UNITED STATES
               SECURITIES AND EXCHANGE COMMISSION
                     WASHINGTON, D.C. 20549
                            FORM 10-K

(Mark One)

[X]   ANNUAL  REPORT  PURSUANT TO SECTION  13  OR  15(d)  OF  THE
      SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

      For the fiscal year ended:  December 31, 1999

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF
      THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

      For   the  transition  period  from  ___________   to ___________

                     Commission File Number:

                         CLIMACHEM, INC.
     (Exact Name of Registrant as Specified in its Charter)

      Oklahoma                            73-1528549
_______________________             ______________________
(State of Incorporation)           (I.R.S. Employer
                                   Identification No.)

      16 South Pennsylvania Avenue
       Oklahoma City, Oklahoma                          73107
_______________________________________             ___________
(Address of Principal Executive Officers)            (Zip Code)

Registrant's Telephone Number, Including Area Code: (405) 235-4546
                                                    _______________

Securities Registered Pursuant to Section 12(b) of the Act:  NONE
<PAGE>
                    (Facing Sheet Continued)

Securities Registered Pursuant to Section 12(g) of the Act:  None

      Indicate by check mark whether the Registrant (1) has filed
all   reports  required by Section 13 or 15(d) of the  Securities
Exchange Act of  1934 during the preceding 12 months (or for  the
shorter period that the  Registrant has had to file the reports),
and (2) has been subject to the  filing requirements for the past
90 days. YES  X   NO ____.

      Indicate  by check mark if disclosure of delinquent  filers
pursuant  to Item 405 of Regulation S-K is not contained  herein,
and   will  not  be   contained,  to  the  best  of  Registrant's
knowledge,   in  definitive  proxy  or   information   statements
incorporated by reference in Part III of this Form  10-K  or  any
amendment to this Form 10-K. __________.  This paragraph  is  not
applicable to the Registrant.

      All  outstanding shares of capital stock of the  registrant
are  held   directly  or  indirectly by the  registrant's  parent
company, LSB Industries, Inc.








                                  ii
<PAGE>

<PAGE>
                    FORM 10-K CLIMACHEM, INC.

                        TABLE OF CONTENTS


                                                             Page
                                                            ______
                             PART I
Item 1.  Business

          General                                               1
          Segment Information and Foreign
            and Domestic Operations and Export Sales            2
          Chemical Business                                     2
          Climate Control Business                              7
          Employees                                             9
          Research and Development                              9
          Environmental Matters                                 9

Item 2.  Properties

          Chemical Business                                    12
          Climate Control Business                             12

Item 3.  Legal Proceedings                                     13

Item 4.  Submission of Matters to a vote of Security Holders   14

Item 4A. Executive Officers of the Company                     15

                             PART II

Item 5.  Market for Company's Common Equity
          and Related Stockholder Matters                      16

          Market Information                                   16

Item 6. Selected Financial Data                                17

Item 7.  Management's Discussion and Analysis of
           Financial Condition and Results of Operations

          Overview                                             19
          Results of Operations                                27
          Liquidity and Capital Resources                      30
          Impact of Year 2000                                  35

Item 7A.  Quantitative and Qualitative Disclosures About
          Market Risk

          General                                              35
          Interest Rate Risk                                   35
          Raw Material Price Risk                              38
          Foreign Currency Risk                                38



                                   iii
<PAGE>
                                                               Page
                                                               ____

Item 8. Financial Statements and Supplementary Data             38

Item 9. Changes in and Disagreements with Accountants on
          Accounting and Financial Disclosure                   38

Special Note Regarding Forward-Looking Statements               39

                            PART III                            40

                             PART IV                            41

Item 14.  Exhibits, Financial Statement Schedules and Reports
            on Form 8-K                                         42










                                  iv
<PAGE>

                             PART I
                             ______
Item 1.  BUSINESS
_________________

General
_______

      The  Company, a wholly owned subsidiary of LSB  Industries,
Inc.   ("LSB"),  is  engaged, through its  subsidiaries,  in  the
manufacture   and  sale  of   (i)  chemical  products   for   the
explosives,  agricultural  and  industrial  acids   markets  (the
"Chemical  Business"),  and (ii) a broad range  of  hydronic  fan
coils and water source heat  pumps as well as other products used
in  commercial  and  residential air  conditioning  systems  (the
"Climate Control Business").

Business Strategy
_________________

      The  Company  is  pursuing a strategy of  concentrating  on
businesses  and  product  lines in niche  markets  where  it  can
establish  a  position as a market leader.  The Company  believes
that  it  can  maximize its long-term profitability  by  offering
specialized  products and value-added services to its  customers.
See "Special Note Regarding Forward-Looking Statements".

     The Chemical Business seeks to maximize profitability by (i)
being a low cost producer, (ii) focusing on a specific geographic
area  where  it can develop a freight and distribution  advantage
and  establish a leading regional presence, (iii) offering  value
added services as a means of building customer loyalty, and  (iv)
continuing  to  alter  the  product  mix  towards  higher  margin
products.   The Company has developed a geographic  advantage  in
the  Texas, Arkansas, Missouri and Tennessee agricultural markets
by  establishing  an  extensive network of wholesale  and  retail
distribution  centers  for  nitrogen-based  fertilizer   tailored
toward  regional farming practices and by providing  value  added
services.   The Company  has  also developed  a proprietary line
of explosives through a  nationally recognized branded product.
Given the nature of the product, the Company  believes  its
branding strategy,  emphasizing  quality, safety  and  reliability,
gives it a competitive  advantage  over less  recognized
explosive products.  See "Special Note Regarding
Forward-Looking Statements."

      The  Climate Control Business seeks to establish leadership
positions  in niche markets by offering extensive product  lines,
custom tailored products and proprietary new technologies.  Under
this  focused  strategy,  the Company has developed an
extensive line of hydronic fan coils and water source heat  pumps
in  the  U.S.   The Company has developed flexible production  to
allow  it  to  custom design units for the growing  retrofit  and
replacement  markets.   The  Company believes  that  the  Climate
Control  Business  is  one of the leaders in commercializing  new
technology  to satisfy increasingly stringent indoor air  quality
standards.   Products recently developed by the  Company  include
heat pump technology for dehumidification, specialty filters  for
the  removal  of airborne particles and gases, ultraviolet  light
units for bacteria removal and highly energy efficient dual  path
heat pump products.  The Climate Control Business is a pioneer in
the  use of geothermal water source heat pumps in residential and
commercial  applications.  The Company  believes that longer life,
lower  cost  to operate,  and  relatively short paycheck  periods
of  geothermal systems,  as  compared with air-to-air systems, will
continue  to increase  demand for its geothermal products.  See
"Special  Note Regarding Forward-Looking Statements."

                                   1
<PAGE>

<PAGE>
Segment Information and Foreign and Domestic Operations and Export Sales
________________________________________________________________________

      Schedules  of  the amounts of sales, operating  profit  and
loss,  and   identifiable  assets attributable  to  each  of  the
Company's lines of business  and of the amount of export sales of
the  Company in the aggregate and by  major geographic  area  for
each  of the Company's last three fiscal years appear in Note  13
of  the  Notes  to  Consolidated  Financial  Statements  included
elsewhere in this report.

     A discussion of any risks attendant as a result of a foreign
operation  or  the  importing of products from foreign  countries
appears  below   in  the  discussion of  each  of  the  Company's
business segments.

      All  discussions  which follow are that of  the  Businesses
continuing  and  accordingly exclude  the  Australian  subsidiary
operations  sold  during  1999.  See  Note  4  of  Notes  to  the
Consolidated Financial Statements.

Chemical Business
_________________

     General
     _______

     The Company's Chemical Business manufactures three principal
product   lines  that  are  derived from anhydrous  ammonia:  (1)
fertilizer grade ammonium  nitrate for the agricultural industry,
(2) explosive grade ammonium nitrate  for the mining industry and
(3)  concentrated, blended and mixed nitric acid  for  industrial
applications.  In  addition, the Company also  produces  sulfuric
acid for commercial applications primarily in the paper industry.
The   Chemical Business' products are sold in niche markets where
the  Company   believes it can establish a position as  a  market
leader. See "Special Note  Regarding Forward-Looking Statements".
The  Chemical  Business'  principal  manufacturing  facility   is
located   in El Dorado, Arkansas ("El Dorado Facility"), and  its
other manufacturing  facilities are located in Hallowell, Kansas,
Wilmington, North Carolina, and Baytown, Texas.

      For  each  of  the years 1999, 1998 and 1997, approximately
26%, 29% and 31% of the respective sales of the Chemical Business
consisted  of  sales of fertilizer and related chemical  products
for  agricultural purposes, which represented approximately  14%,
15%  and  17%  of the Company's consolidated sales for each
respective year. For each of the years  1999, 1998, and 1997
approximately 35%, 47% and 53% of the sales of the Chemical
Business consisted of sales of ammonium  nitrate and other chemical-
based blasting products for the mining  industry, which
represented  approximately   18%,  24%  and  29%  of   the
Company's   1999,   1998   and  1997   consolidated   sales   of,
respectively.   For  each  of  the years  1999,  1998  and  1997,
approximately  39%, 24% and 16% of the sales  of  the  Chemical
Business  consisted of Industrial Acids for  sale  in  the  food,
paper,  chemical  and electronics industries,  which  represented
approximately 20%, 13% and 9% of the Company's 1999, 1998 and
1997   consolidated  sales  respectively.   Sales of the Chemical
Business accounted for approximately 52%, 52%  and  55%  of  the
Company's  1999, 1998 and 1997 consolidated sales, respectively.

     Agricultural Products
     _____________________

     The Chemical Business produces ammonium nitrate, a nitrogen-
based   fertilizer,  at  the El Dorado Facility.   In  1999,  the
Company  sold  approximately 135,000  tons  of  ammonium  nitrate

                                  2
<PAGE>

<PAGE>
fertilizer  to  farmers,   fertilizer  dealers  and  distributors
located   primarily   in   the  south  central    United   States
(143,000 and 184,000 tons in 1998 and 1997, respectively).

      Ammonium  nitrate is one of several forms of nitrogen-based
fertilizers which includes anhydrous ammonia and urea.  Although,
to  some  extent, the various forms of nitrogen-based fertilizers
are  interchangeable,   each  has its own  characteristics  which
produce  agronomic preferences among  end users.  Farmers  decide
which  type of nitrogen-based fertilizer to apply  based  on  the
crop  planted,  soil  and  weather conditions,  regional  farming
practices and relative nitrogen fertilizer prices.

      The Chemical Business is a manufacturer of fertilizer grade
ammonium  nitrate, which it markets primarily in Texas,  Arkansas
and  the   surrounding regions. This market, which  is  in  close
proximity   to   its  El   Dorado  Facility,  includes   a   high
concentration of pasture land and row crops  which favor ammonium
nitrate  over other nitrogen-based fertilizers. The  Company  has
developed a leading market position in Texas by emphasizing  high
quality products, customer service and technical advice. Using  a
proprietary  prilling  process,  the  Company  produces  a   high
performance   ammonium nitrate fertilizer that,  because  of  its
uniform  size, is easier to  apply than many competing  nitrogen-
based  fertilizer products. The Company  believes that its  "E-2"
brand  ammonium nitrate fertilizer is recognized  as  a   premium
product  within its primary market. In addition, the Company  has
developed  long  term relationships with end  users  through  its
network of 20 wholesale and retail distribution centers.

      In  1998 and 1999, the Chemical Business has been adversely
affected by the drought conditions in the mid-south market during
the  primary fertilizer season, along with the importation of low
priced  Russian ammonium nitrate, resulting in lower sales volume
and  lower  sales price for certain of its products sold  in  its
agricultural  markets.  The Chemical Business is a member  of  an
organization  of  domestic  fertilizer  grade  ammonium   nitrate
producers  which is seeking relief from  unfairly  low priced
Russian ammonium nitrate.  This industry  group  filed  a petition
in July 1999 with the U.S. International  Trade Commission and
the U.S. Department of Commerce seeking an antidumping investigation
and, if warranted,  relief from  Russian  dumping.  The International
Trade  Commission  has rendered a favorable preliminary determination
that U.S. producers of ammonium nitrate have  been injured  as  a
result of Russian ammonium nitrate imports. In addition, the U.S.
Department of  Commerce  has issued  a  preliminary  affirmative
determination that the Russian imports were sold at prices that were
264.59% below their fair market value. As a result of the Commerce
Department's preliminary ruling, all imports of Russian  ammonium
nitrate  are  currently  subject to  potential  antidumping  duty
liability.   The Department of Commerce is due to issue  a  final
determination  by  May  22,  2000  and  the  International  Trade
Commission  by July 5, 2000.  The relief currently in place  will
remain   only   if   both   agencies   make   final   affirmative
determinations.   It  is  not  known,  therefore,   whether   the
antidumping action will be successful upon conclusion of the U.S.
Government's  investigation.   See "Management's  Discussion  and
Analysis  of  Financial Condition and Results of Operations"  and
"Special Note Regarding Forward-Looking Statements".

     Explosives
     __________

      The  Chemical  Business manufactures low  density  ammonium
nitrate-based  explosives  including  bulk  explosives  used   in
surface mining. In  addition, the Company manufactures and  sells
a  branded  line  of packaged  explosives used  in  construction,

                                 3
<PAGE>

<PAGE>
quarrying  and other applications,  particularly where controlled
explosive  charges are required. The Company's   bulk  explosives
are  marketed primarily through eight distribution centers,  five
of  which  are  located  in close proximity  to  the   customers'
surface mines in the coal producing states of Kentucky, Missouri,
Tennessee, and West Virginia.  The Company emphasizes value-added
customer  services and specialized product applications  for  its
bulk  explosives.  Most  of the sales of bulk explosives  are  to
customers   who  work  closely  with  the   Company's   technical
representatives  in  meeting their specific  product  needs.   In
addition,  the  Company  sells  bulk  explosives  to  independent
wholesalers   and    to  other  explosives  companies.   Packaged
explosives   are  used  for  applications  requiring   controlled
explosive  charges  and typically command  a  premium  price  and
produce  higher margins. The Company's Slurry packaged explosive
products  are sold nationally and internationally to  other
explosive companies and end-users.

      In  August,  1999, the Company sold substantially  all  the
assets  of  its wholly owned Australian subsidiary, Total  Energy
Systems   Limited   and  its  subsidiaries.   See   "Management's
Discussion  and  Analysis of Financial Condition and  Results  of
Operations"  and  Note  4  of  Notes  to  Consolidated  Financial
Statements.

     Industrial Acids
     ________________

      The  Chemical  Business manufactures and  sells  industrial
acids,   primarily to the food, paper, chemical  and  electronics
industries.  The  Company is a leading supplier to third  parties
of  concentrated nitric acid  which is a special grade of  nitric
acid  used  in  the  manufacture of  plastics,   pharmaceuticals,
herbicides,   explosives,  and  other   chemical   products.   In
addition,  the  Company produces and sells regular,  blended  and
mixed nitric  acid and a variety of grades of sulfuric acid.  The
Company competes on the  basis of price and service, including on-
time  reliability  and  distribution  capabilities.  The  company
provides   inventory  management  as  part  of  the   value-added
services it offers to its customers.

     EDNC Baytown Plant
     __________________

      Subsidiaries within the Company's Chemical Business entered
into a series of agreements with Bayer Corporation ("Bayer")
(collectively, the "Bayer Agreement").  Under the  Bayer
Agreement, El Dorado Nitrogen Company ("EDNC") acted as an  agent
to construct and, upon completion of construction, is operating a
nitric  acid plant (the "EDNC Baytown Plant") at Bayer's Baytown,
Texas chemical facility.

     Under the terms of the Bayer Agreement, EDNC leases the EDNC
Baytown Plant pursuant to a leveraged lease from an unrelated
third party with an initial lease term of ten years from the date
on which the EDNC Baytown Plant became fully operational (in May
1999).  Bayer will purchase from EDNC all of its requirements for
nitric acid to be used by Bayer at its Baytown, Texas facility
for ten years following May 1999.  EDNC will purchase from Bayer
its requirements for anhydrous ammonia for the manufacture of
nitric acid as well as utilities and other services.  Subject to
certain conditions, EDNC is entitled to sell to third parties the
amount of nitric acid manufactured at the EDNC Baytown Plant
which is in excess of Bayer's requirements. The Bayer Agreement
provides that Bayer will make certain net monthly payments to
EDNC which will be sufficient for EDNC to recover all of its
costs, as defined, plus a profit.  The Company estimates that at

                              4
<PAGE>

full production capacity based on terms of the Bayer Agreement
and subject to the price of anhydrous ammonia, the EDNC Baytown
Plant is anticipated to generate approximately $35 million in
annual gross revenues.  See "Special Note Regarding Forward-
Looking Statements".  Upon expiration of the initial ten-year
term from the date the EDNC Baytown Plant became operational, the
Bayer Agreement may be renewed for up to six renewal terms of
five years each; however, prior to each renewal period, either
party to the Bayer Agreement may opt against renewal.

     EDNC and Bayer have an option to terminate the Bayer
Agreement upon the occurrence of certain events of default if not
cured.  Bayer retains the right of first refusal with respect to
any bona fide third-party offer to purchase any voting stock of
EDNC or any portion of the EDNC Baytown Plant.

     In January, 1999, the contractor constructing the EDNC
Baytown Plant informed the Company that it could not complete
construction alleging a lack of financial resources.  The Company
and certain other parties involved in this project demanded the
contractors bonding company to provide funds necessary for
subcontractors to complete construction.  The Company, the
contractor, the bonding company and Bayer entered into an
agreement which provided that the bonding company pay $12.9
million for payments to subcontractors for work performed prior
to February 1, 1999.  In addition, the contractor agreed to
provide, on a no cost basis, project management and to incur
certain other additional costs through the completion of the
contract.  Because of this delay, an amendment was entered into
in connection with the Bayer Agreement.  The amendment extended
the requirement date that the plant be in production to May 31,
1999, and fully operational by June 30, 1999.  The construction
of the EDNC Baytown Plant was completed in May 1999, and EDNC
began producing and delivering nitric acid to Bayer at that time.
Sales by EDNC to Bayer out of the EDNC Baytown Plant production
during 1999, were approximately $17.2 million. Financing of the
EDNC Baytown Plant was provided by an unaffiliated lender.
Neither the Company nor EDC has guaranteed any of the repayment
obligations for the EDNC Baytown Plant.  In connection with the
leveraged lease, the Company entered into an interest rate
forward agreement to fix the effective rate of interest implicit
in such lease.  See "Special Note Regarding Forward-Looking
Statements" and Note 2 of Notes to Consolidated Financial
Statements.

     Raw Materials
     _____________

      Anhydrous ammonia represents the primary component  in  the
production of most of the products of the Chemical Business.  See
"Management's Discussion and Analysis of Financial Condition  and
Results of Operations."  The Chemical business normally purchases
approximately 200,000 tons of anhydrous ammonia per year for  use
in  its manufacture of its products.  Due to lower sales in 1999,
the  Company's  purchases of anhydrous ammonia were approximately
151,000 tons.

      During  1999,  the  Chemical  Business  purchased  its  raw
material  requirements of anhydrous ammonia from three  suppliers
at  an  average  cost per ton of approximately $145  compared  to
approximately $154 per ton in 1998 and approximately $184 per ton
in  1997.   During the second half of 1999, the majority  of  the
Chemical  Business' raw material purchases were  made  under  one
contract  as  supply contracts with the other two suppliers  were
terminated.  In October, 1999, the Chemical Business renegotiated
its remaining contract, which provides the Chemical Business with
an  extended  term  to  purchase the  anhydrous  ammonia  it  was
required  to  purchase  as of December 31,  1999  (96,000  tons).
Under  the  renegotiated contract, the Chemical  Business  is  to
purchase  the 96,000 tons at a minimum of 2,000 tons of anhydrous

                                 5
<PAGE>
ammonia per month during 2000 and 3,000 tons per month  in  2001
and  2002, at prices which could exceed or be less than the  then
current  spot  market price for anhydrous ammonia.  In  addition,
under  the  renegotiated  requirements contract  the  Company  is
committed to purchase 50% of its total requirements  of
anhydrous  ammonia through 2002 from this third party  at  prices
which  will approximated the then current spot market price.   In
January,  2000,  the  supplier under  this  requirement  contract
agreed  to  supply  the Chemical Business other requirements  for
anhydrous  ammonia  for a one (1) year term at approximately  the
then  current spot market price, which one (1) year agreement  is
terminable on 120 days notice.

      During  the second half of 1998 and during 1999, an  excess
supply  of nitrate based products, caused, in part, by the import
of  Russian  nitrate, caused a significant decline in  the  sales
prices.  This decline in sales price has resulted in the cost  of
anhydrous  ammonia  purchased  under  the  above  contract   when
combined  with  manufacturing and distribution costs,  to  exceed
anticipated  future  sales prices.  See "Special  Note  Regarding
Forward-Looking Statements" and Note 12 of Notes to  Consolidated
Financial Statements.

      The Company believes that it could obtain anhydrous ammonia
from  other  sources in the event of a termination of the  above-
referenced contract.

     Seasonality
     ___________

      The Company believes that the only seasonal products of
the   Chemical  Business  are  fertilizer  and  related  chemical
products sold to the agricultural industry.  The selling  seasons
for  those  products  are primarily during the  spring  and  fall
planting  seasons, which typically extend from  February  through
May  and  from  September through November  in  the  geographical
markets  in  which  the  majority of the  Company's  agricultural
products  are  distributed.  As a result, the  Chemical  Business
increases  its  inventory  of  ammonium  nitrate  prior  to   the
beginning  of  each planting season.  Sales to  the  agricultural
markets  depend  upon weather conditions and other  circumstances
beyond  the  control  of the Company.  The  agricultural  markets
serviced  by  the  Chemical  Business have  sustained  a  drought
resulting  in  a  lack  of  demand  for  the  Chemical  Business'
fertilizer  products  during the 1998 and 1999  fall  and  spring
planting  seasons and have had a material adverse effect  of  the
Company.

     Regulatory Matters
     __________________

     Each  of  the  Chemical Business' domestic blasting  product
distribution  centers  are licensed by  the  Bureau  of  Alcohol,
Tobacco  and  Firearms  in  order to manufacture  and  distribute
blasting  products.   The Chemical Business is  also  subject  to
extensive federal, state and local environmental laws, rules  and
regulations.     See   "Environmental   Matters"    and    "Legal
Proceedings".

     Competition
     ___________

     The Chemical business competes with other chemical companies
in  its  markets, many of whom have greater financial  and  other
resources   than   the  Company.   The  Company   believes   that
competition within the markets served by the Chemical Business is
primarily  based  upon  price,  service,  warranty  and   product
performance.

     Developments in Asia
     ____________________

     During  1999,  the Chemical Business sold substantially
all  of  the assets of its Australian  subsidiary.
See  "Management's Discussion and Analysis of Financial Condition

                               6
<PAGE>
and  Results of Operations" and Note 4 to Consolidated  Financial
Statements for a discussion of the terms of the sale and the loss
sustained  by the Company as a result of the disposition  of  the
Chemical Business' Australian subsidiary.

Climate Control Business
________________________

     General
     _______

     The  Company's  Climate  Control Business  manufactures  and
sells a broad range of standard and custom designed hydronic  fan
coils  and water source heat pumps as well as other products  for
use  in  commercial and residential heating ventilation  and  air
conditioning  ("HVAC") systems.  Demand for the  Climate  Control
Business' products is driven by the construction of commercial,
institutional  and  residential  buildings,  the  renovation   of
existing buildings and the replacement of existing systems.   The
Climate Control Business'  commercial products are used in a wide
variety of buildings, such as:  hotels, motels, office buildings,
schools,   universities,  apartments,  condominiums,   hospitals,
nursing   homes,  extended  care  facilities,  supermarkets   and
superstores.  Many of the Company's products are targeted to meet
increasingly  stringent indoor air quality and energy  efficiency
standards.    The   Climate   Control  Business   accounted   for
approximately  48%, 48% and 45% of the Company's 1999,  1998  and
1997 consolidated sales, respectively.

     Hydronic Fan Coils
     __________________

     The  Climate  Control  Business is  a  leading  provider  of
hydronic  fan  coils targeted to the commercial and institutional
markets  in  the  U.S. Hydronic fan coils use heated  or  chilled
water,  provided  by a centralized chiller or  boiler  through  a
water pipe system, to condition the air and allow individual room
control.   Hydronic fan coil systems are quieter and have  longer
lives  and  lower maintenance costs than comparable systems  used
where  individual room control is required. The  breadth  of  the
product line coupled with customization capability provided by  a
flexible  manufacturing process are important components  of  the
Company's   strategy   for  competing  in  the   commercial   and
institutional renovation and replacement markets.   See  "Special
Note Regarding Forward-Looking Statements".

     Water Source Heat Pumps
     _______________________

     The  Company is a leading U.S. provider of water source heat
pumps  to  the  commercial construction and  renovation  markets.
These are highly efficient heating and cooling units which enable
individual  room  climate control through the  transfer  of  heat
through  a  water pipe system which is connected to a centralized
cooling tower or heat injector.  Water source heat pumps enjoy  a
broad range of commercial applications, particularly in medium to
large  sized  buildings with many small, individually  controlled
spaces.   The  Company believes the market for  commercial  water
source  heat  pumps  will continue to grow due  to  the  relative
efficiency and long life of such systems as compared to other air
conditioning and heating systems, as well as to the emergence  of
the  replacement  market for those systems.   See  "Special  Note
Regarding Forward-Looking Statements".


                                  7
<PAGE>

     Geothermal Products
     ___________________
      The  Climate Control Business is a pioneer in  the  use  of
geothermal  water source heat pumps in residential and commercial
applications.   Geothermal  systems,  which  circulate  water  or
antifreeze through an underground heat exchanger, are  among  the
most  energy  efficient systems available.  The Company  believes
the  longer  life,  lower cost to operate, and  relatively  short
payback  periods of geothermal systems, as compared with  air-to-
air  systems, will continue to increase demand for its geothermal
products.  The Company is specifically targeting new  residential
construction of homes exceeding $200,000 in value.  See  "Special
Note Regarding Forward-Looking Statements".

     Hydronic Fan Coil and Water Source Heat Pump Market
     ____________________________________________________

     The  Company  has  pursued  a strategy  of  specializing  in
hydronic  fan  coils  and water source heat pump  products.   The
annual  U.S. market for hydronic fan coils and water source  heat
pumps is approximately $325 million.  Demand in these markets  is
generally  driven  by  levels  of repair,  replacement,  and  new
construction activity.  The U.S. market for fan coils  and  water
source heat pump products has grown on average 14% per year  over
the  last  4  years.  This growth is primarily a  result  of  new
construction,  the  aging of the installed  base  of  units,  the
introduction of new energy efficient systems, upgrades to central
air   conditioning   and   increased   governmental   regulations
restricting  the  use  of ozone depleting  refrigerants  in  HVAC
systems.

     Production and Backlog
     ______________________

     Most  of  the Climate Control Business'  production  of  the
above-described products occurs on a specific order  basis.   The
Company  manufactures the units in many sizes and configurations,
as  required  by  the  purchaser, to fit the space  and  capacity
requirements  of  hotels, motels, schools,  hospitals,  apartment
buildings,  office buildings and other commercial or  residential
structures.   As of December 31, 1999, the backlog  of  confirmed
orders  for the Climate Control Business was approximately  $22.1
million  as  compared to approximately $21.1 million at  December
31,  1998.  A customer generally has the right to cancel an order
prior to the order being released to production.  Past experience
indicates that customers generally do not cancel orders after the
Company  receives  them.  As of February 29,  2000,  the  Climate
Control  Business had released substantially all of the  December
31,  1999  backlog to production.  All of the December  31,  1999
backlog  is  expected  to be filled by December  31,  2000.   See
"Special Note Regarding Forward-Looking Statements".

Marketing and Distribution
__________________________

     Distribution
     ____________

     The   Climate   Control  Business  sells  its  products   to
mechanical  contractors,  original  equipment  manufacturers  and
distributors.   The  Company's sales  to  mechanical  contractors
primarily    occur    through    independent    manufacturer    s
representatives, who also represent complementary  product  lines
not    manufactured   by   the   Company.    Original   equipment
manufacturers  generally consist of other  air  conditioning  and
heating equipment manufacturers who resell under their own  brand
name the products purchased from the Climate Control Business  in
competition  with  the  Company.   Sales  to  original  equipment
manufacturers accounted for approximately 27% of the sales of the
Climate  Control Business in 1999 and approximately  13%  of  the
Company's 1999 consolidated sales.


                                 8
<PAGE>

     Market
     ______

     The  Climate  Control  Business  depends  primarily  on  the
commercial construction industry, including new construction  and
the  remodeling  and  renovation of older buildings.   In  recent
years  this Business has introduced geothermal products  designed
for residential markets for both new and replacement markets.

     Raw Materials
     _____________

     Numerous  domestic  and  foreign  sources  exist   for   the
materials  used by the Climate Control Business, which  materials
include aluminum, copper, steel, electric motors and compressors.
The Company does not expect to have any difficulties in obtaining
any  necessary  materials for the Climate Control Business.   See
"Special Note Regarding Forward-Looking Statements".

     Competition
     ___________

     The  Climate  Control Business competes  with  approximately
eight  companies, some of whom are also customers of the Company.
Some   of  the  competitors  have  greater  financial  and  other
resources  than  the  Company.   The  Climate  Control   Business
believes  it  manufactures a broader line of fan coil  and  water
source  heat  pump  products than any other manufacturer  in  the
United States, and the Company believes that it is competitive as
to price, service, warranty and product performance.

