UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES  EXCHANGE ACT OF
1934

                   For the fiscal year ended December 31, 2000
                                             -----------------

                          Commission file Number 1-4591
                                                 ------

                          FAIRMOUNT CHEMICAL CO., INC.

            (Exact name of registrant as specified in its charter.)

          New Jersey                                     22-0900720
 -------------------------------                     ------------------
 (State or other jurisdiction of                      (I.R.S. Employer
 incorporation or organization)                      Identification No.)


        117 Blanchard Street, Newark, NJ                     07105
    -----------------------------------------------------------------
    (Address of principal executive offices)               (Zip Code)


          Issuer's telephone number, including area code: 973-344-5790

        Securities registered pursuant to Section 12(b) of the Act: None


          Securities registered pursuant to Section 12(g) of the Act:

                            Common Stock $1 Par Value
                            -------------------------
                                (Title of Class)

     Check whether the issuer (1) has filed all reports  required to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days.
                                                YES [X]      NO [ ]

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained, to the best of Issuer's knowledge, in definitive proxy or information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB []

     Issuer's revenue for its most recent fiscal year: $11,808,100

     The  aggregate  market  value of the  Issuer's  Common  Stock $1 par  value
("Common  Stock"),  held by  non-affiliates  of the  Issuer  on March  30,  2001
(1,355,752  shares)  was  approximately  $67,787,  based on $.05 per share.  The
Company's shares do not trade on any exchange nor has there been any significant
market  activity  with respect to such shares since the last quarter of 1991, at
which time the average of the bid and asked prices was approximately $.05.

     The total  number  of  shares  of  Issuer's  Common  Stock  outstanding  on
March 15, 2001 was 8,292,866.

                               Page 1 of 32 Pages

<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

     1.   Portions of the Issuer's  Definitive  Proxy  Statement  for its Annual
          Meeting of  Stockholders to be held May 17, 2001, to be filed with the
          Securities and Exchange  Commission within 120 days after December 31,
          2000 (the end of the  registrant's  fiscal  year  covered by this Form
          10-KSB)  ("2000  Definitive  Proxy  Statement")  are  incorporated  by
          reference into Part III.

     2.   Exhibit A to the Issuer's  Definitive  Proxy  Statement for its Annual
          Meeting  of  Stockholders  held  April  19,  1983 is  incorporated  by
          reference into Part III.

     3.   Exhibit A to the Issuer's  Definitive  Proxy  Statement for its Annual
          Meeting of Stockholders held May 15, 1985 is incorporated by reference
          into Part III.

     4.   Exhibits A and B to the Issuer's  Definitive  Proxy  Statement for its
          Annual Meeting of Stockholders  held May 10, 1988 are  incorporated by
          reference into Part III.

     5.   Exhibit A to the Issuer's  Definitive  Proxy  Statement for its Annual
          Meeting of Stockholders held May 23, 1990 is incorporated by reference
          into Part III.

     6.   Exhibit A to the Issuer's  Definitive  Proxy  Statement for its Annual
          Meeting of Stockholders  held May 6, 1991 is incorporated by reference
          into Part III.

     7.   Exhibit A to the Issuer's  Definitive  Proxy  Statement for its Annual
          Meeting of Stockholders  held May 4, 1993 is incorporated by reference
          into Part III.

     8.   Exhibit (19) (ii)  (sequentially  numbered pages 14 through 15) to the
          Issuer's  Form 10-Q for the fiscal  quarter  ended  June 30,  1986 are
          incorporated by reference into Part III.

     9.   Statement on Schedule 13D,  dated March 30, 1994,  filed by the Estate
          of William E. Leistner with the Securities and Exchange  Commission on
          March 30,  1994 with  respect to the  Estate of  William  E.  Leistner
          acquiring  direct  beneficial   ownership  of  William  E.  Leistner's
          4,790,200  shares of Common  Stock and  5,400,000  shares of Preferred
          Stock of Fairmount  Chemical Co., Inc. upon his death on September 19,
          1993 is incorporated into Part III.

THE EXHIBIT INDEX IS ON SEQUENTIALLY NUMBERED PAGES 28 THROUGH 39.

Total number of pages in this Form 10-KSB: 32 including the "cover page" and all
exhibits (sequentially numbered pages 1 through 32).

