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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, 2001

                                       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, 2001.

The number of shares outstanding of the Registrant's Common Stock as of June 30,
2001: 24,488.50

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

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<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.

                                TABLE OF CONTENTS

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

  Item 1.  Business......................................................      1
  Item 2.  Properties....................................................     21
  Item 3.  Legal Proceedings.............................................     23
  Item 4.  Submission of Matters to a Vote of Security Holders...........     24

PART II..................................................................     25

  Item 5.  Market for Registrant's Common Equity and
             Related Stockholder Matters.................................     25
  Item 6.  Selected Financial Data.......................................     25
  Item 7.  Management's Discussion and Analysis of Financial
             Condition and Results of Operations.........................     27
  Item 7A. Quantitative and Qualitative Disclosures about Market Risk....     37
  Item 8.  Financial Statements and Supplementary Data...................     37
  Item 9.  Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure....................................     37

PART III.................................................................     38

  Item 10. Directors and Executive Officers of the Registrant............     38
  Item 11. Executive Compensation........................................     39
  Item 12. Security Ownership of Certain Beneficial
             Owners and Management.......................................     43
  Item 13. Certain Relationships and Related Transactions................     43
  Item 14. Exhibits, Financial Statement Schedules and
             Reports on Form 8-K.........................................     46
Index to Financial Statements............................................    F-1
Report of Independent Accountants........................................    F-2

Consolidated Financial Statements
  Consolidated Balance Sheets as of June 30, 2001 and 2000...............    F-3
  Consolidated Statements of Operations and Comprehensive
    Income for the years ended June 30, 2001, 2000 and 1999..............    F-4
  Consolidated Statements of Changes in Stockholders'
    Equity for the years ended June 30, 1999, 2000 and 2001..............    F-5
  Consolidated Statements of Cash Flows for the years ended
    June 30, 2001, 2000 and 1999.........................................    F-6

Notes to Consolidated Financial Statements...............................    F-7

Consolidating Financial Statements
  Consolidating Balance Sheet as of June 30, 2001........................   F-29
  Consolidating Income Statement for the year ended June 30, 2001........   F-30
  Consolidating Statement of Cash Flows for the year
    ended June 30, 2001..................................................   F-31
  Consolidating Balance Sheet as of June 30, 2000........................   F-32
  Consolidating Income Statement for the year ended June 30, 2000........   F-33
  Consolidating Statement of Cash Flows for the year
    ended June 30, 2000..................................................   F-34
  Consolidating Income Statement for the year ended June 30, 1999........   F-35
  Consolidating Statement of Cash Flows for the year
    ended June 30, 1999..................................................   F-36

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 2001 net
sales consisted of sales made by the Company  outside the United States.  During
fiscal 2001, the Company's  products were  manufactured at eleven  facilities in
the United States,  five facilities in Europe, two facilities in Israel, and two
facilities in South America.  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 550 specialty  agricultural
and industrial  chemicals,  of which 50 products accounted for approximately 80%
of fiscal 2001 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.

      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 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.

      On May 4, 2001, the Company sold its Agtrol U.S.  business,  a division of
the Company's  Phibro-Tech,  Inc.  ("Phibro-Tech")  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. Agtrol developed,  manufactured and marketed crop protection
products,   including  copper  fungicides.   The  sale  included  inventory  and
intangible  assets to Nufarm  but did not  include  plant,  equipment,  or other
manufacturing assets.  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.  The  operating
results of Agtrol are  included  in the  Company's  consolidated  statements  of
operations,  up to the date of sale,  and are reflected in the All Other segment
for all periods presented.

      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  trace  minerals,  anticoccidials,   antibiotics,  vitamins,
vitamin  premixes 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, including copper oxide, which is used in the
production of water-borne wood  preservatives.  In addition to copper oxide, the
Company  supplies other 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


                                       1
<PAGE>

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 as well as copper-based  fungicides and other  agricultural  products
for the United States, French and other international  markets. 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.


                                       2
<PAGE>

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
anticoccidials, antibacterials, anthelmintics and other feed additives.

      The  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.  Carbadox antibacterial is sold under the brand name Mecadox(R),
for use in swine feeds to control  salmonellosis and swine dysentry in young and
growing  swine.  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 and swine and
liver  abcesses  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  abcesses in cattle.  Banmith(R),  Oxibendazole(R)  and Rumatel(R) are
anthelmintics that are used to control internal  parasites in cattle,  sheep and
goats.  The use of these  medicated  feed  additives  assists  the  producer  in
maintaining  healthy and productive animals which ensure the consumer of a safe,
healthy and wholesome meat supply.

      PAH  manufactures  bulk  active   ingredients  at  facilities  located  in
Guarulhos,  Brazil and Rixensart,  Belgium.  Other active  ingredients are being
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  calendar
2002/2003.

      PAH has established sales and technical offices in 18 countries including:
US, Canada, Mexico, Costa Rica, Venezuela,  Colombia, Brazil, Argentina,  Chile,
Peru, Australia,  Japan, Hong Kong, China, Thailand,  Malaysia, South Africa and
Belgium.  Additional  offices will be opened as the business grows. The top five
markets in terms of sales in fiscal 2001 (7 months of  operation)  are the U.S.,
Brazil,  China,  Japan and Mexico.  These  countries  accounted for 77% of PAH's
global sales in fiscal 2001. The business is not dependent on any one customer.

      The  use  of  medicated   feed  additives  are  controlled  by  regulatory
authorities  that are specific to each country (i.e.,  the FDA in the US; 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 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  which 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's foundation and strength in the animal feed industry have come from its
basic position in several trace minerals.  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,


                                       3
<PAGE>

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, and 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 distributes  nicarbazin for
Koffolk Israel under the trademark Nicarb(R),  and amprolium under the trademark
of Amprol(R).

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, automotive,  aerospace, glass and coal mining industries. Some of
these  products  are produced  from raw  materials  derived  from the  Company's
recycling operations. The Company also purchases crude inorganic minerals in the
form of ores and processes these in various grades to produce chemicals for sale
to manufacturers.  These  manufacturers  incorporate the resultant products into
their finished products in various industrial markets,  including  construction,
with end-use applications in clay brick,  ceramic,  masonry colorant,  coatings,
heavy media,  foundry,  glass,  electrodes,  abrasives,  dust control, and as an
intermediate to various chemical applications.

      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.  The Company's iron compounds
include red iron oxide (Hematite) (sold to the brick,  masonry,  glass, foundry,
electrode,  abrasive,  feed, and various 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).  The Company's  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 various 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.  Of the Company's five  facilities  involved with
these  products,  four have  final RCRA Part B  hazardous  waste  treatment  and
storage  permits  and one is in an interim  permit  status.  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


                                       4
<PAGE>

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.

      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 ("CCA"). Due to its recycling  capabilities,  the
Company  believes  that it is a low cost  supplier  of  copper  oxide to the CCA
market.  The Company also sells copper oxide to the catalyst,  dye,  ceramic and
feed industries.

      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.

      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 and one is operating on an interim permit.
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,  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.

      Metal-containing  waste is either  collected  by the Company or  delivered
directly to one of its facilities by the waste  generator.  The Company collects
and  transports  chemical  waste  in  its   specially-constructed   tankers  and
semi-trailers  and  drum  transporting   trailers.   In  some  locations,   rail
transportation by tank cars or piggyback trailers is also utilized. Upon arrival
at one of the  Company's  recycling  and  processing  facilities,  and  prior to
unloading, a representative sample of the delivered waste is tested and analyzed
to  ensure  that  it  conforms  to  the  customer's   contracted  waste  profile
specifications.  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   manufactures   and  distributes   calcium  carbide  and
dicyandiamide.  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.  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.

      During 2000, Odda completed  construction of a plant and began  commercial
production  of  hydrogen  cyanimide  ("CY-50").  CY-50 is a product  that,  like
dicyandiamide,  is  derived  from  calcium  carbide.  CY-50 is  marketed  by the
chemical  industry  as  a  nutritional  supplement  and  in  the  production  of
intermediates,  herbicides,  fungicides and insecticides. It is also used by the
life science industry for anticeptives and antiulceratives.


                                       5
<PAGE>

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, L.L.C. ("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 residue and bottom ash is
the heavier  particles  that result from the  combustion of coal in the electric
power industry.  Fly ash is a pozzolan,  i.e. 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.

      Through the MRT  Technology  Center in  Atlanta,  MRT seeks to develop new
products consisting  substantially of these combustion by-products.  In March of
1998, MRT's research and development activity resulted in two U.S. patents being
issued involving proprietary value-added products. These patents provide for the
production  of a family of hydraulic  blended  cements,  a series of masonry and
stucco cement products,  and rapid hardening cement products.  Since the initial
success in development of these unique  products,  five additional  patents have
been  issued for  enhancement  of these  initial  patents  and for other  future
marketable  value-added  products.  MRT  introduced  the first of the new cement
products as EZ Joint Masonry  Cement(TM) into the Georgia market  beginning late
in fiscal 2001.  Performance in the field has been uniformly  satisfactory  with
applications meeting all ASTM standards. Continued evaluation by MRT is underway
and plans are being  developed  for  introduction  of these  products into other
major markets.

      In connection with its fly ash management operations, MRT has entered into
and  will  seek to  enter  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 its English subsidiary,  Wychem Limited,  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. Wychem is able
to tailor the  quality  and supply  characteristics  of its  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  by  Wychem  is  novel  and  included  in  the  customer's   regulatory
submissions.

      On May 4, 2001, the Company sold its Agtrol U.S.  business,  a division of
the Company's Phibro-Tech, Inc. subsidiary ("Phibro-Tech"), to Nufarm, Inc., 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.
Agtrol developed,  manufactured and marketed crop protection products, including
copper  fungicides.  The sale included inventory and intangible assets to Nufarm
but did not include plant, equipment, or other manufacturing assets. Phibro-Tech
also entered into agreements to supply copper fungicide  products to Nufarm from
its Sumter,  South


                                       6
<PAGE>

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 sale, and are reflected
in the All Other segment for all periods presented.

      Nufarm is obligated to purchase all of its  requirements  for products and
substitute  products,  up to the capacity of the facilities  during the terms of
the agreements.  During the terms of the  agreements,  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 specialty chemicals to manufacturers who incorporate the
Company's  products into their finished  goods.  The Company has more than 3,500
customers.  Sales to the top ten customers represented  approximately 14% of the
Company's 2001 net sales and no single customer  represented more than 4% of the
Company's 2001 net sales.

      The Company's sales and marketing  network consists of  approximately  163
employees,  73  independent  agents  and  142  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  that 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 which
are  purchased  from  manufacturers  in the United  States,  Europe and Asia. In
fiscal 2001, no single raw material  accounted for more than 8% of the Company's
cost of goods sold. Total raw materials cost was  approximately  $153 million or
43% of net sales in 2001.

      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 over
100 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  substantial 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.  Finally,
Phibro  Animal  Health's  Rixensart,   Belgium  facility  provides  a  base  for
fermentation  development in the areas of microbiological  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.

      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.


                                       7
<PAGE>

      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 20 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 and Trademarks

      The Company owns  certain  patents,  tradenames  and  trademarks  and uses
know-how,  trade secrets,  formulae and manufacturing techniques which assist in
maintaining the competitive  positions of certain of its products.  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 or trademark 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 2001 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  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 which may be used as an
alternative or substitute.  The Company competes with several regional companies
of varying  sizes and  financial  resources  in the  hazardous  metal-containing
chemical waste recycling industry. The Company also competes with large national
companies which offer alternative  methods of treatment or disposal of hazardous
metal-containing  chemical waste and which have substantially  greater financial
resources  than the Company.  While these  national  companies do not  currently
offer recycling  services  similar to those offered by the Company,  their entry
into the recycling business could have a material adverse effect on the Company.
In addition,  the Company competes with several large chemical  companies in the
chemical production business, none of which obtains a significant portion of its
raw materials from  recycling.  To the extent these  companies,  or new entrants
into the market,  offer comparable  finished  chemical products at lower prices,
the Company's business could be adversely affected.

Employees

      As of June  30,  2001,  the  Company  had  approximately  1,550  employees
worldwide. Of these, 324 employees were in management and administration, 163 in
sales and marketing, 112 were chemists or technicians


                                       8
<PAGE>

and 956 were in production. Approximately 3% of the Company's domestic employees
were  covered  by  collective  bargaining  agreements  with  two  unions.  These
agreements  expire from 2002  through  2005.  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  80% of  employees  are  covered by
collective bargaining agreements.

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

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 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  "--Litigation," 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


                                       9
<PAGE>

responsible.  References  to the  Company  should  accordingly  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.

Regulation

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

      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  "pretreatment"  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
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.


                                       10
<PAGE>

      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
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  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.


                                       11
<PAGE>

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.

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 and Sumter
sites.  The  applications  are being reviewed.  Phibro-Tech has also obtained an
interim status RCRA permit from the California Department of Health Services and
has filed a Part B permit  application  with the  Department for its Union City,
California facility.

      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 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.


                                       12
<PAGE>

      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 $2.2 million as of June 30, 2001.

