UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

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|(Mark one)                                    |                                                                                         
|--------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR (d) OF THE SECURITIES EXCHANGE ACT OF 1934   
|For the quarterly period ended March 31, 2007
|OR                                           
|o                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 333-125750

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PQ CORPORATION(Exact name of registrant as specified in our charter)

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|Pennsylvania(State or other jurisdiction of
incorporation or organization)             |  | 23-0972750(IRS Employer Identification No.)
|-------------------------------------------------------------------------------------- |  | -------------------------------------------
|1200 West Swedesford Road
Berwyn, Pennsylvania(Address of principal executive offices) |  | 19312(Zip Code)                            
|(610) 651-4200(Registrant's telephone number, including area code)                    

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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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

Large
accelerated filer o                Accelerated filer o                Non-accelerated
filer ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes o No ý

As of May 14, 2007, the number of shares outstanding of the registrant's common stock, par value $0.50 per share, was 1 share.



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INDEX

|                              |  |                                                                                       |  |   
|----------------------------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I: FINANCIAL INFORMATION |  |                                                                                      
|Item 1.                       |  | Financial Statements (unaudited)                                                      |  |   
|                              |  | CONDENSED CONSOLIDATED BALANCE SHEETS                                                 |  | 1 
|                              |  | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                                       |  | 2 
|                              |  | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                       |  | 3 
|                              |  | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                  |  | 4 
|Item 2.                       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 25
|Item 3.                       |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 29
|Item 4.                       |  | Controls and Procedures                                                               |  | 31
|PART II: OTHER INFORMATION    |  |                                                                                      
|Item 1.                       |  | Legal Proceedings                                                                     |  | 32
|Item 1A.                      |  | Risk Factors                                                                          |  | 33
|Item 2.                       |  | Unregistered Sale of Equity Securities and Use of Proceeds                            |  | 33
|Item 3.                       |  | Defaults upon Senior Securities                                                       |  | 33
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                   |  | 33
|Item 5.                       |  | Other Information                                                                     |  | 33
|Item 6.                       |  | Exhibits                                                                              |  | 33
|Signatures                    |  | 34                                                                                   

i

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PART I  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PQ CORPORATION AND SUBSIDIARIES  CONDENSED CONSOLIDATED BALANCE SHEETS  (in thousands)  (unaudited)

|                                                                 |                                            | March 31,
2007 |         | December 31,
2006 |  
|---------------------------------------------------------------- | ------------------------------------------ | -------------- | ------- | ----------------- | -
|ASSETS                                                           |                                            |                |         |                   |  
|Cash and cash equivalents                                        |                                            | $              | 16,272  |                   | $
|Receivables, net                                                 |                                            |                | 113,762 |                   |  
|Inventories                                                      |                                            |                | 114,157 |                   |  
|Prepaid and other current assets                                 |                                            |                | 12,550  |                   |  
|                                                                 |                                            |                |         |                   |  
|                                                                 | Total current assets                       |                |         | 256,741           |  
|Investments in affiliated companies                              |                                            |                | 72,837  |                   |  
|Property, plant and equipment, net                               |                                            |                | 324,255 |                   |  
|Goodwill                                                         |                                            |                | 231,940 |                   |  
|Tradenames                                                       |                                            |                | 53,000  |                   |  
|Other intangible assets, net                                     |                                            |                | 57,650  |                   |  
|Other long-term assets                                           |                                            |                | 32,960  |                   |  
|                                                                 |                                            |                |         |                   |  
|                                                                 | Total assets                               |                | $       | 1,029,383         |  
|                                                                 |                                            |                |         |                   |  
|LIABILITIES AND STOCKHOLDER'S EQUITY                             |                                            |                |         |                   |  
|Revolver, notes payable and current maturities of long-term debt |                                            | $              | 44,193  |                   | $
|Cash overdraft                                                   |                                            |                | 975     |                   |  
|Accounts payable                                                 |                                            |                | 54,301  |                   |  
|Accrued liabilities                                              |                                            |                | 46,848  |                   |  
|                                                                 |                                            |                |         |                   |  
|                                                                 | Total current liabilities                  |                |         | 146,317           |  
|Long-term debt                                                   |                                            |                | 629,196 |                   |  
|Deferred income taxes                                            |                                            |                | 95,324  |                   |  
|Other long-term liabilities                                      |                                            |                | 89,369  |                   |  
|                                                                 |                                            |                |         |                   |  
|                                                                 | Total liabilities                          |                |         | 960,206           |  
|                                                                 |                                            |                |         |                   |  
|Minority interest in equity of subsidiaries                      |                                            |                | 5,141   |                   |  
|                                                                 |                                            |                |         |                   |  
|Commitments and contingencies                                    |                                            |                |         |                   |  
|STOCKHOLDER'S EQUITY                                             |                                            |                |         |                   |  
|Common stock, Series A                                           |                                            |                |        |                   |  
|Additional paid-in capital                                       |                                            |                | 75,442  |                   |  
|Accumulated deficit                                              |                                            |                | (18,599 | )                 |  
|Accumulated other comprehensive income                           |                                            |                | 7,193   |                   |  
|                                                                 |                                            |                |         |                   |  
|                                                                 | Total stockholder's equity                 |                |         | 64,036            |  
|                                                                 |                                            |                |         |                   |  
|                                                                 | Total liabilities and stockholder's equity |                | $       | 1,029,383         |  
|                                                                 |                                            |                |         |                   |  

See
accompanying notes to condensed consolidated financial statements.

1

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PQ CORPORATION AND SUBSIDIARIES  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  (in thousands)  (unaudited)

|                                             |                                                  | Three months ended
March 31, |        
|-------------------------------------------- | ------------------------------------------------ | ---------------------------- | -------
|
|Sales                                        |                                                  | $                            | 171,291
|Cost of goods sold                           |                                                  |                              | 135,489
|                                             |                                                  |                              |        
|                                             | Gross profit                                     |                              |        
|Selling, general and administrative expenses |                                                  |                              | 20,822 
|Other operating expense                      |                                                  |                              | 2,433  
|                                             |                                                  |                              |        
|                                             | Operating income                                 |                              |        
|Equity in net income of affiliated companies |                                                  |                              | 7,765  
|Interest expense, net                        |                                                  |                              | 13,016 
|Other expense (income)                       |                                                  |                              | 202    
|                                             |                                                  |                              |        
|                                             | Income before income taxes and minority interest |                              |        
|Provision for income taxes                   |                                                  |                              | 3,183  
|Minority interest                            |                                                  |                              | 180    
|                                             |                                                  |                              |        
|                                             | Net income                                       |                              | $      
|                                             |                                                  |                              |        

See
accompanying notes to condensed consolidated financial statements.

2

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PQ CORPORATION AND SUBSIDIARIES  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (in thousands)  (unaudited)

|                                                 |                                                                                   | Three months ended
March 31,                                  |                                          
|------------------------------------------------ | --------------------------------------------------------------------------------- | ------------------------------------------------------------- | -----------------------------------------
|
|Cash flows from operating activities:            |                                                                                   |                                                               |                                          
|                                                 | Net income                                                                        |                                                               | $                                        
|                                                 | Adjustments to reconcile net income to net cash provided by operating activities: |                                                               |                                          
|                                                 |                                                                                   | Depreciation and amortization                                 |                                          
|                                                 |                                                                                   | Amortization of deferred financing costs                      |                                          
|                                                 |                                                                                   | Postretirement healthcare benefits                            |                                          
|                                                 |                                                                                   | Pension funding greater than expense                          |                                          
|                                                 |                                                                                   | Deferred income taxes                                         |                                          
|                                                 |                                                                                   | Net loss on asset disposals                                   |                                          
|                                                 |                                                                                   | Charges related to purchase accounting fair value adjustments |                                          
|                                                 |                                                                                   | Stock compensation                                            |                                          
|                                                 |                                                                                   | Equity in net income from affiliated companies                |                                          
|                                                 |                                                                                   | Dividends received from affiliated companies                  |                                          
|                                                 |                                                                                   | Minority interest in earnings of subsidiaries                 |                                          
|                                                 |                                                                                   | Working capital changes that provided (used) cash:            |                                          
|                                                 |                                                                                   |                                                               | Receivables                              
|                                                 |                                                                                   |                                                               | Inventories                              
|                                                 |                                                                                   |                                                               | Prepaid and other current assets         
|                                                 |                                                                                   |                                                               | Accounts payable and accrued liabilities 
|                                                 |                                                                                   |                                                               | Accrued income taxes                     
|                                                 |                                                                                   |                                                               | Other, net                               
|                                                 |                                                                                   |                                                               |                                          
|Net cash used for operating activities           |                                                                                   |                                                               | (4,555                                   
|                                                 |                                                                                   |                                                               |                                          
|Cash flows from investing activities:            |                                                                                   |                                                               |                                          
|                                                 | Purchases of property, plant and equipment                                        |                                                               |                                          
|                                                 | Business acquisition                                                              |                                                               |                                          
|                                                 | Other, net                                                                        |                                                               |                                          
|                                                 |                                                                                   |                                                               |                                          
|                                                 |                                                                                   |                                                               | Net cash used for investing activities   
|                                                 |                                                                                   |                                                               |                                          
|Cash flows from financing activities:            |                                                                                   |                                                               |                                          
|                                                 | Cash overdrafts                                                                   |                                                               |                                          
|                                                 | Revolvers and notes payable, net                                                  |                                                               |                                          
|                                                 | Repayments of long-term debt                                                      |                                                               |                                          
|                                                 | Equity contribution                                                               |                                                               |                                          
|                                                 | Dividend distributions                                                            |                                                               |                                          
|                                                 |                                                                                   |                                                               |                                          
|                                                 |                                                                                   |                                                               | Net cash provided by financing activities
|                                                 |                                                                                   |                                                               |                                          
|Effect of exchange rate changes on cash          |                                                                                   |                                                               | 181                                      
|                                                 |                                                                                   |                                                               |                                          
|Net change in cash and cash equivalents          |                                                                                   |                                                               | 394                                      
|Cash and cash equivalents at beginning of period |                                                                                   |                                                               | 15,878                                   
|                                                 |                                                                                   |                                                               |                                          
|Cash and cash equivalents at end of period       |                                                                                   | $                                                             | 16,272                                   
|                                                 |                                                                                   |                                                               |                                          

See
accompanying notes to condensed consolidated financial statements.

3

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PQ CORPORATION AND SUBSIDIARIES        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS        (Dollars in thousands)  (unaudited)

1.    Statement of Information Furnished:

On December 15, 2004, PQ Corporation ("Company") and Niagara Acquisition, Inc. and its parent company, Niagara Holdings, Inc. ("Holdings"),
entered into an Agreement and Plan of Merger, pursuant to which Niagara Acquisition, Inc. merged with and into PQ Corporation, with PQ Corporation continuing as the surviving entity and a
wholly-owned subsidiary of Holdings (the "Merger"). Holdings is a Delaware corporation, a substantial majority of the outstanding capital stock of which is owned by JPMorgan Partners LP and certain
affiliated funds ("Sponsors"). The Merger was consummated on February 11, 2005. The Company refers to the Merger and the related financings, collectively, as the Transactions.

