<PAGE>

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

                               ________________

                                   FORM 10Q

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

                  For the quarterly period ended July 1, 2000

                        Commission File Number 1-10827


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


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


One Ram Ridge Road, Spring Valley, New York                        10977
 (Address of principal executive offices)                       (Zip Code)


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



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


                                  29,607,232
      Number of shares of Common Stock outstanding as of August 9, 2000.

         This is page 1 of 19 pages.  The exhibit index is on page 18.
<PAGE>

                         PART I. FINANCIAL INFORMATION
                         ITEM 1. FINANCIAL STATEMENTS

                        PHARMACEUTICAL RESOURCES, INC.
                          CONSOLIDATED BALANCE SHEETS
                       (In Thousands, Except Share Data)
<TABLE>
<CAPTION>


                                                                             July 1,         December 31,
       ASSETS                                                                 2000              1999
       ------                                                              (Unaudited)        (Audited)
                                                                           ----------       ------------
<S>                                                                         <C>             <C>
Current assets:
  Cash and cash equivalents                                                  $    210       $    222
  Accounts receivable, net of allowances of
   $3,147 and $2,559                                                           22,760         17,528
  Inventories                                                                  22,725         19,903
  Prepaid expenses and other current assets                                     2,810          4,140
                                                                             --------       --------
    Total current assets                                                       48,505         41,793

Property, plant and equipment, at cost less
 accumulated depreciation and amortization                                     23,008         22,681

Deferred charges and other assets                                               4,242          3,604

Non-current deferred tax benefit, net                                          14,608         14,608
                                                                             --------       --------

   Total assets                                                              $ 90,363       $ 82,686
                                                                             ========       ========

      LIABILITIES AND SHAREHOLDERS' EQUITY
      ------------------------------------
Current liabilities:
  Current portion of long-term debt                                          $    238       $    238
  Short-term debt                                                              13,534          4,398
  Accounts payable                                                             12,857         12,718
  Accrued salaries and employee benefits                                        1,681          1,507
  Accrued expenses and other current liabilities                                1,597          1,711
                                                                             --------       --------
     Total current liabilities                                                 29,907         20,572

Long-term debt, less current portion                                              955          1,075

Accrued pension liability                                                         700            700

Shareholders' equity:
  Common Stock, par value $.01 per share; authorized 90,000,000 shares;
    issued and outstanding 29,600,565 and 29,562,025 shares                       296            296
  Additional paid in capital                                                   89,244         89,003
  Accumulated deficit                                                         (30,473)       (28,694)
  Additional minimum liability related to defined benefit pension plan           (266)          (266)
                                                                             --------       --------
    Total shareholders' equity                                                 58,801         60,339
                                                                             --------       --------
    Total liabilities and shareholders' equity                               $ 90,363       $ 82,686
                                                                             ========       ========

</TABLE>



        The accompanying notes are an integral part of these statements.

                                     --2--
<PAGE>

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

<TABLE>
<CAPTION>


                                                  Six Months Ended     Three Months Ended
                                                -------------------   -------------------
                                                 July 1,    July 3,    July 1,    July 3,
                                                  2000       1999       2000       1999
                                                --------   --------   --------   --------
<S>                                             <C>        <C>        <C>        <C>
Net sales                                       $ 40,853   $ 41,125   $ 22,714   $ 20,961
Cost of goods sold                                30,828     33,100     16,111     16,852
                                                --------   --------   --------   --------
   Gross margin                                   10,025      8,025      6,603      4,109

Operating expenses:
 Research and development                          4,455      2,467      2,316      1,281
 Selling, general and administrative               7,360      6,466      4,040      3,244
                                                --------   --------   --------   --------
   Total operating expenses                       11,815      8,933      6,356      4,525
                                                --------   --------   --------   --------
   Operating (loss) income                        (1,790)      (908)       247       (416)

Other income, net                                    392        161        303         44
Interest (expense) income                           (381)        54       (233)         7
                                                --------   --------   --------   --------
Net (loss) income                                 (1,779)      (693)       317       (365)

Accumulated deficit, beginning of period         (28,694)   (26,920)   (30,790)   (27,248)
                                                --------   --------   --------   --------
Accumulated deficit, end of period              $(30,473)  $(27,613)  $(30,473)  $(27,613)
                                                ========   ========   ========   ========
Net (loss) income per share of common stock:
   Basic                                           $(.06)     $(.02)      $.01      $(.01)
                                                ========   ========   ========   ========
   Diluted                                         $(.06)     $(.02)      $.01      $(.01)
                                                ========   ========   ========   ========


Weighted average number of common and
 common equivalent shares outstanding:
   Basic                                          29,575     29,387     29,585     29,421
                                                ========   ========   ========   ========
   Diluted                                        29,575     29,387     30,614     29,421
                                                ========   ========   ========   ========

</TABLE>

       The accompanying notes are an integral part of these statements.