Joint Venture and Option to Purchase
____________________________________

     In  1995,  a  subsidiary of LSB invested approximately  $2.8
million  to  purchase  a  fifty  percent  (50%)  limited  partner
interest in an energy conservation joint venture (the "Project").
The  Project was to retrofit residential housing units at a  U.S.
Army  base which it completed during 1996. The completed contract
was for installation of energy-efficient equipment (including air
conditioning  and heating equipment), which would reduce  utility
consumption.  For  the installation and management,  the  project
will  receive a percentage of all energy and maintenance  savings
during  the twenty (20) year contract term. In January 1999,  the
Company acquired this investment by purchasing from LSB the stock
of  the  LSB subsidiary that owned the Project. The Company  paid
$3.1 million to LSB in connection with this purchase. This amount
equaled  the book value of the investment on the books  of  LSB's
subsidiary, which management of the Company believes approximated
the investment's fair value, at the date of purchase.

     In April 1999, the Company's Board of Directors approved the
acquisition  of  certain assets from LSB in accordance  with  the
terms  of the Indenture to which the Company and its subsidiaries
are  parties and the loan agreement that LSB and subsidiaries  of
the  Company  are  borrowing under, which assets  are  materially
related to the lines of the Climate Control Business. As a result
of  the  approval,  in April 1999 the Company  purchased  from  a
subsidiary  of  LSB  (not  the Company or  a  subsidiary  of  the
Company),  an  option  to  acquire a  French  HVAC  manufacturing
company  and  all  amounts  due  and  payable  from  such  French
manufacturer  or  its  parent  to  LSB.  The  Company  paid   LSB
$2.6  million for the option and receivables due from the  French
manufacturer  and its parent. This amount equaled  the  net  book

                               9
<PAGE>
value  of the investment on the books of LSB's subsidiary,  which
management  of the Company believes approximated the investment's
fair value, at the date of purchase.

Employees
_________

     As of December 31, 1999, the Company employed 1,321 persons.
As of that date, (a) the Chemical Business employed 537 persons,
with 106  represented by unions under  agreements  expiring in
August, 2001, and February, 2002, and (b) the Climate Control
Business employed 784 persons, none of whom are represented by a
union.  Effective January 1, 2000, the Company assumed 177
employees from LSB.

Research and Development
________________________

     The  Company incurred approximately  $713,000  in  1999,
$377,000 in 1998, and  $367,000 in 1997 on research and development
relating to the development of new products or the improvement of
existing products.  All expenditures for research and development
related to the development of new products and improvements are
expensed by the Company.

Environmental Matters
_____________________

The Company and its operations are subject to numerous
Environmental Laws and to other federal, state and local laws
regarding health and safety matters ("Health Laws").  In
particular, the manufacture and distribution of chemical products
are activities which entail environmental risks and impose
obligations under the Environmental Laws and the Health Laws,
many of which provide for substantial fines and criminal
sanctions for violations. There can be no assurance that material
costs or liabilities will not be incurred by the Company in
complying with such laws or in paying fines or penalties for
violation of such laws.  The Environmental Laws and Health Laws
and enforcement policies thereunder relating to the Chemical
Business have in the past resulted, and could in the future
result, in penalties, cleanup costs, or other liabilities
relating to the handling, manufacture, use, emission, discharge
or disposal of pollutants or other substances at or from the
Company's facilities or the use or disposal of certain of its
chemical products.  Significant expenditures have been incurred
by the Chemical Business at the El Dorado Facility in order to
comply with the Environmental Laws and Health Laws.  The Chemical
Business will be required to make additional significant site or
operational modifications at the El Dorado Facility, involving
substantial expenditures. See "Special Note Regarding Forward-
Looking Statements"; "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Chemical Business"
and "Legal Proceedings."

     Due to a consent administrative order ("CAO") entered
into with the Arkansas Department of Environmental Quality
("ADEQ"), the Chemical Business has installed additional
monitoring wells at the El Dorado Facility in accordance with a
workplan approved by the ADEQ, and submitted the test results to
ADEQ. The results indicated that a risk assessment should be
conducted on nitrates present in the shallow groundwater.  The
Chemical Business' consultant has completed this risk assessment,
and has forwarded it to the ADEQ for approval.  The risk
assessment concludes that, although there are contaminants at the
El Dorado Facility and in the groundwater, the levels of such
contaminants at the El Dorado Facility and in the groundwater do
not present an unacceptable risk to human health and the
environment.  Based on this conclusion, the Chemical Business'
consultant has recommended continued monitoring at the site for
five years.


                                 10
<PAGE>
     A second consent order was entered into with ADEQ in
August, 1998 (the "Wastewater Consent Order"). The Wastewater
Consent Order recognizes the presence of nitrate contamination in
the groundwater and requires the Chemical Business to undertake
on-site bioremediation, which is currently underway. Upon
completion of the waste minimization activities referenced below,
a final remedy for groundwater contamination will be selected,
based on an evaluation of risk.  There are no known users of
groundwater in the area, and preliminary risk assessments have
not identified any risk that would require additional
remediation.  The Wastewater Consent Order included a $183,700
penalty assessment, of which $125,000 will be satisfied over five
years at expenditures of $25,000 per year for waste minimization
activities.  The Chemical Business has documented in excess of
$25,000 on expenditures for 1998 and 1999.

     The Wastewater Consent Order also required installation
of an interim groundwater treatment system (which is now
operating) and certain improvements in the wastewater collection
and treatment system (discussed below).  Twelve months after all
improvements are in place, the risk will be reevaluated, and a
final decision will be made on what additional groundwater
remediation, if any, is required.  There can be no assurance that
the risk assessment will be approved by the ADEQ, or that further
work will not be required.

     The Wastewater Consent Order also requires the Chemical
Business to undertake a facility wide wastewater evaluation and
pollutant source control program and facility wide wastewater
minimization program.  The program requires that the subsidiary
complete rainwater drain off studies including engineering design
plans for additional water treatment components to be submitted
to the State of Arkansas by August 2000.  The construction of the
additional water treatment components is required to be completed
by August, 2001 and the El Dorado plant has been mandated to be
in compliance with the final effluent limits on or before
February 2002.  The aforementioned compliance deadlines, however,
are not scheduled to commence until after the State of Arkansas
has issued a renewal permit establishing new, more restrictive
effluent limits.  Alternative methods for meeting these
requirements are continuing to be examined by the Chemical
Business.  The Company believes, although there can be no
assurance, that any such new effluent limits would not have a
material adverse effect on the Company.  See "Special Note
Regarding Forward-Looking Statements."  The Wastewater Consent
Order provided that the State of Arkansas will make every effort
to issue the renewal permit by December 1, 1999; however, the
State of Arkansas has delayed issuance of the permit.  Because
the Wastewater Consent Order provides that the compliance
deadlines may be extended for circumstances beyond the reasonable
control of the Company, and because the State of Arkansas has not
yet issued the renewal permit, the Company does not believe that
failure to meet the aforementioned compliance deadlines will
present a material adverse impact.  The State of Arkansas has
been advised that the Company is seeking financing from Arkansas
authorities for the projects required to comply with the
Wastewater Consent Order and the Company has requested that the
permit be further delayed until financing arrangements can be
made, which requests have been met to date.  The wastewater
program is currently expected to require future capital
expenditures of approximately $10.0 million.  Negotiations for
securing financing are currently underway.  The company believes,
although there can be no assurance, that the renewal permit will
continue to be delayed, and that financing can be secured under
terms that will not have a material adverse effect on the
Company.  See "Special Note Regarding Forward-Looking
Statements."


                                11
<PAGE>
     Due to certain start-up problems with the DSN Plant,
including excess emissions from various emission sources, the
Chemical Business and the ADEQ entered into certain agreements,
including an administrative consent order (the "Air Consent
Order") in 1995 to resolve certain of the Chemical Business' past
violations. The Air Consent Order was amended in 1996 and 1997.
The second amendment to the Air Consent Order (the "1997
Amendment") provided for certain stipulated penalties of $1,000
per hour to $10,000 per day for continued off-site emission
events and deferred enforcement for other alleged air permit
violations. In 1998, a third amendment to the Air Consent Order
provided for the stipulated penalties to be reset at $1,000 per
hour after ninety (90) days without any confirmed events. In
addition, prior to 1998, the El Dorado Facility was identified as
one of 33 significant violators of the federal Clean Air Act in a
review of Arkansas air programs by the EPA Office of Inspector
General.  The Company is unable to predict the impact, if any, of
such designation.  See "Special Note Regarding Forward-Looking
Statements."  Effective May 1, 2000, the Chemical Business will
be operating under a new air permit.  This air permit supercedes
all air-related consent administrative orders other than the Air
Consent Order discussed above.

     During 1998 and 1999, the Chemical Business expended
approximately $.7 million and $.9 million, respectively, in
connection with compliance with federal, state and local
Environmental Laws at its El Dorado Facility, including, but not
limited to, compliance with the Wastewater Consent Order, as
amended.  The Company anticipates that the Chemical Business may
spend up to $10.0 million for future capital expenditures
relating to environmental control facilities at its El Dorado
Facility to comply with Environmental Laws, including, but not
limited to, the Wastewater Consent Order, as amended, with $2.0
million being spent in 2000 and the balance being spent in 2001.
No assurance can be made that the actual expenditures of the
Chemical Business for such matters will not exceed the estimated
amounts by a substantial margin, which could have a material
adverse effect on the Company and its financial condition.  The
amount to be spent during 2000 and 2001 for capital expenditures
related to compliance with Environmental Laws is dependent upon a
variety of factors, including, but not limited to, obtaining
financing through Arkansas authorities, the occurrence of
additional releases or threatened releases  into the environment,
or changes in the Environmental Laws (or in the enforcement or
interpretation by any federal or state agency or court of
competent jurisdiction).  See "Special Note Regarding Forward-
Looking Statements." Additional orders from the ADEQ imposing
penalties, or requiring the Chemical Business to spend more for
environmental improvements or curtail production activities at
the El Dorado Facility, could have a material adverse effect on
the Company.

Item 2.  PROPERTIES
___________________

Chemical Business
_________________

     The   Chemical  Business  primarily  conducts  manufacturing
operations (i) on 150 acres of a 1,400 acre tract of land located
in  El  Dorado, Arkansas (the "El Dorado Facility"),  (ii)  in  a
facility of approximately 60,000 square feet located on ten acres
of  land  in  Hallowell, Kansas ("Kansas Facility"), (iii)  in  a
mixed  acid  plant  in  Wilmington, North  Carolina  ("Wilmington
Plant"),  and  (iv)  in  a nitric acid plant  in  Baytown,  Texas
("Baytown  Plant").   The  Chemical  Business  owns  all  of  its
manufacturing   facilities  except  the   Baytown   Plant.    The
Wilmington Plant and the DSN Plant are subject to mortgages.  The
Baytown Plant is being leased pursuant to a leveraged lease  from
an unrelated third party.

                               12
<PAGE>
     As of December 31, 1999, the El Dorado Facility was utilized
at approximately 71% of capacity, based on continuous operation.

     The  Chemical  Business operates its  Kansas  Facility  from
buildings located on an approximate ten acre site in southeastern
Kansas,   and   a   research  and  testing  facility   comprising
approximately  ten  acres,  including  buildings  and   equipment
thereon, located in southeastern Kansas, which it owns.

     In  addition, the Chemical Business distributes its products
through 28 agricultural and explosive distribution centers.   The
Chemical Business currently operates 20 agricultural distribution
centers, with 16 of the centers located in Texas (13 of which the
Company  owns  and 3 of which it leases); ; 1 center  located  in
Missouri(leased);  and  3 centers located in  Tennessee  (owned).
The  Chemical  Business currently operates 8 domestic  explosives
distribution centers located in Hallowell, Kansas (owned);  Bonne
Terre, Missouri (owned); Poca, West Virginia (leased); Owensboro,
Martin  and  Combs, Kentucky (leased); Pryor, Oklahoma  (leased);
and Dunlap, Tennessee (owned).

Climate Control Business
________________________

     The   Climate  Control  Business  conducts  its   fan   coil
manufacturing operations in a facility located in Oklahoma  City,
Oklahoma,  consisting of approximately 265,000 square feet.   The
Company owns this facility subject to a mortgage.  As of December
31,  1999,  the Climate Control Business was using the productive
capacity  of  the above referenced facilities to  the  extent  of
approximately 84%, based on three, eight-hour shifts per day  and
a five-day week in one department and one and one half eight-hour
shifts per day and a five-day week in all other departments.

     The  Climate Control Business manufactures most of its  heat
pump products in a 270,000 square foot facility in Oklahoma City,
Oklahoma,  which  it leases from an unrelated party.   The  lease
term  began  March 1, 1988, and expires February 28,  2003,  with
options  to  renew for additional five-year periods.   The  lease
currently  provides  for the payment of rent  in  the  amount  of
$52,389 per month.  The Company also has an option to acquire the
facility  at  any time in return for the assumption of  the  then
outstanding balance of the lessor s mortgage.  As of December 31,
1999, the productive capacity of this manufacturing operation was
being  utilized to the extent of approximately 82%, based on  two
nine-hour  shifts per day and a five-day week in one  department,
and one eight-hour shift per day and a five-day week in all other
departments.  In addition, the Company leases 60,000 square  feet
for the manufacturing of coaxial condensers.

     All of the properties utilized by the Climate Control
Business are considered by the Company management to be suitable
and adequate to meet the current needs of that Business.

Item 3.  LEGAL PROCEEDINGS
__________________________

      Arch  Minerals  Corporation, et al. v. ICI Explosives  USA,
Inc.,  et  al.  On May 24, 1996, the plaintiffs filed this  civil
cause  of  action against EDC and five other unrelated commercial
explosives manufacturers alleging that  the defendants  allegedly
violated  certain federal and state antitrust laws in  connection
with  alleged  price fixing of certain explosive  products.  This


                               13
<PAGE>
cause  of action is pending in the United States District  Court,
Southern   District of Indiana. The plaintiffs are suing  for  an
unspecified  amount  of   damages, which,  pursuant  to  statute,
plaintiffs   are  seeking  be  trebled,   together  with   costs.
Plaintiffs  are  also  seeking a permanent injunction   enjoining
defendants  from  further  alleged  anti-competitive  activities.
Based on the information presently available to EDC, EDC does not
believe  that  EDC conspired with any party, including,  but  not
limited  to,  the  five  other   defendants,  to  fix  prices  in
connection  with the sale of commercial  explosives. This  action
has  been consolidated, for discovery purposes only, with several
other actions in a  multi-district litigation proceeding in Utah.
Discovery  in  this litigation is  in process.   EDC  intends  to
vigorously  defend  itself  in this matter.   See  "Special  Note
Regarding Forward-Looking Statements."

      ASARCO  v.  ICI,  Et Al. The U.S. District  Court  for  the
Eastern   District  of  Missouri has  granted  ASARCO  and  other
plaintiffs  in  a  lawsuit   originally brought  against  various
commercial    explosives   manufacturers   in    Missouri,    and
consolidated with other lawsuits in Utah, leave to add EDC  as  a
defendant  in  that  lawsuit.  This lawsuit  alleges  a  national
conspiracy,  as  well as a regional conspiracy, directed  against
explosive  customers in  Missouri and seeks unspecified  damages.
EDC has been included in this lawsuit because it sold products to
customers  in  Missouri during a time in which  other  defendants
have  admitted  to participating in an antitrust conspiracy,  and
because it has been sued in the ARCH case discussed above.  Based
on  the   information presently available to EDC,  EDC  does  not
believe  that  EDC  conspired with any party, to  fix  prices  in
connection with the sale of  commercial explosives.  EDC  intends
to  vigorously  defend itself in this matter.  See "Special  Note
Regarding Forward-Looking Statements."

       On  August  26,  1999,  LSB and EDC  were  served  with  a
complaint filed in the District Court of the Western District  of
Oklahoma  by  National  Union  Fire  Insurance  Company,  seeking
recovery  of certain insurance premiums totaling $2,085,800  plus
prejudgment interest, costs and attorneys fees alleged to be  due
and  owing  by  LSB and EDC, related to National Union  insurance
policies for LSB and subsidiaries dating from 1979 through 1988.

     The parties entered into  an  agreement  to
settle this matter in 1999, whereby LSB paid $200,000 in December
1999  and agreed to pay an additional $300,000 to National Union.
The $300,000 is payable annually in installments of $100,000 plus
interest.  As a part of the agreement to settle this matter,  the
parties  have agreed to adjudicate whether any additional amounts
may  be  due to National Union, but the parties have agreed  that
the  Company's liability for any additional amounts due  National
Union  shall not exceed $650,000.  Amounts expected  to  be  paid
under  this settlement by EDC were fully accrued at December  31,
1999.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
___________________________________________________________

     Not applicable.


                               14
<PAGE>

 Item 4A.  EXECUTIVE OFFICERS OF THE COMPANY

Identification of Executive Officers
<TABLE>
<CAPTION>
     The  following  table lists the executive officers  of  the
Company, each of whom also serves as an executive officer of LSB,
except for James L. Wewers.


Name                     Office
___________________      __________________________________________
<S>                      <C>
Jack E. Golsen           Chairman of the Board, Chief Executive
                         Officer and President

Barry  H.  Golsen        Vice  Chairman of  the  Board  and  Vice
                         President

Tony M. Shelby           Vice President and Chief Financial Officer

David R. Goss            Vice President

Jim D. Jones             Vice President and Treasurer

James L. Wewers          Vice President

David M. Shear           Secretary
</TABLE>
____________________________________________________________________

     The Company's officers serve one-year terms, renewable on an
annual   basis by the Board of Directors. All of the  individuals
listed above have  served in substantially the same capacity with
LSB and/or its subsidiaries  for the last five years.

Family Relationships
____________________
     The only family relationship that exists among the executive
officers  of the Company is that Jack E. Golsen is the father of
Barry H.  Golsen.





                                  15
<PAGE>

                             PART II

Item  5.   MARKET  FOR  THE COMPANY'S COMMON EQUITY  AND  RELATED
           STOCKHOLDER MATTERS
_________________________________________________________________

Market Information
__________________

     The  Company is a wholly owned subsidiary of LSB.  As such,
the  Company does not have any shares of common equity that trade
in the public  market.

     Under  the  terms  of the Indenture  of  Senior Unsecured
Notes, the Company cannot transfer funds to LSB in  the
form of cash dividends or other distributions or advances, except
for (i) the amount of taxes that the Company would be required to
pay   if  they were not consolidated with LSB and (ii) an  amount
not  to  exceed fifty  percent (50%) of the Company's net  income
from January 1, 1998 through the end of the period for which  the
calculation  is made for the purpose of proposing a payment,  and
(iii)   the  amount  of direct and indirect  costs  and  expenses
incurred  by LSB on behalf of the Company pursuant to  a  certain
services  agreement and a certain  management agreement to  which
the Company and LSB are parties. The Company  and LSB are parties
to  a  services agreement, management agreement and  tax  sharing
agreement,   and   under  the  Indenture  of   Senior   Unsecured
Notes the Company may pay amounts to  LSB   under  each
such  agreement.  In  addition, under  the  Indenture  of  Senior
Unsecured  Notes,  the  Company  may  enter  into  other
transactions with LSB under certain conditions.  Due  to  certain
limitations contained in the "Management Agreement," the  Company
was  unable  to  make any payments to LSB under  the  "Management
Agreement" during 1999.  In addition, due to losses sustained  by
the  company  for  1999, no payment for taxes were  made  by  the
Company  to  LSB under the "Tax Sharing Agreement"  during  1999.
See Note 7 of Notes to Consolidated Financial Statements and Item
7  "Management's  Discussion and Analysis of Financial  Condition
and Results of Operations".















                                    16
<PAGE>

<PAGE>
Item 6.  SELECTED FINANCIAL DATA
________________________________
<TABLE>
<CAPTION>

                                               Years ended December 31,

                        1999(1)           1998              1997                   1996         1995
                        _______          ________          _______                 _____        ____
                                                 (Dollars in Thousands)
<S>                      <C>            <C>                <C>                <C>           <C>
Selected Statement of
 Operations Data:

Net  sales               $251,923        $  255,730          $  262,847        $255,285      $ 220,743
                         ========        ==========          ==========        ========      =========
Total  revenues          $254,416        $  257,198          $  263,740        $255,618      $ 221,541
                         ========        ==========          ==========        ========      =========
Interest  expense        $ 14,586        $   13,897          $    9,761        $  6,247      $   7,185
                         ========        ==========          ==========        =========     ==========

Income (loss) before
  extraordinary charge   $(19,182)       $   (2,569)         $      897        $  5,753      $   5,899
                         ========        ==========           =========        =========     =========
Net  income  (loss)      $(19,182)       $   (2,569)         $   (1,972)       $  5,753      $   5,899
                         ========        ==========           =========        =========     =========
</TABLE>









                                               17
<PAGE>

Item 6.    SELECTED FINANCIAL DATA (CONTINUED)
______________________________________________
<TABLE>
<CAPTION>

                                               Years ended December 31,

                         1999(1)            1998             1997              1996             1995
                         ______             ____            ______             ____             ____
                                                 (Dollars in Thousands)
<S>                    <C>               <C>              <C>               <C>              <C>
Selected Balance:
 Sheet Data:

Total assets            $184,078          $196,603        $200,875           $173,734         $146,719
                        ========          ========        ========           =========        ========

Long-term debt,
   including
   current portion      $142,188          $137,931        $136,184           $ 82,588         $ 78,959
                        ========          ========        ========           ========         ========

Total stockholders'
   equity               $  6,135          $ 23,758        $ 27,289           $ 32,843         $ 28,675
                        ========          ========        ========           ========         ========
<FN>
(1)   In  August  1999,  the  Chemical Business sold substantially  all
      of  the assets of its wholly-owned subsidiary, Total Energy Systems
      Limited and its subsidiaries.   See  Note 4 of Notes to Consolidated
      Financial Statements.
</FN>
</TABLE>


                                        18
<PAGE>



Item 7.    MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL
           CONDITION AND RESULTS OF OPERATIONS
________________________________________________________________

      The  following  Management's  Discussion  and  Analysis  of
Financial  Condition and Results of Operations should be read  in
conjunction  with  a review of the Company's  December  31,  1999
Consolidated  Financial Statements, Item  6  "SELECTED  FINANCIAL
DATA" and Item 1 "BUSINESS" included elsewhere in  this report.

       Certain   Statements  contained  in   this   "Management's
Discussion  and Analysis of Financial Conditions and  Results  of
Operations"  may  be  deemed   forward-looking  statements.   See
"Special Note Regarding Forward-Looking  Statements".

Overview
________

      During  August 1999, the Company's Chemical  Business  sold
substantially  all  of  the assets of its Australian  subsidiary.
Revenues  for 1999 to the date of the sale of the assets  of  the
Australian subsidiary were $7.5 million and the loss sustained by
the Australian subsidiary was $2.0 million, excluding the loss of
$2.0 million as a result of the sale.

      The Company has historically had material transactions with
its  parent,  LSB,  and LSB's subsidiaries  (which  are  not  the
Company  or subsidiaries of the Company) described below  and  in
Notes  3,  8,  9  and  10  of  Notes  to  Consolidated  Financial
Statements.

        Included  in  the  Company's loss  for  1999  is  a  loss
provision  of $8.4 million as discussed in Note 12  of  Notes  to
Consolidated  Financial Statements and elsewhere in  the  report.
This loss provision was caused, in part by the Chemical Business'
requirements  to buy a large percentage of its anhydrous  ammonia
requirements  (its primary raw material) at prices in  excess  of
the  then  market  price  and  the oversupply  of  nitrate  based
products  in 1999 caused, in part, by the importation of  Russian
anhydrous  ammonia at prices substantially below the then  market
price,  resulting in the Chemical Business costs to  produce  its
nitrate  based  products  exceeding the then  anticipated  future
sales prices.

      During  1999,  the  Chemical Business  had  commitments  to
purchase  anhydrous ammonia under three contracts.  The Company's
purchase  price of anhydrous ammonia under one of these contracts
could  be  higher or lower than the current market spot price  of
anhydrous  ammonia.   Pricing is subject  to  variations  due  to
numerous factors contained in this contract. Based on the pricing
index  contained  in this contract, prices paid during  1998  and
1999  were  substantially  higher than the  current  market  spot
price.   As  of  December 31, 1999, the Chemical Business  is  to
purchase  96,000  tons at a minimum of 2,000  tons  of  anhydrous
ammonia  per month during 2000 and 3,000 tons per month  in  2001
and  2002  under this contract.  In addition, under the  contract
the  Company  is  committed  to purchase  50%  of  its  remaining
requirements  of anhydrous ammonia through 2002 from  this  third
party  at  prices which approximate market prices.  The  purchase
price(s)  the Chemical Business will be required to pay  for  the
remaining  96,000 tons of anhydrous ammonia under  this  contract
currently exceeds and is expected to continue to exceed the  spot
market prices throughout the purchase period.  Additionally,  the
excess supply of nitrate based products, caused, in part, by  the
import  of Russian nitrate, caused a significant decline  in  the
sales  prices; although sales prices have improved  in  2000  (no

                               19
<PAGE>
improvement in sales margins is expected in the near term due  to
increased  cost of anhydrous ammonia). During 1999, this  decline
in  sales  price  resulted  in  the  cost  of  anhydrous  ammonia
purchased  under  this contract when combined with  manufacturing
and  distribution  costs,  to  exceed  anticipated  future  sales
prices.   As  a  result, the accompanying Consolidated  Financial
Statements  included  a  loss  provision  of  approximately  $8.4
million for anhydrous ammonia required to be purchased during the
remainder  of  the  contract  ($7.4  million  remaining   accrued
liability  as of December 31, 1999).  The provision for  loss  at
December  31,  1999  was  based on the forward  contract  pricing
existing  at June 30, 1999 and September 30, 1999 (the  date  the
provisions  were  recognized), and estimated  market  prices  for
products to be manufactured and sold during the remainder of  the
contract. There are no assurances that such estimates will  prove
to  be  accurate.   Differences, if any, in the estimated  future
cost  of anhydrous ammonia and the actual cost in effect  at  the
time  of  purchase and differences in the estimated sales  prices
and  actual sales prices of products manufactured could cause the
Company's  operating  results to differ  from  that  estimate  in
arriving at the loss provision recorded during 1999.

        The  Chemical Business is a member of an organization  of
domestic  fertilizer grade ammonium nitrate  producers  which  is
seeking relief from unfairly low priced Russian ammonium nitrate.
This  industry group filed a petition in July 1999 with the  U.S.
International  Trade  Commission  and  the  U.S.  Department   of
Commerce  seeking an antidumping investigation and, if warranted,
relief  from Russian dumping.  The International Trade Commission
has  rendered  a  favorable preliminary determination  that  U.S.
producers  of ammonium nitrate have been injured as a  result  of
Russian   ammonium  nitrate  imports.   In  addition,  the   U.S.
Department  of  Commerce  has issued  a  preliminary  affirmative
determination that the Russian imports were sold at  prices  that
are  264.59% below their fair market value.  As a result  of  the
Commerce Department's preliminary ruling, all imports of  Russian
ammonium  nitrate are currently subject to potential  antidumping
duty  liability.  The Department of Commerce is due  to  issue  a
final  determination by May 22, 2000 and the International  Trade
Commission  by July 5, 2000.  The relief currently in place  will
remain   only   if   both   agencies   make   final   affirmative
determinations.   It  is  not  known,  therefore,   whether   the
antidumping action will be successful upon conclusion of the U.S.
Government's Investigation.

      Certain  statements  contained  in  this  overview  may  be
considered   forward-looking  statements.   See   "Special   Note
Regarding Forward-Looking Statements."  The  following table contains
selected historical  financial information  about the Company's
operating segments for each of the three years in the period ended
December 31, 1999.   The information  for  each of the three years
in the period ended December  31,  1999, was derived from the
consolidated financial statements of the Company included elsewhere
herein.

                                 20
<PAGE>

<PAGE>
<TABLE>
<CAPTION>
                                                  Year ended December 31,
                                               1999         1998        1997
                                            ___________________________________
                                                       (In Thousands)
<S>                                         <C>         <C>          <C>
Net sales:
  Businesses continuing:
    Chemical                                 $127,407     $125,761     $130,466
    Climate Control                           117,055      115,785      105,899
                                             __________________________________
                                              244,462      241,546      236,365
  Business disposed of -- Chemical(1)           7,461       14,184       26,482
                                             __________________________________
                                             $251,923     $255,730     $262,847
                                             ==================================
Gross profit (loss): (2)
  Businesses continuing:
    Chemical                                 $ 13,458     $ 18,590     $ 16,710
    Climate Control                            34,909       32,234       29,719
                                             __________________________________
                                               48,367       50,824       46,429
  Business disposed of -- Chemical               (118)        (242)       2,649
                                             __________________________________
                                             $ 48,249     $ 50,582     $ 49,078
                                             ==================================
Operating profit (loss): (3)
  Businesses continuing
    Chemical                                 $ (1,353)    $  5,877     $  4,874
    Climate Control                             8,628        9,723        8,481
                                             __________________________________
                                                7,275       15,600       13,355
  Business disposed of -- Chemical (1)         (1,632)      (2,467)         (52)
                                             __________________________________
                                             $  5,643     $ 13,133     $ 13,303
                                             ==================================
Unallocated fees from Services Agreement
  and general corporate expenses, net          (4,526)      (2,881)      (2,109)
Interest income                                 1,512        1,445          419
Other income, net                                 981           23          474
Interest expense:
  Business disposed of                           (326)        (434)        (720)
  Business continuing                         (14,260)     (13,463)      (9,041)
Loss on businesses disposed of                 (1,971)           -            -
Provision for loss on firm purchase
  commitments -- Chemical                      (8,439)           -            -
Provision for impairment on long-lived
  assets                                       (3,913)           -            -
                                             ___________________________________
Income (loss) before provision (benefit)
  for income taxes and extraordinary
  charge                                     $(25,299)     $ (2,177)   $  2,326
                                             ==================================
Total assets:
  Business Continuing:
    Chemical                                  102,185       116,655      117,257
    Climate Control                            61,781        40,498       42,497
    Corporate                                  20,112        22,653       21,222
    Business disposed of -- Chemical                -        16,797       19,899
                                              __________________________________
                                              $184,078     $196,603     $200,875
                                              ==================================


                                   21
<PAGE>
(1) In August 1999, the Company sold substantially all the assets of its
    wholly owned Australian subsidiary. See Note 4 of Notes to Consolidated
    Financial Statements for further information.  The operating results for
    TES have been presented separately in the above table.

