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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                    FORM 10-Q

                                   ----------

       (Mark One)
           |X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2001

                                       OR

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

             For the transition period from _________ to __________.

                        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                             (I.R.S. Employer
of 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)

                                   ----------

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 |_|

Number of shares of each class of common stock  outstanding  as of September 30,
2001:

                 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  FINANCIAL INFORMATION (UNAUDITED)
        Item 1. Condensed Financial Statements .............................   3
                Condensed Consolidated Balance Sheets ......................   4
                Condensed Consolidated Statements of Operations
                and Comprehensive Income ...................................   5
                Condensed Consolidated Statements of Changes
                in Stockholders' Equity ....................................   6
                Condensed Consolidated Statements of Cash Flows ............   7
                Notes to Condensed Consolidated Financial Statements .......   8
        Item 2. Management's Discussion and Analysis of Financial
                Condition and Results of Operations ........................  18
        Item 3. Quantitative and Qualitative Disclosures About
                Market Risk ................................................  21

PART II OTHER INFORMATION
        Item 5. Other Information ..........................................  22
        Item 6. Exhibits and Reports on Form 8-K ...........................  22

SIGNATURES .................................................................  23


                                       2
<PAGE>

This Form 10-Q  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  are  discussed  in the
Company's  Annual  Report on Form 10-K for its fiscal  year ended June 30,  2001
and/or  throughout  this Form 10-Q and in particular in Item 2 of Part I of this
Form  10-Q  under  the  caption  "Certain  Factors  Affecting  Future  Operating
Results." Unless the context  otherwise  requires,  references in this report to
the "Company" refers to the Company and/or one or more of its  subsidiaries,  as
applicable.

PART I -- FINANCIAL INFORMATION

Item 1. Condensed Financial Statements


                                       3
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
                                 (In Thousands)

                                                     September 30,     June 30,
                                                          2001           2001
                                                     -------------     --------
                       ASSETS
CURRENT ASSETS:
    Cash and cash equivalents                          $  17,357      $  14,845
    Trade receivables, less allowance for
       doubtful accounts of $2,486 at
       September 30, 2001 and $2,369
       at June 30, 2001                                   72,985         77,910
    Other receivables                                      2,437          4,800
    Inventories                                           88,245         83,796
    Prepaid expenses and other current assets             16,297         17,448
                                                       ---------      ---------
          TOTAL CURRENT ASSETS                           197,321        198,799

PROPERTY, PLANT AND EQUIPMENT, net                       105,223        102,323

INTANGIBLES                                                5,873          5,832

OTHER ASSETS                                              23,492         23,065
                                                       ---------      ---------
                                                       $ 331,909      $ 330,019
                                                       =========      =========

      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
    Cash overdraft                                     $   4,430      $   4,222
    Loans payable to banks                                31,540         28,463
    Current portion of long-term debt                      4,802          5,404
    Accounts payable                                      51,636         51,304
    Accrued expenses and other current
       liabilities                                        36,581         35,378
                                                       ---------      ---------
          TOTAL CURRENT LIABILITIES                      128,989        124,771

LONG-TERM DEBT                                           139,467        139,464

OTHER LIABILITIES                                         14,759         12,926
                                                       ---------      ---------
          TOTAL LIABILITIES                              283,215        277,161
                                                       ---------      ---------

COMMITMENTS AND CONTINGENCIES

REDEEMABLE SECURITIES:
    Series B and C preferred stock                        51,407         48,980
    Common stock                                              --            378
    Common stock of subsidiary                                95             95
                                                       ---------      ---------
          TOTAL REDEEMABLE SECURITIES                     51,502         49,453
                                                       ---------      ---------

STOCKHOLDERS' EQUITY:
    Series A preferred stock                                 521            521
    Common stock                                               2              2
    Paid-in capital                                          878            878
    Retained earnings                                      4,949          9,741
    Accumulated other comprehensive
       income (loss) - gain on derivative
       instruments                                           145             --
       cumulative currency translation
       adjustment                                         (9,303)        (7,737)
                                                       ---------      ---------
          TOTAL STOCKHOLDERS' EQUITY                      (2,808)         3,405
                                                       ---------      ---------
                                                       $ 331,909      $ 330,019
                                                       =========      =========

       See notes to unaudited Condensed Consolidated Financial Statements.