                                     --3--
<PAGE>

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

<TABLE>
 <CAPTION>
                                                                          Six Months Ended
                                                                          ------------------
                                                                          July 1,    July 3,
                                                                           2000       1999
                                                                          -------   -------

<S>                                                                       <C>       <C>
Cash flows from operating activities:
 Net loss                                                                 $(1,779)  $  (693)

 Adjustments to reconcile net loss to net
   cash used in operating activities:
  Depreciation and amortization                                             1,082     1,265
  Allowances against accounts receivable                                      588       722
  Write-off of inventories                                                    830       528
  Other                                                                       133       116

 Changes in assets and liabilities:
    Increase in accounts receivable                                        (5,820)     (823)
    Increase in inventories                                                (3,652)   (2,163)
    Decrease (increase) in prepaid expenses and other assets                  692      (399)
    Increase (decrease) in accounts payable                                   139    (2,113)
    Increase (decrease) in accrued expenses and other liabilities              60      (908)
                                                                          -------   -------
   Net cash used in operating activities                                   (7,727)   (4,468)

Cash flows from investing activities:
      Capital expenditures                                                 (1,424)   (1,069)
      Proceeds from sale of fixed assets                                       11        45
                                                                          -------   -------
   Net cash used in investing activities                                   (1,413)   (1,024)

 Cash flows from financing activities:
   Proceeds from issuances of Common Stock                                    112       372
   Net proceeds from revolving credit line and issuances of other debt      9,136       120
   Principal payments under long-term debt and other borrowings              (120)     (144)
                                                                          -------   -------
   Net cash provided by financing activities                                9,128       348

Net decrease in cash and cash equivalents                                     (12)   (5,144)
Cash and cash equivalents at beginning of period                              222     6,424
                                                                          -------   -------
Cash and cash equivalents at end of period                                $   210   $ 1,280
                                                                          =======   =======

</TABLE>


       The accompanying notes are an integral part of these statements.

                                     --4--
<PAGE>

                        PHARMACEUTICAL RESOURCES, INC.
                         NOTES TO FINANCIAL STATEMENTS
                                 July 1, 2000
                                  (Unaudited)


   Pharmaceutical Resources, Inc. (the "Company" or "PRI") operates, primarily
through its wholly-owned subsidiary, Par Pharmaceutical, Inc. ("Par"), in one
business segment, the manufacture and distribution of generic pharmaceuticals in
the United States. Marketed products are principally in solid oral dosage form
(tablet, caplet and two-piece hard-shell capsule). The Company also distributes
one product in the semi-solid form of a cream.

Basis of Preparation:

   The accompanying consolidated financial statements at July 1, 2000 and for
the six-month and three-month periods ended July 1, 2000 and July 3, 1999 are
unaudited; however, in the opinion of the management of PRI, such statements
include all adjustments (consisting of normal recurring accruals) necessary to a
fair statement of the information presented therein. The balance sheet at
December 31, 1999 was derived from the Company's audited financial statements at
such date.

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

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

Strategic Alliance:

   On June 30, 1998, the Company completed a strategic alliance with Merck KGaA,
a pharmaceutical and chemical company located in Darmstadt, Germany.  Pursuant
to the Stock Purchase Agreement, dated March 25, 1998, Merck KGaA, through its
subsidiary Lipha Americas, Inc., purchased 10,400,000 newly issued shares of the
Company's Common Stock for $20,800,000.  In addition, the Company issued to
Merck KGaA and Genpharm, Inc. ("Genpharm"), a Canadian subsidiary of Merck KGaA,
five-year options to purchase an aggregate of 1,171,040 additional shares of the
Company's Common Stock at an exercise price of $2.00 per share in exchange for
consulting services.  The options expire in April 2003 and become exercisable
commencing in July 2001.  As part of the alliance, the Company obtained the
exclusive United States distribution rights to a portfolio of products covered
by a distribution agreement with Genpharm (see "-Distribution and Supply
Agreements-Genpharm, Inc.").  Merck KGaA also purchased 1,813,272 shares of the
Company's Common Stock from Clal Pharmaceutical Industries Ltd. ("Clal"), PRI's
largest shareholder prior to the transaction.  Clal has the right to cause Merck
KGaA and/or the Company to purchase 500,000 additional shares of Common Stock
from Clal at a price of $2.50 per share in July 2001.

Research and Development Agreement:

   The Company, Israel Pharmaceutical Resources L.P. ("IPR"), and Generics (UK)
Ltd. ("Generics"), a subsidiary of Merck KGaA, entered into an agreement (the
"Development Agreement"), dated as of August 11, 1998, pursuant to which
Generics agreed to fund one-half the costs of the operating budget of IPR, the
Company's research and development operation in Israel, in exchange for the
exclusive distribution rights outside of the United States to products developed
by IPR after the date of the Development Agreement.  In addition, Generics
agreed to pay IPR a perpetual royalty for all sales of the products by Generics
or its affiliates outside the United States.  The Development Agreement has an
initial term of five years and automatically renews for additional periods of
one year subject to earlier termination upon six months' notice in certain
circumstances.  Pursuant to the Development Agreement, Generics paid the Company
an initial fee of $600,000 in August 1998 and had fulfilled their funding
requirements through July 1, 2000.  Under the Development Agreement, Generics is
not required to fund more than $1,000,000 in any one calendar year.

                                     --5--
<PAGE>

                        PHARMACEUTICAL RESOURCES, INC.
                         NOTES TO FINANCIAL STATEMENTS
                                 July 1, 2000
                                  (Unaudited)


Profit Sharing Agreement:

   In January 1999, the Company entered into a profit sharing agreement (the
"Genpharm Profit Sharing Agreement") with Genpharm pursuant to which the Company
will receive a portion of the profits resulting from a separate agreement
between Genpharm and an unaffiliated United States based pharmaceutical company
in exchange for a non-refundable fee of $2,500,000 paid by the Company.  The
fee, included in deferred charges and other assets, will be amortized over a
projected revenue stream from the products when launched by the third party. The
agreement between Genpharm and the unaffiliated third party covers 15 products
that are not included in the Company's distribution agreement with Genpharm
resulting from its strategic alliance with Merck KGaA (see "-Distribution and
Supply Agreements-Genpharm, Inc.").