Waste Byproducts

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

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  12 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"),  effective  March 11, 1991. The ACO mandates the  development
and implementation of an environmental  remediation plan and requires payment of
a penalty in the amount of $2.2 million plus  interest  calculated  at 8.57% per
annum,  to be  paid in ten  yearly  installments.  This  charge  was  previously
reflected in the Company's consolidated  financial statements.  In addition, the
ACO sets forth  stipulated  penalties  for  specified  violations of the ACO and
requires  reimbursement  by CP to the DEP for prior  costs and future  oversight
costs.  CP has posted  $500,000  in  financial  assurances  which  amount may be
modified  based on cost reviews which CP is required to submit  annually as part
of its investigation and remediation program. CP has substantially completed its
investigation and remediation efforts which include  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


                                       13
<PAGE>

("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
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 is
an interim status facility with an application for a RCRA Part B permit pending.
In lieu of  conducting  investigation  activities  under a final  Part B permit,
Phibro-Tech  entered into a consent order with the California DTSC requiring the
assessment and  investigation  of soil and ground water quality and remediation,
if  required,  similar to that which  would be  required  under a Part B permit.
Phibro-Tech  completed  the first  phase of the  investigation  process  and has
submitted  reports and assessments to the DTSC which are currently under review.
Further  limited  characterization  has been requested but  Phibro-Tech  and its
consulting   engineers  do  not  currently   anticipate  any  extensive  ongoing
corrective  measures.  This  facility is also the  subject of a DTSC  summary of
violations  alleging certain permit  violations and violations of the California
Health and Safety Code and corresponding regulations.  Phibro-Tech is in contact
with the DTSC with regard to this matter in an attempt to  determine  whether it
can be resolved through a mutually acceptable compliance schedule.

      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.

      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


                                       14
<PAGE>

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.

      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.  Although  the  Company  has  operated  these
facilities  for less  than a year,  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.

      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.

      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 below 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 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


                                       15
<PAGE>

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  are now  focusing  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 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 a meeting
between Odda and SFT (Norwegian  Pollution Control  Authority) in June 1998, SFT
indicated  that Odda should make a diligent  effort to develop a commercial  use
for filtercake  within three years,  and consider the reduction of discharges of
PAHY from  existing  levels  (which  discharges  are in  compliance  with Odda's
permits).  Projects  involving  a new  filter to  reduce  emissions  of  soluble
nitrogen  and a facility to dry and bulk ship  filtercake  are being  pursued in
consultation with the SFT.

Government Regulation

      Certain  agricultural  feed  products  offered  by  the  Company,   namely
nicarbazin and amprolium  products,  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 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.

      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. An 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.


                                       16
<PAGE>

      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."  The Company has taken the
necessary  steps to  apply  for a BSA for  nicarbazin  in the EU.  The  European
Commission  has  proposed  withdrawal  of  authorization  for certain  products,
including   nicarbazin,   alleging  certain   technical   deficiences  with  the
applications.  The  Company  has  taken  the  necessary  steps  to  counter  the
Commission's  proposal and believes that the  Commission's  proposal will not be
upheld.  However,  there is no assurance that the Company will receive a BSA for
nicarbazin  in the EU, or if its does receive such BSA,  when it will be granted
or whether it will be unlimited.


                                       17
<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,
2001 and for the year then ended, Israeli operations (excluding Koffolk Israel's
non-Israeli  subsidiaries)  accounted  for  approximately  12% of the  Company's
consolidated  assets and  approximately  14% of its  consolidated net sales. All
figures and  percentages  are  approximate.  A portion of the  information  with
respect to Israel presented  hereunder has been taken from Annual Reports of the
Bank of Israel.

Political 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.  However,  a peace agreement between
Israel and Egypt was signed in 1979, a peace agreement between Israel and Jordan
was signed in 1994 and, since 1993,  several  agreements  between Israel and the
Palestine Liberation Organization ("PLO")--Palestinian Authority representatives
have been signed.  However,  since October  2000,  there has been an increase in
violence in the Middle  East,  primarily  in the West Bank and Gaza  Strip,  and
negotiations  between Israel and the PLO have ceased.  In addition,  in February
2001, a new prime  minister was elected in Israel and a new  government has been
formed.  As of the date hereof,  Israel has not entered into any peace agreement
with Syria or Lebanon.  The Company cannot predict whether any other  agreements
will be entered into between  Israel and its  neighboring  countries,  whether a
final resolution of the area's problems will be achieved, or whether the current
civil  unrest will  continue  and to what extent this  unrest,  coupled with the
September  11, 2001 attacks on the United States and the effects of such attacks
on various sectors of the U.S. and world economies,  will have an adverse impact
on Israel's economic development or on the Company's 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.   Despite  measures  to  counteract  the  boycott,  including
anti-boycott   legislation  in  the  United  States,  the  boycott  has  had  an
indeterminate  negative effect upon trade with and foreign investment in Israel.
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.  Some of the  employees of the
Company's Israeli subsidiaries currently are obligated to perform annual reserve
duty. While the Company's Israeli  subsidiaries have operated  effectively under
these and similar  requirements  in the past, no  assessment  can be made of the
full impact of such  requirements on the Company in the future,  particularly if
emergency circumstances occur.

Economic Conditions

      Israel's  economy  has been  subject to  numerous  destabilizing  factors,
including a period of rampant  inflation in the early to mid-1980s,  low foreign
exchange  reserves,  fluctuations in world commodity prices,  military conflicts
and security incidents. The Israeli government has, for these and other reasons,
intervened in the economy by utilizing,  among other means,  fiscal and monetary
policies,  import duties,  foreign  currency  restrictions and control of wages,
prices and  exchange  rates.  The Israeli  government  periodically  changes its
policies in all these areas.


                                       18
<PAGE>

      Israel has a high  balance of payments  deficit,  primarily as a result of
its defense  burden,  the absorption of immigrants,  especially  from the former
Soviet  Union,  the  provision of a minimum  standard of living for lower income
segments of the community and the  maintenance of a minimum level of net foreign
reserves.  In order to finance  this  deficit,  Israel must  sustain an adequate
inflow of  capital  from  abroad.  The major  sources of the  country's  capital
imports  include U.S.  military  and economic  aid,  personal  remittances  from
abroad,  sales of Israeli  government bonds (primarily in the United States) and
loans from  foreign  governments,  international  institutions  and the  private
sector.

Assistance from the United States

      The State of Israel receives  significant amounts of economic and military
assistance  from the United States.  There is no assurance that foreign aid from
the United States will continue at or near amounts  received in the past, and if
it does not, the Israeli economy could suffer material adverse consequences.

Trade Agreements

      Israel is a member of the United Nations, the International Monetary Fund,
the International  Bank for Reconstruction and Development and the International
Finance Corporation. Israel is a member of the World Trade Organization and is a
signatory  to the General  Agreement  on Tariffs and Trade,  which  provides for
reciprocal lowering of trade barriers among its members. In addition, Israel has
been granted  preferences  under the Generalized  System of Preferences from the
United States,  Australia and Canada.  These  preferences allow Israel to export
the products  covered by such programs either  duty-free or at reduced  tariffs.
Israel has also entered into  preferential  trade  agreements  with the European
Union and the  European  Free Trade  Association.  In recent  years,  Israel has
established  commercial  and trade  relations  with a number  of other  nations,
including Russia, China and nations in Eastern Europe, with which Israel had not
previously had such relations.

Employees

      Most of Koffolk Israel's  employees are members of the Histadrut,  and are
represented by collective bargaining units. Koffolk Israel is subject to various
Israeli labor laws and collective  bargaining  agreements  between Histadrut and
the federation of industrial  employers.  Such laws and agreements  cover a wide
range of  areas,  including  hiring  practices,  wages,  promotions,  employment
conditions (such as working hours, overtime payment,  vacations,  sick leave and
severance pay),  benefits  programs (such as pension plans and education  funds)
and special  issues,  such as equal pay for equal  work,  equal  opportunity  in
employment and employment of women.  The collective  bargaining  agreements also
cover the  relations  between  management  and the  employees'  representatives,
including  Histadrut's  involvement in certain  aspects of hiring and dismissing
employees and procedures for settling labor disputes.

      Koffolk Israel  continues to operate under the terms of Israel's  national
collective  bargaining  agreement,  portions of which  expired in 1994.  Israeli
employers and employees are required to pay  predetermined  sums to the National
Insurance  Institute,  an  organization  similar  to the  United  States  Social
Security Administration.  These contributions entitle the employees to receive a
range of medical  services  and other  benefits.  Certain  employees  of Koffolk
Israel are covered by individual employment agreements.

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


                                       19
<PAGE>

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.


                                       20
<PAGE>

Item 2. Properties.

      The Company  maintains its principal  executive offices and a sales office
in Fort Lee, New Jersey. The Company has 20 manufacturing facilities.  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)                          43,000       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       Administrative and Sales
Quincy, Illinois (b)                          197,000       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       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
Tokyo, Japan (a)                                2,100       Animal Health and Nutrition; Administrative and Sales
Union City, California                         20,600       Industrial Chemicals; Manufacturing
Valencia, Venezuela (a)                         1,100       Animal Health and Nutrition; Administrative and Sales
Wilmington, Illinois                          119,000       Industrial Chemicals; Warehouse
</TABLE>


                                       21
<PAGE>

----------
(a)   This facility is leased.  The  Company's  leases expire from 2000 to 2027.
      For information  concerning the Company's rental obligations,  see Note 12
      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."


                                       22
<PAGE>

      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.  Of the  Company's  five
domestic  facilities  involved  with  recycling,  four  have  final  RCRA Part B
hazardous  waste storage and treatment  permits and one is in an interim  permit
status. 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's Union City, California plant has
achieved  certification  for both ISO 9000 and ISO 14000.  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.  The complaint
includes  statutory  claims under RCRA and common law claims.  There are several
other  defendants in the action,  including the former owner of the Sewaren site
and Chevron's  site and a prior tenant of the Chevron site.  Additional  parties
have been  brought  into the action.  Interrogatories  have been  exchanged  and
depositions are being conducted. The Company is not, at this time, in a position
to assess the extent of any ultimate  liability it may have in  connection  with
this suit or the potential  responsibility  of other  defendants,  or the future
cost of remediation  of the Chevron site, and is actively  defending the action.
Nevertheless,  the Company is actively  involved  in  discussions  among all the
parties in an effort to find a mutually satisfactory resolution.

      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.  Phibro-Tech  responded that it had supplied a useful
product to the  operator of the site and that it  believes  this  constitutes  a
defense to the claims  brought  against  it. The South  Carolina  Department  of
Health and  Environmental  Control,  which had assumed  oversight  of this site,
filed suit in United States  District Court to approve a settlement with certain
steel company PRPs. Other parties intervened and filed administrative actions to
contest the substantive and procedural  fairness of that  settlement.  The Court
permitted  other  PRPs  to  intervene  and,  in  August  1999,  disapproved  the
settlement.  Discussions  between


                                       23
<PAGE>

representatives  of the  original  group of settling  PRPs and of the other PRPs
have  taken  place in an  effort  to  prepare  a joint  settlement  proposal.  A
tentative  agreement has been reached and, while the outcome is still uncertain,
the Company has accrued its best estimate of the settlement amount.

      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.  Phibro-Tech  responded,  requested  further
information and joined a PRP working group which engaged in discussions with the
EPA. A  tentative  settlement  has been  reached in this  matter as well and the
Company has accrued its best estimate 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, 2001.


                                       24
<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, 2001,  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, 2001.

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,  2001.  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,
                                               ------------------------------------------------------------
                                                2001(a)       2000       1999(a)      1998(g)      1997(g)
                                               ---------    ---------   ---------    ---------    ---------
<S>                                            <C>          <C>         <C>          <C>          <C>
Income Statement Data:
Net sales ..................................   $364,410     $323,026    $302,057     $275,577     $266,058
Net income (loss) before extraordinary
  items ....................................    (14,895)      10,053        (466)      (7,065)       8,036
Extraordinary items ........................         --           --          --       (1,962)          --
Net income (loss) (b) (c) (d) ..............    (14,895)      10,053        (466)      (9,027)       8,036

Balance Sheet Data:
Total assets ...............................   $330,019     $258,451    $238,779     $192,196     $162,700
Debt (e) ...................................    173,331      150,772     140,103      104,296       67,259
Redeemable Preferred Stock (f) .............     48,980           --          --           --           --
</TABLE>

Notes to Summary Consolidated Financial Data:

----------
(a)   Reflects the  acquisitions of Odda and the Pfizer  medicated feed additive
      business  effective  October 1, 1998 and November 30, 2000,  respectively.
      Also  reflects  the sale in the fourth  quarter  of 2001 of the  Company's
      Agtrol  crop  protection  business  and  resultant  pre-tax  gain  of $1.5
      million.
(b)   In 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.  In 2000,  also includes $1.5 million of income
      resulting from the transfer of title of property in Sewaren, New Jersey.
(c)   In 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.  In 1997,  includes  $5.6  million gain related to
      proceeds from the life insurance  policy received on the death of the then
      Chairman of the Board of the Company.
(d)   In 2001 and 1999,  includes $1.3 and $1.5 million  charges,  respectively,
      related to the  severance of senior  executives.  In 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.
(e)   Debt is  equal to loans  payable  to  banks,  long-term  debt and  current
      portion of long-term debt.
(f)   Issuance of redeemable preferred securities in connection with acquisition
      of the Pfizer medicated feed additives business in 2001.


                                       25
<PAGE>

(g)   Included in net sales is shipping  and handling  income of $6.1,  $5.4 and
      $4.8  million  for the fiscal  years ended June 30,  2001,  2000 and 1999,
      respectively.  Amounts for prior periods are not readily  determinable and
      restatements have not been made.


                                       26
<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.

      The  Company has four  operating  segments--Animal  Health and  Nutrition,
Industrial  Chemicals,  Distribution  and  All  Other.  The  Company  previously
reported  two  operating  segments--  Agchem and  Industrial  Chemicals.  Due to
organizational  changes during fiscal 2001,  including those associated with the
acquisition of the animal health business from Pfizer and the sale of the Agtrol
crop  protection  business,  segment  reporting has been  revised.  Prior period
segment  information  has been  revised to conform  to the fiscal  2001  segment
presentation.