(2) Gross profit by industry segment represents net sales less cost of sales.

(3) Operating profit by industry segment represents gross profit less
    operating expenses before deducting fees from the Service Agreement,
    interest expense, income taxes, provisions for loss on firm purchase
    commitments, provision for impairment on long-lived assets, or
    extraordinary charges.
</FN>
</TABLE>












                                   22
<PAGE>

    Chemical Business
    _________________
     Net Sales in the Chemical Business (excluding the Australian subsidiary in
which substantially all of its assets were disposed of in August, 1999) were
$127.4 million for the year ended December 31, 1999 and $125.8 million for the
year ended December 31, 1998. The sales volume from the Chemical Business' El
Dorado Plant was down substantially in 1999 (535,000 tons) from the 1998 level
(615,000) tons.  This decline in sales volume was offset by sales from the EDNC
Baytown Plant completed in May, 1999 (See Item 1 "Business" included elsewhere
in this report). The gross profit (excluding the Australian subsidiary and the
provision for loss on firm purchase commitments) decreased to $13.5 million (or
10.6% of net sales) in 1999 from $18.6 million (or 14.8% of net sales) in 1998.
The decrease in the gross profit was primarily a result of depressed volumes and
declining sales prices from the import of Russian nitrate based products and
unabsorbed overhead resulting from the lower volumes and manufacturing costs.

     During the third and fourth quarters of 1999, two of the plants were
temporarily shut down due to the excessive supply of ammonium nitrate at the
Chemical Business and in the market place.  The plants that were shut down
increased the Chemical Business' losses due to overhead costs that continue even
though product was not being produced at the plants temporarily shut down. These
plants have resumed production in the first quarter of 2000.  There are no
assurances that the Chemical Business will not be required to record additional
loss provisions in the future.  Based on the forward pricing existing as of
March 31, 2000, the Chemical Business would not be required to recognize an
additional loss on the anhydrous ammonia purchase contracts.  See "Special Note
regarding Forward Looking Statements".

     In May, 1999, a subsidiary of the Company completed its obligations, as an
agent, pursuant to an agreement to construct a nitric acid plant located within
Bayer's Baytown, Texas chemical plant complex.  This plant is being operated by
a subsidiary and is supplying nitric acid to Bayer under a long-term supply
contract.  Sales by this subsidiary to Bayer were approximately $17.2 million
during 1999.  Management estimates that, at full production capacity based on
terms of the Agreement and, based on the price of anhydrous ammonia as of the
date of this report, the plant should generate approximately $35 million in
annual gross revenues.  Unlike the Chemical Business' regular sales volume,
the market risk on this additional volume is much less since the contract
provides for recovery of costs, as defined, plus a profit.  The Company's
subsidiary is leasing the nitric acid plant pursuant to a leverage lease from
an unrelated third party for an initial term of ten (10) years which, began
on June 23, 1999.  See "Special Note Regarding Forward Looking Statements".

     The results of operation of the Chemical Business' Australian subsidiary
had been adversely affected due to adverse economic developments in certain
countries in Asia.  As these adverse economic conditions in Asia continued,
they had an adverse effect on the Company's consolidated results of operations.
As a result of the economic conditions in Australia and the adverse effect of
such conditions on the Company's consolidated results of operations, the
Company sold in August, 1999, substantially all the assets of it's Australian
subsidiary and a loss of approximately $2.0 million was recognized.  See Note
4 of Notes to Consolidated Financial Statements.

     The Australian subsidiary had revenues for the calendar year 1999 up to
the date of sale of $7.5 million and a loss of $2.0 million, excluding the

                                  23
<PAGE>
loss on the sale.  For the year ended December 31, 1998, revenues were $14.2
million and the loss was $2.9 million.

Climate Control
_______________

     The Climate Control Business manufactures and sells a broad range of
hydronic fan coil, air handling, air conditioning, heating, water source
heat pumps, and dehumidification products targeted to both commercial and
residential new building construction and renovation.

     The Climate Control Business focuses on product lines in the specific niche
markets of hydronic fan coils and water source heat pumps and has established a
significant market share in these specific markets.

     Sales of $117.1 million for the year ended December 31, 1999, in the
Climate Control Business were approximately 1.1% greater than sales of $115.8
million for the year ended December 31, 1998. The gross profit was approximately
$34.9 million and $32.2 million in 1999 and 1998, respectively. The gross profit
percentage increased to 29.8% for 1999 from 27.8% for 1998.  This increase is
primarily due to an improved market and manufacturing efficiency relating to
the heat pump portion of the Climate Control Business.

Transactions with Related Parties
_________________________________

On November 21, 1997, the Company and LSB entered into a services agreement
(the "Services Agreement") pursuant to which LSB will continue to provide to
the Company various services, including financial and accounting, order entry,
billing, credit, payable, insurance, legal, human resources, advertising and
marketing, and related administrative and management services, that LSB has
historically provided to the operations and businesses of the Company. The
Company will pay to, or reimburse, LSB for the costs and expenses incurred by
LSB in the performance of the Services Agreement.

Under the terms of the Services Agreement, the Company will pay to, or
reimburse, LSB for the value of the office facilities of LSB, including LSB's
principal offices and financial accounting offices utilized in the performance
of the Services Agreement. LSB will determine the proportionate usage of such
facilities by LSB and the Company, and the Company will pay to, or reimburse,
LSB for its proportionate share of such usage.

Charges for such services aggregate $4,780,000, $2,265,000 and $1,950,000
for the years ended December 31, 1999, 1998 and 1997, respectively. Management
of the Company believes these charges from LSB reasonably approximate additional
general and administrative costs which would have been incurred if the Company
had been an independent entity during such periods. These amounts do not include
reimbursements for costs described in the next paragraph or amounts paid by LSB
relating to certain of the Company's payroll that are directly charged to the
Company by LSB.

The Services Agreement also provides that LSB will permit employees of the
Company and its subsidiaries to continue to participate in the benefit plans and
programs sponsored by LSB. The Company will pay to, or reimburse, LSB for the
costs associated with participation by the employees of the Company in LSB's
benefit plans and programs.

In addition, the Services Agreement allows for purchases of other goods and
services to the extent that the amount paid approximates fair value that would

                                 24
<PAGE>
be paid to a third party. In 1999, subsidiaries of the Company purchased certain
raw materials with LSB's assistance and paid $461,000 to LSB in commissions on
such purchases. The Company also purchased $1,076,000 in industrial supplies, in
1999, from subsidiaries of LSB which are not subsidiaries of the Company.

The Company's Climate Control manufacturing subsidiaries also lease
facilities from a subsidiary of LSB (which is not the Company or a subsidiary of
the Company) under various operating leases and a capital lease. See Note 10
Commitments and Contingencies, Operating Leases. Rental expense associated with
the operating leases aggregated $1,806,000, $475,000 and $475,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. In December 1999, a
subsidiary of the Climate Control Business entered into a capital lease with a
subsidiary of LSB which is not a subsidiary of the Company. The lease agreement
required an initial payment of $2 million for capital improvements required at
the facility, which was paid in 1999, and requires 112 monthly payments of
$20,291 commencing on September 1, 2006. The accompanying balance sheet includes
buildings and improvements under the capital lease of $3,172,000 and long-term
debt includes a capital lease obligation of $1,172,000 due to the LSB
subsidiary.

     In 1995, a subsidiary of LSB invested approximately $2.8 million to
purchase a fifty percent (50%) limited partner interest in an energy
conservation joint venture (the "Project"). The Project was to retrofit
residential housing units at a U.S. Army base which it completed during 1996.
The completed contract was for installation of energy-efficient equipment
(including air conditioning and heating equipment), which would reduce utility
consumption. For the installation and management, the project will receive a
percentage of all energy and maintenance savings during the twenty (20) year
contract term. In January 1999, the Company acquired this investment by
purchasing from LSB the stock of the LSB subsidiary that owned the Project.
The Company paid $3.1 million to LSB in connection with this purchase. This
amount equaled the book value of the investment on the books of LSB's
subsidiary, which management of the Company believes approximated the
investment's fair value, at the date of purchase.

     In April 1999, the Company's Board of Directors approved the acquisition
of certain assets from LSB in accordance with the terms of the Indenture to
which the Company and its subsidiaries are parties and the loan agreement that
LSB and subsidiaries of the Company are borrowing under, which assets are
materially related to the lines of the Climate Control Business. As a result
of the approval, in April 1999 the Company purchased from a subsidiary of LSB
(not the Company or a subsidiary of the Company), an option to acquire a French
HVAC manufacturing company and all amounts due and payable from such French
manufacturer or its parent to LSB. The Company paid LSB $2.6 million for the
option and receivables due from the French manufacturer and its parent. This
amount equaled the net book value of the investment on the books of LSB's
subsidiary, which management of the Company believes approximated the
investment's fair value, at the date of purchase.

During July 1999, a subsidiary of the Company sold 26 railcars to a non-
affiliated entity for approximately $1.1 million. Thereafter, the entity leased
the railcars to a subsidiary of LSB, which is neither the Company nor a
subsidiary of the Company. A subsidiary of the Company has entered into a
services agreement with such LSB subsidiary pursuant to which such subsidiary is
to provide railcar services to a subsidiary of the Company. Under the services

                                 25
<PAGE>
agreement, the Company's subsidiary will pay a fee based on each railcar unit
used by such subsidiary of $1,031 per month. The Company's subsidiary is not
required to use any railcar equipment under the services agreement, and the
services agreement may be terminated at any time on 30 days written notice.

In 1999, the Company advanced LSB $2 million pursuant to a provision in the
bond indenture.  The advance is payable on demand and bears interest at 10-3/4%
per annum payable on demand.

On November 21, 1997, LSB and the Company entered into a management
agreement (the "Management Agreement"), which provides that LSB will provide to
the Company, managerial oversight and guidance concerning the broad policies,
strategic decisions and operations of the Company and the subsidiaries and the
rendering of such further managerial assistance as deemed reasonably necessary
by LSB. Under the Management Agreement, the Company is to pay LSB a fee for such
services which will not exceed $1.8 million annually. The fee will be paid
quarterly based upon the excess of actual earnings before interest, income
taxes, depreciation and amortization ("EBITDA") for the quarter minus
$6,500,000, not to exceed $450,000. If at the end of the calendar year, EBITDA
is less than $26 million, management fees paid to LSB during the year shall be
refunded to the Company for the first three quarters of the year, not to exceed
$1,350,000. The maximum management fee amount to be paid to LSB by the Company
is adjusted annually commensurate with the percentage change, if any, in the
Consumer Price Index during the preceding calendar year. No payments were made
to LSB under the Management Agreement in 1999, 1998, or 1997.

     On November 21, 1997, the Company and LSB entered into a tax sharing
agreement (the "Tax Sharing Agreement") which provides for (i) the allocation
of payments of taxes for periods during which the Company and its subsidiaries
and LSB are included in the same consolidated group for federal income tax
purposes or the same consolidated, combined or unitary returns for state,
local or foreign tax purposes, (ii) the allocation of responsibility for the
filing of tax returns, (iii) the conduct of tax audits and the handling of tax
controversies, and (iv) various related matters. For tax periods beginning
after December 1996 and ending ten years thereafter, so long as the Company is
included in LSB's consolidated federal income tax returns or state consolidated
combined or unitary tax returns, the Company will be required to pay to LSB an
amount equal to the Company's consolidated federal and state income tax
liability calculated as if the Company and its subsidiaries were a separate
consolidated tax group and not part of LSB's consolidated tax group. Such
amount is payable in estimated quarterly installments. If the sum of the
estimated quarterly installments is (a) greater than the tax liability of the
Company, on a consolidated basis, as determined by LSB, under the Tax Sharing
Agreement, then LSB will refund the amount of the excess to the Company, or
(b) less than the Company's tax liability, on a consolidated basis, as deter-
mined by LSB, under the Tax Sharing Agreement, then the Company will pay to LSB
the amount of the deficiency. The Company paid approximately $1.0 million to
LSB in 1997 (none in 1999 or 1998) under the tax sharing arrangement.

     Under the terms of an Indenture between the Company, the guarantors and
the trustee relating to the Notes (as defined in Note 7), the Company is
permitted to distribute or pay in the form of dividends and other distributions
to LSB in connection with the Company's outstanding equity securities or loans,
(a) advances or investments to any person (including LSB), up to 50% of the

                                 26
<PAGE>
Company's consolidated net income for the period (taken as one accounting
period), commencing on the first day of the first full fiscal quarter commencing
after the Issue Date of the Notes to and including the last day of the fiscal
quarter ended immediately prior to the date of said calculation (or, in the
event consolidated net income for such period is a deficit, then minus 100% of
such deficit), plus (b) the aggregate net cash proceeds received by the Company
from the sale of its capital stock. This limitation will not prohibit (i) pay-
ment to LSB under the Services Agreement, Management Agreement and the Tax
Sharing Agreement, or (ii) the payment of any dividend within 60 days after the
date of its declaration if such dividend could have been made on the date of
such declaration. Based on the terms stated above, the Company declared and
paid to LSB a dividend, in the fourth quarter of 1998, in the amount of $406,000
representing 50% of the Company's consolidated net income for the nine months
ended September 30, 1998 (none in 1999 or 1997).

The Company has, at various times, maintained certain unsecured borrowings
from LSB and its subsidiaries and made loans and advances to LSB which generally
bear interest. At December 31, 1999 and 1998, the Company had loans and advances
due from LSB of approximately $13.4 million, $10.0 million of which was loaned
to LSB from the proceeds of the sale of the Notes, as defined (Note 7   Long-
Term Debt), and bears interest at 10-3/4%, maturing November 2007 and $3.4
million due from LSB and affiliates related to cash advances from the Company to
LSB and affiliates prior to the sale of the Notes, as defined, from borrowings
on the Company's credit facilities. This loan is due by its terms in November
2007 and bears interest at 7% per annum. At December 31, 1999 and 1998, the
Company had $2.4 million and $2.9 million, respectively, due from LSB and
affiliates included in current assets related to advances as discussed
previously, interest and refunds due associated with operations under the
Services Agreement or refunds under the management agreement. At December 31,
1999, LSB had not made the December 1 interest payment to the Company for the
loans described above. LSB made the December 1 interest payment in March 2000.
The Company earned interest income on net loans and advances due from LSB and
affiliates aggregating approximately $1,474,000, $1,316,000 and $357,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.

RESULTS OF OPERATIONS
_____________________

Year Ended December 31, 1999 Compared To Year Ended December 31, 1998
_____________________________________________________________________

     Net Sales
     _________

     Consolidated net sales of Businesses continuing included in total
revenues for 1999 were $244.5 million, compared to $241.5 million for 1998,
an increase of $3.0 million.  This increase in sales resulted principally
from: (i) increased sales in the Climate Control Business of $1.2 million
primarily due to increased heat pump sales offset by production delays related
to mechanical problems with certain new equipment and (ii) lower sales of $16.6
million from the Chemical Business other than the EDNC Baytown Plant offset by
increased sales to Bayer and other customers by EDNC of $18.4 million from
the Baytown Plant which began operations in May 1999.  Lower volumes of the
Company's nitrogen based products were sold at a lower price in 1999 due
primarily to the import of Russian nitrate resulting in an over supply of
nitrate based products in the primary market areas for the Chemical Business'
agricultural products (see Note 12 of Notes to Consolidated Financial
Statement).


                                  27
<PAGE>
Gross Profit
____________

     Gross profit of Businesses continuing as a percent of net sales was
19.8% for 1999, compared to 21.0% for 1998.  The decrease in the gross profit
percentage was the result of decreases in the Chemical Business.  The decrease
in the Chemical Business was primarily the result of lower sales volumes and
reduced selling prices for the Company's nitrogen based products.  See
"Overview Chemical Business" elsewhere in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for further
discussion of the Chemical Business' decreased sales. The decrease in the gross
profit percentage was offset by an increase in the Climate Control Business due
primarily to an improved focus on sales of more profitable product lines.

Selling, General and Administrative Expense
___________________________________________

     Selling, general and administrative ("SG&A") expenses as a percent of
net sales from Businesses continuing for 1999 were 18.7% compared to 15.8% for
1998.  This increase is primarily the result of decreased sales volume in the
Chemical Products Business without equivalent corresponding decreases in SG&A
and increased cost of the Company sponsored medical care programs for its
employees due to increased health care costs.  Additionally, costs associated
with new start-up operations in 1999, by the Climate Control Business, having
minimal or no sales, increased warranty accrual on a certain line of products.
LSB has been restructuring the alignment of certain overhead costs to match
the benefit and cost.  As a result of this restructuring, LSB increased the
the billing for services performed under the "Services Agreement" in 1999 by
approximately $2.5 million over the amount charged in 1998.

Interest Expense
________________

     Interest expense for continuing businesses of the Company was $14.3 million
for 1999, compared to $13.5 million for 1998.  The increase of $.8 million
primarily resulted from increased borrowings and lenders' prime rates during the
last half of 1999.  The increased borrowings were necessary to support capital
expenditures, higher accounts receivable balances and to meet the operational
requirements of the Company.  See "Liquidity and Capital Resources" of this
Management's Discussion and Analysis.

Provision for Loss on Firm Purchase Commitments
_______________________________________________

     The Company had a provision for loss on firm purchase commitments of $8.4
million for the year ended December 31, 1999 to provide for losses resulting
from cost of remaining anhydrous ammonia to be purchased pursuant to the firm
purchase commitment in the Chemical Business when combined with the manufac-
turing and distribution costs exceeded the anticipated future sales price.
See discussion in Note 12 of the Notes to Consolidated Financial Statements.

Provision for Impairment on Long-lived Assets
_____________________________________________

     The Company had a provision for impairment on long-lived assets of $3.9
million for the year ended December 31, 1999 associated with two out of service
chemical plants which are to be sold or dismantled.  See discussion in Note 2
of the Notes to Consolidated Financial Statements.

                                 28
<PAGE>
Business Disposed of
____________________

The Company sold substantially all the assets of its wholly owned subsidiary
in 1999.  See discussion in Note 4 of the Notes to Consolidated Financial
Statements.

Income (Loss) Before Income Taxes
_________________________________

The Company had a loss before income taxes of  $25.3 million for 1999,
compared to loss before income taxes of $2.2 million for 1998.  The decreased
profitability of  $23.1 million was due to decreased gross profits and increased
SG&A expenses, the loss on the disposal of the Australian subsidiary, lower
ammonium nitrate sales prices and volume, excluding EDNC, from the Chemical
Business, the provision for losses on purchase commitments, and the provision
for impairment on long-lived assets as previously discussed.

Provision (benefit) For Income Taxes
____________________________________

The benefit for income taxes pursuant to the terms of the Tax Sharing
Agreement as discussed in Note 8 of Notes to Consolidated Financial Statements
was $6.1 million for 1999 on a pre-tax loss of $25.3 million, compared to a
provision for income taxes of $.4 million for 1998 on a pre-tax loss of $2.2
million.  The effective rates differ from statutory rates due primarily to the
Australian subsidiary losses and the valuation allowance on the net operating
loss carryforward in 1999.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
_____________________________________________________________________

     Net Sales
     _________

     Consolidated net sales of Business continuing for 1998 were $241.5
million, compared to $236.4 million for 1997, a decrease of $5.1 million or
2.2%. This sales decrease resulted principally from decreased sales in the
Chemical Business of $17.04.8 million primarily due to lower sales volume
of agricultural and blasting products. Sales were lower in the Chemical
Business during 1998, compared to 1997, as a result of adverse weather
conditions in its agricultural markets during the spring and fall planting
seasons and Blasting sales in the Chemical Business declined as a result of
elimination of certain low profit margin sales. These decreases were offset
by increased sales in the Climate Control Business of $9.9 million, primarily
due to increased volume and price increases in both the heat pump and fan coil
product lines.

     Gross Profit
     ____________

     Gross profit of Businesses continuing increased $4.4 million and was 21.0%
of net sales for 1998, compared to 19.6% of net sales for 1997. The increase in
the gross profit percentage was due primarily to lower production costs in the
Chemical Business due to the effect of lower prices of anhydrous ammonia in
1998, and high unabsorbed overhead costs in 1997 caused by excessive downtime
related to problems associated with mechanical failures at the Chemical
Business' primary manufacturing plant in the first half of 1997.

     Selling, General and Administrative Expense
     __________________________________________

     Selling, general and administrative ("SG&A") expenses as a percent of net
sales of Business continuing for 1998 were 15.8% compared to 14.9% for 1997.
This increase is primarily the result of the decrease in sales of the Chemical
Business with an increase in SG&A expenses relating to higher provisions for

                                  29
<PAGE>
uncollectible accounts receivable in 1998.  This increase is offset by increased
sales in the Climate Control Business offset by increased SG&A expenses relating
to additional information technology personnel to support management information
system changes and higher variable costs due to a change in sales mix toward
greater domestic sales which carry a higher SG&A percent.

     Interest Expense
     ________________

     Interest expense for Business continuing for the Company, before deducting
capitalized interest, was $13.5 million during 1998, compared to $10.1 million
during 1997.  During 1997, $1.1 million of interest expense was capitalized in
connection with construction of the DSN Plant.  The increase of $3.4 million
before the effect of capitalization primarily resulted from increased borrowings
and higher interest rates associated with the 10 3/4% unsecured senior notes
issued November 26, 1997. The increased borrowings were necessary to support
capital expenditures, higher accounts receivable balances and to meet the
operational requirements of the Company.  See "Liquidity and Capital Resources"
of this Management's Discussion and Analysis.

     Business Disposed of
     ____________________

     The Company sold substantially all the assets of its wholly owned
subsidiary in 1999.  See discussion in Note 4 of the Notes to Consolidated
Financial Statements.

     Income (Loss) Before Taxes and  Extraordinary Charge
     ____________________________________________________

     The Company had a loss before income taxes and extraordinary charge of $2.2
million in 1998, compared to income before income taxes and extraordinary charge
of $2.3 million in 1997.  The decreased profitability of $4.5 million was
primarily due to increased SG&A and interest expense offset by increased gross
profit as discussed above.

     Provision for Income Taxes
     __________________________

     The provision for income taxes was $.4 million in 1998 on a pre-tax loss
of $2.2 million, compared to $1.4 million in 1997 on pre-tax income of $2.3
million. The effective tax rate is greater than the statutory rate due to losses
associated with the Company's Australian subsidiary, which provides no current
benefit due to its cumulative tax loss position.

     Extraordinary Charge
     ____________________

     In 1997, in connection with the issuance of the 10 3/4% unsecured senior
notes due 2007, a subsidiary of the Company retired the outstanding principal
associated with a certain financing arrangement and incurred a prepayment fee.
The prepayment fee and loan origination costs expensed in 1997 related to the
financing arrangement aggregated approximately $4.6 million. The extraordinary
charge of $2.9 million is net of an income tax benefit of $1.7 million.


                                 30
<PAGE>
Liquidity and Capital Resources
_______________________________

Cash Flow From Operations
_________________________

     Historically, the Company's primary cash needs have been for operating
expenses, working capital and capital expenditures.  The Company has financed
its cash requirements primarily through internally generated cash flow,
borrowings under its revolving credit facilities, and by issuance of senior
unsecured notes in November, 1997.

     Net cash  provided by operations for the year ended December 31, 1999 was
$1.7 million, after $10.0 million for noncash depreciation and amortization,
$2.0 million loss on business disposed of, $.1 million in provisions for
possible losses on accounts receivable and other, provision for losses on
purchase commitments of $8.2 million, $3.9 million in provisions for impairment
of long-lived assets, $6.2 million deferred income tax benefit, and the
following changes in assets and liabilities:  (i) accounts receivable increases
of $3.7 million; (ii) inventory  decreases of $3.9 million; (iii) increases in
supplies and prepaid items of $.2 million; and (iv) increases in accounts
payable and accrued liabilities of $2.0 million. The increase in accounts
receivable was primarily due to increased sales in the fourth quarter in the
Climate Control Business. The decrease in inventory was primarily due to
reduction in the Chemical Business inventories due to plant shut-downs
partially offset by increases in the Climate Control Business due to a build
up of inventory in the plant due to an increase in confirmed orders during
the fourth quarter.  The net increase in accounts payable and accrued
liabilities is primarily due to increases in: (i) purchases of raw materials
and purchased goods and accrued warranty and sales incentives in the Climate
Control Business; (ii) deferred lease liability relating to the Baytown Plant
in the Chemical Business.  These increases were partially offset by decreases
in liabilities associated with purchases of raw materials in the Chemical
Business.

Cash Flow From Investing and Financing Activities
__________________________________________________

     Cash used by investing activities for the year ended December 31, 1999
included $6.7 million in capital expenditures, a $3.1 million payment made for
an acquisition, $2.6 million for the purchase of an option to acquire a French
HVAC manufacturer, $10.0 million proceeds from the sale of a business disposed
of as previously discussed, $1.0 million proceeds from sale of equipment, and
$.9 million for increases in other assets.  The payment made for acquisition
relates to the purchase of all of the stock of a subsidiary of LSB that held an
investment in  an energy conservation joint venture (see Note 3 of Notes to
Financial Statements).

     Net cash provided by financing activities included payments on long-term
debt of $6.9 million, net increase is due from LSB and affiliates of $1.0
million, and net increases in revolving debt of $8.3 million.

Source of Funds
_______________

     The Company owns substantially all of LSB's former Chemical and Climate
Control Businesses.  The Company and its subsidiaries are dependent on credit
agreements with lenders and internally generated cash flow in order to fund
their operations and pay their debts and obligations.

     As of December 31, 1999, LSB and certain of its subsidiaries, including
the Company, are parties to a working capital line of credit evidenced by two
separate loan agreements ("Agreements") with a lender ("Lender") collateralized
by receivables, inventories and proprietary rights of the parties to the
Agreements.  The Agreements have been amended from time to time since inception

                                    31
<PAGE>
to accommodate changes in business conditions and financial results.  This
working capital line of credit is the primary source of liquidity for LSB and
the Company.

As of December 31, 1999, the Agreements provided for revolving credit
facilities ("Revolver") for total direct borrowing up to $65 million with
advances at varying percentages of eligible inventory and trade receivables.
At December 31, 1999, the effective interest rates was 9.0% and the availability
for additional borrowings, based on eligible collateral, approximated $12.3
million. Borrowings under the Revolver outstanding at December 31, 1999, were
$25.1 million.  The annual interest on the outstanding debt under the Revolver
at December 31, 1999, at the rates then in effect would approximate $2.3
million. The Agreements also require the payment of an annual facility fee of
0.5% of the unused Revolver and restrict the flow of funds, except under certain
conditions, to subsidiaries of the Company that are not parties to the Revolving
Credit Agreements.

The Agreements, as amended, required LSB and the Company to maintain
certain financial ratios and contain other financial covenants, including
tangible net worth requirements and capital expenditure limitations. In 1999,
the Company's financial covenants were not required to be met so long as LSB
and its subsidiaries, including the Company that are parties to the Agreements,
maintained a minimum aggregate availability under the Revolving Credit Facility
of $15.0 million.  When availability dropped below $15.0 million for three
consecutive business days, LSB and the Company was required to maintain the
financial ratios discussed above. Due to an interest payment of $5.6 million
made by the Company on December 30, 1999, relating to the outstanding $105
million Senior Unsecured Notes, the availability dropped below the minimum
aggregate availability level required on January 1, 2000. Because LSB and the
Company could not meet the financial ratios required by the Agreements, LSB
and the Company entered into a forbearance agreement with the Lender effective
January 1, 2000.  Under the forbearance agreement, the Lender agreed not to
take action against the Company for a period of sixty (60) days as a result of
such failure.

      Prior to the expiration of the forbearance agreement, the Agreements were
amended, to provide for total direct borrowings of $50.0 million including the
issuance of letters of credit.  The maximum borrowing ability under the newly
amended Agreements is the lesser of $50.0 million or the borrowing availability
calculated using advance rates and eligible collateral less $5.0 million.  The
amendment provides for an increase in the interest rate from the Lender's prime
rate plus .5% per annum to the Lender's prime rate plus 1.5% per annum, or at
LSB's and ClimaChem's option, the Lender's LIBOR rate plus 3.875% per annum,
from 2.875%.  The term of the Agreements is through December 31, 2000, and is
renewable thereafter for successive thirteen-month terms if, by October 1,
2000, the Company and Lender shall have determined new financial covenants
for the calendar year beginning on January 2001.  The Agreements, as amended,
require LSB and the Company to maintain certain financial ratios and certain
other financial covenants, including net worth and interest coverage ratio
requirements and capital expenditure limitations.

     As of March 31, 2000 LSB and the Company have a borrowing availability
under the revolver of $.2 million, and $11.0 respectively, or $11.2 in the
aggregate.


