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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                    FORM 10-Q

                                   ----------

      (Mark One)

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

                  For the quarterly period ended March 31, 2001

                                       OR

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

             For the transition period from _________ to __________.

                        Commission File Number 333-64641

                                   ----------

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

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

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

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

                                   ----------

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                  Yes |X|                             No | |

Number of shares of each class of common stock outstanding as of May 1, 2001:

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


<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.

                                TABLE OF CONTENTS

                                                                          Page
                                                                          ----

PART I    FINANCIAL INFORMATION (UNAUDITED)

      Item 1. Condensed Financial Statements 3
              Condensed Consolidated Balance Sheets ....................   4

              Condensed Consolidated Statements of Operations
                and Comprehensive Income ...............................   5
              Condensed Consolidated Statements of Changes in
                Stockholders' Equity ...................................   6
              Condensed Consolidated Statements of Cash Flows ..........   7
              Notes to Condensed Consolidated Financial Statements .....   8

      Item 2. Management's Discussion and Analysis of Financial

              Condition and Results of Operations ......................  22
      Item 3. Quantitative and Qualitative Disclosures
                About Market Risk ......................................  27

PART II OTHER INFORMATION

      Item 5. Other Information ........................................  28
      Item 6. Exhibits and Reports on Form 8-K .........................  28

SIGNATURES .............................................................  29


                                       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>
                                                                                        March 31,             June 30,
                                                                                           2001                 2000
                                                                                        ---------            ---------
                                     Assets
<S>                                                                                     <C>                  <C>
CURRENT ASSETS:
   Cash and cash equivalents ......................................................     $  15,084            $   2,403
   Trade receivables, less allowance for doubtful accounts of $869
     at March 31, 2001 and $756 at June 30, 2000 ..................................        79,626               79,376
   Other receivables ..............................................................         4,829                8,479
   Inventories ....................................................................       102,289               50,405
   Prepaid expenses and other current assets ......................................        14,100                9,098
                                                                                        ---------            ---------
   TOTAL CURRENT ASSETS ...........................................................       215,928              149,761
PROPERTY, PLANT AND EQUIPMENT, NET ................................................        98,204               76,180
INTANGIBLES .......................................................................         6,049                6,297
OTHER ASSETS ......................................................................        27,867               26,213
                                                                                        ---------            ---------
                                                                                        $ 348,048            $ 258,451
                                                                                        =========            =========
                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Cash overdraft .................................................................     $   4,805            $   2,120
   Loans payable to banks .........................................................        62,900                8,650
   Current portion of long-term debt ..............................................         3,639                2,296
   Accounts payable ...............................................................        38,735               32,642
   Accrued expenses and other current liabilities .................................        36,367               24,157
                                                                                        ---------            ---------
     TOTAL CURRENT LIABILITIES ....................................................       146,446               69,865

LONG-TERM DEBT ....................................................................       131,690              139,722
OTHER LIABILITIES .................................................................        10,478               13,282
                                                                                        ---------            ---------
     TOTAL LIABILITIES ............................................................       288,614              222,869
                                                                                        ---------            ---------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE SECURITIES:
   Series B and C preferred stock .................................................        47,250                   --
   Common stock ...................................................................         1,226                3,513
   Common stock of subsidiary .....................................................            95                  451
                                                                                        ---------            ---------
     TOTAL REDEEMABLE SECURITIES ..................................................        48,571                3,964
                                                                                        ---------            ---------
STOCKHOLDERS' EQUITY:
   Series A preferred stock .......................................................           521                  521
   Common stock ...................................................................             2                    2
   Paid-in capital ................................................................           878                  878
   Retained earnings ..............................................................        16,780               32,808
   Accumulated other comprehensive loss ...........................................        (7,318)              (2,591)
                                                                                        ---------            ---------
     TOTAL STOCKHOLDERS' EQUITY ...................................................        10,863               31,618
                                                                                        ---------            ---------
                                                                                        $ 348,048            $ 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         Nine Months Ended
                                                   March 31,                 March 31,
                                              2001          2000         2001         2000
                                            --------      --------     --------     --------
<S>                                         <C>          <C>          <C>          <C>
NET SALES ...............................   $ 102,203    $  79,443    $ 255,329    $ 226,661

COST OF GOODS SOLD ......................      75,312       57,934      188,912      163,992
                                            ---------    ---------    ---------    ---------
   GROSS PROFIT .........................      26,891       21,509       66,417       62,669

SELLING, GENERAL AND ADMINISTRATIVE
   EXPENSES .............................      25,575       18,856       66,083       55,887
                                            ---------    ---------    ---------    ---------
   OPERATING INCOME .....................       1,316        2,653          334        6,782

OTHER:

   Interest expense .....................       5,183        3,777       13,202       10,765

   Interest income ......................          16         (292)        (387)        (467)

   Other expense, net ...................       1,137          743        1,234        2,778

   Gain from property damage claim ......          --         (550)          --         (550)

   Gain from sale of asset ..............          --      (14,195)          --      (14,195)
                                            ---------    ---------    ---------    ---------
   (LOSS) INCOME BEFORE INCOME
      TAXES .............................      (5,020)      13,170      (13,715)       8,451

(BENEFIT) PROVISION FOR INCOME
  TAXES .................................      (1,171)       3,687       (4,129)       1,699
                                            ---------    ---------    ---------    ---------
   NET (LOSS) INCOME ....................      (3,849)       9,483       (9,586)       6,752

OTHER COMPREHENSIVE (LOSS)

   Loss on derivative instruments .......        (168)          --           --           --

   Change in foreign currency translation
     adjustment .........................      (3,955)      (1,087)      (4,727)        (177)
                                            ---------    ---------    ---------    ---------
   COMPREHENSIVE (LOSS) INCOME ..........   $  (7,972)   $   8,396    $ (14,313)   $   6,575
                                            =========    =========    =========    =========
</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 Nine Months Ended March 31, 2001
                                 (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
                                    --------    --------    --------   --------  ---------  --------------  --------
<S>                                  <C>         <C>         <C>        <C>        <C>         <C>          <C>
BALANCE,
   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
     redeemable 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
                                     ========    ========    ========   ========   ========    ========     ========
   Dividends on series B and C
     redeemable preferred stock ..         --          --          --         --     (1,687)         --       (1,687)

