SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
                                    FORM 10-Q/A
                                  Amendment No. 2
(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, 1996

                                     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.

YES____X______  NO_________

As of August 12,1996, the registrant had 9,588,353 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, 1996 and December 31, 1995

         Condensed Consolidated Statements of                             5
         Operations - Three and six months ended June 30, 1996
         and June 30, 1995

         Consolidated Statements of Cash                                  6
         Flows - Six months ended June 30, 1996
         and June 30, 1995

         Consolidated Statements of Stockholders'                         7
         Equity - Six months ended June 30, 1996

         Notes to Condensed Consolidated Financial                        8

         Statements


Item 2.  Management's Discussion and Analysis of Financial               11
         Condition and Results of Operations



    PART II.  OTHER INFORMATION


Item 6.  Exhibits and Reports on Form 8-K                                16



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
                                                         1996          1995
- --------------------------------------------------------------------------------
                                                                       
CURRENT ASSETS

    Cash                                                     111       $  353

    Accounts Receivable - trade, net
      of allowances for doubtful
      accounts of $288 and $280
      1996 and 1995, respectively                          1,672        1,689

    Inventories                                            7,114        7,716

    Prepaid insurance and other current assets               653          656
                                                        --------     --------
      Total current assets                                 9,550       10,414

PROPERTY PLANT & EQUIPMENT, NET                            6,900        7,394

OTHER ASSETS                                               1,392        1,054
                                                        --------     --------

                                                        $ 17,842       18,862
                                                        ========     ========


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,
                                                           1996         1995
- --------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Bank overdraft                                           567       $  213
    Due to banks                                           3,395        3,395
    Current maturities of long-term debt                     200          200
    Convertible subordinated debentures                    7,388        7,347
    Department of Justice settlement                       2,089        2,000
    Accounts payable                                       3,401        2,546
    Accrued expenses and other liabilities                 2,654        1,867
    Advances from minority stockholders                      206          206
    Income taxes payable                                      28           33
                                                         -------    ---------

                Total current liabilities                 19,928       17,807

LONG-TERM DEBT                                             2,647        2,595

CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT)
    Common stock - $.0l par value; authorized
      20,000,000, shares;  issued and outstanding
      9,582,354 shares at June 30, 1996 and
      8,973,459 shares at December 31, 1995                   95           90

    Additional paid-in capital                            15,954       14,459

    Accumulated deficit                                  (19,738)     (14,989)
                                                         -------    ---------
                                                          (3,689)        (440)
Less: Treasury stock - at cost(474,603 shares)            (1,044)      (1,100)
                                                          -------   ---------
Total stockholders' equity                                (4,733)      (1,540)
                                                          -------   ---------
                                                          $17,842   $  18,862
                                                          =======   =========

The accompanying notes are an integral part of these statements





                                       4

<PAGE>

<TABLE><CAPTION>






                        HALSEY DRUG CO., INC. AND SUBSIDIARIES


                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                     (UNAUDITED)

- --------------------------------------------------------------------------------------------------------------

AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA                FOR THE SIX MONTHS ENDED    FOR THE THREE MONTHS ENDED
                                                          ------------------------    ------------------------
                                                                 JUNE 30,                      JUNE 30,
                                                                 --------                      --------
                                                          1996           1995           1996           1995
                                                          ----           ----           ----           ----
- --------------------------------------------------------------------------------------------------------------
<S>                                                       <C>           <C>             <C>            <C>    
Net Sales                                                 $7,643        $11,756         $3,477         $4,883

Cost of goods sold                                         7,740          8,819          3,991          3,705
                                                           -----          -----          -----          -----

   Gross(loss) profit                                        (97)         2,937           (514)          1,178

Research & Development                                       629            307            271            151

Selling, general and administrative expenses               3,144          2,981          1,767          1,443
                                                           -----          -----          -----          -----

   Loss from operations                                   (3,870)          (351)        (2,552)          (416)

Gain on the sale of assets                                  ----          2,288             --             --
Other income                                                   4              6             --              4
Interest expense                                             883           (439)          (444)          (211)
                                                             ---          -----          -----          -----

   (Loss)earnings  before income taxes                    (4,749)         1,504         (2,996)          (623)

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

  NET  (LOSS)EARNINGS                                   ($ 4,749)        $1,208       ($ 2,996)         ($623)
                                                       =========         ======       =========         ======

   Net  (loss)earnings   per common share                ($0.47)          $0.15        ($ 0.26)        ($0.08)
                                                         =======          =====       ========         ======