                                     32
<PAGE>
      In addition to the credit facilities discussed above, as of December 31,
1999, the Company's wholly-owned subsidiary, DSN Corporation ("DSN"), is a party
to three loan agreements with a financial company (the "Financing Company") for
three projects.  At December 31, 1999, DSN had outstanding borrowings of $8.2
million under these loans.  The loans have monthly repayment schedules of
principal and interest through maturity in 2002.  The interest rate on each of
the loans is fixed and range from 8.2% to 8.9%.  Annual interest, for the three
notes as a whole, at December 31, 1999, at the agreed to interest rates would
approximate $.7 million.  The loans are secured by the various DSN property and
equipment.  The loan agreements require the Company to maintain certain
financial rations, including tangible net worth requirements.  In April, 2000,
DSN obtained a waiver from the Financing Company of the covenants financials
through April 1, 2001.

      During January 2000, a subsidiary of the Company obtained financing up to
$3.5 million with the City of Oklahoma City ("Lender") to finance the working
capital requirements of Climate Control's new product line of large air
handlers.  Currently, the financing agreement requires the Company to make
interest payments on a quarterly basis at the Lender's LIBOR rate plus two-
tenths of one percent (.2%) per annum.  After the Lender obtains financing
through the U.S. Department of Housing and Urban Development ("HUD"), the
Company will be required to make principal payments on an annual basis over a
term of sixteen (16) years but based on a twenty (20) year amortization period.
Interest payments will be required on a semi-annual basis at the rate charged
to the Lender by HUD at the time of the funding.  The loan is secured by a
mortgage on the manufacturing facility and a separate unrelated parcel of
land owned by a subsidiary of LSB.

The Company is restricted as to the funds that it may transfer to LSB under
the terms contained in an Indenture covering the $105 million in Unsecured
Senior Notes issued by the Company.  Under the terms of the indenture,
ClimaChem cannot transfer funds to LSB, except for (i) the amount of income
taxes that they would be required to pay if they were not consolidated with
the Company, (the "Tax Sharing Agreement"), (ii) an amount not to exceed fifty
percent (50%) of the Company's cumulative net income from January 1, 1998
through the end of the period for which the calculation is made for the purpose
of proposing a dividend payment, and (iii) the amount of direct and indirect
costs and expenses incurred by LSB on behalf of the Company and the Company's
subsidiaries pursuant to a certain services agreement and a certain manage-
ment agreement to which the companies are parties.  The Company sustained a
net loss of $19.2 million in the calendar year 1999, and a net loss of $2.6
million for the calendar year 1998. Accordingly, no amounts were paid to LSB
by the Company under the Tax Sharing Agreement, nor under the Management
Agreement during 1999 and based on ClimaChem's cumulative losses at
December 31, 1999, and current estimates for the results of operations for
the year ended December 31, 2000, none are expected during 2000.  Due to
these limitations, LSB and its non-ClimaChem subsidiaries have limited
resources to satisfy their obligations, including those to the Company.

     LSB and its subsidiaries other than the Company and its subsidiaries and
excluding LSB's Automotive Products Business, (the "LSB Non-ClimaChem Entities")
are dependent upon their separate cash flows and the restricted funds which can
be distributed by the Company under the above mentioned agreements. As of
December 31, 1999, the LSB Non-ClimaChem Entities a had a working capital
deficit of $2.3 million (including $4.7 million of inventories and $2.6 million

                                   33
<PAGE>
of accounts receivable), and long-term debt of $32.8 million (including that
owned by the Company), $3.6 million of which is due within one year. For the
year ended December 31, 1999, the LSB Non-ClimaChem Entities had a net loss of
$15.9 million (including $10.0 million associated with discontinued operations),
and used cash in operating activities of approximately $2.2 million. LSB is
focusing its efforts and resources on its core businesses, which represent
that of the Company. LSB's Board of Directors has approved a plan for the
disposal of its Automotive Products Business. The plan calls for management to
dispose of the Automotive Business through sale. LSB is also realigning its
overhead to better match its focus on the Chemical and Climate Control Busi-
nesses of the Company. Based on these plans, management of LSB believes the
LSB Non-ClimaChem Entities will have sufficient operating capital to meet its
obligations, other than dividend obligations under its outstanding preferred
stock, as they come due, including those to the Company. If LSB is not
successful in executing this plan, including realignment of overhead to
reduce its operating costs or realizing certain excess and non-core assets
and if the Company is not able to transfer funds to LSB and its affiliates as
permitted under the Indenture, the recoverability of the loans and advances
to LSB, which aggregate $15.7 million at December 31, 1999, may not be
recoverable.  As of December 31, 1999, the Company has not provided an
allowance for doubtful accounts against these receivables, loans and
advances since it is their present belief that LSB will be able to pay
these amounts when they come due; however, it is reasonably possible that
the evaluation relative to the amounts due from LSB and its subsidiaries
could change in the near term.

     In 2000, the Company has planned capital expenditures of approximately $9.5
million.  These capital expenditures include approximately $2.0 million, which
the Chemical Business is obligated to spend under consent orders with the State
of Arkansas related to environmental control facilities at its El Dorado
facility, as previously discussed in this report, the Company anticipates that
the Chemical Business may spend up to $10 million for future capital expendi-
tures relating to the environmental control facilities  at its El Dorado
Facility, with $2.0 million being spent in 2000 and the balance being spent in
2001. The Company is currently exploring alternatives to finance these capital
expenditures. There are no assurances that the Company will be able to arrange
financing for its capital expenditures or to make the necessary changes
to the Indenture in order to borrow the funds required to finance certain
of these expenditures.  Failure to be able to make a substantial portion
of these capital expenditures, including those related to environmental
matters, could have a material adverse effect on the Company.

     As previously mentioned, LSB's and ClimaChem's primary credit facility
terminates on December 31, 2000, unless the parties to the agreements agree to
new financial covenants for 2001 prior to October 1, 2000. While there is no
assurance that the Company will be successful in extending the term of such
credit facility, the Company believes it has a good working relationship with
the lender and that it will be successful in extending such facility or
replacing such facility from another lender with substantially the same terms
during 2000.

     In March 2000, LSB and ClimaChem retained Chanin Capital Partners as
financial advisors to assist in evaluating all of the alternatives relating
to the LSB and ClimaChem's liquidity and to assist the companies in
determining their alternatives for restructuring their capitalization and
improving their financial condition. The Company has also initiated discussions
with third party lenders to explore the possibility of obtaining an additional
credit facility or expanded credit facility with which to initiate
discussions with ClimaChem's holders of the Senior Notes, which, at
December 31, 1999, were trading at 25% of their face value. There is no

                                  34
<PAGE>
assurance that the Company or ClimaChem will be successful in obtaining the
additional credit facility or expanded credit facility.

     The Company has planned for up to $9.5 million of capital expenditures for
2000, most of which is not presently committed. Further, a significant portion
of this is dependent upon obtaining acceptable financing. The Company expects
to delay these expenditures as necessary based on the availability of adequate
working capital and the availability of financing. Recently, the Chemical
Business has obtained relief from certain of the compliance dates under its
waste water management project and expects that this will ultimately result in
the delay in the implementation date of such project.  Construction of the
wastewater treatment project is subject to the Company obtaining financing
to fund this project.  There are no assurances that the Company will be able
to obtain the required financing.  Failure to construct the wastewater
treatment facility could have a material adverse effect on the Company.

Foreign Subsidiary
___________________

     As previously discussed in this report, in August, 1999, the Company sold
substantially all of the assets of its wholly owned Australian subsidiary,
effectively disposing of this portion of the Chemical Business. All of the
proceeds received by the Company have been applied to reduce the indebtedness of
ClimaChem, or have been reinvested in related businesses of ClimaChem in
accordance with the Indenture of Senior Unsecured Notes.

Impact of Year 2000
____________________

     In 1999, the Company completed its project to enhance certain of its
Information Technology ("IT") systems and certain other technologically advanced
communication systems. Over the life of the project, the Company capitalized
approximately $1.3 million in costs to accomplish its enhancement program.  The
capitalized costs included $.4 million in external programming costs, with the
remainder representing hardware and software purchases.  The time and expense of
the project did not have a material impact on the Company's financial condition.
As a result of these modifications, the Company did not incur any significant
problems relating to Year 2000 issues.  There was no interruption of business
with key suppliers or downturn in economic activity caused by problems with
Year 2000 issues.  As of the date of this report,  the Company has not been
notified of any warranty issues relating to Year 2000 for the products it has
sold and therefore, the Company believes it should have no material exposure
to contingencies related to the Year 2000 issue for the products it has sold.
The Company will continue to monitor its computer applications and those of
its suppliers and vendors throughout the year 2000 to ensure that any latent
Year 2000 matters that may arise are addressed promptly.

Contingencies
_____________

      The Company has several contingencies that could impact its liquidity in
the event that the Company is unsuccessful in defending against the claimants.
Although management does not anticipate that these claims will result in
substantial adverse impacts on its liquidity, it is not possible to determine
the outcome.  The preceding sentence is a forward looking statement that
involves a number of risks and uncertainties that could cause actual results
to differ materially, such as, among other factors, the following: a court
finds the Chemical Business liable for a material amount of damages in the
antitrust lawsuits pending against the Chemical Business in a manner not
presently anticipated by the Company.  See Note 10 of Notes to Consolidated
Financial Statements.


                                   35
<PAGE>
Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
_______   __________________________________________________________

General
______

     The Company's results of operations and operating cash flows are impacted
by changes in market interest rates and raw material prices for products used in
its manufacturing processes. All information is presented in U. S. dollars.

Interest Rate Risk
__________________

     The Company's interest rate risk exposure results from its debt portfolio
which is impacted by short-term rates, primarily prime rate-based borrowings
from commercial banks, and long-term rates, primarily fixed-rate notes, some
of which prohibit prepayment or require substantial prepayment penalties.

     The Company is also a party to a series of agreements under which it is
leasing a nitric acid plant. The minimum lease payments associated therewith,
prior to execution in June 1999, were directly impacted by the change in
interest rates. To mitigate a portion of the Company's exposure to adverse
market changes related to this leveraged lease, in 1997 the Company entered
into a interest rate forward agreement whereby the Company was the fixed rate
payor on notional amounts aggregating $25 million, net to its 50% interest,
with a weighted average of 7.12%. The Company accounted for this forward under
the deferral method, so long as high correlation was maintained, whereby the net
gain or loss upon settlement adjusted the item being hedged, the minimum lease
rentals, in periods commencing with the lease execution. As of December 31,
1999, the Company has deferred costs of approximately $2.7 million associated
with such agreement, which is being amortized over the initial term of the
lease.  The following table provides information about the Company's interest
rate sensitive financial instruments as of December 31, 1999.










                                    36
<PAGE>

<TABLE>
<CAPTION>
                                               Years Ending December 31,

                         2000     2001     2002     2003     2004         Thereafter     Total
                                                                          through
                                                                          2007
                         ________________________________________________________________________
<S>                      <C>     <C>      <C>      <C>       <C>         <C>
Expected maturities of long-term debt:

  Variable rate debt     $25,151  $   -    $   -    $   -     $   -       $     -          $ 25,151

  Weighted average
    interest rate (1)      9.00%      -  %     -  %     -  %      -  %          - %            9.00%

  Fixed rate debt        $ 4,493  $5,782   $ 374    $ 366      $ 195      $105,827         $117,037

    Weighted average
      interest rate (2)   10.60%   10.72%  10.73%   10.73%     10.73%        10.73%           10.68%

_____________________
<FN>
(1)  Interest rate is based on the average rate of debt outstanding as of
     December 31, 1999.  Interest is generally at a floating rate based on
     the lender's prime rate plus .5% per annum, or at the Company's option,
     under its Revolving Credit Agreements, on the lender's LIBOR rate plus
     2.875% per annum.  During the first quarter of 2000, the Revolving
     Credit Agreements were amended which included an increase in the floating
     rate based on the Lender's prime rate plus 1.5% per annum, or at the
     Company's option, on the Lender's LIBOR rate plus 3.875% per annum.  The
     effect of this change in interest rate based on the Lender's prime rate
     at December 31, 1999, increased the weighted average interest rate to 10.0%
     for 2000 and the total weighted average interest rate to 10.0%.

(2)  Interest rate is based on the aggregate of debt outstanding as of
     December 31, 1999.
</FN>
</TABLE>


                                   37
<PAGE>

<TABLE>
<CAPTION>
                              December 31, 1999         December 31, 1998
                            Estimated                 Estimated
                               Fair     Carrying         Fair      Carrying
                              Value       Value         Value        Value
                            _______________________________________________
                                             (in thousands)
<S>                         <C>         <C>          <C>         <C>
Variable Rate:
  Bank debt and
    equipment financing     $ 25,151     $ 25,151     $ 16,802     $ 16,802

Fixed Rate:
  Bank debt and
    equipment financing       12,103       12,037       16,409        16,129
  Subordinated notes          26,250      105,000      105,000       105,000
                            ________________________________________________
                            $ 63,503     $142,188     $138,211     $137,931
                            ================================================
</TABLE>
     The fair market value of the Company's Senior Notes was determined based
on a market quotation for such securities.

Raw Material Price Risk
_______________________

      The Company has a commitment to purchase 96,000 tons of anhydrous ammonia
under a contract.  The Company's purchase price can be higher or lower than the
current market spot price.  Based on the forward contract pricing existing
during 1999, and estimated market prices for products to be manufactured and
sold during the remainder of the contract, the accompanying Consolidated
Financial Statements included a loss provision of approximately $8.4 million for
anhydrous ammonia required to be purchased during the remainder of the contract.

Foreign Currency Risk
_____________________

     During 1999, the Company sold its wholly owned subsidiary located in
Australia, for which the functional currency was the local currency, the
Australian dollar.  Since the Australian subsidiary accounts were converted
into U.S. dollars upon consolidation with the Company using the exchange rate
at June 30, 1999, declines in value of the Australian dollar to the U.S. dollar
resulted in translation loss to the Company.  As a result of the sale of the
Australian subsidiary, which was closed on August 2, 1999, the cumulative
foreign currency translation loss of approximately $1.1 million has been
included in the loss on disposal of the Australian subsidiary at December 31,
1999.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
_______  ___________________________________________

     The Company has included the financial statements and supplementary
financial information required by this item immediately following Part IV
of this report and hereby incorporates by reference the relevant portions of
those statements and information into this Item 8.



                                   38
<PAGE>
Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     No disagreements between the Company and its accountants have occurred
within the 24-month period prior to the date of the Company's most recent
financial statements.

















                                39
<PAGE>

<PAGE>
                     SPECIAL NOTE REGARDING
                   FORWARD-LOOKING STATEMENTS


     Certain statements contained within this report may be deemed "Forward
Looking Statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended.  All statements in this report other than statements of historical fact
are Forward Looking Statements that are subject to known and unknown risks,
uncertainties and other factors, which could cause actual results and per-
formance of the Company to differ materially from such statements.  The words
"believe", "expect", "anticipate", "intend", "will", and similar expressions
identify Forward Looking Statements.  Forward Looking Statements contained
herein include, among other things, (i) ability to improve operations and
become profitable, (ii) establishing a position as a market leader, (iii) the
amount of the loss provision for anhydrous ammonia required to be purchased or
that the cost to produce Chemical Business products will improve, (iv) declines
in the price of anhydrous ammonia, (v) obtaining a final ruling as to Russian
dumping of anhydrous ammonia (vi) amount to be spent relating to compliance with
federal, state and local Environmental laws at the El Dorado Facility, (vii)
improving LSB's liquidity and profits through liquidation of assets or realign-
ment of assets or some other method, (viii) anticipated financial performance,
(ix) ability to comply with the Company's general working capital and debt
service requirements, (x) ability to be able to continue to borrow under the
Company's revolving line of credit, (xi) adequate cash flows to meet its
presently anticipated capital requirements, (xii) ability of the EDNC Baytown
Plant to generate approximately $35 million in annual gross revenues, (xiii)
ability to make required capital improvement, (xiv) ability to collect amounts
owing to the Company by LSB, and (xv) LSB non-ClimaChem Entities' ability to
pay its obligations as they came due.  While the Company believes the expecta-
tions reflected in such Forward Looking Statements are reasonable, it can
give no assurance such expectations will prove to have been correct.  There are
a variety of factors which could cause future outcomes to differ materially from
those described in this report, including, but not limited to, (i) decline in
general economic conditions, both domestic and foreign, (ii) material reduction
in revenues, (iii) material increase in interest rates; (iv) inability to
collect in a timely manner a material amount of receivables, (v) increased
competitive pressures, (vi) changes in federal, state and local laws and
regulations, especially environmental regulations, or in interpretation of such,
pending (vii) additional releases (particularly air emissions into the environ-
ment), (viii) material increases in equipment, maintenance, operating or labor
costs not presently anticipated by the Company, (ix) the requirement to use
internally generated funds for purposes not presently anticipated, (x) ability
to become profitable, or if unable to become profitable, the inability to secure
additional liquidity in the form of additional equity or debt,(xi) the cost for
the purchase of anhydrous ammonia increasing or the Company's inability to
purchase anhydrous ammonia on favorable terms when a current supply contract
terminates, (xii) changes in competition, (xiii) the loss of any significant
customer, (xiv) changes in operating strategy or development plans,
(xv) inability to fund the working capital and expansion of the Company's
businesses, (xvii) adverse results in any of the Company's pending litigation,
(xviii) inability to obtain necessary raw materials, (xviii) Bayer's
inability or refusal to purchase all of the Company's production at the new
Baytown nitric acid plant; (xix) continuing decreases in the selling price
for the Chemical Business' nitrogen based end products, (xx) ability of LSB
to restructure and to pay its payables, and (xxi) other factors described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" contained in this report.  Given these uncertainties, all parties
are cautioned not to place undue reliance on such Forward-Looking Statements.
The Company disclaims any obligation to update any such factors or to
publicly announce the result of any revisions to any of the Forward
Looking Statements contained herein to reflect future events or developments.


                                  40
<PAGE>


                            PART III

     Because all of the Company's outstanding capital stock is owned directly
or indirectly by its parent, LSB Industries, Inc., the Company is not required
to file a definitive proxy statement, and, as a result, the Company will provide
the information required by Part III of this report by amending this report on
or before April 29, 1999, to include such information (except for the informa-
tion of the Company's executive officers included under Item 4A of Part I of
this report), and incorporate such by reference.



















                                   41
<PAGE>

                                PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) (1)   Financial Statements

     The following consolidated financial statements of the Company
     appear immediately following this Part IV:

                                                               Pages
                                                               _____

Report of Independent Auditors                                  F-1

Consolidated Balance Sheets at December 31, 1999
  and 1998                                                      F-2


Consolidated Statements of Operations for each of
  the three years in the period ended December 31,
  1999                                                          F-3


Consolidated Statements of Stockholders' Equity
  for each of the three years in the period ended
  December 31, 1999                                             F-4

Consolidated Statements of Cash Flows for
  each of the three years in the period
  ended December 31, 1999                                       F-5 to F-6

Notes to Consolidated Financial Statements                      F-7 to F-47

Quarterly Financial Data (Unaudited)                            F-48


(a) (2)  Financial Statement Schedule
         ____________________________

         The Company has included the following schedule in this report:

II - Valuation and Qualifying Accounts                          F-49

     The Company has omitted all other schedules because the conditions
requiring their filing do not exist or because the required information
appears in the Company's Consolidated Financial Statements, including the
notes to those statements.

<PAGE>
<PAGE>
                     Report of Independent Auditors



The Board of Directors and Stockholders
ClimaChem, Inc.

We have audited the accompanying consolidated balance sheets of ClimaChem,
Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1999.  Our audits
also included the financial statement schedule listed in the Index at
Item 14(a)(2).  These financial statements and schedule are the
responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements and schedule based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States.  Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements.  An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation.  We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of ClimaChem, Inc. at December 31, 1999 and 1998, and the
consolidated results of its operations and cash flows for each of the
three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.  Also,
in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set
forth therein.


                                           /s/ Ernst & Young LLP

                                           ERNST & YOUNG LLP

Oklahoma City, Oklahoma
March 17, 2000

                                  F-1
<PAGE>

<TABLE>
<CAPTION>
                         ClimaChem, Inc.
                   Consolidated Balance Sheets

                                                       December 31,
                                                      1999     1998
                                                   ___________________
                                                      (In Thousands)
<S>                                                <C>        <C>
Assets
Current assets (Note 7):
  Cash and cash equivalents (Note 2)               $  2,673    $   750
  Trade accounts receivable, net                     41,934     38,817
  Inventories (Note 5)                               25,772     37,367
  Supplies and prepaid items                          4,314      7,023
  Income tax receivable (Note 8)                          -      2,050
  Current deferred income taxes                           -      1,338
  Due from LSB and affiliates (Note 3)                2,263      2,946
                                                    _______   ________
Total current assets                                 76,956     90,291

Property, plant and equipment, net (Notes 6 and 7)   75,667     82,389
Due from LSB and affiliates, net (Note 3)            13,443     13,443
Other assets, net                                    18,012     10,480
                                                    _______    _______
                                                   $184,078   $196,603
                                                    =======    =======
Liabilities and stockholders' equity
Current liabilities:
  Accounts payable                                 $ 16,312    $17,416
  Accrued liabilities (Note 12)                      13,791      7,918
  Current portion of long-term debt (Note 7)         29,644     10,460
                                                   ________    _______
Total current liabilities                            59,747     35,794

Long-term debt (Note 7)                             112,544    127,471
Accrued losses on firm purchase commitments
  (Note 12)                                           5,652          -
Deferred income taxes (Note 8)                            -      9,580
Commitments and contingencies (Note 10)

Stockholders' equity (Notes 7 and 9):
   Common stock, $.10 par value; 500,000 shares
      authorized, 10,000 shares issued                    1          1
   Capital in excess of par value                    12,652     12,652
   Accumulated other comprehensive loss                   -     (1,559)
   Retained earnings (deficit)                       (6,518)    12,664
                                                    _______    _______
Total stockholders' equity                            6,135     23,758
                                                    _______    _______
                                                   $184,078   $196,603
                                                    =======    =======
</TABLE>
See accompanying notes.


                                  F-2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
                         ClimaChem, Inc.

              Consolidated Statements of Operations


                                                 Year ended December 31,
                                                1999      1998     1997
                                               __________________________
                                                     (In Thousands)
<S>                                         <C>        <C>       <C>
Revenues:
   Net sales                                 $ 244,462  $ 241,546 $ 236,365
   Interest and other income                     2,493      1,468       893
                                             ______________________________
                                               246,955    243,014   237,258

Costs and expenses:
   Cost of sales                               196,095    190,722  189,936
   Selling, general and administrative
      (Note 3)                                  45,618     38,105   35,183
   Interest (Note 3)                            14,260     13,463    9,041
   Provision for loss on firm purchase
      commitments (Note 12)                      8,439          -        -
   Provision for impairment on long-lived
      assets (Note 2)                            3,913          -        -
                                              ____________________________
                                               268,325    242,290  234,160
                                              ____________________________
Income (loss) before business disposed of,
   provision for income taxes and extra-
   ordinary charge                            (21,370)       724    3,098

Business disposed of (Note 4):
   Revenues                                     7,461     14,184   26,482
   Operating costs, expenses and interest       9,419     17,085   27,254
                                             ____________________________
                                               (1,958)    (2,901)    (772)

Loss on disposal of business                   (1,971)         -        -
                                             ____________________________
                                               (3,929)    (2,901)    (772)
                                             ____________________________
Income (loss) before provision (benefit)
   for income taxes and extraordinary charge  (25,299)    (2,177)   2,326

Provision (benefit) for income taxes (Note 8)  (6,117)       392    1,429
                                             ____________________________
Income (loss) before extraordinary charge     (19,182)    (2,569)     897

Extraordinary charge, net of income
   tax benefit of $1,750,000 (Note 7)               -          -    2,869
                                             ____________________________
Net loss                                    $ (19,182) $ (2,569) $ (1,972)
                                             ============================
</TABLE>
See accompanying notes.


                                 F-3
<PAGE>

<PAGE>
<TABLE>
<CAPTION>
                         ClimaChem, Inc.

         Consolidated Statements of Stockholders' Equity
                         (In Thousands)


                                                                  Accumulated
                                                                      Other
                                  Common Stock       Capital in  Comprehensive
                                __________________   Excess of       Income    Retained
                               Shares   Par Value    Par Value       (Loss)    Earnings      Total
                               _____________________________________________________________________
<S>                           <C>       <C>         <C>          <C>          <C>          <C>
Balance at December 31, 1996   10,000    $  1        $12,652      $   276      $19,914      $32,843

Net loss                            -       -              -            -       (1,972)      (1,972)
Foreign currency translation
 adjustment                         -       -              -       (1,279)           -       (1,279)
                                                                                             _______
Total comprehensive loss                                                                     (3,251)

Dividends to Parent                 -       -              -            -       (2,303)      (2,303)

                               ______________________________________________________________________
Balance at December 31, 1997    10,000       1          12,652     (1,003)      15,639       27,289

Net loss                            -       -               -           -       (2,569)      (2,569)

Foreign currency translation
   adjustment                       -       -               -        (556)           -         (556)
                                                                                             _______
Total comprehensive loss                                                                     (3,125)

Dividends to Parent                 -       -               -           -         (406)        (406)

                              _______________________________________________________________________
Balance at December 31, 1998   10,000       1          12,652      (1,559)      12,664       23,758

Net loss                            -       -               -           -      (19,182)     (19,182)
Foreign currency translation
   adjustment                       -       -               -       1,559            -        1,559
                                                                                            ________
Total comprehensive loss                                                                    (17,623)
                             ________________________________________________________________________
Balance at December 31, 1999   10,000    $  1        $ 12,652    $      -     $ (6,518)    $  6,135
                             ========================================================================
</TABLE>
See accompanying notes.

                                         F-4
<PAGE>

<PAGE>
<TABLE>
<CAPTION>
                         ClimaChem, Inc.

              Consolidated Statements of Cash Flows


                                                    Year ended December 31,
                                                   1999       1998       1997
                                               ____________________________________
                                                        (In Thousands)
<S>                                             <C>          <C>          <C>
Cash flows from operating activities
Net loss                                         $(19,182)    $ (2,569)    $(1,972)
  Adjustments to reconcile net loss to
    net cash provided (used) by
    operations:
      Extraordinary charge, net of tax,
        related to financing activities                -             -       2,869
      Inventory write-down and provision
        for loss on firm purchase commit-
        ments, net of amount realized              8,175             -           -
      Provision for impairment on long-
        lived assets                               3,913             -           -
      Depreciation of property, plant and          8,830          9,545      8,130
        equipment
      Amortization                                 1,138          1,324        756
      Provision for losses:
        Trade accounts receivable                    828            971        521
        Notes receivable                               -            854        175
        Environmental matters and other              195           (387)         -
      Deferred income tax provision (benefit)     (6,192)           351        209
      Loss (gain) on sales of assets                   -            (30)       138
      Loss on business disposed of                 1,971              -          -
      Cash provided (used) by changes in
        assets and liabilities:
          Trade accounts receivable               (3,661)        (1,484)    (2,384)
          Inventories                              3,892            904     (3,128)
          Supplies and prepaid items                (186)        (1,252)      (191)
          Income tax receivable                        -             92     (2,142)
          Accounts payable                        (1,325)        (1,598)   (13,706)
          Accrued liabilities                      3,285         (2,859)     1,014
                                                ___________________________________
Net cash provided (used) by operating activities   1,681          3,862     (9,711)
</TABLE>

(Continued on following page)

                                   F-5
<PAGE>

<TABLE>
<CAPTION>
                         ClimaChem, Inc.

        Consolidated Statements of Cash Flows (continued)


                                                        Year ended December 31,
                                                  1999         1998         1997
                                               __________________________________
                                                          (In Thousands)
<S>                                           <C>         <C>           <C>
Cash flows from investing activities
Payment made for acquisition of limited
  partner interest in business (Note 3)        $ (3,114)   $       -    $     -
Purchase of receivables and option
  to acquire business (Note 3)                   (2,558)           -          -
Capital expenditures                             (6,688)      (7,418)     (9,357)
Proceeds from sales of equipment                  1,045           65         194
Proceeds from the sale of business
  disposed of                                     9,981            -          -
Increase in other assets                           (870)      (1,072)     (3,609)
                                              ____________________________________
Net cash used by investing activities            (2,204)      (8,425)    (12,772)

Cash flows from financing activities
Payments on long-term and other debt             (6,867)      (4,690)    (72,504)
Long-term and other borrowings, net of
  origination fees                                    -         (583)    155,000
Debt prepayment charge, net of tax                    -            -      (2,869)
Net change in revolving debt facilities           8,269        6,348     (28,478)
Net change in due to/from LSB and affiliates      1,044        1,110     (23,938)
Dividends paid to parent                              -         (406)     (2,303)
                                               _________________________________
Net cash provided by financing activities         2,446        1,779      24,908
                                               _________________________________
Net increase (decrease) in cash and cash
  equivalents                                     1,923       (2,784)      2,425

Cash and cash equivalents at beginning of year      750        3,534       1,109
                                               __________________________________
Cash and cash equivalents at end of year       $  2,673    $     750    $  3,534
                                               ==================================
</TABLE>

See accompanying notes.


                                    F-6
<PAGE>

<PAGE>
                         ClimaChem, Inc.

