SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q/A
                                 Amendment No. 1

(MARK ONE)

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

        For the quarterly period ended March 31, 1995
                                                   OR

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

For the transition period from ______________________to________________________

COMMISSION FILE NUMBER 1-10113


                              HALSEY DRUG CO., INC.
                              --------------------- 
            (Exact name of registrant as specified in its charter)

           New York                                       11-0853640
- --------------------------------------------------------------------------------
(State or other Jurisdiction of            (I.R.S. Employer Identification No.)
 incorporation or organization)


1827 Pacific Street
Brooklyn, New York                                        11233
- --------------------------------------------------------------------------------
(Address of Principal executive officer)                (Zip Code)


 (718) 467-7500
- --------------------------------------------------------------------------------
          (Registrants telephone number, including area code)

Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 50 days. (Form 10-K for the year ended December 31,
1994, and Forms 10-Q for the quarters ended June 30, 1994 and September 30, 1994
were filed late.)

YES      NO  X
    ---     ---

As of May 10,1995 the registrant had 8,109,537 shares of Common Stock, $0.1 par
value, outstanding.



<PAGE>


                     HALSEY DRUG CO., & SUBSIDIARIES
                     -------------------------------

                                 INDEX
                                 -----


  PART I.  FINANCIAL INFORMATION
  ------------------------------


  Item 1.  Financial Statements (Unaudited)                     Page #
                                                                ------
           Condensed Consolidated Sheets-
           March 31, 1995 and December 31, 1994                     3

           Condensed Consolidated Statements of
           Operations - Three months ended March 31, 1995
           and March 31, 1994                                       5

           Condensed Consolidated Statements of Cash
           Flows - Three months ended March 31, 1995
           and March 31, 1994                                       6

           Condensed Consolidated Statements of Stockholders
           Equity - Three months ended March 31, 1995               7

           Notes to Condensed Consolidated Financial

           Statements                                               8


  Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations                     14


  PART II. OTHER INFORMATION
  --------------------------


  Item 6.  Exhibits and Reports on Form 8-K                          

  SIGNATURES                                                       18

                                     2


<PAGE>



                          PART I. FINANCIAL INFORMATION

                      HALSEY DRUG CO., INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

- --------------------------------------------------------------------------------
                                                   (UNAUDITED)
                                                     MARCH 31,      DECEMBER
                                                      1995            1994
- --------------------------------------------------------------------------------

CURRENT ASSETS

    Cash                                            $172,000           $28,000

    Accounts Receivable - trade, net
     of allowances for doubtful
     accounts of $524,000 and $755,000
     1995 and 1994, respectively                   2,262,000         2,326,000

    Inventories                                    7,224,000         6,835,000

    Prepaid insurance and other current assets       283,000           496,000

    Deferred income tax                                                296,000
                                                  ----------       -----------

    Total current assets                           9,941,000         9,981,000

   PROPERTY PLANT & EQUIPMENT, NET                 8,091,000         8,561,000

   OTHER ASSETS                                      604,000           734,000
                                                  -----------      -----------

                                                 $18,636,000       $19,276,000
                                                 ------------      -----------
                                                 ------------      -----------

The accompanying notes are an integral part of these statements


                                  3


<PAGE>


                            PART I. FINANCIAL INFORMATION

                        HALSEY DRUG CO., INC. AND SUBSIDIARIES

                             CONSOLIDATED BALANCE SHEETS


- --------------------------------------------------------------------------------
                                                 (UNAUDITED)
                                                  MARCH 31,          DECEMBER
                                                     1995              1994
- --------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Bank overdraft                             $   365,000        $   218,000
     Current maturities of long-term debt         3,778,000          4,850,000
     Department of Justice settlement             2,044,000          2,013,000
     Accounts payable                             2,597,000          4,414,000
     Accrued expenses and other liabilities       1,785,000          1,823,000
     Advances from minority stockholders            206,000            418,000
     Income taxes Payable                           178,000            196,000
     Deferred income                                                   500,000
                                                 ----------         ----------

Total current liabilities                        10,953,000         14,432,000

LONG-TERM DEBT                                    2,518,000          2,492,000


LITIGATION SETTLEMENT                             3,000,000          3,000,000

CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT)
  Common stock - $0l par value; authorized
     20,000,000shares;issued and outstanding         81,000             76,000
     8,109,537shares in 1995 and 7,609,537 in
     1994 respectively

  Additional paid-in capital                     11,139,000         10,162,000

  Accumulated deficit                            (9,055,000)       (10,886,000)
                                                -----------       ------------

                                                  2,165,000           (648,000)
                                                -----------       ------------