Effective
January 1, 2007, the Company completed a business reorganization that aligned its organizational structure to its strategic direction. In connection with this
reorganization, the Company began managing operations, assessing performance, and reporting financial results under three business segments and therefore began reporting financial information based on
these segments beginning in the first quarter of 2007. The Company's reportable segments are organized based on the three operating divisions within the Company: Performance Chemicals, Catalysts, and
Potters. Due to the change in segment reporting, the Company reallocated goodwill to the Performance Chemicals and Catalysts segments. Goodwill was reassigned to the reporting units affected using a
relative fair value approach as of January 1, 2007. The change in business segments did not have an effect on goodwill or long-lived asset impairment.

The
condensed consolidated financial statements included herein are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States for
interim financial reporting and the United States Securities and Exchange Commission ("SEC") regulations. Certain information and footnote disclosures normally included in annual financial statements
prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations for interim reporting. In the opinion of
management, all adjustments of a normal and recurring nature necessary to present fairly the financial position and results of operations have been included. The results of operations are not
necessarily indicative of the results to be expected for the full year. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended December 31, 2006.

2.    Recently Issued Accounting Standards:

In July 2006, the FASB issued FASB Interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxes-an Interpretation of FASB
Statement No. 109." FIN No. 48 clarifies what criteria must be met prior to recognition of the financial statement benefit of a position taken in a tax return. FIN No. 48 requires
companies to include additional qualitative and quantitative disclosures within their financial statements. The disclosures will include potential tax benefits from positions taken for tax return
purposes that have not been recognized for financial reporting purposes and a tabular presentation of significant changes during each period. The disclosures also include a discussion of the nature of
uncertainties, factors which could cause a change, and an estimated range of reasonably possible changes in tax uncertainties. FIN No. 48 also requires a company to recognize a financial
statement benefit for a position taken for tax return purposes when it will be more-likely-than-not that

4

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the
position will be sustained. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. The Company has evaluated tax positions taken in prior years under FIN
No. 48 and an adjustment was made to increase the opening balance of the accumulated deficit as of January 1, 2007 by $1,340 for tax positions not previously recognized under historical
practice.

In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS No. 157 addresses how companies should measure fair value when they are required to
use a fair value measure for recognition and disclosure purposes under generally accepted accounting principles. SFAS No. 157 will require the fair value of an asset or liability to be based on
a market based measure which will reflect the credit risk of the company. SFAS No. 157 will also require expanded disclosure requirements which will include the methods and assumptions used to
measure fair value and the effect of fair value measures on earnings. SFAS No. 157 will be applied prospectively and will be effective for fiscal years beginning after November 15, 2007
and to interim periods within those fiscal years. The Company is currently evaluating the new statement and does not believe that it will have a significant impact on the determination or reporting of
our financial results.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment of FASB Statement
No. 115." SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value. The statement requires the fair value of the assets and
liabilities that the company has chosen to fair value be shown on the face of the balance sheet. The standard also requires companies to provide additional information to enable users of the financial
statements to understand the company's reasons for electing the fair value option and how changes in the fair values affect earnings for the period. SFAS No. 159 also establishes presentation
and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. This statement is effective
as of the beginning of an entity's first fiscal year that begins after November 15, 2007. The adoption of SFAS No. 159 is not expected to have a material impact on the consolidated
financial statements.

In
September 2006, the FASB issued FASB Staff Position ("FSP") No. AUG AIR-1, "Accounting for Planned Major Maintenance Activities." The FSP prohibits companies from
accruing the cost of planned major maintenance in advance of the activities actually occurring. This FSP is effective for fiscal years beginning after December 15, 2006. The Company adopted the
provisions of FSP No. AUG AIR-1 on January 1, 2007 and the adoption did not have any impact on the consolidated financial statements.

3.    Business Combinations:

On January 25, 2007, the Company acquired certain assets and liabilities of Flex-O-Lite Inc., a leading manufacturer of
highway safety marking spheres, metal finishing glass beads, and high refractive index glass beads. Flex-O-Lite has been a leading manufacturer of glass spheres used for a
variety of reflective and industrial applications for over 65 years. The newly acquired manufacturing facilities are located in Paris, Texas; Muscatine, Iowa; and St. Thomas, Ontario.
Flex-O-Lite will be included as part of the Potters division of the Company.

5

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The
Company has accounted for the acquisition of Flex-O-Lite in accordance with SFAS No. 141, "Business Combinations." Under the purchase method of
accounting, the acquired assets and liabilities were recorded at their respective fair values as of the date of acquisition, January 25, 2007. The purchase price was allocated first to tangible
and identifiable intangible assets acquired and liabilities assumed based upon their estimated fair values. The remaining excess of the purchase price over the fair value of assets acquired and
liabilities assumed was then recorded as goodwill.

The
Company is in the process of performing valuations of certain tangible and intangible assets; thus, the allocation of the purchase price is subject to refinement. When finalized,
material adjustments to the opening balance sheet may result.

In
addition, the acquisition is subject to a working capital adjustment per the terms of the purchase agreement. The fair value of the assets acquired and liabilities assumed have been
adjusted based on the preliminary working capital adjustment. As the working capital adjustment has not been finalized and agreed upon by both parties, the values of certain assets and liabilities are
subject to adjustment as additional information is obtained.

The
table below summarizes the preliminary allocation of the total cost of the acquisition to the assets acquired and liabilities assumed.

Fair value of the assets acquired and liabilities assumed:Net cash paid to acquire net assets

$
25,825Transaction costs, capitalized


867Total purchase price

$
26,692The purchase price was allocated as follows:Receivables

$
3,520Inventories


10,121Property, plant and equipment


10,439Goodwill


1,712Other intangible assets


2,790Fair value of assets acquired


28,582Current liabilities


(1,890
)Purchase price

$
26,692


The
Company believes that Flex-O-Lite's specialized manufacturing process, strategic geographic locations, and expected synergies are the primary reasons that
contributed to a total purchase price that resulted in the recognition of goodwill. The $1,712 of goodwill was assigned to the Potters segment. The Company is currently evaluating the amount of
goodwill expected to be deductible for tax purposes.

Other
intangible assets amounted to $2,790, of which $1,650 was assigned to trademarks, $830 to formulations and product technology, and $310 to non-compete agreements. The
amortization periods

6

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for
trademarks and formulations and product technology are ten years, while the amortization period for the non compete agreements is five years.

Included
in the purchase price is $550 held in escrow for certain environmental indemnification and other post-closing obligations of the sellers under the purchase agreement. As part of
the acquisition, there was no capitalized in-process research and development that needed to be recognized as a charge in the Company's statement of operations.

In
accordance with the requirements of the purchase method of accounting for acquisitions, inventories were recorded at net realizable value (which is defined as estimated selling prices
less the sum of (a) costs of disposal and (b) a reasonable profit allowance for the selling effort of the acquiring entity) which, in the case of finished products, was $1,101 higher
than the historical manufacturing cost. The Company's cost of products sold includes a pre-tax charge of $251 for the three months ended March 31, 2007 relating to this
step-up.

4.    Stockholder's Equity

|                           |                                                                                      | Capital
stock                                                                                |   | Additional
paid-in
capital |   | Accumulated
deficit |      | Accumulated
other
comprehensive
(loss) gain |         | Total  |  
|-------------------------- | ------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------- | - | -------------------------- | - | ------------------- | ---- | ------------------------------------------- | ------- | ------ | -
|Balance, December 31, 2006 |                                                                                      | $                                                                                            |  |                            | $ | 75,398              |      | $                                           | (20,990 | )      | $
|                           |                                                                                      |                                                                                              |   |                            |   |                     |      |                                             |         |        |  
|                           | Net income                                                                           |                                                                                              |   |                            |   |                     |      |                                             |         | 3,731  |  
|                           | Amortization of pension and other postretirement benefits gains, net of tax of ($47) |                                                                                              |   |                            |   |                     |      |                                             |         |        |  
|                           | Changes in fair values of derivatives:                                               |                                                                                              |   |                            |   |                     |      |                                             |         |        |  
|                           |                                                                                      | Unrealized hedging gains, net of tax of $997                                                 |   |                            |   |                     |      |                                             |         |        |  
|                           |                                                                                      | Reclassification adjustment for net realized gains included in net income, net of tax of $67 |   |                            |   |                     |      |                                             |         |        |  
|                           | Foreign currency translation adjustments, net of tax of $518                         |                                                                                              |   |                            |   |                     |      |                                             |         |        |  
|                           |                                                                                      |                                                                                              |   |                            |   |                     |      |                                             |         |        |  
|                           | Total comprehensive income                                                           |                                                                                              |   |                            |   |                     |      |                                             |         |        |  
|                           | Adjustment to initially apply FIN No. 48                                             |                                                                                              |   |                            |   |                     |      |                                             |         | (1,340 | )
|                           | Equity contribution                                                                  |                                                                                              |   |                            |   |                     | 750  |                                             |         |        |  
|                           | Stock compensation for stock awards                                                  |                                                                                              |   |                            |   |                     | 27   |                                             |         |        |  
|                           | Dividend distribution                                                                |                                                                                              |   |                            |   |                     | (733 | )                                           |         |        |  
|                           |                                                                                      |                                                                                              |   |                            |   |                     |      |                                             |         |        |  
|Balance, March 31, 2007    |                                                                                      | $                                                                                            |  |                            | $ | 75,442              |      | $                                           | (18,599 | )      | $
|                           |                                                                                      |                                                                                              |   |                            |   |                     |      |                                             |         |        |  

7

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5.    Comprehensive Income (Loss):

The following table summarizes comprehensive income (loss), net of tax:

|                            |                                                                                                      | Three months ended
March 31, |      
|--------------------------- | ---------------------------------------------------------------------------------------------------- | ---------------------------- | -----
|
|Net income                  |                                                                                                      | $                            | 3,731
|                            | Amortization of pension and other postretirement benefits gains, net of tax of ($47)                 |                              |      
|                            | Gains (losses) in fair values of derivatives qualifying as hedges, net of tax of $1,064 and ($6,029) |                              |      
|                            | Foreign currency translation adjustments, net of tax of $518 and $861                                |                              |      
|                            |                                                                                                      |                              |      
|Comprehensive income (loss) |                                                                                                      | $                            | 7,699
|                            |                                                                                                      |                              |      

6.    Inventories:

Inventories were classified and valued as follows:

|                                      |                    | March 31,
2007 |         | December 31,
2006
|------------------------------------- | ------------------ | -------------- | ------- | -----------------
|Finished products and work in process |                    | $              | 89,222  |                  
|Raw materials                         |                    |                | 24,935  |                  
|                                      |                    |                |         |                  
|                                      |                    | $              | 114,157 |                  
|                                      |                    |                |         |                  
|Valued at lower of cost or market:    |                    |                |         |                  
|                                      | LIFO basis         |                |         | 69,357           
|                                      | FIFO basis         |                |         | 8,999            
|                                      | Average cost basis |                |         | 35,801           
|                                      |                    |                |         |                  
|                                      |                    | $              | 114,157 |                  
|                                      |                    |                |         |                  

7.    Investment in Affiliates:

Following is summarized financial information of our Zeolyst International joint venture that qualifies as a significant equity method investee:

|                 |  | Three months ended
March 31,
|---------------- |  | ----------------------------
|
|Net sales        |  | $                           
|Gross profit     |  |                             
|Operating income |  |                             
|Net income       |  |                             

This
joint venture, and our other investments in affiliated companies, is accounted for under the equity method. The summarized financial information above excludes expenses related to
purchase

8

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accounting
fair value adjustments of $298 for the three months ended March 31, 2007 and 2006. These purchase accounting adjustments were established as a result of the Transactions and the
related amortization expense is reflected as a reduction in the Company's equity in net income of affiliated companies for the respective periods.