           Notes to Consolidated Financial Statements

                December 31, 1999, 1998 and 1997


1. Basis of Presentation

ClimaChem,  Inc. (the "Company"), a wholly owned subsidiary  of
LSB Industries, Inc. ("LSB" or "Parent"), was organized under
the  laws of the State of Oklahoma in October 1997. The Company's
Certificate of Incorporation authorizes the issuance  of  500,000
shares  of $.10 par value common stock. The Company is a  holding
company  which maintains operations through various  wholly-owned
subsidiaries.   The  Company  owns,  through  its   subsidiaries,
substantially  all  of  the operations  comprising  the  Chemical
Business and Climate Control Business as previously owned by LSB.
Prior  to  November  21, 1997, all of the Company's  subsidiaries
were wholly-owned subsidiaries of LSB, directly or through one or
more   intermediaries,  and  were  contributed  to  the  Company,
following its formation, by LSB or other subsidiaries in exchange
for  all  of  the outstanding common stock of the Company.  These
exchanges have been accounted for as a reorganization of entities
under  common  control and, accordingly, reflect  LSB's  and  its
subsidiaries'  historical  cost  of  such  subsidiaries  and  net
assets.  Accordingly,  the consolidated financial  statements  of
ClimaChem, Inc. and its subsidiaries for all periods reflect this
reorganization in a manner similar to a pooling of interests.

The  consolidated financial statements include  the  accounts  of
ClimaChem,   Inc.   and   its  wholly-owned   subsidiaries.   All
significant intercompany transactions have been eliminated in the
accompanying financial statements.

The  Company  has historically had significant transactions  with
LSB  and its subsidiaries which are reflected in the accompanying
consolidated  financial  statements  on  the  basis   established
between the Company and LSB and its subsidiaries. See Notes 3, 8,
9 and 10.

2. Accounting Policies

Use of Estimates

The   preparation   of  consolidated  financial   statements   in
conformity with generally accepted accounting principles requires
management  to  make estimates and assumptions  that  affect  the
reported  amounts  of assets and liabilities  and  disclosure  of
contingent  assets and liabilities at the date of  the  financial
statements  and  the  reported amounts of revenues  and  expenses
during  the  reporting period. Actual results could  differ  from
those estimates.



                                  F-7
<PAGE>

<PAGE>
                            ClimaChem, Inc.

          Notes to Consolidated Financial Statements (continued)


2. Accounting Policies (continued)

Inventories

Inventory  is  priced at the lower of cost or market,  with  cost
being  determined  using  the first-in, first-out  (FIFO)  basis,
except  for certain heat pump products with a value of $8,351,000
and $7,095,000 at December 31, 1999 and 1998, respectively, which
are  priced  at  the  lower of cost or market,  with  cost  being
determined  using  the  last-in,  first-out  (LIFO)  basis.   The
difference  between the LIFO basis and current cost was  $822,000
and $1,062,000 at December 31, 1999 and 1998, respectively.

Property, Plant and Equipment

Property,  plant and equipment are carried at cost. For financial
reporting  purposes, depreciation, depletion and amortization  is
primarily  computed  using  the  straight-line  method  over  the
estimated useful lives of the assets ranging from 3 to 30  years.
Property,  plant  and equipment leases which  are  deemed  to  be
installment  purchase  obligations  have  been  capitalized   and
included  in property, plant and equipment. Maintenance,  repairs
and minor renewals are charged to operations while major renewals
and improvements are capitalized.

Excess of Purchase Price Over Net Assets Acquired

The  excess of purchase price over net assets acquired, which  is
included in other assets in the accompanying consolidated balance
sheets,  totaling $2,312,000 and $2,654,000, net  of  accumulated
amortization, of $4,100,000 and $3,758,000 at December  31,  1999
and  1998,  respectively, and is being amortized by the straight-
line method over periods of 15 to 19 years.

Impairment of Long-Lived Assets

Long-lived  assets  and  certain  identifiable  intangibles   are
reviewed for impairment whenever events or changes in circumstances
indicate  that the  carrying  amount  may  not  be recoverable.
Recoverability of assets to be  held  and  used  is measured  by a
comparison of the carrying amount of the asset  to future net cash
flows expected to be generated by the asset.  If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell.


                                  F-8
<PAGE>

<PAGE>
                           ClimaChem, Inc.

       Notes to Consolidated Financial Statements (continued)

2. Accounting Policies (continued)

For  the  year  ended  December 31, 1999, the Company  recognized
impairment  totaling $3.9 million associated  with  two  chemical
plants which are to be sold or dismantled. The 1999 provision for
impairment  represents the difference between  the  net  carrying
cost  and the estimated salvage value for the nonoperating  plant
to be dismantled and the difference between the net carrying cost
and  the  estimated selling price less cost to  dispose  for  the
plant  to  be sold. The Company has made estimates of the  future
cash flows related to its Chemical Business in order to determine
recoverability  of the Company's remaining cost. Based  on  these
estimates, no additional impairment was indicated at December 31,
1999;  however,  it is reasonably possible that the  Company  may
recognize  additional impairments in this business  in  the  near
term   if   the   Company   experiences  continued   or   further
deterioration of the chemical business.

Debt Issuance Cost

Debt issuance costs are amortized over the term of the associated
debt instrument using the straight-line method. Such costs, which
are  included  in  other assets in the accompanying  consolidated
balance   sheets,   were  $3,416,000  and  $3,878,000,   net   of
accumulated amortization, of $987,000 and $525,000 as of December
31, 1999 and 1998, respectively.

Revenue Recognition

The  Company  recognizes revenue at the time title of  the  goods
transfers to the buyer.

Income Taxes

Taxable  income  of the Company is included in  the  consolidated
federal  income tax return of LSB. The provision for  or  benefit
from  income  taxes  is  calculated as if  the  Company  filed  a
separate  federal  income tax return. To the extent  a  state  or
other  taxing  jurisdiction requires or permits  a  consolidated,
combined,  or  unitary tax return to be filed,  and  such  return
includes  the Company, the principles expressed with  respect  to
consolidated federal income tax allocation shall apply.

Deferred  income  taxes result from the Company having  different
bases  for  financial and income tax reporting  principally  from
utilizing  different  lives for income taxes  purposes  than  for
financial reporting purposes.

                                 F-9
<PAGE>

<PAGE>
                           ClimaChem, Inc.

         Notes to Consolidated Financial Statements (continued)

2. Accounting Policies (continued)

Research and Development Costs

Costs   incurred   in  connection  with  product   research   and
development  are  expensed as incurred. Such  costs  amounted  to
$713,000, $377,000 and $367,000 for the years ended December  31,
1999, 1998 and 1997, respectively.

Advertising Costs

Costs  incurred in connection with advertising and  promotion  of
the  Company's  products  are expensed as  incurred.  Such  costs
amounted  to $1,536,000, $1,152,000 and $1,160,000 for the  years
ended December 31, 1999, 1998 and 1997, respectively.

Capitalized Interest

Interest  costs  of $1,113,000 related to the construction  of  a
nitric acid plant were capitalized in 1997 (none in 1999 or 1998)
and are being amortized over the related plant's estimated useful
life.

Translation of Foreign Currency

Assets   and  liabilities  of  foreign  operations,   where   the
functional  currency is the local currency, are  translated  into
U.S.  dollars at the fiscal year end exchange rate.  The  related
translation  adjustments are recorded as  cumulative  translation
adjustments,  a  separate  component  of  stockholders'   equity.
Revenues and expenses are translated using average exchange rates
prevailing during the year.

Hedging

In  1997,  the  Company  entered into an  interest  rate  forward
agreement  to  effectively fix the interest rate on  a  long-term
lease commitment (not for trading purposes). In 1999, the Company
executed the long-term lease agreement and terminated the forward
at a net cost of $2.8 million. The Company has accounted for this
hedge  under the deferral method (as an adjustment of the initial
term lease rentals). At December 31, 1999, the remaining deferred
loss  included  in  other assets approximated $2.7  million.  The
deferred  cost recognized in operations amounted to  $169,000  in
1999  (none  in 1998 or 1997). See Recently Issued Pronouncements
below and Note 10 - Commitments and Contingencies.


                                 F-10
<PAGE>

<PAGE>
                             ClimaChem, Inc.

    Notes to Consolidated Financial Statements (continued)

2. Accounting Policies (continued)

Recently Issued Pronouncements

In  June  1998, the Financial Accounting Standards  Board  issued
Statement  No.  133  ("SFAS  133"),  "Accounting  for  Derivative
Instruments and Hedging Activities." The Company expects to adopt
this  new  Statement January 1, 2001. The Statement will  require
the Company to recognize all derivatives on the balance sheet  at
fair value. Derivatives that do not qualify or are not designated
as  hedges must be adjusted to fair value through operations.  If
the  derivative is a hedge, depending on the nature of the hedge,
changes  in the fair value of derivatives will either  be  offset
against   the  change  in  fair  value  of  the  hedged   assets,
liabilities,  or firm commitments through earnings or  recognized
in other comprehensive income until the hedged item is recognized
in  earnings. The ineffective portion of a derivative's change in
fair  value  will  be  immediately recognized  in  earnings.  The
Company  has not yet determined what all of the effects  of  SFAS
133  will  be  on  the  earnings and financial  position  of  the
Company;  however,  the Company expects that the  deferred  hedge
loss  discussed  under Accounting Policies  -  Hedging,  will  be
accounted  for as a cash flow hedge upon adoption  of  SFAS  133,
with  the  effective  portion of the hedge  being  classified  in
equity  in accumulated other comprehensive income or loss at  the
date  of  adoption.  The  amount included  in  accumulated  other
comprehensive income or loss will be amortized to operations over
the initial term of the leveraged lease.

Statements of Cash Flows

For  purposes of reporting cash flows, cash and cash  equivalents
include cash, overnight funds and interest bearing deposits  with
maturities when purchased by the Company of 90 days or less.

Under the Company's Revolving Credit Facility (Note 7 - Long-Term
Debt)  cash  received  by  the Company  on  collection  of  trade
accounts  receivable  is deposited in cash  collection  accounts.
Cash   in   the  collection  accounts  is  applied  against   the
outstanding   balance  under  the  Company's   revolving   credit
agreement  within 1-2 business days following receipt.  The  cash
balance held in the collection accounts at December 31, 1999  and
1998 aggregated $2,188,000 and $1,593,000, respectively.



                              F-11
<PAGE>

<PAGE>
                         ClimaChem, Inc.

        Notes to Consolidated Financial Statements (continued)


2. Accounting Policies (continued)
<TABLE>
<CAPTION>
Supplemental cash flow information includes:

                                                    Year ended December 31,
                                                 1999        1998         1997
                                              __________________________________
                                                       (In Thousands)
<S>                                           <C>         <C>          <C>
Cash payments for interest and income taxes:
  Interest on long-term debt and other        $ 14,525     $ 14,079     $  9,864
  Income taxes:
    Paid to state taxing authorities                17           65           86
    Paid to Parent                                   -        1,908         1,013
Noncash financing and investing activities--
  Long-term debt issued for property, plant
    and equipment                                  471          523         1,108
</TABLE>
3. Transactions With Related Parties

On November 21, 1997, the Company and LSB entered into a services
agreement (the "Services Agreement") pursuant to which LSB will
continue  to  provide to the Company various services,  including
financial and accounting, order entry, billing, credit,  payable,
insurance, legal, human resources, advertising and marketing, and
related  administrative  and management services,  that  LSB  has
historically  provided to the operations and  businesses  of  the
Company. The Company will pay to, or reimburse, LSB for the costs
and  expenses incurred by LSB in the performance of the  Services
Agreement.

Under  the terms of the Services Agreement, the Company will  pay
to,  or reimburse, LSB for the value of the office facilities  of
LSB,  including LSB's principal offices and financial  accounting
offices  utilized  in the performance of the Services  Agreement.
LSB will determine the proportionate usage of such facilities  by
LSB  and  the Company, and the Company will pay to, or reimburse,
LSB for its proportionate share of such usage.

Charges  for  such services aggregate $4,780,000, $2,265,000  and
$1,950,000 for the years ended December 31, 1999, 1998 and  1997,
respectively.  Management of the Company believes  these  charges
from   LSB   reasonably   approximate  additional   general   and
administrative  costs  which would  have  been  incurred  if  the
Company had been an independent entity during such periods. These
amounts do not include reimbursements for costs described in  the
next paragraph or amounts paid by LSB relating to certain of  the
Company's  payroll that are directly charged to  the  Company  by
LSB.


                                  F-12
<PAGE>

<PAGE>
                             ClimaChem, Inc.

           Notes to Consolidated Financial Statements (continued)


3. Transactions With Related Parties (continued)

The  Services  Agreement  also  provides  that  LSB  will  permit
employees  of  the Company and its subsidiaries  to  continue  to
participate in the benefit plans and programs sponsored  by  LSB.
The  Company  will  pay  to,  or reimburse,  LSB  for  the  costs
associated with participation by the employees of the Company  in
LSB's benefit plans and programs.

In addition, the Services Agreement allows for purchases of other
goods   and   services  to  the  extent  that  the  amount   paid
approximates fair value that would be paid to a third  party.  In
1999, subsidiaries of the Company purchased certain raw materials
with LSB's assistance and paid $461,000 to LSB in commissions  on
such   purchases.  The  Company  also  purchased  $1,076,000   in
industrial supplies, in 1999, from subsidiaries of LSB which  are
not subsidiaries of the Company.

The  Company's  Climate Control manufacturing  subsidiaries  also
lease facilities from an affiliate under various operating leases
and a capital lease. See Note 10 - Commitments and Contingencies,
Operating  Leases. Rental expense associated with  the  operating
leases aggregated $1,772,000, $475,000 and $475,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. In December
1999, a subsidiary of the Climate Control Business entered into a
capital  lease with a subsidiary of LSB which is not a subsidiary
of  the  Company. The lease agreement required an initial payment
of  $2 million for capital improvements required in the facility,
which  was  paid  in 1999, and requires 112 monthly  payments  of
$20,291 commencing on September 1, 2006. The accompanying balance
sheet includes buildings and improvements under the capital lease
of  $3,172,000  and  long-term  debt  includes  a  capital  lease
obligation of $1,172,000 due to the LSB subsidiary.

In  1995, a subsidiary of LSB invested approximately $2.8 million
to  purchase a fifty percent (50%) limited partner interest in an
energy  conservation joint venture (the "Project").  The  Project
was  to  retrofit residential housing units at a U.S.  Army  base
which  it completed during 1996. The completed contract  was  for
installation   of  energy-efficient  equipment   (including   air
conditioning  and heating equipment), which would reduce  utility
consumption.  For  the installation and management,  the  project
will  receive a percentage of all energy and maintenance  savings
during  the twenty (20) year contract term. In January 1999,  the
Company acquired this investment by purchasing the stock  of  the
LSB  subsidiary  that owned the Project. The  Company  paid  $3.1
million  to  LSB  in connection with this purchase.  This  amount
equaled  the book value of the investment on the books  of  LSB's
subsidiary, which management of the Company believes approximated
the investment's fair value, at the date of purchase.


                                 F-13
<PAGE>

<PAGE>
                              ClimaChem, Inc.

          Notes to Consolidated Financial Statements (continued)

3. Transactions With Related Parties (continued)

In  April  1999,  the Company's Board of Directors  approved  the
acquisition  of  certain assets from LSB in accordance  with  the
terms  of the Indenture to which the Company and its subsidiaries
are  parties and the loan agreement that LSB and subsidiaries  of
the  Company  are  borrowing under, which assets  are  materially
related to the lines of the Climate Control Business. As a result
of  the  approval,  in April 1999 the Company  purchased  from  a
subsidiary   of  LSB,  an  option  to  acquire  a   French   HVAC
manufacturing company and all amounts due and payable  from  such
French  manufacturer or its parent to LSB. The Company  paid  LSB
$2.6  million for the option and receivables due from the  French
manufacturer  and its parent. This amount equaled  the  net  book
value  of the investment on the books of LSB's subsidiary,  which
management  of the Company believes approximated the investment's
fair value, at the date of purchase.

During July 1999, a subsidiary of the Company sold 26 railcars to
a   non-affiliated   entity  for  approximately   $1.1   million.
Thereafter,  the  entity leased the railcars to a  subsidiary  of
LSB,  which  is  neither  the Company nor  a  subsidiary  of  the
Company.  A subsidiary of the Company has entered into a services
agreement  with  such  LSB  subsidiary  pursuant  to  which  such
subsidiary is to provide railcar services to a subsidiary of  the
Company.  Under the services agreement, the Company's  subsidiary
will pay a fee based on each railcar unit used by such subsidiary
of  $1,031 per month. The Company's subsidiary is not required to
use  any railcar equipment under the services agreement, and  the
services  agreement  may be terminated at any  time  on  30  days
written notice.

In  1999,  the  Company  advanced LSB $2 million  pursuant  to  a
provision in the bond indenture which allows the Company to  make
up  to a $2 million investment in any other "person," as defined.
The  advance  bears  interest at 10-3/4%  per  annum  payable  on
demand.

On  November  21,  1997,  LSB  and the  Company  entered  into  a
management agreement (the "Management Agreement"), which provides
that  LSB  will provide to the Company, managerial oversight  and
guidance  concerning the broad policies, strategic decisions  and
operations of the Company and the subsidiaries and the  rendering
of  such  further  managerial  assistance  as  deemed  reasonably
necessary by LSB. Under the Management Agreement, the Company  is
to  pay  LSB  a fee for such services which will not exceed  $1.8
million  annually. The fee will be paid quarterly based upon  the
excess   of  actual  earnings  before  interest,  income   taxes,
depreciation  and amortization ("EBITDA") for the  quarter  minus
$6,500,000, not to exceed $450,000. If at the end of the calendar
year,  EBITDA is less than $26 million, management fees  paid  to
LSB  during  the  year shall be refunded to the Company  for  the
first  three quarters of the year, not to exceed $1,350,000.  The
maximum management fee amount to be paid to LSB by the Company is


                                F-14
<PAGE>

<PAGE>
                            ClimaChem, Inc.

             Notes to Consolidated Financial Statements


3. Transactions With Related Parties (continued)

adjusted  annually  commensurate with the percentage  change,  if
any,  in  the Consumer Price Index during the preceding  calendar
year. No payments were made to LSB under the Management Agreement
in 1999, 1998, or 1997.

On  November  21, 1997, the Company and LSB entered  into  a  tax
sharing  agreement (the "Tax Sharing Agreement")  which  provides
for  (i)  the allocation of payments of taxes for periods  during
which  the  Company and its subsidiaries and LSB are included  in
the  same  consolidated group for federal income tax purposes  or
the  same  consolidated, combined or unitary returns  for  state,
local   or   foreign  tax  purposes,  (ii)  the   allocation   of
responsibility for the filing of tax returns, (iii)  the  conduct
of  tax  audits and the handling of tax controversies,  and  (iv)
various related matters. For tax periods beginning after December
1996  and ending ten years thereafter, so long as the Company  is
included  in  LSB's consolidated federal income  tax  returns  or
state  consolidated combined or unitary tax returns, the  Company
will  be  required to pay to LSB an amount equal to the Company's
consolidated federal and state income tax liability calculated as
if  the Company and its subsidiaries were a separate consolidated
tax  group  and  not part of LSB's consolidated tax  group.  Such
amount is payable in estimated quarterly installments. If the sum
of  the estimated quarterly installments is (a) greater than  the
tax  liability  of  the  Company, on  a  consolidated  basis,  as
determined by LSB, under the Tax Sharing Agreement, then LSB will
refund the amount of the excess to the Company, or (b) less  than
the  Company's  tax  liability,  on  a  consolidated  basis,   as
determined  by  LSB,  under the Tax Sharing Agreement,  then  the
Company will pay to LSB the amount of the deficiency. The Company
paid  approximately $1.0 million to LSB in 1997 (none in 1999  or
1998) under the tax sharing arrangement.

Under  the  terms  of  an  Indenture  between  the  Company,  the
guarantors  and the trustee relating to the Notes (as defined  in
Note  7),  the Company is permitted to distribute or pay  in  the
form  of  dividends and other distributions to LSB in  connection
with  the  Company's outstanding equity securities or loans,  (a)
advances or investments to any person (including LSB), up to  50%
of the Company's consolidated net income for the period (taken as
one  accounting period), commencing on the first day of the first
full  fiscal quarter commencing after the Issue Date of the Notes
to  and  including  the  last day of  the  fiscal  quarter  ended
immediately  prior to the date of said calculation  (or,  in  the
event consolidated net income for such period is a deficit,  then
minus  100%  of  such deficit), plus (b) the aggregate  net  cash
proceeds  received by the Company from the sale  of  its  capital
stock. This limitation will not prohibit (i) payment to LSB under
the  Services Agreement, Management Agreement and the Tax Sharing
Agreement,  or  (ii) the payment of any dividend within  60  days
after  the  date  of  its  declaration  if  such  dividend  could

                                F-15
<PAGE>

<PAGE>
                           ClimaChem, Inc.

         Notes to Consolidated Financial Statements (continued)

3. Transactions With Related Parties (continued)

have  been  made on the date of such declaration.  Based  on  the
terms  stated  above, the Company declared  and  paid  to  LSB  a
dividend,  in  the  fourth quarter of  1998,  in  the  amount  of
$406,000  representing  50%  of the  Company's  consolidated  net
income for the nine months ended September 30, 1998 (none in 1999
or 1997).

The  Company has, at various times, maintained certain  unsecured
borrowings  from  LSB and its subsidiaries  and  made  loans  and
advances  to  LSB which generally bear interest. At December  31,
1999 and 1998, the Company had loans and advances due from LSB of
approximately $13.4 million, $10.0 million of which was loaned to
LSB  from the proceeds of the sale of the Notes, as defined (Note
7  -  Long-Term  Debt), and bears interest at  10-3/4%,  maturing
November  2007  and  $3.4  million due from  LSB  and  affiliates
related  to  cash advances from the Company to LSB and affiliates
prior  to  the sale of the Notes, as defined, from borrowings  on
the Company's credit facilities. This loan is due by its terms in
November 2007 and bears interest at 7% per annum. At December 31,
1999  and  1998, the Company had $2.4 million and  $2.9  million,
respectively,  due  from LSB and affiliates included  in  current
assets related to advances as discussed previously, interest  and
refunds   due  associated  with  operations  under  the  Services
Agreement or refunds under the management agreement. At  December
31, 1999, LSB had not made the December 1 interest payment to the
Company  for the loans described above. LSB made the  December  1
interest  payment  in  March 2000. The  Company  earned  interest
income  on  net  loans and advances due from LSB  and  affiliates
aggregating approximately $1,474,000, $1,316,000 and $357,000 for
the years ended December 31, 1999, 1998 and 1997, respectively.

LSB  and  its  subsidiaries  (other  than  the  Company  and  its
subsidiaries),  the "LSB Non-ClimaChem Entities,"  are  dependent
upon their separate cash flows and the restricted funds which can
be   distributed  by  the  Company  under  the  above   mentioned
agreements.  As  of  December  31, 1999,  the  LSB  Non-ClimaChem
Entities had a working capital deficit of $2.3 million (including
$4.7   million  of  inventories  and  $2.6  million  of  accounts
receivable), and long-term debt of $32.8 million (including  that
owed  to  the Company), $3.6 million of which is due  within  one
year. For the year ended December 31, 1999, the LSB Non-ClimaChem
Entities had a net loss of $15.9 million (including $10.0 million
associated  with  discontinued  operations),  and  used  cash  in
operating  activities  of  approximately  $2.2  million.  LSB  is
focusing its efforts and resources on its core businesses,  which
represent  that  of  the Company. LSB's Board  of  Directors  has
approved  a  plan  for  the disposal of its  Automotive  Products


                               F-16
<PAGE>

<PAGE>
                          ClimaChem, Inc.

        Notes to Consolidated Financial Statements (continued)


3. Transactions With Related Parties (continued)

Business.  The plan calls  for  management to dispose of the
Automotive  Business  through sale. LSB is also  realigning
its overhead to better match its focus on the Chemical and
Climate Control  Businesses  of  the  Company.  Based  on
these  plans, management  of  LSB believes the LSB Non-
ClimaChem Entities  will have sufficient operating capital to
meet its obligations as they come due (other than dividend
obligation under its outstanding preferred stocks), including
those to the Company. If LSB management is not successful in
executing this plan, including realignment of overhead to
reduce its operating costs or realizing certain excess and
non-core assets, and if the Company  is  not able to transfer
funds to LSB and its affiliates as permitted under the Indenture,
the recoverability of the loans and  advances to LSB, which aggre-
gate $15.7 million at December 31, 1999, may not be recoverable.
As of December 31, 1999, the  Company  has  not provided  an
allowance for doubtful accounts against these receivables,
loans and advances since it is their present belief that LSB
will be able to pay these amounts when they come due; however,
it is reasonably possible that the evaluation relative to the
amounts due from LSB and its subsidiaries could change in the
near term.

4. Business Disposed Of

On August 2, 1999, the Company sold substantially all the assets
of its wholly owned subsidiary, Total Energy Systems Limited and
its subsidiaries ("TES"), of the Chemical Business. Pursuant  to
the sale agreement, TES retained certain of its liabilities to be
liquidated  from the proceeds of the sale and from the collection
of its accounts receivables which were retained. In  connection
with the closing in August 1999, the Company received
approximately $3.6 million in net proceeds from the assets  sold,
after  paying  off  $6.4  million bank  debt  and  the  purchaser
assuming  approximately $1.1 million of debt related  to  certain
capitalized   lease   obligations.  The   Company   substantially
completed the liquidation of the assets and liabilities  retained
during the fourth quarter of 1999.

The   loss  associated  with  the  disposition  included  in  the
accompanying consolidated statements of operations for  the  year
ended  December  31,  1999 is $2.0 million and  is  comprised  of
disposition  costs of approximately $.3 million, the  recognition
in earnings  of  the  cumulative  foreign  currency   loss   of
approximately $1.1 million and approximately $.6 million  related
to the resolution of certain environmental matters.

                                  F-17
<PAGE>

<PAGE>
                            ClimaChem, Inc.

         Notes to Consolidated Financial Statements (continued)


5. Inventories

Inventories consist of:
<TABLE>
<CAPTION>
                              Finished
                           (or Purchased) Work-In-    Raw
                               Goods      Process  Materials  Total

                             __________________________________________
                                           (In Thousands)
<S>                           <C>        <C>       <C>        <C>

December 31, 1999:
  Climate Control products     $  6,260   $  3,141  $  6,581   $15,982
  Chemical products               5,015      2,362     2,413     9,790
                               _______________________________________
Total                          $ 11,275   $  5,503  $  8,994   $25,772
                               =======================================
December 31, 1998:
  Climate Control products     $  3,233   $  2,442  $  6,673    $12,348
  Chemical products              10,890      3,848    10,281     25,019
                               ________________________________________
Total                          $ 14,123   $  6,290  $ 16,954    $37,367
                               ========================================
</TABLE>
6. Property, Plant and Equipment

Property, plant and equipment, at cost, consist of:
<TABLE>
<CAPTION>
                                                  December 31,
                                                1999        1998
                                              ____________________
                                                 (In Thousands)
  <S>                                        <C>        <C>

   Land and improvements                      $  1,411   $  1,340
   Buildings and improvements (A)               11,352      8,037
   Machinery, equipment and automotive         124,459    130,951
   Furniture and fixtures                        3,968      3,277
                                              ___________________
                                               141,190    143,605
   Less accumulated depreciation                65,523     61,216
                                              ___________________
                                              $ 75,667   $ 82,389
                                              ===================
<FN>
(A)  Includes capital lease of $3,173,000 in 1999 with a related
party as discussed in Note 3.
</TABLE>

                                 F-18
<PAGE>

7. Long-Term Debt
<TABLE>
<CAPTION>
Long-term debt consists of the following:

                                                   December 31,
                                                  1999      1998
                                                 __________________
                                                   (In Thousands)
<S>                                             <C>        <C>
Secured revolving credit facility with
  interest at a base rate plus a specified
  percentage (9.0% aggregate rate at
  December 31, 1999) (A)                         $ 25,071  $ 11,793
Secured revolving credit facility                       -     5,009
10-3/4% Senior Notes due 2007 (B)                 105,000   105,000
Secured loan (C)                                    7,128     9,570
Other, with interest at rates of 6.2% to
   13.0%, most of which is secured by
   machinery and equipment                          4,989     6,559
                                                 __________________
                                                  142,188   137,931
Less current portion of long-term debt             29,644    10,460
                                                 __________________
Long-term debt due after one year                $112,544  $127,471
                                                 ==================
</TABLE>
(A)  In  December 1994, LSB and certain of its subsidiaries  (the
     "Borrowing Group") and a bank entered into a series of asset-
     based  revolving  credit facilities which  provided  for  an
     initial  term of three years. The agreement has been amended
     at  various dates since 1994 with the latest being  executed
     on  March 1, 2000. The amended agreement provides for a  $50
     million  revolving  credit facility (the  "Revolving  Credit
     Facility")   with  separate  loan  agreements   (the   "Loan
     Agreements") for the subsidiaries of the Company and for LSB
     and  its  subsidiaries  which are not  subsidiaries  of  the
     Company.  Under  the  Revolving  Credit  Facility,  LSB  and
     certain subsidiaries of LSB that are not subsidiaries of the
     Company have a right to borrow on a revolving basis,  up  to
     $2.5  million  ($2.4  million outstanding  at  December  31,
     1999). Any amounts borrowed by LSB and its subsidiaries


                                F-19
<PAGE>

<PAGE>
                           ClimaChem, Inc.