      On October 1, 1998, the Company  acquired all of the  outstanding  capital
stock of Odda  Smelteverk  AS, a Norwegian  company,  and certain  assets of the
business of BOC Carbide  Industries in the United Kingdom (together "Odda") from
the BOC Group.  The operating  results of these  businesses  are included in the
Company's consolidated statements of operations from the date of acquisition and
are included in the Industrial Chemicals and Distribution segments.

      On November 30, 2000,  the Company  purchased the medicated feed additives
business of Pfizer, Inc. ("Pfizer"). The operating results of this business, now
called PhibroAnimal 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.

      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, 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. Agtrol developed,
manufactured and marketed crop protection products, including copper fungicides.
The sale included  inventory and intangible assets to Nufarm but did not include
plant, equipment,  or other manufacturing assets.  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.   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.

Results of Operations

                                                          Sales
                                                        ($000's)
                                                   Year Ended June 30,
                                         --------------------------------------
Operating Segments:                        2001           2000           1999
                                         --------       --------       --------
   Animal Health and Nutrition.........  $202,573       $135,088       $132,845
   Industrial Chemicals................   107,455        109,318        107,611
   Distribution........................    44,452         49,254         47,646
   All Other...........................    46,979         69,198         58,037
   Elimination of intersegment sales...   (37,049)       (39,832)       (44,082)
                                         --------       --------       --------
                                         $364,410       $323,026       $302,057
                                         ========       ========       ========


                                       27
<PAGE>

                                                 Operating Income (Loss)
                                                        ($000's)
                                                   Year Ended June 30,
                                         --------------------------------------
Operating Segments:                        2001           2000           1999
                                         --------       --------       --------
   Animal Health and Nutrition.........  $ 17,562       $ 11,539       $  8,763
   Industrial Chemicals................    (3,350)         5,355          4,988
   Distribution........................     3,936          3,817          3,643
   All Other...........................    (7,086)         4,045          3,097
   Corporate expenses and intercompany
     profit elimination................   (10,086)        (9,082)       (10,136)
                                         --------       --------       --------
                                         $    976       $ 15,674       $ 10,355
                                         ========       ========       ========


                                       28
<PAGE>

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 $1.9 million, or
2%,  to  $107.4  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 the current
year.

      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 Company's Wychem, U.K.
facility decreased $2.4 million due to a decline in specialized lab projects and
formulations

      Gross Profit.  Gross profit  increased by $4.2 million,  or 4.5%, to $98.1
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  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.  The  remainder of the  inventory  purchase
adjustment, approximately $3.2 million, will be charged to cost of goods sold in
fiscal 2002. 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 $17.5
million to $97.2 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),  higher fly ash warehousing and  distribution
costs  ($1.4   million),   severance  costs  ($1.3  million)  and  research  and
development  expenditures  ($.7 million) offset by a reduction in the repurchase
value of redeemable common stock of a minority shareholder ($4.3 million).

      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


                                       29
<PAGE>

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 is implementing cost reduction programs
and other initiatives in this segment in reaction to current market  conditions.
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.  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 2001 and 2000 tax benefits and  provisions  differ from
the amount calculated at the U.S. statutory rate, due primarily to the effect of
non-deductible   expenses  and  tax  rate  differences  on  foreign  operations.
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%.


                                       30
<PAGE>

Comparison  of Fiscal  Year  Ended June 30,  2000 to Fiscal  Year Ended June 30,
1999.

      Net Sales. Net sales increased by $21.0 million,  or 7%, to $323.0 million
in fiscal  2000,  as  compared to the prior  year.  Increases  were noted in all
segments as more fully discussed below.

      Animal Health and Nutrition net sales increased by $2.2 million, or 2%, to
$135.1  million in 2000,  as  compared  to the prior  year.  Sales  were  higher
primarily  due to  higher  sales  volume  of the  Company's  animal  health  and
nutrition  products,  primarily  coccidiostats ($1.5 million) and feed pre-mixes
($1.9  million).  The increase in  pre-mixes  resulted  from the  December  1998
acquisition of a feed pre-mix business.  These increases were somewhat offset by
lower sales  resulting  from  discontinued  products at Koffolk,  the  Company's
Israeli subsidiary.

      Industrial Chemicals net sales increased by $1.7 million, or 2%, to $109.3
million in 2000, as compared to the prior year.  Sales were higher due to a full
year of dicyandiamide and calcium carbide sales ($5.6 million) by Odda (acquired
in  October  1998),  and  higher  recycling  fees  ($1.1  million).   Production
disruptions  for certain  mineral  oxides as a result of a fire in the Company's
Bowmanstown,  PA facility  (and as a result  purchases by the Animal  Health and
Nutrition  segment were  supplemented from third party sources) offset the above
increases.

      Distribution net sales increased by $1.6 million,  or 3%, to $49.3 million
in 2000, as compared to the prior year. The net sales increase was due to higher
sales of the  Company's  dicyandiamide  and carbide  products.  Improvements  in
average  selling  prices of other  products  also  improved  sales and operating
results.

      All Other net sales  increased by $11.2 million,  or 19%, to $69.2 million
in 2000,  as compared to the prior year.  Higher  volume sales of the  Company's
crop protection  chemicals ($5.5 million) due to increased market penetration of
generic fungicides and introduction of a new copper based fungicide  contributed
to the bulk of the  increase.  In addition,  higher volume sales of coal fly ash
($5.3 million) also accounted for the bulk of the increase.

      Gross Profit.  Gross profit increased by $15.1 million, or 19.5%, to $93.9
million as compared to the prior year. This increase was primarily  attributable
to higher  profits in the Animal  Health and Nutrition  segment  ($4.3  million)
primarily due to higher volume sales and lower costs, principally raw materials,
at the  Company's  Israeli  subsidiary  (Koffolk) for  coccidiostats.  Increased
profits from higher sales in the Company's  Industrial  Chemicals  segment ($3.5
million) were due to the Odda acquisition and higher  recycling fees.  Increased
sales  prices and volumes for the  Distribution  segment  improved  results ($.8
million).  Higher  volume sales of coal ash also  accounted  for the increase in
profit.

      Selling,  General  and  Administrative  Expenses.   Selling,  general  and
administrative  expenses increased by $10.7 million,  or 15.6%, to $79.7 million
in fiscal 2000 as compared to the prior year.  The increase was primarily due to
the Odda acquisition ($2.1 million),  higher  distribution  expenses  associated
with  increased  sales of coal fly ash ($3.9  million)  and higher  distribution
expenses ($1.1 million)  associated  with inorganic  chemical  sales.  In fiscal
2000,  corporate expenses included a $1.1 million non-cash charge to reflect the
increase  in  repurchase  value  of  redeemable   common  stock  of  a  minority
shareholder,  as compared to income of $.2 million in the prior year.  The prior
year included an accrual for  compensation  expenses ($1.5  million)  associated
with the  termination  of  employment  of an executive  of a  subsidiary  of the
Company.

      Curtailment of Operations.  In June 2000, the Company transferred title to
its   property  in  Sewaren,   New  Jersey  to  the   Township  of   Woodbridge.
Simultaneously,  the  Company  entered  into a ten  year  lease  agreement  with
payments  aggregating  $2 million for certain  areas of the property in order to
allow it to  conduct  operations  related  to its RCRA Part B  Facility  Permit.
Pursuant to the Transfer Agreement, the Township of Woodbridge took title to the
property  and  assumed   obligations  with  regard  to  the  property  including
maintaining  the ground water  recovery  system  required by the  Administrative
Consent Order between the Company and the New Jersey Department of Environmental
Protection.  In connection with the assumption of obligations by the Township in
fiscal  2000,  the  Company has  reversed  $1.5  million to income  representing
amounts  previously  reserved for ground water monitoring and remediation net of
the present value of its lease obligations. In fiscal 1999, the


                                       31
<PAGE>

Company  reversed $.5 million of the original $10 million charge to income based
upon a reassessment of site remediation and ongoing cost requirements.

      Operating Income. Operating income increased by $5.3 million, or 51.3%, to
$15.7  million in fiscal  2000,  as compared to the prior  year.  The  operating
income of the Animal Health and Nutrition segment accounted for the largest part
of the increase and  improvements in the fly ash business  accounted for most of
the improvements over the prior year.

      Interest  Expense,  net.  Interest expense  increased by $1.6 million,  or
13.1%,  to $14.8 million in fiscal 2000 as compared to the prior year  primarily
due to an increased average level of bank borrowings and higher average interest
rates.

      Gain from  Property  Damage  Claim.  In April 1999,  the Company  suffered
inventory,  real property and equipment  loss at its  Bowmanstown,  Pennsylvania
facility  resulting from a fire. In fiscal 2000, the Company  settled all claims
with its  insurance  carriers and recorded a gain of $.9 million (in addition to
the  $3.7   million   booked  in  fiscal   1999)  based  on  agreed  upon  final
reimbursements  for damaged  property  and  equipment  in excess of its net book
value.

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

      Gain from Sale of Assets. 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-owned" power production company in January 2000. As
a result of the sale, Odda's ability to purchase power at cost terminated and it
now  purchases a majority of its power at prevailing  market rates.  The Company
realized net sale proceeds of $18.7 million and recorded a pre-tax gain of $13.7
million. Approximately $1.3 million of additional net gain has been deferred and
will be recognized over the period of a related power purchase contract with the
buyer.

      Income  Taxes.  The 2000 and 1999 tax  provisions  differ  from the amount
calculated  at  the  U.S.  statutory  rate,  due  primarily  to  the  effect  of
non-deductible expenses and tax rate differences on foreign operations. The 2000
tax expense  includes a  provision  related to the gain on sale of assets at the
Norwegian statutory rate of 28%.

Liquidity and Capital Resources

      Cash on hand as of June 30, 2001 totaled  $14.8  million  compared to $2.4
million as of the fiscal 2000 year end.  Much of the  increase  in cash  results
from  the  funding  requirements  of the  international  operations  of the  PAH
business.

      Working  capital as of June 30, 2001 and 2000 was $74.0  million and $79.9
million,  respectively.  Inventories increased by $33.4 million during the year,
primarily  due to  inventory  relating  to the  PAH  business  ($42.2  million),
partially  offset by the reduction in inventory from the sale of the Agtrol crop
protection  business  ($6.9  million).  Accounts  payable and  accrued  expenses
increased by $29.9 million from the prior year, all relating to the acquired PAH
business.  In  addition,  certain  changes  to the  Company's  revolving  credit
agreement  during 2001 have resulted in borrowings  under this  agreement  being
classified as short-term debt.

      Net Cash  Provided by  Operating  Activities.  Cash  provided by operating
activities in fiscal 2001 was $13.1  million,  an  improvement  of $21.1 million
from the prior year.  This  increase  is  primarily  due to  positive  cash flow
generated from the seven months of operations of the acquired PAH business unit.
Cash used in operating activities in fiscal 2000 was $7.9 million,  $4.8 million
higher than 1999.  This  increase was primarily due to higher levels of accounts
receivable  from sales of crop protection  chemicals  during the last quarter of
fiscal 2000 compared to the prior year.


                                       32
<PAGE>

      Net  Cash  Used in  Investing  Activities.  Net  cash  used  in  investing
activities in fiscal 2001 was $40.1,  primarily  related to the PAH  acquisition
($51.7  million)  offset by proceeds from the sale of the Agtrol crop protection
business ($26.5 million).  Capital  expenditures of $14.5 million were primarily
for expansion of the Company's coal fly ash operations and for  maintaining  the
Company's  existing  asset  base,  including  projects  related to  productivity
improvements and  environmental  protection and compliance.  In fiscal 2000, net
investing  activities  totaled $4.1  million.  Capital  expenditures  were $22.6
million,  with major  expenditures  taking place at Odda to increase  production
capacity and at MRT for  expansion  of the  Company's  coal fly ash  operations.
During fiscal 2000, the Company received proceeds of $18.7 million from the sale
of assets by Odda.

      Net Cash Provided by Financing Activities.  Net cash provided by financing
activities in 2001 was $39.9  million.  Proceeds from the issuance of redeemable
preferred  securities  were $45 million and costs of issuance were $4.2 million.
In fiscal 2000,  net cash provided by financing  activities  was $11.3  million,
primarily  the  result  of  drawdowns  under  the  Company's   revolving  credit
facilities,  partially offset by repayment of bank debt by Odda of approximately
$10.0 million from proceeds generated from the sale of assets.

      Liquidity. In connection with the PAH acquisition, the Company amended its
loan  agreement with PNC Bank,  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 Company may choose  between
two interest options:  the base rate, as defined; and the Euro Rate, as defined,
plus 2 1/4% to 3% per annum,  depending on the Company's  operating  performance
and whether the drawdowns are under the revolving credit facility or the capital
expenditure facility. The agreement was effective December 1, 2000 and continues
until  November 30, 2003.  Due to the nature and terms of the amended  revolving
credit  agreement,  which includes both a subjective  acceleration  clause and a
requirement  to maintain a lockbox  arrangement,  all  borrowings  against  this
facility are now classified as a current liability. At June 30, 2001, the amount
of credit  extended under this  agreement  totaled $24.5 million and the Company
had $23.1 million  available under the borrowing base formula in this agreement.
In addition, certain of the Company's foreign subsidiaries also had availability
under their respective credit facilities totaling $7.7 million.

      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.

