================================================================================

                       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 December 31, 2000

                                       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 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)

                                   ----------

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 February 1,
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
<TABLE>
<CAPTION>

                                                                                                 Page
                                                                                                 ----

PART I   FINANCIAL INFORMATION (UNAUDITED)

<S>                                                                                                  <C>
         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 ..........................................     22

         Item 3.  Quantitative and Qualitative Disclosures About Market Risk ...................     27

PART II  OTHER INFORMATION

         Item 2.  Changes in Securities and Use of Proceeds ....................................     28

         Item 6.  Exhibits and Reports on Form 8-K .............................................     28

SIGNATURES .....................................................................................     29
</TABLE>


                                       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 throughout this
Form 10-Q and are discussed 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)
<TABLE>
<CAPTION>

                                                                                   December 31,     June 30,
                                                                                       2000           2000
                                                                                   ------------    ----------
                                     ASSETS
<S>                                                                                   <C>          <C>
CURRENT ASSETS:
   Cash and cash equivalents ......................................................   $   7,561    $   2,403
   Trade receivables, less allowance for doubtful accounts of $842
     at December 31, 2000 and $756 at June 30, 2000 ...............................      71,394       79,376
   Other receivables ..............................................................      10,245        8,479
   Inventories ....................................................................     105,972       50,405
   Prepaid expenses and other current assets ......................................      10,971        9,098
                                                                                      ---------    ---------
   TOTAL CURRENT ASSETS ...........................................................     206,143      149,761
PROPERTY, PLANT AND EQUIPMENT, net ................................................      99,754       76,180
INTANGIBLES .......................................................................       6,392        6,297
OTHER ASSETS ......................................................................      28,931       26,213
                                                                                      ---------    ---------
                                                                                      $ 341,220    $ 258,451
                                                                                      =========    =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
   Cash overdraft .................................................................   $   4,301    $   2,120
   Loans payable to banks .........................................................      49,295        8,650
   Current portion of long-term debt ..............................................         999        2,296
   Accounts payable ...............................................................      36,589       32,642
   Accrued expenses and other current liabilities .................................      34,612       24,157
                                                                                      ---------    ---------

     TOTAL CURRENT LIABILITIES ....................................................     125,796       69,865

LONG-TERM DEBT ....................................................................     135,417      139,722
OTHER LIABILITIES .................................................................      11,440       13,282
                                                                                      ---------    ---------
     TOTAL LIABILITIES ............................................................     272,653      222,869
                                                                                      ---------    ---------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE SECURITIES:
   Series B and C preferred stock .................................................      45,563           --
   Common stock ...................................................................       2,280        3,513
   Common stock of subsidiary .....................................................         202          451
                                                                                      ---------    ---------
     TOTAL REDEEMABLE SECURITIES ..................................................      48,045        3,964
                                                                                      ---------    ---------
STOCKHOLDERS' EQUITY:
   Series A preferred stock .......................................................         521          521
   Common stock ...................................................................           2            2
   Paid-in capital ................................................................         878          878
   Retained earnings ..............................................................      22,316       32,808
   Accumulated other comprehensive income (loss)--
     gain on derivative instruments ...............................................         168           --
     cumulative currency translation adjustment ...................................      (3,363)      (2,591)
                                                                                      ---------    ---------
     TOTAL STOCKHOLDERS' EQUITY ...................................................      20,522       31,618
                                                                                      ---------    ---------
                                                                                      $ 341,220    $ 258,451
                                                                                      =========    =========
</TABLE>

       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)
                                 (In Thousands)
<TABLE>
<CAPTION>

                                                         Three Months Ended        Six Months Ended
                                                            December 31,             December 31,
                                                         2000          1999         2000        1999
                                                        -------      -------      -------     -------

<S>                                                    <C>          <C>          <C>          <C>
NET SALES ..........................................   $  81,774    $  76,289    $ 153,126    $ 147,218

COST OF GOODS SOLD .................................      61,310       54,988      113,600      106,058
                                                       ---------    ---------    ---------    ---------

   GROSS PROFIT ....................................      20,464       21,301       39,526       41,160

SELLING, GENERAL AND ADMINISTRATIVE

   EXPENSES ........................................      22,856       17,957       40,508       37,031
                                                       ---------    ---------    ---------    ---------

   OPERATING (LOSS) INCOME .........................      (2,392)       3,344         (982)       4,129

OTHER:

   Interest expense ................................       4,080        3,598        8,019        6,988

   Interest income .................................        (186)         (83)        (403)        (175)

   Other (income)/expense, net .....................      (1,231)       1,134           97        2,035
                                                       ---------    ---------    ---------    ---------

   LOSS BEFORE INCOME TAXES ........................      (5,055)      (1,305)      (8,695)      (4,719)

BENEFIT  FOR INCOME TAXES ..........................      (2,437)        (559)      (2,958)      (1,988)
                                                       ---------    ---------    ---------    ---------

   NET LOSS ........................................      (2,618)        (746)      (5,737)      (2,731)

OTHER COMPREHENSIVE INCOME (LOSS)

   Gain on derivative instruments ..................         168           --          168           --

   Change in foreign currency
       translation adjustment                                389         (474)        (772)         910
                                                       ---------    ---------    ---------    ---------
   COMPREHENSIVE LOSS ..............................   $  (2,061)   $  (1,220)   $  (6,341)   $  (1,821)
                                                       =========    =========    =========    =========
</TABLE>

       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 and Six Months Ended December 31, 2000
                                 (In Thousands)

<TABLE>
<CAPTION>

                                             Preferred Stock     Common Stock                                Accumulated
                                             ---------------  -----------------                                Other
                                                              Class       Class       Paid-in    Retained   Comprehensive
                                                 Series A       A           B         Capital    Earnings   Income (loss)   Total
                                             ---------------  -----       -----       -------    --------   -------------   -----

BALANCE,
<S>                                              <C>         <C>         <C>         <C>         <C>          <C>          <C>
   JULY 1, 2000 .............................    $    521    $      1    $      1    $    878    $ 32,808     $ (2,591)    $ 31,618

   Foreign currency
     translation adjustment .................          --          --          --          --          --       (1,161)      (1,161)

     Net loss ...............................          --          --          --          --      (3,119)          --       (3,119)
                                                 --------    --------    --------    --------    --------     --------     --------

BALANCE,
   SEPTEMBER 30, 2000 .......................    $    521    $      1    $      1    $    878    $ 29,689     $ (3,752)    $ 27,338
                                                 ========    ========    ========    ========    ========     ========     ========