               Notes to Consolidated Financial Statements

7. Long-Term Debt (continued)

     that  are  not subsidiaries of the Company will  reduce  the
     amount  that the subsidiaries of the Company may  borrow  at
     any one time under the Revolving Credit Facility. Borrowings
     under  the Revolving Credit Facility bear an annual rate  of
     interest at a floating rate based on the lender's prime rate
     plus  1.5%  (prime rate plus .5% at December 31,  1999)  per
     annum  or,  at  the Company's option, on the lender's  LIBOR
     rate  plus  3.875% (LIBOR rate plus 2.875% at  December  31,
     1999)  per  annum. The agreement will terminate on  December
     31,  2000,  unless  the  parties  to  the  Revolving  Credit
     Facility  agree  on acceptable financial covenants  for  the
     fiscal  year beginning January 2001 on or before October  1,
     2000. The Loan Agreements also require a "permanent reserve"
     of  $5 million which reduces the Borrowing Group's borrowing
     availability. The Company may terminate the Revolving Credit
     Facility  prior to maturity; however, should the Company  do
     so,  it  would  be  required to pay  a  termination  fee  of
     $500,000.  While there is no assurance that the Company will
     be successful in extending the term of such credit facility,
     the Company believes it has a good working relationship with
     the lender and that it will be successful in extending such
     facility or replacing such facility from another lender with
     substantially the same terms during 2000.

     Each  of  the Loan Agreements specify a number of events  of
     default   and  require  the  Company  to  maintain   certain
     financial  ratios  (including  net  worth  and  an  interest
     coverage  ratio), limits the amount of capital expenditures,
     and  contains  other covenants which restrict,  among  other
     things,  (i)  the incurrence of additional  debt;  (ii)  the
     payment  of  dividends  and other distributions;  (iii)  the
     making   of  certain  investments;  (iv)  certain   mergers,
     acquisitions and dispositions; (v) the issuance  of  secured
     guarantees; and (vi) the granting of certain liens.

     Events  of  default  under  the  Revolving  Credit  Facility
     include,  among  other  things,  (i)  the  failure  to  make
     payments  of principal, interest, and fees, when  due;  (ii)
     the  failure  to perform covenants contained therein;  (iii)
     the occurrence of a change in control of LSB if any party is
     or  becomes  the beneficial owner of more than  50%  of  the
     total voting securities of LSB, except for Jack E. Golsen or
     members  of  his  immediate family; (iv) default  under  any
     material agreement or instrument (other than an agreement or



                                  F-20
<PAGE>

<PAGE>
                              ClimaChem, Inc.

            Notes to Consolidated Financial Statements (continued)

7. Long-Term Debt (continued)

     instrument evidencing the lending of money) which would have
     a   material   adverse  effect  on  the  Company   and   its
     subsidiaries which are borrowers under the Revolving  Credit
     Facility,  taken as a whole, and which is not  cured  within
     the  grace  period; (v) a default under any other  agreement
     relating  to  borrowed money exceeding certain  limits;  and
     (vi) customary bankruptcy or insolvency defaults.

     The  Revolving  Credit Facility is secured by  the  accounts
     receivable,    inventory,   proprietary   rights,    general
     intangibles, books and records, and proceeds thereof of  the
     Company.

(B)  On November 26, 1997, the Company completed the sale of $105
     million  principal amount of 10-3/4% Senior Notes  due  2007
     (the "Notes"). The Notes bear interest at an annual rate  of
     10-3/4%  payable  semiannually in  arrears  on  June  1  and
     December  1  of  each year. The Notes are  senior  unsecured
     obligations of the Company and rank pari passu in  right  of
     payment to all existing senior unsecured indebtedness of the
     Company.  The  Notes  are effectively  subordinated  to  all
     existing  and  future  senior secured  indebtedness  of  the
     Company and its subsidiaries.

     The  Notes  were  issued  pursuant to  an  Indenture,  which
     contains  certain covenants that, among other things,  limit
     the  ability  of  the Company and its subsidiaries  to:  (i)
     incur  additional  indebtedness; (ii) incur  certain  liens;
     (iii)  engage in certain transactions with affiliates;  (iv)
     make  certain  restricted payments;  (v)  agree  to  payment
     restrictions   affecting  subsidiaries;   (vi)   engage   in
     unrelated  lines  of business; or (vii) engage  in  mergers,
     consolidations  or the transfer of all or substantially  all
     of the assets of the Company to another person. In addition,
     in  the  event of certain asset sales, the Company  will  be
     required  to  use the proceeds to reinvest in the  Company's
     business,  to  repay certain debt or to  offer  to  purchase
     Notes  at 100% of the principal amount thereof, plus accrued
     and  unpaid  interest,  if  any,  thereon,  plus  liquidated
     damages, if any, to the date of purchase.


                                F-21
<PAGE>

<PAGE>
                           ClimaChem, Inc.

        Notes to Consolidated Financial Statements (continued)

7. Long-Term Debt (continued)

     Except  as described below, the Notes are not redeemable  at
     the  Company's  option  prior to  December  1,  2002.  After
     December 1, 2002, the Notes will be subject to redemption at
     the  option  of  the Company, in whole or in  part,  at  the
     redemption  prices set forth in the indenture, plus  accrued
     and  unpaid  interest thereon, plus liquidated  damages,  if
     any,  to the applicable redemption date. In addition,  until
     December  1, 2000, up to $35 million in aggregate  principal
     amount  of  Notes  are  redeemable, at  the  option  of  the
     Company,  at a price of 110.75% of the principal  amount  of
     the  Notes,  together with accrued and unpaid  interest,  if
     any,  thereon, plus liquidated damages, if any, to the  date
     of  the  redemption, with the net cash proceeds of a  public
     equity  offering;  provided,  however,  that  at  least  $65
     million  in  aggregate principal amount of the Notes  remain
     outstanding following such redemption.

     In  the  event of a Change of Control of LSB or the Company,
     holders  of  the  Notes will have the right to  require  the
     Company to repurchase the Notes, in whole or in part,  at  a
     redemption  price of 101% of the principal  amount  thereof,
     plus  accrued  and  unpaid interest, if any,  thereon,  plus
     liquidated damages, if any, to the date of repurchase.

     The  Company  is  a holding company with no material  assets
     (other  than  the  notes and accounts receivable  from  LSB,
     specified  in the accompanying consolidated balance  sheets,
     and  the Notes origination fees which have a net book  value
     of $3.3 million and $3.7 million as of December 31, 1999 and
     1998,  respectively) or material operations other  than  its
     investments   in   its  subsidiaries,  and   each   of   its
     subsidiaries  is  wholly  owned,  directly  or   indirectly.
     ClimaChem's payment obligations under the Notes  are  fully,
     unconditionally and joint and severally guaranteed by all of
     the  existing  subsidiaries of the Company,  except  for  El
     Dorado Nitrogen Company ("EDNC").

     Set   forth  below  are  condensed  consolidating  financial
     statements  of  the  Guarantor Subsidiaries,  the  Company's
     subsidiary which is not a guarantor of the Senior Notes (the
     "Non-Guarantor Subsidiary") and the Company. For all periods
     presented,  EDNC  was  the  only  Non-Guarantor  Subsidiary.
     Separate  financial statements of each Guarantor  Subsidiary
     have  not  been  provided because management has  determined
     that  they  are not material to investors. The statement  of
     operations  for  1997  has not been  presented  because  the
     operations    of    the   non-guarantor   subsidiary    were
     inconsequential.


                                 F-22
<PAGE>

<PAGE>
                             ClimaChem, Inc.

        Notes to Consolidated Financial Statements (continued)

7. Long-Term Debt (continued)
<TABLE>
<CAPTION>

                           Consolidating Balance Sheet
                             As of December 31, 1999
                             (Dollars in thousands)

                                                      Non-
                                    Guarantor       Guarantor     Company
                                   Subsidiaries    Subsidiary     (Parent)     Eliminations     Consolidated
                                   _________________________________________________________________________
<S>                                <C>             <C>            <C>         <C>               <C>
Assets
Current assets:
   Cash                             $    816        $    703       $  1,154                       $   2,673
   Trade accounts receivable, net     39,709           2,215             10                          41,934
   Inventories                        25,594             178              -                          25,772
   Supplies and prepaid items          3,306              83            925                           4,314
   Due from LSB and affiliates, net        -               -          2,263                           2,263
                                    ________________________________________________________________________
          Total current assets        69,425           3,179          4,352                          76,956


Property, plant and equipment, net    75,158             509              -                          75,667
Due from LSB and affiliates                -               -         13,443                          13,443
Investment in and advances to
   affiliates                              -               -         91,011        $ (91,011)             -
Other assets, net                     12,353           2,004          3,655                          18,012
                                    _______________________________________________________________________
                                    $156,936        $  5,692       $112,461        $ (91,011)      $184,078
                                    =======================================================================
Liabilities and stockholders' equity
Current liabilities:
  Accounts payable                  $ 14,793        $  1,519       $      -                        $ 16,312
  Accrued liabilities                  9,873           2,592          1,326                          13,791
  Current portion of long-term debt   29,644               -              -                          29,644
                                    _______________________________________________________________________
         Total current liabilities    54,310           4,111          1,326                          59,747

Long-term debt                         7,544               -        105,000                         112,544
Accrued losses on firm
  purchase commitments                 5,652               -              -                           5,652
Payable to Parent                     15,515              66              -          $(15,581)            -


Stockholders' equity:
  Common stock                            60                1             1               (61)            1
  Capital in excess of par value      78,984                -        12,652           (78,984)       12,652
  Retained earnings (accumulated
    deficit)                          (5,129)           1,514        (6,518)            3,615        (6,518)
                                     ______________________________________________________________________
Total stockholders' equity            73,915            1,515         6,135           (75,430)        6,135
                                     ______________________________________________________________________
                                    $156,936        $   5,692      $112,461          $(91,011)     $184,078
                                     ======================================================================
</TABLE>

                                   F-23
<PAGE>

<PAGE>
                              ClimaChem, Inc.

           Notes to Consolidated Financial Statements (continued)


7. Long-Term Debt (continued)
<TABLE>
<CAPTION>
                           Consolidating Balance Sheet
                             As of December 31, 1998
                             (Dollars in thousands)


                                                       Non-
                                      Guarantor      Guarantor      Company
                                    Subsidiaries     Subsidiary     (Parent)     Eliminations     Consolidated
                                    __________________________________________________________________________
<S>                                  <C>              <C>           <C>          <C>              <C>
Assets
Current assets:
  Cash                                $    744         $     2       $     4                        $    750
  Trade accounts receivable, net        37,008           1,809             -                          38,817
  Inventories                           37,367               -             -                          37,367
  Supplies and prepaid items             6,704             259            60                           7,023
  Income tax receivable                      -               -         2,050                           2,050
  Current deferred income taxes          1,338               -             -                           1,338
  Due from LSB and affiliates, net           -               -         2,946                           2,946
                                      ______________________________________________________________________
          Total current assets          83,161           2,070         5,060                          90,291


Property, plant and equipment, net      82,389               -             -                          82,389
Due from LSB and affiliates                  -               -        13,443                          13,443
Investment in and advances to
   affiliates                                -               -       110,686         $(110,686)            -
Other assets, net                        4,641           1,858         3,981                          10,480
                                      _______________________________________________________________________
                                      $170,191        $  3,928      $133,170         $(110,686)     $196,603
                                      =======================================================================

Liabilities and stockholders' equity
Current liabilities:
  Accounts payable                    $ 15,695        $  1,708       $     13                        $ 17,416
  Accrued liabilities                    5,078               -          2,840                           7,918
  Current portion of long-term debt     10,460               -              -                          10,460
                                      _______________________________________________________________________
          Total current liabilities     31,233           1,708          2,853                          35,794

Long-term debt                          22,471               -        105,000                         127,471
Deferred income taxes                    9,580               -              -                           9,580
Payable to Parent                       26,031           2,079              -          (28,110)             -

Stockholders' equity:
  Common stock                             60                1              1              (61)             1
  Capital in excess of par value       72,797                -         12,652          (72,797)        12,652
  Accumulated other comprehensive
    loss                               (1,559)               -              -                          (1,559)
  Retained earnings                     9,578              140         12,664           (9,718)        12,664
                                     ________________________________________________________________________
Total stockholders' equity             80,876              141         25,317          (82,576)        23,758
                                     ________________________________________________________________________
                                     $170,191         $  3,928       $133,170        $(110,686)      $196,603
                                     =========================================================================

</TABLE>
                                         F-24
<PAGE>

<PAGE>
                                    ClimaChem, Inc.

                  Notes to Consolidated Financial Statements (continued)


7. Long-Term Debt (continued)
<TABLE>
<CAPTION>

                      Consolidating Statement of Operations
                          Year ended December 31, 1999
                             (Dollars in thousands)

                                                    Non-
                                 Guarantor       Guarantor      Company
                                Subsidiaries     Subsidiary     (Parent)     Eliminations     Consolidated
                               ___________________________________________________________________________
<S>                            <C>             <C>            <C>            <C>               <C>
Business continuing at
  December 31, 1999
Revenues:
  Net sales                      $225,956        $ 18,397       $    109                         $244,462
  Other income (expense)            1,467            (373)         9,965       $ (8,566)            2,493
                               ___________________________________________________________________________
                                  227,423          18,024         10,074         (8,566)          246,955

Costs and expenses:
  Cost of sales                   179,862          15,594            639                          196,095
  Selling, general and
    administrative                 41,367             254          3,997                           45,618
  Interest                         11,477              62         11,287         (8,566)           14,260
  Provisions for losses on firm
    purchase commitments            8,439               -             -                             8,439
  Provisions for impairment on
    long-lived assets               3,913               -             -                             3,913
                               ___________________________________________________________________________
                                  245,058          15,910        15,923          (8,566)          268,325
                               ____________________________________________________________________________
Income (loss) before business
  disposed of and provisions
  (benefit) for income taxes      (17,635)          2,114        (5,849)              -           (21,370)

Business disposed of during 1999:
  Revenues                          7,461               -             -                             7,461
  Operating costs, expenses and
    interest                        9,419               -             -                             9,419
                               ___________________________________________________________________________
                                   (1,958)              -             -               -            (1,958)
Loss on disposal of business       (1,971)              -             -               -            (1,971)
                               ___________________________________________________________________________
                                   (3,929)              -             -               -            (3,929)
                               ___________________________________________________________________________
Income (loss) before equity
  in loss of subsidiaries and
  provision (benefit) for
  income taxes                    (21,564)          2,114        (5,849)              -           (25,299)


Equity in loss of subsidiaries        -                 -       (13,333)         13,333                 -
Provision (benefit) for
  income taxes                   (6,857)              740             -                            (6,117)
                               ____________________________________________________________________________
Net income (loss)              $(14,707)         $  1,374      $(19,182)       $ 13,333          $ (19,182)
                               ============================================================================
</TABLE>


                                   F-25


<PAGE>

<PAGE>
                              ClimaChem, Inc.

         Notes to Consolidated Financial Statements (continued)

7. Long-Term Debt (continued)
<TABLE>
<CAPTION>
                      Consolidating Statement of Operations
                          Year ended December 31, 1998
                             (Dollars in thousands)


                                                   Non-
                                 Guarantor       Guarantor      Company
                                Subsidiaries     Subsidiary     (Parent)     Eliminations     Consolidated
                               ___________________________________________________________________________
<S>                            <C>              <C>            <C>           <C>              <C>
Business continuing at
  December 31, 1998
Revenues:
  Net sales                      $241,546         $     -       $      -                         $241,546
  Other income (expense)              146               -         12,298       $(10,976)            1,468
                                 _________________________________________________________________________
                                  241,692               -         12,298        (10,976)          243,014

Costs and expenses:
  Cost of sales                   190,722               -              -                          190,722
  Selling, general and
    administrative                 37,489               -            616                           38,105
  Interest expense                 13,151               -         11,288        (10,976)           13,463
                                 _________________________________________________________________________
                                  241,362               -         11,904        (10,976)          242,290
                                 _________________________________________________________________________
Income before business
  disposed of and provisions
  for income taxes                   330                -            394              -               724

Business to be disposed of
  during 1999:
    Revenues                      14,184                -             -                            14,184
    Operating costs, expenses
      and interest                17,085                -             -                            17,085
                                 ________________________________________________________________________
                                  (2,901)               -             -                            (2,901)
                                 ________________________________________________________________________
Income (loss) before
  provision for income taxes      (2,571)               -           394                            (2,177)


Equity in loss of subsidiaries         -                -        (2,781)          2,781                  -
Provision for income taxes           210                -           182                                392
                                  ________________________________________________________________________
Net income (loss)               $ (2,781)          $    -      $ (2,569)        $ 2,781          $ (2,569)
                                  =========================================================================
</TABLE>


                                        F-26

<PAGE>

<PAGE>
                                    ClimaChem, Inc.

                Notes to Consolidated Financial Statements (continued)

7. Long-Term Debt (continued)
<TABLE>
<CAPTION>

                 Condensed Consolidating Statement of Cash Flows
                          Year ended December 31, 1999
                             (Dollars in thousands)

                                                          Non-
                                         Guarantor     Guarantor     Company
                                       Subsidiaries    Subsidiary    (Parent)    Eliminations    Consolidated
                                      _______________________________________________________________________
<S>                                    <C>             <C>           <C>           <C>             <C>
Cash flows provided (used) by
  operating activities                  $  4,180        $  3,538     $ (6,037)                      $  1,681

Cash flows from investing activities:
  Capital expenditures                    (6,179)           (509)           -                         (6,688)
  Payments made for acquisition
    of limited partner interest
    in business                           (3,114)              -            -                         (3,114)
  Purchase of receivable and
    option to acquire business            (2,558)              -            -                         (2,558)
  Proceeds from sale of equipment          1,045               -            -                          1,045
  Proceeds from the sale of
    business disposed of                   9,981               -            -                          9,981
  Increase in other assets                  (467)           (315)         (88)                          (870)
                                      _______________________________________________________________________
Net cash used by investing activities:    (1,292)           (824)         (88)                        (2,204)

Cash flows from financing activities:
  Payments on long-term debt              (6,867)              -            -                         (6,867)
  Net change in revolving debt             8,269               -            -                          8,269
  Net change in due to/from LSB
    and affiliates                        (4,218)         (2,013)       7,275                          1,044
                                      _______________________________________________________________________
Net cash provided (used) by
  financing activities                    (2,816)         (2,013)       7,275                          2,446
                                      _______________________________________________________________________
Net increase in cash from all
  activities                                 72              701        1,150                          1,923

Cash at the beginning of period             744                2            4                            750
                                      _______________________________________________________________________
Cash at the end of period              $    816         $    703     $  1,154                       $  2,673
                                      =======================================================================
</TABLE>
                                       F-27
<PAGE>

<PAGE>
                                    ClimaChem, Inc.

                 Notes to Consolidated Financial Statements (continued)

7. Long-Term Debt (continued)
<TABLE>
<CAPTION>

                 Condensed Consolidating Statement of Cash Flows
                          Year ended December 31, 1998
                             (Dollars in thousands)

                                                            Non-
                                           Guarantor      Guarantor    Company
                                         Subsidiaries    Subsidiary    (Parent)    Eliminations    Consolidation
                                        ________________________________________________________________________
<S>                                     <C>              <C>           <C>          <C>             <C>
Cash flows provided (used) by
  operating activities                    $  3,298         $   (369)    $    933                     $  3,862

Cash flows from investing activities:
  Capital expenditures                      (7,418)               -            -                       (7,418)
  Proceeds from sale of equipment               65                -            -                           65
  Decrease (increase) in other assets        1,797           (1,991)        (878)                      (1,072)
                                         _____________________________________________________________________
Net cash used by investing activities       (5,556)          (1,991)        (878)                      (8,425)

Cash flows from financing activities:
  Payments on long-term debt                (4,690)               -            -                       (4,690)
  Long-term and other borrowing               (583)               -            -                         (583)
  Net change in revolving debt               6,348                -            -                        6,348
  Net change in due to/from LSB
    and affiliates                          (1,966)           2,317          759                        1,110
  Dividends paid to parent                       -                -         (406)                        (406)
                                         ____________________________________________________________________
Net cash provided (used) by
  financing activities                        (891)           2,317          353                        1,779
                                         ____________________________________________________________________
Net increase (decrease) in
  cash from all activities                  (3,149)             (43)         408                       (2,784)

Cash at the beginning of period              3,893               45         (404)                       3,534
                                         _____________________________________________________________________
Cash at the end of period                 $    744          $     2    $       4                     $    750
                                         =====================================================================

</TABLE>

     In  February  1997, certain subsidiaries  of  the  Company's
     Chemical  Business  entered into  a  $50  million  financing
     arrangement  with  John  Hancock. The financing  arrangement
     consisted of $25 million of fixed rate notes and $25 million
     of  floating rate notes. In connection with the issuance  of
     the   Notes,  a  subsidiary  of  the  Company  retired   the
     outstanding  principal  associated  with  the  John  Hancock
     financing  arrangement and incurred a  prepayment  fee.  The
     prepayment  fee paid and loan origination costs expensed  in
     1997  related  to  the  John Hancock  financing  arrangement
     aggregated $4,619,000 ($2,869,000 net of income tax  benefit
     of $1,750,000).


                                  F-28
<PAGE>

<PAGE>
                              ClimaChem, Inc.

           Notes to Consolidated Financial Statements (continued)

7.  Long-Term Debt (continued)

(C)  This  agreement,  as amended, between a  subsidiary  of  the
     Company and an institutional lender provides for a loan, the
     proceeds of which were used in the construction of a nitric
     acid  plant,  in  the  aggregate  amount  of  $16.5  million
     requiring  84  equal  monthly  payments  of  principal  plus
     interest,  with  interest at a fixed rate of  8.86%  through
     maturity  in 2002. This agreement is secured by  the  plant,
     equipment  and machinery, and proprietary rights  associated
     with  the  plant which has an approximate carrying value  of
     $27.1 million at December 31, 1999.

     This agreement, as amended, contains covenants (i) requiring
     maintenance  of  an  escalating  tangible  net  worth,  (ii)
     restricting distributions and dividends from a subsidiary of
     the Company to the Company to 50% of the subsidiary's annual
     net  income,  as  defined,  (iii) restricting  a  change  of
     control of the Company and (iv) requiring maintenance  of  a
     debt to tangible net worth ratio. At December 31, 1999,  the
     lender  had waived compliance of certain financial covenants
     through September 30, 2000. In March 2000, the subsidiary of
     the  Company  obtained a waiver of these  covenants  through
     April 2001.

Maturities of long-term debt for each of the five years after
December 31, 1999 are as follows: (in thousands)  2000-$29,644;
2001-$5,782; 2002-$374; 2003-$366; 2004-$195 and thereafter-
$105,827.

8. Income Taxes
<TABLE>
<CAPTION>
The provision (benefit) for income taxes consists of:

                                         Year ended December 31,
                                         1999      1998      1997
                                      _____________________________
                                             (In Thousands)
<S>                                 <C>          <C>        <C>

   Current:
     Federal                         $     -      $ 35       $1,027
     State                                75         6          193
                                     ______________________________
                                          75        41        1,220

   Deferred:
     Federal                          (5,297)      299          178
     State                              (895)       52           31
                                     ______________________________
                                      (6,192)      351          209
                                     ______________________________
   Provision (benefit) for income
    taxes                            $(6,117)     $392       $1,429
                                     ==============================
</TABLE>

                                 F-29
<PAGE>

<PAGE>
8. Income Taxes (continued)
<TABLE>
<CAPTION>
The approximate tax effects of each type of temporary difference
and carryforward that are used in computing deferred tax assets
and liabilities and the valuation allowance related to deferred
tax assets at December 31, 1999 and 1998 are as follows:

                                                         December 31,
                                                        1999      1998
                                                      __________________
                                                       (In Thousands)

<S>                                                   <C>       <C>
Deferred tax liabilities
Accelerated depreciation used for tax purposes        $ 9,360    $10,174
Inventory basis difference resulting from a
  business combination                                  2,133      2,133
Other                                                      90         69
                                                      __________________
Total deferred tax liabilities                         11,583     12,376

Deferred tax assets
Accounts and accruals not deductible for tax purposes:
  Accrued liabilities                                   3,723        406
  Allowances for doubtful accounts and notes
    receivable                                          1,589      1,691
  Other                                                 1,792        433
Capitalization of certain costs as inventory
  for tax purposes                                      1,064      1,604
Net operating loss carryforward                         5,361          -
                                                      __________________
Total deferred tax assets                              13,529      4,134
  Valuation allowance                                   1,946          -
                                                      __________________
Total deferred tax assets                              11,583      4,134
                                                      __________________
Net deferred tax liabilities                          $     -    $ 8,242
                                                      ==================
</TABLE>


                                   F-30
<PAGE>

<PAGE>
                               ClimaChem, Inc.

           Notes to Consolidated Financial Statements (continued)

8. Income Taxes (continued)
<TABLE>
<CAPTION>
The provision for income taxes differs from the amount  computed
by applying the federal statutory rate to "Income (loss)  before
provision for income taxes and extraordinary charge" due  to  the
following:

                                            Year ended December 31,
                                           1999      1998      1997
                                         _____________________________
                                                 (In Thousands)
<S>                                     <C>        <C>         <C>

Provision (benefit) for income taxes
  at federal statutory rate              $(8,855)   $(762)      $814
State income taxes                          (820)      38        146
Amortization of excess of purchase
  price over net assets acquired             120      120        120
Foreign subsidiary loss                    1,375    1,016        270
Change in valuation allowance              1,946        -          -
Other                                        117      (20)        79
                                         ___________________________
Provision (benefit) for income taxes     $(6,117)   $  392    $1,429
                                         ===========================
</TABLE>
At December 31, 1998, the Company had an income tax receivable of
approximately  $2.05  million, including $1.75 million  associated
with  the  extraordinary charge discussed in Note 7  -  Long-term
Debt. In 1999, the income tax receivable was reclassified to non-
current  deferred income taxes because the amount is expected  to
be  realized through offset against future tax liabilities of the
Company under its tax sharing agreement with LSB.

9. Stockholders' Equity

Stock Options

Certain employees of the Company, including members of management
of LSB devoting time to the Company, participate in the incentive
stock option plans of LSB (the "Stock Option Plans"). As a result
thereof,  the Company has elected to follow Accounting Principles
Board  Opinion No. 25, "Accounting for Stock Issued to Employees"


                                   F-31
<PAGE>

                              ClimaChem, Inc.

          Notes to Consolidated Financial Statements (continued)

9. Stockholders' Equity (continued)

("APB 25") and related interpretations in accounting for such employee
stock options because, as  discussed below,  the alternative fair value
accounting provided for  under FASB Statement No. 123, "Accounting for
Stock-Based Compensation," requires use of option valuation models that
were not  developed  for use in valuing employee stock options.  Under
APB  25, because the exercise price of the employee stock options
equals  the market price of the underlying LSB stock on the  date
of grant, no compensation expense is recognized.

Pro  forma  information  regarding  net  income  is  required  by
Statement  123,  which  also requires  that  the  information  be
determined  as  if  the Company has accounted for  such  employee
stock  options granted subsequent to December 31, 1994 under  the
fair  value  method of that Statement. The fair value  for  these
options was estimated by LSB at the date of grant using a  Black-
Scholes  option pricing model with the following weighted average
assumptions  for  1999 and 1998, respectively  (none  granted  in
1997):  risk-free interest rates of 6.04% and 5.75%;  a  dividend
yield  of .0% and .5%; a volatility factor of the expected market
price  of  LSB's  common stock of .48 and  .57;  and  a  weighted
average expected life of the option of 6.9 and 8 years.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions  and  are fully transferable.  In  addition,  option
valuation   models   require  the  input  of  highly   subjective
assumptions   including  the  expected  stock  price  volatility.
Because   the   employee   stock  options  have   characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect
the  fair  value estimate, in management's opinion, the  existing
models  do  not necessarily provide a reliable single measure  of
the fair value of such employee stock options.
<TABLE>
<CAPTION>
For  purposes of pro forma disclosures, the estimated fair  value
of  the  qualified  options  is amortized  to  expense  over  the
options'  vesting  period. The Company's  pro  forma  information
follows:

                                        Year ended December 31,
                                       1999      1998      1997
                                    _______________________________
                                             (In Thousands)
    <S>                            <C>         <C>        <C>

     Pro forma net loss             $(26,007)   $(3,208)   $(2,381)
</TABLE>
Because  Statement  123  is applicable only  to  options  granted
subsequent  to  December 31, 1994, its pro forma effect  was  not
fully reflected until 1998.

                                 F-32
<PAGE>

<PAGE>
9. Stockholders' Equity (continued)

Qualified Stock Option Plan

At December 31, 1999, there are 610,000 options outstanding under
the  Qualified  Stock Option Plans related to  employees  of  the
Company  and  members  of LSB management  devoting  time  to  the
Company. These options become exercisable 20% after one year from
date  of grant, 40% after two years, 70% after three years,  100%
after  four years and lapse at the end of ten years. The exercise
price  of options to be granted under this plan is equal  to  the
fair market value of LSB's common stock at the date of grant.