   Loss on derivative
     instruments ................          --          --          --         --         --        (168)        (168)

   Foreign currency translation
     adjustment .................          --          --          --         --         --      (3,955)      (3,955)

   Net loss .....................          --          --          --         --     (3,849)         --       (3,849)
                                                                        --------   --------    --------     --------
BALANCE,
MARCH 31, 2001 ..................    $    521    $      1    $      1   $    878   $ 16,780    $ (7,318)    $ 10,863
                                     ========    ========    ========   ========   ========    ========     ========
</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 Nine Months Ended March 31, 2001 and 2000
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                          2001        2000
                                                                        --------    --------
<S>                                                                     <C>         <C>
OPERATING ACTIVITIES:
   Net (loss) income ................................................   $ (9,586)   $  6,752
   Adjustments to reconcile net (loss) income to net cash provided by
      (used in) operating activities:
      Depreciation and amortization .................................     10,256       9,223
      Gain from property damage claim ...............................         --        (550)
      Gain from sale of asset .......................................         --     (14,195)
      Other .........................................................     (2,038)     (3,258)
      Changes in operating assets and liabilities:
        Accounts receivable .........................................      1,138       5,165
        Inventories .................................................     (1,202)    (10,779)
        Prepaid expenses and other current assets ...................        854         184
        Other assets ................................................     (3,165)       (805)
        Accounts payable ............................................      5,683      (2,520)
        Accrued expenses and other current liabilities ..............       (360)         (8)
                                                                        --------    --------
        NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES .........      1,580     (10,791)
                                                                        --------    --------
INVESTING ACTIVITIES:
   Capital expenditures .............................................    (10,326)    (13,921)
   Acquisition of a business ........................................    (51,700)         --
   Proceeds from property damage claim ..............................         --         872
   Proceeds from sale of assets .....................................         37      18,700
   Other investing ..................................................       (494)     (3,000)
                                                                        --------    --------
        NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES .........    (62,483)      2,651
                                                                        --------    --------
FINANCING ACTIVITIES:
   Cash overdraft ...................................................      3,344       1,845
   Net increase in short-term debt ..................................     25,485       2,076
   Proceeds from long-term debt .....................................      1,578      19,249
   Proceeds from issuance of redeemable preferred stock .............     45,000          --
   Payments of long-term debt .......................................       (836)    (11,414)
   Other financing ..................................................       (942)         62
                                                                        --------    --------
        NET CASH PROVIDED BY FINANCIAL ACTIVITIES ...................     73,629      11,818
                                                                        --------    --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH .............................        (45)         --
                                                                        --------    --------
        NET INCREASE IN CASH AND CASH EQUIVALENTS ...................     12,681       3,678

CASH AND CASH EQUIVALENTS at beginning of period ....................      2,403       2,308
                                                                        --------    --------
        CASH AND CASH EQUIVALENTS at end of period ..................   $ 15,084    $  5,986
                                                                        ========    ========
</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 March 31, 2001 and the results of operations  and cash flows for the three
months and nine months ended March 31, 2001 and 2000.

      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 $1,132 and $3,561 for the three months and nine months ended
March 31, 2000, 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  March  31,  2001,  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  loss  of $168 in  other
comprehensive income for foreign currency options, a net loss of $147 in cost of
goods sold for  commodity  contracts and a net loss of $567 in other expense for
the foreign currency forward contracts and the ineffective portion of the option
contracts  for the three month  period ended March 31, 2001 and net losses of $0
and $143 and a net gain of $60,  respectively,  for the nine months  ended March
31, 2001.

      In December 1999, the  Securities and Exchange  Commission  ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition",  which provides
guidelines  in applying  generally  accepted  accounting  principles to selected
revenue  recognition  issues.  In October 2000,  the SEC issued an  interpretive
release to SAB 101, clarifying certain of its positions on revenue  recognition.
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 anticipates  recording the effect of adoption of SAB 101 as a cumulative
effect adjustment,  retroactive to July 1, 2000, however,  the Company continues
to assess the  impact of the SEC's  interpretive  release  and the amount of the
cumulative effect adjustment will not be known until the fourth fiscal quarter.

      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  costs as revenue.  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 nine months ended March
31, 2001 and 2000 may not be indicative of results for the full year.


                                       8
<PAGE>

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

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  issuance  of a  promissory  note to  Pfizer  for
$22,734, which matures in 2003 with interest payable semi-annually in arrears at
13%. The purchase price continues to be subject to finalization based on certain
working  capital  adjustments  under the  agreement.  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 $3,406 under this arrangement as
of March 31, 2001. In addition, the Company is required to pay Pfizer contingent
purchase  price up to a maximum  of $10,000  over five  years on other  products
based on certain gross profit  levels of the MFA business.  No amounts have been
accrued under this arrangement.

      The  acquisition  was accounted for in accordance with the purchase method
and  results  of  the  MFA  business  have  been  included  since  the  date  of
acquisition.  The purchase price has been  preliminarily  allocated to inventory
and property,  plant, and equipment.  Property, plant and equipment includes two
facilities,  Rixensart,  Belgium and Guarulhols,  Brazil. Following the closing,
the Company is operating under a supply  agreement with Pfizer in respect of the
manufacturing facility in Belgium pending regulatory approval of the transfer of
title.  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 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  nine-month  periods
being reported are as follows.

                                                   Nine Months Ended
                                                       March 31,
                                                   2001         2000
                                                 --------     --------
          Net sales                              $305,940     $348,433
          Net (loss) income                       (10,243)      18,386

      The impact of purchase price  adjustments  to the inventory  acquired from
Pfizer increased the net loss in 2001 by $3,335.

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 March 31, 2001 and June 30, 2000 consist of the following:

                                                  March 31,     June 30,
                                                    2001         2000
                                                  --------      -------
          Raw materials                           $ 27,117      $21,457
          Work-in-process                            2,832        5,340
          Finished goods                            72,340       23,608
                                                  --------      -------
                                                  $102,289      $50,405
                                                  ========      =======


                                       9
<PAGE>

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

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 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.