8.     Property, Plant and Equipment:

A summary of property, plant and equipment, at cost, and related accumulated depreciation and depreciation expense is as follows:

|                               |  | March 31,
2007 |         | December 31,
2006
|------------------------------ |  | -------------- | ------- | -----------------
|Land                           |  | $              | 58,179  |                  
|Buildings                      |  |                | 105,815 |                  
|Machinery and equipment        |  |                | 229,241 |                  
|Construction in progress       |  |                | 19,250  |                  
|                               |  |                |         |                  
|                               |  |                | 412,485 |                  
|Less: accumulated depreciation |  |                | 88,230  |                  
|                               |  |                |         |                  
|                               |  | $              | 324,255 |                  
|                               |  |                |         |                  

Depreciation
expense was $11,484 and $10,227 for the three months ended March 31, 2007 and 2006, respectively.

9.    Goodwill and Other Intangible Assets:

The allocation of the Transaction purchase price resulted in goodwill being allocated $140,736 to the Performance Chemicals segment, $22,855 to the Catalysts
segment, and $66,313 to the Potters segment. In addition, as part of the allocation of the Transaction purchase price, $53,000 was assigned to trade names that are not subject to amortization.

As
described in Note 3, the Company acquired certain assets and liabilities of Flex-O-Lite Inc. on January 25, 2007. The allocation of the
purchase price to assets acquired and liabilities assumed resulted in additional goodwill of $1,712 being allocated to the Potters segment. The Company is currently evaluating the amount of goodwill
expected to be deductible for tax purposes. In addition, as a result of the acquisition, part of the allocation of the purchase price was assigned to other intangible assets in the amount of $2,790.

The
Company completed its annual impairment assessments as of September 30, 2006 and 2005 and no impairment charge was warranted. In connection with the change in segment
reporting, the Company updated its impairment assessments as of January 1, 2007 and no impairment charge was warranted.

9

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Gross carrying amounts and accumulated amortization for intangible assets with estimable useful lives are as follows:

|                                    |  | March 31, 2007 |         | December 31, 2006
|----------------------------------- |  | -------------- | ------- | -----------------
|
|Formulations and product technology |  | $              | 54,030  |                  
|Non compete agreements              |  |                | 4,441   |                  
|Raw material contracts              |  |                | 43,648  |                  
|Railcar leases                      |  |                | 509     |                  
|Customer lists and rights to sell   |  |                | 900     |                  
|Trademarks                          |  |                | 1,650   |                  
|                                    |  |                |         |                  
|Total                               |  | $              | 105,178 |                  
|                                    |  |                |         |                  

The
amortization periods for formulations and product technology range from ten to twelve years. The amortization periods for railcar leases, and customers lists and rights to sell are
five years and fifteen years, respectively. The amortization period for the non-compete agreements range from three to five years. The amortization period for raw material contracts is
based on the terms of the contracts; the longest of which is three years in duration.

Total
amortization of intangibles was $4,143 and $6,505, respectively, for the three months ended March 31, 2007 and 2006. Total amortization of intangibles included $2,613 and
$5,113 related to raw material contracts that was recorded to cost of goods sold in the Consolidated Statements of Operations for the three months ended March 31, 2007 and 2006, respectively.

10.    Long-term Debt:

The summary of long-term debt is as follows:

|                                                                      |                       | March 31,
2007 |         | December 31,
2006 |  
|--------------------------------------------------------------------- | --------------------- | -------------- | ------- | ----------------- | -
|Senior secured term loans with interest at 7.35% as of March 31, 2007 |                       | $              | 357,848 |                   | $
|7.50% Senior subordinated notes due 2013                              |                       |                | 275,000 |                   |  
|Revolving credit agreements                                           |                       |                | 37,000  |                   |  
|Other                                                                 |                       |                | 3,541   |                   |  
|                                                                      |                       |                |         |                   |  
|                                                                      |                       |                | 673,389 |                   |  
|                                                                      | Less: current portion |                |         | (44,193           | )
|                                                                      |                       |                |         |                   |  
|                                                                      |                       | $              | 629,196 |                   | $
|                                                                      |                       |                |         |                   |  

On
February 11, 2005, the Company issued $275,000 of 7.5% senior subordinated notes due 2013 in transactions exempt from or not subject to registration under the Securities Act
pursuant to Rule 144A under the Securities Act and received cash proceeds of $267,781 after deducting initial purchases discounts and expenses. The notes are senior subordinated obligations of
the Company and

10

---



rank
junior to all other senior indebtedness of the Company that does not contain similar subordination provisions. The indenture relating to the notes contains various limitations on the Company's
ability to incur additional indebtedness, pay dividends, sell assets and create liens, among other things. Interest on the notes is payable on February 15 and August 15 of each year. No
principal payments are required with respect to the notes prior to their final maturity.

On
February 11, 2005, the Company entered into a senior secured credit facility ("Senior Credit Facility") having a term loan in the amount of $335,000 with a maturity date of
February 11, 2012, and received cash proceeds of approximately $324,950 after deducting underwriting fees and expenses. Interest on the term loan is variable and is equal to LIBOR plus a margin
of 2.0%. The Senior Credit Facility requires minimum quarterly principal payments of $917 on the term loan, as well as prepayments from all "net proceeds" received and "excess cash flow," if
applicable. In accordance with the Senior Credit Facility, net proceeds generally relate to proceeds received from the issuance or incurrence of certain indebtedness or proceeds received on the
disposition of assets, adjusted for certain costs and expenses, and are payable promptly upon receipt subject, in the case of net proceeds from asset dispositions, to meeting the thresholds described
below. Net proceeds prepayments in respect of asset dispositions are not payable unless they are in excess of certain minimum amounts, both on an individual basis for any given disposition and in the
aggregate for dispositions that, individually, would not meet the threshold. Excess cash flow is to be calculated annually and is defined as earnings before interest, taxes, depreciation and
amortization ("EBITDA") adjusted for various expenditures and/or proceeds commencing with the 2005 fiscal year. Prepayments with respect to excess cash flow, if any, are to be made on an annual basis.
The detailed calculations supporting those two prepayments are defined in the credit agreement. The Company performed the calculation for fiscal year 2006 and 2005 and determined that no excess
payment was required. The remaining principal balance of the term loan is due upon maturity. At March 31, 2007, we were in compliance with our loan covenants.

The
Senior Credit Facility also provides for up to $100,000 in revolving credit borrowings. Borrowings under the revolving facility bear interest at a rate equal to the base or LIBOR
rate elected by the Company at the time of borrowing plus a margin which can range from 0.75% to 2.25%, based on the rate elected and the consolidated leverage ratio of the Company. In addition, there
is an annual commitment fee equal to 0.5% of the unused revolving credit borrowings available under the Senior Credit Facility. Revolving credit borrowings are payable at the option of the Company
throughout the term of the Senior Credit Facility with the balance due February 11, 2011. There were outstanding revolving credit borrowings under the Senior Credit Facility of $37,000 with an
effective interest rate of 7.57% as of March 31, 2007. As of December 31, 2006, there were no outstanding revolving credit borrowings under the Senior Credit Facility.

In
December 2005, the Company amended its Senior Credit Facility to provide for an additional $30,000 of term loan borrowings and to permit the Company to dividend up to an
additional $4,000 per year to Holdings, at the Company's option, for the purpose of servicing the interest expense on Holdings notes issued in the amount of $23,000. These Holdings notes are not
guaranteed by the Company. In addition, the amendment provides for an increase to the effective interest rate on our Senior Credit Facility by 25 basis points in the event our debt rating is
downgraded and stipulates a

11

---



prepayment
fee equal to 1.0% of certain voluntary prepayments made within one year of the effective date of the amendment with the proceeds of certain types of indebtedness and based on certain other
conditions. The amendment does not change any of the other existing covenants in the Senior Credit Facility.

11.    Financial Instruments:

Use of Derivative Financial Instruments to Manage Currency Risk.The Company has significant operations in countries outside
the United States where the local currency is considered to be the functional currency. The Company hedges significant net investments denominated in foreign currencies through cross-country interest
rate swap agreements. The Company records these agreements at fair value as assets or liabilities and the related gains or losses are deferred in stockholder's equity as a component of foreign
currency translation adjustments, net of tax. Fair value is determined based on estimated amounts that would be received or paid to terminate the contracts at the reporting date based on quoted market
prices. There was no hedge ineffectiveness related to our currency swap agreements in 2007 or 2006.

The
Company has cross-currency interest rate swap agreements denominated in euros that mature in 2009 and in Canadian dollars that mature in 2010. These swap agreements are designated as
a hedge of the net investment in our European and Canadian operations. The fair value of the net liability was recorded in other long-term liabilities of $18,005 and $16,687 as of
March 31, 2007 and December 31, 2006, respectively, with a corresponding amount, net of tax, recorded to foreign currency translation adjustments of $10,925 and $10,304 at
March 31, 2007 and December 31, 2006, respectively. In the event the euro or Canadian dollar strengthens against the U.S. dollar the fair value of the liability will increase.

Commodity Price Risk.The Company is exposed to risks in energy costs due to fluctuations in energy prices, particularly
natural gas. There is a hedging program in the United States which allows us to mitigate exposure to natural gas volatility with futures contracts. The futures contracts had a fair value asset of
$4,856 and $2,152 at March 31, 2007 and December 31, 2006, respectively. Fair value is determined based on estimated amounts that would be received or paid to terminate the contracts at
the reporting date based on quoted market prices of comparable contracts. The respective current and non-current balances are recorded in prepaid and other current assets and other
long-term assets. The related gains or losses are recorded in stockholder's equity as a component of other comprehensive income (loss), net of tax. Realized gains and losses on natural gas
hedges are included in production cost and subsequently charged to cost of goods sold in the consolidated statements of income in the period in which inventory is sold.

12.    Income Taxes:

The effective tax provision rate of 44.9% on the Company's consolidated pre-tax income for the three months ended March 31, 2007 differs from
the U.S. statutory tax rate of 35.0% principally due to the U.S. tax effects on the earnings of non-U.S. subsidiaries. The Company considers all earnings of foreign subsidiaries to be
available for repatriation to the U.S. and provides U.S. tax expense in anticipation of the repatriation of these earnings.