      In September  1999 and in April 2000,  Odda  received  approvals  from the
Norwegian Bank  Industrial and Regional  Development  Fund for loans of NOK 11.5
million and NOK 15 million, respectively for capital and environmental projects.
The Company utilized $2.2 million and $.7 million of these funds during 2001 and
2000,  respectively.  Both  facilities  are  repayable  in 20 equal  semi-annual
installments beginning in 2002. At June 30, 2001 Odda was not in compliance with
the debt service and liabilities to equity ratios in its credit agreements,  and
a waiver was obtained from its lenders.


                                       33
<PAGE>

      The Company  anticipates  spending  approximately  $13 million for capital
expenditures in fiscal 2002,  primarily to cover the Company's asset replacement
needs, improve processes,  and ensure  environmental and regulatory  compliance.
The Company  believes that cash flows from  operations  and available  borrowing
arrangements  should provide sufficient working capital to operate the Company's
existing  business,  to  make  budgeted  capital  expenditures,  and to  service
interest and current principal coming due on outstanding debt.

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 losses relating to intercompany
debt of short-term  investment nature are included in other expense,  net in the
amounts of $2.8  million,  $2.1  million  and $1.8  million in the  accompanying
consolidated  statements of operations  for the years ended June 30, 2001,  2000
and 1999, respectively.  Other foreign currency transaction gains and losses are
not material.

Impact of Recently Adopted Accounting Pronouncements

      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  Accounting
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.


                                       34
<PAGE>

      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 the 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 will 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.  The change in a
foreign  currency  option's time value is reported each period in other expense,
net on the  Company's  consolidated  statement of operations  and  comprehensive
income.  The effective  portion of unrealized  gains and losses  associated with
forward  contracts and the intrinsic value of option contracts 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 year ended
June 30, 2001, the Company's  foreign  currency options have been designated and
qualify for cash flow hedges under the  criteria of SFAS No. 133. The  Company's
foreign  currency forward  contracts and commodity  derivatives did not meet the
criteria of SFAS No. 133 to qualify for hedge accounting. The Company recorded a
net loss of $341 in cost of goods sold for commodity contracts and a net loss in
other  expense,  net of $414 for  foreign  currency  forward  contracts  and the
ineffective portion of the option contracts for the year ended June 30, 2001.

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 is currently assessing the impact of these statements.

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


                                       35
<PAGE>

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  $173.3 million as of June 30, 2001.  Approximately 28% of
the debt is variable and would be interest rate sensitive.  For further details,
refer to Note 6, of the "Notes to the Consolidated  Financial Statements" of the
Company appearing elsewhere herein.

      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, 2001, the fair value of the Company's  senior  subordinated
debt is estimated  based on quoted market rates at $65.9 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, 2001,  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, 2001, the Company does
not believe that an instantaneous 10% adverse movement in foreign currency rates
from their  levels at June 30, 2001,  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, 2001,  the contract  values of these letters of credit and surety bonds were
$1.0 million and their fair values did not differ materially from their carrying
amount.

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


                                       36
<PAGE>

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, 2001 would not
be material when compared to the Company's earnings 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.

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 acquisition plans.

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.


                                       37
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

      The following sets forth, as of June 30, 2001, the name, age, and position
of the Company's directors and executive officers:

Name                     Age                     Position
----                     ---                     --------
Jack C. Bendheim         54   Director; President and Chief Executive Officer

Marvin S. Sussman        54   Director; Chief Operating Officer and Executive
                              Vice President; President, Prince Group

James O. Herlands        59   Director and Executive Vice President; President,
                              PhibroChem Group

David C. Storbeck        46   Vice President and Chief Financial Officer

Joseph M. Katzenstein    59   Treasurer and Secretary

Steven L Cohen           57   Vice President and General Counsel

Peter A. Joseph          49   Director

Adam R. Karr             29   Director

      JACK C. BENDHEIM -- Director,  President and Chief Executive Officer.  Mr.
Bendheim has been President since 1988. 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.

      MARVIN S. SUSSMAN -- Director,  Chief Operating Officer and Executive Vice
President,  and President of the Company's  Prince Group. He has been a director
since 1988 and was appointed Chief Operating Officer in 1998. Mr. Sussman joined
the Company in 1971. Since then, he has served in various executive positions at
the Company and at the Prince Group.  Since 1988, Mr. Sussman has been President
of the Company's Prince Group and Executive  Vice-President of the Company.  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 capabilities 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.

      DAVID C.  STORBECK -- Vice  President  and Chief  Financial  Officer.  Mr.
Storbeck  has served as Vice  President  and Chief  Financial  Officer  since he
joined the Company in January,  2001.  From 1998 to 2000, Mr. Storbeck served as
Vice President Finance of Matheson Tri-Gas, Inc. From 1995 to 1998, Mr. Storbeck
served as Vice President Finance of Matheson Gas Products, Inc.

      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


                                       38
<PAGE>

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 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.

      ADAM R. KARR --  Director.  Mr. Karr has served as Director of the Company
since February,  2001. Mr. Karr joined  Palladium  Equity  Partners,  LLC at its
inception in 1997. In 2000,  he became a member of the firm.  In 1996,  Mr. Karr
was an  associate  at Joseph  Littlejohn  & Levy.  From 1993 to 1995,  he was at
Donaldson, Lufkin & Jenrette.

Item 11. Executive Compensation.

      The following table sets forth the cash  compensation  paid by the Company
and its  subsidiaries for services during fiscal 2001, 2000, and 1999 to each of
the Company's five most highly compensated executive officers:

<TABLE>
<CAPTION>
                                                                                    Long Term Compensation
                                                                               --------------------------------
                                                                                       Awards           Payouts
                                                                               ----------------------   -------
                                                  Annual Compensation                      Securities
                                            ---------------------------------  Restricted  Underlying
     Name and                                                    Other Annual    Stock      Options/      LTIP     All Other
Principal Position                 Year     Salary      Bonus    Compensation    Awards       SARs      Payouts  Compensation**
------------------                 ----     ------      -----    ------------  ----------  ----------   -------  --------------
<S>                                <C>    <C>          <C>         <C>          <C>         <C>         <C>          <C>
Jack C. Bendheim.................  2001   $1,640,000   $600,000    $     --     $    --     $   --      $   --       $5,300
President & CEO                    2000   $1,500,000         --          --          --         --          --       $5,362
                                   1999   $1,207,000         --          --          --         --          --       $5,200

Marvin S. Sussman*...............  2001   $  733,500   $710,000          --     $    --     $   --      $   --       $5,300
Executive Vice President & COO;    2000   $  467,000   $667,600          --          --         --          --       $5,362
President of Prince Group          1999   $  467,000   $597,200          --          --         --          --       $5,200

James O. Herlands................  2001   $  395,000   $382,500    $     --     $    --     $   --      $   --       $5,300
Executive Vice President;          2000   $  382,000   $252,500          --          --         --          --       $5,362
President of Phibrochem            1999   $  365,000   $250,000    $ 24,015          --         --          --       $5,200

Joseph M. Katzenstein............  2001   $  121,500   $     --    $     --     $    --     $   --      $   --       $3,800
Treasurer and Secretary            2000   $  115,250         --          --          --         --          --       $3,746
                                   1999   $  111,250         --          --          --         --          --       $3,616

Steven L. Cohen***...............  2001   $  131,250   $     --          --     $    --     $   --      $   --       $   --
Vice President & General Counsel
</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,  the  Company is
      required to record as  compensation to Mr. Sussman each year the change in
      the book value of the Company  attributable to Mr. Sussman's  shares.  For
      2001, 2000 and 1999 the amount  attributable to Mr.  Sussman's  shares was
      $(3,135,000),  $1,137,000 and $(187,000),  respectively. Such amounts have
      not been distributed to Mr. Sussman.
**    Represents  contributions  by the Company under its 401(k)  Retirement and
      Savings Plan. See "--Compensation Pursuant to Plans."
***   Salary is since date of employment.


                                       39
<PAGE>

      In fiscal 2001, the Company granted no options or long-term incentive plan
awards 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 Marvin S. Sussman in
December 1987. Mr. Sussman,  as Chief Operating Officer,  is responsible for the
day-to-day  operations  of the Company.  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
pretax 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, 2001, 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 $150,000  (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 6.0% 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  over 3.0% 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.

      The accounts of Messrs.  Bendheim,  Sussman,  Herlands,  Katzenstein,  and
Cohen were credited  with  employer  contributions  of $5,300,  $5,300,  $5,300,
$3,800 and $0, respectively, for fiscal 2001.

      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


                                       40
<PAGE>

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 ............     $12,100     $15,490     $18,900     $22,500     $26,250
$100,000 ...........     $17,730     $22,990     $28,280     $33,620     $39,170
$150,000 ...........     $28,980     $37,990     $47,030     $56,120     $65,420
$200,000 ...........     $33,480     $43,990     $54,530     $65,120     $75,920

      As of June 30, 2001, Messrs. Bendheim, Sussman, Herlands,  Katzenstein and
Cohen  had  32,  30,  37,  39  and  0  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,  2001 is  $170,000
except  for  Mr.  Katzenstein  whose  covered  compensation  is  $118,000.  Such
individuals,  at age 65,  will  have 43,  41,  43,  45 and 8  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,  2001,  is  $109,490,  $125,040,  $122,560,  $48,970  and
$19,560, 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, 2001.

                                            Annual      Survivor's    Deferred
                                          Retirement      Income    Compensation
                                        Income Benefit    Benefit      Benefit
                                        --------------  ----------  ------------
Jack C. Bendheim....................       $19,976      $1,500,000    $229,429
James O. Herlands...................       $19,796      $  780,000    $203,882
Marvin S. Sussman...................       $19,796      $1,500,000    $ 78,907

      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


                                       41
<PAGE>

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 2001,  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.

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  2001,  Messrs.  Bendheim,  Sussman,
Herlands,  Joseph and Karr 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."


                                       42
<PAGE>

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

      The table sets forth  certain  information  as of June 30, 2001  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 Adam R. Karr 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.  On June
30, 1995,  Jack Bendheim  borrowed  $1,500,000 from NatWest Bank N.A. (now Fleet
Bank) which he reloaned to First Dice.  On  September  29, 1999,  Jack  Bendheim
refinanced  the loan from Fleet Bank to provide  for  self-amortizing  payments.
Similarly,  Jack Bendheim's  loan to First Dice was  restructured to reflect the
same terms as his borrowing  from Fleet Bank.  The repayment to Jack Bendheim of
such loan by First Dice is personally guaranteed by each of the limited partners
of First Dice in proportion to their respective limited  partnership  interests.
The Company  believes that the terms of such lease and loan are on terms no 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


                                       43
<PAGE>

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 I. David Paley from  Phibro-Tech in
March 1999,  pursuant to the  Shareholders  Agreement  among the  Executives and
Phibro-Tech,  the Company paid  $2,862,660 in connection  with the repurchase of
the 240.03 shares of his Class B Common Stock of Phibro-Tech and in satisfaction
of  Phibro-Tech's  severance  obligation  under a  Severance  Agreement  between
Phibro-Tech  and Mr.  Paley.  In addition,  the Company has retained Mr.  Paley,
pursuant to a Consulting Agreement, through March 15, 2002, to render consulting
and advisory  services to the Company on a part-time  basis.  The consulting fee
payable to Mr. Paley is $200,000 for the first year and $150,000 for each of the
second  and third  years of the term.  Mr.  Paley is also  entitled  under  such
Consulting  Agreement to life insurance equal to the unpaid  consulting fee, and
certain other benefits.

      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  share  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 periodically  advances 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%.

      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 Adam
R. Karr 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 as of  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.

      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.


                                       44
<PAGE>

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.


                                       45
<PAGE>

Item 14. 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, 2000. 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)

10.2              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)


                                       46
<PAGE>

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 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)


                                       47
<PAGE>

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)++*

21                List of Subsidiaries(7)

----------
(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.
(6)   Filed as an Exhibit to the  Registrant's  Current Report on Form 8-K dated
      June 14, 2001.
(7)   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.

      During  the last  quarter of the fiscal  year  ended  June 30,  2001,  the
Company filed a report on Form 8-K dated June 14, 2001.