      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  $1,737
as of March 31, 2001, 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 $2,751 and $2,014 for the three  months  ended  March 31, 2001 and
2000,  respectively,  and $9,215 and $6,157 for the nine months  ended March 31,
2001 and 2000, respectively, from the Industrial


                                       10
<PAGE>

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

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 March 31, 2001
Revenues - external customers .............  $ 68,049   $ 34,154   $     --       $102,203
         - intersegment ...................     1,622      5,847     (7,469)             0
                                             --------   --------   --------       --------
Total revenues ............................  $ 69,671   $ 40,001   $ (7,469)      $102,203
                                             ========   ========   ========       ========
Operating income (loss) ...................  $  3,113   $    479   $ (2,276)(1)   $  1,316
                                             ========   ========   ========       ========
</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 March 31, 2000
Revenues - external customers .............   $43,892   $35,551   $    --       $79,443
         - intersegment ...................       806     4,652    (5,458)            0
                                              -------   -------   -------       -------
Total revenues ............................   $44,698   $40,203   $(5,458)      $79,443
                                              =======   =======   =======       =======
Operating income (loss) ...................   $ 2,989   $ 1,842   $(2,178)(2)   $ 2,653
                                              =======   =======   =======       =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                        Industrial
                                              AgChem    Chemicals
                                              Group       Group     Other          Total
                                             --------   ---------  --------       --------
<S>                                          <C>        <C>        <C>            <C>
Nine Months Ended March 31, 2001
Revenues - external customers .............  $156,272   $ 99,057        $--       $255,329
         - intersegment ...................     3,896     18,025    (21,921)             0
                                             --------   --------   --------       --------
Total revenues ............................  $160,168   $117,082   $(21,921)      $255,329
                                             ========   ========   ========       ========
Operating income (loss) ...................  $  5,634   $  2,257   $ (7,557)(1)   $    334
                                             ========   ========   ========       ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                        Industrial
                                              AgChem    Chemicals
                                              Group       Group     Other          Total
                                             --------   ---------  --------       --------
<S>                                          <C>        <C>        <C>            <C>
Nine Months Ended March 31, 2000
Revenues - external customers .............  $122,573   $104,088   $     --       $226,661
         - intersegment .................       3,654     15,521    (19,175)             0
                                             --------   --------   --------       --------
Total revenues ............................  $126,227   $119,609   $(19,175)      $226,661
                                             ========   ========   ========       ========
Operating income (loss) ...................  $  6,126   $  7,687   $ (7,031)(2)   $  6,782
                                             ========   ========   ========       ========
</TABLE>

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

6. Credit Facility

      In  connection  with the MFA  acquisition,  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


                                       11
<PAGE>

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

(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 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.  Dividends of $2,250 have been accrued on the preferred securities
and charged to retained earnings as of March 31, 2001. No equity value accretion
was required as of March 31, 2001 under the applicable formula.

      In  addition,  an annual  management  advisory fee of $2,250 is payable to
Palladium  until all of the  Preferred B and  Preferred  C shares are  redeemed.
Payments are made quarterly in advance.

8. Subsequent Event

      On May 4, 2001, the Company sold its Agtrol U.S.  business,  a division of
the Company's Phibro-Tech,  Inc. subsidiary,  to Nufarm, Inc. ("Nufarm"), a U.S.
subsidiary of Nufarm Limited,  a publicly listed  Australian based company.  The
effective  date was May 1, 2001 and the sale included  inventory and  intangible
assets  to  Nufarm.  The  sale  did not  include  plant,  equipment,  and  other
manufacturing  assets.  The Company also  entered into a five-year  agreement to
supply  copper  fungicide  products to Nufarm from its  Sumter,  South  Carolina
plant.

      The sales price was $16,000, of which $14,775 was paid in cash plus a note
for $1,225  payable on June 30, 2001.  Additionally,  the purchase price will be
adjusted  upward or downward for any inventory in excess or less than the amount
of inventory at June 30, 2000.

      The parties are  involved in ongoing  discussions  relating to the sale of
Agtrol's European operations.


                                       12
<PAGE>

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

9. 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 MARCH 31, 2001
                                 (In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Foreign
                                                                     U.S. Guarantor    Subsidiaries      Consolidation  Consolidated
                                                        Parent        Subsidiaries    Non-Guarantors      Adjustments      Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>              <C>              <C>              <C>
                      Assets
Current Assets:
Cash and cash equivalents ......................       $   2,007        $     473        $  12,604                        $  15,084
Trade receivables ..............................           5,251           36,992           37,383                           79,626
Other receivables ..............................           1,445              435            2,949                            4,829
Inventory ......................................           2,987           59,678           39,624                          102,289
Prepaid expenses and other .....................           6,909            3,700            3,491                           14,100
                                                       -----------------------------------------------------------------------------
     Total current assets ......................          18,599          101,278           96,051               --         215,928
                                                       -----------------------------------------------------------------------------
Property, plant & equipment, net ...............             694           29,074           68,436                           98,204
Intangibles ....................................              87            2,009            3,953                            6,049
Investment in subsidiaries .....................          66,467            1,530           (6,126)         (61,871)             --
Intercompany ...................................          78,946          (39,030)          (4,498)         (35,418)             --
Other assets ...................................          95,154          (69,531)           2,244                           27,867
                                                       -----------------------------------------------------------------------------
     Total assets ..............................       $ 259,947        $  25,330        $ 160,060        $ (97,289)      $ 348,048
                                                       =============================================================================

     Liabilities and Stockholders' Equity
Current Liabilities:
Cash overdraft .................................       $      13        $   4,791        $       1                        $   4,805
Loan payable to banks ..........................          53,708               --            9,192                           62,900
Current portion of long term debt ..............           2,304              398              937                            3,639
Accounts payable ...............................           3,672           15,890           19,173                           38,735
Other loans payable ............................             688               --               --                              688
Accrued expenses and other .....................           9,485           15,386           10,808                           35,679
                                                       -----------------------------------------------------------------------------
     Total current liabilities .................          69,870           36,465           40,111               --         146,446
                                                       -----------------------------------------------------------------------------
Long term debt .................................         121,330          (52,674)          98,452          (35,418)        131,690
Other liabilities ..............................           2,100            4,543            3,835                           10,478

