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 June 30, 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
   incorporation or organization)                   Identification No.)


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 quarters ended June 30, 1994 and September 30, 1994
were filed late).

YES__________  NO____X_____

As of August 11, 1995, the registrant had 7,609,537 shares of Common Stock, $.01
par value, outstanding.



<PAGE>


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


                                       INDEX
                                       -----


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


    Item 1. Financial Statements (Unaudited)                              Page #
                                                                         ------
            Condensed Consolidated Balance Sheets-                          3
            June 30, 1995 and December 31, 1994

            Condensed Consolidated Statements of                            5
            Operations - Three and six months ended June 30, 1995
            and June 30, 1994

            Consolidated Statements of Cash                                 6
            Flows - Six months ended June 30, 1995
            and June 30, 1994

            Consolidated Statements of Stockholders'                        7
            Equity - Six months ended June 30, 1995

            Notes to Condensed Consolidated Financial                       8

            Statements


   Item 2.  Management's Discussion and Analysis of Financial              15
            Condition and Results of Operations


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


   Item 6.  Exhibits and Reports on Form 8-K


   SIGNATURES



                                       2

<PAGE>



                           PART I. FINANCIAL INFORMATION


                            ITEM 1. FINANCIAL STATEMENTS

                       HALSEY DRUG CO., INC. AND SUBSIDIARIES

                       CONDENSED CONSOLIDATED BALANCE SHEETS


                                                  (UNAUDITED)
          (Amounts in thousands)                   June 30,      December 31
                                                     1995          1994
- --------------------------------------------------------------------------------

CURRENT ASSETS

      Cash                                             $  38       $  28

      Accounts Receivable - trade, net
        of allowances for doubtful
        accounts of $209 and $755
        1995 and 1994, respectively                    1,603       2,326

      Inventories                                      7,701       6,835

      Prepaid insurance and other current                537         496
        assets

      Deferred income tax                                            296
                                                    --------    --------
           Total current assets                        9,879       9,981

PROPERTY PLANT & EQUIPMENT, NET                        7,841       8,561

OTHER ASSETS                                             623         734
                                                         ---         ---
                                                            

                                                     $18,343     $19,276
                                                     =======     =======


The accompanying notes are an integral part of these statements


                                       3

<PAGE>


                       HALSEY DRUG CO., INC. AND SUBSIDIARIES

                       CONDENSED CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------
                                             (UNAUDITED)
(Amounts in thousands)                            June 30,  December 31,
                                                   1995          1994
- ------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Bank overdraft                                 $   642       $   218
    Current maturities of long-term debt             3,754         4,850
    Department of Justice settlement                 1,964         2,013
    Accounts payable                                 2,896         4,414
    Accrued expenses and other liabilities           1,917         1,823
    Advances from minority stockholders                206           418
    Income taxes payable                                27           196
    Deferred income                                                  500
                                                   -------        ------

                Total current liabilities           11,406        14,432

LONG-TERM DEBT                                       2,544         2,492

LITIGATION SETTLEMENT                                3,000         3,000

CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT)
  Common stock - $.0l par value; authorized
    20,000,000, shares;  issued and                     81            76
    outstanding 8,109,537 shares at June
    30, 1995 and 7,609,537 shares at
    December 31, 1994

  Additional paid-in capital                        10,990        10,162

  Accumulated deficit                              (9,678)      (10,886)
                                                   -------      --------

                                                     1,393         (648)

                                                   $18,343       $19,276

The accompanying notes are an integral part of these statements


                                       4

<PAGE>



                          HALSEY DRUG CO., INC. AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                       (UNAUDITED)

<TABLE><CAPTION>
- ---------------------------------------------------------------------------------------

Amounts in thousands except per share data        For the six         For the three 
                                                  months ended        months ended
                                            --------------------  ---------------------
                                                   June 30,             June 30,
                                                   --------             --------
                                               1995      1994        1995        1994
                                               ----      ----        ----        ----
- ---------------------------------------------------------------------------------------
<S>                                          <C>        <C>         <C>         <C>   
Net Sales                                    $11,756    $13,038     $4,883      $5,714