12

---



The
Company has incurred a significant increase in interest expense from acquisition indebtedness in connection with the Transactions in 2005, substantially all of which is in the U.S.
The increase in interest expense limits the Company's ability to use foreign tax credits to offset U.S. tax on dividends from foreign subsidiaries.

The
Company adopted the provisions of FIN No. 48 on January 1, 2007. As of the date of adoption, the Company's unrecognized tax benefits totaled $21,003. Accordingly, the
Company recognized an increase of $10,113 in the liability for unrecognized tax benefits, which was accounted for as a $1,340 increase to the accumulated deficit, and an $8,773 decrease to deferred
tax liabilities. At the date of adoption, the liability included $8,451 of tax positions that would not affect the annual effective tax rate if disallowed.

The
Company recognizes potential accrued interest and penalties related to unrecognized tax benefits within its global operations in income tax expense. In conjunction with the adoption
of FIN No. 48, the Company recognized approximately $694 for the potential payment of interest and penalties at January 1, 2007, which is included as a component of the $21,003
unrecognized tax benefit noted above. During the three months ended March 31, 2007, the Company recognized approximately $101 in potential interest and penalties associated with uncertain tax
positions. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax
provision in the interim period for which the event occurs to require the adjustment.

As
a result of the expiration of statute of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized tax benefits for tax positions taken on
previously filed tax returns will materially change from those recorded as liabilities for uncertain tax positions in our financial statements at January 1, 2007. The most significant tax
positions for which it is reasonably possible that the total amount of unrecognized tax benefit will significantly increase or decrease within twelve months are the timing of tax return deductions
that could have a $1,552 impact on the liability, but zero impact on the effective tax rate.

The
Company files consolidated and separate income tax returns in the U.S. Federal jurisdiction and in state and foreign jurisdictions. The Company is no longer subject to U.S. Federal
income tax examinations for years before 2003 and is no longer subject to state and local, or foreign income tax examinations by tax authorities for years before 1999.

The
Company has subsidiaries in various states, provinces and countries that are currently under audit for years ranging from 1999 through 2005. To date, no material adjustments have
been proposed as a result of these audits.

13

---



13.    Pension and Post Retirement Benefits:

Components of net periodic expense are as follows:

|                                 |  | Three months ended
March 31, |       
|-------------------------------- |  | ---------------------------- | ------
|
|Pension BenefitsU.S. and Canada |  |                              |       
|Service cost                     |  | $                            |      
|Interest cost                    |  |                              | (1,914
|Expected return on assets        |  |                              | 2,472 
|                                 |  |                              |       
|Net periodic income (expense)    |  | $                            | 558   
|                                 |  |                              |       

|                             |  | Three months ended
March 31, |     
|---------------------------- |  | ---------------------------- | ----
|
|Pension BenefitsOther Plans |  |                              |     
|Service cost                 |  | $                            | (634
|Interest cost                |  |                              | (463
|Expected return on assets    |  |                              | 321 
|Net amortization             |  |                              | 14  
|                             |  |                              |     
|Net periodic expense         |  | $                            | (762
|                             |  |                              |     

|                              |  | Three months ended
March 31, |     
|----------------------------- |  | ---------------------------- | ----
|
|Supplemental Retirement Plans |  |                              |     
|Interest cost                 |  | $                            | (183
|Net amortization              |  |                              | (10 
|                              |  |                              |     
|Net periodic expense          |  | $                            | (193
|                              |  |                              |     

|                                   |  | Three months ended
March 31, |     
|---------------------------------- |  | ---------------------------- | ----
|
|Other Postretirement Benefit Plans |  |                              |     
|Interest cost                      |  | $                            | (172
|Net amortization                   |  |                              | 117 
|                                   |  |                              |     
|Net periodic expense               |  | $                            | (55 
|                                   |  |                              |     

The
Company made contributions of $128 and $1,806 to the U.S. and Canadian pension plans and other pension plans, respectively, for the three months ended
March 31, 2007. For the retiree health
plans, the Company made payments of $383 for the three months ended March 31, 2007. In addition, the Company made contributions of approximately $738 to defined contribution plans for the three
months ended March 31, 2007.

14

---





14.    Stock-based Compensation:

The Company applies the fair value based method to account for stock options and awards prescribed by SFAS No. 123(R). The Company adopted the provisions
of SFAS No. 123(R) as of January 1, 2006. The adoption of SFAS No. 123(R) did not have an impact on the consolidated financial statements.

Holdings
has adopted a restricted stock plan for which 19,800 shares of Holdings' Class A common stock were awarded in 2005. The restricted stock vest as follows: 10% of each
grant vests on February 11 in each year 2006-2010, subject to the executive's continued service with Holdings and its subsidiaries on such date and subject to 100% vesting upon the
earlier of an initial public offering of stock by, or change in control of, Holdings, and subject to accelerated vesting upon certain specified events of termination of service; and the vesting of 50%
of each grant is based on performance measures at the time of an initial public offering of stock by, or earlier change in control of Holdings. The fair value of the awards was determined using
multiples of EBITDA and the income approach, based on discounted free cashflow. Compensation expense for these awards was $27 for the three months ended March 31, 2007 and 2006 commensurate
with the estimated vesting of the underlying awards. As of March 31, 2007, there was $95 of unrecognized compensation cost related to nonvested restricted stock which is expected to be
recognized over a weighted average period of 0.87 years.

15.    Commitments and Contingencies:

There is a risk of environmental impact in chemical manufacturing operations. The Company's environmental policies and practices are designed to ensure compliance
with existing laws and regulations and to minimize the possibility of significant environmental impact. The Company is also subject to various other lawsuits and claims with respect to matters such as
governmental regulations, labor, and other actions arising out of the normal course of business. No accrual for these matters currently exists, with the exception of those listed below, because
management believes that the liabilities resulting from such lawsuits and claims will not materially affect the results of operations, financial position or cash flow of the Company.

The
Company was named as the defendant in a personal injury case which occurred in 1996. The case was settled in November 2006 for $2,400. The claim was covered by the Company's
insurance carrier. As settlement of this claim, the Company's insurance carrier agreed to pay the plaintiff $2,400, of which $1,200 was paid in December 2006 and $1,200 was paid in
January 2007.

The
Company triggered the requirement of New Jersey's Industrial Site Recovery Act ("ISRA") statute as part of the due diligence performed in connection with the Transactions in
December 2004. As required under ISRA, a General Information Notice with respect to our two New Jersey locations was filed with the New Jersey Department of Environmental Protection ("NJDEP")
in December 2004. Based on a preliminary review of the facilities by the NJDEP, the Company estimated that $500 will be required for contamination assessment and removal work at these
facilities, and had recorded a reserve for such amount as of December 31, 2005. During the year ended December 31, 2006, it was determined that additional assessment, removal and
remediation work would be required and the reserve was increased by $400 to $900 to cover the estimated cost of such work. There may be additional costs related to the remediation of these two
facilities, but until further investigation takes place, the Company cannot reasonably estimate the amount of additional liability that may exist.

15

---



16.    Related Party Transactions:

The Company, J.P. Morgan Partners, LLC and its affiliates and Peak Investments, LLC, (referred to collectively as, the "Sponsors") and Holdings entered into
management agreements relating to the provision of certain financial and strategic advisory services and consulting services. Under this agreement, the Company pays the Sponsors a quarterly monitoring
fee equal to $500. The management agreement also provides for reimbursement of fees payable by Holdings for the maintenance of its corporate existence, corporate overhead expenses and for salaries and
other compensation of certain employees who perform services for both Holdings and the Company.

17.    Business Segments:

Effective January 1, 2007, the Company completed a business reorganization that aligned its organizational structure to its strategic direction. In
connection with this reorganization, the Company began managing operations, assessing performance, and reporting financial results under three business segments and therefore began reporting financial
information based on these segments beginning in the first quarter of 2007. Due to the change in segment reporting, the Company reallocated goodwill to the Performance Chemicals and Catalysts
segments. Goodwill was reassigned to the reporting units affected
using a relative fair value approach as of January 1, 2007. The change in business segments did not have an effect on goodwill or long-lived asset impairment.

The
Company's reportable segments are organized based on the operating divisions within the Company: Performance Chemicals, Catalysts, and Potters. Performance Chemicals develops,
manufactures and distributes silicate-based specialty chemicals primarily to large industrial and consumer product companies. Catalysts produces high performance catalytic zeolites and zeolite-based
catalysts and polyolefin catalysts mainly used in the refining, petrochemical, and automotive end-use industries. Potters manufactures highly engineered solid and hollow glass spheres that
are mainly sold to contractors, governmental agencies and manufacturing companies.

16

---



The
table below presents information about the reported segments:

|                         |                       | Three months ended
March 31,
|------------------------ | --------------------- | ----------------------------
|
|Net sales:               |                       |                             
|                         | Performance chemicals |                             
|                         | Catalysts             |                             
|                         | Potters               |                             
|                         |                       |                             
|                         | Total                 |                             
|                         |                       |                             
|Adjusted EBITDA (1):     |                       |                             
|                         | Performance chemicals |                             
|                         | Catalysts(2)          |                             
|                         | Potters               |                             
|                         |                       |                             
|Segments adjusted EBITDA |                       | $                           
|                         |                       |                             

---

17

---



A
reconciliation from Segments Adjusted EBITDA to net income (loss) follows:

|                                         |  | Three months ended
March 31, |       
|---------------------------------------- |  | ---------------------------- | ------
|
|Segments adjusted EBITDA                 |  | $                            | 42,736
|Less:                                    |  |                              |       
|Provision for income taxes               |  |                              | 3,183 
|Interest expense                         |  |                              | 13,016
|Depreciation and amortization            |  |                              | 12,951
|Impairment/disposal of long-lived assets |  |                              | 7     
|Unallocated corporate expenses           |  |                              | 5,371 
|Business combination related costs       |  |                              | 212   
|Raw material contracts                   |  |                              | 2,613 
|Investment in affiliates step-up         |  |                              | 298   
|Inventory step-up                        |  |                              | 251   
|Operational restructuring charges        |  |                              | 591   
|Other non-recurring costs                |  |                              | 12    
|Management advisory fees                 |  |                              | 500   
|                                         |  |                              |       
|Net income                               |  |                              | 3,731 
|                                         |  |                              |       

18.    Guarantor and Nonguarantor Statements:

In connection with the Transactions described in Note 1 and as a part of the related financings, the Company issued $275,000 of 7.5% senior subordinated
notes due 2013. The notes are general unsecured obligations of the Company, subordinated in right of payment to all existing and future senior indebtedness of the Company that does not contain similar
subordination provisions, and guaranteed on a full, unconditional, joint and several basis by the Company's 100% owned domestic subsidiaries.