Redeemable securities:
Series B and C preferred stock .................          47,250               --               --                           47,250
Common stock ...................................           1,360               --             (134)                           1,226
Common stock of subsidiary .....................              --               95               --                               95
                                                       -----------------------------------------------------------------------------
                                                          48,610               95             (134)              --          48,571
                                                       -----------------------------------------------------------------------------
             Stockholders' Equity
Series A preferred stock .......................             521               --               --                              521
Common stock ...................................               2               32               --              (32)              2
Paid in capital ................................             878           33,941              100          (34,041)            878
Retained earnings ..............................          16,780            2,911           24,887          (27,798)         16,780
Accumulated other comprehensive
   income (loss) ...............................            (144)              17           (7,191)                          (7,318)
                                                       -----------------------------------------------------------------------------
     Total stockholders' equity ................          18,037           36,901           17,796          (61,871)         10,863
                                                       -----------------------------------------------------------------------------
     Total liabilities and equity ..............       $ 259,947        $  25,330        $ 160,060        $ (97,289)      $ 348,048
                                                       =============================================================================
</TABLE>


                                       14
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
           CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
                    FOR THE THREE MONTHS ENDED MARCH 31, 2001
                                 (In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Foreign
                                                                     U.S. Guarantor    Subsidiaries      Consolidation  Consolidated
                                                        Parent        Subsidiaries    Non-Guarantors      Adjustments      Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>              <C>              <C>              <C>
Net sales ......................................       $   8,795        $  58,957        $  50,888        $ (16,437)       $102,203

Cost of goods sold .............................           7,156           43,864           40,729          (16,437)         75,312
                                                       -----------------------------------------------------------------------------
     Gross profit ..............................           1,639           15,093           10,159               --          26,891

Selling, general, and
   administrative expenses .....................           4,161           13,812            7,602                           25,575
                                                       -----------------------------------------------------------------------------

Operating (loss) income ........................          (2,522)           1,281            2,557               --           1,316

Interest expense ...............................           3,639              (71)           1,615                            5,183

Interest income ................................              (5)              (9)              30                               16

Other expense ..................................              29              340              768                            1,137

Intercompany allocation ........................          (4,699)           2,991            1,708                               --

Loss (profit) relating to subsidiaries .........           2,445               --               --           (2,445)             --
                                                       -----------------------------------------------------------------------------
(Loss) income before income taxes ..............          (3,931)          (1,970)          (1,564)           2,445          (5,020)

(Benefit) for income taxes .....................             (82)            (471)            (618)                          (1,171)
                                                       -----------------------------------------------------------------------------
Net (loss) income ..............................       $  (3,849)       $  (1,499)       $    (946)       $   2,445        $ (3,849)
                                                       =============================================================================
</TABLE>


                                       15
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
          CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
                    FOR THE NINE MONTHS ENDED MARCH 31, 2001
                                 (In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Foreign
                                                                     U.S. Guarantor    Subsidiaries      Consolidation  Consolidated
                                                        Parent        Subsidiaries    Non-Guarantors      Adjustments      Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>              <C>              <C>             <C>
Net sales ......................................       $  25,439        $ 147,776        $ 114,376        $ (32,262)      $ 255,329

Cost of goods sold .............................          20,603          108,471           92,100          (32,262)        188,912
                                                       -----------------------------------------------------------------------------

Gross profit ...................................           4,836           39,305           22,276               --          66,417

Selling, general, and
   administrative expenses .....................          11,165           36,815           18,103                           66,083
                                                       -----------------------------------------------------------------------------

Operating (loss) income ........................          (6,329)           2,490            4,173               --             334

Interest expense ...............................           8,882              (10)           4,330                           13,202

Interest income ................................             (49)             (10)            (328)                            (387)

Other expense ..................................             150              336              748                            1,234

Intercompany allocation ........................         (11,594)           9,500            2,094                               --

Loss (profit) relating to subsidiaries .........           6,062               --               --           (6,062)             --
                                                       -----------------------------------------------------------------------------
(Loss) income before income taxes ..............          (9,780)          (7,326)          (2,671)           6,062         (13,715)

(Benefit) for income taxes .....................            (194)          (2,490)          (1,445)                          (4,129)
                                                       -----------------------------------------------------------------------------
Net (loss) income ..............................       $  (9,586)       $  (4,836)       $  (1,226)       $   6,062       $  (9,586)
                                                       =============================================================================
</TABLE>


                                       16
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
           CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
                    FOR THE NINE MONTHS ENDED MARCH 31, 2001
                                 (In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Foreign
                                                                     U.S. Guarantor    Subsidiaries      Consolidation  Consolidated
                                                        Parent        Subsidiaries    Non-Guarantors      Adjustments      Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>              <C>              <C>             <C>
Operating activities:
Net (loss) income ..............................       $  (9,586)       $  (4,836)       $  (1,226)       $   6,062       $  (9,586)
Adjustments to reconcile net (loss)
      income to net cash (used in) provided
      by operating activities:
   Depreciation and amortization ...............             528            3,805            5,923                           10,256
   Other .......................................            (878)             320           (1,480)                          (2,038)
Changes in operating assets and
   liabilities:
Accounts receivable ............................             920            8,255           (8,037)                           1,138
Inventory ......................................             280           (9,834)           8,352                           (1,202)
Prepaid expenses and other .....................            (434)           2,910           (1,622)                             854
Other assets ...................................            (918)          (2,286)              39                           (3,165)
Intercompany ...................................          (3,517)           4,116            5,463           (6,062)             --
Accounts payable ...............................           1,532              573            3,578                            5,683
Accrued expenses and other .....................          (2,476)           1,491              625                             (360)
                                                       -----------------------------------------------------------------------------
Net cash (used in) provided by operating
      activities ...............................         (14,549)           4,514           11,615               --           1,580
                                                       -----------------------------------------------------------------------------
Investing activities:
Capital expenditures ...........................            (236)          (6,845)          (3,245)                         (10,326)
Acquisition of a business ......................         (51,700)              --               --                          (51,700)
Other investing ................................              --               --             (457)                            (457)
                                                       -----------------------------------------------------------------------------
Net cash used in investing activities ..........         (51,936)          (6,845)          (3,702)              --         (62,483)
                                                       -----------------------------------------------------------------------------
Financing activities:
Cash overdraft .................................            (145)           3,489               --                            3,344
Net increase in short term debt ................          24,592               --              893                           25,485
Proceeds from long term debt ...................              --               26            1,552                            1,578
Proceeds from issuance of
   redeemable preferred stock ..................          45,000               --               --                           45,000
Payments of long term debt .....................             (24)            (806)              (6)                            (836)
Other financing ................................            (942)              --               --                             (942)
                                                       -----------------------------------------------------------------------------
Net cash provided by financing activities ......          68,481            2,709            2,439               --          73,629
                                                       -----------------------------------------------------------------------------
Effect of exchange rate changes
   on cash .....................................              --               (4)             (41)                             (45)
                                                       -----------------------------------------------------------------------------
Net increase in cash and cash equivalents ......           1,996              374           10,311               --          12,681
Cash and cash equivalents at
   beginning of year ...........................              11               99            2,293                            2,403
                                                       -----------------------------------------------------------------------------
Cash and cash equivalents at end
   of year .....................................       $   2,007        $     473        $  12,604         $     --       $  15,084
                                                       =============================================================================
</TABLE>


