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

                              --------------------
                                    FORM 10-K
                              --------------------

      |X| *   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
              OF THE SECURITIES EXCHANGE ACT OF 1934

                     For the fiscal year ended June 30, 2002

                                       OR

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

                        Commission File Number 333-64641

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

                        Philipp Brothers Chemicals, Inc.
             (Exact name of registrant as specified in its charter)

           New York                                             13-1840497
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                             Identification No.)

                  One Parker Plaza, Fort Lee, New Jersey 07024
               (Address of principal executive offices) (Zip Code)

                                 (201) 944-6020
              (Registrant's telephone number, including area code)

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

Securities registered pursuant to Section 12(b) of the Act:   none
Securities registered pursuant to Section 12(g) of the Act:   none

                                (Title of Class)

Indicate  by check  mark  whether  the  Registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  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 90 days.

                        Yes |X| *               No |_|

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

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant  computed by  reference  to the price at which such voting  stock was
sold was $0 as of June 30, 2002.

The number of shares outstanding of the Registrant's Common Stock as of June 30,
2002: 24,488.50

                 Class A Common Stock, $.10 par value: 12,600.00
                 Class B Common Stock, $.10 par value: 11,888.50

*     By virtue of Section 15(d) of the  Securities  Act of 1934, the Registrant
      is not required to file this Annual Report pursuant thereto, but has filed
      all reports as if so required during the preceding 12 months.

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<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
PART I ....................................................................    1

      Item 1.  Business ...................................................    1
      Item 2.  Properties .................................................   19
      Item 3.  Legal Proceedings ..........................................   20
      Item 4.  Submission of Matters to a Vote of Security Holders ........   21

PART II ...................................................................   22

      Item 5.  Market for Registrant's Common Equity and Related
                  Stockholder Matters .....................................   22
      Item 6.  Selected Financial Data ....................................   22
      Item 7.  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations .....................   24
      Item 7A. Quantitative and Qualitative Disclosures about
                  Market Risk .............................................   35
      Item 8.  Financial Statements and Supplementary Data ................   35
      Item 9.  Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure .....................   35

PART III ..................................................................   36

      Item 10. Directors and Executive Officers of the Registrant .........   36
      Item 11. Executive Compensation .....................................   37
      Item 12. Security Ownership of Certain Beneficial Owners
                  and Management ..........................................   41
      Item 13. Certain Relationships and Related Transactions .............   41
      Item 14. Internal Controls ..........................................   43

PART IV ...................................................................   44

      Item 15. Exhibits, Financial Statement Schedules and
                  Reports on Form 8-K .....................................   44
Index to Financial Statements .............................................  F-1
Report of Independent Accountants .........................................  F-2

Consolidated Financial Statements
      Consolidated Balance Sheets as of June 30, 2002 and 2001 ............  F-3
      Consolidated Statements of Operations and Comprehensive
        Income for the years ended June 30, 2002, 2001 and 2000 ...........  F-4
      Consolidated Statements of Changes in Stockholders' Equity
        for the years ended June 30, 2002, 2001 and 2000 ..................  F-5
      Consolidated Statements of Cash Flows for the years ended
        June 30, 2002, 2001 and 2000 ......................................  F-6
      Notes to Consolidated Financial Statements ..........................  F-7

Consolidating Financial Statements
      Consolidating Balance Sheet as of June 30, 2002 ..................... F-32
      Consolidating Statement of Operations for the year ended
        June 30, 2002 ..................................................... F-33
      Consolidating Statement of Cash Flows for the year ended
        June 30, 2002 ..................................................... F-34
      Consolidating Balance Sheet as of June 30, 2001 ..................... F-35
      Consolidating Statement of Operations for the year ended
        June 30, 2001 ..................................................... F-36
      Consolidating Statement of Cash Flows for the year ended
        June 30, 2001 ..................................................... F-37
      Consolidating Statement of Operations for the year ended
        June 30, 2000 ..................................................... F-38
      Consolidating Statement of Cash Flows for the year ended
        June 30, 2000 ..................................................... F-39

SIGNATURES ................................................................ II-1
<PAGE>

                                     PART I

Item 1. Business.

General

      Philipp Brothers Chemicals,  Inc. ("Philipp Brothers" or the "Company") is
a leading  diversified  global  manufacturer  and  marketer  of a broad range of
specialty  agricultural and industrial chemicals,  which are sold world-wide for
use in numerous  markets  including  animal health and nutrition,  agricultural,
pharmaceutical,  electronics,  wood treatment, glass, construction and concrete.
The Company also provides  recycling and hazardous  waste services  primarily to
the  electronics  and metal treatment  industries.  The Company  believes it has
leading  positions in certain of its end markets,  and has global  marketing and
manufacturing  capabilities.  Approximately 38% of the Company's fiscal 2002 net
sales  were made  outside  the  United  States.  Unless  the  context  otherwise
requires, references in this Report to the "Company" refer to the Company and/or
one or more of its subsidiaries, as applicable.

      The Company manufactures and markets more than 670 specialty  agricultural
and industrial  chemicals,  of which 50 products accounted for approximately 83%
of fiscal 2002 net sales.  The Company  focuses on  specialty  agricultural  and
industrial  chemicals for which it has a strong market  position or an advantage
in product  development,  manufacturing or  distribution.  Many of the Company's
products provide  critical  performance  attributes to its customers'  products,
while representing a relatively small percentage of total end-product costs.

      The  Company  reported  in its third  quarter  Form 10-Q that due to lower
levels of economic activity and increased global competition, the Company was in
a position where cash flows from operations and available borrowing arrangements
may not have provided sufficient working capital to operate existing businesses,
to make  budgeted  capital  expenditures  and to service  interest  and  current
principal  coming due on outstanding  debt over the ensuing twelve month period.
As of June 30, 2002 the Company was not in  compliance  with  certain  covenants
under its  senior  credit  facility  and  certain  provisions  of the  Company's
Norwegian subsidiary's revolving credit facilities. To alleviate this situation,
the  Company's  management  has  undertaken  actions  to improve  the  Company's
operating  performance and overall  liquidity in order to reduce debt levels and
bring the Company into compliance with those agreements.

      Subsequent  to March 31,  2002,  the Company made  significant  changes in
senior management as a new Chief Executive Officer,  Chief Financial Officer and
President of Specialty Chemicals Division have been appointed.  Actions taken by
this team to improve  liquidity and address the  agreements in default  include:
negotiating  an amended senior credit  facility with amended  covenants that are
based on the Company's 2003 operating  plan,  restructuring  of bank debt at the
Company's Norwegian subsidiary,  negotiations with Pfizer, Inc. for the deferral
and forbearance of certain  contingent  purchase price payments  relating to the
acquisition of the Medicated  Feed  Additives  business of Pfizer (see Note 3 of
the Notes to Consolidated  Financial  Statements  included in this Report),  the
shutdown  of  unprofitable  operations,  the  announced  intention  to sell  the
Company's   Prince   Manufacturing   operations  and  a  U.K.   operation  which
manufactures and sells chemical  intermediates to the  pharmaceutical  industry,
further consideration on the sale of additional businesses and other assets, and
the implementation of working capital  improvement  programs.  These efforts are
ongoing and will  continue to be a primary  focus of  management  during  fiscal
2003.  In the event of adverse  operating  results and  resultant  violation  of
covenants  during fiscal 2003, the Company can not be certain it will be able to
obtain  waivers,   provide   sufficient  working  capital  to  operate  existing
businesses,  make  budgeted  capital  expenditures  and to service  interest and
current principal coming due on outstanding debt.

      In the fourth quarter of fiscal 2001, the Company sold its Agtrol business
to Nufarm,  Inc.  ("Nufarm").  Agtrol developed,  manufactured and marketed crop
protection  products,  including copper fungicides.  The sale included inventory
and  intangible  assets  to  Nufarm,  but  did  not  include  the  manufacturing
facilities.

      On November 30, 2000,  the Company  purchased the Medicated Feed Additives
business of Pfizer,  Inc.  Operating  results of this  business,  Phibro  Animal
Health ("PAH"),  are included in operating  results from the date of acquisition
and are reflected in the Animal Health and Nutrition  segment.  PAH produces


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and sells a broad  range of  medicated  feed  additive  products  to the  global
poultry and livestock industries,  either directly to large integrated livestock
producers or through a network of independent distributors.

      The  Company has four  operating  segments--Animal  Health and  Nutrition,
Industrial Chemicals, Distribution and All Other.

      The Company's Animal Health and Nutrition segment manufactures and markets
a   broad   range   of  feed   additive   products   including   antibacterials,
anticoccidials,  vitamins,  vitamin  premixes,  trace  minerals and other animal
health products to the animal feed, poultry and pet food industries. The Company
distributes  its products  through major  multinational  life science and animal
health companies.

      The  Company's  Industrial  Chemicals  segment  manufactures  and  markets
pigments  and  other  mineral  products  for  use  in  the  chemical,  catalyst,
pharmaceutical,  construction,  concrete, wood treatment, automotive, aerospace,
glass and coal mining  industries.  Certain of these  products are produced from
the  Company's  recycling  operations,  mainly  copper  chemicals.  The  Company
supplies mineral oxides, such as iron and manganese compounds, which are used as
colorants  and for  other  purposes  in the  brick,  masonry,  glass  and  other
industries.  The Company also manufactures and recycles alkaline etchants in the
United States and sells fresh etchant to printed circuit board manufacturers.

      The  Company's  Distribution  segment  markets  a variety  of  industrial,
specialty and fine organic chemicals and  intermediates.  Most of these products
are  manufactured by third parties,  with certain  products being purchased from
affiliates.

      The  Company's  All Other  segment  manufactures  and markets a variety of
specialty  custom  chemicals,  primarily  for  the  polymer  and  pharmaceutical
industries.  In addition,  the Company provides management and recycling of coal
combustion  residues,  including  fly ash  and  bottom  ash,  and  also  mineral
processing  residues.  Typically,  these  products  are  provided  to  customers
directly from a utility's site or through the Company's terminals.

ANIMAL HEALTH AND NUTRITION

      Through  its   subsidiary,   Phibro  Animal  Health,   Inc.,  the  Company
manufactures  and markets a broad range of medicated  feed additive  products to
the global poultry and livestock industries, either directly to large integrated
producers or through a network of independent distributors. PAH products include
antibacterials, anticoccidials, anthelmintics and other feed additives.

      The  use of  these  medicated  feed  additives  assists  the  producer  in
maintaining  healthy and  productive  animals to better ensure the consumer of a
safe, healthy and wholesome meat supply.  Virginiamycin,  an antibiotic marketed
under the Stafac(R), Eskalin(R) and V-Max(R) brand names, is used to prevent and
control diseases in poultry,  swine and cattle,  including necrotic enteritis in
poultry,  dysentary  in swine and liver  abscesses  in  cattle.  Antibacterials,
including Terramycin(R), and Neo-Terramycin(R) which are derived from the active
ingredient oxytetracycline, are effective against a range of diseases including:
fowl  cholera in  chickens;  airsacculitis  in turkeys;  bacterial  enteritus in
swine;   and  bacteria   diarrhea  and  liver  abscesses  in  cattle.   Carbadox
antibacterial  is sold under the brand name Mecadox(R) for use in swine feeds to
control   salmonellosis   and  swine  dysentery  in  young  and  growing  swine.
Anticoccidial  products  are  marketed  under  the  Aviax(R),   Coxistac(R)  and
Posistac(R)  brand names and are sold to integrated  poultry  producers and feed
companies. Banmith(R), Oxibendazole(R) and Rumatel(R) are anthelmintics that are
used to control internal parasites in cattle, sheep and goats.

      PAH manufactures  active  ingredients at facilities  located in Guarulhos,
Brazil and Rixensart,  Belgium.  Other active ingredients are supplied by Pfizer
to PAH under a transition supply agreement.  Alternate sources of these products
have been identified and are being qualified. Also under a transition agreement,
for many markets,  Pfizer is formulating these active ingredients into the lower
concentration products that are sold to feed mills and producers.  PAH is in the
process of  transferring  these  operations to alternate  sites.  This effort is
expected to be completed during 2002 and 2003.


                                       2
<PAGE>

      PAH has established sales and technical offices in 15 countries including:
U.S.,  Canada,  Mexico,  Costa  Rica,  Venezuela,   Brazil,  Argentina,   Chile,
Australia,   Japan,  China,  Thailand,   Malaysia,  South  Africa  and  Belgium.
Additional  offices  will be opened as the  business  grows.  Sales in the U.S.,
Australia,  Brazil, China, South East Asia and Mexico accounted for 80% of PAH's
global sales in fiscal 2002. The business is not dependent on any one customer.

      The  use  of  medicated   feed   additives  is  controlled  by  regulatory
authorities  that  are  specific  to each  country  (e.g.,  the  Food  and  Drug
Administration ("FDA") in the U.S.; Health Canada in Canada, etc.). Each product
is registered  separately.  In most countries,  these registrations have already
been  transferred  from Pfizer to the Company.  The transfers are  continuing in
several  countries  and under  the PAH asset  purchase  agreement,  Pfizer  will
continue to support the registration transfer effort.

      Currently,  new  product  development  at PAH is focused  on  geographical
expansion of the present  product line,  new label claims and  applications  for
existing active ingredients and new formulations.  This effort is coordinated by
product development personnel located in Belgium,  Brazil, and the U.S. PAH also
has an active program to identify and license new products and new technologies.

      Through its subsidiary,  Prince  Agriproducts,  Inc. ("Prince Agri"),  the
Company  manufactures  and markets  trace  minerals,  trace mineral and selenium
premixes  and other  ingredients  to the  animal and  poultry  feed and pet food
industries,  predominantly  in  the  United  States.  These  products  generally
fortify,  enhance or make more  nutritious  or palatable  the animal and poultry
feeds and pet foods with which they are mixed.  The Company is a basic  producer
of trace minerals for the U.S.  animal feed industry.  The majority of the other
ingredients  the Company  sells are nutrients  that are used as  supplement  for
animal feed.  The Company  serves  customers in major feed  segments,  including
swine, dairy, poultry and beef as well as pet food and aquaculture.  The Company
customizes  trace  mineral and selenium  premixes at its blending  facilities in
Marion,  Iowa,  Bremen,  Indiana and  Bowmanstown,  Pennsylvania,  and markets a
diverse line of other trace  minerals and  macro-minerals.  The Company's  major
customers  for  these  products  are  medium-to-large  feed  companies,  co-ops,
blenders,  integrated  poultry  operations and pet food  companies.  The Company
sells other ingredients,  such as buffers, yeast, palatants, vitamin K and amino
acids,  including  lysine,  tryptophan and  threonine.  The Company also markets
copper sulfate as an animal feed supplement.

      The Company's Israeli subsidiary,  Koffolk (1949) Ltd. ("Koffolk Israel"),
is a producer and  distributor  of vitamins and premixes for the animal feed and
poultry  industries in Israel, and also sells such products  worldwide.  Koffolk
Israel also  provides a wide range of  services  to the animal feed  industry in
Israel  including  mobile  computer  units  for  on-the-spot  feed  information,
comprehensive  feed  laboratory  services for both chemical and  microbiological
assay,  and an experimental  farm for field testing of feed additives and animal
health products.

      Koffolk Israel also produces fine chemicals and other  intermediates  used
in the  manufacture  of certain  pharmaceuticals,  cosmetics and films.  Koffolk
Israel's plant in Ramat Hovav,  Israel operates under the FDA's GMP regulations,
and  has  received  FDA  approval  for  some  of its  processes  and  production
operations.

      Through  Koffolk  Israel  and  its  Brazilian  subsidiary,   Planalquimica
Industrial Ltda.  ("Planalquimica"),  the Company produces  nicarbazin.  Through
Koffolk  Israel,  the Company also produces  amprolium for  distribution  to the
world-wide  poultry  industry  through  major  multinational  life  science  and
veterinary companies. The Company believes it is the sole world-wide producer of
amprolium,  and the largest volume world-wide producer of nicarbazin through its
facilities in Israel and Brazil. The Company is the sole Latin American producer
of  nicarbazin.  Modern,  large scale  poultry  production is based on intensive
animal management  practices.  This type of animal  production  requires routine
prophylactic medications in order to prevent health problems. Coccidiosis is one
of the critical  disease  challenges  which  poultry  producers  face  globally.
Coccidiosis is an infection of coccidia,  a microscopic parasite which routinely
infects  chickens.  Nicarbazin  and  amprolium  are  among  the  most  effective
medications  for the prevention of coccidiosis in chickens when used in rotation
with other coccidiostats. In the United States, PAH markets nicarbazin under the
trademark Nicarb(R) and amprolium under the trademark of Amprol(R).


                                       3
<PAGE>

INDUSTRIAL CHEMICALS

      The Company  manufactures  and markets a number of  inorganic  and organic
specialty  chemicals  for use in the chemical  catalyst,  construction,  printed
circuit board,  semiconductor,  automotive,  aerospace,  glass and  agricultural
industries.  Some of these products are produced from raw materials derived from
the Company's recycling operations.  The Company also purchases copper metal and
crude ores and  processes  these in  various  grades to  produce  chemicals  and
industrial minerals for sale to manufacturers.  These manufacturers  incorporate
the  resultant  products  into their  finished  products  in various  industrial
markets.

      Through its U.S.  subsidiaries  comprising The Prince  Manufacturing Group
("Prince"),  the  Company  manufactures  and  markets  various  mineral  oxides,
including iron  compounds and manganese  compounds.  Iron compounds  include red
iron oxide (Hematite) (sold to the brick, masonry,  glass,  foundry,  electrode,
abrasive,  feed, and other chemical  industries);  black iron oxide  (Magnetite)
(sold under the Magna Float brand name to the heavy media,  coal, steel foundry,
electrode,   abrasive,   colorant,   fertilizer,   and  various  other  chemical
industries);  iron  chromite  (sold  under the  Chromox  brand as a colorant  or
additive to the glass industry).  Manganese  compounds include manganese dioxide
(sold under the Brickox brand name, which is considered a standard color in many
applications to the brick, masonry,  glass, and other chemical industries);  and
manganous oxide (sold to customers  requiring an acid soluble form of manganese,
such as animal feed, fertilizer and chemical manufacturers).

      Through  Phibro-Tech,  the  Company  manufactures  and  recycles  alkaline
etchants in the United  States.  The Company's four active  facilities  involved
with these  products  have RCRA Part B  hazardous  waste  treatment  and storage
permits (See "Environmental Matters"). The Company's etchants are used to remove
copper from printed circuit boards,  leaving the desired  circuit  pattern.  The
Company sells fresh etchant to printed circuit board  manufacturers and recycles
spent etchants. Phibro-Tech generates revenue from the sale of fresh etchants as
well as the recovery of the dissolved  copper  contained in the spent  etchants,
which are processed into saleable  copper-based  products.  The Company believes
that it is the only national  recycler of spent etchants  generated  principally
from the printed  circuit board  industry,  with an etchant plant in every major
geographic area except New England.  These plants generally allow the Company to
distribute  product and transport  spent etchant,  a freight  intensive  product
which is  classified  as  hazardous  waste,  over  relatively  short  distances.
Beginning in early fiscal 2001, and continuing to the present,  the U.S. printed
circuit  board  industry  has  incurred a severe  reduction  in  volume,  with a
resulting reduction in the Company's sales volumes in this market.

      Phibro-Tech also manufactures and sells the following major products:

      Copper Oxide.  Copper oxide is used as an ingredient in the  production of
water-borne  wood  preservatives.  The Company  also sells  copper  oxide to the
catalyst, dye, ceramic and feed industries.

      Copper Sulfate.  The Company sells multiple grades of copper sulfate.  The
Company sells a high purity copper sulfate to worldwide producers of electroless
copper. Industrial uses of copper sulfate include the manufacturing of pigments,
electroplating,  catalysts and chemical  intermediates in water  treatment.  The
Company  markets  copper  sulfate  solution  to the  mining  and wood  treatment
industries.  The  Company  sells  copper  sulfate to the animal  feed  industry,
primarily  through  Prince  Agri.  In  addition,  the Company  also sells copper
sulfate SP, a super pure product to the semiconductor industry.

      Copper  Carbonate.  Copper  carbonate  is used in certain  wood  treatment
compounds  and  water  treatment  applications.   The  Company  produces  copper
carbonate and believes that it is the largest producer in the world today.

      Phibro-Tech  is a leading  recycler  in the  United  States  of  hazardous
chemical waste streams that contain copper or nickel. Four of its facilities are
permitted  to  handle  hazardous  waste.   These  waste  streams  are  generated
principally by printed  circuit board  manufacturers  and metal  finishers.  The
metal finishing and printed  circuit board  industries also generate other spent
chemicals,  which are raw material sources of acid,  copper and nickel,  and the
Company charges fees for processing  such materials based on metal content.  The
Company  also  recycles  a variety  of other  metal-containing  chemical  waste,
including spent  catalysts,  pickling  solutions and metal strippers  containing
brass,  cobalt,  copper,  nickel, iron, tin and zinc,


                                       4
<PAGE>

in liquid, solid or slurry form. The Company also uses these recovered materials
to produce  copper and nickel  chemicals  for use as raw materials in certain of
its products.

      The Company  recycles and processes  metal-containing  hazardous  chemical
waste streams using hydrometallurgical  technology. This technology involves the
reclamation of various metals and the production of finished  chemical  products
using chemical  reactions such as leaching,  extraction and  precipitation.  The
Company  determines the precise chemical process required to treat each batch of
hazardous  waste  based  on the  type  and  amount  of the  waste as well as the
proportion of useful raw materials it contains.

      Through its Norwegian  subsidiary,  Odda Smelteverk AS ("Odda"),  which it
acquired in October 1998 together  with certain  related  distribution  business
assets,  the Company  manufactured  and  distributed  dicyandiamide  and calcium
carbide.  Dicyandiamide  is used in several  applications,  including  as a fire
retardant for fiber,  wood and paint,  for producing epoxy laminates for circuit
boards and adhesives,  for producing paper chemicals,  and as a dye fixative for
textiles.  The  principal  uses of  calcium  carbide  are in the  production  of
acetylene for welding and cutting, as a desulphurization  agent in the steel and
foundry industry, and in the manufacture of chemicals.  In the fourth quarter of
fiscal 2002, Odda ceased manufacturing  calcium carbide. In the first quarter of
fiscal 2003, Odda reduced production of dicyandiamide  pending market acceptance
of its calcium oxide, a by-product of the manufacturing process.

      Odda also manufactured and distributed  hydrogen cyanimide  ("CY-50").  In
the fourth quarter of fiscal 2002, the Company ceased manufacturing CY-50.

DISTRIBUTION

      The  Company's  PhibroChem  division  markets  and  distributes  fine  and
specialty chemicals to manufacturers of health and personal care products. Among
the  Company's  major  products for such  applications  are sodium  fluoride and
stannous fluoride,  DL Panthenol and selenium disulfide.  Sodium fluoride is the
active anti-cavity  ingredient in fluoride toothpaste,  powders and mouthwashes.
Selenium   disulfide  is  used  as  a  dandricide   in  shampoo  and  hair  care
preparations.

      Through its U.K.  subsidiary,  Ferro Metal & Chemical Ltd. ("Ferro"),  the
Company markets dicyandiamides and calcium carbides. Ferro also markets fine and
specialty  chemicals  to  customers  in  the  steel,  gas  production,  chemical
intermediates, health and personal care industries.

ALL OTHER

      Through its subsidiary,  Mineral Resource Technologies,  Inc. ("MRT"), the
Company manages combustion and mineral by-products.  MRT provides management and
recycling of coal  combustion  residues,  including  fly ash and bottom ash, and
also  mineral  processing  residues.  Fly ash is the fine  residual  product and
bottom ash is the heavier  particles  that result from the combustion of coal in
the electric power industry. Fly ash is a pozzolan;  that is, a mixture that, in
the presence of water,  combines with an activator,  such as portland cement, to
produce  a  cement-like  material.  This  allows  fly  ash to be  used as a less
expensive substitute for other cementious materials,  primarily portland cement.
MRT typically provides these products to its customers directly from a utility's
site or through its own terminals.

      In connection with its fly ash management operations, MRT has entered into
long-term sales and distribution agreements with utilities providing for minimum
payments and/or  purchase  obligations by MRT of varying  durations.  Certain of
these  contracts  also require MRT to construct  (at its expense)  facilities to
store and/or process ash. MRT's ability to achieve  long-term revenue growth and
profitability  is dependent  upon securing  additional  long-term ash management
contracts  with   utilities  and  developing  fly  ash  processing   facilities.
Consistent with industry practice,  in connection with its long-term  contracts,
the Company has furnished and expects to furnish performance bonds or guarantees
to such utilities.

      Through an English  subsidiary,  the Company  develops  and markets a wide
range of halogenated organic compounds, mainly brominated and fluorinated. These
chemical  intermediates are sold primarily into the  pharmaceutical  industry as
building blocks for further synthesis. The Company is able to tailor the


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<PAGE>

quality and supply  characteristics  of these  chemicals to those desired by its
customers  by close  coordination  with the  customer  at an early  stage in the
customer's product  development.  In certain cases the product supplied is novel
and included in the customer's regulatory submissions.

      In the fourth quarter of fiscal 2001, the Company sold its Agtrol business
to Nufarm,  Inc.  ("Nufarm").  Agtrol developed,  manufactured and marketed crop
protection  products,  including copper fungicides.  The sale included inventory
and  intangible  assets  to  Nufarm,  but  did  not  include  the  manufacturing
facilities.  The Company, through its Phibro-Tech subsidiary,  also entered into
agreements to supply copper fungicide products to Nufarm from its Sumter,  South
Carolina  plant for five years,  and from its  Bordeaux,  France plant for three
years.

      Nufarm is obligated,  during the terms of the agreements,  to purchase all
of its requirements for products and substitute products,  up to the capacity of
the facilities.  The product price will be the Company's full standard cost plus
margin,  as  defined in the  agreements.  The  agreements  provide  for  minimum
payments to the Company  during each  contract  year equal to 70% of base volume
multiplied by the product price.

Sales, Marketing And Distribution

      The Company sells a broad range of specialty  agricultural  and industrial
chemicals for use in numerous  markets  including  animal health and  nutrition,
agricultural,  pharmaceutical,  electronics, wood treatment, glass, construction
and concrete.  The Company has approximately  3,800 customers.  Sales to the top
ten customers  represented  approximately  15% of the Company's  fiscal 2002 net
sales and no single customer  represented  more than 4% of the Company's  fiscal
2002 net sales.

      The  Company's   world-wide  sales  and  marketing   network  consists  of
approximately  163 employees,  26 independent  agents and 117  distributors  who
specialize in particular markets.

      The  Company's  products  are often  critical  to the  performance  of its
customers'  products  while  representing a relatively  small  percentage of the
total end-product cost.  Management  believes the three key factors to marketing
its  products  successfully  are high  quality  products,  a highly  trained and
technical sales force, and customer service.

Raw Materials

      The raw materials used in the Company's business consist chiefly of copper
metal and a wide variety of organic  intermediates and inorganic  chemicals that
are  purchased  from  manufacturers  in the United  States,  Europe and Asia. In
fiscal 2002, no single raw material  accounted for more than 3% of the Company's
cost of goods sold. Total raw materials cost was  approximately  $166 million or
42% of net sales in fiscal 2002.

      The Company believes that for most of its raw materials  alternate sources
of supply are available to the Company at competitive  prices. In addition,  the
Company's  ability to recycle  hazardous  waste  streams  allows the  Company to
recover  certain  metals  and other raw  materials  that it  substitutes  in its
products for virgin materials,  thereby reducing the Company's cost of goods and
its reliance on suppliers of certain virgin materials.

Research and Development

      Research,  development and technical  service efforts are conducted by 170
chemists and technicians at the various  facilities of the Company.  The Company
operates a Research and Development Center in Sumter,  South Carolina,  relating
to  inorganic  chemicals  and  crop  protection  products,  and at  Stradishall,
England, relating to organic chemical intermediates. In addition, Koffolk Israel
conducts research and development at its Ramat Hovav facility.  The Company also
conducts  research and development at its MRT Technology  center in Atlanta,  GA
for concrete and cement products.  PAH's Rixensart,  Belgium facility provides a
base  for  fermentation  development  in the  areas of  micro-biological  strain
improvement  as well as process  scale-up.  Most of the  Company's  plants  have
chemists  and  technicians  on staff  involved in product  development,  quality
assurance,  quality control and also providing  technical services to customers.
Technical  assurance  is an  important  aspect of the  Company's  overall  sales
effort.


                                       6
<PAGE>

      Technology  is  an  important  component  of  the  Company's   competitive
position,  providing  the Company  with a low cost  position  and  enabling  the
Company to produce high quality products.  Patents protect some of the Company's
technology,  but a great deal of the Company's  competitive  advantage  revolves
around know-how built up over many years of commercial operation.

      The  Company  entered  into  a  research  and  development  joint  venture
agreement with IMI (TAMI)  Institute for R&D Ltd. ("IMI") to develop custom made
specialty  fine  chemicals.  As part of the  agreement,  the  parties  have also
entered into an agreement with the Israel-U.S.  Binational  Industrial  Research
and Development ("BIRD") Foundation, whereby development costs, subject to a cap
of $1.7 million, are reimbursed 50%. On commercialization of developed products,
royalties  will  be  due  to  BIRD  based  on  achieved  sales  levels.   Should
commercialization not occur, receipts from BIRD need not be returned.

      The Company and its predecessors  have over 25 years experience in the use
of hydrometallurgical  technology for recycling metal-containing by-products and
a strong technological position in the production of metal-containing chemicals.

Patents, Trademarks and Product Registrations

      The Company  owns  certain  patents,  tradenames,  trademarks  and product
registrations,  and uses  know-how,  trade secrets,  formulae and  manufacturing
techniques  which assist in maintaining the competitive  positions of certain of
its  products.  Product  registrations  are  required  to  manufacture  and sell
medicated feed additives.  Formulae and know-how are of particular importance in
the  manufacture  of a number of the products  sold in the  Company's  specialty
chemical  business.  The Company  believes that no single  patent,  trademark or
product registration is of material importance to its business and, accordingly,
that the  expiration  or  termination  thereof would not  materially  affect its
business. See "Government Regulation".

Customers

      The Company  does not  consider  its  business to be dependent on a single
customer or a few customers, and the loss of any of its customers would not have
a material adverse effect on the Company's results. No single customer accounted
for more than 4% of the Company's fiscal 2002 net sales.  The Company  typically
does not enter into long-term contracts with its customers. However, the Company
has entered into certain  long-term  contracts  with respect to  nicarbazin  and
amprolium,  as well as its ferric chloride  recycling,  copper MEA carbonate and
fly ash management activities.

Competition

      The Company is engaged in highly competitive  industries and, with respect
to all of its major products,  faces  competition  from a substantial  number of
global and regional  competitors.  Some of the companies  with which the Company
competes have greater financial, research and development,  production and other
resources  than  the  Company.  The  Company's  competitive  position  is  based
principally  on customer  service and support,  product  quality,  manufacturing
technology,  facility  location and price.  The Company has competitors in every
market in which it participates. Many of the Company's products face competition
from products that may be used as an alternative or substitute.

Employees

      As of June  30,  2002,  the  Company  had  approximately  1,423  employees
worldwide. Of these, 267 employees were in management and administration, 163 in
sales  and  marketing,  170  were  chemists  or  technicians,  and  823  were in
production. Approximately 8% of the Company's domestic employees were covered by
collective  bargaining  agreements with two unions.  These agreements  expire in
2005  and  2006.   Certain  employees  are  covered  by  individual   employment
agreements.  Koffolk  Israel  continues  to operate  under the terms of Israel's
national collective bargaining agreement,  portions of which expired in 1994. In
Norway,  approximately  74% of employees  are covered by  collective  bargaining
agreements.

      The Company  considers  its  relations  with both its union and  non-union
employees to be good.


                                       7
<PAGE>

Environmental Matters

      Like similar companies,  the Company and its subsidiaries are subject to a
wide  variety  of  complex  and  stringent  federal,  state,  local and  foreign
environmental laws and regulations,  including those governing the use, storage,
handling,  generation,  treatment,  emission, release, discharge and disposal of
certain  materials and wastes,  the manufacture,  sale and use of pesticides and
the health and safety of employees. Pursuant to environmental laws, subsidiaries
of the Company are required to obtain and retain numerous  governmental  permits
and approvals to conduct various aspects of their  operations,  any of which may
be subject to revocation,  modification  or denial under certain  circumstances.
Under certain  circumstances,  the Company or any of its  subsidiaries  might be
required to curtail  operations  until a particular  problem is remedied.  Known
costs and expenses under environmental laws incidental to ongoing operations are
generally  included within operating  budgets.  Potential costs and expenses may
also be incurred in connection  with the repair or upgrade of facilities to meet
existing or new  requirements  under  environmental  laws or to  investigate  or
remediate  potential or actual  contamination  and from time to time the Company
establishes reserves for such contemplated  investigation and remediation costs.
In many  instances,  the ultimate  costs under  environmental  laws and the time
period  during  which such  costs are likely to be  incurred  are  difficult  to
predict.

      Subsidiaries  of  the  Company  have,  from  time  to  time,   implemented
procedures at their facilities designed to respond to obligations to comply with
environmental  laws.  The Company  believes that its operations are currently in
material  compliance with such environmental laws, although at various sites the
Company's   subsidiaries   are  engaged  in  continuing   investigation   and/or
remediation  efforts to address  contamination  associated  with their  historic
operations.  As many  environmental  laws  impose a strict  liability  standard,
however, there can be no assurance that future environmental  liability will not
arise.

      In  addition,  the Company  cannot  predict the extent to which any future
environmental  laws may affect any market for the Company's products or services
or its  costs of doing  business.  For  instance,  if  governmental  enforcement
efforts should lessen,  the market for  Phibro-Tech's  recycling  services could
decline. Alternatively, changes in environmental laws might increase the cost of
the Company's products and services by imposing  additional  requirements on the
Company.  States  that  have  received  authorization  to  administer  their own
hazardous waste management  programs may also amend their applicable statutes or
regulations,  and may impose  requirements which are stricter than those imposed
by the U.S.  Environmental  Protection  Agency (the "EPA").  No assurance can be
provided  that such changes will not adversely  affect the Company's  ability to
provide  products  and  services at  competitive  prices and thereby  reduce the
market for the Company's products and services.

      As such,  the nature of the current and former  operations  of the Company
and its  subsidiaries  exposes  them to the risk of claims with  respect to such
matters and there can be no assurance that material costs and  liabilities  will
not be incurred in  connection  with such claims.  Based upon its  experience to
date,  the Company  believes  that the future cost of  compliance  with existing
environmental  laws, and liability for known  environmental  claims  pursuant to
such environmental laws, will not have a material adverse effect on the Company.
However,   future  events,   such  as  new  information,   changes  in  existing
environmental  laws or  their  interpretation,  and  more  vigorous  enforcement
policies of regulatory  agencies,  may give rise to additional  expenditures  or
liabilities  that could be material.  For all purposes of the  discussion  under
this caption,  under "Legal Proceedings" and elsewhere in this Report, it should
be noted that the  Company  takes and has taken the  position  that  neither the
parent company, Philipp Brothers Chemicals, Inc., nor any of its subsidiaries is
liable for  environmental  or other claims made against one or more of its other
subsidiaries  or for which any of such  other  subsidiaries  may  ultimately  be
responsible.  Accordingly,  references  to the  Company  should  not be  read or
interpreted  as a statement  or admission  that  Philipp  Brothers or any of its
subsidiaries is liable for activities of or claims made against any of its other
subsidiaries.

Federal Regulation

      The  following   summarizes  the  principal  federal   environmental  laws
affecting the business of the Company:


                                       8
<PAGE>

      Resource  Conservation  and  Recovery  Act of 1976,  as amended  ("RCRA").
Congress  enacted  RCRA  to  regulate,   among  other  things,  the  generation,
transportation,  treatment,  storage and disposal of solid and hazardous wastes.
RCRA required the EPA to  promulgate  regulations  governing  the  management of
hazardous wastes, and to allow individual states to administer and enforce their
own hazardous waste management programs as long as such programs were equivalent
to and no less stringent than the federal program.