Weighted average number of outstanding shares         10,179,172      7,884,986     11,375,177      8,109,537
                                                      ==========      =========     ==========      =========



The accompanying notes are an integral part of these statements




                                       5
</TABLE>


<PAGE>









                          HALSEY DRUG CO., AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      (UNAUDITED)

- --------------------------------------------------------------------------------
       Amounts in thousands                               SIX MONTHS ENDED
                                                                JUNE 30
                                                          1996         1995
                                                          ----         ----
- --------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss)Earnings                                      ($4,749)       $1,208
                                                        --------       ------
Adjustments to reconcile net (loss)earnings
to net cash used in operating activities
 Depreciation and amortization                             1,193          799
 Gain on sale of assets                                       --      (2,288)
 Accrued Department of Justice interest                       89           31
 Deferred income taxes                                        --          296
 Changes in assets and liabilities
    Accounts receivable                                       17          723
    Inventories                                              602        (219)
    Prepaid insurance and other current assets                 3         (41)
    Accounts payable                                         855      (1,332)
    Accrued expenses                                         787          94
    Income taxes payable                                     (5)        (169)
                                                             ---        -----
    Total adjustments                                      3,541      (2,106)
                                                            ----      -------
    Net cash used in operating activities                (1,208)        (898)
                                                         -------        -----
 Cash flows from investing activities
 Capital expenditures                                      (360)        (180)
 Increase in other assets                                  (574)
 Proceeds from sale of assets                                 --        2,000
                                                           -----        -----
 Net cash (used in)provided by investing activities        (934)        1,820
                                                           -----        -----

Cash flows from financing activities
 Payment of long term debt                                             (1,044)
 Proceeds from issuance of common stock                    1,556
 Payment to Department of Justice                           (10)          (80)
 Bank overdraft                                              354          424
 Advances from former minority stockholder                    --         (212)
                                                            ----         -----
    Net cash (used in) provided by financing activities     1900         (912)
                                                            ----         -----
 NET (DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS        (242)          10

Cash and cash equivalents at beginning of period             353           28
                                                             ---           --

Cash and cash equivalents at end of period                  $111          $38
                                                            ====          ===

The accompanying notes are an integral part of these statements.





                                       6

<PAGE>

<TABLE><CAPTION>







                        HALSEY DRUG CO., INC. AND SUBSIDIARIES

                   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                            SIX MONTHS ENDED JUNE 30,1996
Amounts in thousands except per share data
                                     (UNAUDITED)

- -------------------------------------------------------------------------------

                                 COMMON STOCK  $.01 PAR   
                               ------------------------       
                                          VALUE               ADDITIONAL           ACCUMULATED     TREASURY STOCK AT COST
                                          -----                                                    ----------------------
                                      SHARES      AMOUNT    PAID-IN CAPITAL          DEFICIT        SHARES        AMOUNT    TOTAL
                                      ------      ------    ---------------          -------        ------        ------    -----
<S>                                  <C>           <C>      <C>                     <C>           <C>           <C>        <C>   
Balance at December 31, 1995         8,973,459     $ 90     $ 14,459                ($ 14,989)    (500,000)     ($1,100)   $(1,540)

Net loss for the six months
  ended June 30, 1996                                                                  (4,749)                             (4,749)
Issuance of shares as settlement     49,166                      228                                25,397           56       284
Exercise of warrants of
convertible debentures              524,400           5        1,154                                                        1,159
Exercise of stock options            35,329                      113                                                          113
                                  ---------          --     --------                 ---------    ---------     ------   -------

Balance at June 30, 1996          9,582,354        $ 95       15,954                 ($19,738)    (474,603)    ($1,044)   ($4,733)
                                  =========          ==     ========                 =========    =========     =======   =======



The accompanying notes are an integral part of these statements.




</TABLE>


                                       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, 1996 have been made,
but the financial results for the six month and three month periods ended June
30, 1996 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, 1995
included in the Company's Annual Report on Form 10-K.

Note 2 -  INVENTORIES
                                            (Amounts in thousands)
    Inventories consists of the following:
                                            June 30, 1996  December 31, 1995
                                            -------------  -----------------
         Finished Goods                          $  1,996           $  2,491
         Work in Process                            1,747              1,398
         Raw Materials                              3,371              3,827
                                                 --------              -----
                                                 $  7,114           $  7,716
                                                 ========           ========

NOTE 3 -DEBT

The Company's Credit Agreement with its banks expired on March 31, 1996, at
which time the Company was required to repay all outstanding principal plus any
accrued interest, or approximately $ 3,395,000 and $31,000 of accrued interest
which was paid from an escrow account. In August 1996, the Company and its
banks(the "Banks") amended the Credit Agreement as a result of the consummation
of the August private Offering as subsequently discussed in Note 5. As
consideration for waiving any breach of default under the Credit Agreement as a
result of the August Private Offering, the Banks received $391,614 of the
proceeds as payment for interest fees and principal and increased the monthly
agency fee to $4000 and the accrual of the extension fees, due the earlier of
December 31, 1996 or when the loan is paid.