                                                $18,636,000        $19,276,000
                                                -----------       ------------
                                                -----------       ------------

The accompanying notes are an integral part of these statements

                                   4

<PAGE>



                          PART I. FINANCIAL INFORMATION

                      HALSEY DRUG CO., INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>


                                                                THREE MONTHS ENDED
                                                                     MARCH 31
                                                          -------------------------------
                                                              1995                 1994
                                                          ----------            ---------
<S>                                                       <C>                  <C>
Net Sales                                                 $6,873,000           $7,324,000

Cost of good sold                                          5,114,000            5,733,000
                                                          ----------           ----------

   Gross profit                                            1,759,000            1,591,000

Research & Development                                       156,000               32,000

Selling, general and administrative expenses               1,538,000            1,709,000
                                                          ----------           ----------


Earnings  (loss) from operations                              65,000             (150,000)

Gain on the sale of assets                                 2,288,000

Interest expense                                            (226,000)            (160,000)
                                                          ----------           ----------

Earnings (loss) before income taxes and                    2,127,000             (310,000)
   cumulative effect of accounting change

Provision for income taxes                                   296,000          
                                                          ----------           ----------

NET  EARNINGS (LOSS)                                      $1,831,000            ($310,000)
                                                          ==========           ==========

Per Share Amounts:
   Net  earnings (loss)                                         $.23               ($0.04)
                                                        ============           ==========

Average number of outstanding shares                       7,859,537            7,109,537
                                                        ============           ==========

</TABLE>


The accompanying notes are an integral part of these statements

                                   5


<PAGE>



                          PART I. FINANCIAL INFORMATION

                        HALSEY DRUG CO., AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF CASH FLOWS

                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                           THREE MONTHS ENDED
                                                                                MARCH 31
                                                                       ----------------------------
                                                                          1995             1994
                                                                       --------          ------
<S>                                                                    <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings(Loss)                                                     $1,831,000      ($310,000)
                                                                       ----------      ----------
  Adjustments to reconcile net (loss) earnings to net cash (used
  in)  provided by operating activities
     Depreciation and amortization                                        419,000         506,000
     Provision for losses on accounts receivable                            6,000
     Gain on sale of property, plant and equipment                    (2,288,000)
     Accrued Department of Justice interest                                30,000
     Deferred income taxes                                                296,000
     Changes in assets and liabilities
     Accounts receivable                                                   58,000       (421,000)
     Inventories                                                        (389,000)       1,001,000
     Income taxes receivable
     Prepaid insurance and other current assets                           213,000         250,000
     Accounts payable                                                 (1,817,000)     (1,249,000)
     Accrued expenses                                                    (21,000)       (367,000)
     Income taxes payable                                                (18,000)        (22,000)
                                                                      -----------     -----------
     Total adjustments                                                (3,511,000)       (302,000)
                                                                      -----------     -----------
        Net cash (used in) provided by operating activities           (1,680,000)       (612,000)
                                                                      -----------     -----------
 Cash flows from investing activities
     Capital expenditures                                                (50,000)
     Increase in other assets                                              20,000         115,000
     Proceeds from sale of property, plant & equipment                  2,000,000     
                                                                        ---------     -----------
        Net cash provided by (used in) investing activities             1,970,000         115,000
                                                                        ---------      ----------

Cash flows from financing activities
     Payment of long term debt                                        (1,064,000)        (47,000)
     Proceeds from issuance of common stock                               982,000
     Payment to Department of Justice                                                    (87,000)
     Bank overdraft                                                       146,000         252,000
     Advances from minority stockholder                                 (212,000)         378,000
                                                                        ---------         -------
        Net cash (used in) provided by financing activities             (146,000)         496,000
                                                                        ---------         -------

     NET DECREASE IN CASH AND CASH EQUIVALENTS                            144,000          (1,000)

Cash and cash equivalents at beginning of period                           28,000          32,000
                                                                        ---------       ---------
Cash and cash equivalents at end of period                               $172,000        $ 31,000
                                                                        ==========      =========
</TABLE>


The accompanying notes are an integral part of these statements


                                   6


<PAGE>




<TABLE>
<CAPTION>
                                           PART I. FINANCIAL INFORMATION
  
                                       HALSEY DRUG CO., INC. AND SUBSIDIARIES

                                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                         THREE MONTHS ENDED MARCH 31,1995

                                                    (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
                                                    Common Stock      Amount       Additional        Accumulated           Total
                                                   $0.1 par value                Paid-In Capital       Deficit
                                                       Shares
       <S>                                         <C>               <C>          <C>              <C>                    <C>
       Balance at December 31, 1994                 7,609,537        $76,000      $10,162,000      $(10,886,000)          $(648,000)

