FORM 10 - K
WASHINGTON, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION

Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934

For Fiscal Year Ended September 30, 1995

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 office) (Zip Code)

Registrant's telephone number, including area code: (914) 425-7100
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

TITLE OF CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
The New York Stock Exchange, Inc.
Common Stock $.01 par value The Pacific Stock Exchange, Inc.
--------------------------- --------------------------------
The New York Stock Exchange, Inc.
Common Stock Purchase Rights The Pacific Stock Exchange, Inc.
---------------------------- --------------------------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

Series A Convertible Preferred Stock, $.0001 par value
------------------------------------------------------------

(Title of Class)

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
----- -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]

$134,009,385

AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF DECEMBER 20, 1995 (ASSUMING SOLELY FOR PURPOSES OF THIS
CALCULATION THAT ALL DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ARE
"AFFILIATES").

18,176,279
Number of shares of common stock outstanding as of December 20, 1995
DOCUMENTS INCORPORATED BY REFERENCE

PORTIONS OF THE FOLLOWING DOCUMENTS HAVE BEEN INCORPORATED BY REFERENCE INTO
THIS ANNUAL REPORT ON FORM 10-K:

IDENTITY OF DOCUMENTS PARTS OF FORM 10-K INTO WHICH
DOCUMENT IS INCORPORATED
FORM 8-K OF REGISTRANT FILED SEPTEMBER 8, 1995 AND AS AMENDED ON
OCTOBER 4, 1995 AND OCTOBER 12, 1995 PART II
PROXY STATEMENT FOR THE 1996 ANNUAL MEETING OF COMMON SHAREHOLDERS PART III
OF REGISTRANT

PART I

ITEM 1. BUSINESS.

GENERAL

Pharmaceutical Resources, Inc. ("PRI") is a holding company which, through
its subsidiaries, is in the business of manufacturing and distributing a broad
line of generic drugs. PRI operates primarily through its wholly-owned
subsidiary, Par Pharmaceutical, Inc. ("Par"), a manufacturer and distributor of
generic drugs. In addition to Par, PRI has created ParCare, Inc. ("ParCare"), a
subsidiary established in September 1995, to meet the specialized needs of
managed care organizations. In May 1995, PRI-Research, Inc., a newly created
subsidiary of PRI, formed a joint venture, Clal Pharmaceutical Resources Limited
Partnership (the "Joint Venture"), with Clal Pharmaceutical Industries Ltd.
("Clal") to research and develop generic pharmaceutical products. PRI has six
other subsidiaries, the activities of which are not significant. PRI was
organized as a subsidiary of Par under the laws of the State of New Jersey on
August 2, 1991. On August 12, 1991, Par effected a reorganization of its
corporate structure, pursuant to which PRI became Par's parent company.
References herein to the "Registrant" or the "Company" shall be deemed to refer
to PRI and all of its subsidiaries since August 12, 1991, or Par and all of its
subsidiaries prior thereto, as the context may require. The Company's executive
offices are located at One Ram Ridge Road, Spring Valley, New York 10977, and
its telephone number is (914) 425-7100.

The Company's current product line consists of prescription and, to a much
lesser extent, over-the-counter drugs. Approximately 100 products representing
various dosage strengths of 38 drugs are currently being marketed (see
"--Product Line Information"). Generic drugs are the pharmaceutical and
therapeutic equivalents of brand name drugs and are usually marketed under their
generic (chemical) name rather than by a brand name. Normally, a generic drug
cannot be marketed until the expiration of applicable patents on the brand name
drug. Generic drugs must meet the same government standards as brand name drugs,
but are typically sold at prices below those of brand name drugs.

Issuance by the U.S. Food and Drug Administration (the "FDA") of new
generic product approvals has slowed over the last several years because of
investigations into the generic drug industry and the FDA approval process. The
findings of these investigations led to, and are expected to continue to lead
to, legislative, regulatory, and/or policy changes to strengthen the
effectiveness of the approval process. As a result, the new generic drug
approval process is more stringent and difficult, as well as more costly and
time-consuming.

The Company markets its products primarily to drug distributors,
wholesalers and retail drug store chains principally through its own sales
staff. The Company intends to increase its marketing efforts to clinics,
government agencies and other managed health care organizations through its
ParCare subsidiary (see "Recent Developments"). The Company has further
developed its internal sales staff in order to lessen its reliance on outside
sales representatives (see "--Recent Developments" and "--Marketing and
Customers").

Recent Developments:

The Company received approval of an Abbreviated New Drug Application
("ANDA") from the FDA for Captopril tablets in October 1995 and will be
permitted to sell the drug upon expiration of the patent in February 1996. The
Company also received ANDA approval in April 1995 for Metoprolol Tartrate from
the FDA, its first approval since completing the Application Integrity
Assessment Program in October 1993. The Company expects to market this drug in
fiscal 1996.

In September 1995, Par announced the establishment of ParCare, a sales and
marketing subsidiary staffed with four employees, dedicated to meeting the
specialized needs of managed health care organizations. ParCare will initially
focus on partnerships between Par and managed health care organizations, and
over time plans to introduce a range of services in physician and patient
education, customized packaging and other value added programs for managed
health care customers.

Effective July 31, 1995 (the "Effective Date"), the Company exercised its
option to convert the Series A Convertible Preferred Stock ("Preferred Stock")
into shares of Common Stock. Each of the 960,568 shares outstanding was
converted to 1.1 shares of Common Stock ( par value $.01 per share), for an
aggregate of 1,055,815 Common Shares, as of the Effective Date. No dividends
were accrued and payable on the Preferred Stock as of the Effective Date.

In May 1995, the Company formed a strategic alliance with Clal, an Israeli
company, to develop, manufacture and distribute generic pharmaceuticals
worldwide. The Company sold 2,027,272 shares of PRI's common stock ("Common
Stock") to Clal for $20,000,000, and issued to Clal two three-year warrants to
purchase up to 2,005,107 shares of Common Stock at prices between $11 and $12
per share. The shares and warrants will allow Clal to own up to 19.9% of the
Common Stock. The alliance has four major components: (i) a significant equity
investment by Clal, improving financial strength to the Company; (ii)
establishment of the research and development Joint Venture; (iii) creation of
international manufacturing and distribution agreements; and (iv) initiation of
a long-term strategic relationship. Through Clal's subsidiaries, the Company
will have access to a manufacturer of chemicals used in the formulation of
pharmaceutical products and to technologies in sustained release drug delivery.
The Joint Venture is owned 49% by the Company and 51% by Clal, and has been
formed in Israel with an initial investment by the Company and Clal of
$1,960,000 and $2,040,000, respectively. The Company has committed to invest an
additional $5,390,000 over the next two years. Over 35 compounds have been
identified for development by the Joint Venture. As part of the equity
investment in PRI, Mony Ben-Dor of Clal Industries Ltd. was elected to PRI's
Board of Directors in May 1995. Mr. Ben-Dor is the Vice President of Business
Development for Clal Industries Ltd.

The Company has a distribution agreement with Sano Corporation ("Sano")
which gives Par the right of first refusal to exclusively distribute Sano's
generic transdermal products in the United States, Canada, and several other
international markets. Sano develops transdermal delivery systems utilizing a
patch that incorporates the appropriate drug dosage into an adhesive that
attaches the patch to the skin. According to Sano, transdermal delivery offers
significant benefits over oral delivery, including improved efficacy, increased
patient compliance, reduced side effects, reduced interaction with other drugs
in use by a patient and a more consistent and appropriate drug level in the
bloodstream, all of which generally result in lower overall patient care costs.
Sano is developing two generic nitroglycerin patches, one generic nicotine patch
and one generic clonidine patch which are covered by the agreement. For each
product the Company elects to distribute, Par must pay Sano a portion of the
development expenses. To date, Sano has submitted one ANDA to the FDA and
anticipates submitting additional ANDAs in the future. The Company will purchase
manufactured products from Sano at cost and share in the gross profits from the
sale.

As part of the Sano agreement the Company invested $3,500,000 in Sano's
preferred stock during 1994 and 1995. In November 1995, Sano sold common stock
in an initial public offering and the Company's 616,666 shares of Sano's
preferred stock converted to 513,888 shares of common stock. The Company's
equity holding in Sano now approximates 6%.

If the Joint Venture and Sano are successful in developing products for the
market both the Clal alliance and the Sano agreement should assist the Company
to implement its strategy of differentiating itself in the marketplace by
providing generic drug products with multiple delivery systems.

In March 1995, the FDA completed a reinspection of the Company's main
facility and confirmed that the Company is in substantial compliance with
current Good Manufacturing Practices ("GMP"). The reinspection confirmed
effective correction of all violations noted in a warning letter issued to the
Company in May 1994 (see "--Government Regulation").

In February, March and April of 1995, the Company collected $2,029,000 in
settlement of claims against certain former management members for recovery of,
among other things, salaries and money paid for indemnification.

In the early part of 1995 the Company completed its strategy to revamp its
marketing and sales organizations by replacing all of its outside sales
representatives with its own internal sales force (see "--Marketing and
Customers" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations--Sales"). As generic drug sales to
drug distributors decrease and sales to wholesalers and drug store chains
increase, the Company determined that the most effective way to sell and market
its products was with its own sales force.

In December 1995, the Company purchased a 10% interest in Fine-Tech Ltd., a
manufacturer of fine chemicals and compounds in Israel. In addition the Company
obtained the exclusive right to purchase products of Fine-Tech Ltd. The amount
invested was $1,000,000.

In December 1995, the Company entered into a three-year $16,000,000
unsecured revolving credit agreement, and two three-year term loans totalling
$4,000,000 replacing an existing revolving credit facility, certain outstanding
term loans, and outstanding industrial revenue bonds. The two three-year term
loans are secured by $4,000,000 of machinery and equipment.

PRODUCT LINE INFORMATION

The Company operates in one industry segment, namely, the manufacture and
distribution of generic pharmaceuticals. Products are marketed principally in
oral solid form consisting of tablets, caplets, and two-piece hard-shell
capsules, and to a lesser extent the Company distributes a small number of
products in the forms of creams and liquids (see "--Research and Development").

Par markets approximately 80 products, representing various dosage
strengths of 28 drugs manufactured by the Company and approximately 20 products,
representing various dosage strengths of 10 drugs, that are manufactured for it
by other companies (see "--Research and Development", "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Results of
Operations--Sales", "--Gross Margins" and "Notes to Financial Statements--
Distribution Agreements"). Par holds ANDAs for the drugs it manufactures. The
names of all of the drugs under the caption "Competitive Brand-Name Drug" are
trademarked. The holders of the trademarks are non-affiliated pharmaceutical
manufacturers.

NAME COMPETITIVE BRAND-NAME DRUG
---- ---------------------------
Central Nervous System:
Alprazolam Xanax
Benztropine Mesylate Cogentin
Carisoprodol and Aspirin Soma Compound
Chlorzoxazone Paraflex
Cyproheptadine Hydrochloride Periactin
Doxepin Hydrochloride Sinequan, Adapin
Fluphenazine Hydrochloride Prolixin
Flurazepam Hydrochloride Dalmane
Haloperidol Haldol
Imipramine Hydrochloride Tofranil
Meclizine Hydrochloride Antivert
Methocarbamol and Aspirin Robaxisal
Temazepam Restoril
Triazolam Halcion

Cardiovascular:
Atenolol Tenormin
Clonidine and Chlorthalidone Combipres
Hydralazine Hydrochloride Apresoline
Hydra-Zide Apresazide
Isosorbide Dinitrate Isordil
Methyldopa and Hydrochlorothiazide Aldoril
Metoprolol Tartrate Lopressor

NAME (CONTINUED) COMPETITIVE BRAND-NAME DRUG (CONTINUED)
---------------- ---------------------------------------
Cardiovascular (Continued):
Minoxidil Loniten
Pindolol Visken
Triamterene and Hydrochlorothiazide Maxzide

Anti-Inflammatory:
Ibuprofen Advil, Nuprin, Motrin
Indomethacin Indocin
Piroxicam Feldene

Anti-Infective:
Metronidazole Flagyl
Nystatin Mycostatin

Anti-Cancer:
Megestrol Acetate Megace

Other:
Albuterol Sulfate Syrup Proventil/Ventolin
Allopurinol Zyloprim
Cimetidine Tagamet
Dexamethasone Decadron
Glipizide Glucotrol
Metaproterenol Sulfate Alupent
Propantheline Bromide Pro-Banthine
Silver Sulfadiazine Silvadene

In September 1994, Mova Pharmaceutical Corporation ("Mova") and the Company
entered into five-year non-exclusive distribution agreements for two products.
Under the agreements, the Company has commenced marketing Albuterol Sulfate
Syrup in September 1994, and Cimetidine in October 1995, subsequent to their FDA
approval. The Company will pay to Mova a base price for each product plus a
percentage of net profits, as defined in the distribution agreements.

In October 1992, the Company entered into an agreement (the "October 1992
Agreement") with Genpharm Inc. ("Genpharm"), a Canadian manufacturer of generic
pharmaceuticals (which is an affiliate of the Group) under which Par became the
exclusive United States distributor of two of Genpharm's pharmaceutical
products. The agreement has an initial term of ten years (subject to earlier
termination by either party as provided therein), and thereafter automatically
renews from year to year unless either party gives notice of non-renewal. The
cost to the Company of such products is based upon a percentage of gross profits
as defined in the October 1992 Agreement. In connection with the October 1992
Agreement, the Company issued a warrant to Genpharm to purchase 150,000 shares
of Common Stock for $6 per share, and under the May 1993 agreement, the Company
is obligated to issue a warrant to purchase up to 150,000 shares of Common Stock
for $10 per share (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations--Operating Expenses--
Research and Development" and "Notes to Financial Statements--Distribution
Agreements").

RESEARCH AND DEVELOPMENT

The Company's research and development activities consist of (i)
identifying and conducting patent and market research on brand name drugs for
which patent protection has expired or is to expire in the near future, (ii)
researching and developing new product formulations based upon such drugs, (iii)
obtaining approval from the FDA for such new product formulations, and (iv)
introducing state-of-the-art technology to improve production efficiency and
enhance product quality. The Company contracts with outside laboratories to
conduct biostudies which, in the case of oral solids, generally are required for
FDA approval. Biostudies are used to demonstrate that the rate and extent of
absorption of a generic drug are not significantly different from the
corresponding brand name drug and currently cost in the range of $100,000 to
$500,000 per study. During the 1995 fiscal year, the Company contracted with
outside laboratories to conduct biostudies for three potential new products and
will continue to do so in the future. The Company may also contract with outside
laboratories to conduct clinical studies. Clinical studies test the safety
and/or efficacy of a drug and may cost $1,000,000 or more per study. To date,
the Company has not contracted to conduct any clinical studies. Biostudies and
clinical studies must be conducted and documented in conformity with FDA
standards (see "--Government Regulation").

The research and development of oral solid products, including
preformulation research, process and formulation development, required studies,
and FDA approval, has historically taken approximately two to three years.
Accordingly, Par typically selects for development products that it intends to
market several years in the future.

The Company entered into a distribution agreement with Sano which gives Par
the right of first refusal to exclusively distribute Sano's generic transdermal
drug products. Under the terms of the agreement, the Company advanced to date
$2,429,000 to Sano for the development of four products. Sano has submitted an
ANDA to the FDA for one of its nicotine patches and is preparing another ANDA
for one of its nitroglycerin patches. Sano has advised that the nicotine patch
is expected to be available for sale in 1996. After an initial public offering
of Sano's common stock, Sano repaid $1,500,000 of the advances in November 1995
which was treated as a credit to research and development expenses in fiscal
1996 (see "--General--Recent Developments", "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations--Operating Expenses--Research and Development" and "Notes to
Financial Statements--Distribution Agreements").

For its 1995, 1994, and 1993 fiscal years, the research and development
expenses of the Company's continuing operations were approximately $5,487,000,
$3,874,000 and $1,959,000, respectively, reflecting an increase in research and
development activities which began in fiscal year 1993. The Company plans that
its expenditures will continue to increase (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations--Operating Expenses--Research and Development").

In May 1995, the Company formed the Joint Venture with Clal. The Joint
Venture has identified approximately 35 products for research, which the Company
expects will expand its product line in the future. The Joint Venture is in
process of building a staff and has begun the preliminary stages of research on
several of the identified products.