Lease Agreement:

   In March 1999, Par entered into an agreement to lease (the "Lease Agreement")
its manufacturing facility and related machinery and equipment located in
Congers, New York (the "Congers Facility") to Halsey Drug Co., Inc. ("Halsey"),
a manufacturer of generic pharmaceutical products.  The Lease Agreement has an
initial term of three years, subject to an additional two-year renewal period
and contains a purchase option permitting Halsey to purchase the Congers
Facility and substantially all the equipment thereof at any time during the
lease terms for a specified amount. The Lease Agreement provides for annual
fixed rent during the initial term of $500,000 per year and $600,000 per year
during the renewal period.  Pursuant to the Lease Agreement, Halsey paid the
purchase option of $100,000 in March 1999.  Under the Halsey Supply Agreement
(as hereinafter defined), Halsey will perform certain manufacturing operations
for the Company at the Congers Facility.  Pursuant to the Lease Agreement, Par
agreed that if its purchases are less than $1,150,000 worth of the products
during the initial 18 months of the Halsey Supply Agreement, the amount of the
deficiency will be credited against rent payments due under the Lease Agreement
(see "-Distribution and Supply Agreements-Halsey Drug Co., Inc.").

Distribution and Supply Agreements:

Halsey Drug Co., Inc.

   In March 1999, Par entered into a Manufacturing and Supply Agreement with
Halsey (the "Halsey Supply Agreement").  The Halsey Supply Agreement requires
Halsey to manufacture exclusively for Par certain products previously
manufactured by Par at the Congers Facility. The Halsey Supply Agreement has an
initial term of three years subject to earlier termination upon the occurrence
of certain events as provided therein.  Pursuant to the Lease Agreement, Par
agreed to purchase not less than $1,150,000 worth of the products during the
initial 18 months of the Halsey Supply Agreement, subject to Par's agreement to
credit any deficiency of products purchased under the Lease Agreement. In
addition, the Halsey Supply Agreement prohibits Halsey from manufacturing,
supplying, developing or distributing products produced under such Agreement for
anyone other than Par for a period of three years from the date of the Halsey
Supply Agreement.

Genpharm, Inc.:

   The Company has a distribution agreement with Genpharm (the "Genpharm
Distribution Agreement") pursuant to which Genpharm granted exclusive
distribution rights to the Company within the United States and certain other
United States territories with respect to approximately 40 generic
pharmaceutical products.  To date, 11 of such products have obtained U.S. Food
and Drug Administration ("FDA") approval and are currently being marketed by
Par. The remaining products are either currently being developed, have been
identified for development, or have been submitted to the FDA for approval.
Products may be added to or removed from the Genpharm Distribution Agreement by
mutual agreement of the parties.  Genpharm is required to use commercially
reasonable efforts to develop the products, which are subject to the Genpharm
Distribution Agreement, and is responsible for the completion of product
development and for obtaining all applicable regulatory approvals. The Company
will pay Genpharm a percentage of the gross profits attributable to the sales of
such products by the Company.

                                     --6--
<PAGE>

                        PHARMACEUTICAL RESOURCES, INC.
                         NOTES TO FINANCIAL STATEMENTS
                                 July 1, 2000
                                  (Unaudited)



   In August 1999, Par entered into a separate agreement with Genpharm pursuant
to which Par purchased the United States distribution rights for methimazole
(Tapazole(R)) for a fee of $707,000.  The fee will be amortized over three years
and the net amount is included in deferred charges and other assets.  The
Company began marketing the product and amortizing the fee in April 2000.  The
agreement has an initial term of three years and is renewable by mutual consent
of the parties for successive one-year terms.

BASF Corporation:

   In April 1997, Par entered into a Manufacturing and Supply Agreement (the
"BASF Supply Agreement") with BASF Corporation ("BASF"), a manufacturer of
pharmaceutical products.  Under the BASF Supply Agreement, Par has agreed to
purchase certain minimum quantities of certain products manufactured by BASF at
one of its facilities, and to phase out Par's manufacturing of those products.
BASF agreed to discontinue its direct sale of those products. The agreement has
an initial term of three years (subject to earlier termination upon the
occurrence of certain events as provided therein) and thereafter renews
automatically for successive two-year periods until December 31, 2005, if Par
has met certain purchase thresholds. In each of the first three years of the
initial term of the BASF Supply Agreement, Par agreed to purchase an aggregate
of at least $24,500,000 worth of three products.  Further, if Par does not
purchase at least $29,000,000 worth of one of those products in the third and
final year of the agreement, BASF has the right to terminate the agreement with
a notice period of one year. The Company met the minimum purchase requirements
for fiscal year 1999, but did not meet the minimum purchase requirement for one
such product in the third and final year of the agreement.  To ensure
continuance of product supply, BASF and the Company have agreed in principle to
the terms of a new agreement similar to the terms of the current agreement, but
with lower minimum purchase requirements.