                                        4
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                                  (Unaudited)
             For the Three Months Ended September 30, 2001 and 2000
                                 (In Thousands)

                                                         2001            2000
                                                       --------        --------
NET SALES                                              $ 94,659        $ 72,795

COST OF GOODS SOLD                                       67,596          52,290
                                                       --------        --------
    GROSS PROFIT                                         27,063          20,505

SELLING, GENERAL AND ADMINISTRATIVE
    EXPENSES                                             25,654          19,095
                                                       --------        --------
    OPERATING INCOME                                      1,409           1,410

OTHER:
    Interest expense                                      4,643           3,939

    Interest income                                         (70)           (217)

    Other (income)/expense, net                            (195)          1,328
                                                       --------        --------
    LOSS BEFORE INCOME TAXES                             (2,969)         (3,640)

BENEFIT FOR INCOME TAXES                                   (604)           (521)
                                                       --------        --------
    NET LOSS                                             (2,365)         (3,119)

OTHER COMPREHENSIVE INCOME (LOSS)-
    Gain on derivative instruments                          145              --
    Change in currency translation
     adjustment                                          (1,566)         (1,161)
                                                       --------        --------
    COMPREHENSIVE LOSS                                 $ (3,786)       $ (4,280)
                                                       ========        ========

       See notes to unaudited Condensed Consolidated Financial Statements.


                                        5
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
                  For the Three Months Ended September 30, 2001
                                 (In Thousands)

<TABLE>
<CAPTION>
                                         Preferred         Common Stock                                 Accumulated
                                           Stock       --------------------                                Other
                                         ---------      Class        Class      Paid-in     Retained   Comprehensive
                                          Series A       "A"          "B"       Capital     Earnings   (Loss) income-     Total
                                         ---------     -------      -------     -------     --------   --------------     -----
<S>                                       <C>          <C>          <C>         <C>         <C>           <C>            <C>
BALANCE, JULY 1, 2001                     $   521      $     1      $     1     $   878     $ 9,741       $(7,737)       $ 3,405

   Accretion of redeemable
    preferred securities to fair
    market value                                                                               (590)                        (590)

   Dividends on Series B and C
    redeemable preferred stock                                                               (1,837)                      (1,837)

   Gain on derivative
    instruments                                                                                               145            145

   Foreign currency translation
    adjustment                                                                                             (1,566)        (1,566)

   Net loss                                                                                  (2,365)                      (2,365)
                                          -------      -------      -------     -------     -------       -------        -------
BALANCE, SEPTEMBER 30, 2001               $   521      $     1      $     1     $   878     $ 4,949       $(9,158)       $(2,808)
                                          =======      =======      =======     =======     =======       =======        =======
</TABLE>

       See notes to unaudited Condensed Consolidated Financial Statements.


                                        6
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
             For the Three Months Ended September 30, 2001 and 2000
                                 (In Thousands)

                                                           2001          2000
                                                         --------      --------
OPERATING ACTIVITIES:
    Net loss                                             $ (2,365)     $ (3,119)
    Adjustments to reconcile net loss to
     net cash provided
       by operating activities:
       Depreciation and amortization                        4,158         3,129
       Other                                                  789           (53)

       Changes in operating assets and
        liabilities:
          Accounts receivable                               5,525        12,018
          Inventories                                      (4,383)       (4,402)
          Prepaid expenses and other
            current assets                                  2,606         3,195
          Other assets                                       (815)       (1,958)
          Accounts payable                                 (1,334)         (761)
          Accrued expenses and other
            current liabilities                               872         2,369
                                                         --------      --------
          NET CASH PROVIDED BY OPERATING
            ACTIVITIES                                      5,053        10,418
                                                         --------      --------

INVESTING ACTIVITIES:
    Capital expenditures                                   (3,626)       (3,248)
    Other investing                                            79           (85)
                                                         --------      --------
          NET CASH USED IN INVESTING
            ACTIVITIES                                     (3,547)       (3,333)
                                                         --------      --------

FINANCING ACTIVITIES:
    Cash overdraft                                             99         1,264
    Net increase (decrease) in short-term debt              1,917        (1,040)
    Proceeds from long-term debt                               11           732
    Payments of long-term debt                             (1,073)       (4,350)
                                                         --------      --------
          NET CASH PROVIDED BY (USED IN)
            FINANCING ACTIVITIES                              954        (3,394)
                                                         --------      --------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                        52          (230)
                                                         --------      --------
          NET INCREASE IN CASH AND CASH
            EQUIVALENTS                                     2,512         3,461

CASH AND CASH EQUIVALENTS at beginning of
  period                                                   14,845         2,403
                                                         --------      --------
          CASH AND CASH EQUIVALENTS at end
            of period                                    $ 17,357      $  5,864
                                                         ========      ========

       See notes to unaudited Condensed Consolidated Financial Statements.