MARKETING AND CUSTOMERS

The Company markets its products to drug distributors, wholesalers, and
retail drug chains principally through its own sales staff. In 1995, the
Company completed its plans to eliminate its dependence upon outside sales
representatives and add additional internal sales personnel. These changes were
part of the strategy of the Company to emphasize sales of Par products to
wholesalers and drugstore chains versus distributors. (see "--General--Recent
Developments" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations--Sales").

The Company markets its products under both Par and private labels
principally to distributors, wholesalers, retail drug store chains and, to a
lesser extent, drug manufacturers, repackagers, and government agencies. The
Company plans to increase its sales and marketing efforts to increase sales to
customers in the managed health care market through ParCare (see-"General-
Recent Developments"). These customers include, health maintenance
organizations, nursing homes, hospitals, clinics, pharmacy benefit management
companies and mail order customers.

The Company has approximately 200 customers. During fiscal year 1995, sales
to the Company's two largest customers, Rugby Laboratories, Inc., a subsidiary
of Marion Merrill Dow, Inc., and Goldline Laboratories, Inc., a subsidiary of
Ivax Corporation, amounted to 9% and 8%, respectively, of net sales. The
Company's sales to other customers have increased during the last two years,
resulting in a steady decline in the percentages of these two customers (see
"Notes to Financial Statements--Accounts Receivable--Major Customers"). Neither
of such customers has written agreements with the Company.

ORDER BACKLOG

The dollar amount of open orders, as of September 30, 1995, believed by
management to be firm, was approximately $8,100,000 and compares to
approximately $9,900,000 at October 1, 1994 . Although these orders are subject
to cancellation without penalty, management expects to fill substantially all of
them in the near future. The Company has orders for shipments for its customers
which are consistent with the seasonal purchasing patterns of its customers.

COMPETITION

The generic pharmaceutical industry is highly competitive. The Company has
been able to identify at least ten principal competitors, and experiences
varying degrees of competition from numerous other companies in the health care
industry. The Company's competitors include many generic drug manufacturers and
a number of major branded pharmaceutical companies which, as part of their
business, market both brand-name prescription drugs and generic versions of
these brand-name drugs.

Until recently, the Company was the sole generic manufacturer of a product,
which along with two other products, historically accounted for a significant
percentage of net sales and gross margin. Two other generic pharmaceutical
manufacturers received FDA approval for the product during the second half of
calendar 1995. Due to the increased competition for this one product, the
Company anticipates a decline in sales for this product, but is not able to
determine, at this time, the overall financial impact on the sales, gross
margins or net income of the Company. Any significant decline in the sales of
this one product will adversely affect net income of the Company, unless offset
by increases in sales of other products manufactured and/or distributed by the
Company.

Many major branded pharmaceutical companies have directly launched, or have
formed alliances to market, their patented drugs prior to patent expiration as
generic drugs. This competitive effort has had a negative impact on the ability
to sell certain generic drugs to its customers and to generate customary
revenues from the launch of its new products, as the channel of distribution is
either closed or severely limited or the Company is forced to meet lower market
pricing.

The principal competitive factors in the generic pharmaceutical market are
(i) the ability to introduce generic versions of brand name drugs promptly after
their patents expire, (ii) price, (iii) reputation as a manufacturer with
integrity and quality products, (iv) level of service (including maintenance of
sufficient inventories for timely deliveries), (v) product appearance, and (vi)
breadth of product line. The Company has expended more effort and resources,
including financial, in the areas of marketing and research and development to
better its competitive position in the industry.

RAW MATERIALS

The raw materials essential to the Company's manufacturing business are
purchased primarily from United States distributors of bulk pharmaceutical
chemicals manufactured by foreign companies. To date, the Company has
experienced no significant difficulty in obtaining raw materials and expects
that raw materials will generally continue to be available in the future.
However, since the federal drug application process requires specification of
raw material suppliers, if raw materials from a specified supplier were to
become unavailable, FDA approval of a new supplier would be required. While a
new supplier becomes qualified by the FDA and its manufacturing process is
judged to meet FDA standards, a delay of six months or more in the manufacture
and marketing of the drug involved could result, which could in turn have an
adverse effect on the Company's financial condition. Generally the Company
attempts to minimize the effects of any such situation by specifying, where
economical and feasible two or more suppliers for its drug approvals.

EMPLOYEES

As of September 30, 1995, the Company had approximately 440 employees.

GOVERNMENT REGULATION

All pharmaceutical manufacturers are subject to extensive regulation by the
Federal government, principally by the FDA, and, to a lesser extent, by the Drug
Enforcement Administration and state governments. The Federal Food, Drug, and
Cosmetic Act, the Controlled Substances Act, and other Federal statutes and
regulations govern or influence the testing, manufacture, safety, labeling,
storage, recordkeeping, approval, advertising and promotion of the Company's
products. Noncompliance with applicable requirements can result in judicially
and/or administratively imposed sanctions including the initiation of product
seizures, injunction actions, fines and criminal prosecutions. Administrative
enforcement measures can involve the recall of products, as well as the refusal
of the government to enter into supply contracts or to approve new drug
applications. The FDA also has the authority to withdraw approval of drugs in
accordance with regulatory due process procedures.

FDA approval is required before any new drug, including a generic
equivalent of a previously approved drug, can be marketed. To obtain FDA
approval for a new drug, a prospective manufacturer must, among other things,
demonstrate that its manufacturing facilities comply with the FDA's GMP
regulations. The FDA may inspect the manufacturer's facilities to assure such
compliance prior to approval or at any other reasonable time. GMP regulations
must be followed at all times during the manufacture and other processing of
drugs. To comply with the standards set forth in these regulations, the Company
must continue to expend significant time, money and effort in the areas of
production, quality control and quality assurance.

To obtain FDA approval of a new drug, a manufacturer must demonstrate,
among other requirements, the safety and effectiveness of the proposed drug.
There are currently three basic ways to satisfy the FDA's safety and
effectiveness requirements:

1. New Drug Applications ("NDA" or "full NDA"): Unless either of the
procedures discussed in paragraphs 2 and 3 below is available, a
prospective manufacturer must submit to the FDA full reports of well-
controlled clinical studies and other data to prove that a drug is safe
and effective and meets other requirements for approval.

2. "Paper" NDAs: In certain instances in the past, the FDA permitted
safety and effectiveness to be shown by submission of published
literature and journal articles in a so-called "paper" NDA. As a result
of passage of the Drug Price Competition and Patent Term Restoration
Act of 1984 (the "Waxman-Hatch Act"), "paper" NDAs are now recognized
in the statute, although they are infrequently used because of the lack
of sufficient information in the literature on the majority of drugs.

3. Abbreviated New Drug Applications ("ANDAs"): The Waxman-Hatch Act
established a statutory procedure for submission and FDA review and
approval of ANDAs for generic versions of drugs previously approved by
the FDA (such previously approved drugs are hereinafter referred to as
"listed drugs"). In place of clinical studies to establish the generic
drug's safety and effectiveness, an ANDA applicant typically is
required to submit bioavailability data generated from biostudies
demonstrating that the proposed product is bioequivalent to the listed
drug. Bioavailability data indicate the rate and extent of absorption
of a drug's active ingredient and its availability at the site of drug
action, typically measured through blood levels. A generic drug usually
is deemed to be bioequivalent to the listed drug if the rate and extent
of absorption of the generic drug are not significantly different from
those of the listed drug. For some drugs (e.g., topical antifungals),
other means of demonstrating bioequivalence may be required by the FDA,
especially where rate and/or extent of absorption are difficult or
impossible to measure. In addition to the bioequivalence data, an ANDA
must contain virtually all other information required of a full NDA
(e.g., chemistry, manufacturing, labeling, and stability data).

The Waxman-Hatch Act also established certain statutory protections for
listed drugs. Under the Waxman-Hatch Act, an ANDA for a generic drug may be
approved, but such approval may not be made effective for interstate marketing
until all relevant patents for the listed drug have expired or been determined
to be invalid or not infringed by the generic drug. Prior to enactment of the
Waxman-Hatch Act, the FDA did not consider the patent status of a previously
approved drug. In addition, under the Waxman-Hatch Act, statutory non-patent
exclusivity periods are established following approval of certain listed drugs,
where specific criteria are met by the drug. If exclusivity is applicable to a
particular listed drug, the effective date of approval of ANDAs (and, in at
least one case, submission of an ANDA) for the generic version of the listed
drug is usually delayed until the expiration of the exclusivity period, which,
for newly approved drugs, can be either three or five years. The Waxman-Hatch
Act also provides for extensions of up to five years of certain patents covering
drugs to compensate the patent holder for reduction of the effective market life
of the patented drug resulting from the time involved in the Federal regulatory
review process.

During 1995, patent terms for a number of listed drugs were extended when
the Uruguay Round Agreements Act (the "URAA") went into effect to implement the
latest General Agreement on Tariffs and Trade (the "GATT") to which the United
States became a treaty signatory in 1994. Under GATT, the term of patents was
established as 20 years from the date of patent application. In the United
States, the patent terms historically have been calculated at 17 years from the
date of patent grant. The URAA provided that the term of issued patents be
either the existing 17 years from the date of patent grant or 20 years from the
date of application, whichever was longer. The effect generally was to add
patent life to already issued patents, thus delaying FDA approvals of
applications for generic products.

In addition to the Federal government, states have laws regulating the
manufacture and distribution of pharmaceuticals, as well as regulations dealing
with the substitution of generic for brand-name drugs. The Company's operations
are also subject to regulation, licensure and inspection by the states in which
they are located and/or do business.

The Company also is governed by Federal and state laws of general
applicability, including laws regulating matters of environmental quality,
working conditions, and equal employment opportunity.

The Federal government made significant changes to Medicaid drug
reimbursement as part of the Omnibus Budget Reconciliation Act of 1990 ("OBRA").
Generally, OBRA provides that a generic drug manufacturer must offer the states
an 11% rebate on drugs dispensed under the Medicaid program and must have
entered into a formal drug rebate agreement, as the Company has, with the
Federal Health Care Financing Administration. Although not required under OBRA,
the Company has also entered into similar state agreements.

In October 1993, the Company was informed by the FDA that it had completed
the Assessment Program for Par and that the FDA would review applications
submitted by Par for the approval of generic drugs (see --"Notes to Financial
Statements -Settlements - Fiscal Year 1993"). The Assessment Program was
initiated as a result of investigations by the Federal government in 1989
resulting in guilty pleas by Par and by certain former executives of Par to
charges of providing an unlawful gratuity to a public official. The FDA stopped
reviewing ANDAs submitted by Par pending the completion of the Assessment
Program with respect to Par's approved ANDAs. The Assessment Program was
directed, among other things, towards (i) reviewing the conclusions reached by
Par's independent regulatory consultant in its audits of Par's product
development activities and recordkeeping systems and (ii) assessing any other
available, relevant information that might bear on Par's ANDAs. As a result of
the completion of the Assessment Program, Par became eligible to again bid on
government contracts without previous limitations and receive ANDA approvals.

The Company received a warning letter in May 1994 from the FDA setting
forth certain alleged deviations from current GMP regulations and alleged
violations of related provisions of the Federal Food, Drug and Cosmetic Act. In
March of 1995, the FDA completed a reinspection of the Company's main facility
and confirmed that the Company is in substantial compliance with current GMP.
The reinspection confirmed effective correction of all violations noted in the
warning letter.

ITEM 2. PROPERTIES.

The Company's executive offices and a substantial portion of its research
and production facilities are housed in a 92,000 square foot facility built to
Par's specifications and occupied since fiscal 1986. This building also includes
research and quality control laboratories, as well as packaging and warehouse
facilities. The building is located in Chestnut Ridge, New York, on a parcel of
land of approximately 24 acres, of which approximately 15 acres are available
for future expansion. The purchase of the land, facility and equipment was
financed, in part, by Industrial Development Bonds issued by the County of
Rockland Industrial Development Agency in October 1984. The real estate and
certain equipment serve as collateral for the Bonds (see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Financial Condition--Financing" and "Notes to Financial Statements--Long Term
Debt").

The Company purchased, in fiscal year 1994, a 36,000 square foot building
on two acres of land in Chestnut Ridge, New York, across the street from its
executive offices for office space. The purchase of the land and building was
financed by a mortgage loan (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Financial Condition--Financing"
and "Notes to Financial Statements--Long Term Debt").

Par owns a third facility consisting of six acres of land and a 33,000
square foot building located in Congers, New York, which is used for tablet
coating operations and product manufacturing. The purchase of the facility and
related renovations and equipment were financed in full by term loans. The real
estate and equipment serve as collateral for the loans (see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Financial Condition--Financing" and "Notes to Financial Statements--Long Term
Debt").

Under a lease expiring December 1997, with three five year extension
options, Par occupies approximately 77,000 square feet for office, warehouse,
and research and development space in Chestnut Ridge, New York. (see "Notes to
Financial Statements - Commitments - Leases")

Par leases an 11,000 square foot facility in Upper Saddle River, New
Jersey, for certain of its manufacturing operations. The lease covering this
facility expires November 1998, and has three two-year renewal options. (see
"Notes to Financial Statements--Commitments--Leases").

The Company believes that its owned and leased properties are sufficient in
size, scope and nature to meet its anticipated needs for the reasonably
foreseeable future.

ITEM 3. LEGAL PROCEEDINGS.

The Company is involved in certain litigation matters, including certain
product liability actions, incidental to the conduct of its business, but does
not believe that the ultimate resolution thereof will have a material effect on
its financial condition, results of operations or liquidity.

In fiscal year 1995, the Company settled a proceeding against former
management members seeking recovery of, among other things, salaries and money
paid for indemnification. The Company collected approximately $2,029,000 in
connection with these proceedings.

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

A Meeting of Shareholders of the Company was held on September 21, 1995
(the "Meeting"). The following matters were voted on and approved by the holders
of shares of the Company's Common Stock:

1. The first proposal presented to the shareholders was to elect two
members of the Company's Board of Directors, which consists of seven
members, to serve for a three-year term and until their successors are
duly elected and qualified. There were 14,971,675 and 14,975,556 shares
of Common Stock cast in favor of electing Andrew Maguire and Melvin Van
Woert, respectively, which represented a majority of the shares of the
Company's Common Stock cast for such proposal, and 409,512 and 405,631
shares abstained, respectively. There were no broker non-votes or votes
cast against.

2. The second proposal presented to the shareholders was to approve the
grant and issuance to Clal Pharmaceutical Industries, Ltd. of a warrant
to purchase shares of the Company's Common Stock. There were 7,916,681
shares of Common Stock cast in favor of such proposal, which
represented a majority of the shares of the Company's Common Stock cast
for such proposal, 849,014 shares of Common Stock voted against such
proposal, and 106,007 shares abstained. In addition, there were
6,509,485 broker non-votes.

3. The third proposal presented to the shareholders was to approve an
amendment to the Company's 1990 Stock Incentive Plan to increase the
number of shares of the Company's Common Stock for which options may be
granted thereunder. There were 13,039,095 shares of Common Stock cast
in favor of such proposal, which represented a majority of the shares
of the Company's Common Stock cast for such proposal, 2,159,913 shares
of Common Stock voted against such proposal, and 182,179 shares
abstained.

4. The fourth proposal presented to the shareholders was to approve and
adopt the Company's 1995 Directors' Stock Option Plan. There were
13,511,812 shares of Common Stock cast in favor of such proposal, which
represented a majority of the shares of the Company's Common Stock cast
for such proposal, 1,598,746 shares of Common Stock voted against such
proposal, and 270,629 shares abstained.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

(a) Market information. The Company's Common Stock is traded on The New
York Stock Exchange ("NYSE") and the Pacific Stock Exchange under the
ticker symbol PRX. The following table shows the range of closing prices
for the Common Stock as reported by the NYSE for each calendar quarter
during the Company's two most recent fiscal years.

FISCAL YEAR ENDED IN
-----------------------------
QUARTER ENDED 1995 1994
------------- ------------- --------------
HIGH LOW HIGH LOW
------ ----- ------ ------

December 31 $11.50 $7.50 $19.63 $12.88

March 31 11.13 7.75 16.50 8.38

June 30 12.88 9.88 9.75 7.38

September 30 11.38 8.38 10.38 6.38

(b) Holders. As of December 20, 1995, there were approximately 4,500
holders of record of the Common Stock. The Company believes that, in
addition, there are a significant number of beneficial owners of its Common
Stock whose shares are held in "street name."

(c) Dividends. During the two most recent fiscal years, the Company
paid no cash dividends on its Common Stock. The payment of future dividends
on its Common Stock is subject to the discretion of the Board of Directors
and is dependent upon many factors, including the Company's earnings, its
capital needs, the terms of its financing agreements and its general
financial condition (see "Notes to Financial Statements--Long Term Debt").