Cost of goods sold                             8,819     10,723      3,705       4,990
                                               -----     ------      -----       -----

   Gross profit                                2,937      2,315      1,178         724

Research & Development                           307        158        151         126

Selling, general and administrative            2,981      3,687      1,443       1,978
                                               -----      -----      -----       -----
expenses

   Loss from operations                        (351)    (1,530)      (416)     (1,380)

Gain on the sale of assets                     2,288          -          -           -
                                                              -          -           -
Other income                                       6        112          4          91
Interest expense                               (439)      (391)      (211)       (210)
                                               -----      -----      -----       -----
                                                                          

   Earnings (loss) before income taxes         1,504    (1,809)      (623)     (1,499)

Provision for income taxes                       296          -          -          -
                                                 ---          -          -          -

  NET  EARNINGS (LOSS)                        $1,208   ($1.809)     ($623)    ($1,499)
                                              ======   ========     ======    =======
                                                                          


   Net  earnings (loss)  per common share      $0.15    ($0.25)    ($0.08)     ($0.21)
                                               =====    =======     ======    =======
                                                               
Weighted average number of outstanding 
 shares                                    7,884,986  7,109,537  8,109,537   7,109,537 
                                           =========  =========  =========   =========

</TABLE>


The accompanying notes are an integral part of these statements

                                       5

<PAGE>

                            HALSEY DRUG CO., AND SUBSIDIARIES


                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                        (UNAUDITED)
- --------------------------------------------------------------------------------
              Amounts in thousands                              SIX MONTHS ENDED
                                                                     JUNE 30
                                                                1995      1994
                                                                ----      ----
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Earnings(Loss)                                             $1,208   ($1,809)
                                                               ------   --------
Adjustments to reconcile net  earnings (loss) to net cash
used in operating activities
    Depreciation and amortization                                 799      1,012
    Gain on sale of assets                                    (2,288)
    Accrued Department of Justice interest                         31
    Deferred income taxes                                         296
    Changes in assets and liabilities
       Accounts receivable                                        723        132
       Inventories                                              (219)      1,564
       Prepaid insurance and other current assets                (41)      (125)
       Accounts payable                                       (1,332)    (1,150)
       Accrued expenses                                            94        232
       Income taxes payable                                     (169)       (24)
                                                              -------      -----
                                                                
       Total adjustments                                      (2,106)      1,641
                                                              -------      -----
         Net cash used in operating activities                  (898)      (168)
                                                                -----      -----
 Cash flows from investing activities
    Capital expenditures                                        (180)       (58)
    Increase in other assets                                                 119
    Proceeds from sale of assets                                2,000    
                                                                -----    -------
      Net cash provided by investing activities                 1,820         61
                                                                -----         --

Cash flows from financing activities
    Payment of long term debt                                 (1,044)      (106)
    Proceeds from issuance of common stock                                  (52)
    Payment to Department of Justice                             (80)
    Bank overdraft                                                424        105
    Advances from former minority stockholder                   (212)        210
                                                                -----        ---
      Net cash (used in) provided by financing activities       (912)        157
    NET INCREASE IN CASH AND CASH EQUIVALENTS                      10         50

Cash and cash equivalents at beginning of period                   28         32
                                                                   --         --

Cash and cash equivalents at end of period                        $38        $82
                                                                  ===        ===

The accompanying notes are an integral part of these statements.