Elan Corporation:

   In September 1998, the Company and Elan Transdermal Technologies, Inc.,
formerly known as Sano Corporation, and Elan Corporation, plc (collectively
"Elan") entered into a termination agreement (the "Termination Agreement") with
respect to their prior distribution agreement.  Pursuant to the Termination
Agreement, the Company's exclusive right to distribute in the United States a
prescription transdermal nicotine patch manufactured by Elan ended on May 31,
1999.  The Company began selling Elan's prescription transdermal nicotine patch
in January 1998 and paid Elan a percentage of the gross profits through the
termination date.  In exchange for relinquishing long-term distribution rights
to the prescription transdermal nicotine patch and a nitroglycerin patch, the
Company received a cash payment of $2,000,000 in October 1998 and an additional
payment of $1,000,000 in the third quarter of 1999.  In June 2000, the Company
agreed to sell its remaining distribution rights back to Elan for a non-
prescription transdermal nicotine patch and to terminate Par's right to royalty
payments under the Termination Agreement.  Pursuant to this agreement, the
Company will receive a minimum payment of $500,000 on or before July 31, 2001
and could receive an additional $1,000,000 to $1,500,000 subject to certain
conditions as set forth in the agreement, including Elan's introduction of the
product in the United States and Israel on or before certain dates.  In July
2000, Elan paid the Company $150,000 under the agreement.

Short-Term Debt:

   In December 1996, Par entered into a Loan and Security Agreement (the "Loan
Agreement") with General Electric Capital Corporation ("GECC").  The Loan
Agreement, as amended, provides Par with a five-year revolving line of credit.
Pursuant to the Loan Agreement, Par is permitted to borrow up to the lesser of
(i) the borrowing base established under the Loan Agreement or (ii) $20,000,000.
The borrowing base is limited to 85% of eligible accounts receivable plus 50% of
eligible inventory of Par, each as determined from time to time by GECC.  The
interest rate charge on the line of credit is based upon a per annum rate of
2.25% above the 30-day commercial paper rate for high-grade unsecured notes
adjusted monthly.  The line of credit with GECC is secured by the assets of Par
and PRI other than real property and is guaranteed by PRI.  In connection with
such facility, Par, PRI and their affiliates have established a cash management
system pursuant to which all cash and cash equivalents received by any of such
entities are deposited into a lockbox account over which GECC has sole operating
control and which are applied on a daily basis to reduce amounts outstanding
under the line of credit. The revolving credit facility is subject to covenants
based on

                                     --7--
<PAGE>

                        PHARMACEUTICAL RESOURCES, INC.
                         NOTES TO FINANCIAL STATEMENTS
                                 July 1, 2000
                                  (Unaudited)


various financial benchmarks. As of July 1, 2000, the borrowing base was
approximately $18,574,000 and $13,534,000 was outstanding under the line of
credit.

Income Taxes:

   Based on the Company's recent performance and uncertainty of the generic
business in which it operates, management believes that future operating income
might not be sufficient to recognize fully the net operating loss carryforwards
of the Company.  Therefore, the Company did not recognize a benefit for its
operating losses in any of the six-month and three-month periods ended July 1,
2000 or July 3, 1999.  If the Company is unable to generate sufficient taxable
income in the future, the Company expects that increases in the valuation
allowance will be required through a charge to expense.

Earnings Per Share:

   During fiscal year 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" ("SFAS 128"), which
establishes the standards for the computation and presentation of basic and
diluted earnings per share data.  Under SFAS 128, the dilutive effect of stock
options is excluded from the calculation of basic earnings per share but
included in diluted earnings per share.  The following table is a reconciliation
of the numerators and denominators used to calculate basic and diluted earnings
per share:
<TABLE>
<CAPTION>

                                                    Six Months Ended      Three Months Ended
                                                  --------------------    ------------------
                                                   July 1,    July 3,     July 1,     July 3,
                                                    2000       1999        2000        1999
                                                  -------     -------     -------     ------
                                                    (In Thousands, Except Per Share Amounts)
<S>                                              <C>       <C>           <C>          <C>
Net (loss) income (numerator)                    $(1,779)  $  (693)      $   317     $  (365)

Basic:
Weighted average number of common
 shares outstanding (denominator)                 29,575    29,387        29,585      29,421

Net (loss) income per share of common stock      $  (.06)  $  (.02)      $   .01     $  (.01)
                                                 =======   =======       =======     =======

Assuming dilution:
Weighted average number of common
 shares outstanding                               29,575    29,387       29,585      29,421
Effect of dilutive options                           -         -          1,029         -
                                                 -------   -------      -------     -------
Weighted average number of common and common
  equivalent shares outstanding (denominator)     29,575    29,387       30,614      29,421

Net (loss) income per share of common stock      $  (.06)  $  (.02)     $   .01     $  (.01)
                                                 =======   =======      =======     =======

</TABLE>

   Outstanding options and warrants of 548,700 and 420,200 at the end of the
six-month and three-month periods ended July 1, 2000, respectively, and 287,500
and 262,500 at the end of the corresponding periods of the prior year were not
included in the computation of diluted earnings per share because their exercise
prices were greater than the average market price of the Common Stock in the
respective periods.  In addition, incremental shares from assumed conversions of
980,714 at the end of the six-month period ended July 1, 2000 and 1,145,825 and
1,222,841 at the end of the six-month and three-month periods ended July 3,
1999, respectively, were excluded from diluted earnings per share because they
were anti-dilutive.

                                     --8--
<PAGE>

                        PHARMACEUTICAL RESOURCES, INC.
                         NOTES TO FINANCIAL STATEMENTS
                                 July 1, 2000
                                  (Unaudited)

New Accounting Standards:

   The Company adopted SFAS No. 130, "Reporting Comprehensive Income" ("SFAS
130"), during the period ended December 31, 1998, which establishes standards
for the reporting and display of comprehensive income and its components.  As a
result of the adoption of SFAS 130, there was no impact on the financial
statements in the six-month and three-month periods ended July 1, 2000 or
July 3, 1999.