On  April 22, 1998, the Company terminated 85,000 qualified stock
options  (the  "terminated  options"),  previously  granted   and
replaced  the terminated options with newly granted options  (the
"replacement options"). The replacement options were  granted  at
the  fair market value of the Company's stock on April 22,  1998,
have a life and vesting schedule based on the terminated options.
<TABLE>
<CAPTION>
Activity  in the Qualified Stock Option Plans related to  Company
employees  and  members of LSB management devoting  time  to  the
Company  during  each  of the three years  in  the  period  ended
December 31, 1999 is as follows:
                                  1999                1998                 1997
                            _________________   __________________  __________________
                                     Weighted            Weighted             Weighted
                                      Average             Average             Average
                                      Exercise            Exercise            Exercise
                             Shares    Price     Shares    Price    Shares     Price
                            __________________________________________________________
<S>                        <C>        <C>      <C>        <C>       <C>       <C>
Outstanding at
  beginning of year         462,550    $4.39    519,550    $4.39    549,050    $4.32
Granted                     579,500     1.29     85,000     4.19          -        -
Exercised                         -        -    (55,000)    1.13    (29,500)    3.01
Canceled, forfeited
  or expired                 (5,000)    1.25    (87,000)    6.15          -        -
                           ________             ________             ________
Outstanding at end
  of year                 1,037,500     2.68    462,550     4.39     519,550    4.39
                          =========             ========             ========

Exercisable at end
  of year                   313,000    $4.02    248,750    $4.43     170,450    $3.96
                          =========            ========              ========

Weighted average fair
  value of options
  granted during year                  $ .71               $2.22                 $  -
</TABLE>

                                                F-33

<PAGE>

<PAGE>
                                            ClimaChem, Inc.

                     Notes to Consolidated Financial Statements (continued)

9. Stockholders' Equity (continued)

Outstanding  options  to acquire 1,015,050  shares  of  stock  at
December 31, 1999 had exercise prices ranging from $1.25 to $4.88
per share (294,000 of which are exercisable at a weighted average
price  of  $4.19  per share) and had a weighted average  exercise
price of $2.57 and remaining contractual life of 6.41 years.  The
balance  of options outstanding at December 31, 1999 had exercise
prices ranging from $5.36 to $9.00 per share (19,000 of which are
exercisable at a weighted average price of $8.04 per share) and a
weighted   average   exercise  price  of  $7.68   and   remaining
contractual life of 2.64 years.

Non-qualified Stock Options Plans

Certain  outside  directors  and certain  key  employees  of  the
Company participate in LSB's Non-qualified Stock Option Plan. The
exercise  prices of the options are based on the market value  of
LSB's  common  stock  at the date of grant.  These  options  have
vesting terms and lives specific to each grant but generally vest
over  48 months and expire five or ten years from the grant  date
(except for the 1998 grants discussed below).

In  1999,  the LSB Board of Directors granted 100,000 options  to
employees,  60,000  options  to  outside  directors  and  207,000
options to employee-directors of the Company at the price equiva-
lent to LSB's stock price at the date of grant. The options vest
over 48 months and have contractual lives of either five or ten
years. In  1998,  the  LSB Board of Directors granted employees
of the Company  175,000 stock options, at the price equivalent to
LSB's stock  price  at the date of grant. Options to two key
employees for 100,000 shares have a nine-year vesting schedule
while the remaining 75,000 vest over 48 months. These options
expire ten years from the date of grant.  During 1998, the Company
granted 52,500 options (none in 1997 or 1996), respectively, under
LSB's Outside Director Plan. The granted options vested over six
months and expire ten years from the date of grant. In 1997, the
LSB Board of Directors granted employees of the Company 50,000
options that vest over 60 months and expire ten years from the
date of grant.


                               F-34
<PAGE>

<PAGE>
                          ClimaChem, Inc.

         Notes to Consolidated Financial Statements (continued)

9. Stockholders' Equity (continued)
<TABLE>
<CAPTION>
Activity  in  the  Non-qualified Stock Option  Plans  related  to
Company  employees  and  members of LSB management  or  directors
devoting  time to the Company during each of the three  years  in
the period ended December 31, 1999 is as follows:


                                    1999              1998                1997
                              _________________  ________________  __________________
                                       Weighted          Weighted            Weighted
                                        Average          Average             Average
                                       Exercise          Exercise            Exercise
                              Shares    Price    Shares    Price    Shares    Price
                              _______________________________________________________
<S>                          <C>       <C>       <C>     <C>        <C>      <C>
Outstanding at beginning
  of year                      343,750   $3.80    116,250   $3.03     66,250   $2.15
Granted                        367,000    1.30    227,500    4.19     50,000    4.19
Surrendered, forfeited,
  or expired                   (49,250)   2.88          -       -          -       -
                              ________            _______            _______
Outstanding at end
  of year                      661,500    2.55    343,750     3.80   116,250     3.03
                              ========           ========           ========
Exercisable at end
  of year                      100,000   $3.49    118,750    $3.05    49,750    $2.00
                              ========           ========           ========
Weighted average fair
  value of options
  granted during year                    $ .69               $2.61              $2.00

</TABLE>

Outstanding  options  to  acquire  392,000  shares  of  stock  at
December  31,  1999  had exercise prices ranging  from  $1.25  to
$1.375  per  share  all of which are exercisable  at  a  weighted
average  exercise price of $1.31 and have a remaining contractual
life  of  7.08  years.  The  balance of  options  outstanding  at
December 31, 1999 had exercise prices ranging from $4.13 to $4.25
per  share (none of which are exercisable) and a weighted average
exercise  price of $4.19 and remaining contractual life  of  8.23
years.

10. Commitments and Contingencies

Operating Leases

The  Company  leases certain property, plant and equipment  under
operating  lease  agreements from related parties  (Note  3)  and
others.  The  Company also leases certain precious  metals  under

                                 F-35
<PAGE>

<PAGE>
                               ClimaChem, Inc.

          Notes to Consolidated Financial Statements (continued)


10. Commitments and Contingencies (continued)

operating lease agreements from an unrelated third party.  Future
annual  minimum  payments on operating  leases  with  initial  or
remaining terms of one year or more at December 31, 1999  are  as
follows:

                                       Related
                                       Parties          Others
                                       _______________________
                                            (In Thousands)

          2000                         $1,790         $ 9,965
          2001                          1,177           9,713
          2002                          1,177           9,405
          2003                          1,141           8,783
          2004                            666          13,964
          After 2004                    3,888          39,825
                                       ______        ________
                                       $9,839        $ 91,655
                                       ======        ========

Rent  expense  under  all operating lease  agreements,  including
month-to-month  leases, was $9,880,000 in  1999,  $3,903,000  in
1998  and $4,104,000 in 1997. Renewal options are available under
certain   of   the  lease  agreements  for  various  periods   at
approximately the existing annual rental amounts.

Nitric Acid Project

The  Company's wholly owned subsidiary, EDNC, operates  a  nitric
acid  plant  (the  "Baytown  Plant") at  Bayer's  Baytown,  Texas
chemical facility in accordance with a series of agreements  with
Bayer    Corporation   ("Bayer")   (collectively,   the    "Bayer
Agreement").  Under  the Bayer Agreement, EDNC  converts  ammonia
supplied   by  Bayer  in  nitric  acid  based  on  a  cost   plus
arrangement.  Under  the terms of the Bayer  Agreement,  EDNC  is
leasing  the Baytown Plant pursuant to a leveraged lease from  an
unrelated  third party with an initial lease term of  ten  years.
The schedule of future minimum payments on operating leases above
includes  $7,664,000 in 2000, $7,665,000 in 2001,  $7,665,000  in
2002,  $7,666,000 in 2003, $13,001,000 in 2004,  and  $35,707,000
after  2004 related to lease payments on the EDNC Baytown  Plant.
Upon expiration of the initial ten-year term, the Bayer Agreement
may  be  renewed for up to six renewal terms of five years  each;
however, prior to each renewal period, either party to the  Bayer
Agreement may opt against renewal.


                                  F-36
<PAGE>

10. Commitments and Contingencies (continued)

Purchase Commitments

As  of  December 31, 1999, the Chemical Business has a  long-term
commitment to purchase anhydrous ammonia. The commitment requires
the Company to take or pay for a minimum volume of 2,000 tons  of
anhydrous ammonia during each month of fiscal 2000 and 3,000 tons
per  month  in  2001  and 2002. The Company's purchase  price  of
anhydrous ammonia under this contract can be higher or lower than
the  current market spot price of anhydrous ammonia. The  Company
has also committed to purchase 50% of its remaining quantities of
anhydrous  ammonia through 2002 from this third party  at  prices
which approximate market. See Note 12 - Inventory Write-down  and
Loss  on  Firm  Purchase Commitment. During  1999,  the  Chemical
Business   terminated  two  other  anhydrous   ammonia   purchase
contracts  at no cost which otherwise were not scheduled  to  end
until  June  2000 and December 2000 by their terms. Purchases  of
anhydrous  ammonia under these three contracts aggregated $21.9
million  in  1999 ($31.9 million and $40.1 million  in  1998
and 1997, respectively). The Company also enters into agreements
with suppliers  of raw material which require the Company  to
provide finished goods in exchange therefore. The Company did not
have a significant  commitment  to  provide  finished  goods  with
its suppliers under the exchange agreements at December 31, 1999.
At December 31, 1999 the Company has a standby  letter  of  credit
outstanding related to its Chemical Business of $3.5 million.

A  subsidiary of the Company leases certain precious  metals  for
use  in the subsidiary's manufacturing process. The agreement  at
December  31, 1999 requires rentals generally based on 25.25%  of
the  leased  metals'  market values, except  for  platinum,  from
December  2,  1999 through December 1, 2000, contract expiration.
The  agreement  also requires rentals of $440 per ounce  for  the
usage of platinum.

In July 1995, the Company entered into a product supply agreement
with  a  third  party  whereby the Company is  required  to  make
minimum  monthly facility fee and other payments which  aggregate
$71,965.  In return for this payment, the Company is entitled  to
certain  quantities of compressed oxygen produced  by  the  third
party.  Except in circumstances as defined by the agreement,  the
monthly  payment  is  payable  regardless  of  the  quantity   of
compressed  oxygen  used  by  the  Company.  The  term  of   this
agreement, which has been included in the above minimum operating
lease commitments, is for a term of 15 years; however, after  the
agreement  has  been  in effect for 60 months,  the  Company  can
terminate the agreement without cause at a cost of approximately
$4.5 million.  Based  on  the  Company's estimate of compressed

                                F-37
<PAGE>

<PAGE>
                            ClimaChem, Inc.

        Notes to Consolidated Financial Statements (continued)

10. Commitments and Contingencies (continued)

oxygen demands of the plant, the  cost of the oxygen  under this
agreement is expected  to be favorable compared  to floating  market
prices.  Purchases under this agreement  aggregated $912,000, $938,000
and  $938,000  in  1999, 1998 and 1997, respectively.

Legal Matters

Following  is  a summary of certain legal actions  involving  the
Company:

A.   On  February 12, 1996, the Chemical Business entered into  a
     Consent Administrative Agreement ("Administrative Agreement")
     with the state of Arkansas to resolve  certain compliance
     issues associated with nitric acid concentrators which was
     amended in January 1997.  Pursuant to the Administrative
     Agreement, as amended, the Chemical Business installed
     additional pollution control equipment.   The Chemical
     Business believes that the El Dorado Plant has made
     progress in controlling certain off-site emissions; however,
     such  off-site emissions have occurred and may continue from
     time  to  time,  which  could result in  the  assessment  of
     additional penalties against the Chemical Business.

     During  May  1997,  approximately 2,300 gallons  of  caustic
     material  spilled when a valve in a storage  vessel  failed,
     which  was released to a stormwater drain, and according  to
     ADPC&E  records, resulted in a minor fish kill in a drainage
     ditch  near  the  El  Dorado Plant. In  1998,  the  Chemical
     Business entered into a Consent Administrative Order  ("1998
     CAO")  to resolve the event. The 1998 CAO includes  a  civil
     penalty in the amount of $183,700 which includes $125,000 to
     be  paid  over  five  years  in the  form  of  environmental
     improvements  at the El Dorado Plant. The remaining  $58,700
     was  paid  in 1998. The 1998 CAO also requires the  Chemical
     Business  to undertake a facility-wide wastewater evaluation
     and   pollutant   source  control  program  and   wastewater
     minimization   program.  The  program  requires   that   the
     subsidiary  complete rainwater drain-off  studies  including
     engineering  design  plans  for additional  water  treatment
     components  to  be  submitted to the State  of  Arkansas  by
     August  2000.  The  construction  of  the  additional  water
     treatment components is required to be completed by August
     2001 and the El Dorado plant has been mandated to be in
     compliance with the final effluent limits on or before
     February 2002.  The aforementioned compliance deadlines,
     however, are not scheduled to commence until after the State
     of Arkansas has issued a renewal permit establishing new,

                              F-38
<PAGE>

                             ClimaChem, Inc.

       Notes to Consolidated Financial Statements (continued)

10. Commitments and Contingencies (continued)

     more  restrictive effluent limits.  Alternative  methods
     for  meeting  these  requirements  are continuing to be
     examined by the Chemical  Business.  The Company  believes,
     although there can be no assurance, that any such new
     effluent limits would not  have  a  material adverse effect
     on the Company. The Wastewater Consent Order provides that
     the State of Arkansas will make every  effort to issue the
     renewal permit by December 1, 1999. The State of Arkansas
     has delayed issuance of the permit. Because the Wastewater
     Consent Order provides that the compliance deadlines may
     be extended for circumstances beyond the reasonable control
     of the Company, and because the State of Arkansas has not
     yet issued the renewal permit, the Company does not believe
     that failure to meet the  aforementioned compliance deadlines
     will present a material adverse impact.  The State of Arkansas
     has been advised that the Company is seeking financing from
     Arkansas authorities for the projects required to comply with
     the Wastewater Consent Order and the Company has requested
     that the permit be further delayed until financing arrange-
     ments can be made, which requests have been met to date.
     The wastewater program is currently expected to require
     future capital expenditures of approximately $10.0 million.
     Negotiations for securing financing are currently underway.
     The Company believes, although there can be no assurance,
     that the renewal permit will continue to be delayed, and
     that financing can be secured under terms that will not
     have a material adverse effect on the  Company.  Construction
     of the wastewater treatment project is subject to the Company
     obtaining financing to fund this project. There are no assurances
     that the Company will be able to obtain the required  financing.
     Failure to construct the wastewater treatment facility could
     have a material adverse effect on the Company.

B.   A civil cause of action has been filed against the Company's
     Chemical  Business  and five (5) other unrelated  commercial
     explosives   manufacturers  alleging  that  the   defendants
     allegedly violated certain federal and state antitrust  laws
     in connection with alleged price fixing of certain explosive
     products. The plaintiffs are suing for an unspecified amount
     of  damages,  which,  pursuant to  statute,  plaintiffs  are
     requesting  be trebled, together with costs.  Based  on  the
     information presently available to the Company, the  Company
     does  not believe that the Chemical Business conspired  with
     any  party, including but not limited to, the five (5) other
     defendants,  to fix prices in connection with  the  sale  of
     commercial explosives. Discovery has only recently commenced
     in  this matter. The Chemical Business intends to vigorously
     defend itself in this matter.

                                 F-39
<PAGE>

                             ClimaChem, Inc.

       Notes to Consolidated Financial Statements (continued)

10. Commitments and Contingencies (continued)

     The  Company's  Chemical  Business  has  been  added  as   a
     defendant  in  a separate lawsuit pending in Missouri.  This
     lawsuit alleges a national conspiracy, as well as a regional
     conspiracy, directed against explosive customers in Missouri
     and   seeks  unspecified  damages.  The  Company's  Chemical
     Business has been included in this lawsuit because  it  sold
     products  to  customers in Missouri during a time  in  which
     other  defendants  have  admitted  to  participating  in  an
     antitrust  conspiracy, and because it has been sued  in  the
     preceding   described  lawsuit.  Based  on  the  information
     presently  available to the Company, the  Company  does  not
     believe that the Chemical Business conspired with any party,
     to  fix  prices  in connection with the sale  of  commercial
     explosives.  The  Chemical Business  intends  to  vigorously
     defend itself in this matter.

The  Company  including its subsidiaries, is a party  to  various
other  claims,  legal  actions, and  complaints  arising  in  the
ordinary  course of business. In the opinion of management  after
consultation  with counsel, all claims, legal actions  (including
those  described above) and complaints are not presently probable
of  material loss, are adequately covered by insurance, or if not
so  covered,  are without merit or are of such kind,  or  involve
such  amounts  that  unfavorable disposition  would  not  have  a
material  effect  on the financial position of the  Company,  but
could  have  a  material impact to the net  income  (loss)  of  a
particular quarter or year, if resolved unfavorably.

Other

LSB  and, thus, the Company has retained certain risks associated
with  its  operations,  choosing to  self-insure  up  to  various
specified  amounts  under its automobile, workers'  compensation,
health  and general liability programs. LSB reviews such programs
on  at  least an annual basis to balance the cost-benefit between
its  coverage and retained exposure. See the Services  Agreement,
Note 3.

11. Fair Value of Financial Instruments

The  following discussion of fair values is not indicative of the
overall  fair  value  of the Company's balance  sheet  since  the
provisions of the SFAS No. 107, "Disclosures About Fair Value  of
Financial  Instruments," do not apply to  all  assets,  including
intangibles.


                                  F-40
<PAGE>

<PAGE>
                              ClimaChem, Inc.

         Notes to Consolidated Financial Statements (continued)


11. Fair Value of Financial Instruments (continued)

Fair values for fixed rate borrowings, other than the Notes,  are
estimated  using  a  discounted cash flow analysis  that  applies
interest  rates currently being offered on borrowings of  similar
amounts and terms to those currently outstanding. The fair  value
of  the  Notes  was  determined based on  a  quotation  for  such
securities. As of December 31, 1999 and 1998, carrying values  of
variable  rate  debt  which aggregated $25.2  million  and  $17.4
million, respectively, approximated estimated fair value.  As  of
December  31, 1999 and 1998, carrying values of fixed  rate  debt
which aggregated $117.0 million and $120.5 million, respectively,
had  estimated  fair values of approximately  $38.4  million  and
$120.8 million, respectively.

At  December  31,  1999  and  1998, the  carrying  value  of  the
intercompany   loans   of  $15.4  million  and   $13.4   million,
respectively,  exceeded the estimated fair value  of  such  loans
(assuming  full  realization) by approximately $1.7  million  and
$.7 million, respectively.

As  of  December 31, 1999, the carrying values of cash  and  cash
equivalents, accounts receivable, accounts payable,  and  accrued
liabilities approximated their estimated fair value.

12. Inventory Write-down and Loss on Firm Purchase Commitment

During  1999,  the  Chemical Business  had  a  firm  uncancelable
commitment to purchase anhydrous ammonia pursuant to the terms of
a  supply  contract  (Note  10 - Commitments  and  Contingencies,
Purchase  Commitments). At June 30, 1999, the  date  the  Company
recognized the provision for loss under the supply agreement  and
wrote  down  the  inventory,  the  purchase  price  the  Chemical
Business  was  required to pay for anhydrous  ammonia  under  the
contract, which was for a significant percentage of the  Chemical
Business'  anhydrous  ammonia  requirements,  exceeded  and   was
expected  to continue to exceed the spot market prices throughout
the  purchase period. Additionally, the market for nitrate  based
products  at  that  time was saturated with an excess  supply  of
products  caused,  in  part, by the import of  Russian ammonium
nitrate and significantly depressed selling prices for the Company's
products.  Due  to the decline in sales prices and  the  cost  to
produce the nitrate products, including the cost of the anhydrous
ammonium  to  be purchased under the contract, the costs  of  the
Company's nitrate based products exceeded the anticipated  future
sales  prices.  As a result, provisions for losses  on  the  firm


                                F-41
<PAGE>

<PAGE>
                            ClimaChem, Inc.

        Notes to Consolidated Financial Statements (continued)


12.  Inventory  Write-down and Loss on Firm  Purchase  Commitment
(continued)

purchase commitment  aggregating $8.4 million were recorded ($7.5
million in  the  second  quarter of 1999 and $.9  million  in  the
third quarter  of  1999).  At  June 30, 1999,  the  Company's
Chemical Business  wrote down the carrying value of certain
nitrate-based inventories by approximately $1.6 million. At
December 31,  1999, the accompanying balance sheet includes
remaining accrued losses under  the firm purchase commitment of
$7.4 million ($1.8 million of  which  is  classified  as current
in accrued liabilities).  Substantially all of the inventory
written down was  sold  during 1999.  Due to the pricing mechanism
in the contract, it is reasonably possible that this loss provision
estimate may change in the near term.

13. Segment Information

Factors   Used   By  Management  to  Identify  the   Enterprise's
Reportable Segments and Measurement of Segment Profit or Loss and
Segment Assets

ClimaChem,  Inc.  has  two  reportable  segments:  the   Chemical
Business   and  the  Climate  Control  Business.  The   Company's
reportable  segments  are  based on  business  units  that  offer
similar  products and services. The reportable segments are  each
managed   separately  because  they  manufacture  and  distribute
distinct products with different production processes.

The  Company evaluates performance and allocates resources  based
on  operating  profit  or loss. The accounting  policies  of  the
reportable  segments  are  the same as  those  described  in  the
summary of significant accounting policies.

Description of Each Reportable Segment

     Chemical

     This   segment  manufactures  and  sells  fertilizer   grade
     ammonium  nitrate  for the agriculture  industry,  explosive
     grade   ammonium  nitrate  for  the  mining   industry   and
     concentrated,  blended and mixed nitric acid for  industrial
     applications.   Production  from   the   Company's   primary
     manufacturing facility in El Dorado, Arkansas, for the  year
     ended  December 31, 1999 comprises approximately 72% of  the
     chemical segment's sales. Sales to customers of this segment
     primarily include farmers in Texas and Arkansas, coal mining
     companies  in  Kentucky,  Missouri and  West  Virginia,  and
     industrial  users of acids in the South and East regions  of
     the United States.

                                  F-42
<PAGE>
                              ClimaChem, Inc.

        Notes to Consolidated Financial Statements (continued)

13. Segment Information (continued)

     The  Chemical Business is subject to various federal,  state
     and  local  environmental regulations. Although the  Company
     has  designed  policies and procedures  to  help  reduce  or
     minimize  the  likelihood of significant chemical  accidents
     and/or   environmental  contamination,  there  can   be   no
     assurances  that the Company will not sustain a  significant
     future operating loss related thereto.

     In   1999,   the  Chemical  Business  sold  its   Australian
     subsidiary   and   incurred  a  loss  upon  disposition   of
     $2.0 million. (See Note 4 - Business Disposed Of.)

     Further,  the  Company purchases substantial  quantities  of
     anhydrous ammonia for use in manufacturing its products. The
     pricing volatility of such raw material directly affects the
     operating  profitability of the Chemical segment. (See  Note
     12   -  Inventory  Write-down  and  Loss  on  Firm  Purchase
     Commitment.)

     Climate Control

     This business segment manufactures and sells, primarily from
     its  various  facilities  in Oklahoma  City,  a  variety  of
     hydronic fan coil, water source heat pump products and other
     HVAC  products  for  use in commercial and  residential  air
     conditioning  and  heating systems.  The  Company's  various
     facilities  in Oklahoma City comprise substantially  all  of
     the Climate Control segment's operations. Sales to customers
     of   this   segment  primarily  include  original  equipment
     manufacturers,    contractors    and    independent    sales
     representatives  located  throughout  the  world  which  are
     generally secured by a mechanic's lien, except for sales  to
     original equipment manufacturers.

Credit,  which is generally unsecured, is extended  to  customers
based on an evaluation of the customers' financial condition  and
other  factors. Credit losses are provided for in  the  financial
statements based on historical experience and periodic assessment
of  outstanding accounts receivable, particularly those  accounts
which are past due. The Company's periodic assessment of accounts
and  credit  loss  provisions are based  on  the  Company's  best
estimate of amounts which are not recoverable. Concentrations  of
credit risk with respect to trade receivables are limited due  to
the  large number of customers comprising the Company's  customer
bases, and their dispersion across many different industries  and
geographic areas. As of December 31, 1999 and 1998, the Company's
accounts  and  notes receivable are shown net  of  allowance  for
doubtful accounts of $4,085,000 and $4,346,000, respectively.

                                 F-43
<PAGE>

<PAGE>
                            ClimaChem, Inc.

        Notes to Consolidated Financial Statements (continued)

13. Segment Information (continued)
<TABLE>
<CAPTION>
Information about the Company's operations in different  industry
segments is detailed below.

                                       Year ended December 31,
                                      1999       1998        1997
                                     ___________________________
                                           (In Thousands)
<S>                                <C>         <C>         <C>
Net sales:
  Businesses continuing:
    Chemical                        $127,407    $125,761    $130,466
    Climate Control                  117,055     115,785     105,899
                                    ________________________________
                                     244,462     241,546     236,365
Business disposed of - Chemical        7,461      14,184      26,482
                                    ________________________________
                                    $251,923    $255,730    $262,847
                                    ================================
Gross profit (loss):
  Businesses continuing:
    Chemical                        $ 13,458    $ 18,590     $16,710
    Climate Control                   34,909      32,234      29,719
                                    ________________________________
                                      48,367      50,824      46,429
Business disposed of - Chemical         (118)       (242)      2,649
                                    ________________________________
                                    $ 48,249    $ 50,582      49,078
                                    =================================

Operating profit (loss):
  Businesses continuing:
    Chemical                        $ (1,353)   $  5,877    $ 4,874
    Climate Control                    8,628       9,723      8,481
                                     ________________________________
                                       7,275      15,600     13,355
Business disposed of - Chemical       (1,632)     (2,467)       (52)
                                     ________________________________
                                       5,643      13,133     13,303

Unallocated fees from Services
  Agreement and general corporate     (4,526)     (2,881)    (2,109)
  expenses, net
Interest income                        1,512       1,445        419
Other income, net                        981          23        474
Interest expense:
  Business disposed of                  (326)       (434)      (720)
  Businesses continuing              (14,260)    (13,463)    (9,041)
Loss on businesses disposed of        (1,971)          -          -
Provision for loss on firm purchase
  commitments - Chemical              (8,439)          -          -
Provision for impairment on long-
  lived assets                        (3,913)          -          -
                                     ______________________________
Income (loss) before provision
  (benefit) for income taxes and
  extraordinary charge              $(25,299)    $(2,177)   $ 2,326
                                    ===============================

                                 F-44
<PAGE>
<PAGE>
                              ClimaChem, Inc.

              Notes to Consolidated Financial Statements

13. Segment Information (continued)

</TABLE>
<TABLE>
<CAPTION>
                                                      Year ended December 31,
                                                     1999      1998      1997
                                                    _________________________
                                                      (In Thousands)
<S>                                                <C>      <C>       <C>
Depreciation of property, plant and equipment:
  Businesses continuing:
    Chemical                                        $ 7,283   $7,019   $ 6,348
    Climate Control                                   1,547    1,553     1,438
  Business disposed of - Chemical                         -      973       344
                                                     _________________________
Total depreciation of property, plant and equipment $ 8,830   $9,545    $8,130
                                                     =========================

Additions to property, plant and equipment:
  Businesses continuing:
    Chemical                                        $ 3,670    $5,221   $9,389
    Climate Control                                   3,489     2,720    1,076
                                                    ___________________________
Total additions to property, plant and equipment    $ 7,159    $7,941  $10,465
                                                    ===========================

Total assets:
  Businesses continuing:
    Chemical                                       $102,185  $116,655  $117,257
    Climate Control                                  61,781    40,498    42,497
    Corporate assets                                 20,112    22,653    21,222
  Business disposed of - Chemical                         -    16,797    19,899
                                                   ______________________________
Total assets                                       $184,078  $196,603  $200,875
                                                   ==============================
</TABLE>
Revenues  by  industry segment include revenues from unaffiliated
customers,  as reported in the consolidated financial statements.
Intersegment revenues, which are accounted for at transfer prices
ranging  from the cost of producing or acquiring the  product  or
service  to  normal  prices to unaffiliated  customers,  are  not
significant.

Gross  profit by industry segment represents net sales less  cost
of  sales. Operating profit by industry segment represents  gross
profit  less  selling,  general and administrative  expenses.  In
computing operating profit, none of the following items have been
added  or  deducted:  general corporate expenses,  income  taxes,
interest   expense,   provision  for  loss   on   firm   purchase
commitments,  provision for impairment on  long-lived  assets  or
extraordinary charges.

                                F-45
<PAGE>

<PAGE>
                            ClimaChem, Inc.

       Notes to Consolidated Financial Statements (continued)

13. Segment Information (continued)

Total  assets by industry segment are those assets  used  in  the
operations   of  each  industry.  Corporate  assets   are   those
principally owned by the parent company not involved in  the  two
identified industries.
<TABLE>
<CAPTION>
Information  about the Company's domestic and foreign  operations
for each of the three years in the period ended December 31, 1999
is detailed below:

         Geographic Region                1999      1998      1997
____________________________________________________________________________
                                                (In Thousands)
<S>                                     <C>       <C>       <C>

Sales:
Businesses continuing:
  Domestic                               $241,198  $239,257  $235,303
  Foreign                                   3,264     2,289     1,062
                                          ___________________________
                                          244,462   241,546   236,365
Foreign business disposed of - Chemical     7,461    14,184    26,482
                                         ____________________________
                                         $251,923  $255,730  $262,847
                                         ============================

Income (loss) before provision for
  income taxes and extraordinary
  charge:
    Businesses continuing:
      Domestic                           $(21,086) $   964   $ 3,475
      Foreign                                (284)    (240)     (377)
                                         ____________________________
                                          (21,370)     724     3,098
Foreign business disposed of - Chemical    (1,958)  (2,901)     (772)
Loss on disposal of foreign business
   - Chemical                              (1,971)       -         -
                                         ____________________________
                                         $(25,299)  $(2,177)  $ 2,326
                                         ============================
Long-lived assets:
  Domestic                                $75,667   $77,724    $78,283
  Foreign - Business disposed of                -     4,665      6,046
                                         _____________________________
                                          $75,667   $82,389    $84,329
                                         =============================

</TABLE>

                                   F-46
<PAGE>
                            ClimaChem, Inc.