The
following consolidating financial information presents:



18

---





PG CORPORATION AND SUBSIDIARIES  CONDENSED CONSOLIDATING BALANCE SHEET  March 31, 2007  (in thousands)  (unaudited)

|                                                                 |                                            | Parent
company |         | Guarantor
subsidiaries |   | Nonguarantor
subsidiaries |         | Eliminations |         | Consolidated
total
|---------------------------------------------------------------- | ------------------------------------------ | -------------- | ------- | ---------------------- | - | ------------------------- | ------- | ------------ | ------- | ------------------
|ASSETS                                                           |                                            |                |         |                        |   |                           |         |              |         |                   
|Cash and cash equivalents                                        |                                            | $              | 5,842   |                        | $ | 81                        |         | $            | 10,349  |                   
|Receivables, net                                                 |                                            |                | 35,586  |                        |   | 20,485                    |         |              | 57,691  |                   
|Intercompany receivable                                          |                                            |                |        |                        |   | 116,124                   |         |              |        |                   
|Inventories                                                      |                                            |                | 27,956  |                        |   | 42,565                    |         |              | 43,636  |                   
|Prepaid and other current assets                                 |                                            |                | 8,136   |                        |   | 272                       |         |              | 4,142   |                   
|                                                                 |                                            |                |         |                        |   |                           |         |              |         |                   
|                                                                 | Total current assets                       |                |         | 77,520                 |   |                           | 179,527 |              |         | 115,818           
|Investments in subsidiaries                                      |                                            |                | 437,128 |                        |   | 142,520                   |         |              |        |                   
|Investments in affiliated companies                              |                                            |                | 65,957  |                        |   | 2,943                     |         |              | 3,937   |                   
|Property, plant and equipment, net                               |                                            |                | 108,662 |                        |   | 49,886                    |         |              | 165,707 |                   
|Goodwill                                                         |                                            |                | 163,591 |                        |   | 65,217                    |         |              | 3,132   |                   
|Tradenames                                                       |                                            |                | 32,400  |                        |   | 20,600                    |         |              |        |                   
|Other intangible assets, net                                     |                                            |                | 34,822  |                        |   | 22,580                    |         |              | 248     |                   
|Other long-term assets                                           |                                            |                | 26,793  |                        |   | 664                       |         |              | 5,503   |                   
|                                                                 |                                            |                |         |                        |   |                           |         |              |         |                   
|                                                                 | Total assets                               |                | $       | 946,873                |   | $                         | 483,937 |              | $       | 294,345           
|                                                                 |                                            |                |         |                        |   |                           |         |              |         |                   
|LIABILITIES AND STOCKHOLDER'S EQUITY                             |                                            |                |         |                        |   |                           |         |              |         |                   
|Revolver, notes payable and ucrrent maturities of long-term debt |                                            | $              | 40,652  |                        | $ |                          |         | $            | 3,541   |                   
|Cash overdraft                                                   |                                            |                | 838     |                        |   |                          |         |              | 137     |                   
|Accounts payable                                                 |                                            |                | 17,506  |                        |   | 10,023                    |         |              | 26,772  |                   
|Intercompany payble                                              |                                            |                | 49,978  |                        |   |                          |         |              | 66,146  |                   
|Accrued liabilities                                              |                                            |                | 20,313  |                        |   | 13,493                    |         |              | 13,042  |                   
|                                                                 |                                            |                |         |                        |   |                           |         |              |         |                   
|                                                                 | Total current liabilities                  |                |         | 129,287                |   |                           | 23,516  |              |         | 109,638           
|Long-term debt                                                   |                                            |                | 629,196 |                        |   |                          |         |              |        |                   
|Deferred income taxes                                            |                                            |                | 59,256  |                        |   | 23,293                    |         |              | 12,775  |                   
|Other long-term liabilities                                      |                                            |                | 65,098  |                        |   |                          |         |              | 24,271  |                   
|Minority interest in equity of subsidiaries                      |                                            |                |        |                        |   |                          |         |              | 5,141   |                   
|Commitments and contingencies                                    |                                            |                |         |                        |   |                           |         |              |         |                   
|Stockholder's equity                                             |                                            |                | 64,036  |                        |   | 437,128                   |         |              | 142,520 |                   
|                                                                 |                                            |                |         |                        |   |                           |         |              |         |                   
|                                                                 | Total liabilities and stockholder's equity |                | $       | 946,873                |   | $                         | 483,937 |              | $       | 294,345           
|                                                                 |                                            |                |         |                        |   |                           |         |              |         |                   

19

---





18.    Guarantor and Nonguarantor Statements:

PQ CORPORATION AND SUBSIDIARIES  CONDENSED CONSOLIDATING BALANCE SHEET  December 31, 2006  (in thousands)

|                                                                 |                                            | Parent
company |         | Guarantor
subsidiaries |   | Nonguarantor
subsidiaries |         | Eliminations |         | Consolidated
total
|---------------------------------------------------------------- | ------------------------------------------ | -------------- | ------- | ---------------------- | - | ------------------------- | ------- | ------------ | ------- | ------------------
|ASSETS                                                           |                                            |                |         |                        |   |                           |         |              |         |                   
|Cash and cash equivalents                                        |                                            | $              | 76      |                        | $ | 276                       |         | $            | 15,526  |                   
|Receivables, net                                                 |                                            |                | 30,894  |                        |   | 12,699                    |         |              | 54,825  |                   
|Intercompany receivable                                          |                                            |                |        |                        |   | 140,174                   |         |              |        |                   
|Inventories                                                      |                                            |                | 29,968  |                        |   | 27,298                    |         |              | 41,645  |                   
|Prepaid and other current assets                                 |                                            |                | 4,273   |                        |   | 430                       |         |              | 5,257   |                   
|                                                                 |                                            |                |         |                        |   |                           |         |              |         |                   
|                                                                 | Total current assets                       |                |         | 65,211                 |   |                           | 180,877 |              |         | 117,253           
|Investments in subsidiaries                                      |                                            |                | 428,889 |                        |   | 138,055                   |         |              |        |                   
|Investments in affiliated companies                              |                                            |                | 63,298  |                        |   | 3,043                     |         |              | 3,844   |                   
|Property, plant and equipment, net                               |                                            |                | 111,569 |                        |   | 40,207                    |         |              | 167,693 |                   
|Goodwill                                                         |                                            |                | 163,591 |                        |   | 65,213                    |         |              | 1,100   |                   
|Tradenames                                                       |                                            |                | 32,400  |                        |   | 20,600                    |         |              |        |                   
|Other intangible assets, net                                     |                                            |                | 38,299  |                        |   | 20,365                    |         |              | 339     |                   
|Other long-term assets                                           |                                            |                | 26,820  |                        |   | 1,252                     |         |              | 5,479   |                   
|                                                                 |                                            |                |         |                        |   |                           |         |              |         |                   
|                                                                 | Total assets                               |                | $       | 930,077                |   | $                         | 469,612 |              | $       | 295,708           
|                                                                 |                                            |                |         |                        |   |                           |         |              |         |                   
|LIABILITIES AND STOCKHOLDER'S EQUITY                             |                                            |                |         |                        |   |                           |         |              |         |                   
|Revolver, notes payable and current maturities of long-term debt |                                            | $              | 3,652   |                        | $ |                          |         | $            | 2,130   |                   
|Cash overdraft                                                   |                                            |                | 635     |                        |   | 1,071                     |         |              | 209     |                   
|Accounts payable                                                 |                                            |                | 17,940  |                        |   | 6,090                     |         |              | 29,208  |                   
|Intercompany payable                                             |                                            |                | 70,064  |                        |   |                          |         |              | 70,110  |                   
|Accrued liabilities                                              |                                            |                | 33,589  |                        |   | 10,157                    |         |              | 15,945  |                   
|                                                                 |                                            |                |         |                        |   |                           |         |              |         |                   
|                                                                 | Total current liabilities                  |                |         | 125,880                |   |                           | 17,318  |              |         | 117,602           
|Long-term debt                                                   |                                            |                | 630,109 |                        |   |                          |         |              |        |                   
|Deferred income taxes                                            |                                            |                | 68,490  |                        |   | 23,405                    |         |              | 13,069  |                   
|Other long-term liabilities                                      |                                            |                | 47,965  |                        |   |                          |         |              | 22,008  |                   
|Minority interest in equity of subsidiaries                      |                                            |                |        |                        |   |                          |         |              | 4,974   |                   
|Commitments and contingencies                                    |                                            |                |         |                        |   |                           |         |              |         |                   
|Stockholder's equity                                             |                                            |                | 57,633  |                        |   | 428,889                   |         |              | 138,055 |                   
|                                                                 |                                            |                |         |                        |   |                           |         |              |         |                   
|                                                                 | Total liabilities and stockholder's equity |                | $       | 930,077                |   | $                         | 469,612 |              | $       | 295,708           
|                                                                 |                                            |                |         |                        |   |                           |         |              |         |                   

20

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PQ CORPORATION AND SUBSIDIARIES  CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS  For the three months ended March 31, 2007  (in thousands)  (unaudited)

|                                             |                                                  | Parent
company |        | Guarantor
subsidiaries |   | Nonguarantor
subsidiaries |       | Eliminations |        | Consolidated
total
|-------------------------------------------- | ------------------------------------------------ | -------------- | ------ | ---------------------- | - | ------------------------- | ----- | ------------ | ------ | ------------------
|Sales                                        |                                                  | $              | 67,784 |                        | $ | 28,983                    |       | $            | 74,524 |                   
|Cost of goods sold                           |                                                  |                | 53,428 |                        |   | 22,272                    |       |              | 59,789 |                   
|                                             |                                                  |                |        |                        |   |                           |       |              |        |                   
|                                             | Gross profit                                     |                |        | 14,356                 |   |                           | 6,711 |              |        | 14,735            
|Selling, general and administative expenses  |                                                  |                | 9,411  |                        |   | 3,212                     |       |              | 8,199  |                   
|Other operating expense                      |                                                  |                | 1,250  |                        |   | 691                       |       |              | 492    |                   
|                                             |                                                  |                |        |                        |   |                           |       |              |        |                   
|                                             | Operating income                                 |                |        | 3,695                  |   |                           | 2,808 |              |        | 6,044             
|Equity in net income of affiliated companies |                                                  |                | 13,673 |                        |   | 1,510                     |       |              | 71     |                   
|Interest expense (income), net               |                                                  |                | 14,377 |                        |   | (2,887                    | )     |              | 1,526  |                   
|Other (income) expense                       |                                                  |                | (295   | )                      |   | (186                      | )     |              | 683    |                   
|                                             |                                                  |                |        |                        |   |                           |       |              |        |                   
|                                             | Income (loss) before taxes and minority interest |                |        | 3,286                  |   |                           | 7,391 |              |        | 3,906             
|Provision (benefit) for income taxes         |                                                  |                | (445   | )                      |   | 1,384                     |       |              | 2,244  |                   
|Minority interest                            |                                                  |                |       |                        |   |                          |       |              | 180    |                   
|                                             |                                                  |                |        |                        |   |                           |       |              |        |                   
|                                             | Net income                                       |                | $      | 3,731                  |   | $                         | 6,007 |              | $      | 1,482             
|                                             |                                                  |                |        |                        |   |                           |       |              |        |                   