                                       6

<PAGE>


                                HALSEY DRUG CO., INC. AND SUBSIDIARIES


<TABLE><CAPTION>

                           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                  Six Months Ended June 30, 1995
Amounts in thousands except per share data
                                                            (UNAUDITED)

- ---------------------------------------------------------------------------------------------------------------
                                     Common Stock $.01 par value    Additional    Accumulated
                                     ---------------------------    ----------    -----------
                                          Shares          Amount  Paid-In Capital     Deficit           Total
                                          ------          ------  ---------------     -------           -----
                                                                       
<S>                                    <C>                 <C>        <C>          <C>                  <C>   
     Balance at December 31, 1994      7,609,537           $76        $10,162      ($10,886)            ($648)

     Net earnings for the six                                                          1,208             1,208
       months ended June 30, 1995

     Issuance of common stock            500,000             5            828          - 0 -               833
                                        --------        ------         ------     ----------             -----
     Balance at June 30, 1995          8,109,537           $81        $10,990       $(9,678)            $1,393
                                       =========           ===        =======       ========            ======
</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. and subsidiaries (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 and six month periods ended June 30, 1995 have been made,
but the financial results for the six month and three month periods ended June
30, 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
          -----------
                                          (Amounts in thousands)
      Inventories consists of the following:
                                               June 30, 1995 December 31, 1994

        Finished Goods                                $2,140            $1,990
        Work in Process                                1,517            $1,301
        Raw Materials                                  4,044            $3,544
                                                       -----            ------
                                                      $7,701            $6,835
                                                      ======            ======

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.

      The Company and its banks amended the credit agreement to include the
stock of certain subsidiaries, the accounts receivable of the Company's Houba,
Inc. subsidiary, and the parent company's inventory and equipment as additional
collateral, to increase the initial margin rate to 2% (10.5% at June 30, 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 then outstanding principal due to the banks.


                                       8

<PAGE>

      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 635,653
shares of the Company's common stock at exercise prices ranging from $2.13 to
$2.275 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.

      In July 1995, The Company and its banks amended the credit agreement as a
result of the Company having consummated a private offering on July 18, 1995 as
discussed in Note 6. As consideration for waiving any breach or default under
the Credit Agreement as a result of the private offering, the Bank group
received $500,000 of the proceeds as payment for interest, fees and principal
and an extension of the warrant exercise period to July 17, 2000. In addition,
the exercise prices of all warrants for 635,653 shares of the Company's common
stock have been adjusted for any anti-dilution to prices ranging from $2.13 to $
2.275.

Convertible Subordinated Promissory Note

      Pursuant to the Zatpack, Inc. ("Zatpack") agreement , the Company issued a
convertible subordinated promissory note dated December 31, 1994, to Zatpack,
for the cancellation of trade payables and advances by Zuellig Group N.A. Inc.
("Zuellig") to the Company's subsidiaries, in the amount of $1,292,000, 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 $2.41 of principal and interest being converted
( the $2.41 is subject to the anti-dilution provisions of the promissory note).
The note is subordinated to bank debt.

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") for $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 U. S. Food and Drug Administration (the
"FDA") or (ii) September 21,1997. 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.

                                       9

<PAGE>


Borrowings under lines of credit and long-term debt consist of the following at
June 30, 1995 and December 31, 1994.

                                                  (Amounts in thousands)

                                                    1995         1994
                                                    ----         ----

     Borrowing under lines of credit              $3,754       $4,850

     Convertible subordinated promissory           1,344        1,292
     note

     Subordinated promissory note                  1.200        1,200
                                               ---------    ---------
                                                   6,298        7,342
     Less current maturities                       3,754        4,850
                                                   -----        -----
                                                  $2,544       $2,492
                                                  ======       ======

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 $5,400,000 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 six months ended June 30, 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.

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 thousands, except for per share amounts):

As of June 30, 1995:
                                   As Previously Reported       As Restated
                                   ----------------------       -----------
                                           
Net Earnings                                   $3,108,000        $1,208,000
Net earnings per common stock                        $.39              $.15
Long Term Receivable                            1,900,000                 0
Accumulated Deficit                           (7,788,000)       (9,678,000)

      In connection with the agreement, the Company agreed to manufacture 
Tablets for Mallinckrodt for a period of three years 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.