                                        7
<PAGE>

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

1. General

      In the  opinion  of the  Company,  the  accompanying  unaudited  condensed
consolidated  financial  statements contain all adjustments  (consisting only of
normal recurring adjustments) necessary to present fairly the financial position
as of September  30, 2001 and the results of  operations  and cash flows for the
three months ended September 30, 2001 and 2000.

      The condensed  consolidated  balance sheet as of June 30, 2001 was derived
from audited financial statements, but does not include all disclosures required
by generally accepted accounting  principles.  Additionally,  it should be noted
that the  accompanying  condensed  consolidated  financial  statements and notes
thereto have been prepared in accordance with accounting  standards  appropriate
for  interim  financial   statements.   While  the  Company  believes  that  the
disclosures  presented are adequate to make the information contained herein not
misleading,  it  is  suggested  that  these  financial  statements  be  read  in
conjunction with the Company's  consolidated  financial  statements for the year
ended June 30, 2001.

      Certain  prior year  amounts in the  accompanying  condensed  consolidated
financial  statements and related notes have been reclassified to conform to the
fiscal 2002 presentation.  Such reclassifications  include a reclassification of
freight  income of $1,443 for the three  months  ended  September  30, 2000 from
selling,  general and  administrative  expenses to net sales on the consolidated
statements of operations and  comprehensive  income, as a result of the adoption
of the Emerging  Issues Task Force Issue No. 00-10  "Accounting for Shipping and
Handling Revenues and Costs."

      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.

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

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

      The results of  operations  for the three months ended  September 30, 2001
and 2000 may not be indicative of results for the full year.

2. Acquisition

      On November 30, 2000,  the Company  purchased the Medicated Feed Additives
(MFA) business of Pfizer, Inc. and certain of its subsidiaries ("Pfizer"). 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  and  the  Company  has  recorded  $9,349  under  this
arrangement  as of  September  30,  2001,  of which  $2,644  has been paid as of
September 30, 2001. Under the terms of the agreement, the Company has elected to
defer $3,000 of the payment  until June 30, 2006.  The  deferred  payment  bears
interest at an annual rate of 13%. In  addition,  the Company is required to pay
Pfizer  contingent  purchase price up to a maximum of $10,000 over five years on


                                       8
<PAGE>

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

other  products  based on certain gross profit  levels of the MFA  business.  No
amounts have been accrued under this  arrangement.

      The unaudited  consolidated  results of operations on a pro-forma basis as
if such  acquisition  had occurred at the  beginning of the  three-month  period
ended September 30, 2000 are as follows:

      Net sales........................................      $97,063
      Net (loss) income................................       (4,076)

      The impact of purchase price  adjustments  to the inventory  acquired from
Pfizer  increased  the loss  before  income  taxes  for the three  months  ended
September 30, 2001 by $1,973.

3. Inventories

      Inventories are valued at the lower of cost or market. Cost is principally
determined using 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.

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

                                                  Sept. 30,        June 30,
                                                    2001            2001
                                                  --------         -------
      Raw materials ....................          $28,918          $22,614
      Work-in-process ..................            2,437            4,257
      Finished goods ...................           56,890           56,925
                                                  -------          -------
                                                  $88,245          $83,796
                                                  =======          =======

4. Contingencies

      a. 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  subsidiary,  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   liability  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.

      b. 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.  The  Company  anticipates
curtailing operations at this facility in the fourth quarter of 2001.

      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.


                                       9
<PAGE>

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

      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  $1,984
as  of  September  30,  2001,   which  is  included  in  current  and  long-term
liabilities.

5. 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.

Segment  data for the three  months  ended  September  30,  2001 and 2000 are as
follows:

                                                          2001           2000
                                                        --------       --------
 Net Sales
      Animal Health and Nutrition ................      $ 59,353       $ 34,630
      Industrial Chemicals .......................        21,011         25,475
      Distribution ...............................         9,989         11,399
      All Other ..................................         9,947         10,448
      Intersegment ...............................        (5,641)        (9,157)
                                                        --------       --------
 Net Sales .......................................      $ 94,659       $ 72,795
                                                        ========       ========

Intersegment Sales
     Animal Health and Nutrition .................      $  1,410       $    968
     Industrial Chemicals ........................         3,666          7,708
     Distribution ................................           554            481
     All Other ...................................            11              0
                                                        --------       --------
Intersegment Sales ...............................      $  5,641       $  9,157
                                                        ========       ========
Operating Income (Loss)
      Animal Health and Nutrition ................      $  7,365       $  3,047
      Industrial Chemicals .......................        (4,200)           445
      Distribution ...............................           838            918
      All Other ..................................           119         (1,674)
      Corporate expenses and adjustments .........        (2,713)        (1,326)
                                                        --------       --------
Operating Income .................................      $  1,409       $  1,410
                                                        ========       ========


                                       10
<PAGE>

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

6. 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
sales  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.