(d) Recent Stock Price. On December 20, 1995, the closing price of the
Common Stock on the NYSE was $7.38 per share.

ITEM 6. SELECTED FINANCIAL DATA

FISCAL YEAR ENDED IN
--------------------------------------------------
1995 1994 1993 1992 1991
------- ------- -------- ------- --------
INCOME STATEMENT DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Net sales $66,503 $69,169 $ 74,535 $52,493 $ 34,226
Cost of goods sold 45,514 45,774 48,387 32,448 26,062
------- ------- -------- ------- --------
Gross margin 20,989 23,395 26,148 20,045 8,164

Operating expenses:
Research and development 5,487 3,874 1,959 1,299 2,282
Selling, general and administrative 16,192 13,463 12,673 11,486 12,554
------- ------- -------- ------- --------
Total operating expenses 21,679 17,337 14,632 12,785 14,836
------- ------- -------- ------- --------
Operating income (loss) (690) 6,058 11,516 7,260 (6,672)
Settlements 2,029 - (10,500) (230) (12,465)
Other income 608 425 347 142 649
Interest expense (499) (465) (602) (923) (1,175)
------- ------- -------- ------- --------
Income (loss) from continuing operations
before provision (credit) for income taxes 1,448 6,018 761 6,249 (19,663)
Provision (credit) for income taxes 836 1,785 650 2,150 (1,736)
------- ------- -------- ------- --------
Income (loss) from continuing operations 612 4,233 111 4,099 (17,927)
Income (loss) from discontinued operations - 466 - 1,696 (24,158)
------- ------- -------- ------- --------
Income (loss) before extraordinary item 612 4,699 111 5,795 (42,085)
Extraordinary item--tax benefit of
utilization of net operating loss carryforward - - 300 2,150 -
------- ------- -------- ------- --------
Income (loss) before change in accounting
principle 612 4,699 411 7,945 (42,085)
Cumulative effect of change in accounting
principle - 14,128 - - -
------- ------- -------- ------- --------
Net income (loss) $ 612 $18,827 $ 411 $ 7,945 $(42,085)
======= ======= ======== ======= ========
Income (loss) per share of common stock:
Continuing operations $.04 $.26 $.01 $.28 $(1.54)
Discontinued operations - .03 - .11 (2.07)
Extraordinary item - - .02 .15 -
Change in accounting principle - .85 - - -
------- ------- -------- ------- --------
Net income $.04 $1.14 $.03 $.54 $(3.61)
======= ======= ======== ======= ========
Weighted average number of common and
common equivalent shares outstanding 17,143 16,495 15,814 14,826 11,644
======= ======= ======== ======= ========
BALANCE SHEET DATA
Working capital $34,907 $19,996 $ 13,141 $ 8,061 $ 2,908
Property, plant and equipment (net) 24,371 23,004 20,037 19,579 21,219
Total assets 90,917 69,202 57,239 45,089 46,651
Long-term debt, less current portion 4,259 5,490 5,820 7,528 15,253
Shareholders' equity 71,954 49,276 24,081 21,087 12,340

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

RESULTS OF OPERATIONS

GENERAL

The operating loss for the year ended September 30, 1995 of $690,000, which
compares to operating income of $6,058,000 in fiscal year 1994, is principally
due to a sales and gross margin decline, coupled with increased research and
development, and selling, general and administrative expenses as described
below. The Company expects a continued decline in sales of its currently
distributed products and a decline in one of its significant manufactured
products which, if not offset by increased sales of other currently manufactured
products or sales of new distributed or manufactured products, would result in
continued declines in net sales, gross margins and, accordingly, profitability
(see "--Business-Competition").

SALES

Net sales for the year ended September 30, 1995 decreased by $2,666,000, or
4%, to $66,503,000 from the prior fiscal year. Sales of manufactured products
increased $2,826,000, or 5%, due to a higher volume of products sold and
generally higher pricing. A decrease in distributed product sales of $5,492,000,
or 55%, is primarily due to decreased demand and lower pricing as a result of
intense competition from both generic and brand name pharmaceutical companies,
which was only partially offset by price increases on certain products and
increased volume of one product.

To achieve a long term strategy of increasing sales, the Company continues
to improve its manufacturing efficiencies, has added distribution arrangements
to broaden its product line, and has completed in 1995 the restructuring of its
marketing and sales efforts, including the creation of a managed care
subsidiary. In addition, the Company has entered into a strategic alliance with
Clal, providing for the creation of international manufacturing and distribution
agreements and the formation of the Joint Venture in Israel to research and
develop generic pharmaceuticals.

Sales for the fourth quarter of fiscal 1995 were $17,490,000, a decrease of
$302,000, or 2%, from the $17,792,000 for the fourth fiscal quarter of 1994. The
decrease was primarily due to a decline in distributed product sales as a result
of a decrease in demand and lower pricing caused by existing competitors cutting
prices and additional competitors.

Sales for the year ended October 1, 1994 of $69,169,000 decreased
$5,366,000, or 7%, from the year ended October 2, 1993, primarily as a result of
price competition on new products distributed by the Company. Sales of
manufactured products increased $1,878,000 primarily due to price increases for
several products and decreased competition for one product. Distributed product
sales decreased $7,244,000 principally due to lower pricing related to market
competition.

Levels of sales are principally dependent upon, among other things, (i)
approval of ANDAs and introduction of new manufactured products, (ii) continued
introduction of new distributed products, (iii) increased market penetration for
the existing product line, (iv) reintroduction of previously manufactured
products, and (v) the level of customer service.

GROSS MARGINS

The Company's gross margin for the year ended September 30, 1995 was
$20,989,000 (32% of net sales) compared to $23,395,000 (34% of net sales) for
the prior fiscal year. The gross margin for manufactured products decreased
$1,157,000, with a 4% decline in margin percentage to 33%, principally due to
increased inventory write-offs as discussed below and a shift in product mix
reflecting a reduction in sales of higher margin products with an increase in
sales of lower margin products. Distributed product gross margins decreased by
$1,249,000 from the prior period primarily due to lower pricing and a decline in
sales due to the factors discussed above.

The gross margin for the quarter ended September 30, 1995 decreased
$1,420,000 to $4,809,000 (27% of net sales) from the $6,229,000 (35% of net
sales) recorded in the fourth quarter of the prior fiscal year. The gross margin
for manufactured products decreased $1,031,000 with a decline in margin
percentage from 37% to 31% principally due to a continuing shift in product mix
reflecting a reduction in sales of higher margin products with an increase in
sales of lower margin products. In addition, an unfavorable absorption variance
and higher inventory write-offs contributed to the decline in margin.
Distributed product gross margins for the same period decreased $389,000 due
primarily to a decline in sales as discussed above.

Both gross margins and sales in fiscal 1995 and 1994 have been negatively
impacted recently by the trend of major branded pharmaceutical companies of
directly introducing their patented drugs as generics prior to patent
expiration. This added competition has had a negative impact on the Company's
sales and margins as distribution channels are either closed or severely limited
and the Company lowers its prices in response to these additional competitive
pressures.

Inventory write-offs amounted to $2,203,000 and $1,333,000 for the years
ended September 30, 1995 and October 1, 1994, respectively, and $632,000 and
$500,000 for the fourth quarters of fiscal years 1995 and 1994, respectively.
The increased inventory write-offs are related to the disposal of (i) products
due to short shelf life; (ii) inventory not meeting the Company's standards; and
(iii) aged raw and packaging materials. While inventory write-offs occur in the
normal course of business, the Company believes the level incurred in 1995 is
unusually high and anticipates a reduced level in the future.

During fiscal year 1995, three of the Company's products accounted for
approximately 57% of its net sales and yielded the substantial portion of the
gross margin of the Company, with one of such products representing a
substantial portion of both net sales and gross margin. Until the FDA gave
approval in the second half of calendar 1995 to two other generic pharmaceutical
manufacturers for one of such products, the Company was the sole generic
manufacturer of such product. While the Company cannot quantify the effect
relating to the increased competition for this product, it does anticipate that
sales and gross margin of such product will decline in future years (see "--
Business-Competition").

Gross margin of 34% of net sales in fiscal year 1994 decreased $2,753,000
from $26,148,000 (35% of net sales) in 1993 primarily as a result of the loss of
a major customer for one product which resulted in an unfavorable overhead
absorption at one of the Company's facilities and lower pricing due to
competition for its distributed products. The gross margin percentages derived
from distribution activities were only 17% of net sales versus 22% of net sales
in fiscal year 1993.

OPERATING EXPENSES

Research and Development

Research and development costs for the year and three months ended
September 30, 1995 were $5,487,000 (8% of net sales) and $2,102,000 (12% of net
sales), respectively, versus $3,874,000 (6% of net sales) and $1,154,000 (6% of
net sales) for the year and three months ended October 1, 1994, respectively.
The increase in both periods relates to expenditures incurred under various
programs for the internal development and co-development of new products and
reflects the continued commitment of management to invest in research and
development efforts.

To further expand its product line, the Company continues to pursue
alternatives to internal research and development, including joint ventures,
licensing agreements and distribution agreements. In May 1995, the Company
formed an alliance with Clal to develop, manufacture and distribute generic
pharmaceuticals worldwide (see "Notes to Financial Statements--Investment in
Joint Venture", "Shareholders' Equity" and "--Financial Condition--Liquidity and
Capital Resources"). A research and development Joint Venture, owned 49% by the
Company and 51% by Clal, has been formed in Israel with an initial combined
investment of $4,000,000. It is anticipated that up to an additional $11,000,000
will be invested by the Company and Clal in the Joint Venture over the next two
years. The Joint Venture has identified approximately 35 products for research,
which are anticipated to expand its product line in the future.

In addition to the Clal alliance, the Company has a distribution agreement
with Sano to distribute generic transdermal products (see "Notes to Financial
Statements--Investment in Non-marketable Securities" and "--Financial Condition
- --Liquidity and Capital Resources"), as part of its strategic plan to broaden
its product line and advance into international markets. Sano has submitted one
ANDA to the FDA and anticipates submitting additional ANDAs by calendar year end
1996. In 1994 and 1995, the Company provided $1,000,000 and $1,429,000,
respectively, to Sano for the research and development of transdermal generic
products which was expensed during their respective periods. The Company has the
right of first refusal for marketing and distribution rights for the United
States, Canada, and several other international markets with respect to
any generic transdermal products developed by Sano. In November 1995, Sano
repaid $1,500,000 of the $2,429,000 of advances used for development of generic
transdermal products. The payment was treated as a credit to research and
development expenses in fiscal 1996.

For the year ended October 1, 1994, research and development costs
increased $1,915,000 to $3,874,000 from the prior fiscal year as management
continued efforts to expand its product line.

Selling, General and Administrative

Selling, general and administrative costs were $16,192,000 (24% of net
sales) for the year ended September 30, 1995 versus $13,463,000 (19% of net
sales) for the corresponding period in the prior fiscal year. The increase in
the period is primarily attributable to certain nonrecurring charges, including
legal and accounting expenses related to merger and acquisition or other
strategic alliance negotiations, expenses incurred in connection with the
Company's response to FDA inquiries with respect to current Good Manufacturing
Practices, and costs associated with the termination of the independent sales
representatives used by the Company to sell its products. In addition, the
Company has incurred higher personnel and other costs related to the hiring of
its own regional sales force, the creation of a managed care subsidiary, and the
implementation of new information systems.

Selling, general and administrative costs were $4,248,000 (24% of net
sales) for the three month period ended September 30, 1995 compared to
$3,677,000 (21% of net sales) for the corresponding period in the prior fiscal
year. Increased selling, general and administrative costs are principally
attributable to continued additions of management, personnel and information
systems as described above.

Selling, and general and administrative costs for the fiscal year ended
October 1, 1994 increased 6% to $13,463,000 (19% of net sales) from $12,763,000
(17% of net sales) for the year ended October 2, 1993 principally due to higher
consulting and information systems costs.

SETTLEMENTS

The Company settled claims against certain former management members of the
Company for recovery of, among other things, salaries and money paid for
indemnification. The total amount of the settlement was $2,029,000, which was
collected between February and April of 1995.

The Company settled three lawsuits against it by 3M, United States Trading
Corporation, and Mylan Laboratories, Inc. for an aggregate of $10,500,000 which
was reflected in the fiscal 1993 financial statements (see "Business--General--
Recent Developments", "Legal Proceedings" and "Notes to Financial Statements--
Settlements--Fiscal Year 1993"). With the settlement of these actions, the
Company resolved all of the significant litigation against it. While the Company
has settled such lawsuits and other regulatory proceedings, there can be no
assurance that other lawsuits or proceedings will not be instituted against it
in respect of the actions of the prior management of Par. Such lawsuits or
proceedings, if any, could have an adverse effect on the Company's financial
condition, results of operations or liquidity.

INCOME TAXES

At September 30, 1995, the Company had net operating loss carryforwards for
tax purposes of approximately $40,000,000 (see "Notes to Financial Statements--
Income Taxes"). In fiscal year 1994, the Company adopted Financial Accounting
Standards No. 109, "Accounting For Income Taxes" ("FAS 109"), resulting in
income of $14,128,000 which is reflected as the cumulative effect of a change in
accounting principle in the financial statements. Significant portions of the
income recognized consist of net operating loss carryforwards and have been
included to the extent that the realization of such benefits is more likely than
not.

The Internal Revenue Service ("IRS") has determined that certain credits
taken by the Company in prior years for research activities are not permitted. A
reserve of approximately $1,000,000 was provided upon implementation of FAS 109
in fiscal 1994. The Company paid to the IRS approximately $1,000,000 during
fiscal 1995 for the disallowed credits and such payments were charged against
the reserve which was previously provided.

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

Working capital of $34,907,000 represents an increase of $14,911,000 from
the last fiscal year end principally due to the receipt of cash from the sale of
Common Stock to Clal (see "Notes to Financial Statements--Shareholders' Equity"
and "Results of Operations--Operating Expenses--Research and Development").
The working capital ratio of 3.5x improved from 2.5x at the prior fiscal year
end.

The alliance formed with Clal (see "Notes to Financial Statements--
Investment in Joint Venture", "Shareholders' Equity" and "--Results of
Operations--Operating Expenses--Research and Development") includes the sale
of 2,027,272 shares of Common Stock by the Company to Clal for $20,000,000
($9.87 per share). Clal also received two three-year warrants to purchase up to
2,005,107, shares of Common Stock at prices between $11 and $12 per share. The
shares and the two warrants allow Clal to own 19.9% of Common Stock. As part of
the alliance, the Company has invested $1,960,000 in the Joint Venture formed
for research and development activities. The Company is committed to invest an
additional $5,390,000 in the Joint Venture during the next two years.

In 1995, the Company invested $2,500,000 in Sano's convertible preferred
stock which was later converted to common stock as a result of Sano's initial
public offering (see "Notes to Financial Statements--Investment in Non-
marketable Securities" and "--Operating Expenses-Research and Development"). In
addition, the Company provided $1,429,000 to Sano for the research and
development of generic transdermal products in fiscal 1995. The Company plans
on incurring significant research and development expenditures in subsequent
periods for the development of Sano's transdermal generic pharmaceutical
products. The Company estimates that it could spend up to $2,000,000, subject
to certain contingent events, in further research and development expenses with
Sano over the next twelve months.

If the Company incurs additional funding obligations as described above
and/or enters into new, distribution and product development agreements, the
Company expects to fund such obligations with its working capital, including
cash provided by operations, and if necessary by borrowings against its line of
credit (see"--Financing"). The Company also intends to fund future possible
acquisitions to expand its product line out of working capital, current
borrowing capacity, or additional sources of funding.

The operations of Quad Pharmaceuticals, Inc. ("Quad"), a wholly owned
subsidiary of Par were discontinued in 1991 and it conducts no business (see"--
Notes to Financial Statements--Discontinued Operations"). The Company does not
expect there to be any Quad activities requiring cash outlays in the future.
Quad has liabilities totalling approximately $2,830,000, which are reflected on
the Company's September 30, 1995 consolidated balance sheet and has virtually
no assets with which to satisfy such liabilities. These liabilities, although
reflected on the Company's consolidated balance sheets, are not expected to
have any material impact upon the Company's cash flow or liquidity because they
are direct obligations of Quad and the Company believes that neither it nor any
of its subsidiaries (other than Quad) have any obligation to satisfy the
liabilities.