                                       8

<PAGE>





Borrowings under lines of credit and long-term debt consist of the following at
June 30, 1996 and December 31, 1995.             (Amounts in thousands)

                                                 1996           1995
                                                 ----           ----
Convertible subordinated promissory note      $ 1,447        $ 1,395
Subordinated promissory note                    1,400          1,400
                                              -------        -------
                                                2,847          2,795
Less current maturities                           200            200
                                                 ----           ----
                                              $ 2,647        $ 2,595
                                              =======        =======


NOTE 4 - 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 product liability and other actions involving the Company. One of these
complaints seeks recovery paid by the insurance carrier to settle one of these
lawsuits. The Complaint requests not less than $75,000 in damages and payment by
the Company of a $25,000 deductible, and a declaration that this claim and other
similar claims are not covered under their policy. The Company and the insurance
carrier have agreed to a settlement pursuant to which the Company is required to
pay $25,000 with respect to the claim, not including an undisputed $25,000
deductible which the Company is also required to pay over a three month period.
The settlement agreement has not been executed as of the current date.

         A lawsuit has been filed by the minority shareholders of H. R. Cenci
Laboratories, Inc. ("Cenci") and Cenci Powder Products, Inc. ("Cenci Powder")
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. The Company has retained California
counsel to represent its interests. The parties have recently concluded
conducting document and deposition discovery. Counsel for the Company moved for
a summary judgment on April 30, 1996. At this preliminary stage the Company is
unable at this time to predict with reasonable certainty the ultimate outcome of
this matter with reasonable certainty and, accordingly, no provision has been
made for any potential costs relating to this matter.

         The Company was named a defendant in a complaint by the Company's labor
union funds which seeks sums, approximately $272,000, allegedly owed to these
funds under the Company's collective bargaining agreement. In April 1996, the
Company and the labor union funds agreed to settle the action which obligates
the Company to remain current on its obligations and to pay portions of the
alleged arrears in installments. The payment due June 29, 1996 has paid as of
this date.




                                       9

<PAGE>





NOTE 5 -SUBSEQUENT EVENTS

The Company consummated a private offering (the "August Offering") of 250 units
( "August Units" ) of securities on August 6, 1996 for an aggregate purchase
price of $2,500,000. Each Unit consisted of (i) a 10% convertible subordinated
debenture in the principal amount of $ 10,000 (the "Debentures") issued at par
and (ii) 461 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 $ 3.25 per share, subject to adjustment.

    Each Redeemable Warrant entitles the holder to purchase one share of Common
Stock ( the "Warrant Shares" and collectively with the conversion shares, the
underlying shares ) for $ 3.25 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 $ 3.25 per share ( the
"Threshold" ), subject to adjustment,  for the 20 consecutive trading days
ending on the third day prior to the notice of redemption to holders.

    The net proceeds of the Offering was approximately $ 2,160,000. The Company
was required to use $391,000 of such net proceeds to repay a portion of its bank
debt, accrued interest and legal fees as discussed in Note 3. 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 working capital; for the purchase of equipment; for research
and development expenses.





                                       10

<PAGE>

<TABLE><CAPTION>






                        HALSEY DRUG CO., INC. AND SUBSIDIARIES

 
      ITEM 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-TO-YEAR
                                                               YEAR
                                       PERCENTAGE OF NET     INCREASE      PERCENTAGE OF NET         INCREASE
                                            SALES           (DECREASE)            SALES             (DECREASE)
- --------------------------------------------------------------------------------------------------------------
                                                                1996 AS                              1996 AS
                                                              COMPARED TO                          COMPARED TO
                                        1996         1995        1995          1996       1995         1995
                                           %            %           %             %          %           %
<S>                                    <C>          <C>        <C>           <C>        <C>          <C>    

Net Sales                              100.0        100.0       (35.0)        100.0      100.0       (28.8)
Cost of Goods                          101.3         75.0       (12.2)        114.8      (75.9)        7.7
Gross Profit                            (1.3)        25.0      (103.3)        (14.8)      24.1       143.6)