21

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PQ CORPORATION AND SUBSIDIARIES  CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS  For the three months ended March 31, 2006  (in thousands)  (unaudited)

|                                             |                                                  | Parent
company |        | Guarantor
subsidiaries |   | Nonguarantor
subsidiaries |        | Eliminations |        | Consolidated
total |  
|-------------------------------------------- | ------------------------------------------------ | -------------- | ------ | ---------------------- | - | ------------------------- | ------ | ------------ | ------ | ------------------ | -
|Sales                                        |                                                  | $              | 69,442 |                        | $ | 26,200                    |        | $            | 71,100 |                    | $
|Cost of goods sold                           |                                                  |                | 56,224 |                        |   | 18,969                    |        |              | 56,373 |                    |  
|                                             |                                                  |                |        |                        |   |                           |        |              |        |                    |  
|                                             | Gross profit                                     |                |        | 13,218                 |   |                           | 7,231  |              |        | 14,727             |  
|Selling, general and administrative expenses |                                                  |                | 8,676  |                        |   | 2,719                     |        |              | 7,332  |                    |  
|Other operating expense (income)             |                                                  |                | 4,195  |                        |   | 453                       |        |              | (13    | )                  |  
|                                             |                                                  |                |        |                        |   |                           |        |              |        |                    |  
|                                             | Operating income                                 |                |        | 347                    |   |                           | 4,059  |              |        | 7,408              |  
|Equity in net income of affiliated companies |                                                  |                | 10,903 |                        |   | 3,721                     |        |              | 119    |                    |  
|Interest expense (income), net               |                                                  |                | 13,559 |                        |   | (2,654                    | )      |              | 1,735  |                    |  
|Other (income) expense                       |                                                  |                | (531   | )                      |   | 383                       |        |              | (59    | )                  |  
|                                             |                                                  |                |        |                        |   |                           |        |              |        |                    |  
|                                             | Income (loss) before taxes and minority interest |                |        | (1,778                 | ) |                           | 10,051 |              |        | 5,851              |  
|Provision (benefit) for income taxes         |                                                  |                | (2,480 | )                      |   | 2,479                     |        |              | 1,980  |                    |  
|Minority interest                            |                                                  |                |       |                        |   |                          |        |              | 118    |                    |  
|                                             |                                                  |                |        |                        |   |                           |        |              |        |                    |  
|                                             | Net income                                       |                | $      | 702                    |   | $                         | 7,572  |              | $      | 3,753              |  
|                                             |                                                  |                |        |                        |   |                           |        |              |        |                    |  

22

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PQ CORPORATION AND SUBSIDIARIES  CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS  For the three months ended March 31, 2007  (in thousands)  (unaudited)

|                                                    |                                           | Parent
company                                      |         | Guarantor
subsidiaries |        | Nonguarantor
subsidiaries |         | Eliminations |        | Consolidated
total |       
|--------------------------------------------------- | ----------------------------------------- | --------------------------------------------------- | ------- | ---------------------- | ------ | ------------------------- | ------- | ------------ | ------ | ------------------ | ------
|Net cash (used in) provided by operating activities |                                           | $                                                   | (26,455 | )                      | $      | 24,571                    |         | $            | (2,671 | )                  | $     
|Cash flows from investing activities:               |                                           |                                                     |         |                        |        |                           |         |              |        |                    |       
|                                                    | Purchase of property, plant and equipment |                                                     |         | (1,790                 | )      |                           | (502    | )            |        | (1,912             | )     
|                                                    | Business acquisition                      |                                                     |         |                        |        |                           | (24,030 | )            |        | (2,076             | )     
|                                                    | Other, net                                |                                                     |         | (725                   | )      |                           |        |              |        |                   |       
|                                                    |                                           |                                                     |         |                        |        |                           |         |              |        |                    |       
|                                                    |                                           | Net cash used for investing activities              |         |                        | (2,515 | )                         |         | (24,532      | )      |                    | (3,988
|Cash flows from financing activities:               |                                           |                                                     |         |                        |        |                           |         |              |        |                    |       
|                                                    | Cash overdrafts                           |                                                     |         | (635                   | )      |                           | (233    | )            |        | (94                | )     
|                                                    | Revolvers and notes payable, net          |                                                     |         | 37,000                 |        |                           |        |              |        | 1,394              |       
|                                                    | Repayments of long-term debt              |                                                     |         | (913                   | )      |                           |        |              |        |                   |       
|                                                    | Equity contribution                       |                                                     |         | 750                    |        |                           |        |              |        |                   |       
|                                                    | Dividend distribution                     |                                                     |         | (1,466                 | )      |                           |        |              |        |                   |       
|                                                    |                                           |                                                     |         |                        |        |                           |         |              |        |                    |       
|                                                    |                                           | Net cash provided by (used in) financing activities |         |                        | 34,736 |                           |         | (233         | )      |                    | 1,300 
|Effect of exchange rate changes on cash             |                                           |                                                     |        |                        |        |                          |         |              | 181    |                    |       
|                                                    |                                           |                                                     |         |                        |        |                           |         |              |        |                    |       
|Net change in cash and cash equivalents             |                                           |                                                     | 5,766   |                        |        | (194                      | )       |              | (5,178 | )                  |       
|Cash and cash equivalents at beginning of period    |                                           |                                                     | 76      |                        |        | 275                       |         |              | 15,527 |                    |       
|                                                    |                                           |                                                     |         |                        |        |                           |         |              |        |                    |       
|Cash and cash equivalents at end of period          |                                           | $                                                   | 5,842   |                        | $      | 81                        |         | $            | 10,349 |                    | $     
|                                                    |                                           |                                                     |         |                        |        |                           |         |              |        |                    |       

23

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PQ CORPORATION AND SUBSIDIARIES  CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS  For the three months ended March 31, 2006  (in thousands)  (unaudited)

|                                                    |                                           | Parent
company                                      |         | Guarantor
subsidiaries |        | Nonguarantor
subsidiaries |        | Eliminations |        | Consolidated
total |       
|--------------------------------------------------- | ----------------------------------------- | --------------------------------------------------- | ------- | ---------------------- | ------ | ------------------------- | ------ | ------------ | ------ | ------------------ | ------
|Net cash (used in) provided by operating activities |                                           | $                                                   | (17,318 | )                      | $      | 1,226                     |        | $            | (1,904 | )                  | $     
|Cash flows from investing activities:               |                                           |                                                     |         |                        |        |                           |        |              |        |                    |       
|                                                    | Purchase of property, plant and equipment |                                                     |         | (1,599                 | )      |                           | (2,126 | )            |        | (2,145             | )     
|                                                    | Other, net                                |                                                     |         | (325                   | )      |                           |       |              |        |                   |       
|                                                    |                                           |                                                     |         |                        |        |                           |        |              |        |                    |       
|                                                    |                                           | Net cash used for investing activities              |         |                        | (1,924 | )                         |        | (2,126       | )      |                    | (2,145
|Cash flows from financing activities:               |                                           |                                                     |         |                        |        |                           |        |              |        |                    |       
|                                                    | Cash overdrafts                           |                                                     |         | (631                   | )      |                           | 470    |              |        | (2,206             | )     
|                                                    | Revolvers and notes payable               |                                                     |         | 17,200                 |        |                           | 429    |              |        | (543               | )     
|                                                    | Repayments of long-term debt              |                                                     |         | (913                   | )      |                           |       |              |        | (387               | )     
|                                                    | Dividend distribution                     |                                                     |         | (880                   | )      |                           |       |              |        |                   |       
|                                                    |                                           |                                                     |         |                        |        |                           |        |              |        |                    |       
|                                                    |                                           | Net cash provided by (used in) financing activities |         |                        | 14,776 |                           |        | 899          |        |                    | (3,136
|Effect of exchange rate changes on cash             |                                           |                                                     |        |                        |        |                          |        |              | 149    |                    |       
|                                                    |                                           |                                                     |         |                        |        |                           |        |              |        |                    |       
|Net change in cash and cash equivalents             |                                           |                                                     | (4,466  | )                      |        | (1                        | )      |              | (7,036 | )                  |       
|Cash and cash equivalents at beginning of period    |                                           |                                                     | 4,542   |                        |        | 268                       |        |              | 18,162 |                    |       
|                                                    |                                           |                                                     |         |                        |        |                           |        |              |        |                    |       
|Cash and cash equivalents at end of period          |                                           | $                                                   | 76      |                        | $      | 267                       |        | $            | 11,126 |                    | $     
|                                                    |                                           |                                                     |         |                        |        |                           |        |              |        |                    |       

24

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report may contain material which includes forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 that reflect, when made, our current views with respect to current events and financial performance. These forward-looking statements are subject to numerous risks and
uncertainties, including, but not limited to, the risks and uncertainties described in "Risk Factors" and "Forward Looking Statements" as described in our annual report on Form 10-K
as filed with the Securities and Exchange Commission ("SEC") on April 2, 2007. Statements, other than those based on historical facts, which address activities, events or developments that we
expect or anticipate may occur in the future are forward-looking statements, which are based upon a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Such
statements may include words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of
future operating or financial performance. Forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to our operations and business
environment which may cause our actual results to be materially different from any future results, express or implied, by such forward-looking statements. Except as required by law, we undertake no
obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We are a global producer of inorganic specialty chemicals and engineered glass materials. We conduct our operations through three principal businesses: our
Performance Chemicals division, which develops, manufactures and distributes sodium silicate and related high performance silicate-based specialty chemicals, our Catalysts division, which manufactures
high performance catalytic zeolites and zeolite-based catalysts and polyolefin catalysts, and our Potters division, which manufactures highly engineered solid and hollow glass spheres used in highway
safety and other specialty applications. Our products are used in a variety of predominantly niche applications in a diverse range of industrial, consumer and municipal end-markets.

Effective
January 1, 2007, we completed a business reorganization that aligned our organizational structure to our strategic direction. In connection with this reorganization, we
began managing operations, assessing performance, and reporting financial results under three business segments and therefore began reporting financial information based on these segments beginning in
the first quarter
of 2007. Our reportable segments are organized based on the three operating divisions within the Company: Performance Chemicals, Catalysts, and Potters.

On
February 11, 2005, we were acquired by Niagara Holdings, Inc. ("Holdings"), a newly formed Delaware corporation affiliated with J.P. Morgan Partners, LLC and certain
affiliated funds ("JPMorgan Partners" or "JPMP"); and Peak Investments, LLC, (together with JPMP, the" Sponsors"). Pursuant to the terms of the Agreement and Plan of Merger, dated as of
December 15, 2004, among PQ Corporation, Holdings and Niagara Acquisition, Inc., a wholly owned subsidiary of Holdings; (i) Niagara Acquisition, Inc. merged with and into
PQ Corporation, with PQ Corporation surviving as a wholly owned subsidiary of Holdings; (ii) PQ Corporation redeemed the outstanding shares of its $16.44 Preferred Stock, Class A in
accordance with the terms thereof; and (iii) the common shareholders of PQ Corporation (both Series A and Series B) and holders of options to purchase common stock of PQ
Corporation received cash in exchange for their shares or for the cancellation of their options. We refer to the actions set forth in clauses (i), (ii) and (iii) as the "Merger". In this
report, we refer to the Merger and the related financing, collectively, as the "Transactions".