                                       48
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----
Report of Independents Accountants                                           F-2
Consolidated Balance Sheets-June 30, 2001 and 2000                           F-3
Consolidated Statements of Operations and Comprehensive Income-for
  the years ended June 30, 2001, 2000 and 1999                               F-4
Consolidated Statements of Changes in Stockholders' Equity-for
  the years ended June 30, 2001, 2000 and 1999                               F-5
Consolidated Statements of Cash Flows-for the years ended
  June 30, 2001, 2000 and 1999                                               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 Subsidiaries at
June 30, 2001 and June 30, 2000,  and the results of their  operations and their
cash  flows for each of the three  years in the period  ended  June 30,  2001 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 4, 2001


                                      F-2
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                          As of June 30, 2001 and 2000
               (In Thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                ASSETS                                     2001         2000
                                ------                                   ---------    ---------
<S>                                                                      <C>          <C>
CURRENT ASSETS:
   Cash and cash equivalents                                             $  14,845    $   2,403
     Trade receivables, less allowance for doubtful
         accounts of $2,369 at June 30, 2001 and $756 at June 30, 2000      77,910       79,376
     Other receivables                                                       4,800        8,479
     Inventories                                                            83,796       50,405
     Prepaid expenses and other current assets                              17,448        9,098
                                                                         ---------    ---------

             TOTAL CURRENT ASSETS                                          198,799      149,761

PROPERTY, PLANT AND EQUIPMENT, net                                         102,323       76,180

INTANGIBLES                                                                  5,832        6,297

OTHER ASSETS                                                                23,065       26,213
                                                                         ---------    ---------

                                                                         $ 330,019    $ 258,451
                                                                         =========    =========

                LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Cash overdraft                                                      $   4,222    $   2,120
     Loans payable to banks                                                 28,463        8,650
     Current portion of long-term debt                                       5,404        2,296
     Accounts payable                                                       51,304       32,642
     Accrued expenses and other current liabilities                         35,378       24,157
                                                                         ---------    ---------

             TOTAL CURRENT LIABILITIES                                     124,771       69,865

LONG-TERM DEBT                                                             139,464      139,722

OTHER LIABILITIES                                                           12,926       13,282
                                                                         ---------    ---------

             TOTAL LIABILITIES                                             277,161      222,869
                                                                         ---------    ---------

COMMITMENTS AND CONTINGENCIES

REDEEMABLE SECURITIES:
     Series B and C preferred stock                                         48,980           --
     Common stock                                                              378        3,513
     Common stock of subsidiary                                                 95          451
                                                                         ---------    ---------
             TOTAL REDEEMABLE SECURITIES                                    49,453        3,964
                                                                         ---------    ---------

STOCKHOLDERS' EQUITY:
     Preferred stock-$100 par value, 150,543 shares authorized,                521          521
         none issued at June 30, 2001 and 2000; Series A
         Preferred stock-$100 par value, 6% non cumulative,
         5,207 shares authorized and issued at June 30, 2001 and 2000
     Common stock-$0.10 par value, 30,300 shares authorized and                  2            2
         24,488 shares issued at June 30, 2001 and 2000
     Paid-in capital                                                           878          878
     Retained earnings                                                       9,741       32,808
     Accumulated other comprehensive (loss) -
         cumulative currency translation adjustment                         (7,737)      (2,591)
                                                                         ---------    ---------

             TOTAL STOCKHOLDERS' EQUITY                                      3,405       31,618
                                                                         ---------    ---------

                                                                         $ 330,019    $ 258,451
                                                                         =========    =========
</TABLE>

                   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, 2001, 2000 and 1999
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                2001         2000         1999
                                                              ---------    ---------    ---------
<S>                                                           <C>          <C>          <C>
NET SALES                                                     $ 364,410    $ 323,026    $ 302,057

COST OF GOODS SOLD                                              266,271      229,130      223,247
                                                              ---------    ---------    ---------

    GROSS PROFIT                                                 98,139       93,896       78,810

SELLING, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                     97,163       79,703       68,955

CURTAILMENT OF OPERATIONS AT
    MANUFACTURING FACILITY                                           --       (1,481)        (500)
                                                              ---------    ---------    ---------

    OPERATING INCOME                                                976       15,674       10,355

OTHER:
    Interest expense                                             18,297       14,754       13,142
    Interest income                                                (566)        (600)        (628)
    Other expense, net                                            2,561        2,230        1,829
    Gain from property damage claim                                  --         (946)      (3,701)
    Gains from sale of assets                                    (2,440)     (13,763)          --
                                                              ---------    ---------    ---------

    (LOSS) INCOME BEFORE INCOME TAXES                           (16,876)      13,999         (287)

(BENEFIT) PROVISION FOR INCOME TAXES                             (1,981)       3,946          179
                                                              ---------    ---------    ---------

    NET (LOSS) INCOME                                           (14,895)      10,053         (466)

OTHER COMPREHENSIVE (LOSS) INCOME-
    Change in foreign currency translation adjustment            (5,146)          55       (2,043)
                                                              ---------    ---------    ---------

    COMPREHENSIVE (LOSS) INCOME                               $ (20,041)   $  10,108    $  (2,509)
                                                              =========    =========    =========
</TABLE>

                   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, 1999, 2000 and 2001
                                 (In Thousands)

<TABLE>
<CAPTION>
                                Preferred Stock           Common Stock
                                ---------------  ------------------------------                        Accumulated Other
                                                   Class      Class     Class    Paid-in    Retained     Comprehensive
                                   Series A         "A"        "B"       "C"     Capital    Earnings     (Loss) income-    Total
                                --------------   --------    --------  --------  --------   --------   -----------------  --------
<S>                                <C>           <C>         <C>        <C>      <C>        <C>            <C>            <C>
BALANCE, JULY 1, 1998              $    521      $      1    $      1   $    1   $    435   $ 23,221       $   (603)      $ 23,577

  Foreign currency
    translation
    adjustment                                                                                               (2,043)        (2,043)

  Elimination of Class "C"
    shares to Class "A"
    common stock                                                           (1)          1                                       --

  Receivable from principal
    shareholder                                                                       380                                      380

  Net loss                                                                                      (466)                         (466)
                                   --------      --------    --------   ------   --------   --------       --------       --------

BALANCE, JUNE 30, 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
                                   ========      ========    ========   ======   ========   ========       ========       ========
</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, 2001, 2000 and 1999
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                                               2001           2000           1999
                                                                                             --------       --------       --------
<S>                                                                                          <C>            <C>            <C>
OPERATING ACTIVITIES:
    Net (loss) income                                                                        $(14,895)      $ 10,053       $   (466)
    Adjustments to reconcile net (loss) income to net
       cash provided by (used in) operating activities:
       Depreciation and amortization                                                           13,832         11,866         11,245
       Deferred income taxes                                                                   (7,568)         1,438           (773)
       Provision for curtailment of operations at manufacturing facility                           --         (1,481)          (500)
       Gain from property damage claim                                                             --         (1,053)        (3,701)
       Gains from sale of assets                                                               (2,440)       (13,763)            --
       Change in redemption amount of redeemable common stock                                  (3,491)         1,007           (860)
       Other                                                                                    2,291            727          1,644

       Changes in operating  assets and  liabilities net of effect of businesses
         acquired:
          Accounts receivable                                                                  (1,409)        (8,281)        (5,922)
          Inventories                                                                          (1,999)           584         (3,550)
          Prepaid expenses and other current assets                                             4,987         (2,282)            35
          Other assets                                                                          2,203         (1,545)        (7,443)
          Accounts payable                                                                     19,469         (3,768)            43
          Accrued expenses and other current liabilities                                        2,161         (1,411)         7,147
                                                                                             --------       --------       --------
          NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                  13,141         (7,909)        (3,101)
                                                                                             --------       --------       --------

INVESTING ACTIVITIES:
    Capital expenditures                                                                      (14,544)       (22,604)       (12,262)
    Acquisition of businesses, net of cash acquired                                           (51,700)            --        (21,505)
    Proceeds from property damage claim                                                            --          3,999             --
    Proceeds from sale of assets                                                               26,470         18,750             --
    Other investing                                                                              (375)        (4,203)            --
                                                                                             --------       --------       --------
          NET CASH USED IN INVESTING ACTIVITIES                                               (40,149)        (4,058)       (33,767)
                                                                                             --------       --------       --------

FINANCING ACTIVITIES:
    Cash overdraft                                                                              2,654            682           (477)
    Net (decrease) increase in short-term debt                                                 (8,006)         4,189          2,227
    Proceeds from long-term debt                                                                9,363         18,286         15,214
    Proceeds from issuance of redeemable preferred stock                                       45,000             --             --
    Payments of long-term debt                                                                 (4,924)       (11,871)        (1,675)
    Other financing                                                                            (4,192)            62            380
                                                                                             --------       --------       --------
          NET CASH PROVIDED BY FINANCING ACTIVITIES                                            39,895         11,348         15,669
                                                                                             --------       --------       --------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                          (445)            --             --
                                                                                             --------       --------       --------

          NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                 12,442           (619)       (21,199)

CASH AND CASH EQUIVALENTS at beginning of period                                                2,403          3,022         24,221
                                                                                             --------       --------       --------

          CASH AND CASH EQUIVALENTS at end of period                                         $ 14,845       $  2,403       $  3,022
                                                                                             ========       ========       ========

Supplementary Cash Flow Information:

    Interest paid                                                                            $ 16,810       $ 13,694       $ 12,125
                                                                                             ========       ========       ========

    Income taxes paid                                                                        $  1,320       $  1,355       $  1,284
                                                                                             ========       ========       ========

Summary of significant noncash investing and financing activities

    Capital lease additions                                                                  $     --       $  1,536       $     --
                                                                                             ========       ========       ========

    Debt assumed through acquisition                                                         $     --       $     --       $ 18,195
                                                                                             ========       ========       ========

    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 diversified global manufacturer and
marketer of a broad range of specialty  chemicals  which are sold  worldwide for
use in  numerous  markets.  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.  During fiscal 2001, the
Company's  products were manufactured at eleven facilities in the United States,
five facilities in Europe,  two facilities in Israel and two facilities in South
America.

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 Ltd.
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.

Use of Estimates:

      The  preparation  of financial  statements  in conformity  with  generally
accepted  accounting  principles  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 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.
Effective  April 1, 2001 the Company adopted Staff  Accounting  Bulletin No. 101
("SAB No. 101") "Revenue  Recognition",  which  provides  guidelines in applying
generally accepted accounting principles to selected revenue recognition issues,
and an interpretive  release to SAB 101,  clarifying certain of the positions on
revenue  recognition.  The adoption of SAB No. 101 by the Company did not have a
material impact on the Company's financial statements.


                                      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)

Shipping and Handling

      Effective  April 1, 2001 the Company has adopted the Emerging  Issues Task
Force Issue No. 00-10  "Accounting  for  Shipping  and Handling  Fees and Costs"
("EITF No. 00-10").  EITF No. 00-10 states that all amounts billed to a customer
in a sale transaction related to shipping and handling represent revenues earned
for the goods provided and should be classified as revenue.  EITF No. 00-10 also
requires that any shipping and handling  costs that are recorded below the gross
margin  line be  disclosed.  Included  in the  revenues  shown on the  Company's
consolidated  statement of operations is shipping and handling income of $6,102,
$5,393,  and $4,763 for the fiscal  years ended June 30, 2001,  2000,  and 1999,
respectively.  Shipping and handling costs are included in selling, general, and
administrative expenses in the amounts of $22,275, $18,725, and $13,371, for the
fiscal years ended June 30, 2001, 2000, and 1999, respectively.

Cash and Cash Equivalents:

      The  Company  considers  all  highly  liquid   instruments  with  original
maturities of three months or less to be cash equivalents. The effect of foreign
currency  changes on cash and cash  equivalents  is not material for fiscal 2000
and 1999.

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,  2001 and 2000 would have been higher by $716 and $850,
respectively. Inventories valued at LIFO amounted to $4,142 at June 30, 2001 and
$4,809 at June 30, 2000.

      Inventories consist of the following at June 30, 2001 and 2000:

                                                               2001       2000
                                                              -------    -------
Raw materials .............................................   $22,614    $21,457
Work in process ...........................................     4,257      5,340
Finished goods ............................................    56,925     23,608
                                                              -------    -------
                                                              $83,796    $50,405
                                                              =======    =======

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 2001, 2000 and 1999 was $277, $0
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


                                      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)

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 $5,872 and $12,448 at June 30, 2001 and 2000, 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  (1949) Ltd.
("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 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 losses relating to intercompany
debt of short-term  investment nature are included in other expense,  net in the
amounts of $2,768, $2,142 and $1,829 in the accompanying consolidated statements
of operations  for the years ended June 30, 2001,  2000 and 1999,  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.


                                      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)

      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 will 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.  The change in a
foreign  currency  option's time value is reported each period in other expense,
net on the  Company's  consolidated  statement of operations  and  comprehensive
income.  The effective  portion of unrealized  gains and losses  associated with
forward  contracts and the intrinsic value of option contracts 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 year ended
June 30, 2001, the Company's  foreign  currency options have been designated and
qualify for cash flow hedges under the  critieria of SFAS No. 133. The Company's
foreign  currency forward  contracts and commodity  derivatives did not meet the
criteria of SFAS No. 133 to qualify for hedge accounting. The Company recorded a
net loss of $341 in cost of goods sold for commodity contracts and a net loss of
$467 in other  expense,  net for  foreign  currency  forward  contracts  and the
ineffective portion of the option contracts for the year ended June 30, 2001.

Advertising Costs:

      Advertising  expenditures,  expensed when  incurred,  were $800,  $953 and
$1,077 for the years ended June 30, 2001, 2000 and 1999, respectively.

Impairment of Long-Lived Assets:

      The Company evaluates the recoverability of long-lived  assets,  including
intangible   assets,  at  each  balance  sheet  date,  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.


                                      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)

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.

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 $2,952,  $2,297 and $1,929 for
the years ended June 30, 2001, 2000 and 1999, 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  2001
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
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 is currently assessing the impact of these statements.


                                      F-11
<PAGE>

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

2. Acquisitions

      On November 30, 2000,  the Company  purchased the Medicated Feed Additives
(MFA) business of Pfizer, Inc. and certain of its subsidiaries  ("Pfizer").  The
MFA business was a group of products within  Pfizer's  Animal Health Group.  The
business  produces and sells a broad range of Medicated  Feed Additive  Products
(MFAs) to the global  livestock  industry,  either directly to large  integrated
livestock  producers  or  through a network  of  independent  distributors.  The
activities of the MFA business  (production,  sales and marketing,  and finance)
were integrated within Pfizer's Animal Health Group.

      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  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 will be allocated to related production
equipment  and  product  intangibles.  The  Company  accrued  $6,473  under this
arrangement  as of June 30, 2001.  In  addition,  the Company is required to pay
Pfizer  contingent  purchase price up to a maximum of $10,000 over five years on
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  preliminarily  allocated to inventory
and property,  plant, and equipment.  Property, plant and equipment includes two
facilities,  Rixensart,  Belgium and Guarulhols,  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 is in the process of
determining  pension  liability in connection  with the employees of the Belgium
plant who elected to transfer their benefits and the amount of their accumulated
benefit  obligations  on August 31,  2001.  Any  difference  between the pension
liability assumed and the amounts funded by Pfizer will be included in the final
allocation of purchase price which is expected to be completed by the end of the
second quarter of fiscal 2002.