      The EPA's  regulations,  and most state regulations in authorized  states,
establish  categories of regulated  entities and set  standards  and  procedures
those  entities  must follow in their  handling of hazardous  wastes.  The three
general  categories of waste handlers  governed by the regulations are hazardous
waste  generators,  hazardous  waste  transporters,  and owners and operators of
hazardous waste treatment,  storage and/or disposal  facilities.  Generators are
required,  among other things, to obtain  identification  numbers and to arrange
for the  proper  treatment  and/or  disposal  of their  wastes  by  licensed  or
permitted  operators and all three  categories of waste handlers are required to
utilize a document  tracking  system to  maintain  records of their  activities.
Transporters  must obtain  permits,  transport  hazardous waste only to properly
permitted  treatment,  storage or disposal  facilities,  and  maintain  required
records of their  activities.  Treatment,  storage and disposal  facilities  are
subject  to  extensive  regulations   concerning  their  location,   design  and
construction,  as well as the operating  methods,  techniques and practices they
may use.  Such  facilities  are also  required to  demonstrate  their  financial
responsibility  with  respect to  compliance  with RCRA,  including  closure and
post-closure requirements.

      The Federal  Water  Pollution  Control  Act, as amended  (the "Clean Water
Act").  The Clean Water Act  prohibits the discharge of pollutants to the waters
of the United States without  governmental  authorization.  Like RCRA, the Clean
Water Act provides that states with programs  approved by the EPA may administer
and enforce their own water pollution control programs.  Pursuant to the mandate
of the Clean Water Act,  the EPA has  promulgated  "pre-treatment"  regulations,
which establish  standards and  limitations  for the  introduction of pollutants
into publicly-owned treatment works.

      Comprehensive Environmental Response,  Compensation,  and Liability Act of
1980, as amended ("CERCLA" or "Superfund"). Under CERCLA and similar state laws,
the  Company  and  its   subsidiaries   may  have  strict  and,   under  certain
circumstances, joint and several liability for the investigation and remediation
of environmental  pollution and natural  resource  damages  associated with real
property currently and formerly-owned or operated by the Company or a subsidiary
and at  third-party  sites at which the  Company's  subsidiaries  disposed of or
treated, or arranged for the disposal of or treatment of, hazardous substances.

      Federal Insecticide,  Fungicide and Rodenticide Act, as amended ("FIFRA").
FIFRA  governs  the  manufacture,  sale  and use of  pesticides,  including  the
copper-based  fungicides  sold by the Company.  FIFRA requires such products and
the facilities at which they are formulated to be registered with the EPA before
they may be sold.  If the  product  in  question  is  generic  in nature  (i.e.,
chemically  identical  or  substantially  similar  to  a  previously  registered
product), the new applicant for registration is entitled to cite and rely on the
test data  supporting  the original  registrant's  product in lieu of submitting
data of its own. Should the generic  applicant choose this citation  option,  it
must offer monetary  compensation  to the original  registrant and must agree to
binding  arbitration  if the parties are unable to agree on the terms and amount
of  compensation.  The Company has elected this citation  option in the past and
intends to use the  citation  option in the future  should it conclude it is, in
some  instances,  economically  desirable to do so. While there are cost savings
associated with the opportunity to avoid one's own testing and  demonstration to
the EPA of test  data,  there  is,  in each  instance,  a risk that the level of
compensation  ultimately  required to be paid to the original registrant will be
substantial.

      Under FIFRA,  the EPA also has the right to "call in" additional data from
existing registrants of a pesticide, should the EPA determine, for example, that
the data  already in the file need to be  updated  or that a  specific  issue or
concern  needs to be  addressed.  The  existing  registrants  have the option of
submitting  data  separately  or  by  joint  agreement.  Alternatively,  if  one
registrant  agrees to generate and submit the data,  the other(s) may meet their
obligations  under the statute by making a statutory offer to jointly develop or


                                       9
<PAGE>

share in the costs of  developing  the data. In that event,  the offering  party
must, again, agree to binding arbitration to resolve any dispute as to the terms
of the data development arrangement.

      The Clean Air Act. The Federal Clean Air Act of 1970 ("Clean Air Act") and
Amendments to the Clean Air Act ("Clean Air Act Amendments"),  and corresponding
state laws regulate the emissions of materials into the air.

      Such laws affect the coal  industry  both  directly  and  indirectly  and,
therefore,  MRT.  The coal  industry is  directly  affected by the Clean Air Act
permitting  requirements  and/or  emissions  control  requirements  relating  to
particulate matter (such as "fugitive dust"), and may also be impacted by future
regulation of fine  particulate  matter.  Every five years,  the EPA reviews and
revises,  if necessary,  its National Ambient Air Quality  Standards  ("NAAQS"),
which is a set of national air quality  standards  relating to fine  particulate
matter and ozone,  among other  criteria air  pollutants.  In July 1997, the EPA
adopted  stringent  new NAAQS,  and the impact of such new standards on the coal
industry will depend on the policies and control strategies  associated with the
state  implementation  process  under the Clean Air Act,  as well as on  pending
legislative proposals to delay or eliminate aspects of the new NAAQS.

      The Clean Air Act  indirectly  affects  operations  of the Company and its
subsidiaries by extensively  regulating the air emissions of sulfur dioxides and
other  compounds  emitted by coal-fired  utility  power plants.  Title IV of the
Clean Air Act Amendments places limits on sulfur dioxide emissions from electric
power  generation   plants,   setting  baseline  emission   standards  for  such
facilities.  The  effect  of the  Clean  Air Act  Amendments  on MRT  cannot  be
completely ascertained at this time.

      The Clean Air Act  Amendments  also require  utilities  that currently are
major sources of nitrogen oxides in moderate or higher ozone NAAQS nonattainment
areas to install  reasonably  available control  technology for nitrogen oxides,
which are precursors to the atmospheric formation of ozone. In October 1998, the
EPA released a ruling (the "NOx SIP Call") requiring 22 eastern states to revise
their state  implementation  plans to substantially reduce emissions of nitrogen
oxide.  The EPA expects that states will achieve  these  reductions by requiring
power plants to make  substantial  reductions in their nitrogen oxide emissions.
Installation of reasonably  available control  technology and additional control
measures  required  under the NOx SIP Call will make it more  costly to  operate
coal-fired utility power plants and, depending on the requirements of individual
state implementation plans and the development of revised new source performance
standards,  could make coal a less attractive  fuel  alternative in the planning
and  building  of  utility  power  plants  in  the  future.   Numerous   states,
municipalities,  industry trade groups,  manufacturers  and utilities have filed
petitions in federal court  challenging  the NOx SIP Call. The effect of the NOx
SIP Call and other regulations or requirements that may be imposed in the future
on the coal  industry in general and on MRT in  particular  cannot be  predicted
with certainty.  No assurance can be given that the  implementation of the Clean
Air  Act  Amendments,  state  implementation  plans  or  any  future  regulatory
provisions will not materially adversely affect MRT.

      In addition, the Clean Air Act Amendments require a study of utility power
plant emissions of certain toxic substances,  including mercury,  and direct the
EPA to  regulate  these  substances,  if  warranted.  Future  federal  or  state
regulatory or legislative activity may seek to reduce mercury emissions and such
requirements,  if  enacted,  could  result in reduced  use of coal if  utilities
switch to other sources of fuel.

      Phibro-Tech  is also  impacted  by the Clean Air Act and has  various  air
quality permits,  including a Title V operating air permit at its Sumter,  South
Carolina facility.

State and Local Regulation

      In addition to those federal programs  described above, a number of states
and some local governments have also enacted laws and regulations similar to the
federal laws described above governing hazardous waste generation,  handling and
disposal,  emissions  to the  water  and  air  and  the  design,  operation  and
maintenance of recycling facilities.


                                       10
<PAGE>

Foreign Regulation

      The  Company's  foreign  subsidiaries  are subject to a variety of foreign
environmental  laws  relating to pollution and  protection  of the  environment,
including  the  generation,   handling,  storage,  management,   transportation,
treatment  and  disposal  of solid  and  hazardous  materials  and  wastes,  the
manufacture and processing of pesticides and animal feed additives, emissions to
the air,  discharges to land, surface water and subsurface water, human exposure
to hazardous and toxic materials and the remediation of environmental  pollution
relating to their past and present properties and operations.

Regulation of Recycling Activities

      The Company's  recycling  activities may be broken down into the following
segments for purposes of regulation under RCRA or equivalent state programs: (i)
transport of wastes to the Company's facilities; (ii) storage of wastes prior to
processing;  (iii)  treatment  and/or  recycling of wastes;  and (iv) corrective
action  at its RCRA  facilities.  Although  all  aspects  of the  treatment  and
recycling of waste at its recycling  facilities are not currently the subject of
federal RCRA  regulation,  subsidiaries  of the Company made decisions to permit
its  recycling  facilities  as RCRA  regulated  facilities.  Final RCRA "Part B"
permits to operate as hazardous waste treatment and storage facilities have been
issued  at its  facilities  in Santa Fe  Springs,  California;  Garland,  Texas;
Joliet,  Illinois;  Sumter,  South  Carolina;  and Sewaren,  New Jersey.  Part B
renewal  applications have been submitted for the Santa Fe Springs,  Garland and
Sumter sites. The applications are being reviewed.

      In connection with RCRA Part B permits for the waste storage and treatment
units of various  facilities,  the Company's  subsidiaries have been required to
perform  extensive site  investigations  at such facilities to identify possible
contamination and to provide regulatory authorities with plans and schedules for
remediation.  Soil and groundwater  contamination has been identified at several
plant sites and has required and will continue to require  corrective action and
monitoring over future years.  In order to maintain  compliance with RCRA Part B
permits,  which are subject to suspension,  revocation,  modification  or denial
under  certain  circumstances,  the Company has been,  and in the future may be,
required to undertake additional capital improvements or corrective action.

      Subsidiaries  of the  Company  are  required  by the RCRA and their Part B
permits to develop and incorporate in their Part B permits estimates of the cost
of closure  and  post-closure  monitoring  for their  operating  facilities.  In
general,  in order to close a facility which has been the subject of a RCRA Part
B  permit,  a RCRA  Part  B  closure  permit  is  required  which  approves  the
investigation,   remediation   and   monitoring   closure  plan,   and  requires
post-closure  monitoring  and  maintenance  for  up  to 30  years.  Accordingly,
additional  costs are incurred in connection  with any such closure.  These cost
estimates  are  updated  annually  for  inflation,   developments  in  available
technology and corrective actions already  undertaken.  The Company has, in most
instances,  chosen to provide the regulatory  guarantees  required in connection
with these matters by means of its coverage  under an  environmental  impairment
liability  insurance  policy.  There can be no  assurance  that such policy will
continue to be  available in the future at  economically  acceptable  rates,  in
which event other methods of financial assurance will be necessary.

      In  addition  to  certain  operating   facilities,   the  Company  or  its
subsidiaries have been and will be required to investigate and remediate certain
environmental  contamination  at  shutdown  plant  sites.  The  Company  or  its
subsidiaries  are also  required to monitor  such sites and  continue to develop
controls to manage these sites within the requirements of RCRA corrective action
programs.

      Based upon available information, accruals for management estimates of the
cost of  further  environmental  investigation  and  remediation  at  operating,
curtailed and closed sites are approximately $2.6 million as of June 30, 2002.

Waste Byproducts

      In  connection  with the  Company's  subsidiaries'  production of finished
chemical  products,  limited  quantities  of waste  by-products  are  generated.
Depending on the composition of the by-product,  the subsidiaries of the Company
either sell it, send it to smelters for metal  recovery or send it for treatment
or disposal to regulated facilities.


                                       11
<PAGE>

Particular Facilities

      The following is a description of certain  environmental  matters relating
to  certain  facilities  of  certain  subsidiaries  of the  Company.  References
throughout  to the  Company  are  intended  to  refer  only  to  the  applicable
subsidiary unless the context otherwise  requires.  These matters should be read
in conjunction  with the  description of litigation  matters below under Item 3,
certain  of  which  involve  such  facilities,  and  Note  13 to  the  Company's
Consolidated Financial Statements.

      In  1984,   Congress  enacted  certain  amendments  to  RCRA  under  which
facilities  with RCRA permits were  required to have RCRA  facility  assessments
("RFA") by the EPA or the  authorized  state  agency.  Following  an RFA, a RCRA
facility  investigation,  a corrective  measures study,  and corrective  measure
implementation  must, if warranted,  be developed and implemented.  As indicated
below, the Company's subsidiaries are in the process of developing or completing
various  actions  associated  with these  regulatory  phases at certain of their
facilities.

      Sewaren,  New  Jersey.  In  April  1989,  the  New  Jersey  Department  of
Environmental  Protection,  Division of Waste  Management  and Division of Water
Resources (collectively the "DEP"), issued an Administrative Order and Notice of
Civil Administrative  Penalty Assessment against C.P. Chemicals,  Inc. ("CP"), a
subsidiary of the Company, relating to CP's recycling and manufacturing facility
in Sewaren,  New Jersey. This proceeding  resulted in an Administrative  Consent
Order  (the  "ACO")   mandating  the  development  and   implementation   of  an
environmental remediation plan. CP has substantially completed its investigation
and  remediation  efforts which  included  installation  of a hydraulic  control
system and pre-treatment of ground water on the site and capping to address soil
contamination  concerns and satisfy storm water  management  requirements.  Such
efforts remain subject to continuing review by the DEP.

      In 1998, operations at the Sewaren facility were curtailed.  In June 2000,
CP transferred title to the Sewaren property to the local township.  At the same
time,  CP entered into a 10-year  lease with the  township,  providing for lease
payments aggregating $2,000,000,  and covering certain areas of the property, in
order to allow it to  conduct  operations  relating  to its RCRA Part B Facility
Permit. While the township took title to the property and assumed basic property
related obligations, including the operation and maintenance of the ground water
control system called for by the ACO, the Company  retained other  environmental
obligations  under the ACO and also  entered into an  indemnification  agreement
with the township regarding environmental conditions existing at the time of the
transfer.

      Sumter, South Carolina. In 1991, in connection with the RCRA Part B permit
for its Sumter,  South Carolina facility,  Phibro-Tech  undertook the closure of
certain waste water treatment impoundments pursuant to RCRA closure requirements
and installed a waste water  treatment  system at the plant and is engaged in an
additional  phase  of  facility  investigation  at  the  site.  Phibro-Tech  has
completed remedial action to remove material from an area used by a former owner
of the site. The South Carolina  Department of Health and Environmental  Control
("SCDHEC")  has  requested   additional  sampling  in  this  area.   Separately,
Phibro-Tech  and  certain  adjacent  land  owners  have  entered  into a consent
agreement to conduct an environmental  investigation  regarding certain property
located  next to the Sumter  facility,  including a small  portion of the Sumter
facility property, which has been identified as containing debris, and to remove
such debris. An engineering firm has been hired to investigate the situation and
to make  recommendations.  Phibro-Tech  has also  received  certain  notices  of
violations from SCDHEC alleging certain permit violations.  Phibro-Tech does not
believe  that these claims are  material  and fully  expects  these claims to be
resolved in a mutually acceptable manner.

      Santa Fe Springs,  California.  In connection with its request for renewal
of its RCRA Part B permit for its Santa Fe Springs, California facility, and the
administrative order noted below for this facility,  Phibro-Tech has implemented
various phases of environmental  investigation and corrective  measure study and
assessments.  It is  currently  in a  continuing  investigation  and  corrective
measure phase, which will involve additional  sampling to determine the level of
corrective action. At this time, it is anticipated that this will involve a pump
and treat system through an existing on-site pre-treatment plant. Phibro-Tech is
also subject to an investigative  and enforcement  order, the ultimate scope and
disposition of which is currently being discussed with the California Department
of Toxic Substances Control ("DTSC").  The principal outstanding issue under the
order was the requirement of further soil investigation and the development of a


                                       12
<PAGE>

remediation  plan,  if  necessary,  beyond that already  covered by the facility
investigation   originally   conducted.   The  study  has  been   completed  and
Phibro-Tech's  consulting  environmental  engineers have  recommended to DTSC no
further  action in this regard.  Separately,  Phibro-Tech  has reached an accord
with Communities for a Better Environment regarding allegations that Phibro-Tech
violated  Proposition  65, the Safe Drinking Water and Toxic  Enforcement Act of
1985, and the California Health and Safety Code.

      Phibro-Tech  has also received a summary of  violations  from the DTSC for
its Santa Fe Springs  facility  alleging  certain  permit  violations as well as
violations  of  the  California   Health  and  Safety  Code  and   corresponding
regulations.  Phibro-Tech  is in  contact  with the DTSC  with  regard  to these
claims,  in an attempt  to  determine  whether  they can be  resolved  through a
mutually acceptable compliance schedule.

      Union City, California.  Phibro-Tech's Union City, California facility has
been shut down and a closure plan has been submitted to the California  DTSC. It
is presently under review.

      Joliet,  Illinois.  In  connection  with the RCRA  Part B permit  for this
facility,  Phibro-Tech  completed an initial RCRA facility  investigation and an
additional  sampling and  investigative  phase. The results of such sampling and
investigation  were submitted to the Illinois  Environmental  Protection  Agency
and, based on the agency's response, Phibro-Tech will develop a plan for further
investigation or monitoring, or, if necessary, corrective action.

      Garland,  Texas.  In  connection  with  the  RFA for  its  Garland,  Texas
facility,  no action was recommended.  However,  during a subsequent  inspection
some  discoloration  of soil was noted.  Accordingly,  Phibro-Tech  developed  a
corrective  action plan to address  discolored top soil at the site. The project
included  the  upgrading  of  pollution  control  equipment.  The next  phase is
additional site characterization, which is presently being undertaken. A renewal
application  for the Part B permit has been submitted to the Texas  authorities.
It is presently under review.

      Powder Springs, Georgia. Phibro-Tech's facility in Powder Springs, Georgia
has been  operationally  closed since 1985.  Phibro-Tech  retains  environmental
compliance  responsibility  for this facility and has effected a RCRA closure of
the  regulated  portion of the  facility,  a surface  impoundment.  Post-closure
monitoring and the  implementation  of a corrective  measures plan are required.
Phibro-Tech  has submitted  and received  Georgia  Department  of  Environmental
Protection  approval  for  a  remedial   investigation  plan,  and  has  granted
Phibro-Tech's Part B permit renewal application. The permit calls for a Phase II
work  plan  for  corrective  action.   Certain   corrective  action,   primarily
groundwater treatment has begun.

      Union,  Illinois.  Phibro-Tech's facility in Union, Illinois has also been
operationally  closed since 1986.  Phibro-Tech  has  performed  additional  soil
sampling  and  submitted  a closure  plan to the  Illinois  EPA,  which is under
review.

      Rixensart,  Belgium and Guarulhos,  Sao Paulo,  Brazil. In connection with
the acquisition of the medicated feed additives business from Pfizer,  Inc., the
Company acquired  manufacturing and laboratory facilities in Rixensart,  Belgium
and Guarulhos,  Sao Paulo,  Brazil. Both of these facilities operate pursuant to
the environmental and related laws of their respective  countries as well as, in
the  case of  Rixensart,  the EU.  The  Company  is not  aware  of any  material
environmental  liabilities in connection  with these sites and further  believes
that  indemnification  agreements from Pfizer,  Inc. are adequate to protect the
Company in the event of discovery of covered  environmental  liabilities  at the
respective sites.

      Third  Party  Sites.  The  Company  has,  and  certain  of  the  Company's
subsidiaries  have,  sent  products  to  customers  at  chemical  processing  or
manufacturing sites and sent wastes from their operations to various third party
waste disposal sites. In addition to the litigation  described in Item 3 - Legal
Proceedings  with respect to the Jericho,  South Carolina site and the Casmalia,
California  site, from time to time the Company or a subsidiary  receives notice
from  representatives of governmental  agencies and private parties, or is named
as a potentially  responsible  party in legal  proceedings,  in which claims are
made that it is  potentially  liable  for a  portion  of the  investigation  and
remediation  costs and natural resource damages at such third party sites.  Such
claims are for strict liability and carry with them the possibility of joint and
several liability under applicable Environmental Laws such as CERCLA, regardless
of the  relative  fault  or  level  of  involvement  of the  Company  and  other
potentially responsible parties. Although there can be no assurance, the Company
does not believe that  liabilities in connection  with such third party sites as
to which claims


                                       13
<PAGE>

have been received to date will have a material  adverse effect on the Company's
consolidated financial position, results of operations or cash flows.

      Ramat Hovav,  Israel.  Koffolk  Israel's Ramat Hovav plant produces a wide
range  of  organic  chemical  intermediates  for the  chemical,  pharmaceutical,
fragrance and veterinary industries. Israeli legislation enacted in 1997 amended
certain  environmental  laws by  authorizing  the  relevant  administrative  and
regulatory  agencies to impose  certain  sanctions,  including  issuing an order
against  any  person  that  violates  such  environmental  laws  to  remove  the
environmental  hazard. In addition,  such law imposes criminal  liability on the
officers and directors of a corporation that violates such environmental related
laws, and increases the monetary  sanctions  that such  officers,  directors and
corporations  may be  ordered to pay as a result of such  violations.  The Ramat
Hovav plant operates under the supervision of the Ministry of Environment of the
State of Israel.  The sewage system of the plant is connected to the Ramat Hovav
Local Industrial Council's central  installation,  where Koffolk Israel's sewage
is treated  together with sewage of other local plants.  Owners of the plants in
the area,  including Koffolk Israel,  have been required by the Israeli Ministry
of Environment to build facilities for pre-treatment of their sewage.

      Odda, Norway. Like other Norwegian companies,  Odda has to ensure that the
activities of the enterprise are planned, organized, performed and maintained in
conformity  with  requirements  laid down in or  pursuant to  Norwegian  health,
environmental  and  safety  legislation.   Norwegian  law  requires  the  person
responsible  for an enterprise to ensure  compliance with the  requirements  of,
among other laws, the Working  Environment  Act, the Pollution  Control Act, the
Products Control Act, the Civil Defense Act and the Electrical Installations and
Electrical Equipment Act.

      The  applicable  supervisory  authority  pursuant to such  legislation  is
responsible  for  supervising and providing  guidance on  implementation  of and
compliance with such  regulations.  The  supervisory  authorities can respond to
violations  of  health,   environmental  and  safety  legislation  with  various
sanctions, including orders, fines, pollution charges and/or notification to the
police.

      Norwegian legislation requires that Odda produce its products according to
its discharge permit and  implementation  system for  environmental  control and
improvements.   Both  local  and  central   authorities   have  focused  on  the
environmental  situation in the fjord at Odda and on waste disposal there by the
three primary  manufacturers  in the area,  including  Odda. In Odda's case, the
focus  has  been  on  the  reduction  of  discharge  of  polynucleated  aromatic
hydrocarbons ("PAHY") from the Venturi scrubber in the calcium carbide plant and
the nitrogen  content in the filtercake  (1%)  discharge from the  dicyandiamide
plant.  In June 2002,  the Company  ceased  manufacturing  calcium  carbide and,
therefore, the discharge of PAHY.

Government Regulation

      Most Animal Health and  Nutrition  Group  products  offered by the Company
require  licensing by a  governmental  agency  before  marketing.  In the United
States, governmental oversight of animal nutrition and health products is shared
primarily by the United States  Department of Agriculture  ("USDA") and the Food
and Drug  Administration.  A third agency, the Environmental  Protection Agency,
has  jurisdiction  over  certain  products  applied  topically  to animals or to
premises to control external parasites.

      The issue of the potential for increased  bacterial  resistance to certain
antibiotics used in certain food producing animals is the subject of discussions
on  a  worldwide  basis  and,  in  certain  instances,  has  led  to  government
restrictions on the use of antibiotics in these food producing animals. The sale
of feed additives containing  antibiotics is a material portion of the Company's
business.  Should regulatory or other developments result in restrictions on the
sale of such products,  it could have a material adverse impact on the Company's
financial position, results of operations and cash flows.

      The FDA is responsible for the safety and  wholesomeness of the human food
supply.  It regulates  foods  intended for human  consumption  and,  through The
Center for Veterinary  Medicine,  regulates the manufacture and  distribution of
animal drugs,  including  feed additives and drugs that will be given to animals
from which human foods are derived,  as well as feed additives and drugs for pet
(or companion) animals.


                                       14
<PAGE>

      To  protect  the  food and  drug  supply  for  animals,  the FDA  develops
technical  standards for animal drug safety and effectiveness and evaluates data
bases necessary to support  approvals of veterinary drugs. The USDA monitors the
food supply for animal drug residues.

      The Office of New Animal  Drug  Evaluation  ("NADE")  is  responsible  for
reviewing  information submitted by drug sponsors who wish to obtain approval to
manufacture  and sell animal  drugs.  A new animal drug is deemed  unsafe unless
there is an approved new animal drug application ("NADA").  Virtually all animal
drugs are "new animal drugs" within the meaning of the term in the Federal Food,
Drug,  and Cosmetic Act.  Although the  procedure for licensing  products by the
USDA are formalized, the acceptance standards of performance for any product are
agreed upon between the  manufacturer  and the NADE. A NADA in animal  health is
analogous to a New Drug Application ("NDA") in human  pharmaceuticals.  Both are
administered by the FDA. The drug development process for human therapeutics can
be more  involved  than  that for  animal  drugs.  However,  for  food-producing
animals,  food safety residue levels are an issue,  making the approval  process
longer than for animal drugs for non-food producing animals, such as pets.

      The  FDA  may  deny a NADA  if  applicable  regulatory  criteria  are  not
satisfied,  require additional testing or information,  or require postmarketing
testing and  surveillance to monitor the safety or efficacy of a product.  There
can be no  assurances  that FDA approval of any NADA will be granted on a timely
basis or at all. Moreover,  if regulatory approval of a product is granted, such
approval  may  entail  limitations  on the  indicated  uses for  which it may be
marketed.  Finally,  product  approvals  may be  withdrawn  if  compliance  with
regulatory  standards is not maintained or if problems occur  following  initial
marketing.  Among the conditions for NADA approval is the  requirement  that the
prospective  manufacturer's quality control and manufacturing procedures conform
to GMP regulations.  In complying with standards set forth in these regulations,
manufacturers  must  continue to expend  time,  monies and effort in the area of
production and quality control to ensure compliance.

      For clinical  investigation and marketing  outside the United States,  the
Company  is  also   subject  to  foreign   regulatory   requirements   governing
investigation,  clinical  trials and marketing  approval for animal  drugs.  The
foreign  regulatory  approval  process includes all of the risks associated with
FDA approval set forth above.  Currently,  in the European  Union  ("EU"),  feed
additives which are successfully  sponsored by a manufacturer are assigned to an
Annex.  Initially,  they are assigned to Annex II.  During this  period,  member
states may approve the feed additive for local use. After five years or earlier,
the product passes to Annex I if no adverse reactions or trends develop over the
probationary period.

      The Company  currently  markets  nicarbazin in the EU. Nicarbazin holds an
Annex I registration. This means that the compound must be registered in each of
the  member  states  and  can be  used  legally  by  customers  in the  EU.  Any
manufacturer,  including generic  producers,  is permitted to sell nicarbazin in
the EU on the basis of a Certificate of Analysis.  The  distributor  selling the
product  warrants  that  it  contains  what  is  indicated  on  the  label.  The
registration may not be transferred in a manner similar to an FDA  registration.
The originator of the registration,  however,  retains certain rights.  For one,
the  originator or a successor to the rights of the  originator may refer to the
data file of the originator and any predecessors when making a submission.

      The EU is in the process of centralizing the regulatory process for animal
drugs for member states.  In 1997, the EU drafted new regulations  requiring the
re-registration  of feed  additives,  including  coccidiostats.  Part  of  these
regulations  include a provision for  manufacturers  to submit  quality data for
their own formulation, in effect adopting a Product License procedure similar to
that of the FDA. The provision is known as Brand Specific Approval ("BSA"),  and
provides manufacturers with the opportunity to register their own unique brands,
instead of simply the generic  compound.  The BSA  process is being  implemented
over  time.  The new  system  is more  like the U.S.  system,  where  regulatory
approval is for the  formulated  product or "brand." A number of  manufacturers,
including the Company,  have completed dossiers in order to re-register  various
anticoccidials  for the  purpose  of  obtaining  regulatory  approval  from  the
European Commission.  As a result of its review of said dossiers, the Commission
withdrew  marketing  authorization  of a  number  of  anticoccidials,  including
nicarbazin,  as the  Commission  did not consider the  submissions to be in full
compliance with its new regulations.  The Company has subsequently completed the
necessary


                                       15
<PAGE>

data and resubmitted its nicarbazin  dossier.  Feasibility and timetable for new
registration  will  depend  on the  nature  of  demands  and  remarks  from  the
Commission.

      The Company  estimates that the loss of sales of nicarbazin as a result of
the ban in the EU will be  partially  compensated  by  increased  sales of other
anticoccidials  containing  nicarbazin  which  had  received  a BSA  and are not
subject to the ban.


                                       16
<PAGE>

                              CONDITIONS IN ISRAEL

      The  following  information  discusses  certain  conditions in Israel that
could affect the Company's  Israeli  subsidiary,  Koffolk Israel. As of June 30,
2002 and for the year then ended, Israeli operations (excluding Koffolk Israel's
non-Israeli  subsidiaries)  accounted  for  approximately  13% of the  Company's
consolidated  assets and  approximately  14% of its  consolidated net sales. The
Company is, therefore, directly affected by the political, military and economic
conditions in Israel.

Political and Military Conditions

      Since the  establishment of the State of Israel in 1948, a number of armed
conflicts  have taken place between Israel and its Arab neighbors and a state of
hostility,  varying  from  time to  time in  intensity  and  degree,  has led to
security and  economic  problems  for Israel.  Although  Israel has entered into
various  agreements with certain Arab countries and the  Palestinian  Authority,
since  October  2000  there has been a  significant  increase  in  violence  and
terrorist  activity in Israel.  During the last year the state of hostility  has
increased in intensity. In April 2002, and from time to time thereafter,  Israel
undertook  military  operations  in several  Palestinian  cities and towns.  The
Company cannot predict whether the current violence and unrest will continue and
to what extent it will have an adverse impact on Israel's  economic  development
or on Koffolk Israel's or the Company's results of operations.  The Company also
cannot predict, particularly considering the current tensions between the United
States and Iraq, whether or not any further hostilities will erupt in Israel and
the Middle East and to what extent such hostilities, if they do occur, will have
an adverse impact on Israel's economic development or on Koffolk Israel's or the
Company's results of operations.

      Certain countries,  companies and organizations continue to participate in
a boycott of Israeli firms and other  companies doing business in Israel or with
Israel  companies.  The  Company  does not  believe  that the  boycott has had a
material  adverse  effect on the  Company,  but there can be no  assurance  that
restrictive  laws,  policies  or  practices  directed  toward  Israel or Israeli
businesses  will not have an adverse impact on the operation or expansion of the
Company's business.

      Generally, all male adult citizens and permanent residents of Israel under
the age of 54 are,  unless exempt,  obligated to perform  certain  military duty
annually. Additionally, all such residents are subject to being called to active
duty at any  time  under  emergency  circumstances  and  since  July  2001  some
reservists  have been called to active  duty.  Some of the  employees of Koffolk
Israel  currently are obligated to perform  annual  reserve duty.  While Koffolk
Israel has  operated  effectively  under these and similar  requirements  in the
past,  no  assessment  can be made of the full  impact of such  requirements  on
Koffolk  Israel  and  the  Company  in the  future,  particularly  if  emergency
circumstances occur and employees of Koffolk Israel are called to active duty.

Economic Conditions

      Israel's  economy  has been  subject to  numerous  destabilizing  factors,
including a period of rampant inflation in the early to mid-1980's,  low foreign
exchange  reserves,  fluctuations in world commodity prices,  military conflicts
and security  incidents.  Further disruptions to the Israeli economy as a result
of these or other  factors  could  have a  material  adverse  affect on  Koffolk
Israel's and the Company's results of operations.

      Koffolk  Israel  receives a portion of its revenues in U.S.  dollars while
its expenses are principally  payable in New Israeli Shekels. An increase in the
rate of inflation in Israel  without a  devaluation  of the New Israeli  Shekel,
could have an adverse effect on Koffolk Israel's results of operations.


                                       17
<PAGE>

Investment Incentives

      Certain of the Israeli  production  facilities  of the  Company  have been
granted Approved  Enterprise status pursuant to the Law for the Encouragement of
Capital  Investments,  1959, and consequently may enjoy certain tax benefits and
investment  grants.   Taxable  income  of  Koffolk  Israel  derived  from  these
production  facilities is subject to a lower rate of company tax than the normal
rate  applicable in Israel.  Dividends  distributed by Koffolk Israel out of the
same income are subject to lower rates of withholding tax than the rate normally
applicable  to dividends  distributed  by an Israeli  company to a  non-resident
corporate  shareholder.  The grant  available to newly Approved  Enterprises was
decreased throughout recent years. Certain of the Israeli production  facilities
of  the  Company  further  enjoyed  accelerated  depreciation  under  regulation
extended from time to time and other deductions.  There can be no assurance that
the Company  will,  in the future,  be eligible  for or receive  such or similar
grants.


                                       18
<PAGE>

Item 2. Properties.

      The Company  maintains its principal  executive offices and a sales office
in  Fort  Lee,  New  Jersey.  The  Company  has 21  company-owned  manufacturing
facilities  and utilizes  third party toll  manufacturers.  The chart below sets
forth  the  locations  and  sizes  of  the  principal  manufacturing  and  other
facilities   operated  by  the  Company   and  uses  of  such   facilities   for
non-manufacturing purposes, all of which are owned, except as noted.

<TABLE>
<CAPTION>
                                            Approximate
Location                                   Square Footage            Uses
--------                                   --------------            ----
<S>                                         <C>             <C>
Atlanta, Georgia  (a)                          34,000       All Other; Administrative, Sales, Research
                                                               and Distribution Center
Bowmanstown, Pennsylvania                      56,500       Industrial Chemicals
Bordeaux, France                              141,000       All Other; Administrative and Sales
Braganca Paulista, Brazil                      35,000       Animal Health and Nutrition; Administrative and Sales
Bremen, Indiana                                50,000       Animal Health and Nutrition; Warehouse
Fairfield, New Jersey (a)                       9,600       Animal Health and Nutrition; Administrative
Fort Lee, New Jersey (a)                       23,500       Corporate Headquarters
Garland, Texas                                 20,000       Industrial Chemicals
Guarulhos, Brazil                           1,234,000       Animal Health and Nutrition; Administrative, Sales and
                                                               Warehouse
Joliet, Illinois                               34,500       Industrial Chemicals
Kuala Lumpur, Malaysia (a)                      7,300       Animal Health and Nutrition; Warehouse and Office
Ladora, Iowa                                    9,500       Animal Health and Nutrition; Warehouse
Lee Summit, Missouri (a)                        1,500       Animal Health and Nutrition; Administrative and Sales
Marion, Iowa                                   32,500       Animal Health and Nutrition
Odda, Norway                                  364,000       Industrial Chemicals; Warehouse,
                                                               Administrative and Sales
Petach Tikva, Israel                           60,000       Animal Health and Nutrition; Administrative and Sales
Phenix City, Alabama                            6,000       Industrial Chemicals
Pretoria, South Africa (a)                      3,200       Animal Health and Nutrition; Administrative and Sales
Quincy, Illinois (b)                          187,000       Animal Health and Nutrition; Warehouse,
                                                               Administrative and Sales
Ramat Hovav, Israel (a)                       140,000       Animal Health and Nutrition; Research
Reading, Berks, United Kingdom (a)              3,100       Distribution; Administrative and Sales
Rixensart, Belgium                            865,000       Animal Health and Nutrition, Sales,
                                                               Administrative and Research
Santa Fe Springs, California (c)               90,000       Animal Health and Nutrition; Industrial Chemicals
Santiago, Chile (a)                             6,500       Animal Health and Nutrition; Administrative and Sales
Scunthorpe, United Kingdom (a)                 93,000       Industrial Chemicals; Warehouse
Stradishall, United Kingdom                    20,000       Industrial Chemicals; Administrative,
                                                               Sales and Research
Sumter, South Carolina                        123,000       Industrial Chemicals; Research
The Woodlands, Texas (a)                       12,100       All Other; Administrative, Sales and Research
Tokyo, Japan (a)                                2,100       Animal Health and Nutrition; Administrative and Sales
Valencia, Venezuela (a)                         1,100       Animal Health and Nutrition; Administrative and Sales
Wilmington, Illinois                          119,000       Industrial Chemicals; Warehouse
</TABLE>


                                       19
<PAGE>

----------
(a)   This facility is leased.  The Company's  leases expire  through 2027.  For
      information  concerning the Company's rental  obligations,  see Note 13 to
      the Company's Consolidated Financial Statements included herein.