      Revenues and operating losses relating to the Agtrol business  amounted to
$6,367 and $2,003, respectively, for the three months ended September 30, 2000.

7. Condensed Consolidating Financial Statements

      In June  1998,  the  Company  issued  $100  million  of its  97/8%  Senior
Subordinated  Notes due 2008 (the "Notes").  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  condensed  consolidating  financial  data  summarizes  the
assets,  liabilities  and  results of  operations  and cash flows of the Parent,
Guarantor  Subsidiaries and  Non-Guarantor  Subsidiaries.  The Parent is Philipp
Brothers Chemicals,  Inc. ("PBC").  The U.S. Guarantor  Subsidiaries include all
domestic  subsidiaries  of PBC including the following:  C.P.  Chemicals,  Inc.,
Phibro-Tech, Inc., 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.


                                       11
<PAGE>

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

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

Current Assets:

Cash and cash equivalents                             $   1,416        $     769        $  15,172                         $  17,357
Trade receivables                                         4,399           29,262           39,324                            72,985
Other receivables                                         1,131              120            1,186                             2,437
Inventory                                                 3,033           43,670           41,542                            88,245
Prepaid expenses and other                                4,544            2,905            8,848                            16,297
                                                      -----------------------------------------------------------------------------
           Total current assets                          14,523           76,726          106,072               --          197,321
                                                      -----------------------------------------------------------------------------
Property, plant & equipment, net                            606           30,212           74,405                           105,223

Intangibles                                                  32            1,948            3,893                             5,873
Investment in subsidiaries                               62,069            1,542           (6,138)         (57,473)              --
Intercompany                                             58,420          (25,497)             969          (33,892)              --
Other assets                                             92,912          (71,163)           1,743                            23,492
                                                      -----------------------------------------------------------------------------
               Total assets                           $ 228,562        $  13,768        $ 180,944        $ (91,365)       $ 331,909
                                                      =============================================================================

  Liabilities and Stockholders' Equity

Current Liabilities:
Cash overdraft                                        $      13        $   4,417        $      --                         $   4,430
Loan payable to banks                                    28,665               --            2,875                            31,540
Current portion of long term debt                         2,540              491            1,771                             4,802
Accounts payable                                          1,240           22,068           28,328                            51,636
Accrued expenses and other                                8,736           11,680           16,165                            36,581
                                                      -----------------------------------------------------------------------------
Total current liabilities                                41,194           38,656           49,139               --          128,989
                                                      -----------------------------------------------------------------------------
Long term debt                                          127,255          (66,672)         112,776          (33,892)         139,467

Other liabilities                                         2,021            5,119            7,619                            14,759

Redeemable securities:
Series B and C preferred stock                           51,407               --               --                            51,407
Common stock                                                479               --             (479)                               --
Common stock of subsidiary                                   --               95               --                                95
                                                      -----------------------------------------------------------------------------
                                                         51,886               95             (479)              --           51,502
                                                      -----------------------------------------------------------------------------
         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                                         4,949            2,322           21,078          (23,400)           4,949
Accumulated other comprehensive
 (loss) income-
  gain on derivative instruments                             --              145               --                               145
  cumulative currency translation
   adjustment                                              (144)              30           (9,189)                           (9,303)
                                                      -----------------------------------------------------------------------------
       Total stockholders' equity                         6,206           36,570           11,889          (57,473)          (2,808)
                                                      -----------------------------------------------------------------------------
       Total liabilities and equity                   $ 228,562        $  13,768        $ 180,944        $ (91,365)       $ 331,909
                                                      =============================================================================
</TABLE>


                                       12
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
           CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
                  For The Three Months Ended September 30, 2001
                                 (In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Foreign
                                                                     U.S. Guarantor    Subsidiaries    Consolidation    Consolidated
                                                        Parent        Subsidiaries    Non-Guarantors    Adjustments       Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>              <C>              <C>              <C>
Net sales                                             $  7,108         $ 51,594         $ 42,404         $ (6,447)        $ 94,659

Cost of goods sold                                       5,632           36,172           32,239           (6,447)          67,596
                                                      ----------------------------------------------------------------------------
       Gross profit                                      1,476           15,422           10,165               --           27,063

Selling, general, and administrative
  expenses                                               3,737           13,531            8,386                            25,654
                                                      ----------------------------------------------------------------------------
       Operating (loss) income                          (2,261)           1,891            1,779               --            1,409