      In addition, the Company issued to Mallinckrodt an 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 



                                       10

<PAGE>

pursuant to which the Company would (i) manufacture oxycodone and 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.


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 ($983,000 net of expenses).
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 the
Company's Indiana Fine Chemicals Corporation subsidiary valued at $150,000. As a
result of the above transaction, the Company owns 100% of Indiana Fine Chemical
Corporation. In addition, as described in Note 3 previously, the Company issued
a convertible promissory note to Zatpack, dated December 1, 1994. 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.

      On June 29, 1993, the Company entered into a consent decree with the U. S.
Attorney for the Eastern District of New York on behalf of the FDA that resulted
from the FDA's investigation of the Company. 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 and shipping the drug product, except that the Company is
permitted under the terms of the consent decree to manufacture and ship from its
facilities six identified drug products at its own risk provided that (i) at
least twice per month, the Company's independent expert certifies that each
batch of drug product 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 for 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 of one of the Company's six core products, hydrocodone
bitartrate 5mg and acetaminophen 500mg 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 withdrawal of the ANDA.



                                       11

<PAGE>

      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 plea agreement, the Company agreed to plead guilty to five counts of
adulteration of a single drug product shipped in interstate commerce and related
recordkeeping violations. The plea agreement also requires the Company to pay a
fine of $2,500,000 over five years in quarterly installments of $125,000
beginning September 15, 1993. As of June 30, 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 December 31,1994
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 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
of cash by the Company having a combined value as of the 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.

      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 fillings relating to the following
drugs; quinidine gluconate, propylthiourical, 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 cooperating with the SEC
and has made available various documents. These 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 a 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. In May 1995, a formal Order of Investigation was issued by the SEC covering
the foregoing matters. In June 1995, additional documents were submitted.
Officers and directors of the Company have also testified before the SEC. The
SEC is now considering the Company's offer of settlement as submitted in July
1994. 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 of 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.



                                       12

<PAGE>



NOTE 7 -Subsequent Events
        -----------------

      The Company consummated a private offering (the "Offering") of 408 units (
"Units" ) of securities on July 18, 1995 for an aggregate purchase price of
$4,080,000. Each Unit consisted of (i) a 10% convertible subordinated debenture
in the principal amount of $ 10,000 (the "Debentures") issued at par and (ii)
750 redeemable common stock purchase warrants( "Warrants" ).

      The Debentures will become due and payable as to principal five years from
the date of issuance. Interest, at the rate of 10% per annum, is payable on a
quarterly basis. The Debentures are convertible at any time after issuance into
shares ( the "Conversion Shares" ) of common stock, $ .01 par value per share
(the "Common Stock"), of the Company at a conversion price (the " Conversion
Price" ) of $ 2.00 per share, subject to adjustment.

      Each Warrant entitles the holder to purchase one share of Common Stock (
the "Warrant Shares" and collectively with the conversion shares, the underlying
shares ) for $ 2.00 subject to adjustment, during the five year period
commencing on the date of issuance. The Warrants are redeemable by the Company
at a price of $ .01 per Warrant at any time commencing one year after issuance,
upon not less than 30 days prior written notice, if the last sale price of the
Common Stock on the American Stock Exchange, Inc. ( the "Exchange" ) following
such one year anniversary equals or exceeds $ 2.00 per share ( the " Threshold"
) for the 20 consecutive trading days ending on the third day prior to the
notice of redemption to holders.

      The Company will undertake to register the Underlying Shares under the
Securities Act of 1933, as amended (the "Securities Act" ). The Company will
also seek to have the Underlying Shares approved for listing on the Exchange.