Research & Development                   8.2          2.6        104.9          7.8        3.1        79.5
Selling, General and
administrative expenses                 41.1         25.4          5.5         50.9       29.6        22.4
                                       -----        -----      -------       ------      -----      ------
Earnings (loss) from operations        (50.6)        (3.0)    (1,002.6)       (73.5)      (8.5)     (513.4)

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

Other income                              .1           .1        (16.7)                     .1       (75.0)
Interest expense                        11.6         (3.7)       101.1         12.8        4.3       110.4
                                       -----        -----      -------       ------       -----     ------
(Loss) Earnings before income taxes    (62.1)        12.7       (415.8)       (86.3)     (12.8)     (380.7)

Provision for income taxes                 -          2.5        (99.7)           --          --        --
                                       ------        -----     -------       ------      ------     ------
Net earnings (loss)                    (62.1)        10.2       (493.1)       (86.3)     (12.8)     (380.7)
                                       ======        =====     =======       ======      ======     =======







</TABLE>



                                       11

<PAGE>




SIX MONTHS ENDED JUNE 30, 1996 VS SIX MONTHS ENDED JUNE 30, 1994

NET SALES

    The Company's net sales for the six months ended June 30, 1996 of $7,643,000
represents a decrease of $4,113,000 (35.0%) as compared to net sales for the six
months ended June 30, 1995 of $11,756,000. The decrease in 1996 is attributable
to the reduction in hipments of tablet products due to the sale at the end of
the first quarter of 1995 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 is the
result of price reductions as a result of increased competition during the
current year.

COST OF GOODS SOLD

    For the six months ended June 30, 1996, cost of goods sold of $7,740,000
represents a decrease of approximately $1,079,000 as compared to $8,819,000 for
the six months ended June 30, 1995. The decrease for 1996 is attributable to the
reduction in shipments of tablet products due to the sale at the end of the
first quarter of 1995 by the Company of the tablets ANDA combined with
significant reductions in manufacturing costs of personnel and other expenses.
In addition during the current year, the Company effected price reductions as a
result of increased market competition. The Company's gross margin as a
percentage of sales for the six months ended June 30, 1996 was (1.3%) as
compared to 25.0% for the six months ended June 30, 1995.


RESEARCH AND DEVELOPMENT EXPENSES

    For the six months ended June 30, 1996, research and development expenses of
$629,000 increased by $322,000 as compared to research and development expenses
in 1995 of $ 307,000. The Company has engaged in a research and development plan
which includes the reintroduction of products suspended from shipment and the
submission of several new products to the FDA as soon as permitted.


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

    Selling, general and administrative expenses as a percentage of sales for
the six months ended June 30, 1996 and 1995 were 41.1% and 25.4%, respectively.
These expenses increased by approximately $163,000 as compared to 1995. This
increase in expenses is attributable to increased legal expenses, professional
fees and rent.

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. 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 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 
Tablet 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

                                       12

<PAGE>

Mallinckrodt has the right to cancel payment of any yet unpaid portion of the 
Deferred Payment($1.9 million) and shall further thave the right
to a full refund of any portion of the Deferred Payment already made to the
Company.

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 (a)
Mallinckrodt receiving certain authorizations from the FDA or (b) March 31,
1998. The effect of the adjustments on the accompany financial statements is as
follows(In thousands, except for per share amounts):

As of June 30 1996:


<TABLE><CAPTION>

In thousands exccept for per               1996                         1995
share amounts
                               As Previously   As restated  As Previously   As restated
                                  reported                     reported
<S>                                   <C>           <C>            <C>            <C>    
Net earnings                                                         3,108          1,208
Net earnings per common share                                        $ .39          $ .15
Long-term receivable                    1,900         -----          1,900          -----
Accumulated deficit                    17,838        19,738         13,089         14,989

</TABLE>


INTEREST EXPENSE

    Interest expense for 1996 increased by $444,000 as compared to 1995 as a
result of the private placements of convertible subordinated debentures
consummated in July and November 1995 combined with the notes from Mallinkrodt
and Zatpack.

PROVISION FOR INCOME TAXES

    In 1995, the Company had a tax provision of $296,000 as a result of
available net operating loss carryforwards. In 1996, the Company has no tax
benefit since the available loss carryback to prior years was utilized by the
net operating loss for 1993 carryback to the prior years.

NET (LOSS) EARNINGS

    For the six months ended June 30, 1996, the Company had a net loss of
$4,749,000 as compared to a net earnings of $1,208,000 for the six months ended
June 30, 1995. The decrease 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 combined with a reduction in sales as a result of reduced volume and
increased price reductions in an effort to meet increased competition.