                                       17
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
                CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)
                                AS OF JUNE 30, 2000
                                 (In Thousands)

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

Cash and cash equivalents ......................       $      11        $      99        $   2,293                        $   2,403
Trade receivables ..............................           6,172           45,378           27,826                           79,376
Other receivables ..............................           4,855              550            3,074                            8,479
Inventory ......................................           3,267           25,072           22,066                           50,405
Prepaid expenses and other .....................           3,065            2,443            3,590                            9,098
                                                       -----------------------------------------------------------------------------
      Total current assets .....................          17,370           73,542           58,849               --         149,761
                                                       -----------------------------------------------------------------------------

Property, plant & equipment, net ...............             702           25,032           50,446                           76,180
Intangibles ....................................              87            2,292            3,918                            6,297
Investment in subsidiaries .....................          78,028            1,533           (6,129)         (73,432)             --
Intercompany ...................................          63,874          (32,463)           3,197          (34,608)             --
Other assets ...................................          15,236            8,542            2,435                           26,213
                                                       -----------------------------------------------------------------------------
      Total assets .............................       $ 175,297        $  78,478        $ 112,716        $(108,040)      $ 258,451
                                                       =============================================================================

    Liabilities and Stockholders' Equity
Current Liabilities:
Cash overdraft .................................       $     158        $   1,302        $     660                        $   2,120
Loan payable to banks ..........................              --               --            8,650                            8,650
Current portion of long term debt ..............              31              893            1,372                            2,296
Accounts payable ...............................           2,140           14,999           15,503                           32,642
Accrued expenses and other .....................           3,892           13,118            7,147                           24,157
                                                       -----------------------------------------------------------------------------
      Total current liabilities ................           6,221           30,312           33,332               --          69,865
                                                       -----------------------------------------------------------------------------
Long term debt .................................         130,600            1,435           42,295          (34,608)        139,722
Other  liabilities .............................           2,022            4,431            6,829                           13,282

Redeemable Securities:
Common stock ...................................           2,389               --            1,124                            3,513
Common stock of subsidiary .....................              --              451               --                              451
                                                       -----------------------------------------------------------------------------
                                                           2,389              451            1,124               --           3,964
                                                       -----------------------------------------------------------------------------
            Stockholders' Equity
Series A preferred stock .......................             521               --               --                              521
Common stock ...................................               2               32               --              (32)              2
Paid in capital ................................             878           34,040               --          (34,040)            878
Retained earnings ..............................          32,808            7,747           31,613          (39,360)         32,808
Accumulated other comprehensive
   income (loss) ...............................            (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 MARCH 31, 2000
                                 (In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Foreign
                                                                     U.S. Guarantor    Subsidiaries      Consolidation  Consolidated
                                                        Parent        Subsidiaries    Non-Guarantors      Adjustments      Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>              <C>              <C>             <C>
Net sales ......................................       $   9,066        $  45,540        $  34,127        $  (9,290)      $  79,443

Cost of goods sold .............................           7,389           34,555           25,280           (9,290)         57,934
                                                       -----------------------------------------------------------------------------
Gross profit ...................................           1,677           10,985            8,847               --          21,509

Selling, general, and
   administrative expenses .....................           3,801            9,837            5,218                           18,856
                                                       -----------------------------------------------------------------------------
Operating (loss) income ........................          (2,124)           1,148            3,629               --           2,653

Interest expense ...............................           2,223               75            1,479                            3,777

Interest income ................................              (5)              --             (287)                            (292)

Other expense ..................................              --               --              743                              743

Gain from property damage claim ................              --             (550)              --                             (550)

Gain from sale of asset ........................              --               --          (14,195)                         (14,195)

Intercompany allocation ........................          (2,757)           2,757               --                               --

(Profit) loss relating to subsidiaries .........         (11,292)              --               --           11,292              --
                                                       -----------------------------------------------------------------------------
Income (loss) income before
   income taxes ................................           9,707           (1,134)          15,889          (11,292)         13,170

(Benefit) provision for income taxes ...........            (211)            (259)           4,157               --           3,687
                                                       -----------------------------------------------------------------------------
Net income (loss) ..............................       $   9,918        $    (875)       $  11,732        $ (11,292)      $   9,483
                                                       =============================================================================
</TABLE>


                                       19
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
           CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)
                    FOR THE NINE MONTHS ENDED MARCH 31, 2000
                                 (In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Foreign
                                                                     U.S. Guarantor    Subsidiaries      Consolidation  Consolidated
                                                        Parent        Subsidiaries    Non-Guarantors      Adjustments      Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>              <C>              <C>             <C>
Net sales ......................................       $  26,511        $ 125,915        $ 101,684        $ (27,449)      $ 226,661

Cost of goods sold .............................          21,421           95,099           74,921          (27,449)        163,992
                                                       -----------------------------------------------------------------------------
Gross profit ...................................           5,090           30,816           26,763               --          62,669

Selling, general, and
   administrative expenses .....................          10,283           28,385           17,219                           55,887
                                                       -----------------------------------------------------------------------------

Operating (loss) income ........................          (5,193)           2,431            9,544               --           6,782

Interest expense ...............................           6,102              193            4,470                           10,765

Interest income ................................             (17)              (1)            (449)                            (467)

Other expense ..................................            (912)              --            3,690                            2,778