FINANCING

At September 30, 1995, the Company's total outstanding long-term debt was
$5,729,000, due to two banks, to be repaid in monthly installments through 2004.
The long term debt consists principally of outstanding term loans of $3,936,000
and industrial revenue bonds of $1,437,000 which are secured by certain assets
of the Company.

In December 1995, the Company entered into a three-year, $16,000,000
unsecured revolving credit agreement and two three-year term loans totalling
$4,000,000 replacing an existing revolving credit facility and certain
outstanding term loans and outstanding industrial revenue bonds totalling
$4,000,000. The two term loans are secured by $4,000,000 of machinery and
equipment. The interest rates charged on the revolving credit and one term loan
are based on either Libor, the bank's cost of funds or the prime rate, all at
the Company's option. Any borrowings at Libor or cost of funds will incur
additional interest at spreads ranging from 3/4% to 1 1/4% based on certain
Company financial ratios. The interest rate on the second term loan is based on
Libor plus 1 3/4% (see"--Notes to Financial Statements--Long-Term Debt).

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See Index to Financial Statements after Signature Page.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

In September 1995, the Company changed accountants, from Richard A. Eisner
and Co., LLP. to Arthur Andersen LLP. The Company filed a Report on Form 8-K in
connection with such change with the Securities and Exchange Commission on
September 8, 1995 - which Form 8-K subsequently was amended on October 4, 1995
and on October 12, 1995, all of which are hereby incorporated herein by
reference.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

DIRECTORS

The Company's Certificate of Incorporation provides that the Board shall be
divided into three classes, with the term of office of one class expiring each
year. The Class I, Class II and Class III directors of the Company have terms
which expire in 1997, 1998 and 1996, respectively. The following table sets
forth certain information with respect to each of Class I, II and III directors
and the year each was first elected as a director:

YEAR
OF FIRST
NAME AGE (AS OF 12/95) ELECTION
---- ----------------- --------

CLASS I

Mark Auerbach (1)(5)................................................ 57 1990

Since June 1993, the Senior Vice President and Chief Financial
Officer of Central Lewmar L.P., a distributor of fine papers.
From August 1992 to June 1993, a partner of Marron Capital
L.P., an investment banking firm. From July 1990 to August
1992, President, Chief Executive Officer and Director of
Implant Technology Inc., a manufacturer of artificial hips and
knees. From February 1989 to August 1990, Managing
Director-Corporate Finance of F.N. Wolf & Co., Inc., an
investment banking firm.

H. Spencer Matthews (5)............................................. 74 1990

Since 1986, President and Chief Executive Officer of
Dispense-All South Coast, Inc., and Dispense-All of Central
Florida, Inc., two companies which are wholesalers of juice
concentrates. Rear Admiral, United States Navy (Retired).

Mony Ben-Dor(1)(2)(3)(4)(5)......................................... 49 1995

Since August 1993, Vice President, New Business
Development of Clal Industries, Ltd., a holding company based
in Israel which owns all of the stock of Clal, and since
December 1995, a director of Clal. From 1988 to August 1993,
Mr. Ben-Dor was an executive with Eisenberg Group of
Companies, a holding company based in Israel.

CLASS II

Andrew Maguire, Ph.D.(1)(2)(3)(4)................................... 56 1990

Since January 1990, President and Chief Executive Officer of
Appropriate Technology International, a not-for profit
development assistance corporation and, since January 1989,
a Senior Vice President of Washington Financial Group, an
investment banking firm. From June 1987 to January 1989,
Executive Vice President of North American Securities
Administrators Association.

Melvin H. Van Woert, M.D.(1)(2)(3)(4)............................... 66 1990

Since 1974, Physician and Professor of Neurology and
Pharmacology and Doctoral Faculty, Mount Sinai Medical
Center, New York.

CLASS III

Kenneth I. Sawyer(2)(3)(4).......................................... 50 1989

Since October 1990, Chairman of the Board of the Company.
Since October 1989, President and Chief Executive Officer of
the Company. From September 1989 to October 1989, Interim
President and Chief Executive Officer of the Company. From
August 1989 to September 1989, counsel to the Company.
From May 1989 to August 1989, an attorney in private
practice. From prior to 1987 to May 1989, Vice President and
General Counsel of Orlove Enterprises, Inc., a company
engaged in the manufacture and distribution of pharmaceutical
and other products. Director of Acorn Venture Capital
Corporation, a closed-end investment company.

Robin O. Motz, M.D., Ph.D. (2)(4)(5)................................ 56 1992

Since July 1978, Assistant Professor of Clinical Medicine,
Columbia University College of Physicians and Surgeons.
Physician engaged in a private practice of internal medicine.

- ----------------
(1) A member of the Audit Committee of the Board of the Company.
(2) A member of the Nominating Committee of the Board of the Company.
(3) A member of the Strategic Planning Committee of the Board of the
Company.
(4) A member of the Executive Committee of the Board of the Company.
(5) A member of the Compensation and Stock Option Committee of the Board of
the Company.

In June 1995, Mony Ben-Dor was elected by the Board to fill a vacancy on
the Board as a Class I director in accordance with the terms of the Stock
Purchase Agreement between the Company and Clal. Under such agreement, Clal
has the right to designate one-seventh of the members of the Board as long as
Clal owns 8% of the issued and outstanding Common Stock, and a total of two-
sevenths of the members of the Board if Clal owns at least 16% of the issued and
outstanding Common Stock. The Company has the right to reject a designee of Clal
if such person is not reasonably acceptable to the Company. The Company also
agreed to elect Clal's designee to the Audit Committee, Compensation and Stock
Option Committee and Strategic Planning Committee of the Board. In the event
that Clal does not nominate directors to the Board or its committees or if
Clal's designees are not elected to the Board or its committees, Clal is
permitted, under the Stock Purchase Agreement, to designate representatives who
may attend meetings of the Board and its committees. Additionally, if Clal's
appointment of a director to the Audit Committee is prohibited by the rules and
regulations of the New York Stock Exchange, Inc., The Company will

provide Clal materials which are provided to committee members, the appointment
of the Company's auditors will be approved by the entire Board, the Company will
consult with directors nominated by Clal with respect to Audit Committee actions
and the directors nominated by Clal will have the right to consent to certain
changes in the Company's accounting principles.

Clal designated Mr. Ben-Dor, a director of Clal and a vice president of
Clal Industries Ltd., as its representative to serve on the Board and all
committees thereof. Clal Industries Ltd. owns all of Clal's stock.

EXECUTIVE OFFICERS

The executive officers of the Company consist of Mr. Sawyer as President,
Chief Executive Officer and Chairman of the Board, Robert I. Edinger as
Executive Vice President, Chief Financial Officer and Secretary and
Stuart A. Rose, Ph.D., Executive Vice President Operations. The executive
officers of Par consist of Mr. Sawyer, Mr. Edinger, and Dr. Rose, as well
as Robert M. Fisher, Jr., Executive Vice President, Corporate Development, Sales
and Marketing of Par. Mr. Rose resigned as an officer of both the Company and
Par effective December 5, 1995.

The following table sets forth certain information with respect to the
executive officers of the Company and Par who are not directors or nominees for
election as director:

NAME AGE
---- ---

Robert I. Edinger............................................................... 55

Since January 1995, Executive Vice President, Chief Financial Officer and
Secretary of the Company and Par since June 1993, Vice President, Chief
Financial Officer and Secretary of the Company and Par. In January 1995,
Mr. Edinger was also appointed Executive Vice President, Finance of Par.
From 1990 to June 1993, Mr. Edinger served as Executive Vice President of
Bonjour Group, Ltd., a licensing company, where he was responsible for
negotiating licensing agreements. From 1986 to 1990, President and Chief
Financial Officer of OCP America, a wholesale distribution company.

Robert M. Fisher, Jr............................................................ 47

Since June 1995, Executive Vice President, Corporate Development, Sales
and Marketing of Par, and since October of 1993, Vice President, Corporate
Development, Sales and Marketing of Par. From March 1993 to October
1993, Vice President, Corporate Development of F.H. Faulding USA, a
company engaged in the manufacture of pharmaceuticals. From 1992 to
1993, Vice President, Business Development, PUREPAC Pharmaceutical
Company, a company engaged in the manufacture of generic
pharmaceuticals, and from 1989 to 1992, Vice President and General
Manager of Rondex Laboratories at PUREPAC.

As a public company, the Company's directors, executive officers and 10%
beneficial owners are subject to the reporting requirements under Section 16(a)
of the Securities Exchange Act of 1934, as amended. Under such Act, Statements
of Changes in Beneficial Ownership of Securities on Form 4 were required to be
filed by Messrs. Sawyer and Matthews, directors and/or officers of the Company,
in January 1993 and August 1995, and December 1994, respectively. Transactions
by such directors and officers were instead reported delinquently on Form 4 in
August and September 1995, and January 1995, respectively. In addition, Mr. Ben-
Dor filed Form 3 delinquently in July 1995.

ITEM 11. EXECUTIVE COMPENSATION.

The following table sets forth compensation earned by or paid to during
fiscal years 1993 through 1995, the Chief Executive Officer of the Company and
the four additional most highly compensated executive officers (over $100,000)
serving as executive officers of the Company and/or Par during fiscal 1995 (the
"Named Executives"). The Company awarded or paid such compensation to all such
persons for services rendered in all capacities during the applicable fiscal
years.

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------- -------------------------
RESTRICTED SECURITIES
NAME AND STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARDS($)(1) OPTIONS(#) COMPENSATION($)(2)
- ------------------ ---- --------- -------- ------------ ---------- ------------------

Kenneth I. Sawyer 1995 427,153 200,000 - - 49,806
President, Chief 1994 408,238 100,000 - - 59,752
Executive Officer 1993 413,215 200,000 - 500,000 70,851
and Chairman

Diana L. Sloane (3) 1995 141,146 - - - 2,343
Vice President- 1994 208,097 22,500 - - 19,628
Regulatory and 1993 179,423 40,000 - 130,000 22,906
Scientific Affairs

Robert I. Edinger 1995 190,538 - - 40,000 19,628
Executive Vice 1994 180,000 50,000 - - 11,072
President, Chief 1993 58,846 25,000 - 40,000 76
Financial Officer
and Secretary

Robert M. Fisher, Jr. 1995 188,691 - - 20,000 15,898
Executive Vice 1994 122,359 23,500 - 10,000 3,504
President, Corporate
Development, Sales
& Marketing, Par

Stuart A. Rose 1995 128,077 - - 75,000 566
Executive Vice
President, Operations

- ---------------------
(1) The Company believes that at the end of fiscal 1995, the Named Executives
did not hold any shares of restricted stock.

(2) For fiscal year 1995, includes insurance premiums paid by the Company for
term life insurance for the benefit of the Named Executives as follows: Mr.
Sawyer-$37,816; Ms. Sloane-$612; Mr. Edinger-$775; Mr. Fisher-$694; and Dr.
Rose-$566. The amount for Mr. Sawyer also includes $37,050, representing
the maximum potential estimated dollar value of the Company's portion of
insurance premium payments from a split-dollar life insurance policy as if
1995 premiums were advanced to the executive without interest until the
earliest time the premium, may be refunded by Mr. Sawyer to the Company.
Also includes the following amounts contributed by the Company to the
Company 401(k) plan: Ms. Sloane-$1,731; Mr. Edinger-$5,971; and Mr. Fisher-
$3,106. The Company also contributed $11,940, $12,882 and $12,099 for the
benefit of Mr. Sawyer's, Mr. Edinger's and Mr. Fisher's Par Pharmaceutical
Retirement Plan.

(3) Resigned effective March 31, 1995.

The following table sets forth stock options granted to the Named
Executives during fiscal 1995.

STOCK OPTION GRANTS IN LAST FISCAL YEAR

POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
-------------------------------------------------------- ------------------------------
% OF TOTAL
SHARES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE EXPIRATION
NAME GRANTED (#) IN FISCAL YEAR PRICE ($) DATE 0%($) 5%($) 10%($)
- ---- ----------- -------------- ---------- ---------- ---- ------ ------

Robert I. Edinger (1) 40,000 15.12% $8.625 10/13/99 $0 $440,317 $ 555,626
Robert M. Fisher, Jr. (2) 20,000 7.56% $8.625 10/13/99 $0 $220,159 $ 277,813
Stuart A. Rose (3) 75,000 28.36% $9.000 01/16/00 $0 $861,490 $1,087,094

(1) Represents options granted pursuant to the Company's 1990 Incentive
Option Plan on October 13, 1994 of which 20,000 became exercisable on
October 13, 1995 and 20,000 will become exercisable on October 13, 1996.

(2) Represents options granted pursuant to the Company's 1990 Incentive
Option Plan on October 13, 1994 of which 10,000 became exercisable on
October 13, 1995 and 10,000 will become exercisable on October 13, 1996.

(3) Represents options granted pursuant to the Company's 1990 Incentive
Option Plan on January 16, 1995 of which 25,000 became exercisable on July
16, 1995, 25,000 will become exercisable on January 16, 1996, and 25,000
will become exercisable on January 16, 1997.

The following table sets forth the stock options exercised by the Named
Executives during fiscal 1995 and the value, as of September 30, 1995, of
unexercised stock options held by the Named Executives.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End (#) at FY-End ($)
-------------------------- ----------------------------
Shares
Acquired on Value
Name Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ---------- ----------- ------------- ----------- -------------

Kenneth I. Sawyer 0 0 1,000,000 0 2,970,000 0
Diana L. Sloane 60,000 371,874 130,000 0 0 0
Robert I. Edinger 0 0 60,000 20,000 52,500 17,500
Robert M. Fisher, Jr. 0 0 20,000 10,000 17,500 8,750
Stuart A. Rose 0 0 25,000 50,000 12,500 25,000

COMPENSATION OF DIRECTORS

For service on the Board, directors who are not employees of the Company or
any of its subsidiaries receive an annual retainer of $12,000, a fee of $1,000
for each meeting of the Board attended, and a fee of $750 for each committee
meeting attended, subject to a maximum of $1,750 per day. Chairmen of committees
receive an additional annual retainer of $5,000 per committee. New Directors are
granted options to purchase shares on the date initially elected to the Board.
Directors who are employees of the Company or any of its subsidiaries or are
designated by Clal receive no additional remuneration for serving as directors
or as members of committees of the Board. All directors are entitled to
reimbursement for out-of-pocket expenses incurred in connection with their
attendance at Board and committee meetings.

In fiscal 1995, Mark Auerbach received an additional $30,000 in
compensation from the Company for providing his expertise in connection with
forming strategic alliances with other companies.

EMPLOYMENT AGREEMENTS AND TERMINATION ARRANGEMENTS

Company has entered into an Employment Agreement with Mr. Sawyer, which
provides for his employment in his current position through October 4, 1996,
subject to earlier termination by the Company for Cause (as such term is defined
in the agreement). Mr. Sawyer's term of employment will be automatically
extended each year for an additional one-year period unless either party
provides written notice by July 4th of such year that he or it desires to
terminate the agreement. Mr. Sawyer, pursuant to the terms of his employment
agreement, is and will be required to serve, if so elected, on the Board of
Directors of the Company and subsidiary, as well as any committees thereof.

Mr. Sawyer's agreement provides for certain payments upon termination of
his employment as a result of a material breach by the Company of his employment
agreement following a Change of Control of the Company. A material breach by the
Company of the employment agreement includes, but is not limited to, termination
without Cause and a change of his responsibilities. Mr. Sawyer is entitled to
receive, if such a termination occurs within two years following the Change of
Control of the Company, a lump sum payment equal to the lesser of three times
the sum of his annual base salary and most recent bonus or the maximum amount
permitted without the imposition of an excise tax on Mr. Sawyer or the loss of a
deduction to the Company under the Internal Revenue Code of 1986, as amended
(the "Code"), plus reimbursement of certain legal and relocation expenses
incurred by Mr. Sawyer as a result of the termination of his employment and
maintenance of insurance, medical and other benefits for 24 months or until Mr.
Sawyer is covered by another employer for such benefits.

In addition, Mr. Sawyer's employment agreement provides for the Company to
purchase a residence within the vicinity of the Company's principal offices for
Mr. Sawyer to occupy for the duration of his term of employment. In this
connection, the Company purchased a condominium for the price of $192,500, which
Mr. Sawyer has leased from the Company since February 1995.

Mr. Edinger and Mr. Fisher have agreements providing for certain payments
upon termination of their employment as defined in their agreements. The
officers will be entitled to twelve months continuation of the prevailing base
salary, payable in twelve equal monthly installments from the date of
termination. The officers shall also have medical and other benefits maintained
for twelve months or until such employee is covered by another employer for such
benefits, if earlier.