   Accretion of redeemable
     preferred securities to fair
     market value ...........................          --          --          --          --      (4,192)          --       (4,192)

   Dividends on series
     B and C preferred stock ................          --          --          --          --        (563)          --         (563)

   Gain on derivative
     instruments ............................          --          --          --          --          --          168          168

   Foreign currency translation
     adjustment .............................          --          --          --          --          --          389          389

     Net loss ...............................          --          --          --          --      (2,618)          --       (2,618)
                                                 --------    --------    --------    --------    --------     --------     --------

BALANCE,
   DECEMBER 31, 2000 ........................    $    521    $      1    $      1    $    878    $ 22,316     $ (3,195)    $ 20,522
                                                 ========    ========    ========    ========    ========     ========     ========
</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 Six Months Ended December 31, 2000 and 1999
                                 (In Thousands)
<TABLE>
<CAPTION>

                                                                2000           1999
                                                              --------       --------
OPERATING ACTIVITIES:
<S>                                                           <C>            <C>
   Net loss ............................................      $ (5,737)      $ (2,731)
   Adjustments to reconcile net loss to net
     cash provided by operating activities:
     Depreciation and amortization .....................         6,640          5,982
     Other .............................................        (1,584)           340
     Changes in operating assets and liabilities:
        Accounts receivable ............................         7,776         12,161
        Inventories ....................................        (4,017)        (5,682)
        Prepaid expenses and other current assets ......          (813)         1,670
        Other assets ...................................        (2,914)          (277)
        Accounts payable ...............................         3,801         (7,463)
        Accrued expenses and other current liabilities .         2,253         (3,975)
                                                              --------       --------
        NET CASH PROVIDED BY OPERATING ACTIVITIES ......         5,405             25
                                                              --------       --------
INVESTING ACTIVITIES:
   Capital expenditures ................................        (6,509)        (9,903)
   Acquisition of a business ...........................       (51,700)            --
   Proceeds from property damage claim .................            --            872
   Other investing .....................................          (339)        (1,500)
                                                              --------       --------
        NET CASH USED IN INVESTING ACTIVITIES ..........       (58,548)       (10,531)
                                                              --------       --------
FINANCING ACTIVITIES:
   Cash overdraft ......................................         1,432            605
   Net increase in short-term debt .....................        12,403            313
   Proceeds from long-term debt ........................         1,590         11,046
   Proceeds from issuance of redeemable preferred stock         45,000             --
   Payments of long-term debt ..........................        (1,018)          (509)
   Other financing .....................................          (942)            62
                                                              --------       --------
        NET CASH PROVIDED BY FINANCING ACTIVITIES ......        58,465         11,517
                                                              --------       --------

EFFECT OF EXCHANGE RATE CHANGES ON CASH ................          (164)            --
                                                              --------       --------

        NET INCREASE IN CASH AND CASH EQUIVALENTS ......         5,158          1,011

CASH AND CASH EQUIVALENTS at beginning of period .......         2,403          2,308
                                                              --------       --------

        CASH AND CASH EQUIVALENTS at end of period .....      $  7,561       $  3,319
                                                              ========       ========
</TABLE>

       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 December 31, 2000 and the results of operations and cash flows for the
three months and six months ended December 31, 2000 and 1999.

      The condensed consolidated balance sheet as of June 30, 2000 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, 2000.

      Certain prior year amounts in the accompanying condensed consolidated
financial statements and related notes have been reclassified to conform to the
fiscal 2001 presentation. Such reclassifications include a reclassification of
customer rebates of $2,198 and $2,430 for the three months and six months ended
December 31, 1999, respectively, 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. 00-14 "Accounting for Certain Sales Incentives."

      The Company adopted Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) on
July 1, 2000. SFAS 133 requires that all derivative instruments be recorded on
the balance sheet at their fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. The Company uses
foreign currency forward contracts as a means of hedging exposure to foreign
currency risks and foreign currency options as a means of hedging forecasted
operating costs. 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 quarter
ended December 31, 2000, the Company's foreign currency options have been
designated and qualify as cash flow hedges under the criteria of SFAS 133. SFAS
133 requires that changes in fair value of derivatives that qualify as cash flow
hedges be recognized in other comprehensive income while the ineffective portion
of the derivative's change in fair value be recognized immediately in earnings.
The Company's foreign currency forward contracts and commodity derivatives did
not meet the criteria of SFAS 133 to qualify for hedge accounting. SFAS 133
requires that unrealized gains and losses on derivatives not qualifying for
hedge accounting be recognized currently in earnings. The cumulative effect of a
change in accounting principle due to the adoption of SFAS 133 as of July 1,
2000 was not material. The Company recorded a net gain of $168 in other
comprehensive income for foreign currency options, a net loss of $391 in cost of
goods sold for commodity contracts and a net gain of $565 in other expense for
the foreign currency forward contracts and the ineffective portion of the option
contracts for the three month period ended December 31, 2000 and net gains of
$168, $4 and $627 for the six months ended December 31, 2000.

      In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101 "Revenue Recognition", which provides
guidelines in applying generally accepted accounting principles to selected
revenue recognition issues. The SAB is effective in the fourth fiscal quarter of
fiscal years beginning after December 15, 1999, or as of April 1, 2001 in the
Company's case. The Company continues to evaluate the impact of SAB 101, but
believes it is in compliance with the provisions of the SAB, and, accordingly,
does not expect this statement to have a material impact on its financial
statements.

      In October 2000, the Emerging Issues Task Force ("EITF") issued guidance
on how to classify certain revenues and costs in a company's financial
statements. EITF No. 00-10 "Accounting for Shipping and Handling Revenues and
Costs" requires that companies classify all amounts billed to customers related
to shipping and handling cost as revenue.


                                       8
<PAGE>

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

This statement will be effective in the fourth fiscal quarter of fiscal years
beginning after December 15, 1999 and is not expected to have any effect on the
financial statements.

      The results of operations for the three months and six months ended
December 31, 2000 and 1999 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"). 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 $74,434 (including cost of acquisition) was paid
with cash of $51,700 and the issue of a promissory note to Pfizer for $22,734,
which matures in 2003 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 and the Company accrued $843 under this
arrangement as of December 31, 2000. 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 is operating under a supply agreement with Pfizer in respect of the
manufacturing facility in Belgium pending regulatory approval of the transfer of
title, which is expected to occur in the quarter ending March 31, 2001. In
addition, the transfer of employees in Belgium is also pending such regulatory
approval and is also pending further negotiations of the settlement of the
pensions. The Company expects the transfer of pension obligations to be fully
funded by Pfizer. The Company is also currently assessing the results of an
environmental review, which is expected to be finalized by March 31, 2001. The
Company does not expect to incur any significant liabilities arising from the
environmental review. The final allocation of the purchase price and the
determination of the useful lives of the long-term assets acquired will be based
on an independent valuation to be completed prior to the Company's fiscal 2001
year end.