      The Units are convertible (in the case of the Debentures) and/or
exercisable (in the case of the Warrants), as the case may be, into 2,346,000
Underlying Shares, or approximately 24% of the issued and outstanding Common
Stock of the Company immediately after the Offering. The Company reserved
1,846,000 shares of authorized but unissued shares of Common Stock for issuance
upon conversion of the Debentures and exercise of the Warrants; the 500,000
remaining Underlying Shares (the "RPI Shares" ) will be represented by treasury
shares which the Company has repurchased from Ranbaxy Pharmaceuticals, Inc.
("RPI") with $1,100,000 of the net proceeds of the offering.

      The net proceeds of the Offering ( after giving effect to the repurchase
of the RPI Shares) was approximately $ 2,628,175. The Company was required to
use $500,000 of such net proceeds to repay a portion of its bank debt. The
Company intends to utilize the balance of the net proceeds of the Offering for
the following purposes: for registration of the Underlying Shares under the
Securities Act; for the purchase of equipment; for research and development
expenses; and for working capital.


                                       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
- -----------------------------------------------------------------------------------------
                                   Six months ended               Three months ended
                                       June 30                          June 30
                           -----------------------------------------------------------------
                                                Percentage                      Percentage
                                                  Change                          Change
                                               Year-to-Year                    Year-to-Year
                            Percentage of Net    Increase   Percentage of Net    Increase
                                  Sales         (decrease)        Sales         (decrease)
                                  -----         ----------        -----         ----------
- -------------------------------------------------------------------------------------------
                                                  1995 as                         1995 as
                                                compared to                     compared to

                                1995      1994          1994      1995     1994         1994
                                ----      ----          ----      ----     ----         ----
<S>                           <C>       <C>           <C>        <C>      <C>        <C>

                                   %         %             %         %        %            %
Net Sales                      100.0     100.0         (9.8)     100.0    100.0       (14.5)
Cost of Goods                   75.0      82.2        (17.7)      75.9     87.3       (25.7)
                                ----      ----                    ----     ----
Gross Profit                    25.0      17.8          26.9      24.1     12.7         62.7

Research & Development           2.6       1.2          94.3       3.1      2.2         19.8
Selling, General and            25.4      28.3        (19.1)      29.6     34.6       (27.0)
administrative expenses
                               -----     -----                   -----    -----
Earnings (loss) from           (3.0)    (11.7)          77.1     (8.6)   (24.2)         69.9
operations

Gain on the sale of assets      19.4     -----         100.0     -----    -----        -----
                                         -----                   -----    -----

Other income                      .1        .9        (94.6)        .1      1.6       (95.4)
Interest expense               (3.7)     (3.0)          55.2     (4.3)    (3.7)         73.9
                               -----     -----                   -----    -----         ----
Earnings before income          12.7    (13.8)         183.1      12.8   (26.3)         58.5
taxes

Provision for income taxes       2.5     -----         100.0   -------    -----       ------
                                 ---     -----                 -------    -----
Net earnings (loss)             10.2    (13.8)         166.8    (12.8)   (26.3)         58.5
                                ====    ======                  ======   ======
</TABLE>


                                       14

<PAGE>

Six months ended June 30, 1995 vs Six months ended June 30, 1994
- ----------------------------------------------------------------

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

      The Company's net sales for the six months ended June 30, 1995 of
$11,756,000 represents a decrease of $1,282,000 (9.8%) as compared to net sales
for the six months ended June 30, 1995 of $13,038,000. The decrease in 1995 is
attributable to the reduction in shipments of tablet products due to the sale at
the end of the first quarter by the Company of the tablets ANDA to Mallinckrodt
which is partially offset by manufacturing revenue that the Company is receiving
as part of its agreement with Mallinckrodt. In addition, the decrease has been
impacted by a decline in shipments of liquid products subsequent to the second
quarter of 1994.