PENSION PLAN

The Company maintains a defined benefit plan (the "Pension Plan") intended
to qualify under Section 410(a) of the Code. Effective October 1, 1989, the
Company ceased benefit accruals under the Pension Plan with respect to service
after such date. The Company intends that distributions will be made, in
accordance with the terms of the Plan, to participants as of such date and/or
their beneficiaries. The Company will continue to make contributions to the
Pension Plan to fund its past service obligations. Generally, all employees of
the Company or a participating subsidiary who completed at least one year of
continuous service and attained 21 years of age were eligible to participate in
the Pension Plan. For benefit and vesting purposes, the Pension Plan's "Normal
Retirement Date" is the date on which a participant attains age 65 or, if later,
the date of completion of 10 years of service. Service is measured from the date
of employment. The retirement income formula is 45% of the highest consecutive
five-year average basic earnings during the last 10 years of employment, less 83
1/3% of the participant's Social Security benefit, reduced proportionately for
years of service less than 10 at retirement. The normal form of benefit is life
annuity, or for married persons, a joint survivor annuity. None of the Named
Executives had any years of credited service under the pension plan.

COMPENSATION AND STOCK OPTION COMMITTEE

The compensation stock option committee consists of: Mark Auerbach, Mony
Ben-Dor, H. Spencer Matthews, and Robin O. Motz.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information set forth under the caption "Voting Securities and
Principal Shareholders" in the Company's Proxy Statement relating to its 1996
Annual Meeting of Shareholders, to be filed with the Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, is incorporated herein
by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information set forth under the caption "Certain Relationships and
Related Transactions" in the Company's Proxy Statement relating to its 1996
Annual Meeting of Shareholders, to be filed with the Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, is incorporated
herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)(1)&(2) Financial Statements.

See Index to Financial Statements after Signature Page.

(a)(3) Exhibits.

3.1 Certificate of Incorporation of the Registrant. (4)

3.1.1 Certificate of Amendment to the Certificate of Incorporation
of the Registrant, dated August 6, 1992--incorporated by
reference to the Registrant's Registration Statement on Form
8-A (Commission File No. 0-20834), filed with the Commission
November 10, 1992.

3.2 By-Laws of the Registrant, as amended and restated. (3)

4 Rights Agreement, dated August 6, 1991, between the Registrant
and Midlantic National Bank, as Rights Agent. (5)

4.1 Amendment to Rights Agreement, dated as of April 27, 1992. (3)

10.1 1983 Stock Option Plan of the Registrant, as amended. (2)

10.2 1986 Stock Option Plan of the Registrant, as amended. (2)

10.3 1989 Directors' Stock Option Plan of the Registrant, as
amended. (5)

10.4 1989 Employee Stock Purchase Program of the Registrant. (7)

10.5 1990 Stock Incentive Plan of the Registrant, as amended. (2)

10.6 Form of Retirement Plan of Par. (12)

10.6.1 First Amendment to Par's Retirement Plan, dated October 26,
1984. (6)

10.7 Form of Retirement Savings Plan of Par. (12)

10.7.1 Amendment to Par's Retirement Savings Plan, dated July 26,
1984. (13)

10.7.2 Amendment to Par's Retirement Savings Plan, dated November 1,
1984. (13)

10.7.3 Amendment to Par's Retirement Savings Plan, dated September
30, 1985. (13)

10.8 Par Pension Plan, effective October 1, 1984. (4)

10.9 Employment Agreement, dated as of October 4, 1992, among the
Registrant, Par and Kenneth I. Sawyer. (1)

10.10 Lease Agreement between Par and the County of Rockland
Industrial Development Agency, dated as of October 1,
1984. (6)

10.10.1 Lessee Guaranty between Par and Midlantic National Bank, dated
as of October 1, 1984. (6)

10.10.2 Mortgage from County of Rockland Industrial Development Agency
to Midlantic National Bank, as Trustee, dated as of October 1,
1984. (13)

10.10.3 Security Agreement between County of Rockland Industrial
Development Agency and Midlantic National Bank, as Trustee,
dated as of October 1, 1984. (13)

10.11 Term Loan Agreement, dated September 18, 1987, between
Midlantic National Bank/North and Par. (11)

10.11.1 Note and Indenture, dated September 18, 1987, between
Midlantic National Bank/North and Par. (11)

10.12 Revolving Credit Agreement, dated February 20, 1992, between
Par and Midlantic National Bank. (1)

10.13 Agreement Concerning Term Loans, dated February 20, 1992,
between Par and Midlantic National Bank. (1)

10.14 Amendments to Term Note, dated February 20, 1992. (1)

10.15 Lease for premises located at 12 Industrial Avenue, Upper
Saddle River, New Jersey, between Par and Charles and Dorothy
Horton, dated October 21, 1978 and extension dated September
15, 1983. (12)

10.15.1 Extension of Lease, dated November 8, 1989, between Par and
Charles and Dorothy Horton relating to premises at 12
Industrial Avenue, Upper Saddle River, New Jersey. (9)

10.16 Lease, dated November 7, 1986, between Ramapo Corporate Park,
Inc. as landlord, and Par as tenant. (4)

10.16.1 Amendment by letter dated March 10, 1988 to the lease, dated
November 7, 1986, between Ramapo Corporate Park, Inc. as
lessor and Par as lessee. (10)

10.17 Lease, dated December 15, 1987, between Ram Ridge Estates
Corp. as lessor and Par as lessee. (10)

10.18 Standstill Agreements and Irrevocable Proxies, each dated May
29, 1990, between Par and each of Asrar Burney, Dulal
Chatterji, and Raja Feroz. (8)

10.19 Agreement of Purchase and Sale, dated June 4, 1992, among
Quad, Par, and The Liposome Company, Inc. (1)

10.19.1 Modification of Agreement of Purchase and Sale, dated July 24,
1992, among Quad, Par, and The Liposome Company, Inc. (1)

10.20 Employment Agreement, dated as of April 1, 1993, between Par
and Diana L. Sloane. (14)

10.21 Employment Agreement, dated as of May 19, 1993, between the
Registrant and Robert I. Edinger. (14)

10.22 Distribution Agreement, dated as of October 16, 1993, between
Genpharm, Inc., the Registrant and PRX Distributors, Ltd. (14)

10.23 Agreement, dated as of September 30, 1993, between National
Union Fire Insurance Company of Pittsburgh and Par. (14)

10.24 Settlement Agreement and Release, dated as of November 29,
1993, between Mylan Laboratories, Inc., the Registrant, Par
and Quad. (14)

10.25 Settlement Agreement and Release, dated as of January 6, 1994,
between Minnesota Mining & Manufacturing Company, Riker
Laboratories, Inc., the Registrant and Par. (14)

10.26 Settlement Agreement and Release, dated as of December 22,
1993, between United States Trading Corporation, Marvin
Sugarman, Liquipharm, Inc., the Registrant and Par. (14)

10.27 Letter Agreement, dated April 30, 1993, between the Generics
Group B.V. and Par. (16)

10.28 Distribution Agreement, dated as of February 24, 1994, between
Sano Corporation, the Registrant and Par, as amended. (16)

10.29 Mortgage and Security Agreement, dated May 4, 1994, between
Urban National Bank and Par. (15)

10.29.1 Mortgage Loan Note, dated May 4, 1994. (15)

10.29.2 Corporate Guarantee, dated May 4, 1994, by the Registrant to
Urban National Bank. (15)

10.30 Non-exclusive Distribution, Exclusive Supply Agreement, dated
as of September 13, 1994, between Mova Pharmaceutical
Corporation and Par. (16)

10.31 Non-exclusive Distribution, Exclusive Supply Agreement, dated
as of September 13, 1994, between Mova Pharmaceutical
Corporation and Par. (16)

10.32 Letter Agreement, dated as of October 13, 1994, between Par
and Robert I. Edinger. (16)

10.33 Term Loan Agreement, dated as of November 29, 1994, between
Midlantic Bank, NA and Par. (17)

10.34 Amended and Restated Revolving Credit Agreement, dated as of
November 29, 1994, between Midlantic Bank, NA and Par. (17)

10.34.1 Revolving Loan Note, dated November 29, 1994. (17)

10.35 Amended and Restated Agreement Concerning Term Loans, dated as
of November 29, 1994, between Midlantic Bank, NA and Par. (17)

10.36 1995 Directors Stock Option Plan.

11 Computation of per share data.

16 Letter regarding change in accountants (18).

21 Subsidiaries of the Registrant.

23.1 Consent of Arthur Andersen LLP.

23.2 Consent of Richard A. Eisner and Company, LLP.

27 Financial Data Schedule.

__________________________________________

(1) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Annual Report on Form 10-K (Commission
File No. 1-10827) for the year ended October 3, 1992 and incorporated
herein by reference.

(2) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Proxy Statement dated August 10, 1992 and
incorporated herein by reference.

(3) Previously filed with the Securities and Exchange Commission as an
Exhibit to Amendment No. 1 on Form 8 to the Registrant's Registration
Statement on Form 8-B, filed May 15, 1992, and incorporated herein by
reference.

(4) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Annual Report on Form 10-K (Commission
File No. 1-10827) for the year ended September 28, 1991 and
incorporated herein by reference.

(5) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Proxy Statement dated August 14, 1991 and
incorporated herein by reference.

(6) Previously filed with the Securities and Exchange Commission as an
Exhibit to Par's Annual Report on Form 10-K (Commission File No. 1-
9449) for the year ended September 29, 1990 and incorporated herein
by reference.

(7) Previously filed with the Securities and Exchange Commission as an
Exhibit to Par's Proxy Statement dated August 16, 1990 and
incorporated herein by reference.

(8) Previously filed with the Securities and Exchange Commission as an
Exhibit to Par's Current Report on Form 8-K dated May 29, 1990 and
incorporated herein by reference.

(9) Previously filed with the Securities and Exchange Commission as an
Exhibit to Par's Annual Report on Form 10-K for 1989 and incorporated
herein by reference.

(10) Previously filed with the Securities and Exchange Commission as an
Exhibit to Par's Annual Report on Form 10-K for 1988 and incorporated
herein by reference.

(11) Previously filed with the Securities and Exchange Commission as an
Exhibit to Par's Annual Report on Form 10-K for 1987 and incorporated
herein by reference.

(12) Previously filed with the Securities and Exchange Commission as an
Exhibit to Par's Registration Statement on Form S-1 (No. 2-86614) and
incorporated herein by reference.

(13) Previously filed with the Securities and Exchange Commission as an
Exhibit to Par's Registration Statement on Form S-1 (No. 33-4533) and
incorporated herein by reference.

(14) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrants' Annual Report on Form 10-K (Commission
File No. 1-10827) for the year ended October 2, 1993 and incorporated
herein by reference.

(15) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Quarterly Report on Form 10-Q (Commission
File No. 1-10827) for the quarter ended April 2, 1994 and
incorporated herein by reference.

(16) Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registrant's Annual Report on Form 10-K (Commission
File No. 1-10827) for the year ended October 1, 1994 and incorporated
herein by reference.

(17) Previously filed by amendment with the Securities and Exchange
Commission as an Exhibit to the Registrant's Annual Report on Form
10-K (Commission File No. 1-10827) for the year ended October 1, 1994
and incorporated herein by reference.

(18) Previously filed with the Securities and Exchange Commission as on
exhibit to the Registrant's Report Form 8-K (Commission File No. 1-
10827) dated September 8,1995 and subsequently amended on October 4,
1995 and October 12, 1995 and incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Dated: December 28, 1995 PHARMACEUTICAL RESOURCES, INC.
------------------------------
(REGISTRANT)

By: /s/ Kenneth I. Sawyer
-------------------------------------
Kenneth I. Sawyer
President and Chief Executive Officer
(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ Kenneth I. Sawyer President, Chief Executive Officer, and Chairman December 28, 1995
- ------------------------------- of the Board of Directors
Kenneth I. Sawyer

/s/ Robert I. Edinger Executive Vice President, Chief Financial Officer December 28, 1995
- -------------------------------- and Secretary (Principal Accounting and
Robert I. Edinger Financial Officer)

/s/ Mark Auerbach Director December 28, 1995
- ------------------------------
Mark Auerbach

/s/ Mony Ben-Dor Director December 28, 1995
- ------------------------------
Mony Ben-Dor

/s/ Andrew Maguire Director December 28, 1995
- ------------------
Andrew Maguire

/s/ H. Spencer Matthews Director December 28, 1995
- ----------------------------
H. Spencer Matthews

/s/ Robin O. Motz Director December 28, 1995
- -------------------------------
Robin O. Motz

/s/ Melvin Van Woert Director December 28, 1995
- -----------------------------
Melvin Van Woert

PHARMACEUTICAL RESOURCES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
FILED WITH THE ANNUAL REPORT OF THE
COMPANY ON FORM 10-K

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995

PAGE
----

INCLUDED IN PART II:
- -------------------

Reports of Independent Public Accountants F-2, F-3

Consolidated Balance Sheets at September 30, 1995 and October 1, 1994 F-4

Consolidated Statements of Operations and Retained Earnings (Deficit) for
the years ended September 30, 1995, October 1, 1994 and October 2, 1993 F-5

Consolidated Statements of Cash Flows for the years ended September 30, 1995,
October 1, 1994 and October 2, 1993 F-6

Notes to Consolidated Financial Statements F-7 through F-17

INCLUDED IN PART IV:
- -------------------

SCHEDULE:

II Valuation and qualifying accounts F-18

_________________________________________________

Other financial statement schedules are omitted because the conditions
requiring their filing do not exist or the information required thereby is
included in the financial statements filed, including the notes thereto.

F-1

REPORT OF INDEPENDENT AUDITOR

Board of Directors and Shareholders
Pharmaceutical Resources, Inc.
Spring Valley, New York 10977

We have audited the accompanying consolidated balance sheet of
Pharmaceutical Resources, Inc. and subsidiaries as at October 1, 1994, and the
related consolidated statements of operations and retained earnings (deficit)
and cash flows for each of the years in the two-year period ended October 1,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements enumerated above present fairly,
in all material respects, the consolidated financial position of Pharmaceutical
Resources, Inc. and subsidiaries at October 1, 1994, and the results of their
operations and their cash flows for each of the years in the two-year period
ended October 1, 1994, in conformity with generally accepted accounting
principles.

The audits above include Schedule II, for the years ended October 1, 1994
and October 2, 1993. In our opinion, the schedule referred to above presents
fairly the information set forth therein, in conformity with the applicable
accounting regulation of the Securities and Exchange Commission.

/s/ Richard A. Eisner & Company, LLP

New York, New York
November 30, 1994

F-2

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Pharmaceutical Resources, Inc.:

We have audited the accompanying consolidated balance sheet of Pharmaceutical
Resources, Inc. (a New Jersey corporation) and subsidiaries as of September
30, 1995, and the related consolidated statements of operations and retained
earnings and cash flows for the year then ended. These financial statements
and the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pharmaceutical Resources,
Inc. and subsidiaries as of September 30, 1995, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

/s/ ARTHUR ANDERSEN LLP

New York, New York
November 17, 1995

F-3

PHARMACEUTICAL RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, OCTOBER 1,
ASSETS 1995 1994
------ ------------ ---------

Current assets:
Cash and cash equivalents $17,986,000 $ 3,130,000
Temporary investments 271,000 176,000
Accounts receivable, net of allowances of $1,588,000
and $2,768,000 9,011,000 9,347,000
Inventories 15,364,000 16,352,000
Prepaid expenses and other current assets 1,866,000 1,520,000
Current deferred tax benefit 4,172,000 3,090,000
----------- -----------
Total current assets 48,670,000 33,615,000
Property, plant and equipment, at cost less
accumulated depreciation and amortization 24,371,000 23,004,000
Deferred charges and other assets 1,883,000 1,086,000
Investment in non-marketable securities 3,520,000 1,000,000
Investment in joint venture 2,037,000 -
Non-current deferred tax benefit, net 10,436,000 10,497,000
----------- -----------
$90,917,000 $69,202,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,470,000 $ 1,870,000
Accounts payable 6,422,000 5,340,000
Accrued salaries and employee benefits 2,336,000 2,908,000
Accrued expenses and other current liabilities 705,000 657,000
Estimated current liabilities of discontinued operations 2,830,000 2,844,000
----------- -----------
Total current liabilities 13,763,000 13,619,000
Long-term debt, less current portion 4,259,000 5,490,000
Accrued pension liability 941,000 817,000
Shareholders' equity:
Preferred Stock, par value $.0001 per share; authorized 6,000,000 shares;
issued and outstanding -- 0 and 1,058,400 shares of Series A
Convertible Preferred Stock (aggregate liquidation preference-
$0 and $5,292,000) - 1,000
Common Stock, par value $.01 per share; authorized 60,000,000 shares;
issued and outstanding 18,168,625 and 14,482,632 shares 182,000 145,000
Additional paid in capital 65,276,000 43,066,000
Retained earnings 6,783,000 6,164,000
Additional minimum liability related to defined benefit pension plan (287,000) (100,000)
----------- -----------
Total shareholders' equity 71,954,000 49,276,000
----------- -----------
$90,917,000 $69,202,000
=========== ===========

The accompanying notes are an integral part of these statements.