Gain from property damage claim ................              --             (550)              --                             (550)

Gain from sale of asset ........................              --               --          (14,195)                         (14,195)

Intercompany allocation ........................          (7,969)           7,969               --                               --

(Profit) loss relating to subsidiaries .........          (8,590)              --               --            8,590              --
                                                       -----------------------------------------------------------------------------
Income (loss) income before
   income taxes ................................           6,193           (5,180)          16,028           (8,590)          8,451

(Benefit) provision for income taxes ...........            (994)          (1,724)           4,417               --           1,699
                                                       -----------------------------------------------------------------------------
Net income (loss) ..............................       $   7,187        $  (3,456)       $  11,611        $  (8,590)      $   6,752
                                                       =============================================================================
</TABLE>


                                       20
<PAGE>

                        PHILIPP BROTHERS CHEMICALS, INC.
           CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)
                    FOR THE NINE MONTHS ENDED MARCH 31, 2000
                                 (In Thousands)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Foreign
                                                                     U.S. Guarantor    Subsidiaries      Consolidation  Consolidated
                                                        Parent        Subsidiaries    Non-Guarantors      Adjustments      Balance
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>              <C>              <C>             <C>
Operating activities:
Net income (loss) ..............................       $   7,187        $  (3,456)       $  11,611        $  (8,590)      $   6,752
Adjustments to reconcile net (loss) income
      to net cash (used in) provided by
      operating activities:
   Depreciation and amortization ...............             405            3,329            5,489                            9,223
   Gain from property damage claim .............              --             (550)              --                             (550)
   Gain from sale of asset .....................              --               --          (14,195)                         (14,195)
   Other .......................................           2,133             (467)          (4,924)                          (3,258)
Changes in operating assets and liabilities:
Accounts receivable ............................             248              914            4,003                            5,165
Inventory ......................................            (290)          (8,744)          (1,745)                         (10,779)
Prepaid expenses and other .....................          (2,440)             609            2,015                              184
Other assets ...................................              19             (595)            (229)                            (805)
Intercompany ...................................         (24,081)          18,847           (3,356)           8,590              --
Accounts payable ...............................            (162)             432           (2,790)                          (2,520)
Accrued expenses and other .....................           2,796           (6,602)           3,798                               (8)
                                                       -----------------------------------------------------------------------------
Net cash (used in) provided by
   operating activities ........................         (14,185)           3,717             (323)              --         (10,791)
                                                       -----------------------------------------------------------------------------
Investing activities:
Capital expenditures ...........................             (90)          (6,185)          (7,646)                         (13,921)
Proceeds from property damage claim ............              --              872               --                              872
Proceeds from sale of asset ....................              --               --           18,700                           18,700
Other investing ................................          (3,000)              --               --                           (3,000)
                                                       -----------------------------------------------------------------------------
Net cash provided by (used in)
   investing activities ........................          (3,090)          (5,313)          11,054               --           2,651
                                                       -----------------------------------------------------------------------------
Financing activities:
Cash overdraft .................................             (75)             812            1,108                            1,845
Net increase in short term debt ................             229               74            1,773                            2,076
Proceeds from long term debt ...................          16,807            1,566              876                           19,249
Payments of long term debt .....................             (94)            (464)         (10,856)                         (11,414)
Other financing ................................              --               --               62                               62
                                                       -----------------------------------------------------------------------------
Net cash (used in) provided by
   financing activities ........................          16,867            1,988           (7,037)              --          11,818
                                                       -----------------------------------------------------------------------------
Net (decrease) increase in cash
   and cash equivalents ........................            (408)             392            3,694                            3,678
Cash and cash equivalents at
   beginning of year ...........................             393              166            1,749                            2,308
                                                       -----------------------------------------------------------------------------
Cash and cash equivalents at
   end of year .................................       $     (15)       $     558        $   5,443        $      --       $   5,986
                                                       =============================================================================
</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 purchase price
continues  to be  subject  to  finalization  based on  certain  working  capital
adjustments  under the  agreement.  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.

Subsequent Event

      On May 4, 2001, the Company sold its Agtrol U.S.  business,  a division of
the  Company's  Phibro-Tech,  Inc.  subsidiary to Nufarm Inc.  (Nufarm),  a U.S.
subsidiary of Nufarm Limited, a publicly listed Australian based company. Agtrol
develops,  manufactures,  and markets crop protection products, including copper
fungicides.  The effective date was May 1, 2001 and the sale included  inventory
and intangible assets to Nufarm. The sale did not include plant, equipment,  and
other manufacturing  assets. The Company also entered into a five-year agreement
to supply copper  fungicide  products to Nufarm from its Sumter,  South Carolina
plant.

      The sales price was $16.0 million, of which $14.8 million was paid in cash
with a note  for  $1.2  million  payable  on June 30,  2001.  Additionally,  the
purchase  price will be adjusted  upward or downward for any inventory in excess
or less than the amount of inventory at June 30, 2000. The proceeds will be used
to pay down debt.

      The parties are  involved in ongoing  discussions  relating to the sale of
Agtrol's European operations.

Results of Operations

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


                                       22
<PAGE>

<TABLE>
<CAPTION>
                                                             Sales
                                                            ($000's)
                                          Three Months Ended        Nine Months Ended
                                               March 31,                March 31,
Operating Segments                         2001         2000         2001         2000
                                        ---------    ---------    ---------    ---------
<S>                                     <C>          <C>          <C>          <C>
  AgChem ............................   $  69,671    $  44,698    $ 160,168    $ 126,227
  Industrial Chemicals ..............      40,001       40,203      117,082      119,609
  Elimination of intersegment sales .      (7,469)      (5,458)     (21,921)     (19,175)
                                        ---------    ---------    ---------    ---------
                                        $ 102,203    $  79,443    $ 255,329    $ 226,661
                                        =========    =========    =========    =========
<CAPTION>

                                                       Operating Income
                                                           ($000's)
                                           Three Months Ended       Nine Months Ended
                                                March 31,               March 31,
Operating Segments                         2001        2000         2001          2000
                                        ---------    ---------    ---------    ---------
<S>                                     <C>          <C>          <C>          <C>
  AgChem ............................   $   3,113    $   2,989    $   5,634    $   6,126
  Industrial Chemicals ..............         479        1,842        2,257        7,687
  Corporate expenses and eliminations      (2,276)      (2,178)      (7,557)      (7,031)
                                        ---------    ---------    ---------    ---------
                                        $   1,316    $   2,653    $     334    $   6,782
                                        =========    =========    =========    =========
</TABLE>