                                       13

<PAGE>




THREE MONTHS ENDED JUNE 30, 1996 Vs THREE MONTHS ENDED JUNE 30, 1995

NET SALES

    The Company's net sales for the three months ended June 30, 1996 of
$3,477,000 represents a decrease of $1,406,000 (28.8%) as compared to net sales
for the three months ended June, 1995 of $4,883,000. The decrease in 1996 is 
attributable to the reduction in prices and increases in discounts due to 
intensely increased market competition.

COST OF GOODS SOLD

    For the three months ended June 30, 1996, cost of goods sold $3,991,000 or
an increase of approximately $286,000 as compared to the three months ended June
30, 1995. The increase for 1996 is attributable to increases in unabsorbed
manufacturing costs which include costs of certain subsidiary operations which
are not generating revenues at the current time as originally anticipated.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

    Selling, general and administrative expenses as a percentage of sales for
the three months ended June 30, 1996 and 1995 were 50.9% and 29.6%,
respectively. These expenses increased by approximately $163,000 or 5.5% as
compared to 1995. This increase in expenses is attributable to increased legal
expenses, professional fees and rent.

NET (LOSS) EARNINGS

    For the three months ended June 30, 1996, the Company had a net loss of
$2,996,000 as compared to a net loss of $623,000 for the three months ended 
June 30, 1995. This increase is attributable to price reductions and discounts 
during the current year in an effort to meet increased competition combined with
unabsorbed manufacturing costs and increases in expenses incurred for certain
subsidiary operations without any revenue being generated at the current time.





                                       14

<PAGE>






LIQUIDITY AND CAPITAL RESOURCES

    At June 30, 1996, the Company had cash and cash equivalents of $111,000 as
compared to $353,000 at December 31, 1995. The Company had a working capital
deficiency at June 30, 1996 of $10,376,000 and $7,393,000 at December 31, 1995.
The amount at June 30, 1996 has been adjusted as a result of the
reclassification of the convertible subordinated debentures as long-term. In
August of 1996, the Company signed an agreement with its banks which granted
waivers for the outstanding defaults and extended the bank agreement termination
date to December 31, 1996. As a result of the Company not being in default under
its bank agreement, the convertible subordinated debentures have been
reclassified as long-term debt.

    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 since the second half of 1994 by
the discontinuance of shipments of liquid products from its Cenci subsidiary as
a result of a 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 however, the Company is still incurring operating
costs which are not being offset by revenues at this time.

    As previously indicated, the Company has continued to actively pursue
financing as is indicated in Note 5 which discloses the completion of a private
placement of convertible debentures with warrants. However, there can be no
assurance that the Company will be able to obtain any such additional financing
on commercially acceptable terms to replace the existing bank debt.

    As described in Note 5 to the financial statements, the Company consummated
a private offering, the net proceeds of the Offering was approximately $
2,160,000. The Company was required to use $391,000 of such net proceeds to
repay a portion of its bank debt, accrued interest and legal fees as discussed
in Note 3. The Company intends to utilize the balance of the net proceeds of the
Offering for the following purposes: for working capital; for registration of
the Underlying Shares under the Securities Act; for the purchase of equipment;
for research and development expenses.





                                       15

<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 August 6,
              1996, 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






                                       16

<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




                                       17






<TABLE> <S> <C>


<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AT JUNE 30, 1996 
(UNAUDITED) AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE 
MONTHS ENDED JUNE 30, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY 
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1996
<PERIOD-END>                               JUN-30-1996
<CASH>                                             111
<SECURITIES>                                         0
<RECEIVABLES>                                    1,960
<ALLOWANCES>                                       288
<INVENTORY>                                      7,114
<CURRENT-ASSETS>                                 9,550
<PP&E>                                          18,831
<DEPRECIATION>                                  11,931
<TOTAL-ASSETS>                                  19,742
<CURRENT-LIABILITIES>                           12,540
<BONDS>                                              0
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                            95
<OTHER-SE>                                      15,954
<TOTAL-LIABILITY-AND-EQUITY>                    19,742
<SALES>                                          7,643
<TOTAL-REVENUES>                                     0
<CGS>                                            7,740
<TOTAL-COSTS>                                        0
<OTHER-EXPENSES>                                 3,773
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                 883
<INCOME-PRETAX>                                (4,749)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                                  0
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                   (4,749)
<EPS-PRIMARY>                                   (0.47)
<EPS-DILUTED>                                        0
        

</TABLE>