      The unaudited consolidated results of operations on a pro-forma basis as
if such acquisition had occurred at the beginning of the six-month periods being
reported are as follows.

                                                      Six Months Ended
                                                        December 31,
                                                    2000           1999
                                                 ---------       ---------
                Net sales ..................     $ 200,719       $ 236,453
                Net (loss) income ..........        (6,480)          6,025


                                       9
<PAGE>

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

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 December 31, 2000 and June 30, 2000 are based on perpetual
records and consist of the following:

                                                December 31,   June 30,
                                                    2000         2000
                                               ------------  ----------
             Raw materials ................       $ 26,805      $21,457
             Work-in-process ..............          3,535        5,340
             Finished goods ...............         75,632       23,608
                                                ----------    ---------
                                                  $105,972      $50,405
                                                ==========    =========

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. While the outcome of ongoing negotiation is uncertain, the Company has
accrued its best estimate of the amount for which this matter can be settled.
Phibro-Tech, Inc. has also been named as a PRP involving a third party site in
California. The Company is not, at this time, in a position to assess the extent
of liability associated with this site.

      Phibro-Tech, Inc. has also been named as one of several defendants in a
suit brought by Communities for a Better Environment in California, alleging
violations under California's Proposition 65, the Safe Drinking Water and Toxic
Enforcement Act, relating to its Santa Fe Springs, California facility. The
Company is not, at this time, in a position to assess the extent of liability,
if any.

      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.

      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.


                                       10
<PAGE>

                PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           (Unaudited) -- (Continued)
                                 (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 $1,484
as of December 31, 2000, which is included in current and long-term liabilities.

5. Business Segments

      The Company operates in two business segments: AgChem and Industrial
Chemicals. The AgChem segment manufactures and markets a variety of animal
nutrition and health products, copper based fungicides and growth regulators.
The MFA business is included in the AgChem segment. The Industrial Chemicals
segment manufactures and markets a number of specialty organic and inorganic
intermediate chemicals for use in a broad variety of industrial chemical
applications. The Company aggregates certain operating segments into its
reportable segments. Management evaluates the performance of its operating
segments and allocates resources based on operating income. Transfers between
segments are priced at amounts that include a manufacturing profit except that
transfers of $3,062 and $2,030 for the three months ended December 31, 2000 and
1999, respectively, and $6,464 and $4,143 for the six months ended December 31,
2000 and 1999, respectively, from the Industrial Chemicals group to the AgChem
group are recorded at the cost of product transferred. Other includes corporate
expenses and elimination of intersegment revenues.

<TABLE>
<CAPTION>
                                                    Industrial
                                          AgChem     Chemicals
                                           Group       Group         Other          Total
                                          -------   ----------      -------        --------
<S>                                       <C>       <C>             <C>            <C>
Three Months Ended December 31, 2000
Revenues - external customers ......      $48,676   $   33,098      $    --        $ 81,774
         - intersegment ............        1,258        5,927       (7,185)              0
                                          -------   ----------      -------        --------
Total revenues .....................      $49,934   $   39,025      $(7,185)       $ 81,774
                                          =======   ==========      =======        ========
Operating income (loss) ............      $ 1,096   $      467      $(3,955)(1)    $ (2,392)
                                          =======   ==========      =======        ========
</TABLE>

----------
(1) Represents corporate expenses and intercompany profit eliminations.
<TABLE>
<CAPTION>

                                                    Industrial
                                          AgChem     Chemicals
                                           Group       Group         Other          Total
                                          -------   ----------      -------        --------
<S>                                       <C>       <C>             <C>            <C>
Three Months Ended December 31, 1999
Revenues - external customers ......      $42,256   $   34,033      $    --        $ 76,289
         - intersegment ............        1,715        5,726       (7,441)             0
                                          -------   ----------      -------        --------
Total revenues .....................      $43,971   $   39,759      $(7,441)       $ 76,289
                                          =======   ==========      =======        ========
Operating income (loss) ............      $ 2,354   $    3,698      $(2,708)(2)    $  3,344
                                          =======   ==========      =======        ========

----------
(2) Represents corporate expenses and intercompany profit eliminations.
</TABLE>


                                       11
<PAGE>

               PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           (Unaudited) -- (Continued)
                                 (In Thousands)
<TABLE>
<CAPTION>

                                                    Industrial
                                          AgChem     Chemicals
                                           Group       Group         Other          Total
                                          -------   ----------      -------        --------
<S>                                       <C>       <C>             <C>            <C>
Six Months Ended December 31, 2000
Revenues - external customers ......      $88,223   $   64,903      $     --       $153,126
         - intersegment ............        2,274       12,178       (14,452)             0
                                          -------   ----------      --------       --------
Total revenues .....................      $90,497   $   77,081      $(14,452)      $153,126
                                          =======   ==========      ========       ========
Operating income (loss) ............      $ 2,521   $    1,778      $ (5,281)(1)   $   (982)
                                          =======   ==========      ========       ========
</TABLE>

----------
(1) Represents corporate expenses and intercompany profit eliminations.
<TABLE>
<CAPTION>

                                                    Industrial
                                          AgChem     Chemicals
                                           Group       Group         Other          Total
                                          -------   ----------      -------        --------
<S>                                       <C>       <C>             <C>            <C>
Six Months Ended December 31, 1999
Revenues - external customers ......      $78,681   $   68,537      $     --       $147,218
         - intersegment ............        2,848       10,869       (13,717)             0
                                          -------   ----------      --------       --------
Total revenues .....................      $81,529   $   79,406      $(13,717)      $147,218
                                          =======   ==========      ========       ========
Operating income (loss) ............      $ 3,137   $    5,845      $ (4,853)(2)   $  4,129
                                          =======   ==========      ========       ========
</TABLE>

----------
(2) Represents corporate expenses and intercompany profit eliminations.

6. Credit Facility

      The Company has amended its existing $35,000 revolving credit facility
with PNC Bank to increase the facility to $70,000 and to provide for an
additional $15,000 facility for capital expenditure spending. The Company, under
the amended credit agreement, may choose between two interest options: (i) base
rate, as defined and (ii) Euro Rate, as defined, plus 21/4% - 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
facilities have a maturity date of three years from December 1, 2000 and
required the grant of security interests in substantially all the Company's
domestic assets as well as certain of the capital stock of the Company's foreign
subsidiaries. Due to the nature and terms of the amended credit agreement, which
includes both a subjective acceleration clause and a requirement to maintain a
lock box arrangement, all borrowings against this facility are now classified as
a current liability.