Transitional Small Business Disclosure Format (check one):

          Yes [ ]    No [X]


                                       2
<PAGE>

                                     PART I

Item 1. Business

                                   The Company

     Fairmount Chemical Co., Inc. was incorporated in June 1938 under New Jersey
Law.  Fairmount's  offices  are located at 117  Blanchard  Street,  Newark,  New
Jersey.  Except as otherwise  indicated by the context,  the terms  "Company" or
"Fairmount" as used herein means the Fairmount Chemical Co., Inc.

                              Business and Products

     Fairmount has more than 60 years  experience in the manufacture and sale of
specialty and fine organic chemicals,  including pharmaceuticals and agriculture
intermediates  used  in  the  photographic  and  imaging  industries,  hydrazine
derivatives and blends,  and plastic  additives.  During this time Fairmount has
developed  expertise in the production of specialty and  heterocyclic  chemicals
containing nitrogen and sulfur.

     Fairmount uses its expertise and know-how in chemical synthesis not only to
manufacture its own products but also to develop and custom manufacture products
under  contract for other  companies.  Its equipment  configuration,  production
flexibility and ability to produce  efficiently in quantities ranging from 10 kg
to 500 metric  tons,  gives it an  excellent  position in custom  manufacturing.
Among  the  products  which  Fairmount  custom   manufactures  are  agricultural
intermediates  and  photographic   chemicals.   All  manufacturing  is  done  at
Fairmount's facilities in Newark, New Jersey.

Fairmount's principal products and their markets include:

     Imaging & Photographic Chemicals

     Fairmount's  photographic and imaging chemicals are used in the manufacture
of photographic  film,  television  picture tubes and medical imaging  products.
These chemicals  include  photo-sensitizers,  film-stabilizers,  and antifogging
agents.

     The demand for certain  types of chemicals  used in  photographic  films is
expected to decrease  during the coming years as the market for film  diminishes
due in part to new  digital  imaging  technologies.  Fairmount  is aware of this
possibility  and has taken steps to  substitute  new  products  that are used in
making  photographic paper and increase its market share of existing products by
broadening its customer base.

     Hydrazine Based Products

     Hydrazine  blends  and  derivatives  are  used  for  corrosion  control  in
commercial  boilers and power generating systems as well as intermediates in the
manufacture  of other  chemical  products,  such as in metal  chelating  agents,
polymerization  inhibitors,   pharmaceuticals,  and  agriculture  intermediates.
Fairmount markets its hydrazine blends under the registered trade name Deoxy-sol
(R).

     Due to its expertise in hydrazine chemistry,  Fairmount is becoming a major
producer of hydrazine derivatives in the U.S. and believes this market will have
substantial growth potential over the next few years.

     Fairmount  does not  believe  that it will  increase  its  market  share of
hydrazine blends due to increased competition from other manufacturers.

     Plastics Additives

     Fairmount produces additives,  including  antioxidants,  metal deactivators
and UV  stabilizers,  that are used in the  production  of  products  made  from
various  plastic  resins,  including  polycarbonates,   polyolefins,   PVCs  and
polyester  resins.  Fairmount's  customers  include the manufacturers of plastic
resins as well as  compounders  who add pigment and  additives  to the resins to
meet final product performance.  Fairmount markets some of its plastic additives
under the registered trade name MIXXIM(R).


                                       3
<PAGE>

     Specialty Chemicals

     Fairmount's  non-hydrazine  based  specialty  chemicals  are  also  used as
intermediates in the pharmaceutical and agricultural  industries.  These include
derivatives of thiadiazoles, triazoles and tetrazoles.

Raw Materials

     Fairmount  purchases the raw materials  used in its  production  from major
suppliers  like E. I.  DuPont de  Nemours &  Company,  Bayer  Corporation,  Arch
Chemical Inc., B. F. Goodrich and Cytec  Industries Inc. Most purchases are on a
spot  basis.  Fairmount  has  no  long-term  supply  contracts  with  any of its
suppliers.  Fairmount  believes  that the raw  materials  it  requires  are each
available  from a variety  of sources  and the loss of any one of its  suppliers
would not have a material adverse effect on its business, financial condition or
results of operations.  Fairmount has, and expects to continue to have, adequate
supplies of raw material during 2001 and subsequent years.

     Some of the Company's raw material prices are related to the price of crude
oil and natural gas.  During the year ended December 31, 2000, the cost of crude
oil and natural gas did  increase and the price of some raw  materials  increase
accordingly.  However,  most of the  Company's  principal  raw materials did not
experience any a substantial increases.