Interest expense                                           674              933            3,036                             4,643
Interest income                                              3               --              (73)                              (70)
Other expense (income)                                     117               19             (331)                             (195)

Intercompany allocation                                   (993)             993               --                                --

Loss (profit) relating to subsidiaries                   1,098               --               --           (1,098)              --
                                                      ----------------------------------------------------------------------------
       (Loss) income before income taxes                (3,160)             (54)            (853)           1,098           (2,969)

(Benefit) provision for income taxes                      (795)             320             (129)                             (604)
                                                      ----------------------------------------------------------------------------

       Net (loss) income                              $ (2,365)        $   (374)        $   (724)        $  1,098         $ (2,365)
                                                      ============================================================================
</TABLE>


                                       13
<PAGE>

                         PHILIPP BROTHERS CHEMICALS INC.
           CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
                  For the Three Months Ended September 30, 2001
                                 (In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Foreign
                                                                     U.S. Guarantor    Subsidiaries    Consolidation    Consolidated
                                                        Parent        Subsidiaries    Non-Guarantors    Adjustments       Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>              <C>              <C>              <C>
Operating activities:
Net (loss) income                                     $ (2,365)        $   (374)        $   (724)        $  1,098         $ (2,365)
Adjustments to reconcile net (loss)
 income to cash (used in) provided by
 operating activities:
  Depreciation and amortization                            264            1,344            2,550                             4,158
  Other                                                   (211)              65              935                               789

Changes in operating assets and
 liabilities:
  Accounts receivable                                      210            2,369            2,946                             5,525
  Inventory                                                220           (1,401)          (3,202)                           (4,383)
  Prepaid expenses and other                               362            1,843              401                             2,606
  Other assets                                             264             (996)             (83)                             (815)
  Intercompany                                          (3,000)            (718)           4,816           (1,098)              --
  Accounts payable                                        (502)          (1,861)           1,029                            (1,334)
  Accrued expenses and other                             1,462            1,093           (1,683)                              872
                                                      ----------------------------------------------------------------------------
Net cash (used in) provided by
 operating activities                                   (3,296)           1,364            6,985               --            5,053
                                                      ----------------------------------------------------------------------------
Investing activities:
  Capital expenditures                                     (70)          (1,426)          (2,130)                           (3,626)
  Other investing                                           --               --               79                                79
                                                      ----------------------------------------------------------------------------
Net cash used in
 investing activities                                      (70)          (1,426)          (2,051)              --           (3,547)
                                                      ----------------------------------------------------------------------------
Financing activities:
  Cash overdraft                                            --              246             (147)                               99
  Net increase (decrease)
   in short term debt                                    3,498               --           (1,581)                            1,917
  Proceeds from long term debt                              --               11               --                                11
  Payments of long term debt                                (8)            (126)            (939)                           (1,073)
                                                      ----------------------------------------------------------------------------
Net cash provided by (used in)
 financing activities                                    3,490              131           (2,667)              --              954
                                                      ----------------------------------------------------------------------------
Effect of exchange rate changes
 on cash                                                    --               --               52                                52
                                                      ----------------------------------------------------------------------------
Net increase in cash and
 cash equivalents                                          124               69            2,319               --            2,512

Cash and cash equivalents
 at beginning of year                                    1,292              700           12,853                            14,845
                                                      ----------------------------------------------------------------------------
Cash and cash equivalents
 at end of year                                       $  1,416         $    769         $ 15,172         $     --         $ 17,357
                                                      ============================================================================
</TABLE>


                                       14
<PAGE>

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

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

Current Assets:

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

Intangibles                                                 87            1,915            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>


                                       15
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
           CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
                  For The Three Months Ended September 30, 2000
                                 (In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Foreign
                                                                     U.S. Guarantor    Subsidiaries    Consolidation    Consolidated
                                                        Parent        Subsidiaries    Non-Guarantors    Adjustments       Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>              <C>              <C>              <C>
Net sales                                             $  8,521         $ 42,814         $ 28,097         $ (6,637)        $ 72,795

Cost of goods sold                                       6,791           29,917           22,219           (6,637)          52,290
                                                      ----------------------------------------------------------------------------
       Gross profit                                      1,730           12,897            5,878               --           20,505

Selling, general, and
  administrative expenses                                3,472           11,468            4,155                            19,095
                                                      ----------------------------------------------------------------------------
       Operating (loss) income                          (1,742)           1,429            1,723               --            1,410

Interest expense                                         2,470               66            1,403                             3,939
Interest income                                            (36)              --             (181)                             (217)
Other expense                                               89               --            1,239                             1,328