7. Redeemable Preferred Stock

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

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

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

     The redeemable preferred stock is entitled to cumulative cash dividends,
payable semi-annually, at 15% per annum of the liquidation value. The
liquidation value of the Preferred B stock is an amount equal to $1 per share
plus all accrued and unpaid dividends (the "Liquidation Value"). The redeemable
Preferred C stock is entitled to the Liquidation Value plus a percentage of the
equity value of the Company, as defined in the amended Certificate of
Incorporation. The equity value is calculated as a multiple of the earnings
before interest, tax, depreciation and amortization ("EBITDA") of the


                                       12
<PAGE>

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

combined Company 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. A dividend of $563 has been accrued on the preferred securities
and charged to retained earnings as of December 31, 2000. No equity value
accretion was required as of December 31, 2000 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.

8. 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,
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.


                                       13
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
                CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)
                             AS OF DECEMBER 31, 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 ...................     $     126       $   1,009           $   6,426                         $   7,561
Trade receivables ...........................         5,108          36,165              30,121                            71,394
Other receivables ...........................         1,159           6,504               2,582                            10,245
Inventory ...................................         3,573          53,591              48,808                           105,972
Prepaid expenses and other ..................         4,857           3,737               2,377                            10,971
                                                  -------------------------------------------------------------------------------
        Total current assets ................        14,823         101,006              90,314                --         206,143
                                                                                                                        ---------

Property, plant & equipment, net ............           591          27,216              71,947                            99,754
Intangibles .................................            86           2,103               4,203                             6,392
Investment in subsidiaries ..................        71,411           1,534              (6,130)          (66,815)             --
Intercompany ................................        71,414         (36,084)                942           (36,272)             --
Other assets ................................        95,391         (69,226)              2,766                            28,931
                                                  -------------------------------------------------------------------------------
        Total assets ........................     $ 253,716       $  26,549           $ 164,042         $(103,087)      $ 341,220
                                                  ===============================================================================

    Liabilities and Stockholders' Equity
Current Liabilities:
Cash overdraft ..............................     $      --       $   2,892           $   1,409                         $   4,301
Loan payable to banks .......................        42,390              --               6,905                            49,295
Current portion of long term debt ...........            32             879                  88                               999
Accounts payable ............................         2,324          15,575              18,690                            36,589
Other loans payable .........................            --              --                  --                                --
Accrued expenses and other ..................        12,230          14,435               7,947                            34,612
                                                  -------------------------------------------------------------------------------
        Total current liabilities ...........        56,976          33,781              35,039                --         125,796
                                                  -------------------------------------------------------------------------------
Long term debt ..............................       123,896         (51,272)             99,065           (36,272)        135,417
Other liabilities ...........................         2,035           5,159               4,246                            11,440

Redeemable securities:
Series B and C preferred stock ..............        45,563              --                  --                            45,563
Common stock ................................         1,673              --                 607                             2,280
Common stock of subsidiary ..................            --             202                  --                               202
                                                  -------------------------------------------------------------------------------
                                                     47,236             202                 607                --          48,045
                                                  -------------------------------------------------------------------------------
            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 ...........................        22,316           4,410              28,333           (32,743)         22,316
Accumulated other comprehensive income (loss)
   gain on derivative instruments ...........            --             168                  --                               168
   cumulative currency translation
   adjustment ...............................          (144)             29              (3,248)                           (3,363)
                                                  -------------------------------------------------------------------------------
        Total stockholders' equity ..........        23,573          38,679              25,085           (66,815)         20,522
                                                  -------------------------------------------------------------------------------
        Total liabilities and equity ........     $ 253,716       $  26,549           $ 164,042         $(103,087)      $ 341,220
                                                  ===============================================================================
</TABLE>


                                       14
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
           CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
                  FOR THE THREE MONTHS ENDED DECEMBER 31, 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 ...................................     $   8,133       $  47,438           $  35,391         $ (9,188)       $  81,774

Cost of goods sold ..........................         6,656          34,690              29,152            (9,188)         61,310
                                                  -------------------------------------------------------------------------------

        Gross profit ........................         1,477          12,748               6,239                --          20,464

Selling, general, and administrative
   expenses .................................         3,542          12,968               6,346                            22,856
                                                  -------------------------------------------------------------------------------

Operating loss ..............................        (2,065)           (220)               (107)               --          (2,392)

Interest expense ............................         2,773              (5)              1,312                             4,080

Interest income .............................            (8)             (1)               (177)                             (186)

Other expense (income) ......................            32              (4)             (1,259)                           (1,231)

Intercompany allocation .....................        (3,571)          3,442                 129                                --

Loss (profit) relating to subsidiaries ......         2,112              --                  --            (2,112)             --
                                                  -------------------------------------------------------------------------------

(Loss) income before income taxes ...........        (3,403)         (3,652)               (112)            2,112          (5,055)

Benefit for income taxes ....................          (785)         (1,307)               (345)                           (2,437)
                                                  -------------------------------------------------------------------------------

Net (loss) income ...........................     $  (2,618)      $  (2,345)          $     233         $   2,112       $  (2,618)
                                                  ===============================================================================
</TABLE>


                                       15
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
           CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
                   FOR THE SIX MONTHS ENDED DECEMBER 31, 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 ...................................     $  16,644       $  88,819           $  63,488         $(15,825)       $ 153,126

Cost of goods sold ..........................        13,447          64,607              51,371          (15,825)         113,600
                                                  -------------------------------------------------------------------------------

Gross profit ................................         3,197          24,212              12,117                --          39,526

Selling, general, and administrative
   expenses .................................         7,004          23,003              10,501                            40,508
                                                  -------------------------------------------------------------------------------

Operating (loss) income .....................        (3,807)          1,209               1,616                --            (982)

Interest expense ............................         5,243              61               2,715                             8,019

Interest income .............................           (44)             (1)               (358)                             (403)

Other expense ...............................           121              (4)                (20)                               97

Intercompany allocation .....................        (6,895)          6,509                 386                                --

Loss (profit) relating to subsidiaries ......         3,617              --                  --            (3,617)             --
                                                  -------------------------------------------------------------------------------

(Loss) income before income taxes ...........        (5,849)         (5,356)             (1,107)            3,617          (8,695)

Benefit for income taxes ....................          (112)         (2,019)               (827)                           (2,958)
                                                  -------------------------------------------------------------------------------