F-4

PHARMACEUTICAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)

YEAR ENDED
-------------------------------------------
SEPTEMBER 30, OCTOBER 1, OCTOBER 2,
1995 1994 1993
------------ ----------- ------------

Net sales $66,503,000 $69,169,000 $ 74,535,000
Cost of goods sold 45,514,000 45,774,000 48,387,000
----------- ----------- ------------
Gross margin 20,989,000 23,395,000 26,148,000
Operating expenses:
Research and development 5,487,000 3,874,000 1,959,000
Selling, general and administrative 16,192,000 13,463,000 12,673,000
----------- ----------- ------------
Total operating expenses 21,679,000 17,337,000 14,632,000
----------- ----------- ------------
Operating income (loss) (690,000) 6,058,000 11,516,000
Settlements 2,029,000 - (10,500,000)
Other income 608,000 425,000 347,000
Interest expense (499,000) (465,000) (602,000)
----------- ----------- ------------
Income from continuing operations
before provision for income taxes 1,448,000 6,018,000 761,000
Provision for income taxes 836,000 1,785,000 650,000
----------- ----------- ------------
Income from continuing operations 612,000 4,233,000 111,000
Income from discontinued operations - 466,000 -
----------- ----------- ------------
Income before extraordinary item 612,000 4,699,000 111,000
Extraordinary item -- tax benefit of utilization
of net operating loss carryforward - - 300,000
----------- ----------- ------------
Income before change in accounting principle 612,000 4,699,000 411,000
Cumulative effect of change in accounting principle - 14,128,000 -
----------- ----------- ------------
NET INCOME 612,000 18,827,000 411,000
Dividend on preferred stock 7,000 (312,000) -
Retained earnings (deficit), beginning of year 6,164,000 (12,351,000) (12,762,000)
----------- ----------- ------------
Retained earnings (deficit), end of year $ 6,783,000 $ 6,164,000 $(12,351,000)
=========== =========== ============
Income per share of common stock:
Continuing operations $.04 $ .26 $.01
Discontinued operations - .03 -
Extraordinary item - - .02
Change in accounting principle - .85 -
---- ----- ----

NET INCOME $.04 $1.14 $.03
==== ===== ====
Weighted average number of common and
common equivalent shares outstanding 17,143,381 16,494,898 15,814,278
========== ========== ==========

The accompanying notes are an integral part of these statements.

F-5

PHARMACEUTICAL RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED
-------------------------------------------
SEPTEMBER 30, OCTOBER 1, OCTOBER 2,
1995 1994 1993
-------------- ------------- ------------

Cash flows from operating activities:
Net income $ 612,000 $ 18,827,000 $ 411,000
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Cumulative effect of accounting change - (14,128,000) -
Common stock for research and development expense 150,000 - -
Payment of tax audit settlement (995,000) - -
Net operating loss carryforward - - (300,000)
Income from discontinued operations - (466,000) -
Provision for income taxes 836,000 1,785,000 650,000
Provision for settlements - - 10,500,000
Depreciation and amortization 2,588,000 2,391,000 2,479,000
Allowances against accounts receivable (1,180,000) 140,000 551,000
Write-off of inventories 2,203,000 1,333,000 1,732,000
Other - 213,000 550,000

Changes in assets and liabilities:
(Increase) decrease in accounts receivable 1,516,000 (2,631,000) (1,134,000)
(Increase) in inventories (1,215,000) (3,568,000) (3,602,000)
(Increase) decrease in prepaid expenses
and other assets (845,000) 581,000 (857,000)
Increase (decrease) in accounts payable 822,000 (1,429,000) 2,083,000
(Decrease) in accrued expenses
and other liabilities (722,000) (930,000) (641,000)
(Decrease) in settlements - (6,500,000) -
----------- ------------ -----------
Net cash provided by (used in) operating activities 3,770,000 (4,382,000) 12,422,000
Cash flows from investing activities:
Capital expenditures (3,975,000) (5,688,000) (2,718,000)
Investment in joint venture (2,037,000) - -
(Increase) in non-marketable securities (2,520,000) (1,000,000) -
(Increase) decrease in temporary investments (95,000) 1,003,000 (1,179,000)
Cash (used in) discontinued operations (12,000) (267,000) (1,298,000)
----------- ------------ -----------
Net cash (used in) investing activities (8,639,000) (5,952,000) (5,195,000)
Cash flows from financing activities:
Proceeds from issuance of common stock 21,661,000 1,679,000 2,125,000
Proceeds from issuance of notes payable
and other debt 2,315,000 4,552,000 -
Principal payments under long-term debt
and other borrowings (3,946,000) (4,901,000) (1,676,000)
Preferred dividends paid (305,000) - (135,000)
----------- ------------ -----------
Net cash provided by financing activities 19,725,000 1,330,000 314,000

Net increase (decrease) in cash and cash equivalents 14,856,000 (9,004,000) 7,541,000
Cash and cash equivalents at beginning of year 3,130,000 12,134,000 4,593,000
----------- ------------ -----------
Cash and cash equivalents at end of year $17,986,000 $ 3,130,000 $12,134,000
=========== ============ ===========

The accompanying notes are an integral part of these statements.

F-6

PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995

Pharmaceutical Resources, Inc. ("PRI") operates in one business segment,
the manufacture and distribution of generic pharmaceuticals. Marketed
products are principally in oral solid (tablet, caplet and capsule) form, with
a small number of products in the form of creams and liquids.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation:

The consolidated financial statements include the accounts of PRI and its
wholly-owned subsidiaries, of which Par Pharmaceutical, Inc. ("Par") is its
principal operating subsidiary. References herein to the "Company" refer to
PRI and its subsidiaries. The investment in a corporate joint venture with
Clal Pharmaceutical Industries Ltd. ("Clal") in which PRI has 49% ownership is
accounted for by the equity method.

Certain items on the consolidated financial statements for the prior years
have been reclassified to conform to the current year financial statement
presentation.

Accounting Period:

The Company's fiscal year is the 52 or 53 week period ending the Saturday
nearest to September 30. Fiscal years 1995, 1994 and 1993 ended on September 30,
1995, October 1, 1994 and October 2, 1993, respectively, and were all 52 week
years.

Temporary Investments:

Investments are stated at the lower of cost or market value. These
investments are classified as "available for sale securities" pursuant to
Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities".

Inventories:

Inventories are stated at the lower of cost (first-in, first-out basis) or
market value.

Depreciation and Amortization:

Property, plant and equipment are depreciated straight-line over their
estimated useful lives which are from three to forty years. Leasehold
improvements are amortized over the shorter of the estimated useful life or the
term of the lease.

Research and Development:

Research and development expenses represent costs incurred by the Company
to develop new products and obtain premarketing regulatory approval for such
products. All such costs are expensed as incurred.

Income Taxes:

Deferred income taxes are provided for the future tax consequences
attributable to differences between the financial statement carrying amount of
existing assets and liabilities and their respective tax bases. Business tax
credits and net operating loss carryforwards are recognized to the extent that
realization of such benefit is more likely than not.

Revenue Recognition:

The Company recognizes revenue at the time it ships product and it provides
for returns and allowances based upon actual subsequent allowances and
historical trends.

Per Share Data:

Per share data is based upon the weighted average number of common shares
and equivalents outstanding. For purposes of per share data, the Series A
Convertible Preferred Stock is considered to be a common stock equivalent. The
dilutive effect of outstanding options and warrants is computed using the
"treasury stock" method. Fully dilutive has not been presented because it is
not materially different from primary amounts.

F-7

PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
SEPTEMBER 30, 1995

Cash Equivalents:

For purposes of the statement of cash flows, the Company considers all
highly liquid money market instruments with original maturity of three months
or less to be cash equivalents. At September 30, 1995, cash equivalents were
deposited in financial institutions and consisted of immediately available
fund balances.

Concentration of Credit Risk:

Financial instruments that potentially subject the Company to credit risk
consist of trade receivables and interest-bearing short-term treasury
obligations. The Company markets its products primarily to domestic
distributors, wholesalers and retail drug store chains. The risk associated with
this concentration is believed by the Company to be limited due to the large
number of distributors, wholesalers, and drug store chains, their geographic
dispersion and the performance of certain credit evaluation procedures (see
"Accounts Receivable-Major Customers").

DISCONTINUED OPERATIONS:

The remaining liabilities of Quad Pharmaceuticals, Inc. ("Quad"), a wholly
owned subsidiary of Par whose operations were discontinued in a prior fiscal
year, have been classified on the balance sheet as such to separately identify
them. Quad has virtually no assets with which to satisfy such liabilities. These
liabilities, although reflected on the Company's consolidated balance sheets,
are not expected to have any material impact upon the Company's cash flow or
liquidity because they are direct obligations of Quad and the Company believes
that neither it nor its subsidiaries (other than Quad) have any obligation to
satisfy these liabilities. The principal components of the liabilities are shown
in the table below.

1995 1994
------ ------

(In Thousands)
Notes payable to former officers $ 813 $ 813
Amounts due to customers 1,657 1,657
Accrued expenses and accounts payable 360 374
------ ------
$2,830 $2,844
====== ======

In March 1994, the Company completed the disposition of Quad and, at
that time, reversed into income the remaining reserve for operating losses of
$466,000.

SETTLEMENTS:

Fiscal Year 1995:

The Company settled claims against former management members of the
Company for recovery of, among other things, salaries and money paid for
indemnification. The total amount of the settlement was $2,029,000, which was
collected between February and April of 1995.

Fiscal Year 1993:

Minnesota Mining and Manufacturing Settlement:

The Company, in January 1994, reached a settlement agreement with
Minnesota Mining & Manufacturing Company ("3M") and its subsidiary Riker
Laboratories, Inc. ("Riker", collectively with 3M, "3M/Riker"). The settlement
was reflected in fiscal year 1993 results of operations. In fiscal year 1994, in
accordance with the terms of the settlement, the Company paid 3M/Riker
approximately $5,000,000 in cash and issued 119,500 shares of common stock of
the Company ("Common Stock"). The lawsuit brought in 1993 by 3M/Riker against
Par stemmed from actions occurring during the tenure of prior management at Par.
3M/Riker alleged that Par improperly obtained United States Food and Drug
Administration (the "FDA") approvals by bribing FDA officials and submitting
false information to FDA, as a result of which 3M/Riker claimed to have suffered
competitive injury in an amount up to $24,000,000.

F-8

PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
SEPTEMBER 30, 1995

U.S. Trading Settlement:

In December 1993, the Company and United States Trading Corporation
("UST") settled their respective suits. This settlement was also reflected in
fiscal year 1993 results of operations. In fiscal year 1994, in accordance
with the terms of the settlement, the Company paid $250,000 in cash and issued
$250,000 in merchandise credit to UST. The lawsuit stemmed from actions
occurring during the tenure of prior management at Par.

Mylan Settlement:

In November 1993, the Company reached a settlement agreement with Mylan
Laboratories, Inc. ("Mylan") with respect to a lawsuit brought in 1989 by Mylan
against Par, Quad and others. This settlement was reflected in fiscal year 1993
results of operations. In fiscal year 1994, in accordance with the terms of the
settlement, the Company paid Mylan $1,000,000 in cash and issued it
approximately 111,000 shares of Common Stock. The lawsuit stemmed from actions
occurring during the tenure of prior management at Par. Mylan alleged that two
of the Company's subsidiaries improperly obtained FDA approvals by bribing FDA
officials and submitting false information to the FDA, as a result of which
Mylan claimed to have suffered competitive injury in an amount of up to
$600,000,000.

Application Integrity Assessment Program:

In October 1993, the Company was informed by the FDA that it had
completed the Application Integrity Assessment Program (the "Assessment
Program") for Par and that the FDA would review Abbreviated New Drug
Applications ("ANDAs") submitted by Par for the approval of generic drugs. In
addition, the Company became eligible to again bid on government contracts,
without previous limitation. The Assessment Program was initiated as a result of
investigations by the Federal government in 1989 resulting in guilty pleas by
Par and by certain former executives of Par to charges of providing an unlawful
gratuity to a public official.

Directors' and Officers' Liability Insurance Settlement:

In September 1993, the Company reached a settlement agreement with the
former insurance carrier of its directors' and officers' liability policy
pursuant to which the Company, in exchange for $650,000, settled all claims
against the insurer. The Company's claims were for the advancement and payment
of legal expenses and settlement costs on behalf of former officers and
directors relating to shareholder litigation.

ACCOUNTS RECEIVABLE:

1995 1994
------- -------
(In Thousands)
Accounts receivable $10,599 $12,115
------- -------

Allowances:
Doubtful accounts 208 124
Returns and allowances 227 349
Price adjustments 1,153 2,295
------- -------
1,588 2,768
------- -------
Accounts receivable,
net of allowances $ 9,011 $ 9,347
======= =======

Major Customers:

Two of the Company's customers accounted for approximately 9% and 8%, 12%
and 10%, and 16% and 11% of net sales from continuing operations in fiscal years
1995, 1994 and 1993, respectively.

At September 30, 1995, amounts due from these same two customers accounted
for approximately 11% and 9% of the net accounts receivable balance. At October
1, 1994, the amounts due from these same two customers accounted for
approximately 17% and 15% of the net accounts receivable balance.

F-9

PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
SEPTEMBER 30, 1995

INVENTORIES:

1995 1994
------- -------
(In Thousands)

Raw materials and supplies $ 8,157 $ 7,407
Work in process and finished goods 7,207 8,945
------- -------
$15,364 $16,352
======= =======

INVESTMENT IN JOINT VENTURE:

As part of a strategic alliance in May 1995, the Company and Clal formed
the Joint Venture, a limited partnership formed under the laws of the State of
Israel, to develop, manufacture and distribute generic pharmaceutical products
worldwide. The Company and Clal funded the Joint Venture in the amount of
$1,960,000 and $2,040,000, respectively. The Joint Venture is owned 49% by the
Company and 51% by Clal and is located primarily in Israel. The Company has
committed to invest an additional $5,390,000 in the Joint Venture during the
next two years. The investment is accounted for by the equity method.

In addition to the Joint Venture, the alliance has three major components
(i) a significant equity investment by Clal improving financial strength to the
Company (ii) creation of international manufacturing and distribution agreements
and (iii) initiation of a long term strategic relationship.

INVESTMENT IN NON-MARKETABLE SECURITIES:

The Company has a distribution agreement with Sano which gives Par the
right of first refusal to exclusively distribute Sano's generic transdermal
products in the United States, Canada, and several other international
markets. Sano develops transdermal delivery systems utilizing a patch that
incorporates the appropriate drug dosage into an adhesive that attaches the
patch to the skin. According to Sano, transdermal delivery offers significant
benefits over oral delivery, including improved efficacy, increased patient
compliance, reduced side effects, reduced interaction with other drugs in use by
a patient and a more consistent and appropriate drug level in the bloodstream,
all of which generally result in lower overall patient care costs. Sano is
developing two generic nitroglycerin patches, one generic nicotine patch and one
generic clonidine patch which are covered by the agreement. For each product the
Company elects to distribute, Par must pay Sano a portion of the development
expenses. To date, Sano has submitted one ANDA to the FDA and anticipates
submitting additional ANDAs in the future. The Company will purchase
manufactured products from Sano at cost and share in the gross profits from the
sale.

As part of the Sano agreement, the Company invested $3,500,000 in the
preferred stock of Sano over the last two years. In November 1995, Sano sold
common stock through an initial public offering and the Company's preferred
stock converted into 513,888 shares of common stock, equivalent to an ownership
position in Sano of approximately 6%. Based on the recent market price of Sano's
common stock, the Company's investment would be valued at approximately
$5,900,000 in December 1995. The investment is classified as an "available for
sale security" pursuant to Financial Accounting Standards No. 115, and
accordingly, will be carried at fair market value with the resulting increment
in value included in shareholders' equity.