         Net earnings for the three                                                                    1,831,000           1,831,000
       months ended March 31, 1995

       Issuance of common stock                       500,000          5,000          977,000                -0-             982,000
                                                     --------         ------        ---------         ----------           ---------
       Balance at March 31, 1995                    8,109,537        $81,000      $11,139,000       $(9,055,000)          $2,165,000
                                                    =========        =======      ===========       ============          ==========

</TABLE>



The accompanying notes are an integral part of these statements

                                   7



<PAGE>


                     HALSEY DRUG CO., INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (UNAUDITED)


NOTE 1 - Basis of Presentation

        The accompanying unaudited condensed consolidated financial statements
of Halsey Drug Co., Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for the three
month period ended March 31, 1995 have been made, but the financial results for
the three months period ended March 31, 1995 are not necessarily indicative of
the results that may be expected for the full year ended December 31, 1995. The
unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and footnotes thereto for
the year ended December 31, 1994 included in the Company's Annual Report on Form
10-K.

Note 2 -  Inventories

        Inventories consists of the following:

                                     March 31, 1995   December 31, 1994
                                     --------------   -----------------
          Finished Goods               $2,088,000           $1,990,000
          Work in Process               1.368,000           $1,301,000
          Raw Materials                 3,768,000           $3,544,000
                                        ---------           ----------
                                       $7,224,000           $6,835,000
                                       ==========           ==========


NOTE 3 - Lines of Credit and Long-Term Debt

Lines of Credit

        In December 1992, the Company entered into a new credit agreement
providing for borrowings of up to $7,000,000 at the prime rate plus an initial
margin of 1/2%, originally maturing in December 1994. Upon certain conditions,
as defined in the agreement, the margin rate increases by 2%. Borrowings under
the line were available for working capital purposes based upon a percentage of
the parent company's eligible accounts receivable and are collateralized by such
accounts receivable. The agreement contains certain financial covenants,
including minimum interest coverage and working capital ratios, tangible net
worth, limitations on capital expenditures, and maximum debt-to-equity ratios.
As of March 31, 1995, the Company was not in compliance with the above
covenants.

        The Company and its banks amended the credit agreement to include the
stock of certain subsidiaries, the accounts receivable of Houba, Inc., and the
parent company's inventory and equipment as additional collateral, to increase
the initial margin rate to 2% (10.5% at March 31, 


                                   8

<PAGE>


1995), to restrict certain payments made by the Company, to require payment to 
be made by the Company to the banks of any income tax refunds received by the 
Company, to extend the maturity date to August 31, 1995, and to agree in 
principal to modify the financial covenants at a later date. In addition, if 
the outstanding borrowings are not repaid by August 31, 1995, the Company is 
required to pay an additional 3% of the ten outstanding principal due to the 
banks.

        As consideration for the above amendments and the Company's continued
borrowings in excess of the borrowing formula, the Company has issued to the
banks stock warrants, expiring December 31, 1999, to purchase up to 600,271
shares of the Company's common stock at exercise princes ranging from $2.25 to
$2.375 per share (subject to the anti-dilution provisions of the credit
agreement, as amended). The fair value of the warrants, $200,000, as determined
by the Company's Board of Directors, has been recorded by the Company as
additional paid-in capital and a discount to bank debt which is being amortized
through the maturity date, August 31, 1995.

Convertible Subordinated Promissory Note

        Pursuant to the Zatpack, Inc. ("Zatpack") agreement (Note N), the
Company issued a convertible subordinated promissory note dated December 31,
1994, to Zatpack, for the cancellation of trade payables and advances by Zuellig
to the Company's subsidiaries, in the amount of $1,292,242, bearing interest at
8% per annum, compounded annually, due December 1, 1997. The outstanding
principal, plus all accrued and unpaid interest, can be converted, at the option
of Zatpack, into the Company's common stock at the rate of one share of common
stock for every $2.50 of principal and interest being converted ( the $2.50 is
subject to the anti-dilution provisions of the promissory note). The note is
subordinated to bank debt.



                                   9


<PAGE>


Subordinated Promissory Note

        On March 21, 1995, the Company satisfied certain accounts payable by
issuing a subordinated promissory note to Mallinckrodt Chemical Acquisition,
Inc. (("Mallinckrodt") fir $1,200,000, bearing interest at 8% per annum, with
interest and principal payable at the earlier of: (i) receipt by Mallinckrodt of
all necessary authorization from the FDA or (ii) September 21,1997 (Note N). The
note is collateralized by substantially all of the assets of the Company and is
subordinated to future bank indebtedness of up to $8,000,000. The $1,200,000
note represents the deferral of payment by the Company of a portion of its
December 31, 1994 accounts payable due to an affiliate of Mallinckrodt.