Net (loss) income ...........................     $  (5,737)      $  (3,337)          $    (280)        $   3,617       $  (5,737)
                                                  ===============================================================================
</TABLE>


                                       16
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
           CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
                   FOR THE SIX MONTHS ENDED DECEMBER 31, 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 (loss) income ...........................     $  (5,737)      $  (3,337)          $    (280)        $   3,617       $  (5,737)
Adjustments to reconcile net (loss) income to
     net cash provided by operating activities:
   Depreciation and amortization ............           273           2,551               3,816                             6,640
   Other ....................................          (565)            (22)               (997)                           (1,584)

Changes in operating assets and liabilities:
Accounts receivable .........................         1,048           9,128              (2,400)                            7,776
Inventory ...................................          (306)         (5,619)              1,908                            (4,017)
Prepaid expenses and other ..................         1,904          (2,248)               (469)                             (813)
Other assets ................................          (957)         (1,948)                 (9)                           (2,914)
Intercompany ................................          (891)          2,620               1,888            (3,617)             --
Accounts payable ............................           184             552               3,065                             3,801
Accrued expenses and other ..................           438           2,082                (267)                            2,253
                                                  -------------------------------------------------------------------------------

Net cash (used in) provided by operating
     activities .............................        (4,609)          3,759               6,255                --           5,405
                                                  -------------------------------------------------------------------------------

Investing activities:
Capital expenditures ........................           (47)         (4,099)             (2,363)                           (6,509)
Acquisition of a business ...................       (51,700)             --                  --                           (51,700)
Other investing .............................            --              --                (339)                             (339)
                                                  -------------------------------------------------------------------------------

Net cash used in investing activities .......       (51,747)         (4,099)             (2,702)               --         (58,548)
                                                  -------------------------------------------------------------------------------

Financing activities:
Cash overdraft ..............................          (158)          1,590                  --                             1,432
Net increase (decrease) in short term debt ..        12,586              --                (183)                           12,403
Proceeds from long term debt ................            --              --               1,590                             1,590
Proceeds from issuance of redeemable
   preferred stock ..........................        45,000              --                  --                            45,000
Payments of long term debt ..................           (15)           (340)               (663)                           (1,018)
Other financing .............................          (942)             --                  --                --            (942)
                                                  -------------------------------------------------------------------------------

Net cash provided by financing activities ...        56,471           1,250                 744                --          58,465
                                                  -------------------------------------------------------------------------------

Effect of exchange rate changes on cash .....            --              --                (164)                             (164)
                                                  -------------------------------------------------------------------------------

Net increase in cash and cash equivalents ...           115             910               4,133                --           5,158

Cash and cash equivalents
   at beginning of year .....................            11              99               2,293                             2,403
                                                  -------------------------------------------------------------------------------

Cash and cash equivalents
   at end of year ...........................     $     126       $   1,009           $   6,426         $      --       $   7,561
                                                  ===============================================================================
</TABLE>


                                       17
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
               CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)
                              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
   (loss) income -
   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>


                                       18
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
           CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
                  FOR THE THREE MONTHS ENDED DECEMBER 31, 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 ...................................     $   8,735       $  42,810           $  34,596         $  (9,852)       $ 76,289

Cost of goods sold ..........................         6,974          32,506              25,360            (9,852)         54,988
                                                  -------------------------------------------------------------------------------

Gross profit ................................         1,761          10,304               9,236                --          21,301

Selling, general, and administrative
   expenses .................................         3,295           8,936               5,726                            17,957
                                                  -------------------------------------------------------------------------------

Operating (loss) income .....................        (1,534)          1,368               3,510                --           3,344

Interest expense ............................         1,947              77               1,574                             3,598

Interest income .............................            (5)             (1)                (77)                              (83)

Other expense ...............................        (1,000)             --               2,134                             1,134

Intercompany allocation .....................        (2,622)          2,622                  --                                --

Loss (profit) relating to subsidiaries ......         1,286              --                  --            (1,286)             --
                                                  -------------------------------------------------------------------------------

(Loss) income before income taxes ...........        (1,140)         (1,330)               (121)            1,286          (1,305)

(Benefit) provision for income taxes ........          (394)           (484)                319                --            (559)
                                                  -------------------------------------------------------------------------------

Net (loss) income ...........................     $    (746)      $    (846)          $    (440)        $   1,286       $    (746)
                                                  ===============================================================================
</TABLE>


                                       19
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
          CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
                   FOR THE SIX MONTHS ENDED DECEMBER 31, 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 ...................................     $  17,445       $  80,339           $  67,591         $ (18,157)      $ 147,218

Cost of goods sold ..........................        14,032          60,507              49,676           (18,157)        106,058
                                                  -------------------------------------------------------------------------------

Gross profit ................................         3,413          19,832              17,915                --          41,160

Selling, general, and administrative
   expenses .................................         6,473          18,552              12,006                            37,031
                                                  -------------------------------------------------------------------------------

Operating (loss) income .....................        (3,060)          1,280               5,909                --           4,129

Interest expense ............................         3,879             119               2,990                             6,988

Interest income .............................           (12)             (1)               (162)                             (175)

Other expense ...............................          (912)             --               2,947                             2,035

Intercompany allocation .....................        (5,212)          5,212                  --                                --

Loss (profit) relating to subsidiaries ......         2,712              --                  --            (2,712)             --
                                                  -------------------------------------------------------------------------------

(Loss) income before income taxes ...........        (3,515)         (4,050)                134             2,712          (4,719)

(Benefit) provision for income taxes ........          (784)         (1,465)                261                --          (1,988)
                                                  -------------------------------------------------------------------------------

Net (loss) income ...........................     $  (2,731)      $  (2,585)          $    (127)        $   2,712       $  (2,731)
                                                  ===============================================================================
</TABLE>


                                       20
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
           CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
                   FOR THE SIX MONTHS ENDED DECEMBER 31, 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 ...........................     $  (2,731)      $  (2,585)          $    (127)        $   2,712       $  (2,731)
Adjustments to reconcile net (loss)
     income to net cash provided by
     operating activities:
   Depreciation and amortization ............           273           2,197               3,512                             5,982
   Other ....................................         1,106            (407)               (359)                              340

Changes in operating assets and liabilities:
Accounts receivable .........................         1,297           4,357               6,507                            12,161
Inventory ...................................        (1,842)         (4,819)                979                            (5,682)
Prepaid expenses and other ..................        (2,243)            533               3,380                             1,670
Other assets ................................             6             (76)               (207)                             (277)
Intercompany ................................        (3,607)          7,426              (1,107)           (2,712)             --
Accounts payable ............................          (570)         (2,550)             (4,343)                           (7,463)
Accrued expenses and other ..................           323          (3,835)               (463)                           (3,975)
                                                  -------------------------------------------------------------------------------