Method of Distribution

     Fairmount  markets its  products,  domestically  and for export,  primarily
through its internal sales force and sells  directly to its customers.  However,
some of its hydrazine  blends and other products are also sold globally  through
independent  agents and  distributors.  Fairmount  continues  to  improve  sales
coverage and distribution of its products.

Competition

     While  some  of  Fairmount's  products  and  manufacturing   processes  are
proprietary, Fairmount experiences substantial competition from global companies
in most of its product areas and markets. Most of its competitors are well-known
companies with greater  resources than  Fairmount's.  Competition has increased,
though  this has not yet had a  material  impact on  Fairmount's  market  share.
Fairmount sells on the basis of quality,  price and customer service, and relies
on fast response and cost effectiveness to stay competitive.

Patents, Licenses and Trademarks

     Although Fairmount considers its trademarks constitute a valuable asset, it
does not regard its business as being materially dependent upon them.

Research and Development

     Fairmount's  applied  research  and  development  program  focuses on three
objectives:

          o    improvement and refinement of existing products and processes.
          o    development of new applications for existing products
          o    development of new products.

     Fairmount spent  approximately  $401,900 during the year ended December 31,
2000,  and  $374,500  during the year ended  December  31, 1999 for research and
development  activities.  It expects  research and  development  expenditures to
increase moderately during 2001.


                                       4
<PAGE>

Sales by Product

     Each class of similar  products  contributed  the  following  percentage of
total sales in each of the last two calendar years.

                                                            2000       1999
                                                            ----       ----

     Imaging  & photographic chemicals                       27%        21%
     Hydrazine blends                                        19%        21%
     Hydrazine derivatives                                    7%         9%
     Plastics additives                                      35%        33%
     Specialty chemicals                                     12%        16%
                                                            ---        ---
                                                            100%       100%
                                                            ===        ===

     Fairmount  sells its  products  in the global  markets  and  continues  its
efforts to expand both  domestic and export  sales.  Fairmount  had net sales of
$11,808,100  in  2000  and  $11,316,000  in  1999,  including  export  sales  of
$4,109,700 in 2000 and  $4,434,200 in 1999.  Major  foreign  geographical  areas
contributed the following percentages to net sales:

                                                        2000          1999
                                                        ----          ----
     Europe, (Primarily Germany,
     Belgium, and England)                              27.1%         20.0%
     Asia (Primarily Israel)                             6.5%         18.0%
     North and South America                             1.2%          1.2%

     The decrease in sales to Asia was  primarily  due to lack of demand in 2000
for plastic additives, due in part to the strong dollar.

Dependence On Certain Customers

     During 2000, two customers accounted for approximately 37.5% of Fairmount's
sales.  During  1999,  three  customers  accounted  for  approximately  40.5% of
Fairmount's  sales.  The loss of one of these  customers  could  have a material
adverse effect on Fairmount's  business. In order to reduce this risk, Fairmount
continues to increase its marketing efforts to broaden its customer base.

Environmental Laws and Government Regulations

     Fairmount is committed to the  chemical  industry's  "Responsible  Care(R)"
program.  Responsible Care is the Chemical Manufacturer Association's initiative
of 1988 for continuously  improving health, safety and environmental quality. It
is the policy of  Fairmount  to protect the  environment  and to comply with all
governmental  laws and  regulations.  The  chemical  industry is one of the most
highly  regulated  industries  in the  world  with  respect  to  ecology.  For a
discussion  of  Fairmount's  environmental  matters,  see "Item 6.  Management's
Discussion    and   Analysis   of   Financial    Condition    and   Results   of
Operations-Liquidity and Capital Resources."

Employees

     As of December  31,  2000,  Fairmount  had 50  employees,  all of whom were
full-time  employees.  It  has a  contract  with  International  Brotherhood  of
Teamsters Local 575 ("Union"),  which covers all hourly employees.  The contract
expired on December 12, 1999,  but  Fairmount and the Union agreed to extend the
contract for one year on the same terms and conditions.  Fairmount and the Union
have  reached an  agreement  on a new  three-year  contract;  under  which union
members will receive an annual wage increase of  approximately  3.5 % in each of
the three year of the  contract.  The new  contract was  effective  December 12,
2000. Fairmount believes its has good relationships with it employees.

Item 2. Properties

     Fairmount's  production  facilities  consist of 14 brick,  cinder block and
metal-clad  buildings situated on approximately 13 acres of fenced-in land in an
industrial area of Newark, New Jersey.  These facilities  provide  approximately
97,100  square  feet of floor  space,  in which  are  located  chemical  process
equipment,  refrigeration  units, steam boilers as well as warehouse,  shipping,
maintenance,  office,  and research  and  development  facilities.  In


                                       5
<PAGE>

addition,   certain  process  equipment  and  tanks  are  located  and  operated
out-of-doors. The site includes two railway spurs, neither of which is currently
in use.