(b)   Comprises six facilities,  including three  warehouses,  two manufacturing
      and one sales facility.

(c)   The Company  leases the land under this facility from a partnership  owned
      by  Jack  Bendheim,  Marvin  Sussman  and  James  Herlands.  See  "Certain
      Relationships and Related Transactions".

      The Company's  subsidiary,  C.P.  Chemicals,  Inc.,  leases  portions of a
previously owned inactive, former manufacturing facility in Sewaren, New Jersey,
and  another  subsidiary  of the Company  owns  inactive,  former  manufacturing
facilities in Powder Springs,  Georgia and Union,  Illinois. MRT leases property
and operates terminal facilities in Atlanta,  Georgia,  South Beloit,  Illinois,
Pittsburg,  California and Corona,  California, and operates loading and storage
facilities in Pryor,  Oklahoma,  Joppa,  Illinois,  St. John,  Arizona,  Gentry,
Arkansas, Labadie, Missouri, Rush Island, Missouri and Presque Isle, Michigan.

      The Company believes that its existing and planned facilities are and will
be  adequate  for the  conduct of its  business as  currently  conducted  and as
currently contemplated to be conducted.

      The Company and its  subsidiaries  are subject to extensive  regulation by
numerous governmental authorities, including the FDA and corresponding state and
foreign  agencies,  and  to  various  domestic  and  foreign  safety  standards.
Manufacturing  facilities  of the Company in Ramat Hovav and Brazil  manufacture
products that conform to the FDA's GMP  regulations.  Four  domestic  facilities
involved  with  recycling  have final RCRA Part B  hazardous  waste  storage and
treatment permits. The Company's regulatory compliance programs include plans to
achieve  compliance  with  international  quality  standards  known  as ISO 9000
standards,  which became mandatory in Europe in 1999 and environmental standards
known as ISO 14000. The FDA is in the process of adopting the ISO 9000 standards
as regulatory  standards for the United States, and it is anticipated that these
standards  will be phased in for U.S.  manufacturers  over a period of time. The
Company's  plants in  Bowmanstown,  Pennsylvania  and Petach Tikva,  Israel have
achieved ISO 9000  certification.  The Company does not believe that adoption of
the ISO 9000  standards by the FDA will have a material  effect on its financial
condition, results of operations or cash flows.

Item 3. Legal Proceedings.

      Reference is made to the discussion above under "Environmental Matters" in
Item 1 for information as to various environmental investigation and remediation
obligations  of the Company's  subsidiaries  associated  principally  with their
recycling and production facilities and to certain legal proceedings  associated
with such facilities.

      In addition to such matters, the Company or certain of its subsidiaries is
subject to certain litigation described below.

      On or  about  April  17,  1997,  CP and the  Company  were  served  with a
complaint  filed by Chevron USA, Inc.  ("Chevron") in the United States District
Court for the  District of New Jersey,  alleging  that  operations  of CP at its
Sewaren  plant  affected  adjoining  property  owned by Chevron and that Philipp
Brothers,  as the parent of CP, is also responsible to Chevron.  In July 2002, a
phased  settlement  agreement  was  reached  under which the Company and another
defendant  will,  subject to  certain  conditions,  take title to the  property,
subject  to a  period  of  due  diligence  investigation  of the  property.  The
Company's portion of the settlement for past costs and expenses was $495,000 and
is included in selling, general and administrative expenses in the June 30, 2002
statement of operations  and  comprehensive  income.  The payable of $495,000 is
included in accrued  expenses and other current  liabilities as of June 30, 2002
and was  subsequently  paid in July 2002.  The Company  and the other  defendant
will,  if the sale becomes  final,  share  equally in the costs of  remediation.
While the costs cannot be estimated at this time, the Company believes the costs
will not be material and insurance  recoveries  will be available to offset some
of those costs.

      The Company's  Phibro-Tech  subsidiary  was named in 1993 as a potentially
responsible party ("PRP") in connection with an action commenced under CERCLA by
the  EPA,  involving  a  former  third-party  fertilizer  manufacturing  site in
Jericho,  South Carolina.  An agreement has been reached under which the Company
has agreed to  contribute  up to $900,000 of which  $500,000 has been paid as of
June 30, 2002.


                                       20
<PAGE>

Some recovery from insurance and other sources is expected. The Company has also
accrued its best estimate of any future costs.

      In February 2000, the EPA notified numerous parties of potential liability
for  waste  disposed  of  at a  licensed  Casmalia,  California  disposal  site,
including a business,  assets of which were originally  acquired by a subsidiary
of the Company in 1984.  A  settlement  has been  reached in this matter and the
Company has paid $171,103 of the settlement amount.

      The  Company  and its  subsidiaries  are party to a number  of claims  and
lawsuits  arising  out  of the  normal  course  of  business  including  product
liabilities and governmental  regulation.  Certain of these actions seek damages
in various  amounts.  In most cases,  such claims are covered by insurance.  The
Company  believes  that  none  of  the  claims  or  pending   lawsuits,   either
individually  or in the  aggregate,  will have a material  adverse effect on the
Company's financial position, results of operations or cash flows.

Item 4. Submission of Matters to a Vote of Security Holders.

      There  were no  matters  submitted  to a vote of  security  holders of the
Company during the fourth quarter of the fiscal year ended June 30, 2002.


                                       21
<PAGE>

                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

      (a)  Market  Information.  There  is no  public  trading  market  for  the
Company's common equity securities.

      (b) Holders.  As of June 30, 2002,  there was one holder of the  Company's
Class A Common Stock and two holders of the Company's Class B Common Stock.

      (c) Dividends.  The Company did not declare dividends on any of its common
stock during the two years ended June 30, 2002.

Item 6. Selected Financial Data.

      The following table sets forth summary consolidated financial data for the
Company for the past five years ended June 30,  2002.  The summary  consolidated
financial  data for the five  years  are  derived  from  the  Company's  audited
consolidated  financial  statements.  The consolidated  financial data set forth
below should be read in conjunction  with the Company's  Consolidated  Financial
Statements  and  related  Notes and  "Management's  Discussion  and  Analysis of
Financial Condition and Results of Operations" contained herein.

                     SUMMARY OF CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                                      Year Ended June 30,
                                                           ------------------------------------------------------------------------
                                                             2002             2001           2000           1999            1998
                                                           ---------       ---------       ---------      ---------       ---------
<S>                                                        <C>             <C>             <C>            <C>             <C>
Income Statement Data:
Net sales ...........................................      $ 388,813       $ 364,410       $ 323,026      $ 302,057       $ 275,577
Net (loss) income before extraordinary items ........        (51,770)        (14,895)         10,053           (466)         (7,065)
Extraordinary items .................................             --              --              --             --          (1,962)
Net (loss) income ...................................        (51,770)        (14,895)         10,053           (466)         (9,027)

Balance Sheet Data:
Total assets ........................................      $ 296,444       $ 330,019       $ 258,451      $ 238,779       $ 192,196
Debt ................................................        187,027         173,331         150,772        140,103         104,296
Redeemable Preferred Stock ..........................         56,602          48,980              --             --              --
</TABLE>

Notes to Summary Consolidated Financial Data:

----------
(a)   Fiscal 2002 includes charges totaling $24.5 million related to accelerated
      depreciation and  restructuring  costs associated with the shutdown of two
      product lines of the Company's  Odda  subsidiary,  and the fixed asset and
      intangible writedowns related to the Company's Odda and Carbide Industries
      subsidiaries' ongoing operations.

(b)   Fiscal 2002 includes a charge of $12.2 million for an increased  valuation
      allowance for deferred tax assets recorded in previous years. In addition,
      a full valuation  allowance of $13.6 million was recorded for deferred tax
      assets relating to fiscal year 2002 operating losses.

(c)   Included in net sales is shipping and handling income of $7.2,  $6.1, $5.4
      and $4.8 million for the fiscal years ended June 30, 2002,  2001, 2000 and
      1999, respectively.  The amount for 1998 is not readily determinable and a
      restatement has not been made.

(d)   Results of operations  include the PAH business from the November 30, 2000
      date of acquisition.

(e)   The Company sold its Agtrol crop protection business in the fourth quarter
      of fiscal 2001 and recognized a pre-tax gain of $1.5 million.

(f)   The Company issued redeemable  preferred securities in connection with the
      acquisition of the Pfizer medicated feed additives business in 2001.

(g)   Fiscal 2001 and 1999 include $1.3 and $1.5 million charges,  respectively,
      related to the severance of senior executives.

(h)   Fiscal 2000  includes a $13.7 million gain  resulting  from Odda's sale of
      its minority  equity  interest in a local  Norwegian  hydroelectric  power
      company and related power rights.

(i)   Fiscal 2000 includes $1.5 million of income resulting from the transfer of
      title of property in Sewaren, New Jersey.


                                       22
<PAGE>

(j)   Fiscal 2000 and 1999 includes $.9 million and $3.7 million,  respectively,
      of  property  damage  insurance  gains  as a  result  of  a  fire  at  the
      Bowmanstown, Pennsylvania facility.

(k)   Fiscal 1998 includes a $10 million  nonrecurring  plant curtailment charge
      and $5.6 million for the forgiveness of limited  recourse notes receivable
      from  certain  executives  of the Company  and payment for related  income
      taxes resulting from the cancellation.

(l)   Debt is  equal to loans  payable  to  banks,  long-term  debt and  current
      portion of long-term debt.


                                       23
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations.

      This  information  should  be  read  in  conjunction  with  the  Company's
Consolidated  Financial  Statements,  including the notes thereto,  contained in
this Report.

General

      The Company is a leading diversified global manufacturer and marketer of a
broad range of specialty  agricultural and industrial chemicals,  which are sold
world-wide for use in numerous  markets,  including animal health and nutrition,
agriculture,  pharmaceutical,  electronics,  wood treatment, glass, construction
and concrete.  The Company also provides  recycling and hazardous waste services
primarily to the electronics and metal treatment  industries.  These  operations
are  classified  into four  segments--Animal  Health and  Nutrition,  Industrial
Chemicals, Distribution and All Other.

      During fiscal 2002, the Company reported a net loss of $51.8 million. This
was primarily due to: worsening economic conditions in both domestic and foreign
markets;   acceleration   of  depreciation  of  $14.5  million  related  to  the
discontinuance  of production for certain products at the Odda, Norway facility;
writedown of  long-lived  assets of $6.8  million at the Odda and Carbide,  U.K.
operations;  restructuring  charges of $3.2  million at the Odda  facility;  and
deferred  income tax asset  valuation  allowances  (based on  evaluation  of the
recoverability  of prior period operating loss  carryforwards and other deferred
tax assets) of $12.2 million.

      On November 30, 2000,  the Company  purchased the medicated feed additives
business of Pfizer, Inc. ("Pfizer"). The operating results of this business, now
called Phibro Animal Health ("PAH"), are included in the Company's  consolidated
statements of operations  from the date of  acquisition  and are included in the
Animal Health and Nutrition segment.

      In the fourth quarter of fiscal 2001, the Company sold its Agtrol business
to Nufarm,  Inc.  ("Nufarm").  Agtrol developed,  manufactured and marketed crop
protection  products,  including copper fungicides.  The sale included inventory
and  intangible  assets  to  Nufarm,  but  did  not  include  the  manufacturing
facilities.  The Company, through its Phibro-Tech subsidiary,  also entered into
agreements to supply copper fungicide products to Nufarm from its Sumter,  South
Carolina  plant for five years,  and from its  Bordeaux,  France plant for three
years.   The  operating   results  of  Agtrol  are  included  in  the  Company's
consolidated  statements  of operations  up to the date of  disposition  and are
included in the All Other segment.

      During fiscal 2002, the Company elected to include warehousing and freight
costs in cost of sales. Such costs were previously included in selling,  general
and administrative  expenses. Prior periods have been reclassified to conform to
the  current  year  presentation.  See  Note  1 of  the  Consolidated  Financial
Statements.

Results of Operations
                                                           Sales
                                                          ($000's)
                                                     Year Ended June 30,
                                            -----------------------------------
Operating Segments:                            2002         2001         2000
                                            ---------    ---------    ---------
   Animal Health and Nutrition ..........   $ 243,436    $ 202,573    $ 135,088
   Industrial Chemicals .................      90,897       97,227       99,712
   Distribution .........................      36,880       44,452       49,254
   All Other ............................      39,407       46,979       69,198
   Intersegment .........................     (21,807)     (26,821)     (30,226)
                                            ---------    ---------    ---------
                                            $ 388,813    $ 364,410    $ 323,026
                                            =========    =========    =========


                                       24
<PAGE>

                                                 Operating Income (Loss)
                                                         ($000's)
                                                    Year Ended June 30,
                                            -----------------------------------
Operating Segments:                            2002         2001         2000
                                            ---------    ---------    ---------
   Animal Health and Nutrition ..........   $  28,298    $  17,562    $  11,539
   Industrial Chemicals .................     (34,079)      (3,350)       5,355
   Distribution .........................       1,391        3,936        3,817
   All Other ............................      (2,678)      (7,086)       4,045
   Corporate expenses and adjustments ...     (14,596)     (10,086)      (9,082)
                                            ---------    ---------    ---------
                                            $ (21,664)   $     976    $  15,674
                                            =========    =========    =========

Comparison of Fiscal Year Ended June 30, 2002 to Fiscal Year Ended
June 30, 2001.

      Net Sales. Net sales increased by $24.4 million,  or 7%, to $388.8 million
in 2002, as compared to the prior year. The increase was primarily due to a full
year of operations of the PAH business in 2002 offset in part by the sale of the
Company's Agtrol operations in the fourth quarter of 2001.

      The Animal  Health and Nutrition  segment's  net sales  increased by $40.9
million,  or 20%, to $243.4  million in 2002, as compared to the prior year. The
net sales increase was due to increased unit volume primarily as a result of the
PAH purchase.  Excluding  PAH,  sales for the segment in 2002  approximated  the
prior year. The Company's domestic  operations reported higher net sales of $6.2
million due to increased unit volume sales of vitamin, mineral and other pre-mix
products  offset in part by lower average  selling  prices and other product mix
changes. The adverse business climate in Israel and the discontinuation of sales
of  vitamin  exports  by  the  Company's  Koffolk  Israel   operations   lowered
international net sales by a comparable amount.

      The Industrial Chemicals segment's net sales decreased by $6.3 million, or
7%, to $90.9  million  in 2002,  as  compared  to the prior  year.  Sales by the
Company's Phibro-Tech subsidiary declined by $6.0 million due to volume declines
in the  recycling  and sale of etchant  related to the  contraction  of the U.S.
printed  circuit board  industry.  Sales price declines at the Company's  Prince
operations,  partially  offset  by  volume  improvements  of iron and  manganese
oxides, decreased revenues by $1.0 million.  Favorable exchange rates, offset in
part by lower unit volumes at the Company's Odda subsidiary,  increased revenues
by $.7 million.  Odda discontinued  production and sale of the CY-50 and calcium
carbide product lines in the fourth quarter of 2002.

      Net sales for the Distribution  segment decreased by $7.6 million, or 17%,
to $36.9 million in 2002, as compared to the prior year.  The net sales decrease
was  primarily due to lower unit volumes of carbide,  dicyandiamide  and cyanide
products during the current year.

      Net sales for the All Other segment decreased by $7.6 million,  or 16%, to
$39.4 million in 2002,  as compared to the prior year.  This decrease is related
to  lower  sales  of  crop  protection  chemicals.  The  Company's  Agtrol  crop
protection  business was sold during the fourth quarter of fiscal 2001 and sales
of certain  crop  protection  chemicals  are  currently  being made under supply
agreements to Nufarm.  Excluding Agtrol, sales for the segment in 2002 were $4.0
million above the prior year.  The Company's fly ash business  increased by $2.7
million primarily due to improved average selling prices and also increased unit
volume as a result of  additional  contracts  with  utilities  in  Missouri  and
Michigan. The remaining $1.3 million improvement in sales was due to an increase
in specialized lab projects and formulations at the segment's U.K. operations.


                                       25
<PAGE>

      Gross  Profit.  Gross profit  decreased by $6.8  million,  or 9%, to $66.5
million in 2002, as compared to the prior year. Purchase accounting  adjustments
relating to inventory acquired in the PAH acquisition resulted in an increase to
cost of goods sold of $3.2 million and $8.9 million for the years 2002 and 2001,
respectively.  Excluding  the  results of PAH,  gross  profit  declined by $29.6
million as compared to the prior year.

      Gross  profit  in  the  Animal  Health  segment  increased  $21.4  million
principally  as a result of a full year of operations of PAH in 2002.  Excluding
the results of PAH,  gross  profit  declined by $1.4  million due to the adverse
business  climate  in  Israel,  offset in part by  improved  performance  of the
segment's domestic operations.

      The Industrial  Chemicals segment's gross profit declined by $22.7 million
as  compared  to the  prior  year  primarily  due to a charge  of $14.5  million
recorded during fiscal 2002 for the acceleration of depreciation  related to the
Company's  decision  to cease  production  of two  products  and a related  $2.1
million  restructuring  charge  (primarily  inventory  writedowns and production
personnel severance costs) at the Company's Odda facility. Excluding the charges
for acceleration of depreciation  and  restructuring,  lower production  volumes
reduced  profits at the  Company's  Odda  facility by $.7 million.  Furthermore,
lower production  volumes and  environmental  recovery  services revenues at the
Company's Phibro-Tech facilities reduced gross profits by $5.4 million.

      Gross profit in the Distribution segment declined $1.1 million as compared
to the prior year primarily as a result of lower unit volume.

      All Other segment's gross profit declined by $4.0 million primarily due to
sales of crop protection products sold to Nufarm under a supply agreement in the
current  year as opposed to higher  margin  sales to third  parties in the prior
period of $2.5 million,  unfavorable  operating performance at the Company's fly
ash  operations of $2.0 million  offset in part by the impact on gross margin of
higher revenues at the segment's U.K. facility of $.5 million.

      Elimination of inter-company profit in inventory accounted for the balance
of the decline in gross profit.

      Selling,  General and  Administrative  Expenses.  Costs  increased by $9.0
million to $81.3 million in 2002, as compared to the prior year. Costs increased
by $11.6  million over the prior period at PAH due to a full year of  operations
versus  seven  months  in  2001,   increased   staffing  levels,  and  increased
advertising and research and development costs associated with the transition of
operations from Pfizer. In addition,  a full year of management advisory fees to
Palladium Equity Partners,  LLC ($.9 million),  write-offs of unamortized permit
fees at closed facilities ($.7 million) and additional environmental remediation
reserves ($.9 million)  increased  2002  expense.  The prior period  included an
accrual for severance  costs ($1.3 million)  associated  with the termination of
employment  of an  executive  of the  Company.  The 2001  divestiture  of Agtrol
reduced costs by $8.0  million.  In addition,  the prior period  included a $3.1
million  non-cash gain to reflect the decrease in repurchase value of redeemable
common stock of a minority  shareholder,  as compared to the gain in the current
period of $.4 million.  Other general spending  accounted for the balance of the
increase ($1.5 million).

      Asset writedown. During fiscal 2002, the Company recorded a charge of $6.8
million  related to the impairment of long-lived  assets at the Company's  Odda,
Norway and Carbide,  UK operations.  (See Note 2 to the  Consolidated  Financial
Statements).

      Operating Income (Loss). Operating income decreased by $22.6 million to an
operating  loss of $21.7  million in 2002,  as compared  to the prior year.  The
Animal Health and Nutrition segment increased  primarily due to the inclusion of
PAH for the entire  period  offset by the  adverse  business  climate in Israel.
Operating income declined in the Industrial  Chemicals  segment primarily due to
the accelerated  depreciation,  restructuring  and long-lived  asset  impairment
charges at Odda. In addition,  Odda also experienced  lower sales and production
volumes.  Reduced sales volumes from printed circuit board customers resulted in
a further decrease in the segment's  operating income. The Distribution  segment
was


                                       26
<PAGE>

below the prior year  primarily  due to sales  volume  declines and a charge for
intangible asset impairment at the Company's Carbide operations. The improvement
in operating income of the All Other segment is primarily the result of the sale
of Agtrol in 2001.

      Interest Expense,  Net. Costs increased by $.1 million to $17.8 million in
fiscal  2002 as  compared to the prior year  primarily  due to debt  incurred in
connection   with  the  PAH  acquisition  and  higher  levels  of  average  bank
borrowings, offset in part by lower interest rates.

      Other  (Income)  Expense,  Net. Other (income)  expense,  net  principally
reflects foreign currency  transaction gains and losses of the Company's foreign
subsidiaries.  The  Company  also  recorded  a loss of $1.2  million  on a power
purchase derivative  instrument at its Odda facility.  In addition,  the Company
recognized a gain of $.7 million  resulting  from a settlement of a class action
against European vitamin manufacturers.

      Gain from Sale of Assets.  During  2001,  a gain from sale of assets ($1.5
million)  resulted  from  the  Company's  sale  of its  Agtrol  crop  protection
business, a division of the Company's  Phibro-Tech,  Inc. subsidiary,  to Nufarm
Inc. In addition,  the Company's Odda subsidiary sold real estate resulting in a
gain ($1.0 million).

      Income  Taxes.  An income tax provision of $13.7 million was reported on a
consolidated  pre-tax  loss of $38.1  million in fiscal  2002  primarily  due to
income tax  provisions in profitable  foreign  jurisdictions  and an increase of
$25.8 million in the valuation  allowance  related to net deferred tax assets of
domestic and Norwegian  operations.  The Company has incurred domestic losses in
recent years and a  reassessment  of the  likelihood of recovering  net domestic
deferred  tax assets  resulted in the  recording  of a full  domestic  valuation
allowance  of $15.4  million,  including  $12.2  million  related  to prior year
deferred tax asset  balances.  In addition,  through  fiscal 2001, the Company's
Odda subsidiary had a net deferred tax liability. However, significant losses in
fiscal  2002 have  resulted  in a net  deferred  tax asset and a full  valuation
allowance has been provided due to the  uncertainty of future  profitability  of
this operation.  The Company's  position with respect to the  recoverability  of
these deferred tax assets will continue to be evaluated  each  reporting  period
based on actual and expected operating performance.

Comparison of Fiscal Year Ended June 30, 2001 to Fiscal Year Ended
June 30, 2000.

      Net Sales. Net sales increased by $41.4 million, or 13%, to $364.4 million
in 2001,  as compared to the prior year.  The increase was  primarily due to the
purchase of the PAH business offset in part by the sale of the Company's  Agtrol
operations.

      The Animal  Health and Nutrition  segment's  net sales  increased by $67.5
million,  or 50%, to $202.6  million in 2001, as compared to the prior year. The
net sales increase was due to increased unit volume primarily as a result of the
PAH purchase.  Excluding  PAH, sales for the segment in 2001 were slightly above
the prior year.  Increased volumes contributed to an increase in sales, but were
offset by lower average sales prices,  including the impact of foreign  exchange
in 2001.

      The Industrial Chemicals segment's net sales decreased by $2.5 million, or
2%,  to  $97.2  million  in  2001,  as  compared  to the  prior  year.  Sales of
Phibro-Tech,  excluding  recycling fees, were down by $2.8 million due to volume
declines  related to the printed circuit board  industry.  Lower sales of Odda's
carbide and  dicyandiamide  products  also  accounted  for the  decrease.  These
decreases  were offset in part by higher  recycling  fees ($2.4  million) due to
increased demand.

      Net sales for the Distribution  segment decreased by $4.8 million, or 10%,
to $44.5 million in 2001, as compared to the prior year.  The net sales decrease
was due to lower average sales prices,  including  foreign  exchange,  offset in
part by higher unit volume.  The Company  experienced  sharp declines in selling
prices for carbide,  dicyandiamide  and copper  cyanide  products  during fiscal
2001.


                                       27
<PAGE>

      Net sales for the All Other segment decreased by $22.2 million, or 32%, to
$47.0 million in 2001, as compared to the prior year. The net sales decrease was
due to lower unit  volume  primarily  as a result of the sale of the Agtrol crop
protection business,  which was sold during the fourth quarter of 2001. The crop
protection business is highly seasonal and most of the sales are normally in the
Company's fourth quarter.  Excluding Agtrol,  sales for the segment in 2001 were
slightly  above the prior year.  Unit volume of the  Company's  fly ash business
increased  approximately 36% and was offset by lower average sales prices of 10%
due to product and customer mix in 2001 compared to the prior year.  The fly ash
volume  increase  was the  result of  additional  contracts  with  utilities  in
Missouri  and   Michigan.   During  the  fourth   quarter,   the  Company  began
commercialization  of  its  cement  business.  Revenues  at the  segment's  U.K.
facility decreased $2.4 million due to a decline in specialized lab projects and
formulations.

      Gross Profit.  Gross profit decreased by $.1 million,  to $73.3 million in
2001. The increase was primarily due to the purchase of the PAH business  offset
in part by the  sale of the  Company's  Agtrol  operations  during  their  major
selling season.  Purchase accounting  adjustments relating to inventory resulted
in an increase to cost of goods sold of $8.9 million during fiscal 2001.  Higher
costs for petroleum and  metallurgical  coke, which are used as raw materials at
Odda,  adversely  affected  margins  in  the  Industrial  Chemical  segment.  In
addition, the declines in average selling prices described above further reduced
the Company's margin.

      Selling,  General and  Administrative  Expenses.  Costs increased by $13.1
million to $72.3 million in 2001, as compared to the prior year.  Excluding PAH,
costs were up approximately $.6 million  principally due to management  advisory
fees to  Palladium  ($1.3  million),  severance  costs  ($1.3  million),  higher
depreciation  and  amortization  ($.5  million),  and research  and  development
expenditures  ($.7  million)  offset by a reduction in the  repurchase  value of
redeemable common stock of a minority shareholder ($4.3 million).  Other general
spending accounted for the balance of the increase.

      Operating  Income.  Operating  income  decreased by $14.7  million to $1.0
million in 2001, as compared to the prior year. Operating income would have been
$8.9 million higher than reported if not for purchase accounting  adjustments to
the sale of inventory  acquired from Pfizer.  Operating  income  declined in the
Industrial  Chemicals segment primarily due to lower selling prices and volumes.
The Company's All Other segment declined due to the sale of Agtrol and decreases
in average selling prices offset in part by higher sales volumes of fly ash. The
Distribution  segment  approximated  the prior year despite a reduction in sales
due to changes in product mix. The Animal Health and Nutrition segment increased
due to the inclusion of PAH for the period and higher unit volumes.

      Interest  Expense,  Net. Costs increased by $3.6 million or 25.3% to $17.7
million  in fiscal  2001 as  compared  to the prior year  primarily  due to debt
incurred in  connection  with the PAH  acquisition  and higher levels of average
bank borrowings.

      Other Expense,  Net.  Other  expense,  net  principally  reflects  foreign
currency transaction losses of the Company's foreign subsidiaries.

      Gain from Sale of Assets.  During  2001,  a gain from sale of assets ($1.5
million)  resulted  from  the  Company's  sale  of its  Agtrol  crop  protection
business, a division of the Company's  Phibro-Tech,  Inc. subsidiary,  to Nufarm
Inc. In addition,  the Company's Odda subsidiary sold real estate resulting in a
gain ($1.0 million).

      Income Taxes. The effective tax rate differs from the U.S.  statutory rate
due  to  the  relationship  of  each  domestic  and  international  subsidiary's
individual  income or loss  position to the statutory tax rates in each country.
Valuation  allowances  ($1.0 million in fiscal 2001) have been provided  against
deferred tax assets that are deemed by  management  as not likely of recovery in
future periods. The 2000 tax expense includes a provision related to the gain on
sale of assets at the Norwegian statutory rate of 28%.


                                       28
<PAGE>

Liquidity and Capital Resources

      Net Cash Used In Operating  Activities.  Cash used in  operations  for the
year  ended  June 30,  2002 was $4.7  million.  The  increase  in cash  from the
collection  of  receivables  from the  Company's  crop  protection  business was
partially offset by a planned increase in higher inventories at the PAH business
unit.  This  build up of  inventories  was  considered  necessary  to  ensure an
adequate  availability of product as the Company  continues to refine its supply
chain and expand into new markets.

      Net  Cash  Used by  Investing  Activities.  Net  cash  used  in  investing
activities  for the  year  ended  June  30,  2002  was  $17.4  million.  Capital
expenditures of $11.3 million were mostly for maintaining the Company's existing
asset base and for environmental,  health and safety projects.  The remainder of
the net cash  used by  investing  activities  primarily  relates  to  contingent
purchase price payments from the PAH acquisition.

      Net Cash Provided by Financing Activities.  Net cash provided by financing
activities totaled $13.7 million. Borrowings under the domestic revolving credit
agreement were partially  offset by paydowns of debt at several of the Company's
international  subsidiaries and a $2.5 million payment on long-term debt related
to the PAH acquisition.

      Liquidity. As of June 30, 2002, the Company was not in compliance with the
financial  covenants included in its senior credit facility ("credit  agreement"
or "facility")  with its lending banks, for which PNC Bank serves as agent. As a
result, the credit agreement was amended in October 2002 to: waive noncompliance
with  financial  covenants  as of  June  30,  2002;  amend  financial  covenants
prospectively  until maturity;  amend the borrowing base formula and also reduce
maximum availability under the revolving credit portion of the facility from $70
million to $55 million;  limit borrowings under the capital  expenditure line of
the facility to the current outstanding balance of $5.8 million;  and revise the
interest  rate to 1.5% to 1.75% per annum over the base rate (as  defined in the
agreement).  Management  believes that the reduced maximum  availability and the
revised  borrowing  base  formula  under the  revolving  credit  portion  of the
facility  will not  adversely  affect  the  Company's  ability  to meet its cash
requirements during fiscal 2003.

      The Company's  ability to fund its fiscal 2003  operating plan relies upon
continued  availability  of the credit  agreement,  which in turn,  requires the
Company  to  maintain  compliance  with the  amended  financial  covenants.  The
financial covenants require certain ratios of consolidated interest coverage and
a minimum level of domestic cash flows (each, as defined in the agreement).  The
Company  believes  it will be able to  comply  with  the  terms  of the  amended
covenants  based on its forecasted  operating plan for fiscal 2003. In the event
of adverse  operating  results and resultant  violation of the covenants  during
2003,  the Company can not be certain it will be able to obtain such  waivers or
amendments on favorable terms, if at all.

      In addition, the Company's credit agreement and its note payable to Pfizer
(see Notes 3 and 7) mature in November  2003 and March 2004,  respectively.  The
Company's  management has undertaken actions to improve the Company's  operating
performance  and overall  liquidity in order to reduce debt levels and allow for
ultimate  refinancing  of this debt in fiscal 2004.  These actions  include cost
reduction  activities,   working  capital  improvement  programs,   shutdown  of
unprofitable  operations,  and possible sale of certain business  operations and
other  assets.  The  Company  has  announced  its  intention  to sell its Prince
Manufacturing  operations,  part of the Prince  Manufacturing  Group, and also a
U.K.  operation  which  manufactures  and sells  chemical  intermediates  to the
pharmaceutical  industry.  These  actions are  ongoing  and will  continue to be
re-evaluated  during  fiscal  2003.  In  addition,  the Company  entered into an
agreement  with  Pfizer  whereby  Pfizer  agreed to defer  until  March 1, 2004,
without interest,  unpaid contingent  purchase price amounts existing at May 31,
2002 and to waive contingent purchase price payments on future net revenues from
June 1, 2002 through March 1, 2004.

      As  a  result  of  the   partial   shutdown  of  Odda's   operations   and
non-compliance with the financial  covenants of its credit facilities,  Odda has
entered into an agreement with its Norwegian  banks to  restructure  these loans
and to obtain a waiver  for the  non-compliance.  The  agreement  establishes  a
periodic  payment  schedule  through  November  30,  2003 (see Note 7).  Philipp
Brothers Chemicals, Inc. is the guarantor of this debt.


                                       29
<PAGE>

      Working  capital as of June 30, 2002 and 2001 was $50.5  million and $74.0
million,  respectively.  Due to the  nature  and terms of the  revolving  credit
agreement,   which  includes  both  a  subjective   acceleration  clause  and  a
requirement  to maintain a lockbox  arrangement,  all  borrowings  against  this
facility are classified as a current liability.  At June 30, 2002, the amount of
credit  extended under this agreement  totaled $38.0 million and the Company had
$4.5 million  available  under the  borrowing  base formula in effect under this
agreement.  In addition,  certain of the Company's foreign subsidiaries also had
availability  under their respective credit  facilities  totaling $10.6 million.
Management's  efforts  to  improve  liquidity  has  resulted  in a  decrease  in
borrowings under the revolving credit agreement to $28.8 million as of September
30, 2002.

      The  Company's  contractual  obligations  (in  millions)  at June 30, 2002
mature as follows:

<TABLE>
<CAPTION>
                                                                         Years
                                             ----------------------------------------------------------------
                                             Within 1     Over 1 to 3    Over 3 to 5      After 5       Total
                                             --------     -----------    -----------      -------       -----
<S>                                          <C>            <C>            <C>            <C>          <C>
Loans payable to banks (1) .............     $  3.5         $ 38.0         $   --         $   --       $ 41.5
Lease commitments ......................        2.2            3.8            2.1            1.6          9.7
Long-term purchase commitments .........        7.5           13.3            9.2           31.9         61.9
Long-term debt (including current
  portion) .............................        8.9           33.8             .9          101.9        145.5
                                             ------         ------         ------         ------       ------
    Total contractual obligations ......     $ 22.1         $ 88.9         $ 12.2         $135.4       $258.6
                                             ======         ======         ======         ======       ======
</TABLE>

      (1)   Includes $38.0 million outstanding under the Company's senior credit
            facility which matures in November 2003 (see Note 7).

      On November 30, 2000, the Company issued $25 million of redeemable  Series
B preferred stock and $20 million of redeemable  Series C preferred stock.  Each
Series is entitled to cumulative cash dividends,  payable  semi-annually  at 15%
per annum of the liquidation  value.  The  liquidation  value of the Preferred B
stock is an amount  equal to $1 per share plus all accrued and unpaid  dividends
(Liquidation  Value). The Preferred C stock is entitled to the Liquidation Value
plus a percentage of the equity value of the Company,  as defined in the amended
Certificate  of  Incorporation.  The equity value is calculated as a multiple of
the earnings before interest,  tax, depreciation and amortization of the Company
(Equity Value). The Company may, at the date of the annual closing  anniversary,
redeem the Preferred B in whole or in part at the Liquidation  Value,  for cash,
provided that if the Preferred B stock is redeemed separately from the Preferred
C stock then the Preferred B must be redeemed for the Liquidation  Value plus an
additional  amount which would generate an internal rate of return of 20% to the
holders of the  shares.  Redemption  in part of the  Preferred  B shares is only
available if at least 50% of the outstanding Preferred B shares are redeemed. On
the third closing  anniversary and on each closing anniversary  thereafter,  the
Company  may  redeem  for cash only in whole  the  Preferred  C  shares,  at the
Liquidation  Value  plus  the  Equity  Value  payment.  At any  time  after  the
redemption of the Company's Senior  Subordinated  Notes due 2008, the holders of
both  series  have the right to require  the Company to redeem for cash all such
preferred shares outstanding.

Critical Accounting Policies

      The Securities and Exchange  Commission ("SEC") recently issued disclosure
guidance  for  "critical  accounting   policies".   The  SEC  defines  "critical
accounting  policies" as those that require  application  of  management's  most
difficult,  subjective  or complex  judgments,  often as a result of the need to
make estimates about the effect of matters that are inherently uncertain and may
change in subsequent periods.

      The Company's  significant  accounting policies are described in Note 1 to
the Consolidated  Financial Statements.  Not all of these significant accounting
policies require  management to make difficult,  subjective or complex judgments
or  estimates.  However,  management  of the Company is required to make certain
estimates and  assumptions  during the  preparation  of  consolidated  financial
statements in accordance with accounting  principles  generally  accepted in the
United States of America.  These estimates and  assumptions  impact the reported
amount of assets  and  liabilities  and  disclosures  of  contingent  assets and
liabilities as of the date of the consolidated  financial statements.  Estimates
and  assumptions  are reviewed


                                       30
<PAGE>

periodically  and the effects of revisions  are reflected in the period they are
determined to be necessary.  Actual  results could differ from those  estimates.
Following are some of the Company's  critical  accounting  policies  impacted by
judgments, assumptions and estimates.