25

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Results of Operations

The following table sets forth our consolidated statements of operations data in dollar amounts for the periods indicated.

|                                               |                                           | Three months ended
March 31, |      
|---------------------------------------------- | ----------------------------------------- | ---------------------------- | -----
|
|
|Sales                                          |                                           | $                            | 171.3
|Cost of goods sold                             |                                           |                              | 135.5
|                                               |                                           |                              |      
|                                               | Gross profit                              |                              |      
|Selling, general and administrative expense    |                                           |                              | 20.8 
|Other operating expense                        |                                           |                              | 2.4  
|                                               |                                           |                              |      
|                                               | Operating income                          |                              |      
|Equity in net income from affiliated companies |                                           |                              | 7.7  
|Interest expense, net                          |                                           |                              | 13.0 
|Other (income) expense                         |                                           |                              | 0.2  
|                                               |                                           |                              |      
|                                               | Income before taxes and minority interest |                              |      
|Provision for income taxes                     |                                           |                              | 3.2  
|Minority interest                              |                                           |                              | 0.2  
|                                               |                                           |                              |      
|                                               | Net income                                |                              | $    
|                                               |                                           |                              |      

Three Months Ended March 31, 2007 Compared to the Three Months Ended March 31, 2006



Sales for the three months ended March 31, 2007 were $171.3 million, an overall increase of $4.6 million, or 3%, compared to sales of
$166.7 million for the three months ended March 31, 2006. Increases in sales as compared to the prior year period were primarily the result of average selling price increases and product
mix of $8.0 million, partially offset by lower sales volumes of $7.2 million. Price increases were implemented to mitigate the impact of increased raw materials and transportation costs
in each of our divisions. In addition, the favorable effects of foreign currency exchange rates resulted in an increase of $3.8 million.

Performance Chemicals division.Sales of the Chemicals division for the three months ended March 31, 2007 were
$120.1 million, a total increase of $3.6 million, or 3%, compared to sales of $116.5 million for the three months ended March 31, 2006. The increase in net sales was
primarily a result of higher average selling prices and product mix of $7.9 million, partially offset by lower sales volume of $7.2 million. Average selling prices increased primarily as
a result of favorable changes in product mix and price increases intended to mitigate the impact of higher raw materials and transportation costs. The favorable impact of foreign currency exchange of
$2.9 million added to the increase in sales over the prior year period. The favorable currency exchange impact was largely due to the strengthening of the Euro in comparison to the U.S. dollar
versus the quarter ended March 31, 2006.

Catalysts division.Sales of the Catalysts division for the three months ended March 31, 2007 were
$4.2 million, a decrease of $2.2 million, compared to sales of $6.4 million for the three months ended March 31, 2006. The decrease in sales in the first quarter of 2007
was primarily due to lower sales volume compared to the first quarter of 2006.

26

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Potters division.Sales of the Potters division for the three months ended March 31, 2007 were $47.0 million, a
total increase of $3.2 million, or 7%, compared to sales of $43.8 million for the three months ended March 31, 2006. The increase was primarily a result of increased sales volume
of $2.2 million, primarily due to the acquisition of Flex-O-Lite, and a favorable currency exchange impact of $0.9 million compared to the first quarter of 2006.
Partially offsetting the increased sales volume from the Flex-O-Lite acquisition was lower base sales volume as a result of delayed sales in the first quarter, expected to be
recognized in the second quarter.



Gross profit for the three months ended March 31, 2007 was $35.8 million compared with $35.1 million for the three months ended
March 31, 2006. Overall, gross profit in the first quarter of 2007 increased by $0.7 million or 2% compared with gross profit for the same period in 2006. The favorable effects of higher
average selling prices and product mix contributed $9.1 million to gross profit and the effects of foreign currency translation added another $0.5 million. The increase was partially
offset by lower contribution from sales volumes of $3.5 million, the net impact of higher manufacturing costs of $6.9 million due to higher raw material and transportation costs, and
increased depreciation expense of $1.0 million. In addition, approximately $2.5 million of the increase in gross profit was the result of a reduction in expense originating from purchase
accounting, primarily from lower amortization of revaluation of favorable raw materials supply contracts.

Performance Chemicals division.Gross profit for the three months ended March 31, 2007 was $22.9 million
compared with $20.4 million for the three months ended March 31, 2006. Overall, gross profit in the first quarter of 2007 increased by $2.5 million or 12% compared with gross
profit for the same period in 2006. The favorable effects of higher average selling prices and product mix contributed $8.5 million to gross profit and the effects of foreign currency
translation added another $0.3 million. The increase was partially offset by lower contribution from sales volumes of $3.0 million, the net impact of higher manufacturing costs of
$4.8 million due to higher raw material and transportation costs, and increased depreciation expense of $1.0 million. In addition, approximately $2.5 million of the increase in
gross profit was the result of a reduction in expense originating from purchase accounting, primarily from lower amortization of revaluation of favorable raw materials supply contracts.

Catalysts division.Gross profit for the three months ended March 31, 2007 was $2.0 million compared with
$3.3 million for the three months ended March 31, 2006. Gross profit was unfavorably impacted by lower contribution from sales volumes of $1.9 million. This was partially offset
by the net impact of lower manufacturing costs of $0.6 million.

Potters division.Gross profit for the three months ended March 31, 2007 was $10.9 million compared with
$11.4 million for the three months ended March 31, 2006. Gross profit was favorably impacted by higher average selling prices and product mix of $0.6 million, higher sales volumes
of $1.4 million, primarily due to the acquisition of Flex-O-Lite, and the favorable effect of foreign currency exchange rates of $0.2 million. Partially
offsetting the increased sales volume from the Flex-O-Lite acquisition was lower base sales volume as a result of delayed sales in the first quarter, expected to be recognized
in the second quarter, which negatively impacted gross profit. In addition, the favorable effects on gross profit described above were offset by the net impact of higher manufacturing costs of
$2.7 million due to higher raw material and transportation costs.



SG&A expenses for the three months ended March 31, 2007 were $20.8 million compared with $18.7 million for the three months ended
March 31, 2006, an increase of $2.1 million. The increase in SG&A expenses was primarily due to one-time increases in professional fees in the first quarter of 2007 versus
the amount recorded in the same period during 2006.

27

---





Other operating expense for the three months ended March 31, 2007 was $2.4 million compared with other operating expense of $4.6 million for
the three months ended March 31, 2006, a decrease of $2.2 million. The decrease in other operating expense was primarily due to $2.4 million in costs incurred in the first quarter
of 2006 to improve the efficiency of certain plant operations that were not incurred in the first quarter of 2007. Other operating expense in both periods includes the amortization of intangibles of
approximately $1.4 million, a management advisory fee of $0.5 million, and various miscellaneous operating costs.



Equity in net income of affiliated companies for the three months ended March 31, 2007 was $7.7 million compared with $3.4 million for the
three months ended March 31, 2006, an increase of $4.3 million. Both the current year and prior year period results were reduced by $0.3 million to reflect the amortization of
intangible assets and increased depreciation of property, plant and equipment that resulted from fair market value purchase accounting adjustments. The increase in the quarter ended March 31,
2007 was primarily due to higher earnings of Zeolyst International due to a favorable mix of higher gross profit product sales as well as the increased volume of hydrocracking catalysts sales.



Interest expense, net for the three months ended March 31, 2007 was $13.0 million compared with $12.6 million for the three months ended
March 31, 2006, an increase of $0.4 million. Interest expense was higher versus the prior year amount primarily due to higher interest rates on the variable rate portion of the Company's
debt.



Other expense was $0.2 million for the three months ended March 31, 2007 compared with other income of $0.2 million for the three months
ended March 31, 2006. Other (income) expense for both the 2007 and 2006 periods consisted primarily of foreign currency gains and losses and miscellaneous financing income and expense.



The provision for income taxes for the three months ended March 31, 2007 was $3.2 million, or 44.9% of pre-tax income, compared with a
provision of $2.0 million, or 70.7% of pre-tax income, for the three months ended March 31, 2006. The decrease in the effective rate during the first quarter of 2007 is
primarily due to a substantially higher level of forecasted earnings before taxes and a lower APB 23 provision in 2007 compared to 2006. The APB 23 tax provision is lower due to the use of limited
foreign tax credits in 2007 compared to the deduction of foreign taxes in 2006. The effective tax rate for both the first quarter 2007 and 2006 was higher than the U.S. federal tax rate primarily due
to the deferred U.S. tax effects on the earnings of non-U.S. subsidiaries which were not considered to be permanently reinvested.



For the foregoing reasons and taking into account the minority interest in earnings of subsidiaries for each period presented, net income was $3.7 million
for the three months ended March 31, 2007 compared with net income of $0.7 million for the three months ended March 31, 2006.

Liquidity and Capital Resources

Cash and cash equivalents at March 31, 2007 were $16.3 million, which was an increase of $0.4 million from December 31, 2006.

28

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Net
cash used for operating activities was $4.6 million for the three months ended March 31, 2007 compared to $18.0 million during the same period in 2006. The
primary contributor to the decrease in net cash used for operating activities from the prior year period was decreased investment in working capital compared to the prior year first quarter. The
Company continues to build first quarter inventory in anticipation of the North American and European highway striping season; however, a significant amount of the build occurred during the fourth
quarter of 2006.

Net
cash used in investing activities was $31.0 million for the three months ended March 31, 2007 compared to $6.2 million during the same period in 2006. The
increase in cash used for investing activities compared to the prior year was primarily due to the acquisition of certain assets and liabilities of Flex-O-Lite in
January 2007, partially offset by lower capital spending during the first quarter of 2007.

Net
cash provided by financing activities was $35.8 million for the three months ended March 31, 2007 compared to $12.5 million during the same period in 2006. The
primary increase in cash provided by financing activities was higher drawings on the revolving credit facility during the first quarter of 2007. Both the current and prior year net cash provided by
financing activities primarily consist of drawings on the revolving credit facility, as well as outflows for quarterly debt payments and dividend distributions. In addition, during the first quarter
of 2007, the Company received an equity contribution from Holdings of $0.8 million.

As
of March 31, 2007 our total debt was $673.4 million. In February 2005, we issued $275.0 million of senior subordinated notes and entered into a senior
secured credit facility consisting of a term loan in the original principal amount of $365.0 million, as amended, and a revolving credit facility in an aggregate amount of up to
$100.0 million. We will borrow under the revolving credit facility, as needed, for working capital requirements, capital expenditures and for other general corporate purposes. Borrowings under
the term loan are due and payable in quarterly installments of $0.9 million. The remaining balance of the term loan is due and payable in full in 2012. The revolving credit facility is
available until 2011. In addition to paying interest on outstanding principal amounts under our credit facility, we are required to pay a commitment fee to the lenders for the unused portion of our
revolving credit facility. We also have letters of credit of $5.9 million outstanding as of March 31, 2007, which reduce available borrowings under the revolving credit facility by such
amount.