          Notes to Consolidated Financial Statements (continued)


13. Segment Information (continued)

Revenues  by geographic region include revenues from unaffiliated
customers,  as reported in the consolidated financial statements.
Revenues  earned  from sales or transfers between  affiliates  in
different  geographic  regions  are  shown  as  revenues  of  the
transferring region and are eliminated in consolidation.
<TABLE>
<CAPTION>
Revenues from unaffiliated customers include foreign export sales
as follows:

                                             December 31,
         Geographic Region            1999      1998      1997
_________________________________________________________________
                                            (In Thousands)
<S>                                    <C>        <C>      <C>
Canada                                  $ 5,954   $ 7,051   $ 4,634
Middle East                               4,431     5,055     5,956
Mexico and Central and South America      1,144       493     1,415
Other                                     4,240     5,077     1,038
                                        _____________________________
                                        $15,769   $17,676    $13,043
                                        =============================
</TABLE>











                                   F-47
<PAGE>

<PAGE>
<TABLE>
<CAPTION>
                                 ClimaChem, Inc.

                          Supplementary Financial Data

                      Quarterly Financial Data (Unaudited)

                    (In Thousands, Except Per Share Amounts)



                                          Three months ended
                             March 31   June 30  September 30  December 31
                             ______________________________________________
<S>                         <C>        <C>        <C>          <C>
1999
Total Revenue               $ 60,1990   $ 72,003   $ 61,037      $ 61,186
                            =============================================
Gross profit on net sales   $ 13,019    $ 13,616   $ 11,920      $  9,694
                            =============================================
Net loss                    $ (1,151)   $ (7,441)  $ (2,753)     $ (7,837)
                            =============================================
1998
Total revenues              $ 63,782    $ 74,308   $ 65,734      $ 53,374
                            =============================================
Gross profit on net sales   $ 12,949    $ 16,743   $ 12,672      $  8,218
                            =============================================
Net income (loss)           $    (46)   $  1,613   $   (755)     $ (3,381)
                            =============================================
</TABLE>

In  the  second quarter of 1999, the Company incurred a loss of
$2.0 million on the disposal of its Australian subsidiary - TES.

The  Company recorded provisions for losses on firm purchase commitments
of $7.5 million  and  $.9  million  in the second quarter and  third
quarter of  1999, respectively, and recorded a provision for impairment
on long-lived assets  of $3.9 million in the fourth quarter of 1999.

Total  revenues,  as  reported  above, includes  interest  income
of  $340,000, $387,000,  $387,000 and $398,000 and $354,000, $408,000,
$344,000  and  $339,000 for the quarter ended March 31, June 30,
September 30 and December 31, 1999 and 1998, respectively.

In  the fourth quarter of 1998, the Company's Climate Control
group recorded  an adjustment  to  inventory which reduced gross profit
by  $1.5 million  and  the Company's  Chemical  group recorded a pro-
vision for loss of approximately $.8 million for a note receivable
which increased the Company's net loss.



                                     F-48
<PAGE>

<PAGE>
<TABLE>
<CAPTION>
                                 ClimaChem, Inc.

                 Schedule II - Valuation and Qualifying Accounts

                  Years ended December 31, 1999, 1998 and 1997

                             (Dollars in Thousands)

                                               Additions   Deductions
                                               __________  ___________
                                   Balance at  Charged to  Write-offs/  Balance
                                   Beginning   Costs and     Costs        at End
  Description                       of Year     Expenses    Incurred    of Year
_________________________________________________________________________________
<S>                               <C>          <C>         <C>          <C>
Accounts receivable-allowance
for doubtful accounts (1):
   1999                             $ 1,802     $  828      $1,089       $1,541
                                    =============================================

   1998                             $ 1,478     $  971      $  647       $1,802
                                    =============================================
   1997                             $ 1,296     $  521      $  339       $1,478
                                    =============================================

Notes receivable-allowance for
  doubtful accounts (1):
   1999                             $ 2,544     $    -      $    -       $2,544
                                    =============================================
   1998                             $ 1,690     $  854      $    -       $2,544
                                    =============================================
   1997                             $ 1,515     $  175      $    -       $1,690
                                    =============================================

Accrual for plant turnaround:
   1999                             $ 1,104     $1,420      $1,226       $1,298
                                    =============================================
   1998                             $ 1,263     $2,264      $2,423       $1,104
                                    =============================================
   1997                             $   382     $2,647      $1,766       $1,263
                                    =============================================
<FN>
(1) Deducted  in  the balance sheet from the related assets to which the
    reserve applies.
</TABLE>



                                     F-49
<PAGE>

(a)(3)   Exhibits


2.1. Stock Purchase Agreement and Stock Pledge Agreement between
     Dr. Hauri AG, a Swiss Corporation, and LSB Chemical Corp., which the
     Company hereby incorporates by reference from Exhibit 2.2 to the LSB's
     Form 10-K for fiscal year ended December 31, 1994.

2.2  Stock Option Agreement dated as of May 4, 1995, optionee, LSB Holdings,
     Inc., an Oklahoma corporation, an option to purchase, which the Company
     hereby incorporates by reference from Exhibit 2.1 to LSB's Form 10-K
     for fiscal year ended December 31, 1995.

3.1. Certificate of Incorporation of ClimaChem, Inc., which
     the Company hereby incorporates by reference from Exhibit 3.1 to the
     Company's Registration Statement, No. 333-44905.

3.2. Bylaws of ClimaChem, Inc., which the Company hereby
     incorporates by reference from Exhibit 3.2 to the Company's
     Registration Statement, No. 333-44905.

4.1. Indenture, dated as of November 26, 1997, by and among
     ClimaChem, Inc., the Subsidiary Guarantors and Bank One, N.A., as
     trustee, which the Company hereby incorporates by reference from
     Exhibit 4.1 to LSB Industries, Inc.'s Form 8-K, dated November 26,
     1997.

4.2. Form 10 3/4% Series B Senior Notes due 2007, which the
     Company hereby incorporates by reference from Exhibit 4.3 to the
     Company's Registration Statement, No. 333-44905.

4.3. Promissory Note, dated November 26, 1997, executed by LSB
     Industries, Inc. in favor of ClimaChem, Inc., which the Company hereby
     incorporates by reference from Exhibit 10.1 to the Company's
     Registration Statement, No. 333-44905.

4.4. Amended and Restated Loan and Security Agreement, dated
     November 21, 1997, by and between BankAmerica Business Credit, Inc.,
     and Climate Master, Inc., International Environmental Corporation, El
     Dorado Chemical Company and Slurry Explosive Corporation, which the
     Company hereby incorporates by reference from Exhibit 10.2 to the
     Company's Registration Statement, No. 333-44905.

4.5. First Amendment to Amended and Restated Loan and Security
     Agreement, dated March 12, 1998, between BankAmerica Business Credit,
     Inc., and Climate Master, Inc., International Environmental
     Corporation, El Dorado Chemical Company and Slurry Explosive
     Corporation, which the Company hereby incorporates by reference from
     Exhibit 10.53 to the Company's Registration Statement, No. 333-44905.

4.6. Third Amendment to Amended and Restated Loan and Security
     Agreement, dated August 14, 1998, between BankAmerica Business Credit,
     Inc., and Climate Master, Inc., International Environmental
     Corporation, El Dorado Chemical Company and Slurry Explosive
     Corporation, which the Company hereby incorporates by reference from
     Exhibit 4.1 to LSB Industries, Inc.'s Form 10-Q for the quarter ended
     June 30, 1998.

4.7. Fourth Amendment to Amended and Restated Loan and
     Security Agreement, dated November 19, 1998, between BankAmerica
     Business Credit, Inc., and Climate Master, Inc., International
     Environmental Corporation, El Dorado Chemical Company and Slurry
     Explosive Corporation, which the Company hereby incorporates by
     reference from Exhibit 4.1 to LSB Industries, Inc.'s Form 10-Q for the
     quarter ended September 30,  1998.

                                 42
<PAGE>

4.8. Fifth Amendment to Amended and Restated Loan and Security
     Agreement, dated April 8, 1999, between BankAmerica Business Credit,
     Inc., and Climate Master, Inc., International Environmental
     Corporation, El Dorado Chemical Company and Slurry Explosive
     Corporation, which the Company hereby incorporates by reference from
     Exhibit 4.16 to LSB Industries, Inc.'s Form 10-K for the fiscal year
     ended December 31, 1998.

4.9. Waiver Letter, dated March 16, 1998, from BankAmerica
     Business Credit, Inc., which the Company hereby incorporates by
     reference from Exhibit 10.55 to the Company's Registration Statement,
     No. 333-44905.

4.10. First supplement to indenture dated as of February 9,
     1999 which is incorporated by reference from Exhibit 4.19 to LSB's
     Form 10-K for the year ended December 31, 1998.

4.11. Sixth Amendment, dated May 10, 1999, to Amended and Restated
      Loan and Security Agreement between BankAmerica Business Credit, Inc.,
      and Climate Master, Inc., International Environmental Corporation, El
      Dorado Chemical Company and Slurry Explosive Corporation, which the
      Company hereby incorporates by reference from Exhibit 4.1 to the
      Company's Form 10-Q for the fiscal quarter ended June 30, 1999.

10.1. Continuing Guaranty, dated November 21, 1997, between
     ClimaChem, Inc. and BankAmerica Business Credit, Inc., which the
     Company hereby incorporates by reference from Exhibit 10.3 to the
     Company's Registration Statement, No. 333-44905.

10.2. Services Agreement, dated November 21, 1997, between LSB
     Industries, Inc. and ClimaChem, Inc., which the Company hereby
     incorporates by reference from Exhibit 10.4 to the Company's
     Registration Statement, No. 333-44905.

10.3. Management Agreement, dated November 21, 1997, between
     LSB Industries, Inc. and ClimaChem, Inc., which the Company hereby
     incorporates by reference from Exhibit 10.5 to the Company's
     Registration Statement, No. 333-44905.

10.4. Tax Sharing Agreement, dated November 21, 1997, between
     LSB Industries, Inc. and ClimaChem, Inc., which the Company hereby
     incorporates by reference from Exhibit 10.6 to the Company's
     Registration Statement, No. 333-44905.

10.5. Severance Agreement, dated January 17, 1989, between LSB
     Industries, Inc. and Jack E. Golsen, which the Company hereby
     incorporates by reference from Exhibit 10.48 to LSB Industries, Inc.'s
     Form 10-K for fiscal year ended December 31, 1988. LSB Industries, Inc.
     also entered into identical agreements with Tony M. Shelby, David R.
     Goss, Barry H. Golsen, David M. Shear, and Jim D. Jones, and the
     Company will provide copies thereof to the Commission upon request.


                                 43
<PAGE>

<PAGE>
10.6. Employment Agreement and Amendment to Severance Agreement, dated
      January 12, 1989 between LSB Industries, Inc. and Jack E. Golsen,
      dated March 21, 1996, which the Company hereby incorporates
      by reference from Exhibit 10.15 to LSB Industries, Inc.'s
      Form 10-K for fiscal year ended December 31, 1995.

10.7. Letter Amendment, dated May 14, 1997, to Loan and Security Agreement
      between DSN Corporation and The CIT Group/Equipment Financing, Inc.,
      is incorporated by reference from Exhibit 10.1 to LSB Industries,
      Inc.'s Form 10-Q for the fiscal quarter ended March 31, 1997.

10.8. Amendment to Loan and Security Agreement, dated November 21, 1997,
      between DSN Corporation and The CIT Group/Equipment Financing, Inc.,
      which the Company hereby incorporates by reference from Exhibit
      10.19 to the Company's Registration Statement, No. 333-44905.

10.9. Guaranty Agreement, dated November 21, 1997, executed by ClimaChem,
      Inc. in favor of The CIT Group/Equipment Financing, Inc., which
      which the Company hereby incorporates by reference from Exhibit 10.20
      to the Company's Registration Statement, No. 333-44905.

10.10. Promissory Note, dated July 14, 1989, from Climate Master, Inc.
       to Oklahoma County Finance Authority, which the Company hereby
       incorporates by reference from Exhibit 10.21 to the Company's
       Registration Statement, No. 333-44905.

10.11. Extension of Maturity on Promissory Note, dated February 7, 1997,
       relating to the Promissory Note, dated July 14, 1989, from Climate
       Master, Inc., to Oklahoma County Finance Authority, which the
       Company hereby incorporates by reference from Exhibit 10.22 to the
       Company's Registration Statement, No. 333-44905.

10.12. Mortgage of Tenant's Interest in Lease, dated July 1, 1989, executed
       by Climate Master, Inc. in favor of the Oklahoma County Finance
       Authority, which the Company hereby incorporates by reference
       from Exhibit 10.23 to the Company's Registration Statement, No.
       333-44905.

10.13. Project Loan Agreement, dated July 1, 1989, between Climate Master,
       Inc., and the Oklahoma County Finance Authority, which the Company
       hereby incorporates by reference from Exhibit 10.24 to the
       Company's Registration Statement, No. 333-44905.

10.14. Promissory Note, dated June 2, 1997, executed by International
       Environmental Corporation in favor of ORIX Credit Alliance, Inc.,
       which the Company hereby incorporates by reference from Exhibit 10.30
       to the Company's Registration Statement, No. 333-44905.

10.15. Security Agreement-Mortgage on Goods and Chattels, dated April 18,
       1997, executed by International Environmental Corporation in favor
       of ORIX Credit Alliance, Inc., which the Company hereby incorporates
       by reference from Exhibit 10.31 to the Company's Registration
       Statement, No. 333-44905.

10.16. Lease Agreement, dated March 7, 1988, between Northwest Financial
       Corporation and International Environmental Corporation, which the
       Company hereby incorporates by reference from Exhibit 10.32
       to the Company's Registration Statement, No. 333-44905.


                                   44
<PAGE>

10.17. First Amendment, dated August 17, 1995, to Lease Agreement
       dated March 7, 1988, between Prime Financial Corporation and
       International Environmental Corporation, which the Company hereby
       incorporates by reference from Exhibit 10.33 to the Company's
       Registration Statement, No. 333-44905.

10.18. Assignment, dated August 17, 1995, between Northwest
       Financial Corporation and Prime Financial Corporation, which the
       Company hereby incorporates by reference from Exhibit 10.34 to the
       Company's Registration Statement, No. 333-44905.

10.19. Loan and Security Agreement, dated March 14, 1995,
       between International Environmental Corporation and MetLife Capital
       Corporation, which the Company hereby incorporates by reference from
       Exhibit 10.35 to the Company's Registration Statement, No. 333-44905.

10.20. Lease Agreement, dated April 3, 1996, between Amplicon
       Financial and International Environmental Corporation, which the
       Company hereby incorporates by reference from Exhibit 10.36 to the
       Company's Registration Statement, No. 333-44905.

10.21. Equipment Purchase and Security Agreement, dated February 1, 1994,
       between U.S. Amada Ltd. and Climate Master, Inc., which the Company
       hereby incorporates by reference from Exhibit 10.37 to the Company's
       Registration Statement, No. 333-44905. Climate Master has entered
       into three other Equipment Purchase and Security Agreements
       which are substantially identical in all material respects except the
       principal amount is $380,000, $88,000, and $330,000, respectively.
       Copies of each of the foregoing will be provided to the Commission upon
       request.

10.22. Loan and Security Agreement (DSN Plant), dated October 31, 1994,
       between DSN Corporation and The CIT Group, which the Company
       hereby incorporates by reference from Exhibit 10.1 to LSB Industries,
       Inc.'s Form 10-Q for the fiscal quarter ended September 30, 1994.

10.23. Loan and Security Agreement (Mixed Acid Plant), dated April 5, 1995,
       between DSN Corporation and The CIT Group, which the Company hereby
       incorporates by reference from Exhibit 10.25 to LSB Industries,
       Inc.'s Form 10-K for the fiscal year ended December 31, 1994.

10.24. First Amendment to Loan and Security Agreement (DSN Plant), dated
       June 1, 1995, between DSN Corporation and The CIT Group/Equipment
       Financing, Inc., which the Company hereby incorporates by reference
       from Exhibit 10.13 to the Company's Registration Statement, No.
       333-44905.

10.25. First Amendment to Loan and Security Agreement (Mixed Acid Plant),
       dated November 15, 1995, between DSN Corporation and The CIT Group/
       Equipment Financing, Inc., which the Company hereby incorporates by
       reference from Exhibit 10.15 to the Company's Registration Statement,
       No. 333-44905.


                                       45
<PAGE>

10.26. Loan and Security Agreement (Rail Tank Cars), dated November 15, 1995,
       between DSN Corporation and The CIT Group/Equipment Financing, Inc.,
       which the Company hereby incorporates by reference from Exhibit 10.16
       to the Company's Registration Statement, No. 333-44905.

10.27. First Amendment to Loan and Security Agreement (Rail Tank Cars), dated
       November 15, 1995, between DSN Corporation and The CIT Group/Equipment
       Financing, Inc., which the Company hereby incorporates by reference
       from Exhibit 10.17 to the Company's Registration Statement, No. 333-
       44905.

10.28. Letter Amendment, dated May 14, 1997, to Loan and
       Security Agreement between DSN Corporation and The CIT Group/Equipment
       Financing, Inc., which the Company hereby incorporates by reference
       from Exhibit 10.1 to LSB Industries, Inc.'s Form 10-Q for the fiscal
       quarter ended March 31, 1997.

10.29. Amendment to Loan and Security Agreement, dated
       November 21, 1997, between DSN Corporation and The CIT Group/Equipment
       Financing, Inc., which the Company hereby incorporates by reference
       from Exhibit 10.19 to the Company's Registration Statement, No.
       333-44905.

10.30. Baytown Nitric Acid Project and Supply Agreement, dated
       June 27, 1997, by and among El Dorado Nitrogen Company, El Dorado
       Chemical Company and Bayer Corporation, which the Company hereby
       incorporates by reference from Exhibit 10.2 to LSB Industries, Inc.'s
       Form 10-Q for the fiscal quarter ended June 30, 1997.  CERTAIN
       INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AS IT IS THE SUBJECT OF
       COMMISSION ORDER CF #5551, DATED SEPTEMBER 25, 1997, GRANTING A REQUEST
       FOR CONFIDENTIAL TREATMENT UNDER THE FREEDOM OF INFORMATION ACT AND THE
       SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

10.31. First Amendment to Baytown Nitric Acid Supply Agreement, dated
       February 1, 1999, between El Dorado Nitrogen Company and Bayer
       Corporation, which the Company hereby incorporates by reference
       from Exhibit 10.30 to LSB Industries, Inc.'s Form 10-K for the
       fiscal year ended December 31, 1998.  CERTAIN INFORMATION WITHIN
       THIS EXHIBIT HAS BEEN OMITTED AS IT IS THE SUBJECT OF COMMISSION
       ORDER CF #7927, DATED JUNE 9, 1999, GRANTING A REQUEST FOR CONFI-
       DENTIAL TREATMENT UNDER THE FREEDOM OF INFORMATION ACT AND THE
       SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

10.32. Service Agreement, dated June 27, 1997, between Bayer Corporation
       and El Dorado Nitrogen Company, which the Company hereby incor-
       porates by reference from Exhibit 10.3 to LSB Industries, Inc.'s
       Form 10-Q for the fiscal quarter ended June 30, 1997.  CERTAIN
       INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AS IT IS THE SUBJECT
       OF COMMISSION ORDER CF #5551, DATED SEPTEMBER 25, 1997, GRANTING A
       REQUEST FOR CONFIDENTIAL TREATMENT UNDER THE FREEDOM OF INFORMATION
       ACT AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

10.33. Ground Lease, dated June 27, 1997, between Bayer Corporation and
       El Dorado Nitrogen Company, which the Company hereby incorporates
       by reference from Exhibit 10.4 to LSB Industries, Inc.'s Form 10-Q
       for the fiscal quarter ended June 30, 1997.  CERTAIN INFORMATION
       WITHIN THIS EXHIBIT HAS BEEN OMITTED AS IT IS THE SUBJECT OF
       COMMISSION ORDER CF #5551, DATED SEPTEMBER 25, 1997, GRANTING A REQUEST
       FOR CONFIDENTIAL TREATMENT UNDER THE FREEDOM OF INFORMATION ACT AND THE
       SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.


                                   46
<PAGE>
10.34. Participation Agreement, dated as of June 27, 1997, among El Dorado
       Nitrogen Company, Boatmen's Trust Company of Texas as Owner Trustee,
       Security Pacific Leasing corporation, as Owner Participant and a
       Construction Lender, Wilmington Trust Company, Bayerische Landesbank,
       New York Branch, as a Construction Lender and the Note Purchaser,
       and Bank of America National Trust and Savings Association, as
       Construction Loan Agent, which the Company hereby incorporates by
       reference from Exhibit 10.5 to LSB Industries, Inc.'s Form 10-Q
       for the fiscal quarter ended June 30, 1997.  CERTAIN INFORMATION
       WITHIN THIS EXHIBIT HAS BEEN OMITTED AS IT IS THE SUBJECT OF
       COMMISSION ORDER CF #5551, DATED SEPTEMBER 25, 1997, GRANTING A
       REQUEST FOR CONFIDENTIAL TREATMENT UNDER THE FREEDOM OF INFORMATION
       ACT AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

10.35. Lease Agreement, dated as of June 27, 1997, between Boatmen's
       Trust Company of Texas as Owner Trustee and El Dorado Nitrogen
       Company, which the Company hereby incorporates by reference
       from Exhibit 10.6 to LSB Industries, Inc.'s Form 10-Q for the fiscal
       quarter ended June 30, 1997.

10.36. Security Agreement and Collateral Assignment of Construction
       Documents, dated as of June 27, 1997, made by El Dorado Nitrogen
       Company, which the Company hereby incorporates by reference
       from Exhibit 10.7 to LSB Industries, Inc.'s Form 10-Q for the fiscal
       quarter ended June 30, 1997.

10.37. Security Agreement and Collateral Assignment of Facility Documents,
       dated as of June 27, 1997, made by El Dorado Nitrogen Company and
       consented to by Bayer Corporation, which the Company hereby
       incorporates by reference from Exhibit 10.8 to LSB Industries,
       Inc.'s Form 10-Q for the fiscal quarter ended June 30, 1997.

10.38. Amendment to Loan and Security Agreement, dated March 16, 1998,
       between The CIT Group/Equipment Financing, Inc., and DSN Corporation,
       which the Company hereby incorporates by reference from Exhibit
       10.54 to the Company's Registration Statement, No. 333-44905.

10.39. Sales Contract, dated December 7, 1998, between Solutia, Inc. and
       El Dorado Chemical Company, which the Company hereby incorporates
       by reference from Exhibit 10.39 to LSB Industries, Inc.'s Form
       10-K for the fiscal year ended December 31, 1998.  CERTAIN
       INFORMATION WITHIN THIS EXHIBIT HAS BEEN OMITTED AS IT IS THE
       SUBJECT OF COMMISSION ORDER CF #7927, DATED JUNE 9, 1999, GRANTING
       A REQUEST FOR CONFIDENTIAL TREATMENT UNDER THE FREEDOM OF INFORMATION
       ACT AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

10.40. Agreement, dated March 23, 1999, among El Dorado
       Chemical Company, El Dorado Nitrogen Company, Bayer Corporation, ICF
       Kaiser Engineers, Inc., ICF Kaiser International, Inc., and Acstar
       Insurance Company, which the Company hereby incorporates by reference
       from Exhibit 10.41 to LSB Industries, Inc.'s Form 10-K for the fiscal
       year ended December 31, 1998.

                                 47
<PAGE>
 10.41. Union Contract, dated as of August 1, 1998, between EDC
        and the International Association of Machinists and Aerospace Workers,
        which the Company hereby incorporates by reference from Exhibit 10.42
        to LSB Industries, Inc.'s Form 10-K for the year ended December 31,
        1998.

 10.42.  Stock Purchase Agreement, dated February 9, 1999, by and between
         LSB Holdings, Inc. and ClimaChem, Inc., which the Company hereby
         incorporates by reference from Exhibit to the Company's Form 10-K
         for the fiscal year ended December 31, 1998.

 10.43.  Covenant Waiver Letter, dated April 10, 2000, between The CIT
         Group and DSN Corporation, which the Company hereby incorporates
         by reference from Exhibit 10.46 to LSB Industries, Inc.'s
         Form 10-K for the fiscal year ended December 31, 1999.

 10.44.  Rail Car Service Agreement, dated July 29, 1999, between Prime
         Financial Corporation and El Dorado Chemical Company, which the
         Company hereby incorporates by reference from Exhibit 10.2 to the
         Company's Form 10-Q for the fiscal quarter ended September 30, 1999.

 10.45.  Seventh Amendment to Amended and Restated Loan and Security
         Agreement, dated January 1, 2000, by and between Bank of America, N.A.
         and Climate Master, Inc., International Environmental Corporation, El
         Dorado Chemical Company, and Slurry Explosive Corporation, which the
         Company hereby incorporates by reference from Exhibit 10.2 to the
         Company's Form 8-K dated December 30, 1999.

 10.46   Amendment to Anhydrous Ammonia Sales Agreement, dated January 4,
         2000, to be effective October 1, 1999, between Koch Nitrogen
         Company and El Dorado Chemical Company. CERTAIN INFORMATION
         WITHIN THIS EXHIBIT HAS BEEN OMITTED AS IT IS THE SUBJECT OF A
         REQUEST BY THE COMPANY FOR CONFIDENTIAL TREATMENT BY THE
         SECURITIES AND EXCHANGE COMMISSION UNDER THE FREEDOM OF
         INFORMATION ACT.  THE OMITTED INFORMATION HAS BEEN FILED
         SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE
         COMMISSION FOR PURPOSES OF SUCH REQUEST.

 10.47    Anhydrous Ammonia Sales Agreement, dated January 12, 2000,
          to be effective October 1, 1999, between Koch Nitrogen Company and
          El Dorado Chemical Company. CERTAIN INFORMATION WITHIN THIS EXHIBIT
          HAS BEEN OMITTED AS IT IS THE SUBJECT OF A REQUEST BY THE COMPANY FOR
          CONFIDENTIAL TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION
          UNDER THE FREEDOM OF INFORMATION ACT.  THE OMITTED INFORMATION HAS
          BEEN FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND
          EXCHANGE COMMISSION FOR PURPOSES OF SUCH REQUEST.

 10.48   Eighth Amendment to Amended and Restated Loan and Security
         Agreement, dated March 1, 2000, by and between Bank of America, N.A.
         and Climate Master, Inc., International Environmental Corporation,
         El Dorado Chemical Company, and Slurry Explosive Corporation, which
         the Company hereby incorporates by reference from Exhibit 10.2 to the
         Company's Form 8-K dated March 1, 2000.


                                   48
<PAGE>
 10.49   Loan Agreement dated December 23, 1999 between Climate Craft, Inc.
         and the City of Oklahoma City which the Company hereby incorporates
         by reference from Exhibit 10.49 to LSB's Form 10-K for fiscal year
         ended December 31, 1999.

 21.1.   Subsidiaries of the Company

 23.1.   Consent of Independent Auditors

 27.1.   Financial Data Schedule

          (b)  REPORTS ON FORM 8-K.  The Company filed the following report
     on Form 8-K during the fourth quarter of 1999.

            (i)  Form 8-K, dated December 30, 1999 (date of event:  December
     30, 1999).  The item reported was Item 5, "Other Events", discussing the
     payment of interest on the Company's subsidiary, ClimaChem's $105 million
     of outstanding 10 3/4% Senior Notes due 2007 and related failure to meet
     certain adjusted tangible net worth and debt ratio requirements under the
     Company's revolving credit facility.





                                  49
<PAGE>

<PAGE>
                           SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has caused the undersigned, duly-
authorized, to sign this report on its behalf of this 14th day of April,
2000.

                     CLIMACHEM, INC.


                     By: /s/ Jack E. Golsen
                       ____________________________
                       Jack E. Golsen
                       Chairman of the Board and
                       President
                       (Principal Executive Officer)

                     By: /s/ Tony M. Shelby
                       ______________________________
                       Tony M. Shelby
                       Senior Vice President of Finance
                       (Principal Financial Officer)

                     By: /s/ Jim D. Jones
                        ______________________________
                       Jim D. Jones
                       Vice President, Treasurer
                       (Principal Accounting Officer)


     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the undersigned have signed this report on behalf of the Company, in
the capacities and on the dates indicated.


Dated:  April 14, 2000    By: /s/ Jack E. Golsen
                          _________________________
                          Jack E. Golsen, Director


Dated:  April 14, 2000    By: /s/ Tony M. Shelby
                          _________________________
                          Tony M. Shelby, Director


Dated:  April 14, 2000    By: /s/ David R. Goss
                          _________________________
                          David R. Goss, Director


Dated:  April 14, 2000    By: /s/ Barry H. Golsen
                          ___________________________
                          Barry H. Golsen, Director



                                  50
<PAGE>
Dated:  April 14, 2000    By: /s/ Robert C. Brown
                          ___________________________
                          Robert C. Brown, Director


Dated:  April 14, 2000    By:  /s/ Bernard G. Ille
                          ___________________________
                          Bernard G. Ille, Director



<PAGE>
Dated:  April 14, 2000    By: /s/ Jerome D. Shaffer
                          _____________________________
                          Jerome D. Shaffer, Director


Dated: April 14, 2000     By: /s/ Raymond B. Ackerman
                          _____________________________
                          Raymond B. Ackerman, Director


Dated:  April 14, 2000    By: /s/ Horace Rhodes
                          _____________________________
                          Horace Rhodes, Director


                                 51