      The unaudited  consolidated  results of operations 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 2001 by $8,889.

      On October 1, 1998, the Company  acquired all of the  outstanding  capital
stock of Odda  Smelteverk,  AS, a Norwegian  company,  and certain assets of the
business of BOC Carbide  Industries in the United Kingdom (together "Odda") from
the BOC  Group  Plc for $19  million  in cash and  $18.2  million  in debt.  The
acquisition  was  accounted  for as a purchase  and,  accordingly,  the acquired
assets and  liabilities  were  recorded at their fair values at the  acquisition
date. The operating  results of Odda are included in the Company's  consolidated
statements of operations from the date of acquisition.  The fair value of assets
acquired,  including  intangibles,  was $40,811, and liabilities assumed totaled
$18,195.  Intangibles  related to this acquisition of $3,916 are being amortized
over 20 years on a straight-line basis.


                                      F-12
<PAGE>

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

2. Acquisitions--(Continued)

      The unaudited  consolidated results of operations on a pro-forma basis, as
if such acquisition had occurred at the beginning of fiscal 1999 and 1998 are as
follows:

                                                           1999         1998
                                                         ---------    ---------
Net sales ............................................   $ 306,653    $ 316,752
Income (loss) before extraordinary item ..............   $  (2,246)   $  (7,408)
Net (loss) ...........................................   $  (2,246)   $  (9,370)

3. Property, Plant and Equipment

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

                                                              2001        2000
                                                            --------    --------
Land ...................................................    $  8,106    $  3,875
Buildings and improvements .............................      34,458      25,814
Machinery and equipment ................................     139,877     117,011
                                                            --------    --------
                                                             182,441     146,700
Less: Accumulated depreciation .........................      80,118      70,520
                                                            --------    --------
                                                            $102,323    $ 76,180
                                                            ========    ========

      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 $11,887, $10,343 and $9,963 for the years
ended June 30, 2001, 2000 and 1999, respectively.

4. Related Party Transactions

      In  January   2000,   the  owners  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
$218 in other  expense,  net in fiscal 2001. No adjustment to the carrying value
was required in fiscal 2000.  A  subsidiary  of the Company  leases the property
underlying  its Santa Fe Springs,  California  plant from an affiliate  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  periodically
advances    funds   to   the    principal    shareholder    on   a   short-term,
non-interest-bearing  basis. There were no amounts  outstanding at June 30, 2001
and 2000.

5. Accrued Expenses and Other Current Liabilities

      The components of accrued  expenses and other current  liabilities at June
30, 2001 and 2000 are as follows:

                                                               2001       2000
                                                             --------   --------
   Commissions and rebates................................    $ 3,116   $ 5,952
   Pfizer contingent purchase price.......................      6,473        --
   Employee related expense...............................      5,577     4,512
   Other accrued liabilities..............................     20,212    13,693
                                                              -------   -------
                                                              $35,378   $24,157
                                                              =======   =======


                                      F-13
<PAGE>

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

6. Debt

      Long-term debt consists of the following at June 30, 2001 and 2000:

                                                               2001       2000
                                                             --------   --------
Domestic:
   Senior Subordinated Notes due June 1, 2008 (a) ........   $100,000   $100,000
   Bank borrowings (b) ...................................      3,800     29,700
   Pfizer Promissory Note (c) ............................     25,093         --
   Capitalized lease obligations and other ...............      1,618      2,464
Foreign:
   Bank loans with interest at NIBOR plus .75% payable
     in Norwegian Krone (NOK) maturing through 2004 (d) ..      5,376      5,838
   Revolving credit bank loan with interest at NIBOR
     plus 2% payable in Norwegian Krone (NOK) maturing
     through 2003 (d) ....................................      1,801      2,919
   Norwegian Government Loan payable in Norwegian
     Krone (NOK) maturing in equal semi-annual payments
     through 2013 (e) ....................................      2,850        671
   Bank loans with interest at LIBOR plus 1 1/4%
     repayable with interest in equal quarterly
     installments through 2005 (f) .......................      4,000         --
   Capitalized lease obligations and other ...............        330        426
                                                             --------   --------
                                                              144,868    142,018
   Less: Current maturities ..............................      5,404      2,296
                                                             --------   --------
                                                             $139,464   $139,722
                                                             ========   ========

      (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 PNC Bank,  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, 2001 and continues  until  November 30, 2003.  The Company may choose between
two interest options:  the base rate, as defined; and the Euro Rate, as defined,
plus 2 1/4 % to 3% per annum,  depending on the Company's operating  performance
and whether the drawdowns are under the revolving credit facility or the capital
expenditure facility. Capital advances are limited to $7.5 million in either the
first or second year from the closing date and are  repayable  commencing on the
first business day of the month next  succeeding the second  anniverary  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.  The $70  million
revolving  credit  facility is subject to  availability  under a borrowing  base
formula for domestic accounts receivable and inventories, as defined, which also
serve as  collateral  on the  borrowings.  In addition to having  $24.5  million
outstanding  under the revolving  credit  facility and $3.8 million  outstanding
under the facility for spending on capital expenditures,  the Company had $ 23.1
million available under the borrowing base formula as of June 30, 2001.


                                      F-14
<PAGE>

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

6. Debt--(Continued)

      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 is included in
loans  payable  to banks in the  consolidated  balance  sheet at June 30,  2001.
Advances  under the capital  expenditure  facility have been  classified as long
term.

      The credit  facility  requires,  among other things,  the  maintenance  of
certain  fixed charge  coverage  ratios and a certain level of net worth for the
domestic operations of the Company, each calculated  quarterly,  and contains an
acceleration  clause  should a material  adverse  event occur (as  defined).  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 Company was in compliance  with the financial  covenants of the credit
facility during fiscal 2001.

      (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,  are due December 3, 2001 and 2002. The remaining 80% of the
loan  is due  March  1,  2004.  The  note  is  collateralized  by the  Company's
facilities in Rixansart, Belgium and Guarulhos, Brazil.

      (d) The  Company's  Norwegian  subsidiary  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  (approximately   $11,335  as  of  June  30,  1999),  in  agreed
Euro-currencies.  Borrowings  under such  facility bear interest at the LIBOR or
NIBOR rate as defined plus 0.475%. 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   (approximately  $8,120  as  of  June  30,  1999),  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 be 3/4% or 1%). The subsidiary has agreed
to pay a commitment  fee equal to 50% of the  applicable  margin.  In connection
with both such facilities, the subsidiary may choose the duration (one, three or
six months) for which the interest rate may apply.  Indebtedness under both such
currency 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.

      In connection with the subsidiary's  sale of its minority  interest in the
local hydroelectric power company and related contract rights, (see Note 18) 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 (approximately $9,970 at January 2000) as a permanent
reduction in the maximum borrowings allowed. As of June 30, 2001, the subsidiary
has borrowed the maximum amount available under the facilities.

      At June 30,  2001 Odda was not in  compliance  with the debt  service  and
liabilities to equity ratios in its credit agreements, and a waiver was obtained
from its lenders.

      (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
($1,236 outstanding at June 30, 2001) which bears interest at 4.6%. 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
($1,614 outstanding at June 30, 2001) 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.

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


                                      F-15
<PAGE>

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

6. Debt--(Continued)

      The  aggregate  maturities  of  long-term  debt after June 30, 2001 are as
follows:

      Year Ended June 30,
      ------------------
      2002.........................................................  $  5,404
      2003.........................................................     4,911
      2004.........................................................    31,002
      2005.........................................................     1,423
      2006.........................................................       292
      Thereafter...................................................   101,836
                                                                     --------
        Total                                                        $144,868
                                                                     ========

7. Redeemable Common Stock of Subsidiary

      Certain key executives of the Company have 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 pretax
earnings,  as defined, and which are subject to certain restrictions pursuant to
terms of the PNC Bank Credit Facility.  At June 30, 2001 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 1999 fiscal year and pursuant to the stock buyback and severance  provisions
of the aforementioned  agreements, the Company recorded a charge of $1.5 million
in selling,  general and  administrative  expenses and reclassified $1.3 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 4%.

      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%.

      Certain key  employees of the Company's  MRT  subsidiary  own 12.3% of the
non-voting common stock of MRT Management Corp ("MMC") and a right to contingent
"phantom  shares" of MMC.  The  shareholders  agreement  of MMC 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 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.

8. 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


                                      F-16
<PAGE>

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

8. Redeemable Preferred Stock--(Continued)

      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 which 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.

      The redeemable  preferred  securities were initially  recorded at $40,808,
representing  proceeds  of  $45,000,  net of costs of  issuance  of $4,192.  The
Company  has  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.  Dividends of $3,980 have been accrued on the preferred securities
and charged to retained  earnings as of June 30, 2001. No equity value accretion
was required as of June 30, 2001 under the applicable formula.

      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 fee was $1,313 for the year ended June
30, 2001.

9. Common Stock and Paid-in Capital

Common Stock:

      Common stock consisted of the following at June 30, 2001 and 2000:

                                      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 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).


                                      F-17
<PAGE>

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

9. Common Stock and Paid-in Capital--(Continued)

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 charged
or credited to compensation expense.

10. 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 also maintains a funded noncontributory
defined benefit pension plan for all eligible employees,  with benefits based on
employee compensation and service.

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

<TABLE>
<CAPTION>
                                                                                 Domestic                         Norwegian
                                                                       ----------------------------      ---------------------------
                                                                        June 2001        June 2000        June 2001       June 2000
                                                                       -----------      -----------      -----------     -----------
<S>                                                                     <C>              <C>              <C>              <C>
Change in benefit obligation
Benefit obligation at beginning of year ........................        $  8,732         $  7,279         $  9,175         $ 10,030
Service cost ...................................................             949              905              161              250
Interest cost ..................................................             619              548              576              635
Benefits paid ..................................................            (249)             (81)            (740)            (743)
Actuarial (gain) or loss .......................................            (399)              81             (630)            (210)
                                                                        --------         --------         --------         --------

Benefit obligation at end of year ..............................        $  9,652         $  8,732         $  8,542         $  9,962
                                                                        ========         ========         ========         ========

Change in Plan Assets
Fair value of plan assets at beginning of year .................        $  7,430         $  5,626         $  9,232         $  9,736
Actual return on plan assets ...................................           1,332            1,095              810              768
Employer contributions .........................................             680              790              254              262
Benefits paid ..................................................            (249)             (81)            (740)            (743)
                                                                        --------         --------         --------         --------

Fair value of plan assets at end of year .......................        $  9,193         $  7,430         $  9,556         $ 10,023
                                                                        ========         ========         ========         ========

Funded Status
Funded status of the plan ......................................        $   (459)        $ (1,303)        $  1,014         $     61
Unrecognized net actuarial (gain) or loss ......................          (1,755)            (630)            (852)            (294)
Unrecognized prior service cost ................................            (918)          (1,082)              --               --
Unrecognized transition obligation/asset .......................             (18)             (21)              81               94
                                                                        --------         --------         --------         --------

(Accrued) prepaid pension cost .................................        $ (3,150)        $ (3,036)        $    243         $   (139)
                                                                        ========         ========         ========         ========
</TABLE>

<TABLE>
<CAPTION>
                                                                                        June 2001        June 2000         June 1999
                                                                                        ---------        ---------         ---------
<S>                                                                                          <C>              <C>              <C>
Assumptions (Domestic)
Discount rate...................................................                             7.50%            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%            5.00%            5.00%
</TABLE>


                                      F-18
<PAGE>

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

10. Employee Benefit Plans--(Continued)

                                              June 2001  June 2000  June 1999
                                              ---------  ---------  ---------
Components of net periodic pension
  costs (Domestic)
Service cost - benefits earned
  during the year ..........................    $ 949      $ 905      $ 826
Interest cost on benefit obligation ........      618        549        452
Expected return on plan assets .............     (576)      (487)      (393)
Amortization of initial unrecognized net
  transition obligation (asset) ............       (3)        (3)        (3)
Amortization of prior service costs ........     (165)      (165)      (164)
Amortization of (gain) or loss .............      (31)        (2)        (6)
                                                -----      -----      -----

Net periodic pension cost ..................    $ 792      $ 797      $ 712
                                                =====      =====      =====

                                              June 2001  June 2000  June 1999(1)
                                              ---------  ---------  ---------
Assumptions (Norwegian)
Discount rate ..............................     7.00%      7.00%      6.50%
Expected rate of return on plan assets .....     8.00%      8.00%      8.00%
Rate of compensation increase ..............     3.30%      3.30%      3.30%
Components of net periodic pension
  costs (Norwegian)
Service cost - benefits earned
  during the period ........................    $ 161      $ 250      $ 228
Interest cost on benefit obligation ........      576        635        523
Expected return on plan assets .............     (810)      (759)      (628)
Amortization of initial unrecognized
  net transition obligation (asset) ........        5          5         --
Amortization of (gain) or loss .............      (49)       (18)        --
                                                -----      -----      -----

Net periodic pension cost ..................    $(117)     $ 113      $ 123
                                                =====      =====      =====

----------
(1)   For the period October 1, 1998 - June 30, 1999.