Intercompany allocation                                 (3,324)           3,067              257                                --

Loss (profit) relating to subsidiaries                   1,505               --               --           (1,505)              --
                                                      ----------------------------------------------------------------------------
       (Loss) income before income taxes                (2,446)          (1,704)            (995)           1,505           (3,640)

Provision (benefit) for income taxes                       673             (712)            (482)                             (521)
                                                      ----------------------------------------------------------------------------
       Net (loss) income                              $ (3,119)        $   (992)        $   (513)        $  1,505         $ (3,119)
                                                      ============================================================================
</TABLE>


                                       16
<PAGE>

                         PHILIPP BROTHERS CHEMICALS INC.
           CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
                  For the Three Months Ended September 30, 2000
                                 (In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Foreign
                                                                     U.S. Guarantor    Subsidiaries    Consolidation    Consolidated
                                                        Parent        Subsidiaries    Non-Guarantors    Adjustments       Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>              <C>              <C>              <C>
Operating activities:
Net (loss) income                                     $ (3,119)        $   (992)        $   (513)        $  1,505         $ (3,119)
Adjustments to reconcile net (loss)
 income to cash provided by
 operating activities:
  Depreciation and amortization                            116            1,213            1,800                             3,129
  Other                                                    186              (60)            (179)                              (53)

Changes in operating assets and
 liabilities:
  Accounts receivable                                      459            8,367            3,192                            12,018
  Inventory                                                 93           (4,987)             492                            (4,402)
  Prepaid expenses and other                             3,441             (135)            (111)                            3,195
  Other assets                                            (788)          (1,216)              46                            (1,958)
  Intercompany                                              84             (900)           2,321           (1,505)              --
  Accounts payable                                        (450)             403             (714)                             (761)
  Accrued expenses and other                             3,991              (25)          (1,597)                            2,369
                                                      ----------------------------------------------------------------------------
Net cash provided by
 operating activities                                    4,013            1,668            4,737               --           10,418
                                                      ----------------------------------------------------------------------------
Investing activities:
  Capital expenditures                                     (23)          (2,617)            (608)                           (3,248)
  Other investing                                           --               --              (85)                              (85)
                                                      ----------------------------------------------------------------------------
Net cash used in
 investing activities                                      (23)          (2,617)            (693)              --           (3,333)
                                                      ----------------------------------------------------------------------------
Financing activities:
  Cash overdraft                                           114            1,810             (660)                            1,264
  Net decrease in short term debt                         (104)              --             (936)                           (1,040)
  Proceeds from long term debt                              --               --              732                               732
  Payments of long term debt                            (4,008)            (195)            (147)                           (4,350)
                                                      ----------------------------------------------------------------------------
Net cash (used in) provided by
 financing activities                                   (3,998)           1,615           (1,011)              --           (3,394)
                                                      ----------------------------------------------------------------------------
Effect of exchange rate changes
 on cash                                                    --               --             (230)                             (230)
                                                      ----------------------------------------------------------------------------
Net (decrease) increase in cash and
 cash equivalents                                           (8)             666            2,803               --            3,461

Cash and cash equivalents
 at beginning of year                                       11               99            2,293                             2,403
                                                      ----------------------------------------------------------------------------
Cash and cash equivalents
 at end of year                                       $      3         $    765         $  5,096         $     --         $  5,864
                                                      ============================================================================
</TABLE>


                                       17
<PAGE>

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

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  2002  segment
presentation.

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

      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"), a 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)
                                                Three Months Ended September 30,
                                                --------------------------------
Operating Segments:                                      2001            2000
                                                       --------        --------
   Animal Health and Nutrition .................       $ 59,353        $ 34,630
   Industrial Chemicals ........................         21,011          25,475
   Distribution ................................          9,989          11,399
   All Other ...................................          9,947          10,448
   Elimination of intersegment sales ...........         (5,641)         (9,157)
                                                       --------        --------
                                                       $ 94,659        $ 72,795
                                                       ========        ========

                                                     Operating Income (Loss)
                                                            ($000's)
                                                Three Months Ended September 30,
                                                --------------------------------
Operating Segments:                                      2001            2000
                                                       --------        --------
   Animal Health and Nutrition .................       $  7,365        $  3,047
   Industrial Chemicals ........................         (4,200)            445
   Distribution ................................            838             918
   All Other ...................................            119          (1,674)
   Corporate expenses and intercompany
     profit elimination ........................         (2,713)         (1,326)
                                                       --------        --------
                                                       $  1,409        $  1,410
                                                       ========        ========


                                       18
<PAGE>

Comparison of Three Months Ended September 30, 2001 and 2000

      Net Sales. Net sales increased by $21.9 million,  or 30%, to $94.7 million
in the three months ended  September 30, 2001, as compared to same period of 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 $24.7
million,  or 71%, to $59.4 million in the three months ended September 30, 2001,
as compared to the prior  period.  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 $1.1  million  below the prior year  primarily  due to
lower average selling prices.