Comparison of Three Months Ended March 31, 2001 and 2000

      Net  Sales.  Net  sales  increased  by $22.8  million,  or 28.6% to $102.2
million in the three  months ended March 31, 2001 as compared to the same period
of the prior year. AgChem sales increased by $25.0 million, due to $27.6 million
of sales from the newly  acquired MFA business.  This was partially  offset by a
$1.4 million reduction in sales of crop protection  chemicals primarily due to a
weather  related  delay  in  the  California  grape-growing  season.  Industrial
Chemicals sales were lower by $.2 million. Lower sales volume of etchants due to
the  slowdown in the  electronics  industry  was  partially  offset by increased
demand for coal fly ash and higher recycling fees.

      Gross Profit.  Gross profit  increased by $5.4 million,  or 25.0% to $26.9
million as  compared  to the same  period of the prior  year.  In AgChem,  gross
profits  generated by operations  of the MFA business  were $8.7 million.  Gross
profit (and  operating  income) of the MFA business would have been $4.6 million
higher  than  reported if not for  purchase  price  adjustments  to the value of
inventory acquired from Pfizer.  Offsetting this was a reduction in gross profit
from crop protection chemicals of $1.4 million, resulting from reduced sales and
changes in product mix. Lower profits in the Industrial  Chemicals  segment were
primarily due to the lower sales volume to the  electronics  industry as well as
increased utility costs.

      Selling,  General  and  Administrative  Expenses.   Selling,  general  and
administrative  expenses  increased $6.7 million,  or 35.6% to $25.6 million for
the three  months  ended  March 31,  2001 as  compared to the same period of the
prior year.  $6.5 million of this increase  relates to S,G&A expenses of the MFA
business.  A reduction in the repurchase  value of redeemable  common stock of a
minority shareholder was partially offset by management advisory fees payable to
Palladium in the 2001 period.

      Operating  Income.  Operating  income  decreased  by $1.3  million to $1.3
million for the three months ended March 31, 2001 as compared to the same period
of the prior  year.  Operating  income of the AgChem  segment  increased  by $.1
million  as  income   generated   by  the  MFA  business  of  $2.2  million  was
substantially  offset by reduced  profitability  from crop protection  chemicals
($1.5 million).  Operating income of the Industrial  Chemicals segment was lower
by $1.4 million  primarily due to lower sales to the electronics  industry,  and
higher utility and freight costs.  Operating income would have been $4.6 million
higher  than  reported if not for  purchase  price  adjustments  to the value of
inventory acquired from Pfizer.

      Interest Expense,  Net. Net interest expense increased by $1.7 million, to
$5.2  million for the three  months ended March 31, 2001 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 increased  borrowings under the amended credit
facility with PNC Bank were the primary factors for the increase.

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


                                       23
<PAGE>

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

Comparison of Nine Months Ended March 31, 2001 and 2000

      Net  Sales.  Net  sales  increased  by $28.7  million,  or 12.6% to $255.3
million in the nine  months  ended March 31, 2001 as compared to the same period
of the prior year.  AgChem sales  increased by $33.9  million,  primarily due to
$38.0  million of sales from the MFA business.  This was  partially  offset by a
drop in sales of crop  protection  chemicals  ($4.2 million)  primarily due to a
weather  related  delay in the sales in the third quarter of fiscal 2001 as well
as heavier than normal sales volume during the second  quarter of fiscal 2000 as
one  customer  purchased   additional  product  to  meet  its  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 $2.5  million  primarily  due to lower sales of calcium  carbide  ($3.8
million) as the  continuing  weak market  negatively  impacted  both pricing and
volume.  In addition,  sales of  halogenated  organic  compounds  were down $2.4
million due to the impact of competitive  products from China.  Offsetting these
decreases  were higher  recycling  fees ($1.9 million) and sales of coal fly ash
($2.3 million) as sales volume increased resulting from new supply contracts.

      Gross Profit.  Gross profit  increased by $3.7  million,  or 6.0% to $66.4
million as  compared  to the same  period of the prior  year.  In AgChem,  gross
profits  generated by the MFA business were $12.3 million,  which were partially
offset by reduced profits from crop protection  chemicals ($3.1 million).  Gross
profit (and  operating  income) of the MFA business  would have been $5.7 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 $5.2
million. In addition, the lower sales of halogenated compounds, the weakening in
the  electronics  industry,  and  higher  utility  costs  more than  offset  the
additional gross profit from coal fly ash and recycling fees.

      Selling,  General  and  Administrative  Expenses.   Selling,  general  and
administrative  expenses increased $10.2 million,  or 18.2% to $66.1 million for
the nine months ended March 31, 2001 as compared to the same period of the prior
year.  This  increase was primarily  due to S,G&A  expenses  relating to the MFA
business ($9.7 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 ($1.6  million).  Offsetting  these  items  were  lower  expenses  ($1.9
million) at the  Company's  Norwegian  subsidiary,  primarily the result of cost
containment  measures  taken over the past year. A reduction  in the  repurchase
value of redeemable common stock of a minority  shareholder was partially offset
by management advisory fees payable to Palladium in the 2001 period.

      Operating  Income.  Operating  income  decreased  by $6.4  million  to $.3
million for the nine months  ended March 31, 2001 as compared to the same period
of the prior  year.  Operating  income of the AgChem  segment  decreased  by $.5
million.  Income  generated  from the MFA business  ($2.6 million) was offset by
reduced  profitability from crop protection chemicals ($2.5 million).  Operating
income of the Industrial  Chemicals  segment was lower by $5.4 million primarily
due to lower  profitability of dicyandiamide  and calcium carbide ($3.2 million)
and halogenated  organic  compounds ($1.2 million).  In addition,  the weakening
electronics  industry and  increased  freight and utility  costs have  adversely
impacted  the  segment's  profitability.  Operating  income would have been $5.7
million higher than reported if not for purchase price  adjustments to the value
of inventory acquired from Pfizer.