   In June 1998, the Financial Accounting Standards Board issued SFAS No.133
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
which establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities.  The Company is currently evaluating the impact of the
adoption of this Standard on its financial position and results of operations.

Commitments, Contingencies and Other Matters:

Retirement Plans:

   The Company has a defined contribution social security integrated Retirement
Plan (the "Retirement Plan") providing retirement benefits to eligible employees
as defined in the Retirement Plan.  The Company suspended employer contributions
to the Retirement Plan effective December 30, 1996.  Consequently, participants
in the Retirement Plan will no longer be entitled to any employer contributions
under such plan for 1996 or subsequent years. The Company also maintains a
Retirement Savings Plan (the "Retirement Savings Plan") whereby eligible
employees are permitted to contribute from 1% to 15% of pay to the Retirement
Savings Plan.  The Company contributes an amount equal to 50% of the first 6% of
the pay contributed by the employee.  In fiscal year 1998, the Company merged
the Retirement Plan into the Retirement Savings Plan.

Legal Proceedings:
   Par has filed with the FDA an abbreviated new drug application ("ANDA") for
megestrol acetate oral suspension, the generic version of Bristol Myers Squibb's
("BMS") Megace(R) Oral Suspension. Par filed a paragraph IV certification
regarding the formulation patent as part of its ANDA submission. The basic
compound patent for Megace(R) has expired. Megace(R) Oral Suspension received
orphan drug exclusivity from the FDA that expires September 10, 2000 and BMS has
a formulation patent for Megace(R) Oral Suspension expiring in 2011. Par
believes that its distinct and unique formulation does not infringe the BMS
formulation patent. In October 1999, BMS initiated a patent infringement action
against Par. On March 1, 2000, Par was granted a patent by the U.S. Patent
Office regarding Par's unique formulation of megestrol acetate oral suspension.
Par believes that the issuance of this patent, which establishes the uniqueness
of Par's formulation compared to the BMS patent, should significantly help Par's
defense in the patent infringement case. Par intends to vigorously pursue its
pending litigation with BMS and to defend its patent rights and ensure that
other generic companies do not infringe the Par patent. At this time, it is not
possible for the Company to predict the probable outcome of this litigation and
the impact, if any, that it might have on the Company.

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

Asset Impairment/Restructuring:
   The Company discontinued the sale of certain unprofitable products,
terminated approximately 50 employees in 1999, primarily in manufacturing and
various manufacturing support functions, and reduced certain related operating
expenses as part of previously announced measures to reduce costs and increase
operating efficiencies.  These measures resulted in a charges of $1,906,000 in
the three-month transition period ended December 31, 1998, which included
approximately $1,200,000 for write-downs related to the impairment of assets
affected by the discontinuance of the products and a provision of $706,000 for
severance payments and other employee termination benefits. The amount of

                                     --9--
<PAGE>

                        PHARMACEUTICAL RESOURCES, INC.
                         NOTES TO FINANCIAL STATEMENTS
                                 July 1, 2000
                                  (Unaudited)

the actual termination benefits paid approximated the amount of the original
provision. Additionally, the Company established inventory reserves of $630,000
related to the discontinued products which was recorded as part of cost of goods
sold during the transition period. At July 1, 2000, the remaining provision for
discontinued product inventory amounted to $114,000, which the Company expects
to be sufficient and fully utilized.


                                    --10--
<PAGE>

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

   Certain statements in this Form 10-Q may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, including those concerning management's expectations with respect to
future financial performance and future events, particularly relating to sales
of current products as well as certain cost cutting and restructuring measures
and the introduction of new manufactured and distributed products.  Such
statements involve known and unknown risks, uncertainties and contingencies,
many of which are beyond the control of the Company, which could cause actual
results and outcomes to differ materially from those expressed herein. Factors
that might affect such forward-looking statements set forth in this Form 10-Q
include, among others, (i) increased competition from new and existing
competitors and pricing practices from such competitors, (ii) 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 effectiveness of restructuring measures to reduce losses
and increase efficiencies, (vii) the continued ability of distributed product
suppliers to meet future demand, (viii) the outcome of any threatened or pending
litigation and (ix) general industry and economic conditions.  Any forward-
looking statements included in this Form 10-Q are made as of the date hereof,
based on information available to the Company as of the date hereof, and the
Company assumes no obligation to update any forward-looking statements.

RESULTS OF OPERATIONS

General

   The Company's net loss of $1,779,000 for the six-month period ended July 1,
2000 increased from a net loss of $693,000 for the six-month period ended July
3, 1999 due to higher research and development spending and additional legal
costs related to a patent infringement action.  Although net sales in each of
the periods were approximately the same level, gross margins improved primarily
due to the introduction of new products replacing certain discontinued lower
margin products.  Results for the second quarter ended July 1, 2000 improved
from last year as the Company reported net income of $317,000 compared to a net
loss of $365,000 in the comparable quarter of 1999.  Sales growth and higher
gross margins in the second quarter of 2000, primarily from new products, more
than offset the increased costs for product development and legal fees.