      The Industrial Chemicals segment's net sales decreased by $4.5 million, or
18%, to $21.0 million in the three months ended  September 30, 2001, as compared
to the prior period.  Due to the sale of Agtrol to Nufarm, the Company no longer
has  intersegment  sales in the  Industrial  segment  which  accounted  for $4.0
million  of  the  decline  in  revenues.  Sales  by  the  Company's  Phibro-Tech
subsidiary,  excluding  recycling  fees, were down by $1.4 million due to volume
declines related to the printed circuit board industry.  Lower recycling fees of
$.4 million  were due to  decreased  demand.  Higher  unit  volume  sales at the
Company's  Odda  subsidiary  increased  revenues by $1.7  million and  partially
offset  the  decrease.  Lower unit  sales of iron  oxide and  manganese  dioxide
primarily accounted for the balance of the change.

      Net sales for the Distribution  segment decreased by $1.4 million, or 12%,
to $10.0  million  in 2001,  as  compared  to the  prior  period.  The net sales
decrease was due to lower unit  volumes.  Significant  declines in the segment's
trace minerals,  cyanide and dicyandiamide  products occurred during the current
quarter.

      Net sales for the All Other  segment  decreased by $.5 million,  or 5%, to
$9.9  million in 2001,  as  compared  to the prior  period.  Approximately  $2.4
million of this decrease  related to lower sales of crop  protection  chemicals.
The Company's Agtrol crop protection business was sold during the fourth quarter
of 2001 and sales are  currently  being made under supply  agreements to Nufarm.
Excluding  Agtrol,  sales for the  segment in 2001 were $1.9  million  above the
prior year. The Company's fly ash business  increased by $1.3 million  primarily
due to increased  volume as a result of additional  contracts  with utilities in
Missouri  and  Michigan and improved  average  selling  prices.  Revenues at the
Company's  Wychem,  U.K.  facility improved by $.6 million due to an increase in
specialized lab projects and formulations.

      Gross Profit.  Gross profit increased by $6.6 million,  or 32.0%, to $27.1
million in the three months ended  September  30, 2001, as compared to the prior
period.  The  increase  was  primarily  due to the  purchase of the PAH business
offset  in  part  by the  sale  of the  Company's  Agtrol  operations.  Purchase
accounting  adjustments  relating to inventory  acquired in the PAH  acquisition
resulted  in an  increase to cost of goods sold of $2.0  million  during  fiscal
2002. The remainder of the inventory  purchase  adjustment,  approximately  $1.3
million,  will be charged to cost of goods sold during the balance of the fiscal
year.  Lower  production  volumes at the Company's  Phibro-Tech  facilities  and
higher utility and raw material costs at Odda adversely  affected margins in the
Industrial  Chemical segment.  Margin declines in the All Other segment were due
to sales of crop protection  products sold to Nufarm under a supply agreement in
the current  period as opposed to higher  margin  sales to third  parties in the
prior period. In addition,  the declines in average selling prices in the Animal
Health and  Nutrition  segment  described  above  further  reduced the Company's
margin.

      Selling,  General and  Administrative  Expenses.  Costs  increased by $6.6
million to $25.7 million in 2001, as compared to the prior period. Excluding PAH
and  Agtrol,  costs  were  up  approximately  $2.4  million  principally  due to
management advisory fees to Palladium Equity Partners, LLC ($.6 million), higher
warehousing and distribution primarily relating to sales growth in the Company's
fly ash business  ($.8  million),  environmental  remediation  ($.3 million) and
other general spending increases ($.7 million).

      Operating  Income.  Operating income was $1.4 million for the three months
ended September 30, 2001, approximately the same as the prior period. The Animal
Health and  Nutrition  segment  increased  due to the  inclusion  of PAH for the
period.  Operating  income would have been $2.0 million  higher than reported if
not for purchase  accounting  adjustments to the sale of inventory acquired from
Pfizer  as  part  of the  PAH  acquisition.  Operating  income  declined  in the
Industrial  Chemicals  segment  primarily  due to  lower  sales  and  production
volumes.   The  Company  is  implementing  cost  reduction  programs  and  other
initiatives  in this  segment in  reaction  to current  market  conditions.  The
improvement in operating income of the All Other segment is primarily the result
of the sale of Agtrol as the  Company is no longer  materially  impacted  by the
seasonal nature of the crop protection  business.  The Distribution  segment was
slightly below the prior year due to sales volume declines.