     Fairmount's  line of  credit  with  Summit  Bank is  collateralized  by the
accounts receivable, inventory and personal property of the Company. Fairmount's
debt to affiliated parties is subordinated to the Summit Bank line of credit and
is collateralized by the accounts  receivable and the machinery and equipment of
Fairmount.  Except for this lien, there are no mortgages or liens on Fairmount's
property.  See  Management's  Discussion  and  Analysis and Notes 4 and 5 of the
Notes to Financial Statements.

     Fairmount  normally  operates its plant on a 24-hour day,  five days a week
schedule.  While it  believes  that its  plant,  buildings,  and  equipment  are
adequately maintained and are reasonably suitable and sufficient for its current
operations,  further  capital  investment  may be required  for  maintenance  of
Fairmount's  operations and compliance with  applicable  laws. In the opinion of
management  Fairmount  maintains  adequate  levels of property  insurance on the
entire premises.

     On March 25, 1997,  equipment used to dry some of Fairmount's  products was
destroyed in an explosion.  No employees  were  injured.  The damage to both the
building  housing the equipment and the equipment was extensive and the building
has been  razed.  Collateral  damage to other  buildings  was  minor.  Fairmount
received $200,000 from its property  insurance carrier during the second quarter
of 1997 and an additional  $1,140,100 in January 1998 in partial  settlement for
its  property  losses  caused by the  explosion.  In  February  1999,  Fairmount
received the final payment of $375,000 for these property losses.

     On November 10, 1999, a fire  destroyed some equipment and a portion of the
roof in one of the production  buildings.  No employees were injured.  Fairmount
received  $100,000  from its property  insurance  carrier in December  1999,  an
additional $100,000 in March 2000 and $233,100 in May 2000 in partial settlement
for its property losses caused by the fire.

     The fire had an adverse  effect on operations  during the fourth quarter of
1999, and the first half of 2000. Production returned to its normal level in the
second half of 2000.

     In 2000,  Fairmount spent $685,500 on capital  expenditures for the upgrade
and  the  expansion  of  its  production  facilities,  and  improvements  to its
equipment.   Fairmount   has   budgeted   approximately   $500,000  for  capital
expenditures in 2001.  Major  expenditures  are targeted for the replacement and
improvement of process equipment, new construction, and safety and environmental
projects.

     It is not  Fairmount's  policy to acquire  assets  primarily  for  possible
capital gain or primarily for income.

Item 3. Legal Proceedings

     A bodily  injury claim was filed against the Company on December 2, 1998 in
the Superior  Court of New Jersey Law  Division,  Hudson  County.  The plaintiff
alleges that on March 25, 1997, the date of an explosion at  Fairmount's  plant,
the force of the  explosion  threw him backward  and  resulted in injuries.  The
plaintiff was an invitee upon the adjoining property to the Company.  This claim
was settled on July 20, 2000 for an immaterial amount.

     On May 13,  1999,  a toxic tort case was  brought  against  the Company and
other defendants by former employees,  family members of the former employees or
heirs of  deceased  former  employees  of La Gloria and Gas  Company  and the La
Gloria Refinery located in Tyler, Texas. The claimants contend that the employee
plaintiffs  and their  families  were exposed to a number of toxic  chemicals by
working  in  and  around  them  or  with  them  at the La  Gloria  Plant  and by
second-hand  exposure occurring as a result of the toxic substance being brought
home on the clothing and bodies of the employee plaintiffs. Plaintiffs have sued
the employer defendants and numerous manufacturers,  suppliers, and distributors
of chemicals, solvents and products supplied to the La Gloria Plant. The Company
sold a hydrazine blend to La Gloria during 1990 and 1991.

     On October  21,  1999,  the Federal  Court  granted  defendants'  motion to
dismiss because of lack of subject matter jurisdiction.  Claimants re-filed this
cause of action in Texas state court in the District  Court of Harrison  County,
Texas on December 15, 1999.  Claimants'  allegations in the state court petition
are identical to the allegations  discussed above.  The discovery  process is in
the initial phase and the Company is not able to determine potential exposure at
this time. The Company's  commercial  general liability and commercial  umbrella
insurance   carrier  is  defending   the  Company  in  that   action.   See  the
"Environmental Laws and Government Regulations" section of Item 6.


