan Agreement or
(ii) $30,000.  As of September 28, 2003, no debt was outstanding  under the Loan
Agreement. The Company terminated the Loan Agreement in October 2003.

SUBSEQUENT EVENTS

      In October  2003,  the Company  purchased  1,000 shares of common stock of
Advancis in its initial public  offering on October 16, 2003. The purchase price
was $10 per share and the transaction  closed on October 22, 2003. The Company's
investment  represents an ownership  position of 4.4% of the outstanding  common
stock  of  Advancis.  Advancis'  focus  is  on  developing  and  commercializing
pulsatile  drug  products  that fulfill  substantial  unmet medical needs in the

                                      -25-

<PAGE>

treatment of infectious disease. Unlike immediate release antibiotics, Advancis'
antibiotics  are delivered in three to five  sequential  pulses within the first
six to eight hours  following  initial  dosing.  The Company and Advancis have a
licensing  agreement  providing  Par  the  marketing  rights  to the  antibiotic
Clarithromycin XL . Clarithromycin XL is being developed as a generic equivalent
to Abbott's Biaxin XL(R).

       ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

      Not applicable.

                        ITEM 4. CONTROLS AND PROCEDURES.

      Based  on the  evaluations  by  the  Chief  Executive  Officer  and  Chief
Financial  Officer of the  Company  as of the end of the period  covered by this
quarterly report, the Company's  disclosure  controls and procedures (as defined
in Rule 13a-15(e) and 15d-15(e)  under the Securities  Exchange Act of 1934) are
effectively  designed to ensure that the information  required to be included in
this report has been  recorded,  processed,  summarized and reported on a timely
basis. There has not been any change during the three months ended September 28,
2003 in the  Company's  internal  controls  over  financial  reporting  that has
materially affected, or is reasonably likely to materially affect, the Company's
internal controls over financial reporting.

                                      -26-

<PAGE>

                           PART II. OTHER INFORMATION

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

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

      In October 2003,  Apotex Inc. filed a complaint against Par in the federal
district court in the Eastern  District of Pennsylvania  alleging  violations of
state  and  federal  antitrust  laws  relating  as a  result  of  the  Company's
settlement with GSK and the GSK Supply  Agreement.  Par intends to file a motion
to dismiss the action in its entirety in December  2003 and to otherwise  defend
vigorously this action, and may assert  counterclaims  against Apotex and claims
against third parties.

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

      On May 28,  2003,  Asahi Glass  Company  ("Asahi  Glass")  filed a lawsuit
against Par and several other parties in the United  States  District  Court for
the Northern District of Illinois  alleging,  among other things,  violations of
state and federal  antitrust  laws  relating to the  settlement  of GSK's patent
action  against  Pentech in respect of  paroxetine  hydrochloride,  the  generic
version of GSK's anti-depressant Paxil(R).  Pentech had granted Par rights under
Pentech's  ANDA  for  paroxetine   hydrochloride   capsules.   Pursuant  to  the
settlement,  reached  between  the  parties on April 18,  2003,  Pentech and Par
acknowledged  that the patent held by GSK is valid and  enforceable and would be
infringed by Pentech's  proposed  capsule product and GSK agreed to allow Par to
distribute  in  Puerto  Rico  substitutable  generic  paroxetine   hydrochloride
immediate  release tablets  supplied and licensed from GSK for a royalty payable
to GSK. Par has also been granted the right under the  settlement  to distribute
the drug in the United States if another generic version fully substitutable for
Paxil(R) becomes  available in the United States.  Par has denied any wrongdoing
in connection with the Asahi antitrust  action and filed a motion to dismiss the
complaint on August 22, 2003.  In October 2003,  the court  dismissed all of the
state and federal antitrust claims against Par. The only remaining claim in this
action  involving Par is a state law contract  claim  relating to the payment of
certain attorneys' fees to Asahi Glass in connection with the prior lawsuit. Par
intends to defend vigorously this lawsuit and may assert  counterclaims  against
Asahi Glass and claims against third parties.

      In February  2003,  Abbott  Laboratories,  Fornier  Industrie et Sante and
Laboratoires Fournier S.A. filed a complaint in the United States District Court
for the District of New Jersey against Par,  alleging that Par's generic version
of TriCor(R) (fenofibrate) infringes on one or more claims of their patents. The
Company had filed an ANDA for the product in October 2002. Par intends to defend

                                      -27-

<PAGE>

vigorously  this  lawsuit and has filed an answer and a  counterclaim,  alleging
non-infringement and patent invalidity.