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

      For the six months ended June 30, 1995, cost of goods sold of $8,819,000
represents a decrease of approximately $1,904,000 as compared to $10,723,000 for
the six months ended June 30, 1994. The decrease for 1995 is attributable to the
reduction in shipments of tablet products due to the sale at the end of the
first quarter by the Company of the tablets ANDA combined with significant
reductions in manufacturing costs of personnel and other expenses. The Company's
gross margin as a percentage of sales for the six months ended June 30, 1995 was
25.0% as compared to 17.8% for the six months ended June 30, 1994.

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

      Selling, general and administrative expenses as a percentage of sales for
the six months ended June 30, 1995 and 1994 were 25.4% and 28.3%, respectively.
These expenses decreased by approximately $706,000 or 19.1% as compared to 1994.
The decrease was attributable to cost saving measures effected by management
during the year, a reduction in personnel and related costs combined with
reductions in legal and consulting expenses.

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

      On March 21, 1995, the Company sold the tablets ANDA 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 six months ended June 30, 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. 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 is disclosed in the notes 
to the financial statements.






                                       15

<PAGE>

Other Income
- ------------

      Other income decreased by $106,000 as compared to 1994. This decrease in
other income is attributable to the sale by the Company of certain equipment
which resulted in a gain during the second quarter of 1994.

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

      Interest expense for 1995 increased by $48,000 as compared to 1994 as a
result of an increase in the prime rate after the second quarter of 1994.

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 six months ended June 30, 1995, the Company had net earnings of
$1,208,000 as compared to a net loss of $1,809,000 for the six months ended June
30, 1994. The increase in net earnings is attributable to the gain on the sale
of assets of $ 2,288,000 net of the tax provision of $296,000, or $ 1,992,000.


                                       16

<PAGE>

Three months ended June 30, 1995 Vs three months ended June 30, 1994
- --------------------------------------------------------------------

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

      The Company's net sales for the three months ended June 30, 1995 of
$4,883,000 represents a decrease of $831,000 (14.5%) as compared to net sales
for the three months ended June, 1994 of $5,714,000. The decrease in 1995 is
attributable to the reduction in shipments of tablet products due to the sale at
the end of the first quarter by the Company of the tablets ANDA to Mallinckrodt
which is partially offset by manufacturing revenue that the Company is receiving
as part of its agreement with Mallinckrodt. In addition, the decrease has been
impacted by a decline in shipments of liquid products subsequent to the second
quarter of 1994.


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

      For the three months ended June 30, 1995, cost of goods sold decreased by
approximately $1,285,000 as compared to the three months ended June 30, 1994.
The decrease for 1995 is attributable to the reduction in shipments of tablet
products due to the sale at the end of the first quarter by the Company of the
tablets ANDA and 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 manufacturing costs , the Company has decreased operating costs
through significant reductions in personnel and other expenses. The Company's
gross margin as a percentage of sales for the three months ended June 30, 1995
was 24.1% as compared to 12.7% for the three months ended June 30, 1994.

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

      Selling, general and administrative expenses as a percentage of sales for
the three months ended June 30, 1995 and 1994 were 29.6% and 34.6%,
respectively. These expenses decreased by approximately $535,000 or 27.0% as
compared to 1994. The decrease was attributable to cost saving measures effected
by management during the year achieved by a reduction in personnel and related
costs combined with reductions in legal and consulting expenses.

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

      For the three months ended June 30, 1995, the Company had net loss of
$623,000 as compared to a net loss of $1,499,000 for the three months ended June
30, 1994. This decrease is attributable to cost saving measures effected by
management during the year achieved by a reduction in personnel and related
costs combined with reductions in legal and consulting expenses.


                                       17

<PAGE>


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

      At June 30, 1995, the Company had cash and cash equivalents of $38,000 as
compared to $28,000 at March 31, 1994. The Company had a working capital
deficiency at June 30, 1995 of $1,338,000 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. 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 . 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.

      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 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 





                                       18

<PAGE>

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 $2.375 per share to $2.375 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).