Additionally, the Company advanced $1,000,000 and $1,429,000 in 1994 and
1995, respectively, to Sano as funding for the research and development costs of
the generic transdermal products. The Company renegotiated the agreement to
enable the advances to be recovered within three years by obtaining a greater
share of gross profits. Due to the uncertainty with respect to the
collectability of such advances, the Company has expensed them and will treat
them as income if repaid. In November 1995, the Company received $1,500,000 from
the proceeds of Sano's initial public offering in repayment of a portion of
total advances outstanding from the Company. The Company has reflected this as a
reduction of research and development expense in fiscal 1996.

F-10

PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
SEPTEMBER 30, 1995

PROPERTY, PLANT AND EQUIPMENT:

1995 1994
------- -------

(In Thousands)
Land $ 2,230 $ 2,230
Buildings 16,859 15,581
Machinery and equipment 17,987 16,979
Office equipment, furniture and fixtures 4,825 3,521
Leasehold improvements 950 794
------- -------
42,851 39,105
Less accumulated depreciation
and amortization 18,480 16,101
------- -------
$24,371 $23,004
======= =======

DISTRIBUTION AGREEMENTS:

As described in a previous note, the Company entered into a distribution
agreement with Sano, in February 1994, which gives Par the right of first
refusal to exclusively distribute Sano's generic transdermal products in the
United States, Canada, and several other international markets.

In September 1994, the Company signed two agreements (the "September 1994
Agreements") with Mova Pharmaceutical Corporation ("Mova"), a domestic
pharmaceutical company. Under the September 1994 Agreements, the Company was
appointed as the distributor of the two generic pharmaceuticals developed and
manufactured by Mova. The distribution agreements cover five year periods
commencing with the FDA approval of the respective products. The Company will
pay to Mova a base price for each product plus a percentage of net profits as
defined in the September 1994 Agreements.

In May 1993, the Company was appointed by The Generics Group B.V. (the
"Group"), an international pharmaceutical business, as the exclusive United
States distributor of up to five generic pharmaceuticals to be manufactured by
the Group's affiliates pending approval by the FDA (the "May 1993 Agreement").
ANDA approvals for Alprazolam, Triazolam, and Atenolol were received in fiscal
year 1994 and the Company began distributing them. Two additional drugs, which
will be made available to the Company for distribution, have yet to be
designated by the Group. The May 1993 Agreement also contains provisions for
development by the Group of additional generic pharmaceuticals for distribution
by the Company. Under the May 1993 Agreement, the Company is obligated to issue
a warrant to purchase 150,000 shares of Common Stock for $10 per share. The
terms of the warrant will be similar to the warrant issued pursuant to the
October 1992 Agreement (see below); however, the warrant granted under the May
1993 Agreement will become exercisable only upon reaching certain levels of
sales for the distributed products.

In October 1992, the Company entered into an agreement (the "October 1992
Agreement") with Genpharm Inc. ("Genpharm"), a Canadian manufacturer of generic
pharmaceuticals (which is an affiliate of the Group) under which Par became the
exclusive United States distributor of two of Genpharm's pharmaceutical
products. The agreement has an initial term of ten years (subject to earlier
termination by either party as provided therein), and thereafter automatically
renews from year to year unless either party gives notice of non-renewal. The
cost to the Company of such products is based upon a percentage of gross profits
as defined in the October 1992 Agreement. In connection with the October 1992
Agreement, the Company issued a warrant to Genpharm to purchase 150,000 shares
of PRI's common stock for $6 per share. The warrant became exercisable in March
1993, has an initial term of five years (subject to earlier termination in the
event the Company ceases to be Genpharm's exclusive distributor of the products
covered by the October 1992 Agreement), and may be extended for up to an
additional five years in the event that the closing price of Common Stock has
not reached levels specified in the warrant agreement. In fiscal year 1994, the
warrant was exercised to purchase 5,300 shares of Common Stock.

F-11

PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
SEPTEMBER 30, 1995

LONG TERM DEBT:

At September 30, 1995, the Company's debt of $5,729,000 is on a long-term
basis, due to two banks, to be repaid in monthly installments through February
1999. The outstanding loans are secured by the assets of the Company.

In March 1995, the Company and one of the banks revised a line of credit
used to acquire equipment, increasing it to $350,000. The line of credit is
collateralized by the equipment purchased. Borrowings under this line are at a
fixed rate based upon the prime rate in effect at the time of borrowing, with a
minimum 1/2% premium which increases based on the length of time the loan is
outstanding. At September 30, 1995, $187,000 was outstanding under this line.
This bank also provides an 8.5% fixed rate mortgage loan. The loan was made in
fiscal 1994, and at September 30, 1995, $1,251,000 was outstanding.

1995 1994
------ ------
(In Thousands)

Industrial Revenue Bond (a) $1,437 $1,822
Term loans (b) 3,936 4,921
Other (c) 356 617
------ ------
5,729 7,360
Less current portion 1,470 1,870
------ ------
$4,259 $5,490
====== ======

(a) The bond bears interest at 70% of the prime rate, subject to adjustment
based on subsequent changes in tax laws, and is repayable in monthly
installments into 1999.

(b) All of these loans, except the mortgage loan for which the rate is
fixed, bear interest at the prime rate, and amortize in monthly
installments through 1999.

(c) Includes amount outstanding under line of credit , with interest based
upon prime rate in effect at the time of borrowing, with a minimum of
1/2 of 1% per annum premium which increases based upon the length of
time the loan is outstanding. Also includes amounts due under a capital
lease.

Long-term debt maturities during the next five years, including the portion
classified as current, are $1,470,000 in 1996, $1,422,000 in 1997, $1,268,000
in 1998, $564,000 in 1999, and $61,000 in 2000 and $944,000 thereafter.

In December 1995, the Company entered into a three year, $16,000,000
unsecured revolving credit agreement and two three-year term loan agreements
totalling $4,000,000 with a new bank, replacing the Industrial Revenue Bonds
($1,437,000) and two term loans ($2,600,000) with the former lead bank. The
new term loans are secured by $4,000,000 of machinery and equipment. Both the
revolving credit agreement and term loans are subject to covenants which are
based on various financial benchmarks. The interest rates charged on the
revolving credit and one term loan are based on either Libor, the bank's cost of
funds or the prime rate, all at the Company's option. Any borrowings at Libor
or cost of funds will incur additional interest at spreads ranging from 3/4% to
1 1/4% based on certain Company financial ratios. The interest rate on the
second term loan is based on Libor plus 1 3/4%

During the fiscal years ended 1995, 1994 and 1993, the Company incurred
total interest expense of $499,000, $465,000, and $602,000, respectively.
Interest paid approximated interest expense in each of the years.

SHAREHOLDERS' EQUITY:

Preferred Stock:

In 1990, the Company's shareholders authorized 6,000,000 shares of a
newly created class of preferred stock with a par value of $.0001 per share.
The preferred stock is issuable in such series and with such dividend rates,
redemption prices, preferences and conversion or other rights as the Board of
Directors may determine at the time of issuance.

F-12

PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
SEPTEMBER 30, 1995

Pursuant to a settlement of shareholder litigation reached in 1991,
2,000,000 shares of Series A Convertible Preferred Stock (the "Preferred
Stock") had been issued in 1992. In fiscal 1995, the Company converted each
remaining outstanding share of Preferred Stock into 1.1 shares of Common Stock
for an aggregate of 1,055,815 common shares.

Common Stock:
In May 1995, the Company formed a strategic alliance with Clal
Pharmaceutical Industries Ltd. ("Clal"), an Israeli company, to develop,
manufacture and distribute generic pharmaceuticals worldwide. The Company sold
2,027,272 shares of PRI Common Stock, representing 12% of the Company's Common
Stock, to Clal for $20,000,000 ($9.87 per share). Clal also received two three
year warrants to purchase up to 2,005,107 shares of Common Stock at prices
between $11 and $12 per share. The shares and two warrants will allow Clal to
purchase up to 19.9% of the Company's Common Stock.

Dividend:
The fiscal 1994 dividend on Preferred Stock was paid in February 1995.

Changes in Shareholders' Equity:
Changes in the Company's Common Stock, Preferred Stock and Additional Paid
in Capital accounts during the fiscal years ended in 1993, 1994, and 1995 were
as follows:

Series A Convertible Additional
Preferred Stock Common Stock Paid In
Shares Amount Shares Amount Capital
--------------------- ------------- ---------- -------- ------------

Balance, October 3, 1992 1,996,837 $ 1,000 12,393,193 $124,000 $33,724,000
Issuance of warrants - - - - 300,000
Exercise of stock options - - 527,125 6,000 2,040,000
Compensatory arrangements - - 28,097 - 237,000
Conversion of preferred shares (517,767) - 517,767 5,000 (5,000)
---------- ------- ---------- -------- -----------
Balance, October 2, 1993 1,479,070 1,000 13,466,182 135,000 36,296,000
Exercise of stock options - - 343,000 3,000 1,495,000
Exercise of warrants - - 5,300 - 32,000
Issuance of warrants - - - - 250,000
Conversion of preferred shares (420,670) - 420,670 4,000 (4,000)
Compensatory arrangements - - 16,869 1,000 1,392,000
Stock issued pursuant to settlement - - 230,611 2,000 3,605,000
---------- ------- ---------- -------- -----------
Balance, October 1, 1994 1,058,400 1,000 14,482,632 145,000 43,066,000
Exercise of stock options - - 424,750 4,000 2,247,000
Exercise of warrants - - 45,000 - 270,000
Investment shares issued - - 2,042,272 21,000 19,139,000
Conversion of preferred shares (1,058,400) (1,000) 1,153,647 12,000 (32,000)
Compensatory arrangements - - 20,324 - 586,000
---------- ------- ---------- -------- -----------
Balance, September 30, 1995 - $ 0 18,168,625 $182,000 $65,276,000
========== ======= ========== ======== ===========

Share Purchase Rights Plan:
Each share of Common Stock outstanding carries with it one Common Share
Purchase Right ("Right"). Generally, the Rights will become exercisable only if
a person or group has acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the Common Stock, or if the Board of Directors has
determined that a person or group has sought control of the Company with the
result that control by such person or group ("Disqualifying Persons") would be
detrimental to the maintenance, renewal or acquisition of the Company's
governmental or regulatory approvals. If a person or group thereafter acquires
beneficial ownership of 25% or more of the outstanding Common Stock or if the
Board of Directors determines that there is a reasonable likelihood that control
of the Company by a Disqualifying Person would result in the loss of, or denial
of approval for, any governmental or regulatory approval of the Company, each
outstanding Right not owned by such person or group would entitle the holder to
purchase, for $25 (the exercise

F-13

PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
SEPTEMBER 30, 1995

price of the Right), Common Stock having a market value of $50. Under certain
other circumstances, including the acquisition of the Company in a merger or
other business combination, each Right not owned by the acquiring party will
entitle the holder to purchase for $25, securities of the acquirer having a
market value of $50. The Rights are subject to redemption by the Company at a
redemption price of $.01 per Right.

Employee Stock Purchase Program:

The Company maintains an Employee Stock Purchase Program ("Program"). The
Program is designed to qualify as an employee stock purchase plan under Section
423 of the Internal Revenue Code of 1986, as amended. It enables eligible
employees to purchase shares of Common Stock at a discount of up to 15% from the
fair market value. An aggregate of 1,000,000 shares of Common Stock have been
reserved for sale to employees under the Program. Employees purchased 18,074
shares, 16,928 shares and 9,739 shares during fiscal years 1995, 1994 and 1993,
respectively. At September 30, 1995, 940,536 shares remain available for sale
under the Program.

Stock Options:
The following is a summary of stock option activity during the fiscal years
ended in 1995, 1994 and 1993:

1995 1994 1993
---------------------- ---------------------- ----------------------
Price Per Price Per Price Per
Shares Share Shares Share Shares Share
---------- --------- ---------- --------- ---------- ---------

Outstanding at beginning of year 2,533,500 $2.63 to 2,699,250 $2.63 to 2,359,494 $2.63 to
$14.13 $10.50 $13.25
Granted 289,500 $8.50 to 266,500 $7.00 to 998,000 $6.50 to
$10.63 $14.13 $10.50
Exercised (424,750) $2.63 to (343,000) $2.63 to (527,125) $3.50 to
$10.50 $10.13 $ 7.88
Cancelled (39,500) $8.88 to (65,500) $3.50 to (63,750) $3.50 to
$14.13 $14.13 $13.25
Surrendered (1,000) $ 7.38 (23,750) $3.50 to (67,369) $3.50 to
--------- --------- $14.13 --------- $ 6.25
Outstanding at end of year 2,357,750 $2.63 to 2,533,500 $2.63 to 2,699,250 $2.63 to
========= $14.13 ========= $14.13 ========= $10.50

Shareholders approved the 1995 Directors' Stock Option Plan (the
"1995 Directors' Plan") through which options will be awarded to future non-
employee directors upon the date elected to the Board. Current directors are
not eligible for awards under the 1995 Directors' Plan. The Company has
reserved 100,000 shares of Common Stock for issuance under the 1995 Directors'
Plan.

The Company's 1990 Stock Incentive Plan (the "1990 Plan") provides
for the granting of stock options, restricted stock awards, deferred stock
awards, stock appreciation rights and other stock based awards or any
combination thereof to employees of the Company or to others. The Company has
reserved 2,050,000 shares of Common Stock for issuance under the 1990 Plan.

Under the 1989 Directors' Stock Option Plan (the "Directors' Plan"),
options were granted to directors of the Company who are not employees of the
Company or are otherwise ineligible to receive options under any other plan
adopted by the Company. The Company has reserved 550,000 shares of Common
Stock for issuance under the Directors' Plan. The Company does not intend to
grant further options under this plan.

The Company's 1986 Stock Option Plan provides that options may be
granted to employees of the Company or to others for the purchase of up to
900,000 shares of the Company's Common Stock. Options granted under the Plan
may be incentive stock options or nonqualified options.

F-14

PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
SEPTEMBER 30, 1995

At September 30, 1995 and October 1, 1994, options for 568,625 and 312,663
shares, respectively, were available for future grant under the various plans.
Options for 2,357,750 shares were exercisable at September 30,1995.

INCOME TAXES:

In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("FAS
109"), which required 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. In addition, FAS 109 required the recognition of
future tax benefits, such as net operating loss ("NOL") carryforwards, to the
extent that realization of such benefits is more likely than not. The Company
adopted the new accounting standard during the quarter ended January 1, 1994
and, as a result, recognized future tax benefits of $14,128,000. This amount is
reflected in the net income of the Company as the cumulative effect of a change
in accounting principle.

Management believes, based on its formation of strategic alliances and
commitment to research and development of new products, it is more likely than
not that the Company will generate taxable income sufficient to utilize the tax
benefit associated with future deductible temporary differences, NOL
carryforwards and tax credit carryforwards prior to their expiration. There can
be no assurance, however, that the Company will generate taxable earnings or any
specific level of continuing earnings in the future.

The tax effects of the significant temporary differences which comprise the
deferred tax assets and liabilities are as follows:

September 30, October 1,
1995 1994
------------- ----------
(In Thousands)

Deferred assets:
Federal NOL carryforwards $14,068 $13,795
Accounts receivable 636 923
Accrued expenses 732 623
Research and development expenses 600 --
Inventory 499 299
State tax NOL 1,053 800
Taxes payable to the IRS 171 --
Other 490 481
------- -------
18,249 16,921
Valuation allowance (861) (1,000)
------- -------
17,388 15,921
Deferred liabilities:
Fixed assets 2,780 2,329
Other -- 5
------- -------
2,780 2,334
Net deferred assets $14,608 $13,587
======= =======

Included in the recognition of future tax benefits is approximately
$1,678,000 of stock option compensation credited to additional capital. Of this
amount, $1,244,000 was recorded upon adoption of FAS 109 and $434,000 was
credited in the current year. A valuation allowance was recorded for an
additional $558,000 related to stock option compensation which will be credited
to equity upon utilization of tax carryforwards.

F-15

PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
SEPTEMBER 30, 1995

The components of income tax expense (credit) follow:

1995 1994 1993
------ ------ ----
(In Thousands)

Federal:
Current $1,769 -- $300
Deferred (995) $2,585 --
------ ------ ----
$ 774 $2,585 $300
------ ------ ----
State:
Current 62 -- 350
Deferred -- (800)* --
------ ------ ----
62 (800) 350
------ ------ ----
$ 836 $1,785 $650
====== ====== ====

* During fiscal year 1994, there was a change in state tax laws which
permitted recognition of NOL carryforwards.