      The Company and its domestic  subsidiaries have a 401(k) plan, under which
an employee may make a pretax contribution of up to 6% 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 in
excess of 3% of base compensation.  All contributions are subject to the maximum
amount  deductible for federal income tax purposes.  The Company's  contribution
amounted to $607, $575 and $547 in 2001, 2000 and 1999, 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 $123,  $97 and $92 in 2001,  2000 and 1999,
respectively. At June 30, 2001 and 2000, the aggregate liability under this plan
amounted to $705 and $637, 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, 2001 and 2000 had cash
surrender values of $1,197 and $1,098,  respectively,  and are included in other
assets.

      In addition to Norway,  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 $489, $349 and $509 for 2001, 2000 and 1999, respectively.


                                      F-19
<PAGE>

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

11. Income Taxes

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

                                              2001         2000         1999
                                            --------     --------     --------
Domestic ................................   $(12,561)    $ (2,332)    $   (755)
Foreign .................................     (4,315)      16,331          468
                                            --------     --------     --------
                                            $(16,876)    $ 13,999     $   (287)
                                            --------     --------     --------

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

                                              2001         2000         1999
                                            --------     --------     --------
Current tax provision:
   U.S. Federal .........................   $     --     $     --     $     --
   State and local ......................      1,711          245          160
   Foreign ..............................      3,876        2,264          792
                                            --------     --------     --------

   Total current tax provision ..........      5,587        2,509          952
                                            --------     --------     --------

Deferred tax (benefit) provision:
   U.S. Federal .........................     (3,528)        (287)         220
   State and local ......................       (289)           5         (125)
   Foreign ..............................     (4,760)       2,047         (868)
   Change in valuation allowance ........      1,009         (327)          --
                                            --------     --------     --------

   Total deferred tax (benefit)
     provision ..........................     (7,568)       1,438         (773)
                                            --------     --------     --------
 (Benefit) provision for income
   taxes ................................   $ (1,981)    $  3,947     $    179
                                            ========     ========     ========

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

                                                2001         2000         1999
                                              --------     --------     --------
U.S. Federal income tax rate ............      (34.0)%       34.0%       (34.0)%
State and local taxes, net of
  federal income tax effect .............        3.5          0.9          8.0
Tax rate differences on foreign
  operations ............................       17.1        (13.1)       (81.9)
Non-taxable income ......................       (6.3)          --           --
Expenses with no tax benefit ............        1.1          3.9        104.9
U.S. losses with no state tax
  benefit ...............................        5.0          1.4         79.1
Change in valuation allowance ...........        1.0         (2.3)          --
Other ...................................        0.9          3.4        (13.7)
                                              ------       ------       ------
                                               (11.7)%       28.2%        62.4%
                                              ======       ======       ======

      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 2009.

      Provision has not been made for United States or additional  foreign taxes
on  undistributed  earnings of foreign  subsidiaries of  approximately  $25,000,
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-20
<PAGE>

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

11. Income Taxes--(Continued)

      The tax effects of significant  temporary  differences  which comprise the
deferred tax assets and liabilities at June 30, 2001 and 2000 are as follows:

                                                             2001        2000
                                                           --------    --------
Deferred tax assets:
   Employee benefits ...................................   $  2,198    $  2,264
   Depreciation ........................................      1,043         780
   Insurance ...........................................        429         316
   Receivables allowances ..............................      1,175         615
   Inventory ...........................................      4,312         869
   Plant curtailment and environmental remediation .....      1,305       2,402
   Alternative minimum tax .............................        144         144
   Net operating loss carryforward -- domestic .........      8,091       4,523
                                   -- foreign ..........      3,847       2,420
   Other ...............................................      1,180         389
                                                           --------    --------
                                                             23,724      14,722
   Valuation allowance .................................     (1,434)       (425)
                                                           --------    --------
                                                             22,290      14,297
Deferred tax liabilities
   Property, plant and equipment .......................     (6,248)     (4,136)
   Gain on property damage .............................         --      (1,858)
   Other ...............................................       (606)       (662)
                                                           --------    --------
                                                             (6,854)     (6,656)
                                                           --------    --------
Net deferred tax asset .................................   $ 15,436    $  7,641
                                                           ========    ========

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

                                                             2001        2000
                                                           --------    --------
Prepaid expenses and other current assets ..............   $ 10,133    $  5,075
Accrued expenses, taxes and other current liabilities ..       (523)        (88)
Other assets ...........................................      9,222       7,128
Other liabilities ......................................     (3,396)     (4,474)
                                                           --------    --------
                                                           $ 15,436    $  7,641
                                                           ========    ========

      The Company has domestic net operating loss carryforwards of approximately
$20,000  that  expire  in 2019  through  2021 and  foreign  net  operating  loss
carryforwards of approximately  $13,000 that begin to expire in 2009.  Valuation
allowances  have been  provided  against the tax  benefit of domestic  state net
operating loss  carryforwards  and foreign tax credit  carryforwards,  which are
considered not likely to be realized.


                                      F-21
<PAGE>

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

12. 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
-------------------                                       ---------  -----------
2002...................................................   $    556     $ 1,968
2003...................................................        512       1,815
2004...................................................        410       1,548
2005...................................................        120       1,095
2006...................................................         --         674
Thereafter.............................................         --         891
                                                          --------     -------
Total minimum lease payments...........................   $  1,598     $ 7,991
                                                          ========     =======
Amounts representing interest..........................        274
                                                          --------
Present value of minimum lease payments................   $  1,324
                                                          ========

      Equipment under  capitalized  leases included in the consolidated  balance
sheets at June 30, 2001 and 2000 amounted to $195 and $224,  net of  accumulated
depreciation of $993 and $1,092, respectively.

      The commitment for facilities includes $1,750 with an affiliate controlled
by shareholders of the Company. (Refer to Note 4.)

      Rent  expense  under  operating  leases for the years ended June 30, 2001,
2000 and 1999 amounted to $2,243, $1,734 and $1,619, 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,
2001, 2000 and 1999 were $5,098, $3,630 and $2,014, respectively.  The Company's
subsidiary,  Odda Smelteverk, AS, has entered into a minimum purchase commitment
to  purchase  power  at fixed  prices  over  periods  of up to 10  years.  Power
purchased  under this minimum  purchase  agreement  for the years ended June 30,
2001 and 2000 was $1,102 and $574, respectively.

      At June 30,  2001,  the  Company  had  minimum  purchase  commitments,  as
follows:

                                                   Fly Ash            Power
    Year Ended June 30,                       Minimum Purchase  Minimum Purchase
    -------------------                       ----------------  ----------------
    2002....................................     $  6,910          $  1,102
    2003....................................        7,457             1,102
    2004....................................        7,059             1,102
    2005....................................        6,238             1,102
    2006....................................        4,623             1,102
    Thereafter..............................       32,388             3,306
                                                 --------          --------
    Total minimum purchase commitments......     $ 64,675          $  8,816
                                                 ========          ========


                                      F-22
<PAGE>

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

12. Commitments and Contingencies--(Continued)

(c) Litigation:

      The  Company's  subsidiary,   Phibro-Tech,  Inc.,  has  been  named  as  a
potentially  responsible party ("PRP") in connection with an action commenced by
the  EPA,  involving  a third  party  fertilizer  manufacturing  site  in  South
Carolina. Phibro-Tech, Inc. was also named as a PRP involving a third party site
in California.  Tentative settlements have been reached in both of these actions
and adequate reserves have been established.

      The Company and its  subisidiary,  C.P.  Chemicals,  Inc., are involved in
litigation  alleging  that  operations  at the  Sewaren,  New  Jersey  site have
affected the adjoining owner's property.  The Company is not, at this time, in a
position to assess the extent of any liability.

      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  which 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 also obtained an interim  status RCRA
permit for its Union City, California facility.

      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.

      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 to be approximately  $2,222
which is  included  in current and  long-term  liabilities  in the June 30, 2001
consolidated  balance  sheet  (approximately   $1,558  in  2000).  Such  amounts
represent primarily 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 $1,252, $252 and $167
for the fiscal years ended June 30, 2001, 2000 and 1999,  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.


                                      F-23
<PAGE>

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

12. Commitments and Contingencies--(Continued)

      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.  During fiscal 2000 and 1999, the Company  expended $377 and $480,
respectively,  related  to site  restoration  and  groundwater  and  remediation
activities and during 1999 reversed $500 to income based upon a reassessment  of
site restoration and ongoing cost requirements.

      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 $351  recorded in long-term  debt for the remaining  payments  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.

13. 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, 2001 and 2000, the fair value of the Company's Senior Subordinated Notes was
$65,900 and $70,800,  respectively  and the related carrying amount is $100,000.
At June 30, 2001 and 2000, 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 and frequent repricing 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, 2001 and
2000 were $1,035 and $2,250, respectively.  The diffference between the carrying
values and fair  values of these  letters  of credit  and surety  bonds were not
material.

      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.


                                      F-24
<PAGE>

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

14. Business Segments

      The Company has four  reportable  segments--Animal  Health and  Nutrition,
Industrial  Chemicals,  Distribution  and  All  Other.  The  Company  previously
reported two reportable segments - Agchem and Industrial Chemicals; however, due
principally  to  organizational  changes  during  fiscal 2001,  including  those
associated  with the  acquisition of the animal health  business from Pfizer and
the sale of the Agtrol crop  protection  business,  segment  reporting  has been
revised.  Prior period  segment  information  has been revised to conform to the
fiscal 2001  segment  presentation.  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 by others.  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,  $9,606
and $11,422 from the Industrial  Chemicals  segment to the All Other segment for
fiscal 2001,  2000 and 1999,  respectively,  are recorded at the cost of product
transferred.

                                              2001         2000         1999
                                            ---------    ---------    ---------
Net Sales
  Animal Health and Nutrition               $ 202,573    $ 135,088    $ 132,845
  Industrial Chemicals                        107,455      109,318      107,611
  Distribution                                 44,452       49,254       47,646
  All Other                                    46,979       69,198       58,037
  Intersegment                                (37,049)     (39,832)     (44,082)
                                            ---------    ---------    ---------
Net Sales                                   $ 364,410    $ 323,026    $ 302,057
                                            =========    =========    =========

Intersegment Sales
  Animal Health and Nutrition               $   4,767    $   5,019    $   5,328
  Industrial Chemicals                         30,288       33,182       36,816
  Distribution                                  1,994        1,631        1,938
                                            ---------    ---------    ---------
Intersegment Sales                          $  37,049    $  39,832    $  44,082
                                            =========    =========    =========

Operating Income (Loss)
  Animal Health and Nutrition               $  17,562    $  11,539    $   8,763
  Industrial Chemicals                         (3,350)       5,355        4,988
  Distribution                                  3,936        3,817        3,643
  All Other                                    (7,086)       4,045        3,097
  Corporate expenses and adjustments          (10,086)      (9,082)     (10,136)
                                            ---------    ---------    ---------
Operating Income                            $     976    $  15,674    $  10,355
                                            =========    =========    =========


                                      F-25
<PAGE>

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

Identifiable Assets
  Animal Health and Nutrition               $ 169,870    $  66,203    $  68,200
  Industrial Chemicals                         88,496       84,395       85,102
  Distribution                                 16,568       18,825       21,393
  All Other                                    33,362       66,187       48,147
  Corporate                                    21,723       22,841       15,937
                                            ---------    ---------    ---------
 Identifiable Assets                        $ 330,019    $ 258,451    $ 238,779
                                            =========    =========    =========

Depreciation and Amortization
  Animal Health and Nutrition               $   5,089    $   3,698    $   3,786
  Industrial Chemicals                          6,115        5,806        5,586
  Distribution                                    223          268          198
  All Other                                     1,623        1,558        1,144
  Corporate                                       782          536          531
                                            ---------    ---------    ---------
Depreciation and Amortization               $  13,832    $  11,866    $  11,245
                                            =========    =========    =========

Capital Expenditures
  Animal Health and Nutrition               $   2,669    $   2,363    $   1,587
  Industrial Chemicals                          6,122       15,413        7,350
  Distribution                                     18           13           91
  All Other                                     5,484        4,696        3,015
  Corporate                                       251          119          219
                                            ---------    ---------    ---------
Capital Expenditures                        $  14,544    $  22,604    $  12,262
                                            =========    =========    =========

15. 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.

                                                2001         2000        1999
                                              --------     --------    --------
Revenues:
  United States ......................        $224,154     $209,767    $187,722
  Europe .............................          56,392       59,120      57,723
  Israel .............................          52,746       49,494      51,889
  South America ......................          19,603        4,645       4,723
  Asia/Pacific .......................          11,515           --          --
                                              --------     --------    --------
     Total Revenues ..................        $364,410     $323,026    $302,057
                                              ========     ========    ========


                                      F-26
<PAGE>

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

15. Geographic Information--(Continued)

                                              2001         2000         1999
                                            ---------    ---------    ---------
Operating Income
   United States ........................   $   6,982    $  13,715    $  10,872
   Europe ...............................         534        3,182        3,989
   Israel ...............................       6,867        7,119        5,059
   South America ........................       3,354          740          571
   Asia/Pacific .........................         478           --           --
   Corporate and Other ..................     (17,239)      (9,082)     (10,136)
                                            ---------    ---------    ---------
      Total Operating Income ............   $     976    $  15,674    $  10,355
                                            =========    =========    =========

                                                 2001         2000         1999
                                            ---------    ---------    ---------
Property, Plant and Equipment
   United States ........................   $  30,769    $  25,734    $  18,341
   Europe ...............................      40,693       32,465       27,362
   Israel ...............................      14,219       15,899       16,276
   South America ........................      16,426        2,082        2,315
   Asia/Pacific .........................         216           --           --
                                            ---------    ---------    ---------
      Total Property, Plant
        and Equipment ...................   $ 102,323    $  76,180    $  64,294
                                            =========    =========    =========

16. Valuation and Qualifying Accounts:

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

                                               2001          2000          1999
                                            -------       -------       -------
Balance at beginning of period ..........   $   756       $   886       $   751
Provision for bad debts .................     1,740            --           153
Bad debt write-offs .....................      (127)         (130)          (18)
                                            -------       -------       -------
Balance at end of period ................   $ 2,369       $   756       $   886
                                            =======       =======       =======

17. Insurance Recoveries:

      In April 1999, the Company suffered inventory, real property and equipment
loss at its  Bowmanstown,  Pennsylvania  facility  resulting  from 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. The receivable of $4,097 in other  receivables as of
June 30, 2000 was collected.