                                       19
<PAGE>

      Interest  Expense,  Net.  Costs  increased  by $.9  million or 23% to $4.6
million for the three months ended  September  30, 2001 as compared to the prior
period 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  and the
quarter over quarter change reflects the strengthening of currencies against the
U.S. dollar in 2001  (principally  Norwegian  Kroner) versus  weakening of these
currencies in the September 2000 quarter.

      Income Taxes.  The Company  provides a benefit on interim period losses as
it is anticipated that future earnings can be utilized to offset the tax benefit
recorded  in the current  year.  The  effective  tax rate is lower than the U.S.
statutory  rate  due to the  relationship  of each  domestic  and  international
subsidiaries'  individual  income or loss position to the statutory tax rates in
each country.

Liquidity and Capital Resources

      Net Cash Provided by Operating Activities. Cash provided by operations for
the three months ended September 30, 2001 was $5.1 million. The increase in cash
from  the  collection  of  receivables  from our crop  protection  business  was
partially  offset by higher  inventories  at the Phibro Animal  Health  business
unit.  This  build  up  of  inventories  is  necessary  to  ensure  an  adequate
availability of product as the Company  continues to refine its supply chain and
expand into new markets.

      Net  Cash  Used by  Investing  Activities.  Net  cash  used  in  investing
activities  for the three  months  ended  September  30, 2001 was $3.5  million.
Capital  expenditures  of  $3.6  million  were  primarily  for  maintaining  the
Company's existing asset base and for environmental, health and safety projects.

      Net Cash Provided by Financing Activities.  Net cash provided by financing
activities totaled $1.0 million.  Borrowings under the domestic revolving credit
agreement were partially  offset by paydowns of debt at several of the Company's
international subsidiaries.

      Liquidity.  At September 30, 2001,  working  capital totaled $68.3 million
compared to $74.0 million at the fiscal year end. Due to the nature and terms of
the revolving credit  agreement,  which includes both a subjective  acceleration
clause and a  requirement  to  maintain a lockbox  arrangement,  all  borrowings
against this facility are  classified as a current  liability.  At September 30,
2001, the amount of credit  extended under this agreement  totaled $28.7 million
and the Company had $17.3 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  $10.0
million.

      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 for 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.

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.

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

      In August 2001, the Financial  Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 "Accounting for Impairment or Disposal
of  Long-Lived  Assets"  ("SFAS No.  144").  SFAS No. 144 is  effective  for the
Company on July 1, 2002. The statement addresses  significant issues relating to
the implementation of FASB Statement No.


                                       20
<PAGE>

121  "Accounting  for the  Impairment  of Long-Lived  Assets and for  Long-Lived
Assets to Be  Disposed  Of" ("FAS No.  121"),  and the  development  of a single
accounting  model,  based  on the  framework  established  in FAS No.  121,  for
long-lived assets to be disposed of by sale, whether previously held and used or
newly acquired. The Company is currently assessing the impact of this statement.

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.

Quantitative and Qualitative Disclosure About Market Risk

      For financial  market risks related to changes in interest rates,  foreign
currency exchange rates and commodity prices, reference is made to Part II, Item
7,  Quantitative and Qualitative  Disclosure About Market Risk, in the Company's
Annual  Report on Form 10-K for the year ended  June 30,  2001 and to Note 13 to
the Consolidated Financial Statements of the Company included therein.

Certain Factors Affecting Future Operating Results

      This Form 10-Q 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  ability to absorb and integrate into its existing  operations the
PAH  acquisition  referred to above;  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;  the uncertain  impact of the Company's
acquisition plans; and the seasonality of the Company's business.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

      See Part I -- Item 2 -- "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quantitative  and Qualitative  Disclosure
About Market Risk."


                                       21
<PAGE>

                          PART II -- OTHER INFORMATION

Item 5. Other Information.

         None.

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

      (a) Exhibits

      Exhibit No.    Description
      -----------    -----------
         None.

      (b) Reports on Form 8-K.

         None.


                                       22
<PAGE>

                                   SIGNATURES

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

                                            PHILIPP BROTHERS CHEMICALS, INC.

Date: November 13, 2001                     By: /s/ DAVID C. STORBECK
                                                --------------------------------
                                                David C. Storbeck
                                                Chief Financial Officer

Date: November 13, 2001                     By: /s/ JOSEPH KATZENSTEIN
                                                --------------------------------
                                                Joseph Katzenstein, Treasurer
                                                and Secretary


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