The table below provides the details of the differences between the
provision for income taxes and the amount determined by multiplying income
before income taxes by the applicable federal statutory rate:

1995 1994 1993
---- ---- ----

Statutory tax rate 34% 34% 34%
State tax NOL generated -- (13%) --
State tax - net 6% -- --
State alternative minimum tax -- -- 46%
Interest on IRS settlement - net 18% -- --
Other - non-deductible -- 9% 5%
-- --- --
Effective tax rate 58% 30% 85%
== === ==

At September 30, 1995, the Company had NOL carryforwards for tax purposes
of approximately $40,000,000 that expire in September 2005 through September
2010.

The Internal Revenue Service has determined that certain credits taken by
the Company in prior years for research activities are not permitted. A reserve
of approximately $1,000,000 was provided upon implementation of FAS 109 in
fiscal 1994. The Company paid to the Internal Revenue Service approximately
$1,000,000 during fiscal 1995 for the disallowed credits and such payments were
charged against the reserve which was previously provided.

COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:

Leases:
At September 30, 1995, the Company had minimum rental commitments
aggregating $2,038,000 under noncancelable operating leases expiring through
2004. Amounts payable thereunder are $657,000 in 1996, $623,000 in 1997,
$233,000 in 1998, $105,000 in 1999, $105,000 in 2000, and $315,000 thereafter.
Rent expense charged to operations in fiscal years 1995, 1994 and 1993 was
$811,000, $907,000, and $860,000, respectively.

Retirement Plans:

The Company has a defined contribution, Social Security integrated
Retirement Plan providing retirement benefits to eligible employees as defined
in the Plan. It also maintains a Retirement Savings Plan whereby eligible
employees are permitted to contribute from 1% to 12% of pay to this Plan. The
Company contributes an amount equal to 50% of the first 6% of the pay
contributed by the employee. The Company's provisions for these plans and the
defined benefit plan discussed below were $1,107,000 in 1995 (reduced by
$289,000 in forfeitures), $598,000 in 1994 (reduced by $250,000 in forfeitures),
and $962,000 in 1993.

The Company maintains a Defined Benefit Pension Plan covering eligible
employees as defined in the Plan, which was frozen October 1, 1989. Since the
benefits under this Plan are based on the participants' length of service and
compensation (subject to Employee Retirement Income Security Act of 1974 and
Internal Revenue Service limitations), service costs subsequent to October 1,
1989 are excluded from benefit accruals under the Plan. The funding policy for
this Plan is to contribute amounts actuarially determined as necessary to
provide sufficient assets to meet the benefit requirements of the Plan retirees.
The assets of the Plan are invested in mortgages and bonds.

F-16

PHARMACEUTICAL RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
SEPTEMBER 30, 1995

Net pension expense for fiscal years 1995, 1994 and 1993 included the
following components:

1995 1994 1993
------ ------ ------
(In Thousands)

Interest cost $ 129 $ 128 $ 128
Actual return on assets (200) 129 (178)
Net amortization and deferral:
Asset (loss) gain 77 (266) 52
Amortization of initial unrecognized transition obligation 51 51 51
Amortization of unrecognized net gain - - (1)
----- ----- -----
Net pension expense $ 57 $ 42 $ 52
===== ===== =====

The discount rate used to measure the projected benefit obligation for the
Plan is 6.25%. The assumed long-term rate of return on plan assets in 1995 was
7%.

The Plan's funded status and the amounts recorded on the Company's
consolidated balance sheets are as follows:

1995 1994
------ ------
(In Thousands)

Vested benefit obligations $2,175 $1,900
====== ======
Accumulated benefit obligations $2,175 $1,900
====== ======
Projected benefit obligations $2,175 $1,900
Market value of assets 1,565 1,347
------ ------
Projected benefit obligation in excess of market value (610) (553)
Unrecognized net obligation 654 705
Unrecognized net loss 287 112
Adjustment for minimum liability (941) (817)
------ ------
Net recorded pension (liability) $ (610) $ (553)
====== ======

In accordance with FASB 87, the Company has recorded an additional minimum
pension liability for underfunded plans of $941,000 in fiscal 1995 and $817,000
in fiscal 1994, representing the excess of underfunded accumulated benefit
obligations over previously recorded pension cost liabilities. A corresponding
amount is recognized as an intangible asset except to the extent that these
additional liabilities exceed related unrecognized prior service cost and net
transition obligation, in which case the increase in liabilities is charged
directly to shareholders' equity. As of September 30, 1995, $287,000 of the
excess minimum pension liability resulted in a charge to equity. As of October
1, 1994, the excess minimum liability was $100,000.

Legal Proceedings:

The Company is involved in minor litigation matters, including certain
product liability actions, incidental to the conduct of its business, but does
not believe that the ultimate resolution thereof will have a material adverse
effect on its financial condition, results of operations or liquidity.

The Company has a pending insurance claim related to one of its
manufacturing facilities in 1995. The settlement will not have a material
effect on its financial condition, results of operations or liquidity.

Other Matters:

During fiscal year 1995, three of the Company's products accounted for
approximately 57% of its net sales and yielded the substantial portion of the
gross margin of the Company, with one of such products representing a
substantial portion of both net sales and gross margin. Until the FDA gave
approval in the second half of calendar 1995 to two other generic pharmaceutical
manufacturers, the Company was the sole generic manufacturer of one of these
products. While the Company cannot quantify the effect relating to the
increased competition for this product, it does anticipate that sales and gross
margin of such product will decline in future years.

F-17

SCHEDULE II

PHARMACEUTICAL RESOURCES, INC.

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------- ---------- ------------- ------------- ----------
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ----------- ---------- ------------- -------------- ----------

Allowance for doubtful accounts:

Year ended September 30, 1995 $124,000 $108,000 $24,000 (b) $208,000

Year ended October 1, 1994 $137,000 $ (9,000)(a) $4,000 (b) $124,000

Year ended October 2, 1993 $212,000 $(72,000)(a) $4,000 (b) $137,000

Allowance for returns and price adjustments:

Year ended September 30, 1995 $2,644,000 $3,632,000 $4,896,000 (c) $1,380,000

Year ended October 1, 1994 $2,491,000 $5,481,000 $5,328,000 (c) $2,644,000

Year ended October 2, 1993 $1,865,000 $4,231,000 $3,605,000 (c) $2,491,000

(a) Reduction of allowance no longer necessary.

(b) Write-off of uncollectible accounts.

F-18

EXHIBIT INDEX

EXHIBIT NO. PAGE NO.

3.1 Certificate of Incorporation of the Registrant. (4)

3.1.1 Certificate of Amendment to the Certificate of
Incorporation of the Registrant, dated August 6, 1992--
incorporated by reference to the Registrant's Registration
Statement on Form 8-A (Commission File No. 0-20834), filed
with the Commission November 10, 1992.

3.2 By-Laws of the Registrant, as amended and restated. (3)

4 Rights Agreement, dated August 6, 1991, between the
Registrant and Midlantic National Bank, as Rights Agent.
(5)

4.1 Amendment to Rights Agreement, dated as of April 27, 1992.
(3)

10.1 1983 Stock Option Plan of the Registrant, as amended. (2)

10.2 1986 Stock Option Plan of the Registrant, as amended. (2)

10.3 1989 Directors' Stock Option Plan of the Registrant, as
amended. (5)

10.4 1989 Employee Stock Purchase Program of the Registrant.
(7)

10.5 1990 Stock Incentive Plan of the Registrant, as amended.
(2)

10.6 Form of Retirement Plan of Par. (12)

10.6.1 First Amendment to Par's Retirement Plan, dated October
26, 1984. (6)

10.7 Form of Retirement Savings Plan of Par. (12)

10.7.1 Amendment to Par's Retirement Savings Plan, dated July 26,
1984. (13)

10.7.2 Amendment to Par's Retirement Savings Plan, dated November
1, 1984. (13)

10.7.3 Amendment to Par's Retirement Savings Plan, dated
September 30, 1985. (13)

10.8 Par Pension Plan, effective October 1, 1984. (4)

10.9 Employment Agreement, dated as of October 4, 1992, among
the Registrant, Par and Kenneth I. Sawyer. (1)

10.10 Lease Agreement between Par and the County of Rockland
Industrial Development Agency, dated as of October 1,
1984. (6)

10.10.1 Lessee Guaranty between Par and Midlantic National Bank,
dated as of October 1, 1984. (6)

10.10.2 Mortgage from County of Rockland Industrial Development
Agency to Midlantic National Bank, as Trustee, dated as of
October 1, 1984. (13)

10.10.3 Security Agreement between County of Rockland Industrial
Development Agency and Midlantic National Bank, as
Trustee, dated as of October 1, 1984. (13)

EXHIBIT NO. PAGE NO.

10.11 Term Loan Agreement, dated September 18, 1987, between
Midlantic National Bank/North and Par. (11)

10.11.1 Note and Indenture, dated September 18, 1987, between
Midlantic National Bank/North and Par. (11)

10.12 Revolving Credit Agreement, dated February 20, 1992,
between Par and Midlantic National Bank. (1)

10.13 Agreement Concerning Term Loans, dated February 20, 1992,
between Par and Midlantic National Bank. (1)

10.14 Amendments to Term Note, dated February 20, 1992. (1)

10.15 Lease for premises located at 12 Industrial Avenue, Upper
Saddle River, New Jersey, between Par and Charles and
Dorothy Horton, dated October 21, 1978 and extension dated
September 15, 1983. (12)

10.15.1 Extension of Lease, dated November 8, 1989, between Par
and Charles and Dorothy Horton relating to premises at 12
Industrial Avenue, Upper Saddle River, New Jersey. (9)

10.16 Lease, dated November 7, 1986, between Ramapo Corporate
Park, Inc. as landlord, and Par as tenant. (4)

10.16.1 Amendment by letter dated March 10, 1988 to the lease,
dated November 7, 1986, between Ramapo Corporate Park,
Inc. as lessor and Par as lessee. (10)

10.17 Lease, dated December 15, 1987, between Ram Ridge Estates
Corp. as lessor and Par as lessee. (10)

10.18 Standstill Agreements and Irrevocable Proxies, each dated
May 29, 1990, between Par and each of Asrar Burney, Dulal
Chatterji, and Raja Feroz. (8)

10.19 Agreement of Purchase and Sale, dated June 4, 1992, among
Quad, Par, and The Liposome Company, Inc. (1)

10.19.1 Modification of Agreement of Purchase and Sale, dated July
24, 1992, among Quad, Par, and The Liposome Company, Inc.
(1)

10.20 Employment Agreement, dated as of April 1, 1993, between
Par and Diana L. Sloane. (14)

10.21 Employment Agreement, dated as of May 19, 1993, between
the Registrant and Robert I. Edinger. (14)

10.22 Distribution Agreement, dated as of October 16, 1993,
between Genpharm, Inc., the Registrant and PRX
Distributors, Ltd. (14)

10.23 Agreement, dated as of September 30, 1993, between
National Union Fire Insurance Company of Pittsburgh and
Par. (14)

10.24 Settlement Agreement and Release, dated as of November 29,
1993, between Mylan Laboratories, Inc., the Registrant,
Par and Quad. (14)

EXHIBIT NO. PAGE NO.
10.25 Settlement Agreement and Release, dated as of January 6,
1994, between Minnesota Mining & Manufacturing Company,
Riker Laboratories, Inc., the Registrant and Par. (14)

10.26 Settlement Agreement and Release, dated as of December 22,
1993, between United States Trading Corporation, Marvin
Sugarman, Liquipharm, Inc., the Registrant and Par. (14)

10.27 Letter Agreement, dated April 30, 1993, between the
Generics Group B.V. and Par. (16)

10.28 Distribution Agreement, dated as of February 24, 1994,
between Sano Corporation, the Registrant and Par, as
amended. (16)

10.29 Mortgage and Security Agreement, dated May 4, 1994,
between Urban National Bank and Par. (15)

10.29.1 Mortgage Loan Note, dated May 4, 1994. (15)

10.29.2 Corporate Guarantee, dated May 4, 1994, by the Registrant
to Urban National Bank. (15)

10.30 Non-exclusive Distribution, Exclusive Supply Agreement,
dated as of September 13, 1994, between Mova
Pharmaceutical Corporation and Par. (16)

10.31 Non-exclusive Distribution, Exclusive Supply Agreement,
dated as of September 13, 1994, between Mova
Pharmaceutical Corporation and Par. (16)

10.32 Letter Agreement, dated as of October 13, 1994, between
Par and Robert I. Edinger. (16)

10.33 Term Loan Agreement, dated as of November 29, 1994,
between Midlantic Bank, NA and Par. (17)

10.34 Amended and Restated Revolving Credit Agreement, dated as
of November 29, 1994, between Midlantic Bank, NA and Par.
(17)

10.34.1 Revolving Loan Note, dated November 29, 1994. (17)

10.35 Amended and Restated Agreement Concerning Term Loans,
dated as of November 29, 1994, between Midlantic Bank, NA
and Par. (17)

10.36 1995 Directors Stock Option Plan.

11 Computation of per share data.

16 Letter regarding change in accountants (18).

21 Subsidiaries of the Registrant.

23.1 Consent of Arthur Andersen LLP.

23.2 Consent of Richard A. Eisner and Company, LLP.

27 Financial Data Schedule.
_____________________

(1) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Registrant's Annual Report on Form 10-K (Commission File No.
1-10827) for the year ended October 3, 1992 and incorporated herein by
reference.

(2) Previosuly filed with the Securities and Exchange Commission as an Exhibit
to the Registrant's Proxy Statement dated August 10, 1992 and incorporated
herein by reference,

(3) Previously filed with the Securities and Exchange Commission as an Exhibit
to Amendment No. 1 on Form 8 to the Registrant's Registration Statement on
Form 8-B, filed May 15, 1992, and incorporated herein by reference.

(4) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Registrant's Annual Report on Form 10-K (Commission File
No. 1-10827) for the year ended September 28, 1991 and incorporated
herein by reference.

(5) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Registrant's Proxy Statement dated August 14, 1991 and incorporated
herein by reference.

(6) Previously filed with the Securities and Exchange Commission as an Exhibit
to Par's Annual Report on Form 10-K (Commission File No. 1-9449) for the
year ended September 29, 1990 and incorporated herein by reference.

(7) Previously filed with the Securities and Exchange Commission as an Exhibit
to Par's Proxy Statement dated August 16, 1990 and incorporated herein by
reference.

(8) Previously filed with the Securities and Exchange Commission as an Exhibit
to Par's Current Report on Form 8-K dated May 29, 1990 and incorporated
herein by reference.

(9) Previously filed with the Securities and Exchange Commission as an Exhibit
to Par's Annual Report on Form 10-K for 1989 and incorporated herein by
reference.

(10) Previously filed with the Securities and Exchange Commission as an Exhibit
to Par's Annual Report on Form 10-K for 1988 and incorporated herein by
reference.

(11) Previously filed with the Securities and Exchange Commission as an Exhibit
to Par's Annual Report on Form 10-K for 1987 and incorporated herein by
reference.

(12) Previously filed with the Securities and Exchange Commission as an Exhibit
to Par's Registration Statement on Form S-1 (No. 2-86614) and incorporated
herein by reference.

(13) Previously filed with the Securities and Exchange Commission as an Exhibit
to Par's Registration Statement on Form S-1 (No. 33-4533) and incorporated
herein by reference.

(14) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Registrants' Annual Report on Form 10-K (Commission File
No. 1-10827) for the year ended October 2, 1993 and incorporated herein by
reference.

(15) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Registrant's Quarterly Report on Form 10-Q (Commission File
No. 1-10827) for the quarter ended April 2, 1994 and incorporated herein
by reference.

(16) Previously filed with the Securities and Exchange Commission as an Exhibit
to the Registrant's Annual Report on Form 10-K (Commission File
No. 1-10827) for the year ended October 1, 1994 and incorporated herein by
reference.

(17) Previously filed by amendment with the Securities and Exchange Commission
as an Exhibit to the Registrant's Annual Report on Form 10-K (Commission
File No. 1-10827) for the year ended October 1, 1994 and incorporated
herein by reference.

(18) Previously filed with the Securities and Exchange Commission as on exhibit
to the Registrant's Report Form 8-K (Commission File No. 1-10827) dated
September 8,1995 and subsequently amended on October 4, 1995 and October
12, 1995 and incorporated herein by reference.