      Revenue Recognition

      Revenues  are  recognized  when  title  to  products  and risk of loss are
transferred to customers.  Additional  conditions for recognition of revenue are
that  collection of sales proceeds is reasonably  assured and the Company has no
further performance obligations.  Net sales are comprised of total sales billed,
net of goods returned, trade discounts and customer allowances.

      Litigation

      The Company is subject to legal  proceedings and claims arising out of the
normal course of business.  The Company routinely assesses the likelihood of any
adverse  judgments  or outcomes  to these  matters as well as ranges of probable
losses.  A  determination  of the  amount  of the  reserves  required  for these
contingencies  is  based  on an  analysis  of  the  various  issues,  historical
experience, other third party judgments and outside specialists, where required.
The required  reserves may change in the future due to new  developments in each
matter.  For  further  discussion,  see  Note 13 to the  Consolidated  Financial
Statements.

      Environmental Matters

      The  Company  determines  the costs of  environmental  remediation  of its
facilities  and  formerly  owned  properties  on the  basis of  current  law and
existing technologies. Uncertainties exist in these evaluations primarily due to
unknown  conditions,  changing  governmental  regulations  and  legal  standards
regarding  liability,  and evolving  technologies.  The liabilities are adjusted
periodically  as  remediation  efforts  progress  or as  additional  information
becomes available.  The Company has recorded liabilities of $2.6 million at June
30, 2002 for such activities.

      Long Lived Assets

      Long-lived  assets,  including plant and equipment,  and other  intangible
assets are reviewed for impairment when events or circumstances  indicate that a
diminution in value may have  occurred,  based on a comparison  of  undiscounted
future  cash  flows to the  carrying  amount  of the  long-lived  asset.  If the
carrying amount exceeds  undiscounted future cash flows, an impairment charge is
recorded  based on the difference  between the carrying  amount of the asset and
its fair value.

      The assessment of potential  impairment  for a particular  asset or set of
assets requires  certain  judgments and estimates by the Company,  including the
determination  of an event  indicating  impairment;  the future cash flows to be
generated by the asset, including the estimated life of the asset and likelihood
of alternative courses of action; the risk associated with those cash flows; and
the Company's cost of capital or discount rate to be utilized.

      Useful Lives of Long-Lived Assets

      Useful lives of long-lived assets, including plant and equipment and other
intangible  assets are based on  management's  estimates of the periods that the
assets will be productively utilized in the revenue-generation  process. Factors
that affect the  determination  of lives include prior  experience  with similar
assets and product life  expectations  and  management's  estimate of the period
that the assets will generate revenue.

      Inventories

      Inventories are valued at the lower of cost or market.  Cost is determined
on a  first-in,  first-out  (FIFO) and  average  methods  for most  inventories;
however certain  subsidiaries of the Company use the last-in,  first-out  (LIFO)
method for valuing inventories.  The determination of market value to compare to
cost involves  assessment  of numerous  factors,  including  costs to dispose of
inventory  and  estimated  selling  prices.  Reserves are recorded for inventory
determined to be damaged, obsolete, or otherwise unsaleable.


                                       31
<PAGE>

      Income Taxes

      Deferred tax assets and liabilities are determined using enacted tax rates
for the effects of net operating  losses and temporary  differences  between the
book and tax bases of assets and  liabilities.  The Company  records a valuation
allowance on deferred tax assets when appropriate to reflect the expected future
tax benefits to be realized. In determining the appropriate valuation allowance,
certain  judgments are made relating to  recoverability  of deferred tax assets,
use of tax loss  carryforwards,  level of  expected  future  taxable  income and
available tax planning  strategies.  These  judgments are routinely  reviewed by
management.  At June 30,  2002,  the Company had net deferred tax assets of $4.6
million,  net of valuation  allowances of $27.3 million. For further discussion,
see Note 12 to the Consolidated Financial Statements.

New Accounting Pronouncements

      In June 2001, the Financial  Accounting  Standards Board issued Statements
of Financial  Accounting  Standards No. 141, "Business  Combinations" ("SFAS No.
141") and No. 142, "Goodwill and Other  Intangibles"  ("SFAS No. 142"). SFAS No.
141 and No. 142 are  effective  for the  Company  on July 1, 2002.  SFAS No. 141
requires  that the  purchase  method  of  accounting  be used  for all  business
combinations  initiated  after June 30, 2001.  The  statement  also  establishes
specific  criteria for recognition of intangible assets separately from goodwill
and requires  unallocated  negative goodwill to be written off immediately as an
extraordinary gain. SFAS No. 142 primarily addresses the accounting for goodwill
and intangible assets subsequent to their  acquisition.  The statement  requires
that goodwill and indefinite lived intangible  assets no longer be amortized and
be  tested  for  impairment  at  least  annually.  The  amortization  period  of
intangible  assets with finite  lives will no longer be limited to forty  years.
The Company has no goodwill,  but is currently assessing the useful lives of its
amortizable intangible assets.

      In June 2001, the Financial Accounting Standards Board issued Statement of
Financial  Accounting  Standards  No.  143,  "Accounting  for  Asset  Retirement
Obligations" ("SFAS No. 143"). SFAS No. 143 is effective for the Company on July
1, 2002. The statement establishes  accounting standards for the recognition and
measurement  of  an  asset  retirement   obligation  and  its  associated  asset
retirement  cost.  The  Company  is  currently  assessing  the  impact  of  this
statement.

      In August 2001, the Financial  Accounting Standards Board issued Statement
of  Financial  Accounting  Standards  No. 144,  "Accounting  for  Impairment  or
Disposal of Long-Lived  Assets" ("SFAS No. 144").  SFAS No. 144 is effective for
the Company on July 1, 2002. The statement addresses significant issues relating
to the implementation of FASB Statement No. 121,  "Accounting for the Impairment
of  Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of" ("SFAS No.
121"), and the development of a single accounting model,  based on the framework
established  in SFAS No. 121, for  long-lived  assets to be disposed of by sale,
whether  previously  held and used or newly  acquired.  The Company is currently
assessing the impact of this statement.

      In May 2002, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards No. 145, "Rescission of SFAS Nos. 4, 44 and 64,
Amendment of SFAS 13, and Technical  Corrections"  ("SFAS No.  145").  Under the
current rules,  SFAS No. 4, "Reporting Gains and Losses from  Extinguishment  of
Debt,"  requires  that all gains and losses from the  extinguishment  of debt be
classified  as  extraordinary  on  the  Company's   consolidated   statement  of
operations,  net of  applicable  taxes.  SFAS No.  145  rescinds  the  automatic
classification  as extraordinary  and requires that the Company evaluate whether
the gains or losses qualify as extraordinary  under Accounting  Principles Board
Opinion No. 30,  "Reporting  the Results of Operations  Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." SFAS No. 145 is effective for the Company on
July 1, 2002. The Company is currently assessing the impact of this statement.

      In June 2002, the Financial Accounting Standards Board issued Statement of
Financial  Accounting  Standards No. 146,  "Accounting for Costs Associated with
Exit or Disposal  Activities"  ("SFAS No.  146").  SFAS No. 146 requires  that a
liability for a cost associated with an exit or disposal  activity be recognized
and measured  initially at fair value when the liability is incurred rather than
at the date of a commitment to an exit or disposal  plan.  Costs covered by SFAS
No. 146 include lease  termination  costs and certain  employee  severance costs
that are associated with a restructuring,  discontinued operation, plant closing
or


                                       32
<PAGE>

other exit or disposal activity.  SFAS No. 146 is effective for exit or disposal
activities  that are initiated after December 31, 2002. The Company is currently
assessing the impact of this statement.

Seasonality of Business

      Prior to the  divestiture of the crop protection  business,  the Company's
sales were  typically  highest in the fourth fiscal  quarter due to the seasonal
nature of the agricultural industry.  With the sale of this business, as well as
the  acquisition  of the  non-seasonal  PAH business,  the  Company's  sales are
expected to be less seasonal. However, some seasonality in the Company's results
will  remain as sales of  certain  industrial  chemicals  to the wood  treatment
industry as well as sales of coal fly ash are typically  highest during the peak
construction periods of the first and fourth fiscal quarters.

Effect of Inflation; Foreign Currency Exchange Rates

      Inflation  generally  affects the Company by increasing the cost of labor,
equipment and raw materials. The Company does not believe that inflation has had
any material effect on the Company's business over the last two years.

      The Company's substantial foreign operations expose it to risk of exchange
rate fluctuations. Balance sheet accounts of the Company's foreign subsidiaries,
with the exception of the Brazilian and Israeli  subsidiaries of Koffolk Israel,
are  translated  at current  rates of exchange and income and expense  items are
translated at the average exchange rate for the year. The resulting  translation
adjustments are reflected as a separate  component of stockholders'  equity. The
Brazilian and Israeli subsidiaries of Koffolk Israel transact  substantially all
of their business in U.S. dollars. Accordingly, the U.S. dollar is designated as
the functional currency of these operations and translation gains and losses are
included in net income.

      Net exchange gains and losses  resulting  from the  translation of foreign
financial   statements  and  the  effect  of  exchange  rates  on   intercompany
transactions  of a  long-term  investment  nature  are  reflected  as a separate
component of stockholders'  equity.  Translation  (gains) and losses relating to
intercompany  debt of a  short-term  investment  nature  are  included  in other
expense, net in the amounts of ($2.8) million,  $2.7 million and $2.1 million in
the accompanying  consolidated statements of operations for the years ended June
30, 2002, 2001 and 2000, respectively.  Other foreign currency transaction gains
and losses are not material.

Quantitative and Qualitative Disclosure About Market Risk

      In the normal course of operations, the Company is exposed to market risks
arising from adverse changes in interest rates, foreign currency exchange rates,
and commodity prices. As a result,  future earnings,  cash flows and fair values
of assets and liabilities  are subject to uncertainty.  The Company uses foreign
currency  forward  contracts as a means of hedging  exposure to foreign currency
risks.  The  Company  also  utilizes,  on a  limited  basis,  certain  commodity
derivatives,  primarily on copper used in its manufacturing  processes, to hedge
the cost of its anticipated purchase requirements.  The Company does not utilize
derivative  instruments  for trading  purposes.  The Company  does not hedge its
exposure to market risks in a manner that  completely  eliminates the effects of
changing market conditions on earnings,  cash flows and fair values. The Company
monitors   the   financial   stability   and  credit   standing   of  its  major
counterparties.

Interest Rate Risk

      The  Company  uses  sensitivity  analysis to assess the market risk of its
debt-related  financial instruments and derivatives.  Market risk is defined for
these  purposes  as the  potential  change in the fair value  resulting  from an
adverse movement in interest rates.

      The Company's  debt portfolio is comprised of fixed rate and variable rate
debt of approximately  $187.0 million as of June 30, 2002.  Approximately 33% of
the debt is variable and would be interest rate sensitive.  For further details,
see Note 7, to the Consolidated  Financial  Statements of the Company  appearing
elsewhere herein.


                                       33
<PAGE>

      For the purposes of the sensitivity  analysis,  an immediate 10% change in
interest rates would not have a material  impact on the Company's cash flows and
earnings over a one year period.

      As of June 30, 2002, the fair value of the Company's  senior  subordinated
debt is estimated  based on quoted market rates at $51.0 million and the related
carrying amount is $100 million.

Foreign Currency Exchange Rate Risk

      A significant  portion of the financial  results of the Company is derived
from activities  conducted  outside the U.S. and denominated in currencies other
than the U.S. dollar.  Because the financial results of the Company are reported
in U.S.  dollars,  they are  affected  by  changes  in the value of the  various
foreign  currencies  in relation  to the U.S.  dollar.  Exchange  rate risks are
reduced,  however,  by the diversity of the Company's foreign operations and the
fact that  international  activities are not concentrated in any single non-U.S.
currency.  Short-term  exposures to changing foreign currency exchange rates are
primarily due to operating  cash flows  denominated in foreign  currencies.  The
Company  covers known and  anticipated  operating  exposures by using  purchased
foreign currency exchange option and forward  contracts.  The primary currencies
for which the Company has foreign  currency  exchange rate exposure are the Euro
and Japanese yen.

      The Company uses sensitivity analysis to assess the market risk associated
with its  foreign  currency  transactions.  Market  risk is  defined  for  these
purposes  as the  potential  change  in fair  value  resulting  from an  adverse
movement in foreign currency  exchange rates. The fair value associated with the
foreign currency contracts has been estimated by valuing the net position of the
contracts  using the applicable spot rates and forward rates as of the reporting
date. At June 30, 2002,  the fair market value was equal to the carrying  amount
due to the  Company's  adoption of SFAS 133 at July 1, 2000 which  requires that
all  derivatives  be recorded on the balance  sheet at fair value.  Based on the
limited amount of foreign currency  contracts at June 30, 2002, the Company does
not believe that an instantaneous 10% adverse movement in foreign currency rates
from their  levels at June 30, 2002,  with all other  variables  held  constant,
would have a material effect on the Company's  results of operations,  financial
position or cash flows.

Other

      The  Company  obtains  third party  letters of credit and surety  bonds in
connection with certain inventory purchases and insurance  obligations.  At June
30, 2002,  the contract  values of these letters of credit and surety bonds were
$1.8 million and their fair values did not differ materially from their carrying
value.

Commodity Price Risk

      The  Company  purchases  certain  raw  materials,  such as  copper,  under
short-term  supply  contracts.  The purchase  prices  thereunder  are  generally
determined  based on prevailing  market  conditions.  The Company uses commodity
derivative  instruments to modify some of the commodity price risks.  Assuming a
10% change in the underlying  commodity  price, the potential change in the fair
value of  commodity  derivative  contracts  held at June 30,  2002  would not be
material  when  compared  to  the  Company's  operating  results  and  financial
position.

      The  Company's  Odda  subsidiary  utilizes  power supply swaps to mitigate
exposure to rate  movements in local  electric  supply  markets.  Assuming a 10%
change in the underlying  power price, the potential change in the fair value of
the power supply swaps held at June 30, 2002 would not be material when compared
to the Company's operating results and financial position.

      The foregoing market risk discussion and the estimated  amounts  presented
are  Forward-Looking  Statements that assume certain market  conditions.  Actual
results in the future may differ  materially from these projected results due to
developments in relevant  financial markets and commodity  markets.  The methods
used above to assess  risk  should not be  considered  projections  of  expected
future events or results.


                                       34
<PAGE>

Certain Factors Affecting Future Operating Results

      This Form 10-K contains "forward-looking statements" within the meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities Exchange Act of 1934, as amended.  The Company's actual results could
differ  materially  from  those  set  forth in the  forward-looking  statements.
Certain factors that might cause such a difference include,  among other factors
noted herein, the following:  the Company's  substantial  leverage and potential
inability to service its debt; the Company's  dependence on  distributions  from
its subsidiaries;  risks associated with the Company's international operations;
the Company's  dependence on its Israeli operations;  competition in each of the
Company's markets;  potential environmental  liability;  extensive regulation by
numerous  government  authorities  in the  United  States  and other  countries;
significant  cyclical price  fluctuation for the principal raw materials used by
the Company in the  manufacture of its products;  the Company's  reliance on the
continued  operation  and  sufficiency  of  its  manufacturing  facilities;  the
Company's   dependence  upon  unpatented  trade  secrets;  the  risks  of  legal
proceedings and general  litigation  expenses;  potential  operating hazards and
uninsured  risks;  the risk of work stoppages;  the Company's  dependence on key
personnel; and the uncertain impact of the Company's divestiture plans. See also
the  discussion  under  "Risks  and  Uncertainties"  in Note 1 of the  Notes  to
Consolidated Financial Statements included in this Report.

      In addition, the issue of the potential for increased bacterial resistance
to certain  antibiotics used in certain food producing animals is the subject of
discussions  on a  worldwide  basis  and,  in  certain  instances,  has  led  to
government  restrictions  on the use of  antibiotics  in  these  food  producing
animals. The sale of feed additives containing antibiotics is a material portion
of the Company's  business.  Should regulatory or other  developments  result in
further  restrictions  on the sale of such  products,  it could  have a material
adverse impact on the Company's  financial  position,  results of operations and
cash flows.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

      Information  regarding  quantitative  and  qualitative  disclosures  about
market risk is set forth in Item 7 of this Form 10-K.

Item 8. Financial Statements and Supplementary Data.

      The financial statements are set forth commencing on page F-1 hereto.

Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure.

      No response required.


                                       35
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

      The  following  sets forth the name,  age, and  position of the  Company's
directors and executive officers:

Name                      Age                  Position
----                      ---                  --------
Jack C. Bendheim          55       Director; Chairman of the Board

Gerald K. Carlson         59       Chief Executive Officer

Marvin S. Sussman         55       Director; Vice Chairman;
                                      President, Animal Health Group

James O. Herlands         60       Director and Executive Vice President;
                                      President, PhibroChem Group

Richard G. Johnson        53       Chief Financial Officer

Joseph M. Katzenstein     60       Treasurer and Secretary

Steven L. Cohen           58       Vice President, General Counsel and Assistant
                                      Secretary

Peter A. Joseph           50       Director

Timothy P. Mayhew         34       Director

      JACK C.  BENDHEIM -- Director and Chairman of the Board.  Mr. Bendheim was
President from 1988 to 2002. He was Chief  Operating  Officer from 1988 to 1998,
and was appointed Chief Executive  Officer in 1998. He has been a director since
1984.  Mr.  Bendheim  joined the  Company in 1969 and served as  Executive  Vice
President  and Treasurer  from 1983 to 1988 and as Vice  President and Treasurer
from 1975 to 1983. Mr.  Bendheim is also a director of The Berkshire Bank in New
York, New York,  and Empire  Resources,  Inc., a metals trading  company in Fort
Lee, New Jersey.

      GERALD K.  CARLSON -- Chief  Executive  Officer.  Mr.  Carlson  joined the
Company in May 2002 and has served as its Chief  Executive  Officer  since then.
Prior to joining the Company,  Mr. Carlson served as the  Commissioner  of Trade
and  Development for the State of Minnesota from January 1999 to March 2001. Mr.
Carlson  served as Senior Vice  President - Corporate  Planning and  Development
from June 1996 to his  retirement in October 1998 from Ecolab,  Inc.  During his
thirty-two  year  career at  Ecolab,  Mr.  Carlson  also  served as Senior  Vice
President of  International as well as Senior Vice President and General Manager
- Institutional North America.

      MARVIN  S.  SUSSMAN  --  Director,  Vice  Chairman  and  President  of the
Company's  Animal Health Group.  He has been a director since 1988 and was Chief
Operating  Officer from 1998 to 2002.  Mr.  Sussman  joined the Company in 1971.
Since then, he has served in various  executive  positions at the Company and at
the Prince Group.  Mr. Sussman was President of the Company's  Prince Group from
1988 to 2002. Mr. Sussman is the brother-in-law of Jack Bendheim.

      JAMES O. HERLANDS -- Director and Executive Vice President,  and President
of  PhibroChem.  Mr.  Herlands  joined the Company in 1964.  Since then,  he has
served in various  capacities in sales/marketing  and purchasing.  He has been a
director  since  1988.  Since  1992,  Mr.  Herlands  has been  President  of the
Company's  PhibroChem  Group.  From 1988 to 1992,  Mr.  Herlands was Senior Vice
President of the Company. Mr. Herlands is the first cousin of Jack Bendheim.

      RICHARD G. JOHNSON -- Chief  Financial  Officer.  Mr.  Johnson  joined the
Company in September  2002 and has served as its Chief  Financial  Officer since
then.  Prior to joining the  Company,  Mr.  Johnson  served as Vice  President -
Planning and  Control,  Latin  America for Ecolab,  Inc.  from 1992 to 1999.  In
addition,  Mr. Johnson served in various  senior  financial  positions at Ecolab
over a fifteen year period.


                                       36
<PAGE>

      JOSEPH M. KATZENSTEIN -- Treasurer and Secretary.  Mr.  Katzenstein joined
the Company in 1962.  Since 1982,  he has been  Secretary  and  Treasurer of the
Company. Mr. Katzenstein served as corporate controller from 1966 to 1985.

      STEVEN L. COHEN -- Vice  President and General  Counsel.  Mr. Cohen joined
the Company in October  2000 and has served as its Vice  President -  Regulatory
and General  Counsel  since then.  Prior to joining the Company,  Mr. Cohen was,
from  1997 to  2000,  General  Counsel  of Troy  Corporation,  a  multi-national
chemical  company.  From 1994 to 1997, Mr. Cohen was in the private  practice of
law.

      PETER A.  JOSEPH --  Director.  Mr.  Joseph has served as  Director of the
Company  since  February  2001.  From 1998 to  present,  he has been a member of
Palladium  Equity  Partners,  LLC.  From 1986 to 1997,  Mr. Joseph was a general
partner of Joseph Littlejohn & Levy.

      TIMOTHY P. MAYHEW --  Director.  Mr.  Mayhew has served as Director of the
Company since March 2002. Mr. Mayhew co-founded  Palladium in 1997 and serves as
a member.  Prior to forming  Palladium,  Mr.  Mayhew was a principal  of Joseph,
Littlejohn & Levy, which he joined in 1993.

Item 11. Executive Compensation.

      The following table sets forth the cash  compensation  paid by the Company
and its  subsidiaries for services during fiscal 2002, 2001, and 2000 to each of
the Company's most highly compensated executive officers:

<TABLE>
<CAPTION>
                                                           Annual Compensation
                                                  ------------------------------------
     Name and                                                             Other Annual     All Other
Principal Position                       Year       Salary       Bonus    Compensation   Compensation**
------------------                       ----       ------       -----    ------------   --------------
<S>                                      <C>      <C>          <C>          <C>             <C>
Jack C. Bendheim ....................    2002     $1,500,000   $265,000     $     --        $6,000
Chairman                                 2001     $1,640,000   $600,000     $     --        $5,300
                                         2000     $1,500,000   $     --     $     --        $5,362

Gerald K. Carlson*** ................    2002     $   49,350   $     --     $     --        $   --
Chief Executive Officer

Marvin S. Sussman* ..................    2002     $1,000,000   $     --     $     --        $6,000
Director and Vice Chairman;              2001     $  733,500   $710,000     $     --        $5,300
President of Animal Health Group         2000     $  467,000   $667,600     $     --        $5,362

James O. Herlands ...................    2002     $  400,000   $150,000     $     --        $6,000
Executive Vice President;                2001     $  395,000   $382,500     $     --        $5,300
President of Phibrochem                  2000     $  382,000   $252,500     $     --        $5,362

David C. Storbeck**** ...............    2002     $  195,000   $     --     $     --        $2,690
Former Chief Financial Officer           2001     $   88,625   $     --     $     --        $   --

Steven L. Cohen**** .................    2002     $  175,000   $     --     $     --        $1,650
Vice President & General Counsel         2001     $  131,250   $     --     $     --        $   --
</TABLE>

----------
*     Pursuant to a Stockholders  Agreement between Mr. Sussman and the Company,
      the  Company is  required to  purchase,  at book value,  all shares of the
      Company's  Class B Common  Stock owned by Mr.  Sussman in the event of his
      retirement,  death, disability or the termination of his employment by the
      Company.  Should Mr.  Sussman elect to sell his shares,  the Company has a
      right of first offer and an option to purchase  the shares.  See  "Certain
      Relationships  and  Related  Transactions."  As a result,  each year,  the
      Company is required to record as compensation to Mr. Sussman the change in
      the book value of the Company  attributable to Mr. Sussman's  shares.  For
      2002, 2001 and 2000, the amount  attributable to Mr.  Sussman's shares was
      ($378,000),  ($3,135,000) and $1,137,000,  respectively.  No distributions
      have been made to Mr. Sussman under this agreement.

**    Represents  contributions  by the Company under its 401(k)  Retirement and
      Savings Plan. See "Compensation Pursuant to Plans."

***   Salary is since date of employment for 2002.

****  Salary is since  date of  employment  for 2001.  Mr.  Storbeck  terminated
      employment as an officer of the Company in September 2002.


                                       37
<PAGE>

      In fiscal  2002,  the  Company  granted no options to the named  executive
officers and no options  were held or  exercised  by any of the named  executive
officers.

Employment and Severance Agreements

      The Company entered into an employment agreement with Gerald K. Carlson in
May 2002,  whereby  Mr.  Carlson  will serve as the  Company's  Chief  Executive
Officer.  The agreement  provides for a base salary of $500,000 during the first
year of its term.  Mr.  Carlson is eligible to receive an annual  bonus of up to
150% of his base salary based on the Company's  achievement of certain specified
EBITDA growth targets.  If Mr. Carlson is terminated  without Cause (as defined)
or he voluntarily  terminates the agreement with Good Reason (as defined), he is
entitled to receive the accrued  portion of the target annual bonus,  as well as
an amount ranging from two to eight months of base salary depending on when such
termination  occurs.  If,  within  six  months  after a change  of  control  (as
defined),  Mr. Carlson is terminated without cause or he voluntarily  terminates
the  agreement  with Good  Reason,  he will be  entitled  to  receive a lump sum
payment  equal to the  amount  of annual  target  bonus  accrued  to the date of
termination,  plus 100% of base  salary  and 50% of  annual  target  bonus.  The
Company is obligated  under the  agreement to provide  separate  indemnification
insurance to Mr. Carlson in the amount of the current  coverage  provided to the
Company's current board of directors.

      The Company  entered into a severance  agreement and release with David C.
Storbeck in September,  2002. Under the terms of the agreement,  Mr. Storbeck is
entitled to receive  $200,000 payable over a twelve-month  period.  In addition,
the Company entered into a three month consulting agreement with Mr. Storbeck at
the rate of $1,000 per day.

      The Company entered into an employment agreement with Marvin S. Sussman in
December 1987. The term of employment is from year-to-year, unless terminated by
the Company at any time or by his death or permanent disability.

      In 1995, James O. Herlands  purchased stock in Phibro-Tech.  In connection
therewith,  the  Company  entered  into a  severance  agreement  with  him.  The
agreement provides that, upon his Actual or Constructive Termination or a Change
in Control Event (as such terms are  defined),  he is entitled to receive a cash
Severance  Amount (as defined  therein),  based upon a multiple of Phibro-Tech's
pre-tax earnings (as defined therein).  In addition,  if an Extraordinary  Event
(as  defined)  occurs  within 12 months  after  the  occurrence  of an Actual or
Constructive  Termination,  the  executive is entitled to receive an  additional
Catch-up  Payment (as defined).  At June 30, 2002, no severance  payments  would
have been due to Mr. Herlands if he were terminated.  See "Certain Relationships
and Related Transactions."

Compensation Pursuant to Plans

      401(k)  Plan.  The Company  maintains  for the benefit of its  employees a
401(k)   Retirement   and  Savings  Plan  (the  "Plan"),   which  is  a  defined
contribution, profit sharing plan qualified under Section 401(k) of the Internal
Revenue  Code of 1986,  as amended  (the  "Code").  Employees of the Company are
eligible  for  participation  in the Plan  once they  have  attained  age 21 and
completed  a year of service  (in which the  employee  completed  1,000 hours of
service).  Up to $200,000  (indexed for inflation) of an employee's  base salary
may be taken into account for Plan purposes.  Under the Plan, employees may make
pre-tax  contributions  of up to 60.0% of such employee's  base salary,  and the
Company will make non-matching  contributions  equal to 1% of an employee's base
salary  and  matching  contribution  equal  to 50.0%  of an  employee's  pre-tax
contribution  up to  3.0% of such  employee's  base  salary  and  25.0%  of such
employee's pre-tax  contribution from 3.0% to 6.0% of base salary.  Participants
are  vested  in  employer   contributions  in  20%  increments  beginning  after
completion  of the second year of service  and become  fully  vested  after five
years of  service.  Distributions  are  generally  payable  in a lump sum  after
termination of employment,  retirement,  death,  disability,  plan  termination,
attainment  of age 59 1/2,  disposition  of  substantially  all of the Company's
assets or upon  financial  hardship.  The Plan also  provides  for Plan loans to
participants.


                                       38
<PAGE>

      The accounts of Messrs. Bendheim,  Carlson, Sussman,  Herlands,  Storbeck,
and Cohen were credited  with  employer  contributions  of $6,000,  $0,  $6,000,
$6,000, $2,690 and $1,650, respectively, for fiscal 2002.

      Retirement  Plan. The Company has adopted The  Retirement  Plan of Philipp
Brothers  Chemicals Inc. and  Subsidiaries  and  Affiliates,  which is a defined
benefit  pension  plan (the  "Retirement  Plan").  Employees  of the Company are
eligible for participation in the Retirement Plan once they have attained age 21
and  completed  a year of  service  (which is a Plan Year in which the  employee
completes 1,000 hours of service).  The Retirement Plan provides  benefits equal
to the sum of (a)  1.0%  of an  employee's  "average  salary"  plus  0.5% of the
employee's  "average  salary" in excess of the average of the employee's  social
security  taxable wage base, times years of service after July 1, 1989, plus (b)
the employee's  frozen accrued  benefit,  if any, as of June 30, 1989 calculated
under the  Retirement  Plan  formula in effect at that  time.  For  purposes  of
calculating  the portion of the benefit  based on "average  salary" in excess of
the average wage base,  years of service shall not exceed 35.  "Average  salary"
for these purposes means the employee's  salary over the  consecutive  five year
period  in the last ten  years  preceding  retirement  or other  termination  of
employment which produces the highest average; or, if an employee has fewer than
five years of service,  all such years of service. An employee becomes vested in
his plan benefit once he  completes  five years of service with the Company.  In
general,  benefits are payable  after  retirement or disability in the form of a
50%, 75% or 100% joint or survivor annuity,  life annuity or life annuity with a
five or ten year term.  In some  cases  benefits  may also be payable  under the
Retirement Plan in the event of an employee's death.

      The  following  table  shows  estimated   annual  benefits   payable  upon
retirement  in  specified  compensation  and years of  service  classifications,
assuming a life annuity with a ten year term.

                                          Years of Service
                         -------------------------------------------------------
Average Compensation        15          20         25           30          35
--------------------     -------     -------     -------     -------     -------
$25,000 ............     $ 3,750     $ 5,000     $ 6,250     $ 7,500     $ 8,750
$50,000 ............     $ 7,500     $10,000     $12,500     $15,000     $17,500
$75,000 ............     $11,850     $15,120     $18,750     $22,500     $26,250
$100,000 ...........     $17,480     $22,620     $27,790     $32,990     $38,430
$150,000 ...........     $28,730     $37,620     $46,540     $55,490     $64,680
$200,000 ...........     $33,230     $43,620     $54,040     $64,490     $75,180

      As of June 30, 2002, Messrs.  Bendheim,  Carlson,  Sussman,  Herlands, and
Cohen  had  33,  0,  31,  38,  and  2  estimated   credited  years  of  service,
respectively,  under  the  Retirement  Plan.  The  compensation  covered  by the
Retirement Plan for each of these officers as of June 30, 2002 is $200,000. Such
individuals,  at age 65,  will  have 43,  6, 41,  43,  and 9  credited  years of
service,  respectively.  The annual expected benefit after normal  retirement at
age 65 for  each of these  individuals,  based on the  compensation  taken  into
account as of June 30,  2002,  is $109,380,  $13,880,  $124,900,  $122,510,  and
$19,510, respectively.

      Most of the Company's foreign  subsidiaries have retirement plans covering
substantially  all  employees.   Contributions  to  these  plans  are  generally
deposited  under  fiduciary-type  arrangements.  Benefits  under these plans are
primarily  based on  levels  of  compensation.  Funding  policies  are  based on
applicable legal requirements and local practices.

      Deferred  Compensation  Plan. In 1994, the Company adopted a non-qualified
Deferred  Compensation  Plan and Trust, as an incentive for certain  executives.
The plan  provides  for (i) a Retirement  Income  Benefit (as  defined),  (ii) a
Survivor's Income Benefit (as defined),  and (iii) Deferred Compensation Benefit
(as defined).  Three employees  currently  participate in this plan. A trust has
been established to provide the benefits described above.

      The following table shows the estimated benefits from this plan as of June
30, 2002.


                                       39
<PAGE>

                                     Annual       Survivor's       Deferred
                                   Retirement      Income        Compensation
                                 Income Benefit    Benefit         Benefit
                                 --------------    -------         -------
Jack C. Bendheim ............       $23,342       $1,500,000       $259,941
James O. Herlands ...........       $23,342       $  780,000       $232,975
Marvin S. Sussman ...........       $23,342       $1,500,000       $ 87,998

      The Retirement  Income Benefit is determined by the Company based upon the
employee's  salary,  years of service and age at retirement.  At present,  it is
contemplated that a benefit of 1% of each  participant's  eligible  compensation
will be accrued each year. The benefit is payable upon retirement  (after age 65
with at least 10 years of service) in monthly installments over a 15 year period
to the participant or his named  beneficiary.  The Survivor's Income Benefit for
the current  participants  is two times  annualized  compensation at the time of
death,  capped at  $1,500,000,  payable in 24 equal  monthly  installments.  The
Deferred  Compensation Benefit is substantially funded by compensation  deferred
by the participants. Such benefit is based upon a participant making an election
to defer no less than  $3,000 and no more than  $20,000 of his  compensation  in
excess of $150,000,  payable in a lump sum or in monthly  installments for up to
15 years.  The  Company  makes a matching  contribution  of $3,000.  The plan is
substantially funded.  Participants have no claim against the Company other than
as  unsecured  creditors.  To assist in  providing  benefits,  the  Company  has
obtained a life insurance policy on each participant.

      Executive  Income  Program.  On March 1, 1990, the Company entered into an
Executive  Income  Program  to  provide a  pre-retirement  death  benefit  and a
retirement  benefit to certain of its  executives.  The  Program  consists  of a
Split-Dollar Agreement and a Deferred Compensation Agreement with Jack Bendheim,
Marvin S. Sussman and James O.  Herlands  (the  "Executives").  The Split Dollar
Agreement  provides for the Company to own a whole life insurance  policy in the
amount of $1,000,000 (plus additions) on the life of each Executive.

      Each policy also contains  additional  paid-up insurance and extended term
insurance.  On the  death of the  Executive  prior to his 60th  birthday  or his
actual  retirement  date,  whichever is later:  (i) the first  $1,000,000 of the
death benefit is payable to the Executive's spouse, or issue; (ii) the excess is
payable  to the  Company  up to the  aggregate  amount of  premiums  paid by the
Company;  and (iii) any balance is payable to the  Executive's  spouse or issue.
The Split-Dollar Agreement terminates and no benefit is payable if the Executive
dies after his retirement from the Company. The Deferred Compensation  Agreement
provides that upon the Executive's retirement, at or after attaining age 65, the
Company will make a monthly  retirement payment to the Executive during his life
for 10  years  or until he or his  beneficiaries  have  received  a total of 120
monthly payments.  The Company intends to fund the payments using the cash value
or the death benefit from the life insurance  policy  insuring each  Executive's
life.  The monthly  retirement  benefits are as follows:  Jack Bendheim  $2,500;
Marvin S. Sussman $2,500; and James O. Herlands $1,666.

Meetings and Compensation of Directors

      During fiscal 2002,  the Board of Directors  took certain  actions by both
written  consent and at regular  meetings.  Directors  are elected  annually and
serve until the next annual meeting of  Shareholders  or until their  successors
are elected  and  qualified.  The  Company's  directors  do not receive any cash
compensation  for  service  on the  Board of  Directors,  but  directors  may be
reimbursed for certain expenses in connection with attendance at board meetings.
The Company has entered into certain transactions with certain of the directors.
See "Certain Relationships and Related Transactions."

Committees of the Board of Directors

      The Company's Board of Directors has not created any committees.


                                       40
<PAGE>

Report of Board of Directors as to Compensation

      The  Company  does  not  have a  Compensation  Committee  or  other  Board
Committee performing equivalent functions.  Executive compensation is determined
by the  Board  as a  whole.  During  fiscal  2002,  Messrs.  Bendheim,  Sussman,
Herlands,  Joseph and Adam Karr  (prior to his  resignation  in March  2002) and
Mayhew  (after his  appointment  in March 2002)  participated  in  deliberations
regarding compensation of the Company's officers.

Compensation Committee Interlocks and Insider Participation

      Jack Bendheim,  Marvin S. Sussman and James O. Herlands are Members of the
Board of Directors and executive  officers of the Company.  No executive officer
of the  Company  serves  as a member  of the  Board of  Directors  of any  other
non-Company  entity  which has one or more  members  serving  as a member of the
Company's  Board of  Directors.  Messrs.  Bendheim,  Sussman and  Herlands  have
participated in certain  transactions  with the Company and its subsidiaries and
affiliates. See "Certain Relationships and Related Transactions."

Item 12. Security Ownership of Certain Beneficial Owners and Management.