   In order to improve the Company's prospects and strengthen its financial
condition through the introduction of new products at profitable pricing, the
Company entered into a strategic alliance with Merck KGaA, which was completed
on June 30, 1998.  As part of the alliance, the Company sold Common Stock to a
subsidiary of Merck KGaA and received exclusive United States distribution
rights for up to approximately 40 generic pharmaceutical products covered by the
Genpharm Distribution Agreement.  To date, 11 of such products have received FDA
approval and are currently being marketed by Par.  The remaining products are
either being developed, have been identified for development, or have been
submitted to the FDA for approval.  There are currently ANDAs for nine
additional products, one of which was tentatively approved, covered by the
Genpharm Distribution Agreement pending with and awaiting approval from, the
FDA.  Genpharm pays the research and development costs associated with the
products and the Company is obligated to pay Genpharm a certain percentage of
the gross margin on sales of the products.  The alliance provides the Company
with a significant number of potential products for its development pipeline
without the substantial resource commitment, including financial, it would
normally take to develop such a pipeline, improved financial condition and
access to Merck KGaA's expertise and experience in the industry (see "Notes to
Financial Statements-Strategic Alliance" and "Distribution and Supply
Agreements-Genpharm, Inc.").

   Critical to any significant improvement in the Company's financial condition
is the introduction of new manufactured and distributed products at selling
prices that generate significant gross margin.  In addition to product
introductions expected as part of the strategic alliance with Merck KGaA, the
Company plans to continue to invest in research and development efforts, subject
to liquidity concerns, and pursue additional products for sale through new and
existing distribution agreements.  The Company is engaged in efforts, subject to
FDA approval and other factors, to introduce new products as a result of its
research and development efforts and distribution and development agreements.
No assurance can be given that the Company will obtain any additional products
for sale or that sales of additional products will reduce losses or return the
Company to profitability.  Continuing operating losses will have a

                                    --11--
<PAGE>

materially adverse affect on the Company's liquidity and, accordingly, limit its
ability to fund research and development or ventures relating to the sale of new
products and market existing products (see "Financial Condition-Liquidity and
Capital Resources").

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

Net Sales

   Net sales of $40,853,000 for the six-month period ended July 1, 2000 were
comparable to net sales of $41,125,000 for the six-month period ended July 3,
1999.  Additional sales from new products, primarily products sold under
distribution agreements with Genpharm, offset the termination of the
prescription transdermal nicotine patch distribution rights, effective May 31,
1999, and decreased sales of antibiotics due to a supplier's inability to meet
the Company's production requirements.  At this time, the Company is
discontinuing its antibiotic product line due to continued production issues
with suppliers.  Total sales of antibiotics were approximately $4,088,000, or 5%
of the Company's total net sales in 1999.  Net sales of distributed products in
the most recent six months, which consist of products manufactured under
contract and licensed products, were approximately 62% of the Company's net
sales compared to approximately 67% of net sales in 1999.  The Company is
substantially dependent upon distributed products for its sales, and as the
Company introduces new distributed products under its distribution agreements,
it is expected that this trend will continue.  Any inability by suppliers to
meet expected demand could adversely affect future sales. The Company
discontinued certain unprofitable products during 1999 following an evaluation
of its existing product line.  Although there can be no assurance, it is
anticipated that new product introductions and additional over-the-counter
business recently obtained by the Company will continue to offset decreased
sales from the termination of the prescription transdermal nicotine patch
distribution rights, loss of the antibiotics business, and to a lesser extent,
the discontinued manufactured products.

   Second quarter 2000 net sales of $22,714,000 increased $1,753,000, or 8%,
from $20,961,000 for the corresponding quarter of 1999. Increased sales of new
products, primarily methimazole (Tapazole(R)) and sotalol (Betapace(R)), more
than offset lower sales from discontinued products. Net sales of distributed
products were approximately 64% of the Company's total net sales in the most
recent quarter versus approximately 67% of the total for the same quarter of
last year.

   Sales of the Company's products are principally dependent upon, among other
things, (i) pricing levels and competition, (ii) market penetration for the
existing product line, (iii) the continuation of existing distribution
agreements,  (iv) introduction of new distributed products, (v) approval of
ANDAs and introduction of new manufactured products, and (vi) the level of
customer service.

Gross Margin

   The gross margin of $10,025,000 (25% of net sales) for the six-month period
ended July 1, 2000 increased $2,000,000 from $8,025,000 (20% of net sales) in
the corresponding period of the prior year.  Gross margin gains were attained
principally through the sale of new products and lower manufacturing costs,
primarily due to the leasing of the Congers Facility in March 1999.  The loss of
gross margin from the termination of the prescription transdermal nicotine patch
distribution rights was partially offset by the sale of distribution rights for
a non-prescription transdermal nicotine patch (see "Notes to Financial
Statements-Distribution and Supply Agreements-Elan Corporation Inc.").

                                     --12-
<PAGE>

   The gross margin in the second quarter 2000 increased $2,494,000 to
$6,603,000 (29% of net sales) from $4,109,000 (20% of net sales) in the
corresponding quarter of the prior year. Additional gross margin contributions
from new products, the sale of distribution rights and lower manufacturing costs
more than offset the termination of the prescription transdermal nicotine patch
distribution rights and higher inventory write-offs.

   Inventory write-offs amounted to $830,000 and $695,000 for the six-month and
three-month periods ended July 1, 2000, respectively, compared to $528,000 and
$293,000 in the corresponding periods of the prior year.  The higher inventory
write-offs in both periods were primarily attributable to an increase in the
disposal of finished products due to short shelf lives and obsolete inventory
from the discontinuance of a low margin product.  The inventory write-offs in
both periods also include work in process inventory not meeting the Company's
quality control standards.