      Interest Expense,  Net. Net interest expense increased by $2.5 million, or
24.4% to $12.8  million in the nine  months  ended March 31, 2001 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
unrealized foreign currency losses.

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


                                       24
<PAGE>

Liquidity and Capital Resources

      Net Cash Provided by Operating Activities. Cash provided by operations for
the nine months ended March 31, 2001 was $1.6 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 nine months ended March 31, 2001 was $62.5 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 $10.3  million were  primarily for
improvements  at the  Company's  ODDA  (Norway)  facility  and  expansion of the
Company's coal fly ash operations.

      Net Cash Provided by Financing Activities.  Net cash provided by financing
activities for the nine months ended March 31, 2001 was $73.6 million,  of which
$45.0  million  was  received  through  the  issuance  of  redeemable  preferred
securities and $24.0 million through utilization of the amended revolving credit
facility  with PNC Bank (see Note 6 of the Notes to the  Condensed  Consolidated
Financial Statements).

      Liquidity. In connection with the MFA acquisition, the Company amended its
loan  agreement with PNC Bank,  increasing  the revolving  credit portion of the
facility to $70 million (from $35 million) and adding an additional  $15 million
facility for spending on capital  expenditures.  The Company may choose  between
two interest options:  the base rate, as defined; and the Euro Rate, as defined,
plus 21/4% 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 March 31,  2001,  the Company had $69.5  million of working  capital
compared to $79.9  million as of June 30, 2000.  Inventories  increased by $51.9
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
March 31, 2001, the amount of credit extended under this agreement totaled $53.7
million and the Company had $12.1 million  available  under the  borrowing  base
formula in this agreement.

      Cash on hand as of March 31, 2001  amounted to $15.1  million  compared to
$2.4  million at the fiscal year end.  Much of the increase in cash results from
the initial funding  requirements  for the  international  operations of the MFA
business.

      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  deferred cash inflows into
the third and fourth quarters of fiscal 2001. As of March 31, 2001, $6.1 million
of receivables is still outstanding relating to these revenues.

      The Company  anticipates  spending  approximately  $14 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.


                                       25
<PAGE>

      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  debt for the next
twelve months.

Seasonality of Business

      The Company's  sales of  copper-based  fungicides  and other  agricultural
products included in the Agtrol business has been typically highest in the first
and fourth fiscal quarters,  and its sales of gibberellic acid, also part of the
Agtrol  business,  has been 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.

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 March 31, 2001, the fair value of the Company's senior  subordinated debt was
estimated  based on quoted  market  rates to be $65.0  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,
Brazilian real, Belgian franc, 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 March 31,  2001,  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 March
31, 2001,  the contract  values of these letters of credit and surety bonds were
$1.4 million and their fair values did not differ materially from their carrying
amount.


                                       26
<PAGE>

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 March 31,
2001,  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
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 5. Other Information.

      On May 4, 2001,  the Company  agreed to sell  certain of the assets of its
Agtrol  International  division ("Agtrol") fungicide business to Nufarm Limited,
an Australian  public company  ("Nufarm").  Agtrol  develops,  manufactures  and
markets crop protection products,  including copper fungicides.  The sale of the
U.S.  operations of the Agtrol division and the contemplated  sale of the Agtrol
European operations (as discussed below) includes Agtrol's products,  trademarks
and other intellectual  property,  inventory and commercial  relationships.  The
Company is retaining  ownership of all Agtrol  receivables,  copper know-how and
its plants,  equipment and other manufacturing  assets,  including its plants in
Sumter,  South Carolina and Bordeaux,  France.  The Company has agreed to supply
100% of Nufarm's  requirements of copper  fungicide  products from the Company's
Sumter and Bordeaux  plants.  The sale of the United States assets of Agtrol was
effective as of May 1, 2001 for a purchase  price of  $15,999,990,  of which the
Company received $14,775,000 in cash at the closing and the remaining $1,224,990
in the form of a note of Nufarm,  Inc., a subsidiary of Nufarm,  payable on June
30, 2001. The purchase  price will be adjusted  upward or downward for inventory
of Agtrol in excess of or less than the amount of inventory at June 30, 2000. In
addition to the U. S. asset sale,  the Company has agreed to sell certain of the
assets of Agtrol  International  located in France to Nufarm, as well as all the
stock of an operating  subsidiary of Agtrol  International in Argentina and of a
newly formed  non-operating  subsidiary of Agtrol  International in Mexico.  The
entry into a definitive  agreement for the  disposition  of the French assets is
subject to compliance with certain French labor law requirements.  In connection
with the foregoing  transactions,  the Company and Nufarm,  Inc.  entered into a
license  agreement  pursuant to which the Company  licensed  certain  technology
relating to its dry prill manufacturing  process to Nufarm on an exclusive basis
in the fungicide field and with respect to certain  pesticide  products and on a
non-exclusive basis in all other fields.

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

      (a) Exhibits

      Exhibit No.    Description
      ----------     -----------
      10.37          United States Asset Purchase Agreement between Phibro-Tech,
                     Inc. and Nufarm, Inc. dated as of May 1, 2001.*

      10.38          Supply Agreement between Phibro-Tech, Inc. and Nufarm, Inc.
                     dated as of May 1, 2001.*

      10.39          License  Agreement  between  Phibro-Tech,  Inc. and Nufarm,
                     Inc. dated as of May 1, 2001.*

----------
*  Filed herewith.

      (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 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: May 14, 2001                        By: /s/ DAVID STORBECK
                                              ----------------------------------
                                              David Storbeck
                                              Chief Financial Officer

Date: May 14, 2001                        By: /S/ JOSEPH KATZENSTEIN
                                              ----------------------------------
                                              Joseph Katzenstein, Treasurer
                                              and Secretary


                                       29
<PAGE>

                                 EXHIBIT INDEX

Exhibit No.          Description
----------           -----------
10.37                United States Asset Purchase Agreement between Phibro-Tech,
                     Inc. and Nufarm, Inc. dated as of May 1, 2001.*

10.38                Supply Agreement between Phibro-Tech, Inc. and Nufarm, Inc.
                     dated as of May 1, 2001.*

10.39                License  Agreement  between  Phibro-Tech,  Inc. and Nufarm,
                     Inc. dated as of May 1, 2001.*

----------
*  Filed herewith.