      The table sets forth  certain  information  as of June 30, 2002  regarding
beneficial  ownership of the Company's  capital stock by each director and named
executive  officer of the Company,  each  beneficial  owner of 5% or more of the
outstanding shares of capital stock and all directors and officers as a group.

                                         Number of Shares (Percentage of Class)
                                         --------------------------------------
Name                                     Class A Voting(1)    Class B Voting(2)
----                                     -----------------    -----------------
Jack Bendheim(3)........................  12,600 (100%)       10,699.65 (90%)(4)
Marvin S. Sussman ......................        --             1,188.85 (10%)
All other officers and directors(5).....        --                    --
All officers and directors as a group...  12,600 (100%)       11,888.50 (100%)

----------
(1)   The entire  voting  power of the  Company is  exercised  by the holders of
      Class A Common  Stock,  except  that the  holders of Class B Common  Stock
      elect one director but do not vote on any other matters.

(2)   Class B  shareholders  will receive the entire  equity of the Company upon
      its liquidation, after payment of preferences to holders of all classes of
      preferred stock and Class A Common Stock.

(3)   Jack Bendheim also owns 5,207 (100%) shares of Series A Preferred Stock.

(4)   Includes  4,414.886  shares  owned  by  trusts  for  the  benefit  of Jack
      Bendheim,   his  spouse,   his   children   and  their   spouses  and  his
      grandchildren.

(5)   Peter A. Joseph and Timothy P. Mayhew have been designated as directors of
      the Company by Palladium  Equity  Partners,  LLC which  beneficially  owns
      25,000 and 20,000  shares of the  Company's  Class B and Class C Preferred
      Stock, respectively.

Item 13. Certain Relationships and Related Transactions.

      Phibro-Tech   leases  the  property   underlying  its  Santa  Fe  Springs,
California   facility  from  First  Dice  Road  Company,  a  California  limited
partnership ("First Dice"), in which Jack Bendheim,  the Company's President and
principal stockholder, Marvin S. Sussman and James O. Herlands, directors of the
Company, own 39.0%, 40.0% and 20.0% limited partnership interests, respectively.
The  general  partner,  having a 1%  interest  in the  partnership,  is  Western
Magnesium  Corp.,  a  wholly-owned  subsidiary  of the  Company,  of which  Jack
Bendheim is the  president.  The lease expires on June 30, 2008. The annual rent
is  $250,000.  Phibro-Tech  is also  required  to pay all real  property  taxes,
personal property taxes and liability and property insurance  premiums.  In June
2001,  Jack  Bendheim  entered  into a secured  $1.4  million  revolving  credit
arrangement  with First Union  National  Bank,  which replaced a prior loan from
Fleet Bank. Mr. Bendheim reloans borrowings under the First Union credit line to
First Dice on the same terms as his  borrowing  from First  Union.  The  Company
believes that the terms of such lease and loan are on terms no


                                       41
<PAGE>

less favorable to Phibro-Tech  than those that  reasonably  could be obtained at
such  time  in  a  comparable   arm's-length   transaction   from  an  unrelated
third-party.

      Pursuant to a  Shareholders  Agreement  dated  December  29, 1987  between
Marvin S. Sussman and the Company, the Company is required to purchase,  at book
value, all shares of the Company's Class B Common Stock owned by Mr. Sussman, in
the event of his retirement,  death,  permanent disability or the termination of
his employment by the Company.  Should Mr. Sussman elect to sell his shares, the
Company has a right of first offer and an option to purchase the shares.

      A Shareholders  Agreement  initially entered into by Phibro-Tech and three
executives  of  Phibro-Tech,  including  James O.  Herlands  (the  "Executives")
provides,  among other things,  for  restrictions  on their shares as to voting,
dividends,  liquidation and transfer  rights.  The  Shareholders  Agreement also
provides that upon the death of an Executive or  termination  of an  Executive's
employment,  Phibro-Tech  must  purchase  the  Executive's  shares at their fair
market value, as determined by a qualified  appraiser.  In the event of a Change
of Control  (as  defined),  the  Executive  has the option to sell his shares to
Phibro-Tech at such value. The Shareholders  Agreement provides,  that, upon the
consent of Phibro-Tech,  the Executives and the Company,  the Executives' shares
of  Phibro-Tech  Common  Stock  may be  exchanged  for a number of shares of the
Company's  Common  Stock,  which  may be  non-voting  Common  Stock,  having  an
equivalent value, and upon any such exchange such shares of the Company's Common
Stock will  become  subject  to the  Shareholders  Agreement.  The  Company  and
Phibro-Tech  also entered into Severance  Agreements  with the Executives  which
provide,  among other things,  for certain  severance  payments.  See "Executive
Compensation--Employment and Severance Agreements."

      In connection  with the retirement of Nathan Z. Bistricer from the Company
and Phibro-Tech in January,  2001, pursuant to the Shareholders  Agreement among
the executives and Phibro-Tech, the Company paid $855,000 in connection with the
repurchase  of 71.67  shares  of his  Class B Common  Stock of  Phibro-Tech.  In
addition,  in  satisfaction  of  Phibro  Tech's  severance  obligation  under  a
Severance Agreement between Phibro Tech and Mr. Bistricer, the Company agreed to
pay $516,070 in twenty-four  (24) equal monthly  installments to Mr.  Bistricer.
The Company also agreed to provide certain unspecific  out-placement services to
Mr. Bistricer not to exceed $15,000 in total costs and fees.

      The  Company  has  periodically  advanced  funds  to  Jack  Bendheim  on a
short-term, non-interest-bearing basis.

      The Company has advanced  $200,000 to Marvin Sussman and his wife pursuant
to a secured promissory note that is payable on demand and bears interest at the
annual rate of 9%.

      Mr. Philip Bendheim,  brother of Jack C. Bendheim,  received directly,  or
through  his  consulting  firm Ceres  Advisors,  annual  aggregate  payments  of
approximately $115,000 for the fiscal year ended June 30, 2002.

      In  connection  with  the  sale of the  Company's  Series  B and  Series C
Preferred  Stock to  Palladium  Equity  Partners LLC and related  entities  (the
"Palladium   Investors"),   the  Company  and  Jack  Bendheim   entered  into  a
Stockholders Agreement (the "Palladium  Stockholders  Agreement") dated November
30, 2000 with the  Palladium  Investors.  The Palladium  Stockholders  Agreement
provides for the Company's Board to be comprised of five Directors, at least two
of whom will be  designees  of the  Palladium  Investors.  Peter A.  Joseph  and
Timothy P. Mayhew are designees of the Palladium  Investors currently serving as
Directors of the Company.  If and for so long as the Company fails to redeem any
share of Series B or Series C Preferred  Stock  requested  for  redemption  by a
Palladium  Investor  after the  earliest to occur of June 1, 2008 (the  maturity
date of the Company's 9 7/8% Senior Subordinated Notes due 2008), the redemption
of such Notes in full prior thereto or a change in control of the Company,  then
(x) the  Palladium  Investors  may take control of the Board of Directors of the
Company,  and (y) Jack C.  Bendheim  has agreed to cause all  equity  securities
owned by him to be voted in the  manner  directed  by the  Palladium  Investors;
provided,  that, the Company must pay Jack Bendheim and Marvin Sussman,  whether
or not employed by the Company,  an amount not less than their respective annual
base salaries in effect  immediately prior to such assumption of control,  until
the earlier to occur of the expiration of control by the Palladium Investors and
the fifth anniversary of their assumption of control.


                                       42
<PAGE>

      The Palladium  Stockholders  Agreement  contains covenants with respect to
the  Company  which  restrict,  without  the  consent  of at least one  director
designated by the Palladium  Investors  (or, if no such director is then serving
on the Board, at least one Palladium Investor),  among other things, certain (a)
issuances of shares,  (b) sales of assets, (c) purchases of businesses and other
investments,  (d) the  incurrence of  indebtedness,  including  guarantees,  (e)
payment of dividends and other  restricted  payments,  including  redemptions or
purchases of stock,  (f)  transactions  with  affiliates,  (g)  compensation and
benefits of certain officers,  and (h) mergers and  acquisitions.  The Palladium
Stockholders  Agreement  also  provides  that  the  Company  shall  furnish  the
Palladium  Investors certain financial  reporting and environmental  information
each year and grant to the Palladium Investors registration rights comparable to
any such rights granted to any third party, and requires the Company to maintain
certain  key man life  insurance  on Jack C.  Bendheim  for the  benefit  of the
Palladium  Investors.  The Palladium  Stockholders  Agreement  provides  certain
limitations on the ability of Jack C. Bendheim to transfer  voting shares of the
Company,  and certain  limitations on the ability of the Palladium  Investors to
transfer  their  shares of the  Company,  including a right of first  refusal in
favor of the Company and Mr. Bendheim.

      Pursuant to the Management and Advisory Services  Agreement dated November
30, 2000 between the Company and the Palladium Investors,  the Company agreed to
pay, on a quarterly basis, the Palladium Investors an annual management advisory
fee of $2.25  million  until  such time as all  shares of Series B and  Series C
Preferred Stock are redeemed.

      On January 5, 2000,  the United  States  Bankruptcy  Court for the Eastern
District of New York confirmed a Plan of Reorganization  for Penick  Corporation
and Penick  Pharmaceutical,  Inc.  (collectively,  "Penick") which prior to such
confirmation were debtors in proceedings in such Court for reorganization  under
Chapter 11 of the Bankruptcy  Code, and awarded Penick to Penick Holding Company
("PHC").  PHC is a corporation formed to effect such acquisition by the Company,
PBCI LLC, a limited  liability company  controlled by Mr. Bendheim,  and several
other  investors.  Pursuant a Shareholders'  Agreement among the shareholders of
PHC, Mr.  Bendheim has been designated as one of three directors of PHC, and Mr.
Katzenstein,  the Secretary and Treasurer of the Company, has been designated as
Secretary and Treasurer of PHC. The Company has invested  $1,980,000  for shares
of Series A  Preferred  Stock of PHC bearing an 8.5  percent  annual  cumulative
dividend,  and PBCI LLC  invested  approximately  $20,000  for 20 percent of the
Common Stock of PHC.

      The Company's policy with respect to the sale, lease or purchase of assets
or  property of any related  party is that such  transaction  should be on terms
that are no less favorable to the Company or its subsidiary, as the case may be,
than those that could  reasonably  be  obtainable  at such time in a  comparable
arm's length transaction from an unrelated third party, on the same basis as the
Indenture for the Senior  Subordinated  Notes and the Company's secured domestic
credit agreement.  The Indenture and the credit agreement both include a similar
restriction  on the Company and its  domestic  subsidiaries  with respect to the
sale, purchase,  exchange or lease of assets,  property or services,  subject to
certain limitations as to the applicability thereof.

Item 14. Internal Controls.

      (a) Evaluation of disclosure controls.

          Not applicable.

      (b) Changes in internal controls.

          None


                                       43
<PAGE>

                                     PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

      (a) Exhibits

Exhibit No.                         Description of Exhibit

3.1      Composite Certificate of Incorporation of Registrant(7)

3.2      By-laws of Registrant(1)

4.1      Indenture, dated as of June 11, 1998, among Registrant, the Guarantors
         named therein and The Chase Manhattan Bank, as trustee, relating to the
         9 7/8% Senior Subordinated Notes due 2008 of Registrant, and exhibits
         thereto, including Form of 9 7/8% Senior Subordinated Note due 2008 of
         Company(1)

4.1.1    Supplemental Indenture, dated as of November 30, 2000, among
         Registrant, the Guarantors named therein and The Chase Manhattan Bank,
         as trustee, relating to the 9 7/8% Senior Subordinated Notes due 2008
         of Registrant(7)

         Certain instruments which define the rights of holders of long-term
         debt of Registrant and its consolidated subsidiaries have not been
         filed as Exhibits to this Report since the total amount of securities
         authorized under any such instrument does not exceed 10% of the total
         assets of Registrant and its subsidiaries on a consolidated basis, as
         of June 30, 2002. For a description of such indebtedness, see Note 7 of
         Notes to Consolidated Financial Statements. Registrant hereby agrees to
         furnish copies of such instruments to the Securities and Exchange
         Commission upon its request.

10.1     Amended and Restated Revolving Credit, Capital Expenditure Line and
         Security Agreement, dated November 30, 2000, among Registrant, the
         Guarantors thereunder and PNC Bank, National Association ("PNC")(4)

10.1.1   First Amendment to Amended and Restated Revolving Credit, Capital
         Expenditure Line and Security Agreement, dated September 28, 2001 and
         effective June 30, 2001, among Registrant, the Guarantors thereunder
         and PNC(7)

10.1.2   Second Amendment to Amended and Restated Revolving Credit, Capital
         Expenditure Line and Security Agreement, dated October 18, 2002 among
         Registrant, the Guarantors thereunder and PNC(8)

10.2     Manufacturing Agreement, dated May 15, 1994, by and between Merck &
         Co., Inc., Koffolk, Ltd., and Registrant(1)+

10.3     Lease, dated July 25, 1986, between Registrant and 400 Kelby
         Associates, as amended December 1, 1986 and December 30, 1994(1)

10.4     Lease, dated June 30, 1995, between First Dice Road Co. and
         Phibro-Tech, Inc., as amended May 1998(1)

10.5     Lease, dated December 24, 1981, between Koffolk (1949) Ltd. and Israel
         Land Administration(1)

10.6     Master Lease Agreement, dated February 27, 1998, between General
         Electric Capital Corp., Registrant and Phibro-Tech, Inc.(1)

10.7     Stockholders Agreement, dated December 29, 1987, by and between
         Registrant, Charles H. Bendheim, Jack C. Bendheim and Marvin S.
         Sussman(1)

10.8     Employment Agreement, dated December 29, 1987, by and between
         Registrant and Marvin S. Sussman(1)++

10.9     Stockholders Agreement, dated February 21, 1995, between James O.
         Herlands and Phibro-Tech, Inc., as amended as of June 11, 1998(1)

10.10    Form of Severance Agreement, dated as of February 21, 1995, between
         Registrant and James O. Herlands(1)++

10.11    Agreement of Limited Partnership of First Dice Road Company, dated June
         1, 1985, by and among Western Magnesium Corp., Jack Bendheim, Marvin S.
         Sussman and James O. Herlands, as amended November 1985(1)


                                       44
<PAGE>

10.12    Philipp Brothers Chemicals, Inc. Retirement Income and Deferred
         Compensation Plan Trust, dated as of January 1, 1994, by and between
         Registrant on its own behalf and on behalf of C.P. Chemicals, Inc.,
         Phibro-Tech, Inc. and the Trustee thereunder; Philipp Brothers
         Chemicals, Inc. Retirement Income and Deferred Compensation Plan, dated
         March 18, 1994 ("Retirement Income and Deferred Compensation
         Plan")(1)++

10.12.1  First, Second and Third Amendments to Retirement Income and Deferred
         Compensation Plan.(2)++

10.13    Form of Executive Income Deferred Compensation Agreement, each dated
         March 11, 1990, by and between Registrant and each of Jack Bendheim,
         James Herlands and Marvin Sussman(1)++

10.14    Form of Executive Income Split Dollar Agreement, each dated March 1,
         1990, by and between Registrant and each of Jack Bendheim, James
         Herlands and Marvin Sussman(1)++

10.15    Supply Agreement, dated as of September 28, 1998, between BOC Limited
         and Registrant(1)

10.16    Administrative Consent Order, dated March 11, 1991, issued by the State
         of New Jersey Department of Environmental Protection, Division of
         Hazardous Waste Management, to C.P. Chemicals, Inc.(1)

10.17    Agreement for Transfer of Ownership, dated as of June 8, 2000, between
         C. P. Chemicals, Inc. ("CP") and the Township of Woodbridge
         ("Township"), and related Environmental Indemnification Agreement,
         between CP and Township, and Lease, between Township and CP(2)

10.18    Stockholders' Agreement, dated as of January 5, 2000, among
         shareholders of Penick Holding Company ("PHC"), and Certificate of
         Incorporation of PHC and Certificate of Designation, Preferences and
         Rights of Series A Redeemable Cumulative Preferred Stock of PHC(2)

10.19    Separation Agreement among Registrant, Phibro Tech, Inc. and Nathan
         Bistricer dated as of October 4, 2000(3)

10.20    Stock Purchase Agreement between Phibro Tech, Inc. and Nathan Bistricer
         dated as of October 4, 2000(3)

10.21    Asset Purchase Agreement, dated as of September 28, 2000, among Pfizer,
         Inc., the Asset Selling Corporations (named therein) and Registrant,
         and various exhibits and certain Schedules thereto(3)+

10.22    Stock Purchase Agreement, dated as of November 30, 2000, between
         Registrant and the Purchasers (as defined therein)(4)

10.23    Stockholders' Agreement, dated as of November 30, 2000, among
         Registrant, the Investor Stockholders (as defined therein) and Jack C.
         Bendheim(4)

10.24    United States Asset Purchase Agreement between Phibro-Tech, Inc. and
         Nufarm, Inc. dated as of May 1, 2001(5)

10.24.1  Amendment No. 1 to United States Asset Purchase Agreement between
         Phibro-Tech, Inc. and Nufarm, Inc. dated as of June 14, 2001(6)

10.25    Supply Agreement between Phibro-Tech, Inc. and Nufarm, Inc. dated as of
         May 1, 2001(5)

10.26    License Agreement between Phibro-Tech, Inc. and Nufarm, Inc. dated as
         of May 1, 2001(5)

10.27    Management and Advisory Services Agreement dated November 30, 2000
         between Registrant and Palladium Equity Partners, L.L.C.(7)++

10.28    Employment Agreement, dated May 28, 2002, by and between Registrant and
         Gerald K. Carlson(8)++

10.29    Agreement and General Release, and Consulting Agreement dated as of
         September 11, 2002, by and between Registrant and David C. Storbeck(8)
         ++

21       List of Subsidiaries(8)

----------
1     Filed as an Exhibit to the Registrant's Registration Statement on Form
      S-4, No. 333-64641.

2     Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the
      fiscal year ended June 30, 2000.


                                       45
<PAGE>

3     Filed as an Exhibit to the Registrant's Report on Form 10-Q for the
      quarter ended September 30, 2000.

4     Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
      November 30, 2000.

5     Filed as an Exhibit to the Registrant's Report on Form 10-Q for the
      quarter ended March 31, 2001.

6     Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
      June 14, 2001.

7     Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the
      fiscal year ended June 30, 2001.

8     Filed herewith.

+     A request for confidential treatment has been granted for portions of such
      document. Confidential portions have been omitted and filed separately
      with the SEC as required by Rule 406(b).

++    This Exhibit is a management compensatory plan or arrangement.

      (b) Financial Statement Schedules

      All supplemental schedules are omitted because of the absence of
conditions under which they are required or because the information is shown in
the financial statements or notes thereto or in other supplemental schedules.

      (c) Reports on Form 8-K.

      The Company filed no reports on Form 8-K during the last quarter of the
fiscal year ended June 30, 2002.


                                       46
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Report of Independent Accountants                                            F-2
Consolidated Balance Sheets-June 30, 2002 and 2001                           F-3
Consolidated Statements of Operations and Comprehensive
  Income-for the years ended June 30, 2002, 2001 and 2000                    F-4
Consolidated Statements of Changes in Stockholders'
  Equity-for the years ended June 30, 2002, 2001 and 2000                    F-5
Consolidated Statements of Cash Flows-for the years ended
  June 30, 2002, 2001 and 2000                                               F-6
Notes to Consolidated Financial Statements                                   F-7


                                      F-1
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders of Philipp Brothers Chemicals, Inc.:

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated  statements  of operations  and  comprehensive  income,  changes in
stockholders'  equity and cash flows present fairly,  in all material  respects,
the financial position of Philipp Brothers Chemicals,  Inc. and its subsidiaries
at June 30,  2002 and June 30,  2001,  and the results of their  operations  and
their cash flows for each of the three years in the period  ended June 30, 2002,
in conformity with accounting principles generally accepted in the United States
of America.  These financial  statements are the responsibility of the Company's
management;  our  responsibility  is to express  an  opinion on these  financial
statements  based on our audits.  We conducted our audits of these statements in
accordance with auditing  standards  generally  accepted in the United States of
America,  which require that we plan and perform the audit to obtain  reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Florham Park, New Jersey
October 9, 2002, except for Notes 1, 3 and 7,
for which the date is October 18, 2002


                                      F-2
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                          As of June 30, 2002 and 2001

               (In Thousands, except share and per share amounts)

                      ASSETS                               2002         2001
                                                         ---------    ---------
CURRENT ASSETS:
     Cash and cash equivalents                           $   6,419    $  14,845
     Trade receivables, less allowance for doubtful
         accounts of $2,927 at June 30, 2002 and
         $2,369 at June 30, 2001                            65,161       77,910
     Other receivables                                       3,912        4,800
     Inventories                                            93,517       83,796
     Prepaid expenses and other current assets              15,965       17,448
                                                         ---------    ---------
            TOTAL CURRENT ASSETS                           184,974      198,799

PROPERTY, PLANT AND EQUIPMENT, net                          84,730      102,323

INTANGIBLES                                                 13,200        5,594

OTHER ASSETS                                                13,540       23,303
                                                         ---------    ---------
                                                         $ 296,444    $ 330,019
                                                         =========    =========

         LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Cash overdraft                                      $   7,767    $   4,222
     Loans payable to banks                                 41,535       28,463
     Current portion of long-term debt                       8,851        5,404
     Accounts payable                                       42,280       51,304
     Accrued expenses and other current liabilities         34,080       35,378
                                                         ---------    ---------
            TOTAL CURRENT LIABILITIES                      134,513      124,771

LONG-TERM DEBT                                             136,641      139,464

OTHER LIABILITIES                                           29,877       13,021
                                                         ---------    ---------
            TOTAL LIABILITIES                              301,031      277,256
                                                         ---------    ---------

COMMITMENTS AND CONTINGENCIES

REDEEMABLE SECURITIES:
     Series B and C preferred stock                         56,602       48,980
     Common stock                                               --          378
                                                         ---------    ---------
            TOTAL REDEEMABLE SECURITIES                     56,602       49,358
                                                         ---------    ---------

STOCKHOLDERS' EQUITY:
     Preferred stock-$100 par value, 150,543
         shares authorized, none issued at                     521          521
         June 30, 2002 and 2001; Series A
         Preferred Stock-$100 par value, 6%
         non-cumulative, 5,207 shares authorized
         and issued at June 30, 2002 and 2001
     Common stock-$0.10 par value, 30,300 shares                 2            2
         authorized and 24,488 shares issued at
         June 30, 2002 and 2001
     Paid-in capital                                           740          878
     Retained earnings                                     (49,652)       9,741
     Accumulated other comprehensive income (loss) -
         gain on derivative instruments                      1,062           --
         cumulative currency translation adjustment        (13,862)      (7,737)
                                                         ---------    ---------
            TOTAL STOCKHOLDERS' EQUITY                     (61,189)       3,405
                                                         ---------    ---------
                                                         $ 296,444    $ 330,019
                                                         =========    =========

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-3
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES

         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

                For the Years Ended June 30, 2002, 2001 and 2000

                                 (In Thousands)

                                                2002        2001        2000
                                              --------    --------    --------

NET SALES                                     $388,813    $364,410    $323,026

COST OF GOODS SOLD (2002 includes $14,458
    of incremental depreciation for planned
    asset shutdown - See Note 2)               322,347     291,137     249,582
                                              --------    --------    --------
    GROSS PROFIT                                66,466      73,273      73,444

SELLING, GENERAL AND ADMINISTRATIVE
    EXPENSES                                    81,331      72,297      59,251

ASSET WRITEDOWNS                                 6,799          --          --

CURTAILMENT OF OPERATIONS AT
    MANUFACTURING FACILITY                          --          --      (1,481)
                                              --------    --------    --------
    OPERATING (LOSS) INCOME                    (21,664)        976      15,674

OTHER:
    Interest expense                            18,158      18,297      14,754
    Interest income                               (356)       (566)       (600)
    Other (income) expense, net                 (1,243)      2,561       2,230
    Gain from property damage claim                 --          --        (946)
    Gains from sale of assets                     (112)     (2,440)    (13,763)
                                              --------    --------    --------
    (LOSS) INCOME BEFORE INCOME TAXES          (38,111)    (16,876)     13,999

PROVISION (BENEFIT) FOR INCOME TAXES            13,659      (1,981)      3,946
                                              --------    --------    --------
    NET (LOSS) INCOME                          (51,770)    (14,895)     10,053

OTHER COMPREHENSIVE INCOME (LOSS) -
    Gain on derivative instruments               1,062          --          --
    Change in foreign currency
      translation adjustment                    (6,125)     (5,146)         55
                                              --------    --------    --------
    COMPREHENSIVE (LOSS) INCOME               $(56,833)   $(20,041)   $ 10,108
                                              ========    ========    ========

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-4
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                For the Years Ended June 30, 2000, 2001 and 2002

                                 (In Thousands)

<TABLE>
<CAPTION>
                                              Preferred           Common
                                                Stock              Stock                                    Accumulated
                                              ---------      ------------------                                Other
                                                             Class        Class       Paid-in    Retained  Comprehensive
                                               Series A       "A"          "B"        Capital    Earnings  (Loss) Income-    Total
                                              ---------      -----        -----       -------    --------  --------------    -----
<S>                                            <C>          <C>          <C>         <C>         <C>          <C>          <C>
BALANCE, JULY 1, 1999                          $    521     $      1     $      1    $    816    $ 22,755     $ (2,646)    $ 21,448

   Foreign currency translation
    adjustment                                                                                                      55           55

   Receivable from principal
    shareholder                                                                            62                                    62

   Net income                                                                                      10,053                    10,053
                                               --------     --------     --------    --------    --------     --------     --------
BALANCE, JUNE 30, 2000                         $    521     $      1     $      1    $    878    $ 32,808     $ (2,591)    $ 31,618
                                               ========     ========     ========    ========    ========     ========     ========
   Accretion of redeemable
    preferred securities to fair
    market value                                                                                   (4,192)                   (4,192)

   Dividends on Series B and C
    redeemable preferred stock                                                                     (3,980)                   (3,980)

   Foreign currency translation
    adjustment                                                                                                  (5,146)      (5,146)

   Net loss                                                                                       (14,895)                  (14,895)
                                               --------     --------     --------    --------    --------     --------     --------
BALANCE, JUNE 30, 2001                         $    521     $      1     $      1    $    878    $  9,741     $ (7,737)    $  3,405
                                               ========     ========     ========    ========    ========     ========     ========
   Dividends on Series B and C
    redeemable preferred stock                                                                     (7,623)                   (7,623)

   Gain on derivative
    instruments                                                                                                  1,062        1,062

   Foreign currency translation
    adjustment                                                                                                  (6,125)      (6,125)

   Receivable from principal
    shareholder                                                                          (138)                                 (138)

   Net loss                                                                                       (51,770)                  (51,770)
                                               --------     --------     --------    --------    --------     --------     --------
BALANCE, JUNE 30, 2002                         $    521     $      1     $      1    $    740    $(49,652)    $(12,800)    $(61,189)
                                               ========     ========     ========    ========    ========     ========     ========
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-5
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                For the Years Ended June 30, 2002, 2001 and 2000

                                 (In Thousands)

<TABLE>
<CAPTION>
                                                       2002        2001        2000
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
OPERATING ACTIVITIES:
   Net (loss) income                                 $(51,770)   $(14,895)   $ 10,053
   Adjustments to reconcile net (loss)
    income to net cash (used in) provided
    by operating activities:
     Depreciation and amortization                     31,548      13,832      11,866
     Deferred income taxes                             10,972      (7,568)      1,438
     Provision for curtailment of operations
       at manufacturing facility                           --          --      (1,481)
     Gain from property damage claim                       --          --      (1,053)
     Gains from sale of assets                           (112)     (2,440)    (13,763)
     Change in redemption amount of
       redeemable common stock                           (378)     (3,491)      1,007
     Asset writedowns                                   6,799          --          --
     Effects of changes in foreign currency             2,120          --          --
     Other                                              2,161       2,291         727

     Changes in operating assets and liabilities,
      net of effect of businesses acquired:
       Accounts receivable                             10,341      (1,409)     (8,281)
       Inventories                                    (12,140)     (1,999)        584
       Prepaid expenses and other current assets       (1,043)      4,987      (2,282)
       Other assets                                     3,204       2,203      (1,545)
       Accounts payable                                (9,889)     19,469      (3,768)
       Accrued expenses and other current
         liabilities                                    3,442       2,161      (1,411)
                                                     --------    --------    --------
       NET CASH (USED IN) PROVIDED BY OPERATING
         ACTIVITIES                                    (4,745)     13,141      (7,909)
                                                     --------    --------    --------

INVESTING ACTIVITIES:
   Capital expenditures                               (11,346)    (14,544)    (22,604)
   Acquisition of businesses, net of cash acquired     (7,182)    (51,700)         --
   Proceeds from property damage claim                    411          --       3,999
   Proceeds from sale of assets                           173      26,470      18,750
   Other investing                                        583        (375)     (4,203)
                                                     --------    --------    --------
       NET CASH USED IN INVESTING ACTIVITIES          (17,361)    (40,149)     (4,058)
                                                     --------    --------    --------

FINANCING ACTIVITIES:
   Cash overdraft                                       3,438       2,654         682
   Net increase (decrease) in short-term debt          12,656      (8,006)      4,189
   Proceeds from long-term debt                         2,322       9,363      18,286
   Proceeds from issuance of redeemable preferred
     stock                                                 --      45,000          --
   Payments of long-term debt                          (4,739)     (4,924)    (11,871)
   Other financing                                         --      (4,192)         62
                                                     --------    --------    --------
       NET CASH PROVIDED BY FINANCING ACTIVITIES       13,677      39,895      11,348
                                                     --------    --------    --------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                     3        (445)         --
                                                     --------    --------    --------
       NET (DECREASE) INCREASE IN CASH AND CASH
         EQUIVALENTS                                   (8,426)     12,442        (619)

CASH AND CASH EQUIVALENTS at beginning of period       14,845       2,403       3,022
                                                     --------    --------    --------
       CASH AND CASH EQUIVALENTS at end of period    $  6,419    $ 14,845    $  2,403
                                                     ========    ========    ========
Supplementary Cash Flow Information:

   Interest paid                                     $ 17,173    $ 16,810    $ 13,694
                                                     ========    ========    ========
   Income taxes paid                                 $  2,880    $  1,320    $  1,355
                                                     ========    ========    ========

Summary of significant noncash investing
and financing activities:

   Capital lease additions                           $     --    $     --    $  1,536
                                                     ========    ========    ========
   Debt issued in connection with acquisition        $     --    $ 25,093    $     --
                                                     ========    ========    ========
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-6
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

1. Organization and Summary of Significant Accounting Policies

Description of Business:

      Philipp  Brothers   Chemicals,   Inc.  is  a  leading  diversified  global
manufacturer  and  marketer  of a broad  range  of  specialty  agricultural  and
industrial  chemicals  which are sold  world-wide  for use in numerous  markets,
including animal health and nutrition, agriculture, pharmaceutical, electronics,
wood treatment,  glass,  construction,  and concrete.  The Company also provides
recycling and hazardous  waste services  primarily to the  electronics and metal
treatment  industries.  The Company believes it has leading positions in certain
of its end markets and has global marketing and manufacturing capabilities.  The
Company's products are manufactured at company-owned and contract  manufacturing
facilities in the United States and internationally.

Principles of Consolidation and Basis of Presentation:

      The  consolidated  financial  statements  include the  accounts of Philipp
Brothers  Chemicals,  Inc.  and  its  subsidiaries,  all  of  which  are  either
wholly-owned or controlled  (collectively,  referred to as the  "Company").  All
significant  intercompany  accounts and transactions have been eliminated in the
consolidated financial statements.

      The fiscal  year of the  Israeli  and  Brazilian  subsidiaries  of Koffolk
(1949) Ltd.  ("Koffolk Israel") ends on March 31.  Accordingly,  the accounts of
these  subsidiaries are included in the consolidated  financial  statements on a
three-month lag.

Risks and Uncertainties:

      As a  chemical  company,  the  Company  is  subject to a variety of United
States and foreign laws and regulations  relating to pollution and protection of
the  environment.  In addition,  the  testing,  manufacturing  and  marketing of
certain  products  are subject to  extensive  regulation  by several  government
authorities  in the  United  States  and other  countries.  The  Company is also
required  to obtain and retain  governmental  permits and  approvals  to conduct
various  aspects of its operations.  The Company has significant  assets located
outside of the United States,  and a significant  portion of the Company's sales
and earnings are  attributable  to operations  conducted  abroad.  International
manufacturing,  sales and raw materials sourcing are subject to certain inherent
risks, including political instability,  price and exchange controls, unexpected
changes in regulatory environments, and potentially adverse tax consequences. In
addition,  the Company is affected by social,  political and economic conditions
affecting Israel,  and any major hostilities  involving Israel or curtailment of
trade between  Israel and its current  trading  partners,  either as a result of
hostilities or otherwise, could have a material adverse effect on the Company.

      As of June 30, 2002, the Company was not in compliance  with the financial
covenants  included  in  its  senior  credit  facility  ("credit  agreement"  or
"facility")  with its lending  banks,  for which PNC Bank serves as agent.  As a
result, the credit agreement was amended in October 2002 to: waive noncompliance
with  financial  covenants  as of  June  30,  2002;  amend  financial  covenants
prospectively  until maturity;  amend the borrowing base formula and also reduce
maximum availability under the revolving credit portion of the facility from $70
million to $55 million;  limit borrowings under the capital  expenditure line of
the facility to the current outstanding balance of $5.8 million;  and revise the
interest  rate to 1.5% to 1.75% per annum over the base rate (as  defined in the
agreement).  Management  believes that the reduced maximum  availability and the
revised  borrowing  base  formula  under the  revolving  credit  portion  of the
facility  will not  adversely  affect  the  Company's  ability  to meet its cash
requirements during fiscal 2003.

      The Company's  ability to fund its fiscal 2003  operating plan relies upon
continued  availability of the credit  agreement  which,  in turn,  requires the
Company to maintain compliance with the amended financial covenants. The Company
believes that it will be able to comply with the terms of the amended  covenants
based  on its  forecasted  operating  plan for  2003.  In the  event of  adverse
operating  results and  resultant  violation of the covenants  during 2003,  the
Company  cannot be certain it will be able to obtain such waivers or  amendments
on favorable terms, if at all.


                                      F-7
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

1. Organization and Summary of Significant Accounting Policies--(Continued)

Risks and Uncertainties--(Continued):

      In  addition,  the  Company's  credit  agreement  and its note  payable to
Pfizer,  Inc.  (see  Notes 3 and 7) mature  in  November  2003 and  March  2004,
respectively.  The Company's  management has  undertaken  actions to improve the
Company's  operating  performance and overall  liquidity in order to reduce debt
levels and allow for ultimate  refinancing  of this debt in fiscal  2004.  These
actions include cost reduction activities, working capital improvement programs,
shutdown  of  unprofitable  operations,  deferral  and  forbearance  of  certain
obligations  to Pfizer  (see Note 3),  and  possible  sale of  certain  business
operations  and other assets.  These actions are ongoing and will continue to be
re-evaluated during fiscal 2003.

      The issue of the potential for increased  bacterial  resistance to certain
antibiotics used in certain food-producing animals is the subject of discussions
on  a  worldwide  basis  and,  in  certain  instances,  has  led  to  government
restrictions on the use of antibiotics in these food-producing animals. The sale
of feed additives containing  antibiotics is a material portion of the Company's
business. Should regulatory or other developments result in further restrictions
on the sale of such  products,  it could have a material  adverse  impact on the
Company's financial position, results of operations and cash flows.

Use of Estimates:

      The  preparation  of financial  statements in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions that affect the reported amounts of
assets,  liabilities,  revenues, expenses and related disclosures at the date of
the financial  statements and during the periods reported.  Actual results could
differ from those  estimates.  Significant  estimates  include  reserves for bad
debts,  inventory   obsolescence,   environmental   matters,   depreciation  and
amortization  periods of long-lived assets,  recoverability of long-lived assets
and realizability of deferred tax assets.

Revenue Recognition:

      Revenue  is  recognized  upon  transfer  of title  and risk of loss to the
customer,  generally at time of shipment. Net sales are comprised of total sales
billed, net of goods returned, trade discounts and customer allowances.

Shipping and Handling

      Included in the revenues shown on the Company's  consolidated statement of
operations is shipping and handling income of $7,195, $6,102, and $5,393 for the
fiscal years ended June 30, 2002, 2001, and 2000, respectively.