      In July 1995, The Company and its banks amended the credit agreement as a
result of the Company having consummated a private offering on July 18, 1995 as
discussed previously in Note 6 to the financial statements. As consideration for
waiving any breach or default under the Credit Agreement as a result of the
private offering, the Bank group received $500,000 of the proceeds as payment
for interest, fees and principal and an extension of the warrant exercise period
to July 17, 2000. In addition, the exercise prices of all warrants for 635,653
shares of the Company's common stock have been adjusted for any anti-dilution to
prices ranging from $2.13 to $ 2.275.

      See "Gain on Sale of Assets" for a description of the transaction with
Mallinckrodt..

      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.

      As described in Note 7 to the financial statements, the Company
consummated a private offering of 408 Units of securities on July 18, 1995 for
an aggregate purchase price of $4,080,000. Each Unit consisted of a 10%
Debenture in the principal amount of $ 10,000 issued at par with 750 Redeemable
Warrants.

      The Company undertook to register the Underlying Shares under the
Securities Act and will also seek to have the Underlying Shares approved for
listing on the Exchange.


                                       19

<PAGE>

      The net proceeds of the Offering ( after giving effect to the repurchase
of the RPI Shares) was approximately $ 2,628,175. The Company was required to
use $500,000 of such net proceeds to repay a portion of its bank debt. The
Company intends to utilize the balance of the net proceeds of the Offering for
the following purposes: for registration of the Underlying Shares under the
Securities Act; for the purchase of equipment; for research and development
expenses; and for working capital.




























































                                       20

<PAGE>

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


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

     (a)  Exhibits:
          Form of 10% convertible Subordinated Debenture
          Form of Redeemable Common Stock Purchase Warrant
          Letter Agreement, dated July 10, 1995, among Halsey Drug Co., Inc.,
                 The Chase Manhattan Bank, N.A., The Bank of New York and Israel
                 Discount Bank of New York.

          Financial Data Schedule

     (b)  Reports on Form 8-K
          None







                                       21


<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




































                                       22





<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Financial Condition At June 30,
1995(Unaudited) and the Condensed Consolidated Statement of Income for the Six
Months Ended June 30, 1995(Unaudited) and is qualified in its entirety by
reference to such financial statements. 
</LEGEND>
<MULTIPLIER> 1,000
       
<S>                                  <C>
<PERIOD-TYPE>                        6-MOS
<FISCAL-YEAR-END>                                    DEC-31-1995
<PERIOD-END>                                         Jun-30-1995
<CASH>                                                        38
<SECURITIES>                                                   0
<RECEIVABLES>                                              1,812
<ALLOWANCES>                                                 209
<INVENTORY>                                                7,701
<CURRENT-ASSETS>                                           9,879
<PP&E>                                                    18,131
<DEPRECIATION>                                            10,290
<TOTAL-ASSETS>                                            18,343
<CURRENT-LIABILITIES>                                     11,406
<BONDS>                                                        0
<PREFERRED-MANDATORY>                                          0
<PREFERRED>                                                    0
<COMMON>                                                      81
<OTHER-SE>                                                10,990
<TOTAL-LIABILITY-AND-EQUITY>                              18,343
<SALES>                                                   11,756
<TOTAL-REVENUES>                                               0
<CGS>                                                      8,819
<TOTAL-COSTS>                                                  0
<OTHER-EXPENSES>                                           3,288
<LOSS-PROVISION>                                               0
<INTEREST-EXPENSE>                                           433
<INCOME-PRETAX>                                            1,504
<INCOME-TAX>                                                 296
<INCOME-CONTINUING>                                            0
<DISCONTINUED>                                                 0
<EXTRAORDINARY>                                                0
<CHANGES>                                                      0
<NET-INCOME>                                               1,208
<EPS-PRIMARY>                                                .15
<EPS-DILUTED>                                                  0
        

</TABLE>