Operating Expenses

Research and Development

   Research and development expenses for the six-month period ended July 1, 2000
increased $1,988,000, or 81%, to $4,455,000 from $2,467,000 in the corresponding
period of the prior year. The higher expenditures were primarily attributable to
increased bio-study activity, personnel and material costs.  The Company
conducts part of its research and development in Israel through IPR.  Following
the acquisition of the remaining interests of IPR in 1997, the Company's
domestic research and development program was integrated with that of IPR.
Research and development expenses at IPR in the most recent six-month period
were $622,000, net of Generics funding, compared to expenses of $529,000 in the
same period of the prior year.  The Company, IPR and Generics have an agreement
pursuant to which Generics shares one-half of the costs of IPR's operating
budget up to $1,000,000 in exchange for the exclusive distribution rights
outside of the United States to the products developed by IPR after the date of
the agreement (see "Notes to Financial Statements-Development Agreement").

   In the second quarter ended July 1, 2000 research and development expenses of
$2,316,000 increased $1,035,000, or 81%, from $1,281,000 for the same quarter of
last year.  The increase was primarily due to additional bio-study, personnel
and material costs.  Research and development expenses at IPR in the most recent
quarter were $293,000, net of Generics funding, compared to expenses of $358,000
in the same quarter of the prior year.

   The Company has ANDAs for six potential products, one of which has been
tentatively approved, pending with and awaiting approval from, the FDA as a
result of its product development program.  The Company has in process or
expects to commence biostudies for at least three additional products in 2000.
None of these products are included as part of the Genpharm Distribution
Agreement.

   As part of the Genpharm Distribution Agreement, Genpharm pays the research
and development costs associated with the products covered by the Genpharm
Distribution Agreement.  Currently, there are ANDAs for nine potential products,
one of which has been tentatively approved, that are covered by the Genpharm
Distribution Agreement pending with and awaiting approval from, the FDA. To
date, the Company is marketing 11 products under the Genpharm Distribution
Agreement and anticipates introducing at least one more product in 2000 (see
"Notes to Financial Statements-Distribution and Supply Agreements-Genpharm,
Inc.").

Selling, General and Administrative

   Selling, general and administrative costs of $7,360,000 (18% of net sales)
for the six months ended July 1, 2000 increased $894,000, or 14%, from
$6,466,000 (16% of net sales) in the corresponding period ended July 3, 1999.
The higher costs in the current period were primarily attributable to increased
legal costs for a patent infringement action by BMS following the Company's ANDA
filing for megestrol acetate oral suspension (see "Notes to Financial
Statements-Commitments, Contingencies and Other Matters-Legal Proceedings").

   For the three months ended July 1, 2000, selling, general and administrative
costs increased $796,000, or 25%, to $4,040,000 (18% of net sales) from
$3,244,000 (15% of net sales) for the corresponding three-month period of last
year primarily due to higher legal expenses.

                                    --13--
<PAGE>

Other Income

   Other income of $392,000 and $303,000 for the six-month and three-month
periods ended July 1, 2000, respectively, increased from $161,000 and $44,000 in
the corresponding periods of 1999.  The increase in both periods was primarily
attributable to payments from strategic partners to reimburse the Company for
research costs incurred in prior periods.

Income Taxes

   Management has determined, based on the Company's recent performance and
uncertainty of the generic business in which the Company operates, that future
operating income might not be sufficient to recognize fully the net operating
loss carryforwards of the Company.  Therefore, the Company did not recognize a
benefit for its operating losses in any of the six-month and three-month periods
ended July 1, 2000 or July 3, 1999 (see "Notes to Financial Statements-Income
Taxes").

FINANCIAL CONDITION

Liquidity and Capital Resources

   The Company's cash and cash equivalents were $210,000 at July 1, 2000
compared to $222,000 at December 31, 1999.  Additional borrowings from the
Company's credit line with GECC of $9,136,000 for the six-month period ended
July 1, 2000 were used primarily to fund increased research and development,
increased inventories, and to a lesser extent, capital projects.  Capital
projects include expenditures for product development and production equipment
and system improvements.  Working capital at July 1, 2000 of $18,598,000, which
includes cash and cash equivalents, decreased $2,623,000 from $21,221,000 at
December 31, 1999.  The working capital ratio was 1.62x at July 1, 2000 compared
to 2.03x at December 31, 1999.

   The Company, from time to time, enters into agreements with third parties
with respect to the development of new products and technologies.  To date, the
Company has entered into agreements and advanced funds to several companies for
products in various stages of development.  The payments are expensed as
incurred and included in research and development costs.  At this time, research
and development expenses are expected to total approximately $8,000,000 for the
year 2000.

   In June 2000, the Company agreed to sell its remaining distribution rights
back to Elan for a non-prescription transdermal nicotine patch and to terminate
Par's right to royalty payments under the Termination Agreement. Pursuant to
this agreement, the Company will receive a minimum payment of $500,000 on or
before July 31, 2001 and could receive an additional $1,000,000 to $1,500,000,
subject to certain conditions as set forth in the agreement, including Elan's
introduction of the product in the United States and Israel on or before certain
dates.  In July 2000, Elan paid the Company $150,000 under the agreement (see
"Notes to Financial Statements-Distribution and Supply Agreements-Elan
Corporation").

   In August 1999, Par entered into an agreement with Genpharm pursuant to which
Par purchased the United States distribution rights for an additional product,
not included in the Genpharm Distribution Agreement, for a fee of $707,000 paid
by the Company in May 2000.  The Company began marketing the product in April
2000 (see "Notes to Financial Statements-Distribution and Supply Agreements-
Genpharm, Inc.").

   In March 1999, the Company entered into an agreement to lease, with an option
to purchase, its Congers Facility to Halsey.  Halsey paid the Company a purchase
option of $100,000 in March 1999 and is obligated to pay rent of $500,000
annually during the initial three-year term of the lease.  The rent is expected
to continue to cover the Company's fixed costs of the facility in subsequent
periods.  Under the purchase option, Halsey may purchase the facility and
substantially all the machinery and equipment at any time during the lease for a
specified amount (see "Notes to Financial Statements-Leasing Agreement").