      Beginning  in the fiscal year  ending  June 30,  2002,  all  shipping  and
handling  costs were included in cost of goods sold.  As a result,  shipping and
handling costs of $22,275 and $18,725 for 2001 and 2000, respectively, have been
reclassified to cost of goods sold.

Cash and Cash Equivalents:

      The  Company  considers  all  highly  liquid   instruments  with  original
maturities of three months or less to be cash equivalents.


                                      F-8
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

1. Organization and Summary of Significant Accounting Policies--(Continued)

Inventories:

      Inventories are valued at the lower of cost or market.  Cost is determined
principally under the first-in,  first-out (FIFO) and average methods;  however,
certain subsidiaries of the Company use the last-in, first-out (LIFO) method for
valuing  inventories.  Obsolete or  unsaleable  inventory  is  reflected  at its
estimated net realizable value. Inventory costs include materials,  direct labor
and manufacturing overhead.

      If the LIFO method of valuing certain inventories had not been used, total
inventories  at June 30,  2002 and 2001 would have been higher by $521 and $716,
respectively. Inventories valued at LIFO amounted to $3,111 at June 30, 2002 and
$4,142 at June 30, 2001.

      Inventories consist of the following at June 30, 2002 and 2001:

                                                       2002                2001
                                                     -------             -------
Raw Materials ..........................             $23,524             $22,614
Work in process ........................               2,098               4,257
Finished goods .........................              67,895              56,925
                                                     -------             -------
                                                     $93,517             $83,796
                                                     =======             =======

Property, Plant and Equipment:

      Property,  plant  and  equipment  are  carried  at cost  less  accumulated
depreciation. Major renewals and improvements are capitalized, while maintenance
and repairs are expensed when incurred.  Upon  retirement or other  disposition,
the cost and related accumulated  depreciation are removed from the accounts and
any  gain or  loss  is  included  in the  results  of  operations.  The  Company
capitalizes  interest  expense as part of the cost of construction of facilities
and equipment.  Interest  expense  capitalized in 2002,  2001 and 2000 was $106,
$277 and $0,  respectively.  Depreciation is calculated using the  straight-line
method based upon estimated useful lives as follows:

      Building and improvements ......................          8-20 years
      Machinery and equipment ........................          3-10 years

Deferred Financing Costs:

      Deferred  financing  costs are being  amortized  using the interest method
over the  ten-year  life of the notes.  Deferred  costs  relating  to the senior
credit facility are being amortized over the three-year life of the agreement.

Intangibles:

      Intangible assets are being amortized on a straight-line  basis over their
estimated  useful  lives  ranging from 5 to 20 years.  Accumulated  amortization
amounted to $8,885 and $5,872 at June 30, 2002 and 2001, respectively.

Licensing and Permit Fees:

      Licensing and permit fees incurred to obtain the required  federal,  state
and local hazardous waste  treatment,  storage and disposal permits are included
in other assets and are amortized  over the lives of the  licenses,  permits and
rights of 5 to 10 years.

Foreign Currency Translation:

      Balance sheet  accounts of the Company's  foreign  subsidiaries,  with the
exception  of the  Brazilian  and  Israeli  subsidiaries  of Koffolk  Israel are
translated  at current  rates of  exchange,  and income  and  expense  items are
translated at the average exchange rate for the year. The resulting  translation
adjustments are reflected as a separate component of stockholders' equity.


                                      F-9
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

1. Organization and Summary of Significant Accounting Policies--(Continued)

Foreign Currency Translation--(Continued):

      The  Brazilian  and  Israeli   subsidiaries  of  Koffolk  Israel  transact
substantially  all of their  business  in U.S.  dollars.  Accordingly,  the U.S.
dollar  is  designated  as the  functional  currency  for these  operations  and
translation gains and losses are included in determining net income or loss. Net
exchange gains and losses  resulting from the  translation of foreign  financial
statements and the effect of exchange rates on  intercompany  transactions  of a
long-term   investment   nature  are  reflected  as  a  separate   component  of
stockholders' equity. Translation gains and losses relating to intercompany debt
of short-term investment nature are included in other income and expense, net in
the accompanying  consolidated  statements of operations.  Net gains were $2,754
and net losses were $2,678 and $2,142 for the years  ended June 30,  2002,  2001
and 2000, respectively.  Other foreign currency transaction gains and losses are
not material.

Derivative Financial Instruments:

      Effective  July 1,  2000,  the  Company  adopted  Statement  of  Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities,"  and its related  amendment,  Statement of Financial  Standards No.
138,  "Accounting  for  Certain  Derivative   Instruments  and  Certain  Hedging
Activities  ("SFAS No.  133")."  These  standards  require  that all  derivative
financial  instruments be recorded on the  consolidated  balance sheets at their
fair  value as  either  assets  or  liabilities.  Changes  in the fair  value of
derivatives  will be recorded  each period in operations  or  accumulated  other
comprehensive  income,  depending  on whether a  derivative  is  designated  and
effective  as part of a hedge  transaction  and,  if it is,  the  type of  hedge
transaction.  Gains and losses on derivative instruments reported in accumulated
other  comprehensive  income will be included  in  operations  in the periods in
which  operations are affected by the hedged item.  The  cumulative  effect of a
change in  accounting  principle  due to the  adoption  of SFAS No.  133 was not
material.

Advertising Costs:

      Advertising  expenditures,  expensed when incurred,  were $2,086, $800 and
$953 for the years ended June 30, 2002, 2001 and 2000, respectively.

Impairment of Long-Lived Assets:

      The Company evaluates the recoverability of long-lived  assets,  including
intangible  assets,  when events or circumstances  indicate that a diminution in
value may have occurred,  using certain financial  indicators such as historical
and future ability to generate cash flows from operations.  The Company's policy
is to record an  impairment  loss in the period when it is  determined  that the
carrying amount of the asset may not be recoverable. This determination is based
on an evaluation of such factors as the  occurrence  of a significant  event,  a
significant change in the environment in which the business operates,  or if the
expected  future net cash flows  (undiscounted  and  without  interest or income
taxes) are less than the carrying amount of the assets.

Environmental Liabilities:

      Expenditures for ongoing  compliance with  environmental  regulations that
relate to  current  operations  are  expensed  or  capitalized  as  appropriate.
Expenditures  related to improving the  condition of property  compared with the
condition of that property when  constructed  or acquired are  capitalized.  The
Company  also  capitalizes   expenditures  that  prevent  future   environmental
contamination,  when appropriate.  Other  expenditures are expensed as incurred.
Liabilities are recorded when environmental  assessments  indicate that remedial
efforts are probable and the costs can be reasonably estimated. Estimates of the
liability are based upon currently  available facts,  existing  technology,  and
presently  enacted laws and  regulations  taking into  consideration  the likely
effects of inflation  and other  societal and economic  factors.  All  available
evidence  is   considered,   including   prior   experience  in  remediation  of
contaminated sites, other companies' clean-up  experience,  and data released by
the Environmental Protection Agency or other organizations.  When such costs are
incurred over a long-term period and can be reliably estimated as to timing, the
liabilities are included in the consolidated  balance sheets at their discounted
amounts.


                                      F-10
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

1. Organization and Summary of Significant Accounting Policies--(Continued)

Income Taxes:

      Income tax expense  includes U.S. and foreign income taxes. The tax effect
of certain  temporary  differences  between  amounts  recognized  for  financial
reporting  purposes  and amounts  recognized  for tax  purposes  are reported as
deferred income taxes.  Deferred tax balances are adjusted to reflect tax rates,
based on  current  tax laws  that  will be in  effect  in the years in which the
temporary  differences  are  expected  to  reverse.   Valuation  allowances  are
established  when necessary to reduce deferred tax assets to amounts more likely
than not to be realized.

Research and Development Expenditures:

      Research and development  expenditures were $5,274,  $2,952 and $2,297 for
the years ended June 30, 2002, 2001 and 2000, respectively,  and are expensed as
incurred.

Reclassification:

      Certain  prior  amounts  in  the   accompanying   consolidated   financial
statements  and  related  notes  have  been  reclassified  to  conform  to  2002
presentation.

New Accounting Pronouncements:

      In June 2001, the Financial  Accounting  Standards Board issued Statements
of Financial  Accounting  Standards No. 141 "Business  Combinations"  ("SFAS No.
141") and No. 142 "Goodwill and Other  Intangibles"  ("SFAS No. 142").  SFAS No.
141 and No. 142 are  effective  for the  Company  on July 1, 2002.  SFAS No. 141
requires  that the  purchase  method  of  accounting  be used  for all  business
combinations  initiated  after June 30, 2001.  The  statement  also  establishes
specific criteria for recognition of intangible assets separately from goodwill.
The statement  requires that goodwill and indefinite lived intangible  assets no
longer  be  amortized  and be  tested  for  impairment  at least  annually.  The
amortization  period of  intangible  assets with finite  lives will no longer be
limited to forty years. The Company has no goodwill,  but is currently assessing
the useful lives of its intangible assets.

      In June 2001, the Financial Accounting Standards Board issued Statement of
Financial   Accounting  Standards  No.  143  "Accounting  for  Asset  Retirement
Obligations" ("SFAS No. 143"). SFAS No. 143 is effective for the Company on July
1, 2002. The statement established  accounting standards for the recognition and
measurement  of  an  asset  retirement   obligation  and  its  associated  asset
retirement  cost.  The  Company  is  currently  assessing  the  impact  of  this
statement.

      In August 2001, the Financial  Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 "Accounting for Impairment or Disposal
of  Long-Lived  Assets"  ("SFAS No.  144").  SFAS No. 144 is  effective  for the
Company on July 1, 2002. The statement addresses  significant issues relating to
the  implementation  of FASB Statement No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"),
and the  development  of a  single  accounting  model,  based  on the  framework
established  in SFAS No. 121, for  long-lived  assets to be disposed of by sale,
whether  previously  held and used or newly  acquired.  The Company is currently
assessing the impact of this statement.

      In May 2002, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards No. 145, "Rescission of SFAS Nos. 4, 44 and 64,
Amendment of SFAS 13, and Technical  Corrections"  ("SFAS No.  145").  Under the
current rules,  SFAS No. 4, "Reporting Gains and Losses from  Extinguishment  of
Debt,"  requires  that all gains and losses from the  extinguishment  of debt be
classified  as  extraordinary  on  the  Company's   consolidated   statement  of
operations,  net of  applicable  taxes.  SFAS No.  145  rescinds  the  automatic
classification  as extraordinary  and requires that the Company evaluate whether
the gains or losses qualify as extraordinary  under Accounting  Principles Board
Opinion No. 30,  "Reporting the Results of Operations-  Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." SFAS No. 145 is effective for the Company on
July 1, 2002. The Company is currently assessing the impact of this statement.


                                      F-11
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

1. Organization and Summary of Significant Accounting Policies--(Continued)

New Accounting Pronouncements--(Continued):

      In June 2002, the Financial Accounting Standards Board issued Statement of
Financial  Accounting  Standards No. 146,  "Accounting for Costs Associated with
Exit or Disposal  Activities"  ("SFAS No.  146").  SFAS No. 146 requires  that a
liability for a cost associated with an exit or disposal  activity be recognized
and measured  initially at fair value when the liability is incurred rather than
at the date of a commitment to an exit or disposal  plan.  Costs covered by SFAS
No. 146 include lease  termination  costs and certain  employee  severance costs
that are associated with a restructuring,  discontinued operation, plant closing
or other  exit or  disposal  activity.  SFAS No.  146 is  effective  for exit or
disposal  activities  that are initiated after December 31, 2002. The Company is
currently assessing the impact of this statement.

2. Restructuring and Asset Writedowns

      The Company's Odda, Norway operation has suffered  operating losses during
fiscal years 2002 and 2001. Odda is included in the Industrial Chemicals segment
and had third party  revenues  of $24,179  and  $22,056,  and  operating  losses
(before  the effect of the $14,458  incremental  depreciation  and $5,133  asset
impairment,  both  discussed  below) of $7,165 and $4,014,  for the fiscal years
ended June 30, 2002 and 2001, respectively.  The Company initiated and completed
a  number  of  cost  cutting  and  efficiency  initiatives.  However,  continued
competitive  pricing  pressures on Odda's  primary  products and  increasing raw
material  and  production  costs have more than offset the  favorable  impact of
initiatives undertaken to date.

      During the third quarter of fiscal year 2002 the Company  decided to cease
production  of two of Odda's three  primary  products as of June 30,  2002,  and
focus its resources on the remaining  product line.  Third party revenues of the
remaining product line were $13,055 for the fiscal year ended June 30, 2002. The
decision  to cease  production  of these two  products  required  the Company to
accelerate  the  depreciation  of the  directly  related  property,  plant,  and
equipment so these assets were fully  depreciated by June 30, 2002.  This change
in expected remaining useful life has increased depreciation and amortization by
$14,458 for the fiscal year ended June 30, 2002.

      In addition  the Company has recorded  restructuring  charges of $2,075 in
cost of goods sold and $1,157 in other  (income)  expense,  net on the Company's
consolidated  statements of operations and comprehensive  income.  These charges
relate  primarily  to  inventory  write-offs  of  $1,107,  production  personnel
termination costs of $602 (approximately 124 employees), a loss on a contract to
purchase  electricity of $1,157 associated with the Company's  decision to cease
production of two of the three primary products,  and other costs of $366. As of
June 30, 2002,  approximately  120 employees had been terminated.  The remaining
terminations  are  expected to occur by the end of January  2003.  An accrual of
$824 for  restructuring  costs  still to be paid at June 30,  2002  remained  in
accrued expenses and other current liabilities on the Company's balance sheet at
June 30, 2002. The Company  anticipates that  substantially all of the remaining
restructuring costs will be paid by the end of January 2003.

      During  the  fourth   quarter  of  fiscal   year  2002,   due  to  further
deterioration  of the Odda business,  the Company  reviewed  certain  long-lived
assets of Odda for  impairment  under the scenarios of continuing  production of
Odda's remaining primary product or complete shutdown of the Odda operation. The
review  included an  estimate of the future net cash flows under each  scenario,
weighted  by  management's  estimate  of  the  probability  of  realization  and
indicated an impairment  of Odda's  property,  plant and equipment  (which had a
carrying  value  of  $13,333  prior to  impairment  charges)  at June 30,  2002.
Accordingly, the Company determined the fair value of Odda's property, plant and
equipment  using a discounted net cash flow analysis.  As a result an impairment
charge of $5,133 was recorded in asset write-downs on the Company's consolidated
statements of operations and comprehensive income.


                                      F-12
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

      During the  fourth  quarter of fiscal  year  2002,  due to an  anticipated
decline in future sales of Odda's carbide product (the result of a possible loss
of a customer) the Company  decided to review certain  long-lived  assets of its
Carbide Industries subsidiary for impairment.  Carbide Industries is included in
the  Company's  Distribution  segment.  The review  included  an estimate of the
future  net cash  flows and  indicated  an  impairment  of  Carbide  Industries'
intangible  assets  (which had a carrying  value of $3,077  prior to  impairment
charges) at June 30, 2002. Accordingly, the Company determined the fair value of
Carbide Industries'  intangible assets using a discounted cash flow analysis. As
a result,  an impairment  charge of $1,666 was recorded in asset  write-downs on
the Company's consolidated statements of operations and comprehensive income.

3. Acquisitions

      On November 30, 2000,  the Company  purchased the Medicated Feed Additives
("MFA")  business of Pfizer,  Inc. The operating  results of this business,  now
called Phibro Animal Health ("PAH"), are included in the Company's  consolidated
statements of operations  from the date of  acquisition  and are included in the
Animal Health and Nutrition Segment.

      The purchase price of $76,793  (including  cost of  acquisition)  was paid
with cash of $51,700 and the issue of a  promissory  note to Pfizer for $25,093,
which matures in 2004 with interest payable semi-annually in arrears at 13%. The
Company  financed the $51,700  cash  payment  through the issuance of $40,808 of
redeemable  preferred  securities ($45,000 of redeemable  preferred  securities,
less costs  connected  with the issue of those  securities  of $4,192),  and the
remainder was financed through an amendment to existing bank credit  facilities.
In addition,  under the terms of the purchase agreement, the Company is required
to pay Pfizer a contingent  purchase  price based on a percentage  of future net
revenues of a particular  product.  The term of the contingent  payments is five
years from November 30, 2000.  The maximum  contingent  purchase price due under
this arrangement is limited to $55,000 with a maximum annual payment of $12,000.
Contingent  purchase  price  paid  has  been  allocated  to  related  production
equipment  up to fair  value and the  remainder  is being  allocated  to product
intangibles.  The Company has recorded $7,498,  allocated to related  production
equipment, and $9,176, allocated to product intangibles, under this agreement as
of June 30,  2002,  of which $7,182 has been paid during the year ended June 30,
2002.  In October  2002,  Pfizer  agreed to defer until  March 1, 2004,  without
interest,  unpaid contingent purchase price amounts existing at May 31, 2002 and
to waive contingent  purchase price payments on future net revenues from June 1,
2002 through  March 1, 2004.  The balance sheet as of June 30, 2002 reflects the
revised payment terms from Pfizer.

      In  addition,  the Company is required to pay Pfizer  contingent  purchase
price up to a maximum of $10,000 over five years on the other  products based on
certain gross profit  levels of the MFA  business.  No amounts have been accrued
under this arrangement.

      The  acquisition  was accounted for in accordance with the purchase method
and  results  of  the  MFA  business  have  been  included  since  the  date  of
acquisition. The purchase price has been allocated to inventory, property, plant
and equipment,  production intangibles and pension liabilities.  Property, plant
and equipment include two facilities,  Rixensart, Belgium and Guarulhos, Brazil.
Following the closing, the Company operated under a supply agreement with Pfizer
with  respect  to the  manufacturing  facility  in  Belgium  pending  regulatory
approval of the transfer of title,  which was completed on August 31, 2001.  The
Company  recorded,  as a cost of  acquisition,  a  pension  liability  of $1,076
relating to the  employees  of the Belgium  plant who elected to transfer  their
benefits and the amount of their accumulated  benefit  obligations on August 31,
2001.

      The audited  consolidated results of the operation on a pro-forma basis as
if such  acquisition had occurred at the beginning of the periods being reported
are as follows:

                                                    2001                 2000
                                                  ---------            ---------
Net sales .............................           $ 412,003            $ 477,335
Net (loss) income .....................             (15,722)              26,118

      The impact of purchase  accounting  adjustments to the inventory  acquired
from Pfizer increased the net loss in 2002 by $3,257 and in 2001 by $8,889.


                                      F-13
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

4. Property, Plant and Equipment

      Property, plant and equipment consists of the following at June 30:

                                                         2002             2001
                                                       --------         --------
Land .........................................         $  7,926         $  8,106
Buildings and improvements ...................           36,697           34,458
Machinery and equipment ......................          150,381          139,877
                                                       --------         --------
                                                        195,004          182,441
Less: Accumulated depreciation ...............          110,274           80,118
                                                       --------         --------
                                                       $ 84,730         $102,323
                                                       ========         ========

      Certain of the buildings of the Company's Israeli  subsidiary are situated
on land leased for a nominal  amount from the Israel Land  Authority.  The lease
expires on July 9, 2027.

      Depreciation  expense  amounted  to  $29,184,  $11,887 and $10,343 for the
years ended June 30, 2002, 2001 and 2000, respectively.

5. Related Party Transactions

      In January 2000, the principal  stockholder of the Company invested $20 in
a  pharmaceutical  company in exchange for a 20% voting  common stock  interest.
Additionally,   the  Company   invested   $1,980  in  preferred   stock  of  the
pharmaceutical  company.  The  preferred  stock  investment,  included  in other
assets,  is being  carried on the equity basis.  The Company  recorded a loss of
$289 and $218 in other (income)  expense,  net for the years ended June 30, 2002
and 2001, respectively.

      A subsidiary of the Company  leases the property  underlying  its Santa Fe
Springs,  California  plant from a limited  partnership,  which is controlled by
shareholders  of the Company.  The lease  requires  annual base rent of $250 and
terminates  on June 30,  2008.  The  Company  is  responsible  under  the  lease
agreement to pay all real property taxes.

      The Company has periodically  advanced funds to the principal  shareholder
on a short-term, non-interest-bearing basis. At June 30, 2002 and 2001, $138 and
$0 was outstanding, respectively.

6. Accrued Expenses and Other Current Liabilities

      The components of accrued  expenses and other current  liabilities at June
30, 2002 and 2001 are as follows:

                                                        2002         2001
                                                      -------      -------
      Commissions and rebates ..................      $   811      $ 3,116
      Pfizer contingent purchase price .........           --        6,473
      Employee related expenses ................        9,060        5,577
      Other accrued liabilities ................       24,209       20,212
                                                      -------      -------
                                                      $34,080      $35,378
                                                      =======      =======

7. Debt

      Loan's  payable  to banks  include  $38.0  million  outstanding  under the
revolving  credit agreement  (refer to (b) below),  $1.3 million  outstanding of
$8.5 million  available under  Koffolk's  revolving line of credit with interest
payable at 3.5%;  $.6 million  outstanding  of $3.1 million  available  under La
Cornubia's  revolving  line of credits with interest  payable at 4.6% and 4.85%;
and $1.6 million  outstanding of $2.0 million  available under Odda's  revolving
line of  credit  with  interest  payable  at the  LIBOR or NIBOR  rate  plus the
applicable margin (refer to (d) below).


                                      F-14
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)
7. Debt--(Continued)

      Long-term debt consists of the following at June 30, 2002 and 2001:

                                                               2002       2001
                                                             --------   --------
Domestic:
   Senior Subordinated Notes due June 1, 2008 (a) ........   $100,000   $100,000
   Bank borrowings (b) ...................................      5,800      3,800
   Pfizer Promissory Note (c) ............................     22,584     25,093
   Capitalized lease obligations and other ...............      1,413      1,618
Foreign:
   Bank loans with interest at NIBOR plus 2.75%
      payable in Norwegian Krone (NOK) maturing
      through 2004 (d) ...................................      6,712      5,376
   Revolving credit bank loan with interest at NIBOR
      plus 2% payable in Norwegian Krone (NOK) maturing
      through 2003 (d) ...................................      1,510      1,801
   Norwegian Government Loan payable in Norwegian
      Krone (NOK) maturing in equal semi-annual
      payments through 2013 (e) ..........................      3,557      2,850
   Bank loans with interest at LIBOR plus 1 1/4%
      repayable with interest in equal quarterly
      installments through 2005 (f) ......................      3,000      4,000
   Capitalized lease obligations and other ...............        916        330
                                                             --------   --------
                                                              145,492    144,868
   Less: Current maturities ..............................      8,851      5,404
                                                             --------   --------
                                                             $136,641   $139,464
                                                             ========   ========

      (a) In June 1998,  the Company  issued $100  million  aggregate  principal
amount of 9-7/8%  Senior  Subordinated  Notes  due 2008.  The Notes are  general
unsecured obligations of the Company and are subordinated in right of payment to
all existing and future  senior debt (as defined in the  indenture  agreement of
the Company) and rank pari passu in right of payment with all other existing and
future  senior  subordinated   indebtedness  of  the  Company.   The  Notes  are
unconditionally  guaranteed  on a  senior  subordinated  basis  by  the  current
domestic  subsidiaries  of the Company  (the  "Guarantors").  Additional  future
domestic subsidiaries may become Guarantors under certain circumstances.

      The Indenture  contains certain  covenants with respect to the Company and
the  Guarantors,  which  restrict,  among other  things,  (a) the  incurrence of
additional  indebtedness,  (b) the  payment of  dividends  and other  restricted
payments, (c) the creation of certain liens, (d) the sale of assets, (e) certain
payment  restrictions   affecting   subsidiaries,   and  (f)  transactions  with
affiliates.  The Indenture  restricts the Company's  ability to consolidate,  or
merge with or into,  or to transfer all or  substantially  all of its assets to,
another person.

      (b) On November 30, 2000, the Company  amended its senior credit  facility
with its  lending  banks,  for which PNC Bank  serves as agent,  increasing  the
revolving  credit  portion of the facility to $70 million (from $35 million) and
adding an additional $15 million facility for spending on capital  expenditures.
The  amended  agreement  was  effective  December  1, 2000 and  continues  until
November 30, 2003.

      The amended  agreement  contains a lock-box  requirement  and a subjective
acceleration  clause.  Accordingly,  the amounts outstanding under the revolving
credit  facility have been  classified  as  short-term  in  accordance  with the
Emerging Issues Task Force Statement No. 95-22 "Balance Sheet  Classification of
Borrowings   Outstanding  Under  Revolving  Credit  Agreements  That  Include  a
Subjective  Acceleration Clause and a Lock-Box  Arrangement" and are included in
loans  payable to banks in the  consolidated  balance sheet at June 30, 2002 and
2001.  Advances under the capital  expenditure  facility have been classified as
long-term.

      As of June 30, 2002, the Company was not in compliance  with the financial
covenants  included  in its  senior  credit  facility.  As a result,  the credit
agreement  was amended in October 2002 to: waive  noncompliance  with  financial
covenants as of June 30, 2002;  amend financial  covenants  prospectively  until
maturity;  amend the borrowing base formula and also reduce maximum availability
under the  revolving  credit  portion of the  facility


                                      F-15
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

from $70 million to $55 million;  limit borrowings under the capital expenditure
line of the facility to the current  outstanding  balance of $5.8  million;  and
revise  the  interest  rate to 1.5% to 1.75%  per  annum  over the base rate (as
defined  in  the  agreement).  Management  believes  that  the  reduced  maximum
availability  and the revised  borrowing base formula under the revolving credit
portion of the facility will not adversely affect the Company's  ability to meet
its cash requirements during fiscal 2003.

      The credit  facility  requires,  among other things,  the  maintenance  of
certain consolidated  interest coverage ratios calculated  quarterly,  a certain
level of trailing three month domestic cash flows calculated on a monthly basis,
and contains an acceleration  clause should a material adverse event (as defined
in the  agreement)  occur.  In  addition,  there  are  certain  restrictions  on
additional  borrowings,  additional liens on the Company's  assets,  guarantees,
dividend  payments,  redemption  or purchase  of the  Company's  stock,  sale of
subsidiaries'  stock,  disposition  of  assets,  investments,  and  mergers  and
acquisitions.

      The $55 million revolving credit facility is subject to availability under
a borrowing base formula for domestic  accounts  receivable and  inventories (as
defined in the  agreement),  which also serve as collateral  on the  borrowings.
Capital expenditure  advances are repayable commencing on the first business day
of the month next  succeeding  the second  anniversary  date of the closing date
based upon a 60-month  amortization table with all outstanding  capital advances
being repaid on the last day of the term.

      In addition to having $38.0 million outstanding under the revolving credit
facility and $5.8 million outstanding under the facility for spending on capital
expenditures,  the Company had $4.5 million  available  under the borrowing base
formula in effect as of June 30, 2002.

      (c) On December 1, 2000, in connection  with the Pfizer  acquisition,  the
Company  issued a 13%  promissory  note to Pfizer in the amount of $25,093  with
interest payable  semi-annually.  Principal  payments,  each equal to 10% of the
amount of the loan, were paid December 3, 2001 and are due December 3, 2002. The
remaining 80% of the loan is due March 1, 2004.  The note is  collateralized  by
the Company's facilities in Rixensart, Belgium and Guarulhos, Brazil.

      (d) The  Company's  Norwegian  subsidiary  (Odda)  has  entered  into  two
separate  multi-currency  revolving  facilities as follows:  In August 1998, the
subsidiary  entered into a five-year  multi-currency  credit  facility,  for NOK
(Norwegian  Kroner)  90,000 in agreed  Euro-currencies.  Borrowings  under  such
facility bear  interest at the LIBOR or NIBOR rate (as defined) plus 2.75%.  The
subsidiary  has agreed to pay a commitment  fee of 1/4% on the unused portion of
such  facility.  In  August  1998,  the  subsidiary  entered  into  a  five-year
multi-currency   revolving   credit   facility,   for  NOK   65,000   in  agreed
Euro-currencies.  Borrowings  under such  facility bear interest at the LIBOR or
NIBOR rate (as defined) plus the applicable  margin.  Such LIBOR or NIBOR margin
shall be subject to adjustment based on the  subsidiary's  debt service coverage
and equity  ratios (which  margins could range from 3/4% to 2%). The  subsidiary
has agreed to pay a commitment  fee equal to 50% of the  applicable  margin.  In
connection  with both  facilities,  the subsidiary may choose the duration (one,
three or six months) for which the interest rate may apply.

      In connection with the subsidiary's  sale of its minority  interest in the
local hydroelectric power company and related contract rights (see Note 19), and
the  simultaneous  release  of  collateral  in those  shares  pledged  under the
facilities,  the subsidiary  repaid NOK 80,000 in total under both of the credit
facilities  in January 2000 as a permanent  reduction in the maximum  borrowings
allowed.  Indebtedness  under both facilities is collateralized by a lien on the
subsidiary's  receivables,  inventory  and property and  production  facilities.
Philipp Brothers Chemicals, Inc. guarantees both credit facilities.

      As  a  result  of  the   partial   shutdown  of  Odda's   operations   and
non-compliance  with the financial  covenants of these credit  facilities,  Odda
entered  into  an  agreement  with  its  Norwegian  banks  in  October  2002  to
restructure these loans and to obtain a waiver for non-compliance. The agreement
establishes a periodic  payment schedule through November 30, 2003. In addition,
there are  restrictions  on the use of proceeds from the sale of  collateralized
assets outside of the normal course of business. As of June 30, 2002, NOK 61,250
($8,222)  was  outstanding  under these  credit  facilities.  This debt has been
classified in the June 30, 2002 balance  sheet in  accordance  with the terms of
the revised agreement.


                                      F-16
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

7. Debt--(Continued)

      (e) The  Company's  Norwegian  subsidiary  entered into two separate  loan
agreements with the Norwegian Bank Industrial and Regional  Development Fund. In
September  1999,  Odda  received  a rural  development  facility  for NOK 11,500
($1,544  outstanding at June 30, 2002). The interest rate, 8 1/2% at June 30, is
discretionary  by the  government  with  one-week  notice.  In April 2000,  Odda
received an  environmental  loan facility of NOK 15,000  ($2,013  outstanding at
June 30, 2002), which bears interest at 4.6%. The interest rate is adjustable on
May 1, 2005 based on a formula averaging five-year  government  borrowing rates.
Both facilities are repayable in 20 equal semi-annual  installments beginning in
2002.  Indebtedness  under both  facilities is  collateralized  by a lien on the
subsidiary's  receivables,  inventory  and property and  production  facilities.
Under these loan agreements  there are  restrictions on the use of proceeds from
the sale of collateralized assets outside of the normal course of business.

      (f)  The  bank  loans  are  collateralized  by a lien  on  Koffolk  Ltd.'s
receivables and inventory.

      The  aggregate  maturities  of  long-term  debt after June 30, 2002 are as
follows:

            Year Ended June 30,
            -------------------
            2003 ............................               $  8,851
            2004 ............................                 32,114
            2005 ............................                  1,725
            2006 ............................                    433
            2007 ............................                    491
            2008 ............................                101,878
                                                            --------
               Total ........................               $145,492
                                                            ========

8. Redeemable Common Stock of Subsidiary

      Certain key  executives of the Company  previously  had a 10.7%  ownership
interest in common stock of a subsidiary. The subsidiary's shares are redeemable
at fair market value, based on independent appraisal, upon the death, disability
or termination  of the key executive.  Adjustments to record the shares at their
redeemable value have been charged to compensation expense.

      In  addition,  the  Company  and its  subsidiary  entered  into  severance
agreements  with the  executives  for  payments  based on a multiple  of pre-tax
earnings (as defined), and which are subject to certain restrictions pursuant to
terms of the credit agreement.  At June 30, 2002 no aggregate severance payments
would have been due the remaining executive if he were terminated.

      In connection  with the separation of employment of a senior  executive in
the 2001 fiscal year and pursuant to the stock buyback and severance  provisions
of the aforementioned  agreements, the Company recorded a charge of $1.3 million
in selling,  general and  administrative  expenses and reclassified $0.2 million
from redeemable  securities to accrued  expenses and other current  liabilities.
The stock buyback resulted in a reduction of senior  executive  ownership in the
subsidiary to 2%.

      During fiscal year 2001, the Company's MRT  subsidiary was  reorganized by
merging Mineral Resource  Technologies,  L.L.C. into its parent,  MRT Management
Corp.,  which then  changed  its name to  Mineral  Resource  Technologies,  Inc.
("MRT").  Certain  of  MRT's  key  employees  who held  non-voting  stock in MRT
Management Corp.  retained their  shareholdings in MRT. After accounting for the
cancellation of shares of an employee who had previously  left the Company,  the
remaining key employees  own 10.3% of the  non-voting  common stock of MRT and a
right to contingent  "phantom shares" of MRT. The shareholders  agreement of MRT
provides  for the vesting of shares to the  employees  over  certain  periods of
employment  and granting of "phantom  shares" to the employees  based on certain
performance  goals.  No phantom  shares  have been  earned and  accordingly,  no
compensation  expense has been  recorded.  The  agreement  also provides for the
purchase of the minority shares for fair value in connection with termination of
employment.


                                      F-17
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

9. Redeemable Preferred Stock

      Redeemable  preferred  securities  were  issued on  November  30,  2000 to
Palladium Equity Partners LLC and related entities ("Palladium") as follows:

           Preferred B - $25,000 - 25,000 shares

           Preferred C - $20,000 - 20,000 shares

      The redeemable  preferred  stock is entitled to cumulative cash dividends,
payable  semi-annually,   at  15%  per  annum  of  the  liquidation  value.  The
liquidation  value of the  Preferred B stock is an amount  equal to $1 per share
plus all accrued and unpaid dividends (the "Liquidation  Value"). The redeemable
Preferred C stock is entitled to the Liquidation  Value plus a percentage of the
equity  value  of  the  Company,  as  defined  in  the  amended  Certificate  of
Incorporation.  The equity  value is  calculated  as a multiple of the  earnings
before interest,  tax, depreciation and amortization ("EBITDA") of the Company's
business  ("Equity  Value").  The Company may, at the date of the annual closing
anniversary,  redeem  the  Preferred  B  stock,  in  whole  or in  part,  at the
Liquidation Value for cash,  provided that if Preferred B is redeemed separately
from the Preferred C, then the Preferred B must be redeemed for the  Liquidation
Value plus an additional  amount that would  generate an internal rate of return
of 20% to  Palladium  on the  Preferred  B  investment.  Redemption  in  part of
Preferred B is only available if at least 50% of the outstanding  Preferred B is
redeemed.  On the third  closing  anniversary  and on each  closing  anniversary
thereafter,  the Company may redeem, for cash only, in whole the Preferred C, at
the Liquidation Value plus the Equity Value payment.

      At any time after the  redemption  of the  Company's  Senior  Subordinated
Notes (due  2008),  Palladium  shall have the right to  require  the  Company to
redeem,  for cash, the Preferred B at the Liquidation  Value and the Preferred C
at the Liquidation Value plus the Equity Value payment.

      In fiscal  year ended  2001,  the  redeemable  preferred  securities  were
initially recorded at $40,808, representing proceeds of $45,000, net of costs of
issuance of $4,192.  At that time,  the  Company  recorded a charge of $4,192 to
retained earnings to reflect the accretion of the preferred  securities to their
fair market  value as at the closing  date.  Under the  applicable  formula,  no
equity value accretion was required as of June 30, 2002. As of June 30, 2002 and
2001,  dividends  of  $7,623  and  $3,980,  respectively,  were  accrued  on the
preferred securities and charged to retained earnings.

      In  addition,  an annual  management  advisory fee of $2,250 is payable to
Palladium  until all of the  Preferred B and  Preferred  C shares are  redeemed.
Payments  are made  quarterly  in advance  and have been  charged to general and
administrative expense. The management fees were $2,250 and $1,313 for the years
ended June 30, 2002 and 2001, respectively.