Net cash (used in) provided by operating
   activities ...............................        (7,988)            241               7,772                --              25
                                                  -------------------------------------------------------------------------------

Investing activities:
Capital expenditures ........................           (62)         (3,085)             (6,756)                           (9,903)
Proceeds from property damage claim .........            --             872                  --                               872
Other investing .............................        (1,500)             --                  --                            (1,500)
                                                  -------------------------------------------------------------------------------

Net cash used in investing activities .......        (1,562)         (2,213)             (6,756)               --         (10,531)
                                                  -------------------------------------------------------------------------------

Financing activities:
Cash overdraft ..............................           256             878                (529)                              605
Net (decrease) increase in short term debt ..           (32)             --                 345                               313
Proceeds from long term debt ................         9,015           1,545                 486                            11,046
Payments of long term debt ..................           (75)           (109)               (325)                             (509)
Other financing .............................            --              --                  62                                62
                                                  -------------------------------------------------------------------------------

Net cash provided by financing activities ...         9,164           2,314                  39                --          11,517
                                                  -------------------------------------------------------------------------------

Net (decrease) increase in
   cash and cash equivalents ................          (386)            342               1,055                             1,011

Cash and cash equivalents
   at beginning of year .....................           393             166               1,749                             2,308
                                                  -------------------------------------------------------------------------------

Cash and cash equivalents
   at end of year ...........................     $       7       $     508           $   2,804         $      --       $   3,319
                                                  ===============================================================================
</TABLE>


                                       21
<PAGE>

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

      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 throughout this
Form 10-Q and are discussed under the caption of this Item 2 entitled "Certain
Factors Affecting Future Operating Results".

General

      Philipp Brothers Chemicals, Inc. (together with its subsidiaries, 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 nutrition and health,
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. Unless the context
otherwise requires, references herein to the Company are intended to refer to
Philipp Brothers Chemicals, Inc. and/or one or more of its subsidiaries, as
applicable.

Acquisition

      On November 30, 2000, the Company purchased (see Note 2 of the Notes to
the Condensed Consolidated Financial Statements) the Medicated Feed Additives
(MFA) business of Pfizer, Inc. (Pfizer). The MFA business produces and sells a
broad range of medicated feed additive products to the global livestock
industry, either directly to large integrated livestock producers or through a
network of independent distributors.

      The purchase price for this acquisition was $74.4 million, of which $51.7
million was paid in cash with the remainder being financed through the issuance
of a promissory note to Pfizer for $22.7 million. The note is payable in 2003
and bears interest at 13% payable semi-annually in arrears. The Company financed
the $51.7 million cash payment through net cash proceeds of $40.8 million from
the issuance of redeemable preferred securities (see Note 7 of the Notes to
Condensed Consolidated Financial Statements) and the remainder through an
amendment to existing bank credit facilities (see Note 6 of the Notes to
Condensed Consolidated Financial Statements). 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 $55.0 million, with a maximum annual payment of $12.0 million. In
addition, the Company is required to pay Pfizer contingent payments to a maximum
of $10.0 million over five years on other products based on certain gross profit
levels of the MFA business.

     The acquisition was accounted for as a purchase and operating results have
been included since the date of acquisition. The MFA business is included in the
AgChem Segment for segment reporting purposes.

Results of Operations

The Company operates in two industry segments: AgChem and Industrial Chemicals.

<TABLE>
<CAPTION>
                                                                           Sales
                                                                         ($000's)
                                                      Three Months Ended         Six Months Ended
                                                         December 31,              December 31,
Operating Segments                                     2000        1999          2000        1999
                                                     -------     -------       --------    --------
     <S>                                             <C>         <C>           <C>         <C>
     AgChem .....................................    $49,934     $43,971       $ 90,497    $ 81,529
     Industrial Chemicals .......................     39,025      39,759         77,081      79,406
     Elimination of intersegment sales ..........     (7,185)     (7,441)       (14,452)    (13,717)
                                                     -------     -------       --------    --------
                                                     $81,774     $76,289       $153,126    $147,218
                                                     =======     =======       ========    ========
</TABLE>


                                       22
<PAGE>

<TABLE>
<CAPTION>
                                                                    Operating Income
                                                                         ($000's)
                                                      Three Months Ended         Six Months Ended
                                                         December 31,              December 31,
Operating Segments                                     2000        1999          2000        1999
                                                     -------     -------       --------    --------
     <S>                                             <C>         <C>            <C>         <C>
     AgChem .....................................    $ 1,096     $ 2,354       $  2,521    $  3,137
     Industrial Chemicals .......................        467       3,698          1,778       5,845
     Corporate expenses and eliminations ........     (3,955)     (2,708)        (5,281)     (4,853)
                                                     -------     -------       --------    --------
                                                     $(2,392)    $ 3,344       $   (982)   $  4,129
                                                     =======     =======       ========    ========
</TABLE>

Comparison of Three Months Ended December 31, 2000 and 1999

      Net Sales. Net sales increased by $5.5 million, or 7.2% to $81.8 million
in the three months ended December 31, 2000 as compared to the same period of
the prior year. AgChem sales increased by $6.0 million, primarily due to $10.4
million of sales from the newly acquired MFA business. This was partially offset
by a $3.9 million reduction in sales of crop protection chemicals primarily due
to heavier than normal sales volume during the second quarter of fiscal 2000 as
one customer purchased additional product to meet their minimum purchase
commitments for the calendar year. Sales to this customer during fiscal 2001
have followed a more normalized sales pattern. Industrial Chemicals sales were
lower by $.7 million primarily due to lower sales of calcium carbide ($1.3
million) as the continuing weak market negatively impacted both pricing and
volume. Increased demand for coal fly ash ($.9 million) and higher recycling
fees ($.7 million) were offset by reduced sales of halogenated organic compounds
($1.0 million) as lower priced competitive products from China has resulted in
reduced market share.

      Gross Profit. Gross profit decreased by $.8 million, or 3.9% to $20.5
million as compared to the same period of the prior year. In AgChem, gross
profits generated by one month of operations of the MFA business were $3.6
million, which were partially offset by reduced profits from crop protection
chemicals ($1.9 million). Gross profit (and operating income) of the MFA
business would have been $1.1 million higher than reported if not for purchase
price adjustments to the value of inventory acquired from Pfizer. Lower profits
in the Industrial Chemicals segment were primarily due to increased raw material
and utility costs in the production of calcium carbide and dicyandiamide which,
in conjunction with the reduced volume and pricing on calcium carbide,
negatively impacted gross profit by $2.5 million. The stronger demand for coal
fly ash and the increase in recycling fees was partially offset by the reduction
in profits from halogenated organic compounds.

      Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $4.9 million, or 27.3% to $22.9 million for
the three months ended December 31, 2000 as compared to the same period of the
prior year. This increase was primarily due to the MFA acquisition ($3.2
million) and compensation expense associated with the separation of employment
of a senior executive of the Company ($1.3 million). Expenses of the MFA
business included $.9 million of pre-operating costs associated with the
start-up of operations. Offsetting these items were lower expenses ($.6 million)
at the Company's Norwegian subsidiary, primarily the result of cost containment
measures taken over the past year.

      Operating Income. Operating income decreased by $5.7 million to a loss of
$2.4 million for the three months ended December 31, 2000 as compared to the
same period of the prior year. Operating income of the AgChem segment decreased
by $1.3 million as reduced profitability from crop protection chemicals ($1.3
million) was partially offset by income generated from the MFA acquisition ($.4
million). Operating income of the Industrial Chemicals segment was lower by $3.2
million primarily due to lower profitability of dicyandiamide and calcium
carbide ($2.0 million) and halogenated organic compounds ($.6 million). In
addition, corporate expenses were higher by $1.2 million due to the employment
separation discussed above.

      Interest Expense, Net. Net interest expense increased by $.4 million, or
10.8% to $3.9 million in the three months ended December 31, 2000 as compared to
the same period of the prior year. The additional debt taken on as part of the
financing of the MFA acquisition as well as higher interest rates under the new
credit facility with PNC Bank were the primary factors for the increase.

      Other Expense, Net. Other expense, net is primarily comprised of foreign
currency gains.

      Income Taxes. The Company provides a benefit on interim period losses to
the extent income is projected for the full fiscal year. The effective tax rate
for the quarter is higher 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.


                                       23
<PAGE>

Comparison of Six Months Ended December 31, 2000 and 1999

      Net Sales. Net sales increased by $5.9 million, or 4.0% to $153.1 million
in the six months ended December 31, 2000 as compared to the same period of the
prior year. AgChem sales increased by $9.0 million, primarily due to $10.4
million of sales from the MFA business as well as non-repeating sales of certain
intermediates totaling $1.2 million. This was partially offset by a $2.8 million
reduction in sales of crop protection chemicals primarily due to heavier than
normal sales volume during the second quarter of fiscal 2000 as one customer
purchased additional product to meet their minimum purchase commitments for the
calendar year. Sales to this customer during fiscal 2001 have followed a more
normalized sales pattern. Industrial Chemicals sales were lower by $2.3 million
primarily due to lower sales of calcium carbide ($2.7 million) as the continuing
weak market negatively impacted both pricing and volume. Increased demand for
coal fly ash ($1.7 million) and higher recycling fees ($1.3 million) were
partially offset by reduced sales of halogenated organic compounds ($2.1
million) due to the impact of competitive products from China and lower sales of
dicyandiamide ($.6 million) resulting from manufacturing disruptions during the
first quarter.

      Gross Profit. Gross profit decreased by $1.6 million, or 4.0% to $39.5
million as compared to the same period of the prior year. In AgChem, gross
profits generated by one month of operations of the MFA business were $3.6
million, which were partially offset by reduced profits from crop protection
chemicals ($1.7 million). Lower profits in the Industrial Chemicals segment were
primarily due to increased raw material and utility costs in the production of
calcium carbide and dicyandiamide which, in conjunction with the reduced volume
and pricing on calcium carbide, negatively impacted gross profit by $5.0
million. Profit margin on coal fly ash improved considerably as higher demand
resulted in higher prices and increased production, resulting in additional
gross profit of $1.4 million. The increase in recycling fees more than offset
the reduction in profits from halogenated organic compounds.

      Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $3.5 million, or 9.4% to $40.5 million for the
six months ended December 31, 2000 as compared to the same period of the prior
year. This increase was primarily due to the MFA acquisition ($3.2 million),
compensation expense associated with the separation of employment of a senior
executive of the Company ($1.3 million), and additional warehousing and
distribution costs associated with the increased sales of coal fly ash ($1.2
million). Offsetting these items were lower expenses ($2.0 million) at the
Company's Norwegian subsidiary, primarily the result of cost containment
measures taken over the past year.

      Operating Income. Operating income decreased by $5.1 million to a loss of
$1.0 million for the six months ended December 31, 2000 as compared to the same
period of the prior year. Operating income of the AgChem segment decreased by
$.6 million primarily due to reduced profitability from crop protection
chemicals partially offset by income generated from the MFA acquisition.
Operating income of the Industrial Chemicals segment was lower by $4.1 million
primarily due to lower profitability of dicyandiamide and calcium carbide ($2.9
million) and halogenated organic compounds ($1.1 million).

      Interest Expense, Net. Net interest expense increased by $.8 million, or
11.8% to $7.6 million in the six months ended December 31, 2000 as compared to
the same period of the prior year. Increased average borrowings as well as
higher interest rates were the primary factors for the increase.

      Other Expense, Net. Other expense, net is primarily comprised of foreign
currency gains.

      Income Taxes. The Company provides a benefit on interim period losses to
the extent income is projected for the full fiscal year.

Liquidity and Capital Resources

      Net Cash Provided by Operating Activities. Cash provided by operations for
the six months ended December 31, 2000 was $5.4 million. Included in this is
$4.1 million as a final settlement from the Company's insurance carrier for
business interruption and other reimbursable losses and expenses in connection
with a fire, in April 1999, at its Bowmanstown, Pennsylvania facility.

      Net Cash Used in Investing Activities. Cash used in investing activities
for the six months ended December 31, 2000 was $58.5 million, primarily related
to the MFA acquisition ($51.7 million). See Note 2 of the Notes to the Condensed
Consolidated Financial Statements for details on the non-cash consideration for
this acquisition. Capital expenditures of $6.5 million were primarily for
improvements at the Company's ODDA (Norway) facility and expansion of the
Company's coal fly ash operations.


                                       24
<PAGE>

      Net Cash Provided by Financing Activities. Net cash provided by financing
activities for the six months ended December 31, 2000 was $58.5 million, of
which $51.7 million was used for the MFA acquisition. See Note 2 of the Notes to
the Condensed Consolidated Financial Statements for the sources of funds used in
financing this acquisition.