                                    --14--
<PAGE>

   In January 1999, the Company entered into the Genpharm Profit Sharing
Agreement pursuant to which the Company will receive a portion of the profits
resulting from a separate agreement between Genpharm and an unaffiliated United
States based pharmaceutical company in exchange for a non-refundable fee of
$2,500,000 paid by the Company (see "Notes to Financial Statements-Profit
Sharing Agreement").

   The Company, IPR and Generics entered into the Development Agreement, dated
August 11, 1998, pursuant to which Generics agreed to fund one-half of the costs
of IPR's operating budget in exchange for the exclusive distribution rights
outside of the United States to the products developed by IPR after the date of
the agreement.  In addition, Generics agreed to pay IPR a perpetual royalty for
all sales of the products by Generics or its affiliates outside the United
States. Under the Development Agreement, Generics commenced funding during the
transition period and had fulfilled their requirements through July 1, 2000.
Generics is not required to fund more than $1,000,000 in any one calendar year
(see "Notes to Financial Statements-Research and Development Agreement").

   In September 1998, the Company and Elan entered into the Termination
Agreement pursuant to which the Company's exclusive distribution rights in the
United States to a transdermal nicotine patch ended on May 31, 1999. Pursuant to
the Termination Agreement, the Company received a cash payment of $2,000,000 in
October 1998 and an additional $1,000,000 in the third quarter of 1999 (see
"Notes to Financial Statements-Distribution and Supply Agreements-Elan
Corporation").

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

Financing

   At July 1, 2000, the Company's total outstanding long-term debt, including
the current portion, amounted to $1,193,000.  The amount consists primarily of
an outstanding mortgage loan with a bank and capital leases for computer
equipment.

   Par entered into the Loan Agreement with GECC in December 1996, which as
amended, provides Par with a five-year revolving line of credit.  Pursuant to
the Loan Agreement, Par is permitted to borrow up to the lesser of (i) the
borrowing base established under the Loan Agreement or (ii) $20,000,000.  The
borrowing base is limited to 85% of eligible accounts receivable plus 50% of
eligible inventory of Par, each as determined from time to time by GECC.  The
interest rate charge on the line of credit is based upon a per annum rate of
2.25% above the 30-day commercial paper rate for high-grade unsecured notes
adjusted monthly.  The line of credit with GECC is secured by the assets of Par
and PRI other than real property and is guaranteed by PRI.  In connection with
such facility, Par, PRI and their affiliates have established a cash management
system pursuant to which all cash and cash equivalents received by any of such
entities are deposited into a lockbox account over which GECC has sole operating
control and which are applied on a daily basis to reduce amounts outstanding
under the line of credit. The revolving credit facility is subject to covenants
based on various financial benchmarks.  As of July 1, 2000, the borrowing base
was approximately $18,574,000 and $13,534,000 was outstanding under the line of
credit.

Year 2000

   The Company completed implementation of its Year 2000 ("Y2K") compliance plan
on a timely basis and has not experienced any disruption in business or
significant issues resulting from Y2K.  The costs of addressing Y2K have
consisted primarily of internal personnel costs and have been expensed as
incurred and have not, and the Company believes will not, be material.

      ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

   Not applicable.

                                    --15--
<PAGE>

                          PART II. OTHER INFORMATION

Item 1. Legal Proceedings.
------  -----------------

     Par has filed with the FDA an ANDA for megestrol acetate oral suspension,
the generic version of BMS's Megace(R) Oral Suspension. Par filed a paragraph IV
certification regarding the formulation patent as part of its ANDA submission.
The basic compound patent for Megace(R) has expired. Megace(R) Oral Suspension
received orphan drug exclusivity from the FDA that expires September 10, 2000
and BMS has a formulation patent for Megace(R) Oral Suspension expiring in 2011.
Par believes that its distinct and unique formulation does not infringe the BMS
formulation patent. In October 1999, BMS initiated a patent infringement action
against Par. On March 1, 2000, Par was granted a patent by the U.S. Patent
Office regarding Par's unique formulation of megestrol acetate oral suspension.
Par believes that the issuance of this patent, which establishes the uniqueness
of Par's formulation compared to the BMS patent, should significantly help Par's
defense in the patent infringement case. Par intends to vigorously pursue its
pending litigation with BMS and to defend its patent rights and ensure that
other generic companies do not infringe the Par patent. At this time, it is not
possible for the Company to predict the probable outcome of this litigation and
the impact, if any, that it might have on the Company.

Item 6.  Exhibits and Reports on Form 8-K.
------   --------------------------------

      (a)  Exhibits:

           27 -  Financial Data Schedule.

      (b)  Reports on Form 8-K:

           None.


                                    --16--
<PAGE>

                                   SIGNATURE



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


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



August 11, 2000          /s/ Kenneth I. Sawyer
                         -------------------------------------------
                         Kenneth I. Sawyer
                         Chief Executive Officer and Chairman of
                         the Board of Directors
                         (Principal Executive Officer)



August 11, 2000          /s/ Dennis J. O'Connor
                         -------------------------------------------
                         Dennis J. O'Connor
                         Vice President - Chief Financial Officer and Secretary
                         (Principal Accounting and Financial Officer)


                                    --17--
<PAGE>

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


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

     27                  Financial Data Schedule                 19


                                    --18--