Borrowings under lines of credit and long-term debt consist of the following at
March 31, 1995 and December 31, 1994.

                                                        1995            1994
                                                        ----            ----
  Borrowing under lines of credit                    $3,778,000      $4,850,000

  Convertible subordinated promissory note            1,318,000       1,292,000

  Subordinated promissory note                        1.200,000       1,200,000
                                                      ---------      ----------
                                                     $6,296,000      $7,342,000
  Less current maturities, including amounts in      $3,778,000      $4,850,000
  default                                            ----------      ----------

                                                     $2,518,000      $2,492,000
                                                     ----------      ----------
                                                     ----------      ----------

NOTE 4 - Gain on Sale of Assets

        On March 21, 1995, the Company sold its abbreviated new drug application
("ANDA") for 5mg Oxycodone HCl/325mg and Acetaminophen Tablets ("Tablets") and 
certain equipment used in the production of the Tablets for up to $5.4 million 
to Mallinckrodt. The Company received $500,000 of the proceeds in July 1994, 
which was recorded as deferred income on the Company's December 31, 1994 
consolidated balance sheet. Mallinckrodt also paid the Company $2,000,000 on 
March 21,1995 and the remainder will be payable as follows: (i) $1,000,000 upon 
the Company receiving general clearance from the FDA for unrestricted operations
at its Brooklyn facility and written notice from the FDA that it is in 
compliance with certain provisions of the consent decree dated June 29, 1993 and
(ii) $1,900,000 at the earlier of (a) Mallinckrodt receiving certain 
authorizations from the FDA or (b) September 21, 1997 ("Deferred Payments"). 
Mallinckrodt also agreed to defer $1,200,000 of the Company's trade debt due to 
an affiliate of Mallinckrodt. For the three months ended March 31, 1995, the 
Company has recorded a gain of $2,288,000 for the sale of the ANDA and related 
equipment net of expenses related to the sale.

        In connection with the agreement, the Company agreed to manufacture 
Tablets for Mallinckrodt for a period of three years through March 31, 1998 
and Mallinckrodt agreed to order a minimum number of Tablets from the Company 
for two years ending March 21, 1997. The Company and Mallinckrodt entered into 
a non competition agreement pursuant to which the Company agreed not to compete 
with Mallinckrodt and its affiliates with respect to the Tablets ANDA until 
March 21, 2000. If, prior to the time it is possible for Mallinckrodt to 
commence production under the Tablets ANDA or any new Tablets ANDA at its own 
facility, and the 

                                   10



<PAGE>
Company ceases or is forced to cease or substantially curtail production under 
the Tablets ANDA, as a consequence of (i) any action or communication by
the FDA or any other regulatory or governmental authority or (ii) any financial
or other business difficulty, then Mallinckrodt has the right to cancel payment
of any yet unpaid portion of the Deferred Payment ($1.9 million) and shall
further have the right to a full refund of any portion of the Deferred Payment
already made to the Company.

        In addition, the Company issued to Mallinckrodt the option to purchase
the ANDA for oxycodone/acetaminophen capsules at an exercise price equal to 3/4
of annual net capsule revenue, as defined. Upon exercise of the option, the
Company and Mallinckrodt would enter into agreements pursuant to which the
Company would (i)manufacture oxycodone/acetaminophen capsules for Mallinckrodt
for a period of time and (ii) be prohibited from competing with Mallinckrodt and
its affiliates with respect to the production of capsules.

        The Company has revised the gain recorded on the sale of assets to
Mallinckrodt and will not recognize the Deferred Payment until the earlier of
(i) Mallinckrodt receiving certain authorizations from the FDA or (ii) March 31,
1998. The effect of the adjustments on the accompanying financial statements is
as follows (in thousand, except for per share amounts):

As of March 31, 1995:

                                      As Previously recorded        As Restated
Net earnings                                     $ 3,731,000         $1,831,000
Net earnings per common share                          $ .48              $ .23
Long Term Receivable                               1,900,000              -----
Accumulated Deficit                              (7,155,000)        (9,055,000)



NOTE 5 - Sale of Common Stock

On March 30, 1995, the Company entered into an Agreement with Zatpack for the
purchase of 500,000 shares of common stock of the Company by Zatpack, with
registration rights, in consideration of $1,000,000. The $1,000,000
consideration consists of the cancellation of indebtedness (incurred by the
Company's subsidiaries for the purchase of raw materials delivered or being
delivered from affiliates of Zuellig) and shares of Indiana Fine Chemicals
Corporation. As a result of the above transaction, the Company owns 100% of
Indiana Fine Chemical Corporation. In addition, the Company issued a convertible
promissory note to Zatpack, dated December 1, 1994 (Note E). Zatpack has
acquired the above assets from Zuellig and its subsidiaries.