The
senior secured credit facility contains various restrictive covenants. It prohibits us from prepaying other indebtedness, including the notes, and requires us to maintain a specified
minimum interest coverage ratio of 2.25, and a maximum total leverage ratio of 5.50, at March 31, 2007. In addition, our senior secured credit facility restricts our ability to incur
indebtedness or liens, make investments or declare or pay dividends and limits our annual capital spending. The indenture governing the subordinated notes among other things: (i) limits our
ability and the ability of our subsidiaries to incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments and enter into certain transactions with affiliates;
(ii) places restrictions on the ability of certain of our subsidiaries to pay dividends or make certain payments to us; and (iii) places restrictions on our ability and the ability of
our subsidiaries to merge or consolidate with any other person or sell, assign, transfer, convey or otherwise dispose of all or substantially all of our assets. At March 31, 2007, we were in
compliance with all of our loan covenants

Recently Issued Accounting Pronouncements

See footnote 2 to the condensed consolidated financial statements for a discussion of recently issued accounting pronouncements.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our major market risk exposure is potential losses arising from changing rates and prices regarding foreign currency exchange rate risk, interest rate risk,
commodity price risk and credit risk. The audit

29

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committee
of our Board of Directors regularly reviews foreign exchange, interest rate and commodity hedging activity and monitors compliance with our hedging policy. We do not use financial
instruments for speculative purposes and we limit our hedging activity to the underlying economic exposure.

Foreign Exchange Risk

Our financial results are subject to the impact of gains and losses on currency translations, which occur when the financial statements of foreign operations are
translated into U.S. dollars. We operate a
geographically diverse business with approximately 46% of our sales during the twelve months ended December 31, 2006 coming from our international operations in currencies other than the U.S.
dollar. Because consolidated financial results are reported in dollars, sales or earnings generated in currencies other than the U.S. dollar can result in a significant increase or decrease in the
amount of those sales and earnings when translated to U.S. dollars. The financial statements of our operations outside the U.S., where the local currency is considered to be the functional currency,
are translated into U.S. dollars using the exchange rate in effect at each balance sheet date for assets and liabilities and the average exchange rate for each period for sales, expenses, gains,
losses and cash flows. The exchange rates between these currencies and the U.S. dollar in recent years have fluctuated significantly and may continue to do so in the future. The foreign currencies to
which we have the most significant exchange rate exposure include the Canadian dollar and the euro. The effect of translating foreign subsidiaries' balance sheets into U.S. dollars is included in
other comprehensive income. The impact of gains and losses on transactions denominated in currencies other than the functional currency of the relevant operations are included in other
non-operating expense (income) and have historically not been material.

We
hedge our significant net investments denominated in foreign currencies through cross-country interest rate swap agreements. We record these agreements at fair value as assets or
liabilities and the related gains or losses are deferred in stockholder's equity as a component of foreign currency translation adjustments, net of tax. Fair value is determined based on estimated
amounts that would be received or paid to terminate the contracts at the reporting date based on quoted market prices. There was no hedge ineffectiveness related to our currency swap agreements in
2007 or 2006.

We
have cross-currency interest rate swap agreements denominated in euros that mature in 2009 and in Canadian dollars that mature in 2010. These swap agreements are designated as a hedge
of the net investment in our European and Canadian operations. The fair value of the net liability was recorded in other long-term liabilities of $18.0 million and
$16.7 million as of March 31, 2007 and December 31, 2006, respectively, with a corresponding amount, net of tax, recorded to foreign currency translation adjustments of
$10.9 million and $10.3 million at March 31, 2007 and December 31, 2006, respectively. In the event the euro or Canadian dollar strengthens against the U.S. dollar the fair
value of the liability will increase.

Interest Rate Risk

We are exposed to fluctuations in interest rates on our long-term senior secured term loan and revolving credit facility. Changes in interest rates
will not affect the market value of such debt but will affect the amount of our interest payments over the term of the loans. Likewise, an increase in interest rates could have a material impact on
our cash flow. As of March 31, 2007, a 100 basis point increase in interest rates on our variable term loan under our senior secured credit facility would have an estimated impact on annual
pre-tax earnings of approximately $3.6 million. The interest rate on the notes are fixed at 7.5%.

Commodity Risk

We purchase significant amounts of natural gas to supply the energy required in our production processes for our products in each of our divisions. Since we are a
producer of inorganic chemicals,

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natural
gas provides an energy source for us but is not a direct feedstock of our products. Therefore, exposure to the volatility in energy prices is less than that of many producers of organic
petrochemicals. We have implemented a hedging program in the U.S. which allows us to mitigate exposure to natural gas volatility with futures contracts. Forward purchases of natural gas are also made
in regard to our production at certain other subsidiary locations.

The
futures contracts had a fair value of $4.9 million and $2.2 million at March 31, 2007 and December 31, 2006, respectively. Fair value is determined based
on estimated amounts that would be received or paid to terminate the contracts at the reporting date based on quoted market prices of comparable contracts. The respective current and
non-current balances are recorded in prepaid and other current assets and other long-term assets. The related gains or losses are recorded in stockholder's equity as a
component of other comprehensive income (loss), net of tax. Realized gains and losses on natural gas hedges are included in production cost and subsequently charged to cost of goods sold in the
consolidated statements of income in the period in which inventory is sold.

Credit Risk

We are exposed to credit risk on financial instruments to the extent our counterparty fails to perform certain duties as required under the provisions of an
agreement. We only transact with counterparties having an appropriate credit rating for the risk involved. Credit exposure is managed through credit approval and monitoring procedures.

Concentration
of credit risk can result primarily from trade receivables, for example, with certain customers operating in the same industry or customer groups located in the same
geographic region. Credit risk related to these types of receivables is managed through credit approval and monitoring procedures.

ITEM 4.    CONTROLS AND PROCEDURES

(a)    Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(a) and 15d-15(e) promulgated under the Securities and
Exchange Act of 1934, or the "Exchange Act") that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized, and reported within the
time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the
desired control objectives.

Our
management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls
and procedures as of March 31, 2007. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were
functioning effectively to accomplish their objectives as of March 31, 2007.

(b)    Changes in Internal Control over Financial Reporting

There have been no other changes in our internal control over financial reporting during the three months ended March 31, 2007, that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are involved from time to time in administrative or legal proceedings relating to our operations and facilities.

There
is a risk of environmental impact in chemical manufacturing operations. Our environmental policies and practices are designed to ensure compliance with existing laws and
regulations and to minimize the possibility of significant environmental impact. We are also subject to various other lawsuits and claims with respect to matters such as governmental regulations,
labor, and other actions arising out of the normal course of business. No accrual for these matters currently exists, with the exception of those listed below, because we believe that the liabilities
resulting from such lawsuits and claims will not materially affect our results of operations, financial position or cash flow.

We
were named as the defendant in a personal injury case which occurred in 1996. The case was settled in November 2006 for $2.4 million. The claim was covered by our
insurance carrier. As settlement of this claim, our insurance carrier agreed to pay the plaintiff $2.4 million, of which $1.2 million was paid in December 2006 and
$1.2 million was paid in January 2007.

As
a result of an incident at our Baltimore, Maryland facility on March 17, 1999 involving the unauthorized discharge of process water to a storm sewer, the United States Attorney
for the District of Maryland undertook an investigation into environmental compliance at our Baltimore plant. The investigation later expanded to include two of our other plants in Chester,
Pennsylvania and St. Louis, Missouri. On March 10, 2004, we resolved the investigation by pleading guilty to three felony violations of the Clean Water Act. In addition to paying
$0.6 million in fines, restitution and the funding of a community service project, we are on probation until May 2007. We also agreed to submit documents to the Department of Justice
("DOJ") describing our Environmental Management System ("EMS"). Several additions to the EMS have been made based upon discussions with the DOJ and we are in
process of implementing the EMS. Successfully implementing the EMS is required by an action plan that has been incorporated into the plea agreement.

We
triggered the requirement of New Jersey's Industrial Site Recovery Act ("ISRA") statute as part of the due diligence performed in connection with the Transactions in
December 2004. As required under ISRA, a General Information Notice with respect to our two New Jersey locations was filed with the New Jersey Department of Environmental Protection ("NJDEP")
in December 2004. Based on a preliminary review of the facilities by the NJDEP, we estimated that $0.5 million will be required for contamination assessment and removal work at these
facilities, and had recorded a reserve for such amount as of December 31, 2005. During the year ended December 31, 2006, it was determined that additional assessment, removal and
remediation work would be required and the reserve was increased by $0.4 million to $0.9 million to cover the estimated cost of such work. There may be additional costs related to the
remediation of these two facilities, but until further investigation takes place, we cannot reasonably estimate the amount of additional liability that may exist.

In
the past five years, we have been a party to civil litigation matters. These matters have included disputes regarding employment matters and product warranty and negligence claims.
All but two matters have been covered by applicable insurance. The two matters that have been denied coverage by our insurance carriers relate to the operations at our Augusta, Georgia facility. The
suits, which are pending against numerous industrial and utility defendants, allege that emissions of mercury from the utility and industrial defendants facilities resulted in harm to the two
plaintiffs. We do not believe we have any material exposure to any litigation liability.

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ITEM 1A. RISK FACTORS

There have been no material changes to the disclosure related risk factors made in our annual report on Form 10-K, as filed with the SEC on
April 2, 2007.

ITEM 2.    UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.    OTHER INFORMATION

Subsequent to the end of the reporting period for this quarterly report on Form 10-Q, on April 23, 2007, we entered into a Letter Agreement with
Mr. Erwin J. Goede. Mr. Goede is currently our Vice President and PresidentChemicals Europe, Asia and Australia. The Letter Agreement related to a special one time
payment for Mr. Goede in the event of our change of control or initial public offering. As a named executive officer as of December 31, 2006, the entrance into the Letter Agreement with
Mr. Goede would have been a reportable event under Item 1.01 of Form 8-K.

A
copy of the Letter Agreement is incorporated by reference herein as Exhibit 10.1 to this report.

ITEM 6.    EXHIBITS

|10.1 |  | Letter Agreement by and between PQ Corporation and Erwin J. Goede, dated as of April 23, 2007.                                                                         
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Section 302 of the Sarbanes-Oxley Act of 2002 Certification of James P. Cox, Vice President and Chief Financial Officer.                                               
|31.2 |  | Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Michael R. Boyce, Chief Executive Officer.                                                              
|32.1 |  | Section 906 of the Sarbanes-Oxley Act of 2002 Certification of Michael R. Boyce, Chief Executive Officer, and James P. Cox, Vice President and Chief Financial Officer.

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SIGNATURES

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

| |  | PQ CORPORATION
| |  | --------------
| |  | By:           

Date:
May 14, 2007

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