      Breath Ltd. of the Arrow Group filed an ANDA  (currently  pending with the
FDA) for latanoprost  (Xalatan(R)),  which was developed by Breath Ltd. pursuant
to a joint  manufacturing  and  marketing  agreement  with the Company,  seeking
approval  to  engage  in  the  commercial  manufacture,  sale  and  use  of  one
latanoprost  drug  product  in the  United  States.  Par  subsequently  acquired
ownership  of the ANDA,  which  includes a Paragraph IV  certification  that the
patents in connection with Xalatan(R) identified in "Approved Drug Products with
Therapeutic Equivalence Evaluations" are invalid,  unenforceable and/or will not
be infringed by Par's generic  product.  Par believes that its ANDA is the first
to be filed for this drug with a Paragraph IV certification.  As a result of the
filing of the ANDA, Pharmacia Corporation,  Pharmacia AB, Pharmacia Enterprises,
S.A.,  Pharmacia  and  Upjohn  Company,  or,  collectively,  Pharmacia,  and the
Trustees of Columbia  University in the City of New York,  or Columbia,  filed a
lawsuit against Par on December 21, 2001 in the United States District Court for
the District of New Jersey, alleging patent infringement. Pharmacia and Columbia
are  seeking 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
seeks 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  is  invalid.  All  parties  are  seeking to  recover  their  respective
attorneys'  fees.  Discovery in the case has now been  completed  and a pretrial
conference  has been  scheduled for November 12, 2003. A trial date has not been
set.  Par  intends  to defend  vigorously  against  the claims and to pursue its
counterclaim.  At this time,  it is not  possible for the Company to predict the
outcome of this litigation with any certainty.

      Par,  among others,  was a defendant in three lawsuits filed in the United
States  District  Court for the  Eastern  District of North  Carolina  (filed on
August 1, 2001,  October  30,  2001 and  November  16,  2001,  respectively)  by
aaiPharma Inc.,  involving patent  infringement  allegations  connected to three
patents related to polymorphic forms of fluoxetine  (Prozac(R)).  In March 2003,
Par settled its  lawsuits  with  aaiPharma  Inc.  The  settlement  has not had a
material  adverse  effect on the  Company's  financial  position  or  results of
operation.

      The Company  and/or Par is a party in certain  other  litigation  matters,
including  product  liability and patent actions,  and the Company believes that
these  actions  are  incidental  to the conduct of its  business  and that their
ultimate  resolution  thereof  will not have a  material  adverse  effect on its
financial condition,  results of operations or liquidity. The Company intends to
vigorously  defend or, in cases where the Company is plaintiff,  prosecute these
actions.

ITEM 5. OTHER INFORMATION.
------  -----------------

      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.  Because the investigation
has only recently begun,  it is premature to speculate what action,  if any, the
federal  government  may take and what  impact  such  action  could  have on our
business, prospects or financial condition.

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

      (a) Exhibits:

      10.50    License  Agreement,  dated as of August 6, 2003,  by and  between
               Mead  Johnson & Company,  Bristol-Myers  Squibb  Company  and Par
               Pharmaceutical, Inc.*

      10.51    Supply and Distribution Agreement, dated as of September 4, 2003,
               by  and  between  Advancis  Pharmaceutical  Corporation  and  Par
               Pharmaceutical, Inc.*

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

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

                                      -28-

<PAGE>

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

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

               *Certain portions of these exhibits  have been  omitted  and have
               been  filed  with the Securities and Exchange Commission pursuant
               to a request for confidential treatment thereof.

      (b) Reports on Form 8-K:

          On September 29, 2003, September 25, 2003 and September 24, 2003,  the
          Company filed Current  Reports on Form 8-K.

                                      -29-
<PAGE>

                                    SIGNATURE

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


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




November 12, 2003                         /s/ SCOTT L. TARRIFF
                                          ---------------------
                                          Scott L. Tarriff
                                          PRESIDENT AND CHIEF EXECUTIVE OFFICER




November 12, 2003                         /s/ DENNIS J. O'CONNOR
                                          -----------------------
                                          Dennis J. O'Connor
                                          VICE PRESIDENT; CHIEF FINANCIAL
                                            OFFICER AND SECRETARY
                                          (Principal Accounting and Financial
                                            Officer)

                                      -30-

<PAGE>

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

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

      10.50    License  Agreement,  dated as of August 6, 2003,  by and  between
               Mead  Johnson & Company,  Bristol-Myers  Squibb  Company  and Par
               Pharmaceutical, Inc.*

      10.51    Supply and Distribution Agreement, dated as of September 4, 2003,
               by  and  between  Advancis  Pharmaceutical  Corporation  and  Par
               Pharmaceutical, Inc.*

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

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

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

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

               * Certain  portions of these  exhibits have been omitted and have
               been filed with the Securities and Exchange  Commission  pursuant
               to a request for confidential treatment thereof.

                                      -31-