NOTE 6 - Contingencies

        The Company currently is a defendant in several lawsuits involving
product liability claims. The Company's insurance carriers have assumed the
defense for all of these actions. Management is of the opinion that final
disposition of these lawsuits will not result in a material adverse impact on
the financial condition of the Company.

                                    11


<PAGE>

        On June 29, 1993, the Company entered into a consent decree with the
U.S. Attorney for the Eastern District of News York on behalf of the FDA that
resulted from the FDA's investigation. Under the terms of the consent decree,
the Company was enjoined from shipping any solid dosage drug products, (i.e.,
excluding liquid drug formulations) manufactured at the Company's facilities
until the Company established, to the satisfaction of the FDA, that the methods
used in, and the facilities and controls to be used for, manufacturing,
processing, packing, labeling and holding any drug are established, operated and
administered in conformity with the Federal Food, Drug and Cosmetic Act and the
FDA's Current Good Manufacturing Practice regulations. As part of satisfying the
foregoing requirements, the Company is required to validate the manufacturing
process for each solid dosage drug product prior to manufacturing consent decree
to manufacture and ship from it facilities six identified drug products at it
own risk provided that(i) at least twice per month, the Company's independent
expert certifies that each batch of drug products upon validation will have been
manufactured in accordance with the FDA Regulations and the formulation
described in the drug products approved NDA ("New Drug Application" ) or ANDA,
until such time as validation is completed fro these products; and (ii) for any
batches of these products that have already been manufactured, such
certification will include certification by a Company representative with
personal knowledge of the records relating to such drug that they are accurate
and complete and a certification signed by an independent expert that he has
personally reviewed the records provided and that in his professional opinion,
the foregoing requirement concerning validation has been met. The Company
commenced shipments of five of the six solid dosage products under the foregoing
certification process. After review by the Company and its consultants one of
the Company's six core products, hydrocodone bitartrate 5mg and acetominophen
500 mg tablet, discrepancies were discovered with some of the data in the
Company's ANDA. This resulted in a voluntary recall of this product and the
withdrawl of the ANDA.

        On June 21, 1993, the Company entered into a plea agreement with the
Department of Justice to resolve the government's investigation. Under the terms
of the pleas agreement, the Company agreed to resolve the government's
investigation. Under the terms of the peas agreement, the Company agreed to
pleased guilty to five counts of adulteration of a single drug product shipped
in interstate commerce and related recordkeeping violation. The pleas agreement
also requires the Company to pay fine of $2,500,000 over five years in quarterly
installments of $125,000 beginning September 15, 1993. As of March 31, 1995, the
Company has paid two quarterly installments and several partial payments. The
plea agreement stipulated that if the Company does not make timely payments, the
entire fine becomes due and payable. As a result, the entire Department of
Justice Settlement has been reclassified as a current liability in the 1994
consolidated balance sheets. At the present time, no action has been initiated
by the Department of Justice to require payment of the entire amount.

        On March 31, 1993, and April 1, 1993, five lawsuits were filed by
shareholders against the Company and three or more of the Company's directors.
In June 1994, the plaintiffs of the five lawsuits and the two
shareholder-derivative lawsuits and the Company agreed to a settlement of these
lawsuits. The Company agreed to pay to the plaintiffs $1,000,000 in cash, which
has been paid by the Company's insurance carrier and, at the Company's option,
either (I) the issuance of shares of the Company's common stock having a value,
as of the date of the distribution of $3,000,000 or (ii) the payment by the
Company of $3,000,000 in cash or (iii) any combination of issuance of shares or
payment by the Company having a combined value as of date of distribution of
$3,000,000. The remainder of the settlement, $3,000,000, will be paid by the
Company after court approval is obtained by plaintiffs attorney for
distribution.