10. Common Stock and Paid-in Capital

Common Stock:

      Common stock consisted of the following at June 30, 2002 and 2001:

                                    Authorized
                                      Shares     Issued Shares  Amount at Par
                                    ----------   -------------  -------------
Class A common stock ............     16,200        12,600         $.10
Class B common stock ............     14,100        11,888          .10
                                      ------        ------
                                      30,300        24,488
                                      ======        ======

      Holders of Class A common stock have full voting power, except the holders
of class A shall be  entitled  to elect all but three of the  directors  and the
holders of Class B shall be entitled to elect one director.  No dividends may be
paid to common  stockholders  until all  dividends  have been paid to holders of
preferred  stock.  Thereafter,  holders of Class A common  stock  shall  receive
dividends,  when and as declared by the directors,  at the rate of 5-1/2% of the
par value of such stock (non-cumulative). After all declared dividends have been
paid to Class A


                                      F-18
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

common stockholders,  dividends may be declared and paid to the holders of Class
B  common  stock.  In  the  event  of  any  complete  liquidation,  dissolution,
winding-up of the business,  or sale of all the assets of the Company, and after
the  redemption  of the preferred  stock,  the Class A common  stockholders  are
entitled to a distribution equal to the par value of the stock plus declared and
unpaid  dividends.  Thereafter,  the  remaining  assets of the Company  shall be
distributed to the holders of Class B common stock.

      Issued shares include  redeemable  shares of a minority  shareholder  (see
below).

Redeemable Common Stock:

      Pursuant to terms of an agreement with a minority shareholder, who is also
an officer of the Company,  the Company is required to purchase,  at book value,
the Class B shares of such shareholder upon his retirement,  death,  disability,
or the termination of his employment.  Should such shareholder elect to sell his
shares,  the Company  has a right of first  offer and an option to purchase  the
shares.  Adjustments to record the shares at redeemable value have been credited
or charged to compensation expense in the amounts of ($378), ($3,135) and $1,137
for 2002, 2001 and 2000, respectively.

11. Employee Benefit Plans

      The Company and its domestic subsidiaries maintain noncontributory defined
benefit  pension  plans for all  eligible  nonunion  employees  who meet certain
requirements  of age,  length of service and hours worked per year. The benefits
provided by the plans are based upon years of service and the employees' average
compensation,  as defined.  The Company's policy is to fund the pension plans in
amounts, which comply with contribution limits imposed by law.

      The  Company's  Norwegian  subsidiary  maintains a funded  noncontributory
defined benefit pension plan for all eligible  employees.  The Company's Belgium
subsidiary   also  maintains  a   noncontributory   defined   contribution   and
noncontributory  defined benefit plan for all eligible  employees.  Benefits for
all plans are based on employee compensation and service.


                                      F-19
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

11. Employee Benefit Plans--(Continued)

The following provides a reconciliation of benefit obligations, plan assets, and
funded status of the plans.

<TABLE>
<CAPTION>
                                                                                Domestic                        International
                                                                       --------------------------        --------------------------
                                                                       June 2002        June 2001        June 2002        June 2001
                                                                       ---------         --------        ---------        ---------
<S>                                                                     <C>              <C>              <C>              <C>
Change in benefit obligation
Benefit obligation at beginning of year ........................        $  9,652         $  8,732         $ 14,583         $  9,175
Service cost ...................................................             879              949              378              161
Interest cost ..................................................             714              619              814              576
Benefits paid ..................................................            (179)            (249)            (809)            (740)
Actuarial (gain) ...............................................             (34)            (399)          (1,313)            (630)
Amendments .....................................................              37               --               --               --
Change in Discount Rate ........................................             752               --               --               --
                                                                        --------         --------         --------         --------
Benefit obligation at end of year ..............................        $ 11,821         $  9,652         $ 13,653         $  8,542
                                                                        ========         ========         ========         ========

Change in Plan Assets
Fair value of plan assets at beginning of year .................        $  9,193         $  7,430         $ 14,742         $  9,232
Actual return on plan assets ...................................              76            1,332             (940)             810
Employer contributions .........................................             628              680              232              254
Benefits paid ..................................................            (179)            (249)            (809)            (740)
                                                                        --------         --------         --------         --------

Fair value of plan assets at end of year .......................        $  9,718         $  9,193         $ 13,225         $  9,556
                                                                        ========         ========         ========         ========

<CAPTION>
                                                                                Domestic                        International
                                                                       --------------------------        --------------------------
                                                                       June 2002        June 2001        June 2002        June 2001
                                                                       ---------         --------        ---------        ---------
<S>                                                                     <C>              <C>              <C>              <C>
Funded Status
Funded status of the plan ......................................        $ (2,103)        $   (459)        $   (429)        $  1,014
Unrecognized net actuarial (gain) ..............................            (346)          (1,755)            (600)            (852)
Unrecognized prior service cost ................................            (716)            (918)              --               --
Unrecognized transition obligation/(asset) .....................             (15)             (18)              89               81
                                                                        --------         --------         --------         --------

(Accrued) pension cost .........................................          (3,180)          (3,150)          (1,401)              --
 Prepaid pension cost ..........................................              --               --              461              243
                                                                        --------         --------         --------         --------

Net (accrued) prepaid pension cost .............................        $ (3,180)        $ (3,150)        $   (940)        $    243
                                                                        ========         ========         ========         ========
</TABLE>

<TABLE>
<CAPTION>
                                                                                  June 2002           June 2001           June 2000
                                                                                  ---------           ---------           ---------
<S>                                                                              <C>                 <C>                       <C>
Assumptions (Domestic)
Discount rate ..........................................................               7.10%               7.50%               7.50%
Expected rate of return on plan assets .................................               7.50%               7.50%               7.50%
Rate of compensation increase (depending on age) .......................         3.00%-4.50%         3.00%-4.50%               5.00%

<CAPTION>

                                                                                  June 2002           June 2001           June 2000
                                                                                  ---------           ---------           ---------
<S>                                                                                   <C>                 <C>                 <C>
Components of net periodic pension costs (Domestic)
Service cost - benefits earned during the year .........................              $ 879               $ 949               $ 905
Interest cost on benefit obligation ....................................                714                 618                 549
Expected return on plan assets .........................................               (709)               (576)               (487)
Amortization of initial unrecognized net transition obligation (asset) .                 (3)                 (3)                 (3)
Amortization of prior service costs ....................................               (165)               (165)               (165)
Amortization of (gain) .................................................                (57)                (31)                 (2)
                                                                                      -----               -----               -----
Net periodic pension cost ..............................................              $ 659               $ 792               $ 797
                                                                                      =====               =====               =====
</TABLE>


                                      F-20
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

11. Employee Benefit Plans--(Continued)

<TABLE>
<CAPTION>
                                                                                  June 2002           June 2001           June 2000
                                                                                  ---------           ---------           ---------
<S>                                                                              <C>                 <C>                       <C>
Assumptions (International)
Discount rate ..........................................................         5.75%-7.00%               7.00%               7.00%
Expected rate of return on plan assets .................................         6.00%-8.00%               8.00%               8.00%
Rate of compensation increase ..........................................         3.00%-3.30%               3.30%               3.30%

Components of net periodic pension costs (International)
Service cost - benefits earned during the period .......................              $ 378               $ 161               $ 250
Interest cost on benefit obligation ....................................                814                 576                 635
Expected return on plan assets .........................................               (922)               (810)               (759)
Amortization of initial unrecognized net transition obligation (asset) .                 58                 (49)                (18)
Amortization of loss ...................................................                 13                   5                   5
                                                                                      -----               -----               -----
Net periodic pension cost (benefit) ....................................              $ 341               $(117)              $ 113
                                                                                      =====               =====               =====
</TABLE>

      The Company and its domestic  subsidiaries have a 401(k) plan, under which
an employee may make a pre-tax  contribution of up to 60% of base  compensation,
and the Company makes a non-matching  contribution equal to 1% of the employee's
base compensation and a matching  contribution  equal to 50% of the contribution
up to  the  first  3%  of  an  employee's  base  compensation  and  25%  of  any
contribution from 3% to 6% of base  compensation.  All contributions are subject
to the maximum amount deductible for federal income tax purposes.  The Company's
contribution   amounted  to  $566,  $607  and  $575  in  2002,  2001  and  2000,
respectively.

      The Company has a deferred  compensation and supplemental  retirement plan
for certain senior executives of the Company.  The benefits provided by the plan
are based upon years of service and the employees' average  compensation subject
to certain limits.  The plan also provides for death benefits before retirement.
Deferred  compensation  expense was $233,  $123 and $97 in 2002,  2001 and 2000,
respectively. At June 30, 2002 and 2001, the aggregate liability under this plan
amounted to $1,000 and $705,  respectively.  To assist in funding the retirement
and death benefits of the plan,  the Company  invested in  corporate-owned  life
insurance  policies,  through a trust,  which at June 30, 2002 and 2001 had cash
surrender values of $1,142 and $1,197,  respectively,  and are included in other
assets.

      In  addition  to  Norway  and  Belgium,  most  of  the  Company's  foreign
subsidiaries  have  retirement  plans  covering   substantially  all  employees.
Contributions  to these  plans  are  generally  deposited  under  fiduciary-type
arrangements.  Benefits  under  these  plans  are  primarily  based on levels of
compensation.  Funding  policies  are  based on  legal  requirements  and  local
practices.  Expenses under these plans amounted to $683, $489 and $349 for 2002,
2001 and 2000, respectively.

12. Income Taxes

      (Loss) income from operations before provision  (benefit) for income taxes
consisted of:

                                      2002              2001              2000
                                   --------          --------          --------
Domestic .................         $ (8,437)         $(12,561)         $ (2,332)
Foreign ..................          (29,674)           (4,315)           16,331
                                   --------          --------          --------
                                   $(38,111)         $(16,876)         $ 13,999
                                   ========          ========          ========


                                      F-21
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

12. Income Taxes--(Continued)

      Components of income tax expense (benefit) are as follows:

                                                2002         2001        2000
                                              --------     -------     -------
Current tax provision (benefit):
   U.S. Federal ...........................   $     --     $    --     $    --
   State and local ........................       (256)      1,711         245
   Foreign ................................      2,943       3,876       2,264
                                              --------     -------     -------
   Total current tax provision ............      2,687       5,587       2,509
                                              --------     -------     -------
Deferred tax provision (benefit):
   U.S. Federal ...........................     (1,736)     (3,528)       (287)
   State and local ........................       (766)       (289)          5
   Foreign ................................    (12,349)     (4,760)      2,047
   Change in valuation allowance-domestic .     15,413       1,009        (327)
                                -foreign ..     10,410          --          --
                                              --------     -------     -------
   Total deferred tax provision (benefit) .     10,972      (7,568)      1,438
                                              --------     -------     -------
Provision (benefit) for income taxes ......   $ 13,659     $(1,981)    $ 3,947
                                              ========     =======     =======

A reconciliation of the Federal  statutory rate and the Company's  effective tax
rate are as follows:

                                                2002         2001        2000
                                              --------     -------     -------
U.S. Federal income tax rate ..............      (34.0)%     (34.0)%      34.0%
State and local taxes, net of federal
   income tax effect ......................       (1.8)        3.5         0.9
Foreign tax rate differences and taxes
   in certain profitable foreign
   jurisdictions ..........................        1.8        17.1       (13.1)
Change in valuation allowance .............       67.8         6.0        (0.9)
Non-taxable income ........................         --        (6.3)         --
Expenses with no tax benefit ..............        0.3         1.1         3.9
Other .....................................        1.7         0.9         3.4
                                              --------     -------     -------
                                                  35.8%      (11.7)%      28.2%
                                              ========     =======     =======

      Most of the  investments  of the  Company's  Israeli  subsidiary  in fixed
assets have been granted  "approved  enterprise"  status under  Israeli law. The
subsidiary  is also a "foreign  investors'  company" as defined by Israeli  law.
This status  entitles the  subsidiary  to reduced tax rates,  which results in a
substantial  portion  of the tax rate  differences  on foreign  operations.  The
entitlement  of the  reduced  tax  rates  is  conditional  upon  the  subsidiary
fulfilling  the  conditions  stipulated  by Israeli law,  regulations  published
thereunder  and the  instruments  of approval  for the specific  investments  in
approved  enterprises.  In the event of failure to comply with these conditions,
the benefits may be canceled  and the  subsidiary  may be required to refund the
amount of the benefits, in whole or in part, with the addition of interest.  The
periods of benefits expire in various years through 2010.

      Provision has not been made for United States or additional  foreign taxes
on  undistributed  earnings of foreign  subsidiaries of  approximately  $31,000,
whose earnings have been or are intended to be reinvested. It is not practicable
at this time to determine the amount of income tax  liability  that would result
should such earnings be repatriated.


                                      F-22
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

12. Income Taxes--(Continued)

      The tax effects of  significant  temporary  differences  that comprise the
deferred tax assets and liabilities at June 30, 2002 and 2001 are as follows:

                                                           2002          2001
                                                         --------      --------
Deferred tax assets:
   Employee benefits ...............................     $  2,262      $  2,198
   Depreciation ....................................        4,470         1,043
   Insurance .......................................          428           429
   Receivables allowances ..........................        1,005         1,175
   Inventory .......................................        5,347         4,312
   Plant curtailment and environmental
     remediation ...................................          827         1,305
   Alternative minimum tax .........................          158           144
   Net operating loss carryforwards--domestic ......       12,696         8,091
                                   --foreign .......        7,494         3,847
   Other ...........................................        3,220         1,180
                                                         --------      --------
                                                           37,907        23,724
   Valuation allowance .............................      (27,257)       (1,434)
                                                         --------      --------
                                                           10,650        22,290
Deferred tax liabilities
   Property, plant and equipment ...................       (4,578)       (6,248)
   Other ...........................................       (1,449)         (606)
                                                         --------      --------
                                                           (6,027)       (6,854)
                                                         --------      --------
Net deferred tax asset .............................     $  4,623      $ 15,436
                                                         ========      ========

      Deferred   taxes  are  included  in  the  following   line  items  in  the
consolidated balance sheets:

                                                           2002          2001
                                                         --------      --------
Prepaid expenses and other current assets ..........     $  6,593      $ 10,133
Accrued expenses, taxes and other current
  liabilities ......................................         (717)         (523)
Other assets .......................................          305         9,222
Other liabilities ..................................       (1,558)       (3,396)
                                                         --------      --------
                                                         $  4,623      $ 15,436
                                                         ========      ========

      The  Company  has  incurred  domestic  losses  in  recent  years  and  has
reassessed  the  likelihood  of  recovering  net  domestic  deferred  tax assets
resulting in the recording of a full valuation  allowance of $15,413,  including
$12,154  related to prior year net  deferred  tax asset  balances.  In addition,
through  fiscal  2001,  the  Company's  Odda  subsidiary  had a net deferred tax
liability;  however,  significant  losses in fiscal 2002 have  resulted in a net
deferred  tax asset and a full  valuation  allowance  has been  provided  due to
uncertainty of future  profitability of this operation.  The Company's  position
with respect to the  likelihood of  recoverability  of these deferred tax assets
will  continue  to be  evaluated  each  reporting  period  based upon actual and
expected operating performance.

      The Company has  domestic  federal net  operating  loss  carryforwards  of
approximately $26,000 that expire in 2019 through 2022 and foreign net operating
loss  carryforwards  of  approximately  $40,000 that expire over various periods
beginning in 2010.


                                      F-23
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

13. Commitments and Contingencies

(a) Leases:

      The Company  leases  equipment  and office,  warehouse  and  manufacturing
facilities  through  fiscal 2010 for minimum  annual  rentals (plus certain cost
escalations) as follows:

                                                         Capital    Operating
Year Ended June 30                                       Leases      Leases
------------------                                       ------      ------
2003 .............................................        $472       $2,242
2004 .............................................         402        2,021
2005 .............................................         103        1,723
2006 .............................................           2        1,309
2007 .............................................          --          799
Thereafter .......................................          --        1,627
                                                          ----       ------
Total minimum lease payments .....................        $979       $9,721
                                                                     ======
Amounts representing interest ....................         126
                                                          ----
Present value of minimum lease payments ..........        $853
                                                          ====

      Equipment under  capitalized  leases included in the consolidated  balance
sheets at June 30, 2002 and 2001  amounted to $33 and $195,  net of  accumulated
depreciation of $833 and $993, respectively.

      The commitment for facilities includes $1,500 with an affiliate controlled
by shareholders of the Company. (Refer to Note 5.)

      Rent  expense  under  operating  leases for the years ended June 30, 2002,
2001 and 2000 amounted to $2,721, $2,243 and $1,734, respectively.

(b) Purchase Commitments:

      The  Company's   subsidiary,   MRT,  has  entered  into  minimum  purchase
commitments  to purchase fly ash at fixed prices over periods of up to 15 years.
Fly ash purchased under minimum purchase agreements for the years ended June 30,
2002, 2001 and 2000 were $5,802, $5,098 and $3,630, respectively.

      At  June  30,  2002,  the  Company  had  the  following  minimum  purchase
commitments:

                                                                      Fly Ash
                                                                      Minimum
Year Ended June 30                                                   Purchase
------------------                                                   --------
2003 ........................................................         $ 7,512
2004 ........................................................           7,077
2005 ........................................................           6,256
2006 ........................................................           4,641
2007 ........................................................           4,545
Thereafter ..................................................          31,838
                                                                      -------
Total minimum purchase commitments ..........................         $61,869
                                                                      =======


                                      F-24
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

13. Commitments and Contingencies--(Continued)

(c) Litigation:

      On or  about  April  17,  1997,  CP and the  Company  were  served  with a
complaint  filed by Chevron USA, Inc.  ("Chevron") in the United States District
Court for the  District of New Jersey,  alleging  that  operations  of CP at its
Sewaren  plant  affected  adjoining  property  owned by Chevron and that Philipp
Brothers,  as the parent of CP, is also responsible to Chevron.  In July 2002, a
phased  settlement  agreement  was  reached  under which the Company and another
defendant  will,  subject to  certain  conditions,  take title to the  property,
subject  to a  period  of  due  diligence  investigation  of the  property.  The
Company's  portion of the  settlement for past costs and expenses is $495 and is
included in selling,  general and  administrative  expenses in the June 30, 2002
statement  of  operations  and  comprehensive  income.  The  payable  of $495 is
included in accrued  expenses and other current  liabilities as of June 30, 2002
and was  subsequently  paid in July 2002.  The Company  and the other  defendant
will,  if the sale becomes  final,  share  equally in the costs of  remediation.
While the costs cannot be estimated at this time, the Company believes the costs
will not be material and insurance  recoveries  will be available to offset some
of those costs.

      The Company's  Phibro-Tech  subsidiary  was named in 1993 as a potentially
responsible party ("PRP") in connection with an action commenced under CERCLA by
the  EPA,  involving  a  former  third-party  fertilizer  manufacturing  site in
Jericho,  South Carolina.  An agreement has been reached under which the Company
has agreed to  contribute  up to $900 of which $500 has been paid as of June 30,
2002.  Some recovery from  insurance and other sources is expected.  The Company
has also accrued its best estimate of any future costs.

      The  Company  and its  subsidiaries  are a party to a number of claims and
lawsuits   arising  in  the  normal   course  of  business,   including   patent
infringement,   product  liabilities  and  governmental   regulation  concerning
environmental  and other  matters.  Certain  of these  actions  seek  damages in
various amounts.

      All  such  claims  are  being  contested,   and  management  believes  the
resolution  of  these  matters  will  not  materially  affect  the  consolidated
financial position, results of operations or cash flows of the Company.

(d) Environmental Remediation:

      The Company's domestic subsidiaries are subject to various federal,  state
and local  environmental  laws and  regulations  that govern the  management  of
chemical  wastes.  The  most  significant  regulation  governing  the  Company's
recycling  activities  is the  Resource  Conservation  and  Recovery Act of 1976
("RCRA").  The Company has been issued final RCRA "Part B" permits to operate as
hazardous waste  treatment and storage  facilities at its facilities in Santa Fe
Springs,  California;  Garland, Texas; Joliet, Illinois; Sumter, South Carolina;
and Sewaren,  New Jersey.  The Company has ceased  operations at its Union City,
California facility. Costs accrued for closure were $350 as of June 30, 2002.

      On or about  November  15,  2001,  the Company was advised by the State of
California that the State intended to file a civil complaint against the Company
for  alleged  violations  arising  out of  operations  at the Santa Fe  Springs,
California  facility.  The Company is engaged in negotiations  with the State of
California at this time.  The amount of any penalty that may be assessed  cannot
be determined at this time, but is not expected to be material.

      On or about  April 5, 2002,  the  Company  was  served,  as a  potentially
responsible   party,  with  an  information   request  from  the  United  States
Environmental  Protection  Agency  relating to a third-party  superfund  site in
Rhode Island.  The Company is investigating the matter,  which relates to events
in the 1950's and 1960's.

      In  connection  with  applying for RCRA "Part B" permits,  the Company has
been  required  to  perform  extensive  site  investigations  at  certain of its
operating  facilities and inactive sites to identify possible  contamination and
to provide the regulatory  authorities with plans and schedules for remediation.
Some soil and  groundwater  contamination  has been  identified at several plant
sites and will require corrective action over the next several years.


                                      F-25
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

13. Commitments and Contingencies--(Continued)

      Based upon information available, management estimates the cost of further
investigation  and remediation of identified  soil and  groundwater  problems at
operating sites,  closed sites and third-party  sites (including the Chevron and
Jericho litigation) to be approximately $2,573, which is included in current and
long-term   liabilities  in  the  June  30,  2002  consolidated   balance  sheet
(approximately  $2,222 in 2001).  Such amounts  primarily  represent the cost of
feasibility   studies  and  remediation   activities  and  are  expected  to  be
substantially   incurred  over  a  three-year   period.  No  amounts  have  been
discounted.  Environmental provisions are $2,164, $1,252 and $252 for the fiscal
years ended June 30,  2002,  2001 and 2000,  respectively,  and are  included in
selling,  general and administrative  expenses in the consolidated statements of
operations.

(e) Plant Curtailment:

      During the fourth quarter of fiscal 1998,  the Company  decided to curtail
major manufacturing  operations of its Sewaren, New Jersey facility and recorded
nonrecurring  charges of $10.0  million  related to this  curtailment.  Of these
charges,  $5.6 million represented non-cash asset write-downs during fiscal 1998
related to the manufacturing  facility; $1.1 million represented associated site
restoration;  and $3.3 million represented the cost of long-term groundwater and
remediation  activities.  The accrual  for  groundwater  monitoring  represented
personnel,  utility and related costs aggregating an estimated $4.2 million over
10 years and discounted at a 7% rate.

      In June 2000, the Company entered an agreement ("Transfer Agreement") with
the Township of  Woodbridge  ("Township")  to transfer  title to its property in
Sewaren, New Jersey to the Township.  Simultaneously, the Company entered into a
10-year lease agreement with the Township, with payments aggregating $2 million,
for  certain  areas of the  property  in order to allow the  Company  to conduct
operations  related to its RCRA Part B Facility Permit. The Company retained its
environmental  obligations  pursuant to an  Administrative  Consent  Order (ACO)
between the Company and the New Jersey  Department of  Environmental  Protection
and has fully  paid its  obligations  under the ACO.  Pursuant  to the  Transfer
Agreement,  the Township took title to the property and assumed obligations with
regard to the property,  including  maintaining the ground water recovery system
required by the ACO. In connection  with the  assumption of  obligations  by the
Township in fiscal 2000,  the Company  reversed  $1,481 to income,  representing
amounts previously reserved for ground water monitoring and remediation,  net of
the present value of its lease obligations.

14. Financial Instruments

      Financial  instruments that potentially subject the Company to credit risk
consist  principally of cash and cash equivalents,  and trade  receivables.  The
Company  places  its cash and  cash  equivalents  with  high  quality  financial
institutions in various  countries.  The Company sells to customers in a variety
of industries, markets and countries. Concentrations of credit risk with respect
to  receivables  arising from these sales are limited due to the large number of
customers  comprising the Company's customer base. Ongoing credit evaluations of
customers' financial  conditions are performed and, generally,  no collateral is
required.   The  Company  maintains   appropriate   reserves  for  uncollectible
receivables.

      The  carrying  amounts of cash and cash  equivalents,  trade  receivables,
trade payables and short-term debt is considered to be  representative  of their
fair value  because of their short  maturities.  The fair value of the Company's
Senior  Subordinated  Notes is estimated based on quoted market prices.  At June
30, 2002 and 2001, the fair value of the Company's Senior Subordinated Notes was
$51,000 and $65,900,  respectively, and the related carrying amount is $100,000.
At June 30, 2002 and 2001, the fair value of the Company's  other long-term debt
does not  differ  materially  from its  carrying  amount  based on the  variable
interest rate structure of these obligations.

      The  Company  obtains  third-party  letters of credit and surety  bonds in
connection  with certain  inventory  purchases  and insurance  obligations.  The
contract  values of the letters of credit and surety  bonds at June 30, 2002 and
2001 were $1,837 and $1,035,  respectively.  The difference between the carrying
values and fair  values of these  letters  of credit  and surety  bonds were not
material.


                                      F-26
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

14. Financial Instruments--(Continued)

      The  Company  operates  internationally,   with  manufacturing  and  sales
facilities in various  locations around the world and utilizes certain financial
instruments to manage its foreign  currency and commodity  exposures,  primarily
related  to  forecasted  transactions.  To  qualify a  derivative  as a hedge at
inception and throughout the hedge period,  the company  formally  documents the
nature and relationships  between hedging  instruments and hedged items, as well
as its risk-management objectives,  strategies for undertaking the various hedge
transactions  and method of assessing  hedge  effectiveness.  Additionally,  for
hedges of forecasted transactions,  the significant characteristics and expected
terms of a forecasted transaction must be specifically  identified,  and it must
be probable  that each  forecasted  transaction  would occur.  If it were deemed
probable that the forecasted transaction would not occur, the gain or loss would
be recognized in operations  currently.  Financial  instruments  qualifying  for
hedge  accounting must maintain a specified level of  effectiveness  between the
hedging  instrument and the item being hedged,  both at inception and throughout
the hedged period.  The Company hedges  forecasted  transactions for periods not
exceeding  the next twelve  months.  The  Company  does not engage in trading or
other speculative uses of financial instruments.

      The Company uses forward contracts and options to mitigate its exposure to
changes in foreign currency exchange rates and as a means of hedging  forecasted
operating  costs.  When  using  options  as a hedging  instrument,  the  Company
excludes the time value from the assessment of  effectiveness.  Pursuant to SFAS
No. 133, all cumulative  changes in a foreign  currency  option's fair value are
deferred as a component  of  accumulated  other  comprehensive  income until the
underlying  hedged  transactions  are  reported  on the  Company's  consolidated
statement of operations and comprehensive  income. The Company also utilizes, on
a limited basis, certain commodity derivatives,  primarily on copper used in its
manufacturing   process,  to  hedge  the  cost  of  its  anticipated  production
requirements.  During the fiscal year ended June 30, 2002, the Company's foreign
currency options and forward contracts and commodity futures contracts have been
designated  as cash flow hedges and  conform to the  criteria of SFAS No. 133 to
qualify for hedge accounting treatment at June 30, 2002. The Company has elected
to hedge against  forecasted cash flow  transactions  for its subsequent  fiscal
year ending June 30, 2003. The Company has deferred  $1,062 of cumulative  gains
(net of losses) on various  foreign  exchange  options,  forward  contracts  and
copper  futures  contracts  designated  as cash flow hedges  against  forecasted
transactions  for the  fiscal  year  ended June 30,  2002.  These  gains will be
realized into cost of goods sold as the hedged  purchase  transactions  are made
within the fiscal year ending June 30, 2003.

      In addition,  the Company  utilizes energy swap contracts at its Norwegian
operations  to mitigate  volatility in local power rates.  The Company's  energy
swap  contract has not been  designated  as qualifying as a hedge under SFAS No.
133 and  therefore,  changes in fair value have been  charged to other  (income)
expense, net in the amount of $1,157 for the year ended June 30, 2002.

      The  fair  value  associated  with  foreign  currency  contracts  has been
estimated by valuing the net position of the contracts using the applicable spot
rates and forward rates as of the reporting date.

      The fair value of commodity  contracts  is estimated  based on quotes from
the market makers of these instruments and represents the estimated amounts that
the Company would expect to receive or pay to terminate the agreements as of the
reporting date.

15. Business Segments

      The Company has four  reportable  segments--Animal  Health and  Nutrition,
Industrial Chemicals,  Distribution and All Other. Reportable segments have been
determined  primarily  on the basis of the nature of products  and  services and
certain  similar  operating  units have been  aggregated.  The Company's  Animal
Health and  Nutrition  segment  manufactures  and  markets a broad range of feed
additive  products  including  trace  minerals,   anticoccidials,   antibiotics,
vitamins,  vitamin  premixes and other animal  health  products.  The  Company's
Industrial Chemicals segment manufactures and markets pigments and other mineral
products.  Certain of these products include copper oxide,  which is produced by
the Company's recycling  operation,  mineral oxides, and alkaline etchants.  The
Company's  Distribution segment markets and distributes a variety of industrial,
specialty and fine organic  chemicals and  intermediates  produced  primarily by
third parties.


                                      F-27
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

15. Business Segments--(Continued)

The Company's All Other segment  manufactures and markets a variety of specialty
custom chemicals, and copper-based  fungicides,  as well as providing management
and recycling of coal combustion residues.

      Transfers   between   segments  are  priced  at  amounts  that  include  a
manufacturing  profit  except that  certain  domestic  transfers  of $10,228 and
$9,606 from the Industrial Chemicals segment to the All Other segment for fiscal
2001  and  2000,  respectively,  were  recorded  at  the  cost  of  the  product
transferred.

                                               2002         2001         2000
                                            ---------    ---------    ---------
Net Sales
   Animal Health and Nutrition ..........   $ 243,436    $ 202,573    $ 135,088
   Industrial Chemicals .................      90,897       97,227       99,712
   Distribution .........................      36,880       44,452       49,254
   All Other ............................      39,407       46,979       69,198
   Intersegment .........................     (21,807)     (26,821)     (30,226)
                                            ---------    ---------    ---------
      Net Sales .........................   $ 388,813    $ 364,410    $ 323,026
                                            =========    =========    =========

                                               2002         2001         2000
                                            ---------    ---------    ---------
Intersegment Sales
   Animal Health and Nutrition ..........   $   3,834    $   4,767    $   5,019
   Industrial Chemicals .................      15,864       20,060       23,576
   Distribution .........................       1,988        1,994        1,631
   All Other ............................         121           --           --
                                            ---------    ---------    ---------
      Intersegment Sales ................   $  21,807    $  26,821    $  30,226
                                            =========    =========    =========

                                               2002         2001         2000
                                            ---------    ---------    ---------
Operating (Loss) Income
   Animal Health and Nutrition ..........   $  28,298    $  17,562    $  11,539
   Industrial Chemicals .................     (34,079)      (3,350)       5,355
   Distribution .........................       1,391        3,936        3,817
   All Other ............................      (2,678)      (7,086)       4,045
   Corporate expenses and adjustments ...     (14,596)     (10,086)      (9,082)
                                            ---------    ---------    ---------
      Operating (Loss) Income ...........   $ (21,664)   $     976    $  15,674
                                            =========    =========    =========

                                               2002         2001         2000
                                            ---------    ---------    ---------
Identifiable Assets
   Animal Health and Nutrition ..........   $ 186,118    $ 169,870    $  66,203
   Industrial Chemicals .................      57,419       88,496       84,395
   Distribution .........................      11,826       16,568       18,825
   All Other ............................      30,688       33,362       66,187
   Corporate ............................      10,393       21,723       22,841
                                            ---------    ---------    ---------
      Identifiable Assets ...............   $ 296,444    $ 330,019    $ 258,451
                                            =========    =========    =========


                                      F-28
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

15. Business Segments--(Continued)

                                               2002         2001         2000
                                            ---------    ---------    ---------
Depreciation and Amortization
   Animal Health and Nutrition ..........   $   7,438    $   5,089    $   3,698
   Industrial Chemicals .................      21,000        6,115        5,806
   Distribution .........................         223          223          268
   All Other ............................       1,838        1,623        1,558
   Corporate ............................       1,049          782          536
                                            ---------    ---------    ---------
      Depreciation and Amortization .....   $  31,548    $  13,832    $  11,866
                                            =========    =========    =========

                                               2002         2001         2000
                                            ---------    ---------    ---------
Capital Expenditures
   Animal Health and Nutrition ..........   $   5,915    $   2,669    $   2,363
   Industrial Chemicals .................       3,160        6,122       15,413
   Distribution .........................          14           18           13
   All Other ............................       2,138        5,484        4,696
   Corporate ............................         119          251          119
                                            ---------    ---------    ---------
      Capital Expenditures ..............   $  11,346    $  14,544    $  22,604
                                            =========    =========    =========

16. Geographic Information:

      The following is information  about the Company's  operations in different
geographic  areas.  Revenues  to  external  customers  and  property,  plant and
equipment are  attributed to the  geographic  areas based on the location of the
Company's subsidiaries.

                                               2002         2001         2000
                                            ---------    ---------    ---------
Revenues:
   United States ........................   $ 240,520    $ 224,154    $ 209,767
   Europe ...............................      55,096       56,392       59,120
   Israel ...............................      45,266       52,746       49,494
   South America ........................      25,476       19,603        4,645
   Asia/Pacific .........................      22,455       11,515           --
                                            ---------    ---------    ---------
      Total Revenues ....................   $ 388,813    $ 364,410    $ 323,026
                                            =========    =========    =========

                                               2002         2001         2000
                                            ---------    ---------    ---------
Operating (Loss) Income
   United States ........................   $   8,568    $   6,982    $  13,715
   Europe ...............................     (24,102)         534        3,182
   Israel ...............................       4,529        6,867        7,119
   South America ........................       3,212        3,354          740
   Asia/Pacific .........................         (49)         478           --
   Corporate and Other ..................     (13,822)     (17,239)      (9,082)
                                            ---------    ---------    ---------
      Total Operating (Loss) Income .....   $ (21,664)   $     976    $  15,674
                                            =========    =========    =========


                                      F-29
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

16. Geographic Information--(Continued)

                                               2002         2001         2000
                                            ---------    ---------    ---------
Property, Plant and Equipment
   United States ........................   $  30,223    $  30,769    $  25,734
   Europe ...............................      27,852       40,693       32,465
   Israel ...............................      12,647       14,219       15,899
   South America ........................      13,750       16,426        2,082
   Asia/Pacific .........................         258          216           --
                                            ---------    ---------    ---------
      Total Property, Plant and Equipment   $  84,730    $ 102,323    $  76,180
                                            =========    =========    =========

17. Valuation and Qualifying Accounts:

      Activity in the allowance for doubtful accounts consisted of the following
for the fiscal years ended June 30:

                                                2002          2001        2000
                                              -------       -------       -----
Balance at beginning of period .........      $ 2,369       $   756       $ 886
Provision for bad debts ................        1,018         1,740          --
Bad debt write-offs ....................         (460)         (127)       (130)
                                              -------       -------       -----
Balance at end of period ...............      $ 2,927       $ 2,369       $ 756
                                              =======       =======       =====

18. Insurance Recoveries:

      In April 1999, the Company suffered inventory, real property and equipment
loss at its  Bowmanstown,  Pennsylvania  facility  as a  result  of a fire.  The
Company  carries  insurance  coverage  for  the  property  damage  and  business
interruption  losses and recorded a receivable of $4,259 in other receivables at
June  30,  1999  for  amounts  reimbursable  from  the  insurance  carrier.  The
receivable  was net of the  Company's  deductible  and  $1,000  advanced  by the
insurance carrier prior to June 30, 1999.

      A reduction of cost of sales of $396 was recorded for insurance recoveries
in excess of the net book  value of damaged  inventory  and a gain of $3,701 was
recorded  in other  income for the excess of amounts  reimbursable  over the net
book value of property and equipment. As of June 30, 2000, the Company finalized
its claims with its insurance  carriers and recorded  additional gains in fiscal
2000 for property damage of $946 in other income and  reimbursement for business
interruption losses of $1,161 as a reduction of cost of sales.

19. Divestitures

      On May 4, 2001, the Company sold its Agtrol U.S.  business,  a division of
the Company's Phibro-Tech, Inc. subsidiary, to Nufarm, Inc. ("Nufarm"), the U.S.
subsidiary of Nufarm Limited,  a publicly listed  Australian-based  company.  On
June 14, 2001, the Company sold its Agtrol international business to Nufarm. The
sale included inventory and intangible assets to Nufarm, but did not include the
manufacturing  facilities.  Phibro-Tech  also entered into  agreements to supply
copper  fungicide  products to Nufarm from its Sumter,  South Carolina plant for
five years, and from its Bordeaux, France plant for three years. On December 24,
2001, the Company transferred certain receivables and rebate liabilities, at net
carrying value, from Agtrol U.S. sales prior to May 1, 2001, to Nufarm,  without
recourse.