                                      F-27
<PAGE>

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

18. 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 and did not include
plant, equipment,  or other manufacturing assets.  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.

      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 is awaiting a payment of $455 for
the international  inventory in excess of the inventory at June 30, 2000 and $41
is being held in escrow pending the  finalization of the sales agreement for the
Argentina division. 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,  $54,043 and $47,785
for the  years  ended  June 30,  2001,  2000 and 1999,  respectively.  Operating
(losses) income for the Agtrol business amounted to $(6,444),  $2,599 and $2,670
for the years ended June 30, 2001, 2000 and 1999, respectively.

      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.
Approximately  $1,300  of  additional  net gain has  been  deferred  and will be
recognized over the period of a related power purchase contract with the buyer.

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

19. Consolidating Financial Statements

      In June 1998 the Company issued $100 million in Senior  Subordinated Notes
as described  in Note 6. 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., Koffolk, Inc., Phibro-Tech,
Inc.,  MRT Management  Corp.,  Mineral  Resource  Technologies,  L.L.C.,  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-28
<PAGE>

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                U.S. Guarantor  Foreign Subsidiaries   Consolidation    Consolidated
                                                     Parent      Subsidiaries      Non-Guarantors       Adjustments        Balance
------------------------------------------------------------------------------------------------------------------------------------
                          Assets
<S>                                                <C>            <C>                <C>                <C>              <C>
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          1,915              3,830                               5,832
Investment in subsidiaries                            63,490          1,542             (6,138)           (58,894)              --
Intercompany                                          54,322        (22,808)             3,852            (35,366)              --
Other assets                                          93,466        (71,571)             1,170                              23,065
                                                   -------------------------------------------------------------------------------
                       Total assets                $ 226,874      $  21,430          $ 175,975          $ (94,260)       $ 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          5,731              5,066                              12,926

Redeemable securities:
Series B and C preferred stock                        48,980             --                 --                              48,980
Common stock                                             877             --               (499)                                378
Common stock of subsidiary                                --             95                 --                                  95
                                                   -------------------------------------------------------------------------------
                                                      49,857             95               (499)                --           49,453
                                                   -------------------------------------------------------------------------------
                   Stockholders' Equity
Series A preferred stock                                 521             --                 --                                 521
Common stock                                               2             32                 --                (32)               2
Paid in capital                                          878         34,041                 --            (34,041)             878
Retained earnings                                      9,741          2,325             22,496            (24,821)           9,741
Accumulated other comprehensive (loss) income-
  cumulative currency translation adjustment            (144)            19             (7,612)                             (7,737)
                                                   -------------------------------------------------------------------------------
                Total stockholders' equity            10,998         36,417             14,884            (58,894)           3,405
                                                   -------------------------------------------------------------------------------
               Total liabilities and equity        $ 226,874      $  21,430          $ 175,975          $ (94,260)       $ 330,019
                                                   ===============================================================================
</TABLE>


                                      F-29
<PAGE>

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                U.S. Guarantor  Foreign Subsidiaries   Consolidation    Consolidated
                                                     Parent      Subsidiaries      Non-Guarantors       Adjustments        Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>            <C>                <C>                <C>               <C>
Net sales                                          $  33,350        214,231          $ 164,600          $ (47,771)        $364,410

Cost of goods sold                                    27,310        154,368            132,364            (47,771)         266,271
                                                   --------------------------------------------------------------------------------
       Gross profit                                    6,040         59,863             32,236                 --           98,139

Selling, general, and administrative expenses         15,312         55,463             26,388                              97,163
                                                   --------------------------------------------------------------------------------
       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                                            407         (1,530)             1,244                                 121

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-30
<PAGE>

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                U.S. Guarantor  Foreign 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-31
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
                           CONSOLIDATING BALANCE SHEET
                               As of June 30, 2000
                                 (In Thousands)

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

Current Assets:

Cash and cash equivalents                          $      11      $      99          $   2,293                            $   2,403

Trade receivables                                      6,172         45,378             27,826                               79,376

Other receivables                                      4,855            550              3,074                                8,479
Inventory                                              3,267         25,072             22,066                               50,405
Prepaid expenses and other                             3,065          2,443              3,590                                9,098
                                                   ---------------------------------------------------------------------------------
                   Total current assets               17,370         73,542             58,849                 --           149,761
                                                   ---------------------------------------------------------------------------------

Property, plant & equipment, net                         702         25,032             50,446                               76,180

Intangibles                                               87          2,292              3,918                                6,297
Investment in subsidiaries                            78,028          1,533             (6,129)           (73,432)               --
Intercompany                                          63,874        (32,463)             3,197            (34,608)               --
Other assets                                          15,236          8,542              2,435                               26,213
                                                   ---------------------------------------------------------------------------------

                       Total assets                $ 175,297      $  78,478          $ 112,716          $(108,040)        $ 258,451
                                                   =================================================================================

           Liabilities and Stockholders' Equity
Current Liabilities:
Cash overdraft                                     $     158      $   1,302          $     660                            $   2,120
Loan payable to banks                                     --             --              8,650                                8,650
Current portion of long term debt                         31            893              1,372                                2,296
Accounts payable                                       2,140         14,999             15,503                               32,642
Accrued expenses and other                             3,892         13,118              7,147                               24,157
                                                   ---------------------------------------------------------------------------------
Total current liabilities                              6,221         30,312             33,332                 --            69,865
                                                   ---------------------------------------------------------------------------------

Long term debt                                       130,600          1,435             42,295            (34,608)          139,722

Other  liabilities                                     2,022          4,431              6,829                               13,282

Redeemable Securities:
Common stock                                           2,389             --              1,124                                3,513
Common stock of subsidiary                                --            451                 --                                  451
                                                   ---------------------------------------------------------------------------------
                                                       2,389            451              1,124                 --             3,964
                                                   ---------------------------------------------------------------------------------
                   Stockholders' Equity
Series A preferred stock                                 521             --                 --                                  521
Common stock                                               2             32                 --                (32)                2
Paid in capital                                          878         34,040                 --            (34,040)              878
Retained earnings                                     32,808          7,747             31,613            (39,360)           32,808
Accumulated other comprehensive income (loss)-
  cumulative currency translation adjustment            (144)            30             (2,477)                              (2,591)
                                                   ---------------------------------------------------------------------------------

                Total stockholders' equity            34,065         41,849             29,136            (73,432)           31,618
                                                   ---------------------------------------------------------------------------------

               Total liabilities and equity        $ 175,297      $  78,478          $ 112,716          $(108,040)        $ 258,451
                                                   =================================================================================
</TABLE>


                                      F-32
<PAGE>

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                U.S. Guarantor  Foreign Subsidiaries   Consolidation    Consolidated
                                                     Parent      Subsidiaries      Non-Guarantors       Adjustments        Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>            <C>                <C>                <C>               <C>
Net sales                                          $  35,977      $ 190,171          $ 132,918          $ (36,040)        $ 323,026

Cost of goods sold                                    29,091        136,975             99,104            (36,040)          229,130
                                                   ---------------------------------------------------------------------------------

                       Gross profit                    6,886         53,196             33,814                 --            93,896

Selling, general, and administrative expenses         12,587         43,546             23,570                               79,703

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-33
<PAGE>

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                U.S. Guarantor  Foreign 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-34

<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
                      CONSOLIDATING STATEMENT OF OPERATIONS
                        For the Year Ended June 30, 1999
                                 (In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                U.S. Guarantor  Foreign Subsidiaries   Consolidation    Consolidated
                                                     Parent      Subsidiaries      Non-Guarantors       Adjustments        Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>            <C>                <C>                <C>               <C>
Net sales                                          $  35,490      $ 171,378          $ 129,243          $ (34,054)        $302,057

Cost of goods sold                                    28,545        126,834            101,922            (34,054)         223,247
                                                   --------------------------------------------------------------------------------

                       Gross profit                    6,945         44,544             27,321                 --           78,810

Selling, general, and administrative expenses         11,726         37,955             19,274                              68,955

Curtailment of operations at
   manufacturing facility                                 --           (500)                --                                (500)

                                                   --------------------------------------------------------------------------------
Operating (loss) income                               (4,781)         7,089              8,047                 --           10,355

Interest expense                                       6,907            289              5,946                              13,142
Interest income                                         (357)            --               (271)                               (628)
Other (income) expense                                    --           (371)             2,200                               1,829

Gain from property damage claim                           --         (3,701)                --                              (3,701)

Intercompany allocation                               (9,668)         9,528                140                                  --

(Profit) loss relating to subsidiaries                  (342)            --                 --                342               --

                                                   --------------------------------------------------------------------------------
(Loss) income before income taxes                     (1,321)         1,344                 32               (342)            (287)

(Benefit) provision for income taxes                    (855)         1,285               (251)                --              179

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

Net (loss) income                                  $    (466)     $      59          $     283          $    (342)        $   (466)
                                                   ================================================================================
</TABLE>

                                      F-35
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
                      CONSOLIDATING STATEMENT OF CASH FLOWS
                        For the Year Ended June 30, 1999
                                 (In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                U.S. Guarantor  Foreign Subsidiaries   Consolidation    Consolidated
                                                     Parent      Subsidiaries      Non-Guarantors       Adjustments        Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>            <C>                <C>                <C>               <C>
Operating activities:
Net (loss) income                                  $   (466)      $     59           $    283           $   (342)        $   (466)
Adjustments to reconcile net (loss) income to net
  cash provided by operating activities:
  Depreciation and amortization                         531          3,953              6,761                              11,245
  Deferred income taxes                              (2,771)         2,866               (868)                               (773)
  Provision for curtailment of operations at
     manufacturing facility                              --           (500)                --                                (500)
  Gain from property damage claim                        --         (3,701)                --                              (3,701)
  Change in redemption of redeemable securities        (187)          (673)                --                                (860)
  Other                                                (912)          (523)             3,079                               1,644

Changes in operating assets and liabilities
  net of effect of business acquired:
Accounts receivable                                    (405)        (3,275)            (2,242)                             (5,922)
Inventory                                              (616)        (7,181)             4,247                              (3,550)
Prepaid expenses and other                            1,783         (2,184)               436                                  35
Other assets                                         (1,018)        (4,113)            (2,312)                             (7,443)
Intercompany                                        (23,227)        14,998              7,887                342               --
Accounts payable                                       (401)         2,513             (2,069)                                 43
Accrued expenses and other                           (1,725)         8,165                707                               7,147

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

Net cash (used in) provided by operating
  activities                                        (29,414)        10,404             15,909                 --           (3,101)
                                                   -------------------------------------------------------------------------------

Investing activities:
Capital expenditures                                   (219)        (6,431)            (5,612)                            (12,262)
Acguisition of businesses, net of cash acquired          --         (2,505)           (19,000)                            (21,505)

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

Net cash (used in) provided by investing
  activities                                           (219)        (8,936)           (24,612)                --          (33,767)
                                                   -------------------------------------------------------------------------------

Financing activities:
Cash overdraft                                         (636)          (789)               948                                (477)
Net (decrease) increase in short term debt             (942)            --              3,169                               2,227
Proceeds from long term debt                         13,432             82              1,700                              15,214
Payments of long term debt                             (140)        (1,523)               (12)                             (1,675)
Other financing                                          --             --                380                                 380

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

Net cash provided by (used in) financing
  activities                                         11,714         (2,230)             6,185                 --           15,669
                                                   -------------------------------------------------------------------------------

Net decrease in cash and cash equivalents           (17,919)          (762)            (2,518)                            (21,199)

Cash and cash equivalents at beginning of year       18,312            928              4,981                              24,221

                                                   -------------------------------------------------------------------------------
Cash and cash equivalents at end of year              $ 393       $    166           $  2,463           $     --          $ 3,022
                                                   ===============================================================================
</TABLE>


                                      F-36
<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
                                       -----------------------------------------
                                                   Jack C. Bendheim
                                         President and Chief Executive Officer

                                   Date: October 10, 2001

      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/ Jack C. Bendheim                            October 10, 2001
   ------------------------------------------------
                  Jack C. Bendheim
   Director, President and Chief Executive Officer
            (Principal Executive Officer)

                /s/ David C. Storbeck                           October 10, 2001
   ------------------------------------------------
                  David C. Storbeck
     Vice President and Chief Financial Officer
          (Principal Financial Officer and
            Principal Accounting Officer)

                /s/ Marvin S. Sussman                           October 10, 2001
   ------------------------------------------------
                  Marvin S. Sussman
          Director, Chief Operating Officer
            and Executive Vice President

                /s/ James O. Herlands                           October 10, 2001
   ------------------------------------------------
                  James O. Herlands
        Director and Executive Vice President


                                      II-1
<PAGE>

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, 2000. 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)

10.2              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)

<PAGE>

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 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)

<PAGE>

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)++*

21                List of Subsidiaries(7)

----------
(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.
(6)   Filed as an Exhibit to the  Registrant's  Current Report on Form 8-K dated
      June 14, 2001.
(7)   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.