                                    12

<PAGE>

        On November 12, 1993, the Securities and Exchange Commission("SEC")
requested that the Company provide to the SEC, on a voluntary basis, information
and documents regarding the ingredients and filings relating to the following
drugs; quinidine gluconate, propylthiorical, acetaminophen and codeine
phosphate, metronidazole, quinidine sulfate, and hydralazine hydrochloride. The
SEC advised the Company that the inquiry relates to public information
disseminated by the Company and trading in the Company's securities during the
period August 1987 through July 1993. The Company is cooperation with the SEC
and has made available various documents. Theses documents relate to the
testing, formulations and sale of these drugs which were maintained by the
Company at the offices of its counsel in Maryland. In April 1994, the SEC
requested additional documentation regarding these matters. The Company has
complied with the additional request. On July 5, 1994, the Company made formal
submission to the SEC and outlined the parameters of a proposed settlement. An
additional submission was made on January 31, 1995 to bring additional
information to the SEC. The Company is unable to predict the likelihood of an
unfavorable outcome as a result of this inquiry and, accordingly, no provision
has been made for any potential costs.

        A lawsuit has been filed by the minority shareholders of H. R. Cenci
Laboratories, Inc.("Cenci") and Cenci Powder Products, Inc. against the Company
and several of the officers of the Company The lawsuit alleges that the Company
has breached several representations made during the course o negotiations
leading to the Company's purchase of 51% of the stock of Cenci. This action
seeks unspecified compensatory damages, as well as punitive damages, rescission,
specific performance, reformation and a declaration as to what amount, if any is
owed to plaintiff. because of the early stage of this action, it is not possible
at this time to predict with reasonable certainty the ultimate outcome of this
matter and, accordingly, no provision has been made for any potential costs
relating to this matter.


                                    13


<PAGE>


<TABLE>
<CAPTION>

                        HALSEY DRUG CO.,INC. AND SUBSIDIARIES
I
TEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                                                                               Percentage Change
                                                                                  Year-to-Year
                                                  Percentage of Net Sales     Increase (decrease)
                                                  -----------------------     -------------------

                                                  Three months ended March     Three months ended
                                                  ------------------------     ------------------
                                                            31                     March 31
                                                            --                     --------
                                                                                           1995
                                                                                             to
                                                        1995            1994               1994
                                                        ----            ----               ---- 
                                                           %               %                  %
                                                           -               -                  -
<S>                                                  <C>            <C>              <C>      
Net Sales                                              100.0           100.0                6.2
Cost of Goods                                           74.4            78.3               10.8
                                                        ----            ----               ----
Gross Profit                                            25.6            21.7             (10.6)

Research & Development                                   2.3              .4            (387.5)
Selling, General and administrative expenses            22.4            23.3               10.0
                                                       -----           -----              -----
Earnings(loss) from operations                            .9           (2.0)              143.3

Gain on the sale of assets                              33.3                              100.0
                                                        ----                              -----

Interest expense                                       (3.3)           (2.2)               26.1
                                                       -----           -----               ----
Earnings before income taxes                            30.9           (4.2)              786.2

Provision for income taxes                               4.3           
                                                         ---           ----               -----

Net earnings (loss)                                     26.6           (4.2)              690.6
                                                        ====           =====              =====
</TABLE>


                                    14


<PAGE>


Net Sales
- ---------

        The Company's net sales for the three months ended March 31, 1995 of
$6,873,000 represents a decrease of $451,000 (6.2%) as compared to net sales for
the three months ended March 31, 1994 of $7,324,000. The decrease in 1995 is
primarily attributable to the discontinuance of shipments of liquid products
subsequent to the second quarter of 1994.

Cost of Goods Sold
- ------------------

        For the three months ended March 31, 1995, cost of goods sold decreased
by approximately $619,000 as compared to the three months ended March 31, 1994.
The decrease for 1994 is primarily attributable to the suspension of shipments
of certain liquid products of Cenci as a result of the Company's review of
operations at this location. In an effort to reduce the loss from lower revenues
at this subsidiary, the Company has reduced its operating costs through
significant reductions in personnel and other expenses at Cenci. The Company's
gross margin as a percentage of sales for the three months ended March 31, 1995
was 25.6% as compared to 21.7% for the three months ended March 31, 1994.

Selling, General and Administrative Expenses
- --------------------------------------------

        Selling, general and administrative expenses as a percentage of sales
for the three months ended March 31, 1995 and 1994 were 22.4% and 21.7%,
respectively. These expenses decreased by approximately $171,000 or 10.0% as
compared to 1994. The decrease was attributable to cost saving measures effected
by management during the year, combined with a reduction in freight costs
associated with the reduced sales volume at the subsidiary location.