      The sales price was $27,139, of which the Company received $25,418 in cash
plus a note for $1,225  payable on June 30, 2001.  The proceeds of the note were
received  on July 18,  2001.  The  Company  recorded  a pre-tax  gain of $1,457.
Approximately $1,484 of additional gain was deferred and will be recognized over
the period of the related supply agreements.

      Revenues for the Agtrol  business  amounted to $31,333 and $54,043 for the
years ended June 30, 2001 and 2000, respectively.  Operating (losses) income for
the Agtrol business amounted to ($6,444) and $2,599 for the years ended June 30,
2001 and 2000, respectively.


                                      F-30
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (In Thousands)

19. Divestitures--(Continued)

      Odda had a  minority  equity  investment  in a local  hydroelectric  power
company and also held contracts for the purchase of hydroelectric  power through
the  years  2006 to 2010.  As a result of  legislative,  regulatory  and  market
developments  occurring  in Norway since the 1998  acquisition,  the Company was
able  to  sell  its   investment   and  related  power  rights  to  a  Norwegian
"state-governed"  power production company in January 2000. The Company realized
net sales proceeds of $18,750 and recorded a pre-tax gain of $13,763.

      In  fiscal  2001,  Odda  sold  certain  non-operating  real  property  and
recognized a gain of $983.

20. Fourth Quarter Adjustments

      During the fourth quarter of fiscal 2002, the Company  recorded a net loss
of $38,634. Significant fourth quarter adjustments included in the net loss are:
accelerated depreciation and restructuring costs associated with the shutdown of
two product lines of the Company's Odda  subsidiary of $12,907;  fixed asset and
intangible  write-downs  related to the  Company's  Odda and Carbide  Industries
subsidiaries  ongoing  operations  of  $6,799;  and  an  increase  in  valuation
allowances for prior year domestic deferred tax assets of $12,154.

21. Consolidating Financial Statements

      In June 1998, the Company issued $100 million in Senior Subordinated Notes
as described  in Note 7. In  connection  with the  issuance of these Notes,  the
Company's U.S. Subsidiaries fully and unconditionally guaranteed such Notes on a
joint and several basis.  Foreign  subsidiaries  do not presently  guarantee the
Notes.

      The  following   consolidating   financial  data  summarizes  the  assets,
liabilities  and results of operations and cash flows of the Parent,  Guarantors
and Non-Guarantor  Subsidiaries.  The Parent is Philipp Brothers Chemicals, Inc.
("PBC"). The U.S. Guarantor  Subsidiaries  include all domestic  subsidiaries of
PBC including the following:  C.P. Chemicals,  Inc., Phibro-Tech,  Inc., Mineral
Resource Technologies, Inc., Prince Agriproducts, Inc., The Prince Manufacturing
Company (PA), The Prince Manufacturing  Company (IL),  Phibrochem,  Inc., Phibro
Chemicals,  Inc., Western Magnesium Corp.,  Phibro Animal Health Holdings,  Inc.
and  Phibro  Animal  Health  U.S.,  Inc.  The U.S.  and  foreign  Guarantor  and
Non-Guarantor  Subsidiaries are directly or indirectly wholly owned as to voting
stock by PBC.

      Investments  in  subsidiaries  are  accounted  for by the Parent using the
equity method. Income tax expense (benefit) is allocated among the consolidating
entities based upon taxable income (loss) by jurisdiction within each group.

      The principal  consolidation  adjustments are to eliminate  investments in
subsidiaries  and intercompany  balances and  transactions.  Separate  financial
statements of the U.S. Guarantor subsidiaries and the non-guarantor subsidiaries
are  not  presented  because  management  has  determined  that  such  financial
statements would not be material to investors.


                                      F-31
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
                           CONSOLIDATING BALANCE SHEET
                               As of June 30, 2002
                                 (In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Foreign
                                                                   U.S. Guarantor      Subsidiaries    Consolidation    Consolidated
                                                       Parent       Subsidiaries      Non-Guarantors    Adjustments       Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>              <C>              <C>              <C>
                      Assets

Current Assets:
Cash and cash equivalents .....................       $     457        $     130        $   5,832                         $   6,419
Trade receivables .............................           3,150           28,671           33,340                            65,161
Other receivables .............................             392              855            2,665                             3,912
Inventory .....................................           2,707           44,929           45,881                            93,517
Prepaid expenses and other ....................           3,010            2,460           10,495                            15,965
                                                      -----------------------------------------------------------------------------
         Total current assets .................           9,716           77,045           98,213               --          184,974
                                                      -----------------------------------------------------------------------------
Property, plant & equipment, net ..............             409           29,781           54,540                            84,730

Intangibles ...................................              32            1,495           11,673                            13,200
Investment in subsidiaries ....................          82,540            3,621               --          (86,161)              --
Intercompany ..................................          73,359          (36,074)          (5,240)         (32,045)              --
Other assets ..................................           9,738            1,918            1,884                            13,540
                                                      -----------------------------------------------------------------------------
         Total assets .........................       $ 175,794        $  77,786        $ 161,070        $(118,206)       $ 296,444
                                                      =============================================================================

     Liabilities and Stockholders' Equity

Current Liabilities:
Cash overdraft ................................       $     576        $   5,502        $   1,689                         $   7,767
Loan payable to banks .........................          37,991               --            3,544                            41,535
Current portion of long term debt .............           3,216              530            5,105                             8,851
Accounts payable ..............................           1,024           24,716           16,540                            42,280
Accrued expenses and other ....................           7,579            8,092           18,409                            34,080
                                                      -----------------------------------------------------------------------------
Total current liabilities .....................          50,386           38,840           45,287               --          134,513
                                                      -----------------------------------------------------------------------------
Long term debt ................................         127,643          (68,271)         109,314          (32,045)         136,641

Other liabilities .............................           2,352            6,156           21,369                            29,877

Redeemable securities:
Series B and C preferred stock ................          56,602               --               --                            56,602

             Stockholders' Equity

Series A preferred stock ......................             521               --               --                               521
Common stock ..................................               2               32               --              (32)               2
Paid in capital ...............................             740          110,885            8,166         (119,051)             740
Retained earnings .............................         (49,652)         (10,271)          (9,852)          20,123          (49,652)
Accumulated other comprehensive
  income (loss)- gain on derivative
  instruments .................................           1,062              384              678           (1,062)           1,062
  cumulative currency translation
  adjustment ..................................         (13,862)              31          (13,892)          13,861          (13,862)
                                                      -----------------------------------------------------------------------------
         Total stockholders' equity ...........         (61,189)         101,061          (14,900)         (86,161)         (61,189)
                                                      -----------------------------------------------------------------------------

         Total liabilities and equity .........       $ 175,794        $  77,786        $ 161,070        $(118,206)       $ 296,444
                                                      =============================================================================
</TABLE>


                                      F-32
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
                      CONSOLIDATING STATEMENT OF OPERATIONS
                        For The Year Ended June 30, 2002
                                 (In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Foreign
                                                                   U.S. Guarantor      Subsidiaries    Consolidation    Consolidated
                                                       Parent       Subsidiaries      Non-Guarantors    Adjustments       Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>              <C>              <C>              <C>
Net sales .........................................   $ 25,692         $ 208,524        $ 165,641        $(11,044)        $ 388,813

Cost of goods sold ................................     20,837           164,040          148,514         (11,044)          322,347
                                                      -----------------------------------------------------------------------------
         Gross profit .............................      4,855            44,484           17,127              --            66,466

Selling, general, and administrative
  expenses ........................................     17,528            36,913           26,890                            81,331

Asset writedowns ..................................         --                --            6,799                             6,799
                                                      -----------------------------------------------------------------------------
         Operating (loss) income ..................    (12,673)            7,571          (16,562)             --           (21,664)

Interest expense ..................................      2,394             2,075           13,689                            18,158
Interest income ...................................        (15)               --             (341)                             (356)
Other (income) expense ............................       (243)             (876)            (124)                           (1,243)

Gains from sale of assets .........................         --                --             (112)                             (112)

Intercompany allocation ...........................    (15,070)           15,070               --                                --

Loss (profit) relating to subsidiaries ............     41,972                --               --         (41,972)               --
                                                      -----------------------------------------------------------------------------
         (Loss) income before income taxes ........    (41,711)           (8,698)         (29,674)         41,972           (38,111)

Provision (benefit) for income taxes ..............     10,059             4,229             (629)                           13,659
                                                      -----------------------------------------------------------------------------
         Net (loss) income ........................   $(51,770)        $ (12,927)       $ (29,045)       $ 41,972         $ (51,770)
                                                      =============================================================================
</TABLE>


                                      F-33
<PAGE>

                        PHILIPP BROTHERS CHEMICALS INC.
                      CONSOLIDATING STATEMENT OF CASH FLOWS
                        For the Year Ended June 30, 2002
                                 (In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Foreign
                                                                   U.S. Guarantor      Subsidiaries    Consolidation    Consolidated
                                                       Parent       Subsidiaries      Non-Guarantors    Adjustments       Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>              <C>              <C>              <C>
OPERATING ACTIVITIES:
Net (loss) income .................................   $(51,770)        $(12,927)        $(29,045)        $ 41,972         $(51,770)
Adjustments to reconcile net (loss)
  income to net cash provided by
  operating activities:
 Depreciation and amortization ....................      1,049            5,592           24,907                            31,548
 Deferred income taxes ............................      9,297            4,890           (3,215)                           10,972
 Gains from sale of assets ........................         --               --             (112)                             (112)
 Change in redemption amount of
   redeemable common stock ........................       (378)              --               --                              (378)
 Asset writedowns .................................         --               --            6,799                             6,799
 Effects of changes in foreign currency ...........         --               --            2,120                             2,120
 Other ............................................        (43)             865            1,339                             2,161

Changes in operating assets and
  liabilities, net of effect of
  business acquired:
 Accounts receivable ..............................      1,299            1,798            7,244                            10,341
 Inventory ........................................        606           (2,719)         (10,027)                          (12,140)
 Prepaid expenses and other .......................        210           (1,150)            (103)                           (1,043)
 Other assets .....................................     (1,335)           2,471            2,068                             3,204
 Intercompany .....................................     27,032            6,917            8,023          (41,972)              --
 Accounts payable .................................       (719)             785           (9,955)                           (9,889)
 Accrued expenses and other .......................       (119)          (4,126)           7,687                             3,442
                                                      -----------------------------------------------------------------------------
  Net cash (used in) provided by
  operating activities ............................    (14,871)           2,396            7,730               --           (4,745)
                                                      -----------------------------------------------------------------------------

INVESTING ACTIVITIES:
 Capital expenditures .............................       (119)          (5,049)          (6,178)                          (11,346)
 Acquisition of a business ........................         --               --           (7,182)                           (7,182)
 Proceeds from property damage claim ..............         --              411               --                               411
 Proceeds from sale of assets .....................         --               --              173                               173
 Other investing ..................................        613                3              (33)                              583
                                                      -----------------------------------------------------------------------------
  Net cash provided by (used in)
  investing activities ............................        494           (4,635)         (13,220)              --          (17,361)
                                                      -----------------------------------------------------------------------------

FINANCING ACTIVITIES:
 Cash overdraft ...................................        563            1,331            1,544                             3,438
 Net decrease in short term debt ..................     13,520               --             (864)                           12,656
 Proceeds from long term debt .....................      2,000              322               --                             2,322
 Payments of long term debt .......................     (2,541)            (494)          (1,704)                           (4,739)
 Other financing ..................................         --               --               --                                --
                                                      -----------------------------------------------------------------------------
  Net cash provided by (used in)
  financing activities ............................     13,542            1,159           (1,024)              --           13,677
                                                      -----------------------------------------------------------------------------
Effect of exchange rate changes on cash ...........         --               --                3                                3
                                                      -----------------------------------------------------------------------------
Net decrease in cash and cash equivalents .........       (835)          (1,080)          (6,511)              --           (8,426)

Cash and cash equivalents at beginning
  of year .........................................      1,292            1,210           12,343                            14,845
                                                      -----------------------------------------------------------------------------
Cash and cash equivalents at end of year ..........   $    457         $    130         $  5,832         $     --         $  6,419
                                                      =============================================================================
</TABLE>


                                      F-34
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
                           CONSOLIDATING BALANCE SHEET
                               As of June 30, 2001
                                 (In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Foreign
                                                                   U.S. Guarantor      Subsidiaries    Consolidation    Consolidated
                                                       Parent       Subsidiaries      Non-Guarantors    Adjustments       Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>             <C>              <C>              <C>
                      Assets

Current Assets:
Cash and cash equivalents ......................       $   1,292        $  1,210        $  12,343                         $  14,845
Trade receivables ..............................           4,624          32,291           40,995                            77,910
Other receivables ..............................             791           1,913            2,096                             4,800
Inventory ......................................           2,715          44,050           37,031                            83,796
Prepaid expenses and other .....................           5,461           2,745            9,242                            17,448
                                                      -----------------------------------------------------------------------------
       Total current assets ....................          14,883          82,209          101,707               --          198,799
                                                      -----------------------------------------------------------------------------
Property, plant & equipment, net ...............             626          30,143           71,554                           102,323

Intangibles ....................................              87           1,677            3,830                             5,594
Investment in subsidiaries .....................          55,897           1,593               --          (57,490)              --
Intercompany ...................................          54,322         (22,808)           3,852          (35,366)              --
Other assets ...................................          93,466         (71,333)           1,170                            23,303
                                                      -----------------------------------------------------------------------------
       Total assets ............................       $ 219,281        $ 21,481        $ 182,113        $ (92,856)       $ 330,019
                                                      =============================================================================

     Liabilities and Stockholders' Equity

Current Liabilities:
Cash overdraft .................................       $      13        $  4,209        $      --                         $   4,222
Loan payable to banks ..........................          24,471              --            3,992                            28,463
Current portion of long term debt ..............           2,541             493            2,370                             5,404
Accounts payable ...............................           1,743          23,359           26,202                            51,304
Accrued expenses and other .....................           7,859          11,780           15,739                            35,378
                                                      -----------------------------------------------------------------------------
Total current liabilities ......................          36,627          39,841           48,303               --          124,771
                                                      -----------------------------------------------------------------------------
Long term debt .................................         127,263         (60,654)         108,221          (35,366)         139,464

Other liabilities ..............................           2,129           5,826            5,066                            13,021

Redeemable securities:
Series B and C preferred stock .................          48,980              --               --                            48,980
Common stock ...................................             877              --             (499)                              378
                                                      -----------------------------------------------------------------------------
                                                          49,857              --             (499)              --           49,358
                                                      -----------------------------------------------------------------------------

           Stockholders' Equity

Series A preferred stock .......................             521              --               --                               521
Common stock ...................................               2              32               --              (32)               2
Paid in capital ................................             878          34,092            6,138          (40,230)             878
Retained earnings ..............................           9,741           2,325           22,496          (24,821)           9,741
Accumulated other comprehensive (loss)
  income- cumulative currency
  translation adjustment .......................          (7,737)             19           (7,612)           7,593           (7,737)
                                                      -----------------------------------------------------------------------------
       Total stockholders' equity ..............           3,405          36,468           21,022          (57,490)           3,405
                                                      -----------------------------------------------------------------------------
       Total liabilities and equity ............       $ 219,281        $ 21,481        $ 182,113        $ (92,856)       $ 330,019
                                                      =============================================================================
</TABLE>


                                      F-35
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
                      CONSOLIDATING STATEMENT OF OPERATIONS
                        For The Year Ended June 30, 2001
                                 (In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Foreign
                                                                   U.S. Guarantor      Subsidiaries    Consolidation    Consolidated
                                                       Parent       Subsidiaries      Non-Guarantors    Adjustments       Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>               <C>              <C>            <C>
Net sales .........................................   $ 33,350         $ 198,029         $ 157,513        $(24,482)      $ 364,410

Cost of goods sold ................................     27,936           156,985           130,698        $(24,482)        291,137
                                                      -----------------------------------------------------------------------------
       Gross profit ...............................      5,414            41,044            26,815              --          73,273

Selling, general, and administrative expenses .....     14,686            36,644            20,967                          72,297
                                                      -----------------------------------------------------------------------------
       Operating (loss) income ....................     (9,272)            4,400             5,848              --             976

Interest expense ..................................     12,623                45             5,629                          18,297
Interest income ...................................       (117)              (10)             (439)                           (566)
Other expense (income) ............................        407               260             1,894                           2,561

Gains from sale of assets .........................         --            (1,790)             (650)                         (2,440)

Intercompany allocation ...........................    (16,216)           12,487             3,729                              --

Loss (profit) relating to subsidiaries ............      9,039                --                --          (9,039)             --
                                                      -----------------------------------------------------------------------------
       (Loss) income before income taxes ..........    (15,008)           (6,592)           (4,315)          9,039         (16,876)

Benefit for income taxes ..........................       (113)           (1,170)             (698)                         (1,981)
                                                      -----------------------------------------------------------------------------
       Net (loss) income ..........................   $(14,895)        $  (5,422)        $  (3,617)       $  9,039       $ (14,895)
                                                      =============================================================================
</TABLE>


                                      F-36
<PAGE>

                         PHILIPP BROTHERS CHEMICALS INC.
                      CONSOLIDATING STATEMENT OF CASH FLOWS
                        For the Year Ended June 30, 2001
                                 (In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Foreign
                                                                   U.S. Guarantor      Subsidiaries    Consolidation    Consolidated
                                                       Parent       Subsidiaries      Non-Guarantors    Adjustments       Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>              <C>              <C>             <C>
OPERATING ACTIVITIES:
Net (loss) income .................................    $(14,895)        $ (5,422)        $ (3,617)        $  9,039        $(14,895)
Adjustments to reconcile net (loss)
  income to net
 cash provided by operating activities:
 Depreciation and amortization ....................         782            5,103            7,947                           13,832
 Deferred income taxes ............................      (4,040)             769           (4,297)                          (7,568)
 Gains from sale of assets ........................          --           (1,790)            (650)                          (2,440)
 Change in redemption amount of
   redeemable common stock ........................      (1,512)            (356)          (1,623)                          (3,491)
 Other ............................................         406            1,640              245                            2,291

Changes in operating assets and liabilities,
  net of effect of business acquired:
 Accounts receivable ..............................       1,549            9,220          (12,178)                          (1,409)
 Inventory ........................................         552          (12,831)          10,280                           (1,999)
 Prepaid expenses and other .......................       2,179            5,803           (2,995)                           4,987
 Other assets .....................................       1,281           (1,411)           2,333                            2,203
 Intercompany .....................................      29,101          (26,301)           6,239           (9,039)             --
 Accounts payable .................................        (397)           8,021           11,845                           19,469
 Accrued expenses and other .......................      (2,186)             380            3,967                            2,161
                                                      -----------------------------------------------------------------------------
  Net cash provided by (used in)
  operating activities ............................      12,820          (17,175)          17,496               --          13,141
                                                      -----------------------------------------------------------------------------

INVESTING ACTIVITIES:
 Capital expenditures .............................        (251)          (9,201)          (5,092)                         (14,544)
 Acquisition of a business ........................     (51,700)              --               --                          (51,700)
 Proceeds from sale of assets .....................          --           25,418            1,052                           26,470
 Other investing ..................................         (50)              --             (325)                            (375)
                                                      -----------------------------------------------------------------------------
  Net cash (used in) provided by
  investing activities ............................     (52,001)          16,217           (4,365)              --         (40,149)
                                                      -----------------------------------------------------------------------------

FINANCING ACTIVITIES:
 Cash overdraft ...................................        (145)           2,905             (106)                           2,654
 Net decrease in short term debt ..................      (3,969)              --           (4,037)                          (8,006)
 Proceeds from long term debt .....................       3,800               24            5,539                            9,363
 Proceeds from issuance of redeemable
   preferred stock ................................      45,000               --               --                           45,000
 Payments of long term debt .......................         (32)            (862)          (4,030)                          (4,924)
 Other financing ..................................      (4,192)              --               --                           (4,192)
                                                      -----------------------------------------------------------------------------
  Net cash provided by (used in)
  financing activities ............................      40,462            2,067           (2,634)              --          39,895
                                                      -----------------------------------------------------------------------------
Effect of exchange rate changes on cash ...........          --                2             (447)                            (445)
                                                      -----------------------------------------------------------------------------
Net increase in cash and cash equivalents .........       1,281            1,111           10,050               --          12,442

Cash and cash equivalents at beginning
  of year .........................................          11               99            2,293                            2,403
                                                      -----------------------------------------------------------------------------
Cash and cash equivalents at end of year ..........    $  1,292         $  1,210         $ 12,343         $     --        $ 14,845
                                                      =============================================================================
</TABLE>


                                      F-37
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
                      CONSOLIDATING STATEMENT OF OPERATIONS
                        For the Year Ended June 30, 2000
                                 (In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Foreign
                                                                   U.S. Guarantor      Subsidiaries    Consolidation    Consolidated
                                                       Parent       Subsidiaries      Non-Guarantors    Adjustments       Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>              <C>              <C>             <C>
Net sales .........................................    $ 35,977         $ 175,068        $ 124,322        $(12,341)       $323,026

Cost of goods sold ................................      29,685           137,274           94,964         (12,341)        249,582
                                                      -----------------------------------------------------------------------------
                   Gross profit ...................       6,292            37,794           29,358              --          73,444

Selling, general, and administrative expenses .....      11,993            28,144           19,114                          59,251

Curtailment of operations at
   manufacturing facility .........................          --            (1,481)              --                          (1,481)
                                                      -----------------------------------------------------------------------------
Operating (loss) income ...........................      (5,701)           11,131           10,244              --          15,674

Interest expense ..................................       8,519               198            6,037                          14,754
Interest income ...................................         (19)               (2)            (579)                           (600)
Other (income) expense ............................        (912)               --            3,142                           2,230

Gain from property damage claim ...................          --              (946)              --                            (946)
Gain from sale of asset ...........................          --                --          (13,763)                        (13,763)

Intercompany allocation ...........................     (10,925)           10,860               65                              --

(Profit) loss relating to subsidiaries ............     (10,967)               --               --          10,967              --
                                                      -----------------------------------------------------------------------------
Income (loss) before income taxes .................       8,603             1,021           15,342         (10,967)         13,999

(Benefit) provision for income taxes ..............      (1,450)            1,020            4,376              --           3,946
                                                      -----------------------------------------------------------------------------
Net income (loss) .................................    $ 10,053         $       1        $  10,966        $(10,967)       $ 10,053
                                                      =============================================================================
</TABLE>


                                      F-38
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
                      CONSOLIDATING STATEMENT OF CASH FLOWS
                        For the Year Ended June 30, 2000
                                 (In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Foreign
                                                                   U.S. Guarantor      Subsidiaries    Consolidation    Consolidated
                                                       Parent       Subsidiaries      Non-Guarantors    Adjustments       Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>              <C>              <C>             <C>
OPERATING ACTIVITIES:
Net income (loss) .................................    $ 10,053         $      1         $ 10,966         $(10,967)       $ 10,053
Adjustments to reconcile net income
  (loss) to net cash provided by
  operating activities:
 Depreciation and amortization ....................         536            4,224            7,106                           11,866
 Deferred income taxes ............................        (337)            (272)           2,047                            1,438
 Provision for curtailment of operations
   at manufacturing facility ......................          --           (1,481)              --                           (1,481)
 Gain from property damage claim ..................          --             (946)            (107)                          (1,053)
 Gain from sale of asset ..........................          --               --          (13,763)                         (13,763)
 Change in redemption amount of
   redeemable securities ..........................          13             (130)           1,124                            1,007
 Other ............................................       1,360              350             (983)                             727

Changes in operating assets and
  liabilities, net of effect of
  business acquired:
 Accounts receivable ..............................         (77)         (13,499)           5,295                           (8,281)
 Inventory ........................................         945            1,471           (1,832)                             584
 Prepaid expenses and other .......................      (3,884)             258            1,344                           (2,282)
 Other assets .....................................      (1,316)             917           (1,146)                          (1,545)
 Intercompany .....................................     (21,658)          18,526           (7,835)          10,967              --
 Accounts payable .................................         173              687           (4,628)                          (3,768)
 Accrued expenses and other .......................         927           (4,280)           1,942                           (1,411)
                                                     -----------------------------------------------------------------------------
  Net cash (used in) provided by
  operating activities ............................     (13,265)           5,826             (470)              --          (7,909)
                                                     -----------------------------------------------------------------------------
INVESTING ACTIVITIES:
 Capital expenditures .............................        (119)         (11,276)         (11,209)                         (22,604)
 Proceeds from property damage claim ..............          --            3,999               --                            3,999
 Proceeds from sale of asset ......................          --               --           18,750                           18,750
 Other investing ..................................      (3,157)              --           (1,046)                          (4,203)
                                                     -----------------------------------------------------------------------------
  Net cash (used in) provided by
  investing activities ............................      (3,276)          (7,277)           6,495               --          (4,058)
                                                     -----------------------------------------------------------------------------

FINANCING ACTIVITIES:
 Cash overdraft ...................................        (119)           1,089             (288)                             682
 Net increase in short term debt ..................          72               --            4,117                            4,189
 Proceeds from long term debt .....................      16,300            1,595              391                           18,286
 Payments of long term debt .......................         (94)          (1,300)         (10,477)                         (11,871)
 Other financing ..................................          --               --               62                               62
                                                     -----------------------------------------------------------------------------
  Net cash provided by (used in)
  financing activities ............................      16,159            1,384           (6,195)              --          11,348
                                                     -----------------------------------------------------------------------------
Net decrease in cash and cash equivalents .........        (382)             (67)            (170)                            (619)
                                                     -----------------------------------------------------------------------------
Cash and cash equivalents at beginning
  of year .........................................         393              166            2,463                            3,022
                                                     -----------------------------------------------------------------------------
Cash and cash equivalents at end of year ..........    $     11         $     99         $  2,293         $     --        $  2,403
                                                     =============================================================================
</TABLE>


                                      F-39
<PAGE>

                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange  Act of 1934,  the  Registrant  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

PHILIPP BROTHERS CHEMICALS, INC.

By:      /s/ Jack C. Bendheim                  By:    /s/ Gerald K. Carlson
   ---------------------------------              ------------------------------
           Jack C. Bendheim                             Gerald K. Carlson
         Chairman of the Board                      Chief Executive Officer

Date: October 25, 2002                         Date: October 25, 2002

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

           Signature and Title                                  Date
           -------------------                                  ----

         /s/ Gerald K. Carlson                             October 25, 2002
----------------------------------------
           Gerald K. Carlson
        Chief Executive Officer
     (Principal Executive Officer)

         /s/ Jack C. Bendheim                              October 25, 2002
----------------------------------------
           Jack C. Bendheim
    Director, Chairman of the Board

        /s/ Richard G. Johnson                             October 25, 2002
----------------------------------------
          Richard G. Johnson
        Chief Financial Officer
   (Principal Financial Officer and
     Principal Accounting Officer)

         /s/ Marvin S. Sussman                             October 25, 2002
----------------------------------------
           Marvin S. Sussman
        Director, Vice Chairman
 and President of Animal Health Group

         /s/ James O. Herlands                             October 25, 2002
----------------------------------------
           James O. Herlands
 Director and Executive Vice President


                                      II-1
<PAGE>

                                 CERTIFICATIONS

I, Gerald K. Carlson, certify that:

(1)   I have reviewed this annual report on Form 10-K of Philipp Brothers
      Chemicals, Inc.;

(2)   Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this annual report; and

(3)   Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this annual
      report;

Date: October 24, 2002

/s/ Gerald K. Carlson
---------------------------------
Gerald K. Carlson,
Chief Executive Officer

I, Jack C. Bendheim, certify that:

(1)   I have reviewed this annual report on Form 10-K of Philipp Brothers
      Chemicals, Inc.;

(2)   Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this annual report; and

(3)   Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this annual
      report;

Date: October 24, 2002

/s/ Jack C. Bendheim
---------------------------------
Jack C. Bendheim,
Chairman of the Board


                                      II-2
<PAGE>

I, Richard G. Johnson, certify that:

(1)   I have reviewed this annual report on Form 10-K of Philipp Brothers
      Chemicals, Inc.;

(2)   Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this annual report; and

(3)   Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this annual
      report;

Date: October 24, 2002

/s/ Richard G. Johnson
---------------------------------
Richard G. Johnson,
Chief Financial Officer


      Since the Company does not have securities registered under Section 12 of
the Securities Exchange Act of 1934 and is not required to file periodic reports
pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934, the
Company is not an "issuer" as defined in the Sarbanes-Oxley Act of 2002, and
therefore the Company is not filing the written certification statement pursuant
to Section 906 of such Act. The Company files periodic reports with the
Securities and Exchange Commission because it is required to do so by the terms
of the indenture governing its senior subordinated notes.


                                      II-3
<PAGE>

                                INDEX TO EXHIBITS

Exhibit No.                    Description of Exhibit
-----------                    ----------------------

3.1       Composite Certificate of Incorporation of Registrant(7)

3.2       By-laws of Registrant(1)

4.1       Indenture, dated as of June 11, 1998, among Registrant, the Guarantors
          named therein and The Chase Manhattan Bank, as trustee, relating to
          the 9 7/8% Senior Subordinated Notes due 2008 of Registrant, and
          exhibits thereto, including Form of 9 7/8% Senior Subordinated Note
          due 2008 of Company(1)

4.1.1     Supplemental Indenture, dated as of November 30, 2000, among
          Registrant, the Guarantors named therein and The Chase Manhattan Bank,
          as trustee, relating to the 9 7/8% Senior Subordinated Notes due 2008
          of Registrant(7)

          Certain instruments which define the rights of holders of long-term
          debt of Registrant and its consolidated subsidiaries have not been
          filed as Exhibits to this Report since the total amount of securities
          authorized under any such instrument does not exceed 10% of the total
          assets of Registrant and its subsidiaries on a consolidated basis, as
          of June 30, 2002. For a description of such indebtedness, see Note 7
          of Notes to Consolidated Financial Statements. Registrant hereby
          agrees to furnish copies of such instruments to the Securities and
          Exchange Commission upon its request.

10.1      Amended and Restated Revolving Credit, Capital Expenditure Line and
          Security Agreement, dated November 30, 2000, among Registrant, the
          Guarantors thereunder and PNC Bank, National Association ("PNC")(4)

10.1.1    First Amendment to Amended and Restated Revolving Credit, Capital
          Expenditure Line and Security Agreement, dated September 28, 2001 and
          effective June 30, 2001, among Registrant, the Guarantors thereunder
          and PNC(7)

10.1.2    Second Amendment to Amended and Restated Revolving Credit, Capital
          Expenditure Line and Security Agreement, dated October 18, 2002 among
          Registrant, the Guarantors thereunder and PNC(8)

10.2      Manufacturing Agreement, dated May 15, 1994, by and between Merck &
          Co., Inc., Koffolk, Ltd., and Registrant(1)+

10.3      Lease, dated July 25, 1986, between Registrant and 400 Kelby
          Associates, as amended December 1, 1986 and December 30, 1994(1)

10.4      Lease, dated June 30, 1995, between First Dice Road Co. and
          Phibro-Tech, Inc., as amended May 1998(1)

10.5      Lease, dated December 24, 1981, between Koffolk (1949) Ltd. and Israel
          Land Administration(1)

10.6      Master Lease Agreement, dated February 27, 1998, between General
          Electric Capital Corp., Registrant and Phibro-Tech, Inc.(1)

10.7      Stockholders Agreement, dated December 29, 1987, by and between
          Registrant, Charles H. Bendheim, Jack C. Bendheim and Marvin S.
          Sussman(1)

10.8      Employment Agreement, dated December 29, 1987, by and between
          Registrant and Marvin S. Sussman(1)++

10.9      Stockholders Agreement, dated February 21, 1995, between James O.
          Herlands and Phibro-Tech, Inc., as amended as of June 11, 1998(1)

10.10     Form of Severance Agreement, dated as of February 21, 1995, between
          Registrant and James O. Herlands(1)++

10.11     Agreement of Limited Partnership of First Dice Road Company, dated
          June 1, 1985, by and among Western Magnesium Corp., Jack Bendheim,
          Marvin S. Sussman and James O. Herlands, as amended November 1985(1)

10.12     Philipp Brothers Chemicals, Inc. Retirement Income and Deferred
          Compensation Plan Trust, dated as of January 1, 1994, by and between
          Registrant on its own behalf and on behalf of C.P. Chemicals, Inc.,
          Phibro-Tech, Inc. and the Trustee thereunder; Philipp


                                       1
<PAGE>

          Brothers Chemicals, Inc. Retirement Income and Deferred Compensation
          Plan, dated March 18, 1994 ("Retirement Income and Deferred
          Compensation Plan")(1)++

10.12.1   First, Second and Third Amendments to Retirement Income and Deferred
          Compensation Plan.(2)++

10.13     Form of Executive Income Deferred Compensation Agreement, each dated
          March 11, 1990, by and between Registrant and each of Jack Bendheim,
          James Herlands and Marvin Sussman(1)++

10.14     Form of Executive Income Split Dollar Agreement, each dated March 1,
          1990, by and between Registrant and each of Jack Bendheim, James
          Herlands and Marvin Sussman(1)++

10.15     Supply Agreement, dated as of September 28, 1998, between BOC Limited
          and Registrant(1)

10.16     Administrative Consent Order, dated March 11, 1991, issued by the
          State of New Jersey Department of Environmental Protection, Division
          of Hazardous Waste Management, to C.P. Chemicals, Inc.(1)

10.17     Agreement for Transfer of Ownership, dated as of June 8, 2000, between
          C. P. Chemicals, Inc. ("CP") and the Township of Woodbridge
          ("Township"), and related Environmental Indemnification Agreement,
          between CP and Township, and Lease, between Township and CP(2)

10.18     Stockholders' Agreement, dated as of January 5, 2000, among
          shareholders of Penick Holding Company ("PHC"), and Certificate of
          Incorporation of PHC and Certificate of Designation, Preferences and
          Rights of Series A Redeemable Cumulative Preferred Stock of PHC(2)

10.19     Separation Agreement among Registrant, Phibro Tech, Inc. and Nathan
          Bistricer dated as of October 4, 2000(3)

10.20     Stock Purchase Agreement between Phibro Tech, Inc. and Nathan
          Bistricer dated as of October 4, 2000(3)

10.21     Asset Purchase Agreement, dated as of September 28, 2000, among
          Pfizer, Inc., the Asset Selling Corporations (named therein) and
          Registrant, and various exhibits and certain Schedules thereto(3)+

10.22     Stock Purchase Agreement, dated as of November 30, 2000, between
          Registrant and the Purchasers (as defined therein)(4)

10.23     Stockholders' Agreement, dated as of November 30, 2000, among
          Registrant, the Investor Stockholders (as defined therein) and Jack C.
          Bendheim(4)

10.24     United States Asset Purchase Agreement between Phibro-Tech, Inc. and
          Nufarm, Inc. dated as of May 1, 2001(5)

10.24.1   Amendment No. 1 to United States Asset Purchase Agreement between
          Phibro-Tech, Inc. and Nufarm, Inc. dated as of June 14, 2001(6)

10.25     Supply Agreement between Phibro-Tech, Inc. and Nufarm, Inc. dated as
          of May 1, 2001(5)

10.26     License Agreement between Phibro-Tech, Inc. and Nufarm, Inc. dated as
          of May 1, 2001(5)

10.27     Management and Advisory Services Agreement dated November 30, 2000
          between Registrant and Palladium Equity Partners, L.L.C.(7)++

10.28     Employment Agreement, dated May 28, 2002, by and between Registrant
          and Gerald K. Carlson(8)++

10.29     Agreement and General Release, and Consulting Agreement dated as of
          September 11, 2002, by and between Registrant and David C.
          Storbeck(8)++

21        List of Subsidiaries(8)

----------
1     Filed as an Exhibit to the Registrant's Registration Statement on Form
      S-4, No. 333-64641.

2     Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the
      fiscal year ended June 30, 2000.

3     Filed as an Exhibit to the Registrant's Report on Form 10-Q for the
      quarter ended September 30, 2000.

4     Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
      November 30, 2000.

5     Filed as an Exhibit to the Registrant's Report on Form 10-Q for the
      quarter ended March 31, 2001.


                                       2
<PAGE>

6     Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
      June 14, 2001.

7     Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the
      fiscal year ended June 30, 2001.

8     Filed herewith.

+     A request for confidential treatment has been granted for portions of such
      document. Confidential portions have been omitted and filed separately
      with the SEC as required by Rule 406(b).

++    This Exhibit is a management compensatory plan or arrangement.


                                       3