      Liquidity. 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 interest rate under the amended agreement is 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.

      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.

      As of December 31, 2000, the Company had $80.3 million of working capital
compared to $79.9 million as of June 30, 2000. Inventories increased by $55.6
million from the fiscal year end, primarily due to inventory purchased as part
of the MFA acquisition ($51.7 million). 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
December 31, 2000, the amount of credit extended under this agreement totaled
$42.4 million and the Company had $18.4 million available under the borrowing
base formula in this agreement.

      Commencing with the fourth quarter of fiscal 2000, due to competitive
market conditions, the Company extended payment terms on selected AgChem sales
representing $6.7 million of revenues. These terms defer cash inflows into the
third and fourth quarters of fiscal 2001.

      The Company anticipates spending approximately $16 million for capital
expenditures in the 2001 fiscal year for its existing business, principally for
improvements at its ODDA facility and for expansion of its coal fly ash
operations. Depending on actual future operating results, the Company may, if
necessary, postpone certain expenditures that are considered discretionary.

      The Company believes that cash flows from operations and available
borrowing arrangements should provide sufficient working capital to operate the
Company's business, to make budgeted capital expenditures, and to service
interest and current principal coming due on outstanding long term debt for the
next twelve months.

Seasonality of Business

      The Company's sales are typically highest in the fourth fiscal quarter.
The Company's sales of copper-based fungicides and other agricultural products
are typically highest in the first and fourth fiscal quarters, and its sales of
gibberellic acid are highest in the fourth quarter, due to the seasonal nature
of the agricultural industry. The Company's sales of finished chemicals to the
wood treatment industry are typically highest in the first and fourth fiscal
quarters due to the increased level of home construction during these periods.
Additionally, sales of these products may be more concentrated in one of these
quarters due to weather conditions.


                                       25
<PAGE>

Quantitative and Qualitative Disclosure About Market Risk

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

Interest Rate Risk

      The Company uses sensitivity analysis to assess the market risk of its
debt-related financial instruments and derivatives. Market risk is defined for
these purposes as the potential change in the fair value resulting from an
adverse movement in interest rates. The 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. As
of December 31, 2000, the fair value of the Company's senior subordinated debt
was estimated based on quoted market rates to be $71.8 million and the related
carrying amount is $100 million. A 100 basis point increase in interest rates
could result in an approximately $5.4 million reduction in the fair value of
total debt.

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 December 31, 2000, the fair market value was equal to their 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.

Other

      The Company obtains third party letters of credit and surety bonds in
connection with certain inventory purchases and insurance obligations. At
December 31, 2000, the contract values of these letters of credit and surety
bonds were $.4 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 commodity
derivative instruments to modify some of the commodity price risks. At December
31, 2000, the fair market value was equal to their carrying value 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.

      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


                                       26
<PAGE>

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-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
MFA 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."


                                       27
<PAGE>

                          PART II -- OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds.

      On November 30, 2000, Philipp Brothers Chemicals, Inc. sold 25,000 Series
B Redeemable Participating Preferred Shares, for gross proceeds of $25 million,
and 20,000 Series C Redeemable Participating Preferred Shares, for gross
proceeds of $20 million. The securities were sold in a privately negotiated
transaction to Palladium Equity Partners II, L.P., Palladium Equity Partners
II-A, L.P. and Palladium Equity Investors II, L.P. pursuant to the exemption
from registration under the Securities Act of 1933, as amended (the "Act"),
provided pursuant to Section 4(2) of the Act.

Item 6. Exhibits and Reports on Form 8-K

     (a) Exhibits

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

      3.1(a)            Certificate of Amendment of Certificate of Incorporation
                        of Philipp Brothers Chemicals, Inc., dated November 30,
                        2000.*

     10.2               Amended and Restated Revolving Credit, Capital
                        Expenditure Line and Security Agreement, dated November
                        30, 2000, between Philipp Brothers Chemicals, Inc. and
                        PNC Bank National Association.*

     10.35              Stock Purchase Agreement, dated as of November 30, 2000,
                        between Philipp Brothers Chemicals, Inc. and the
                        Purchasers (as defined therein).*

     10.36              Stockholders' Agreement, dated as of November 30, 2000,
                        among Philipp Brothers Chemicals, Inc., the Investor
                        Stockholders (as defined therein) and Jack C. Bendheim.*

----------
*    Filed as an Exhibit to the registrant's Current Report on Form 8-K, dated
     November 30, 2000, filed with the Securities and Exchange Commission.

      (b) Reports on Form 8-K

      The registrant filed a Current Report on Form 8-K dated November 30, 2000,
as amended by a Current Report on Form 8-K/A dated February 2, 2001, reporting
under Item 2 the acquisition of assets relating to the Medicated Feed Additives
business of Pfizer Inc. and certain of its subsidiaries. The financial
statements reported in Item 7 of said Form 8-K/A were: (a) statements of assets
acquired as of December 31, 1999 and 1998, and the related statements of
revenues and operating expenses for the years ended December 31, 1999, 1998 and
1997, and (b) the following pro forma condensed consolidated financial
statements (unaudited) of the registrant giving effect to the acquisition: pro
forma balance sheet as of September 30, 2000, and pro forma income statements
for the year ended June 30, 2000 and for the three months ended September 30,
2000.


                                       28
<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: February 13, 2001                   By: /s/ David Storbeck
                                             ------------------------------
                                             David Storbeck,
                                             Chief Financial Officer


Date: February 13, 2001                   By: /s/ Joseph Katzenstein
                                             ------------------------------
                                             Joseph Katzenstein, Treasurer
                                             and Secretary

                                       29
<PAGE>

                                  EXHIBIT INDEX

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

      3.1(a)            Certificate of Amendment of Certificate of Incorporation
                        of Philipp Brothers Chemicals, Inc., dated November 30,
                        2000.*

      10.2              Amended and Restated Revolving Credit, Capital
                        Expenditure Line and Security Agreement, dated November
                        30, 2000, between Philipp Brothers Chemicals, Inc. and
                        PNC Bank National Association.*

      10.35             Stock Purchase Agreement, dated as of November 30, 2000,
                        between Philipp Brothers Chemicals, Inc. and the
                        Purchasers (as defined therein).*

      10.36             Stockholders' Agreement, dated as of November 30, 2000,
                        among Philipp Brothers Chemicals, Inc., the Investor
                        Stockholders (as defined therein) and Jack C. Bendheim.*
----------
*    Filed as an Exhibit to the registrant's Current Report on Form 8-K, dated
     November 30, 2000, filed with the Securities and Exchange Commission.


                                       30