Gain on Sale of Assets
- ----------------------

        On March 21, 1995, the Company sold its abbreviated new drug
applications("ANDA") for 5mg Oxycodone HCL/325mg and Acetaminophen
Tablets("Tablets") and certain equipment used in the production of Tablets for
up to $5.4 million to Mallinckrodt. The Company received $ 500,000 of the
proceeds in July 1994, which was recorded as deferred income on the Company's
Decembe 31, 1994 consolidated balance sheet. Mallinckrodt aslo paid the Company
$2,000,000 on March 21, 1995 and the remainder will be payable as follows:(i)
$1,000,000 upon the Company receiving general clearnace from the FDA that it is
in compliance with certain provisions of the consent decree dated June 29, 1993,
and (ii) $1,900,000 at the earlier of (a) Mallinckrodt receiving certain
authorizations from the FDA or (b) September 21, 1997("Deferred Payments").
Mallinckrodt also agreed to defer $1,200,000 of the Company's trade debt due to
an affiliate of Mallinckrodt. For the three months ended March 31, 1995, the
Company has recorded a gain of $2,288,000 for the sale of the ANDA and related
equipment net of expenses related to the sale. If, prior to the time it is
possible for Mallinckrodt to commence production under the Tablets ANDA or any
new Tablets ANDA at its own facility, and the Company ceases or is forced to
cease or substantially curtail production under the Tablets ANDA, as a
consequence of (i) any action or business difficulty, then Mallinckrodt has the
right to cancel payment of any yet unpaid portion of the Deferred Payment ($1.9
million) and shall further have the right to a full refund of any portion of the
Deferred Payment already made to the Company.

                                    15


<PAGE>


Interest Expense
- ----------------

        Interest expense for 1995 increased by $65,000 as compared to 1994 as a
result of an increase in the prime rate during 1994.

(Benefit) Provision for Income Taxes
- ------------------------------------

        The Company had a tax provision of $296,000 as a result of available net
operating loss carryforward. In 1994, the Company had no tax benefit since the
available loss carryback to prior years was utilized by the net operating loss
for 1993 carryback to the prior three years.

Net Earnings (Loss)
- -------------------

        For the three months ended March 31, 1995, the Company had net earnings
of $1,831,000 as compared to a net loss of $310,000 for the three months ended
March 31, 1994. This increase is primarily attributable to the gain on the sale
of assets in the amount of $2,288,000.

Liquidity and Capital Resources
- -------------------------------

        At March 31, 1995, the Company had cash and cash equivalents of $172,000
as compared to $27,000 at March 31, 1994. The Company had a working capital
deficiency at March 31, 1995 of $1,012,000 and $4,451,000 at December 31, 1994.

        As a result of the decline in shipments of solid dosage products from
the Company's Brooklyn plant following the entry of the consent decree, and as a
result of the lack of available borrowing under the Company's credit agreement,
the Company's liquidity position has been materially adversely affected since
June 30, 1993 and the Company's capital resources have been severely limited.
The Company has actively sought to reduce its operating costs at the Brooklyn
plant, where it has made significant reductions in personnel at the Brooklyn
plant. In addition, the Company's liquidity position has been affected during
the second half of 1994 by the discontinuance of shipments of liquid products
from its Cenci subsidiary as a result of review completed by the Company of this
liquid operation. In an effort to reduce the loss from lower revenues at this
subsidiary, the Company has reduced its operating costs at Cenci through
significant reductions of personnel and other expenses.

        Under the terms of the plea agreement with the DOJ, the Company has
agreed to pay a $2,500,000 fine, payable in quarterly installments of $125,000
over five years. Two installments have been paid to date. Only additional
partial payments have been paid in the amount of $30,000. The agreement with the
DOJ stipulates if any payments are not made in a timely fashion, the entire
amount of the fine shall become due and payable immediately. As a result, the
entire amount of the settlement has been classified as current as of December
31, 1994. As of the current date, no action has been initiated to require
immediate payment of the entire amount; however, the Company has recently made
several partial payments.

        In May 1994, the Company and its banks amended the credit agreement to
(i) modify the terms of the warrants by adjusting the initial exercise price per
share of the warrants to $2.875; (ii) require the payment of any income tax
refunds of the Company and its subsidiaries to an escrow account maintained by a
designated agent; (iii) require the maintenance of a consultant for designated
duties specified in the agreement; (iv) restrict certain payments made by the
Company 

                                    16


<PAGE>


or its subsidiaries; and (v) require the reimbursement of certain fees incurred 
by the banks in connection with the credit agreement.

        In July 1994, the Company and its banks further amended the credit
agreement to extend the due date to December 31, 1994, to modify certain
financial covenants, to restrict the use of proceeds of loans and advances
received by the Company including the receipts from the agreement with
Mallinckrodt and to require the reimbursement of certain fees to the bank in
connection with this agreement. As consideration, the Company issued 77,988 new
warrants, at an exercise price of $3.4375 per share, and agreed to issue
additional warrants, for each month the loan remains outstanding through the due
date of December 31, 1994. The Company has issued warrants for the purchase of
an aggregate of 203,939 shares at exercise prices varying from $2.875 to $2.25
per share. Such warrants were valued at $100,000 in 1993 and $100,000 in 1994.
The fair value of the warrants, $200,000, as determined by the Company's Board
of Directors, has been recorded by the Company as additional paid-in-capital and
a discount to bank debt which is being amortized through the extended maturity
date of the credit agreement, which is August 31, 1995.

        In July 1994, the Company received an income tax refund of $470,000, net
of penalties and interest, which the Company used to reduce the outstanding debt
and to pay interest and fees outstanding to the banks.

        In March 1995, the Company and its banks restructured the credit
agreement to include an extension of the due date to August 31, 1995,
modification of the financial covenants, reduction of the exercise prices of all
warrants in excess of $2 3/8 per share and extension of the expiration date of
the warrants to December 1999. As consideration for these modifications, the
banks received $1,500,000 of the proceeds received from the transaction with
Mallinckrodt. Funds have been applied to reduce outstanding principal by
approximately $1,113,000 to approximately $3,777,000, to pay accrued interest
(approximately $154,000) and fees (approximately $233,000).

        On March 30, 1995, the Company signed the Zatpack Agreement with Zatpack
which provides for the purchase of 500,000 shares of common stock of the Company
by Zatpack in consideration of $1,000,000($982,000 net of expenses).

        As previously indicated, the Company has continued to actively pursue
financing. At the current time, the Company is discussing with several parties
obtaining financing which will replace the Company's banks and provide
additional working capital. There can be no assurance that the Company will be
able to obtain any such financing on commercially acceptable terms.


                                    17




<PAGE>


P
ART II   OTHER INFORMATION
- ---------------------------


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

       (a)  Exhibits:
            Financial Data Schedule

       (b)  Reports on Form 8-K
            Current report on Form 8-K dated as of
            March 21, 1995: Item 5 - Other Events; and
                            Item 7 - Financial Statements




                                    18


<PAGE>




                             SIGNATURES
                             ----------

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



                                              HALSEY DRUG CO., INC.



Date: October 3, 1996                         BY:/s/Rosendo Ferran
                                                 ------------------
                                              Rosendo Ferran
                                              President and Chief
                                              Executive Officer

Date: October 3, 1996                         BY: /s/ Robert J. Mellage
                                                 ---------------------
                                              Robert J. Mellage
                                              Corporate Controller


                                    19






<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the 
Condensed Consolidated Statement of Financial Condition At March 31, 1995
(Unaudited) and the Condensed Consolidated Statement of Income for the 
Three Months Ended March 31, 1995 (Unaudited) and is qualified in its entirety 
by reference to such financial statements. 
</LEGEND>
<MULTIPLIER> 1,000
       
<S>                                        <C>
<PERIOD-TYPE>                              3-MOS
<FISCAL-YEAR-END>                                            DEC-31-1995
<PERIOD-END>                                                 Mar-31-1995
<CASH>                                                                   172
<SECURITIES>                                                               0
<RECEIVABLES>                                                          2,786
<ALLOWANCES>                                                             524
<INVENTORY>                                                            7,224
<CURRENT-ASSETS>                                                       9,941
<PP&E>                                                                18,009
<DEPRECIATION>                                                         9,918
<TOTAL-ASSETS>                                                        18,636
<CURRENT-LIABILITIES>                                                 10,953
<BONDS>                                                                    0
<PREFERRED-MANDATORY>                                                      0
<PREFERRED>                                                                0
<COMMON>                                                                  81
<OTHER-SE>                                                            11,139
<TOTAL-LIABILITY-AND-EQUITY>                                          18,636
<SALES>                                                                6,873
<TOTAL-REVENUES>                                                           0
<CGS>                                                                  5,114
<TOTAL-COSTS>                                                              0
<OTHER-EXPENSES>                                                       1,694
<LOSS-PROVISION>                                                           0
<INTEREST-EXPENSE>                                                       226
<INCOME-PRETAX>                                                        2,127
<INCOME-TAX>                                                             296
<INCOME-CONTINUING>                                                        0
<DISCONTINUED>                                                             0
<EXTRAORDINARY>                                                            0
<CHANGES>                                                                  0
<NET-INCOME>                                                           1,831
<EPS-PRIMARY>                                                            .23
<EPS-DILUTED>                                                              0
        

</TABLE>