                                       6
<PAGE>

     On October 10,  2000,  a breach of contract  claim was brought  against the
Company in the Worcester  Superior Court of the  Commonwealth of  Massachusetts.
The  plaintiff  alleges  that  a  defective   component  chemical  used  in  the
plaintiff's manufacturing process was supplied by Fairmount. The Company intends
to contest  the case  vigorously.  This  action  has been  moved from  Worcester
Superior  Court to the  Federal  District  Court  for the  Western  District  of
Massachusetts.  The Companies are in the process of  exchanging  documents.  The
Company's commercial general liability and commercial umbrella insurance carrier
is defending the Company in that action

Item 4. Submission of Matters to a Vote of Security Holders

     Fairmount submitted no matters to a vote of its security holders during the
last quarter of its fiscal year ended December 31, 2000.

                                     PART II

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

     On July 5,  1991,  Fairmount's  shares of common  stock were  deleted  from
NASDAQ  as a result of  Fairmount's  failure  to meet the  capital  and  surplus
requirements as set forth in Section 1(c)(3),  Part II of Schedule D of the NASD
by-laws.  Fairmount's  common  stock is now traded  over the  counter and is not
quoted on the automated quotation system of a registered securities association.
For each fiscal  quarter,  the charts below  reflect the high and low bid prices
for the Common Stock.  The bid prices reflect  inter-dealer  quotations  without
retail  mark-ups,  mark-downs or commissions  and do not  necessarily  represent
actual transactions. Price Ranges of Common Stock were as follows:

                             Common Stock Bid Prices
                                         2000                    1999
                                         ----                    ----
    Quarter                        High        Low         High        Low
    -------                        ----        ---         ----        ---

     First                         $.37        $.16        $.31        $.18
     Second                        $.28        $.19        $.50        $.21
     Third                         $.28        $.09        $.44        $.31
     Fourth                        $.14        $.03        $.31        $.19

     There were  approximately  241 stockholders of record at December 31, 2000.
Fairmount did not declare or pay any dividends in 2000 or 1999.

Item 6. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

Liquidity and Capital Resources

     To  meet  its  liquidity  requirements,   including  its  capital  program,
Fairmount accesses funds generated from operations,  its available cash balances
and its  bank  line of  credit  with  Summit  Bank in  Hackensack,  New  Jersey.
Fairmount  believes these sources to be adequate to meet operating  requirements
for the year  ending  December  31,  2001.  The line of credit is  subject to an
annual  review for renewal.  The working  capital line of credit was renewed and
amended during the second quarter of 2000. Under the amended loan agreement, the
Company has  available  the lesser of  $1,250,000  or up to 80 % of its eligible
receivables,  as  defined in the loan  agreement.  Foreign  customer's  accounts
receivable were ineligible,  however Fairmount has obtained  insurance  coverage
for most of its foreign customers, and Summit Bank now considers those customers
as eligible for borrowing purposes.  The 80 % limitation on eligible receivables
should not have a material effect on Fairmount.  The bank has been given a first
security interest in the accounts receivable,  inventories and personal property
of the Company. As of December 31, 2000,  Fairmount's borrowing availability was
$723,700, of which Fairmount had borrowed $200,000.

     The Company's working capital  decreased by $884,600 in 2000,  resulting in
working capital of $4,363,400 compared to working capital of $5,248,000 in 1999.
The decrease was primarily due to higher  accounts  payable of $764,200,  higher
accrued other  liabilities  of $162,900,  and increased  borrowings of $200,000.
This decrease in working capital was partially offset by $333,100  received from
the Company's  property  insurance carrier in partial settlement of the property
damages  sustained  from a fire  on  November  10,  1999.  In  addition,  higher
inventories of $742,300 partially offset the decrease in working capital.


                                       7
<PAGE>

     On March 25, 1997,  equipment used to dry some of Fairmount's  products was
destroyed in an explosion.  No employees  were  injured.  The damage to both the
building  housing the equipment and the equipment was extensive and the building
has been razed. Other surrounding buildings experienced minor collateral damage.
Fairmount has  discontinued  drying the product that was being dried at the time
of the  explosion.  This  product  has been  reformulated  for safety  concerns.
Fairmount has lost some orders because of the  reformulation,  but the effect on
its  operations  is  immaterial.  During 1997,  Fairmount  wrote-off  $87,800 of
inventory  that was similar to the product that was  involved in the  explosion.
During  February  1999 the  Company  received  a payment  of  $375,000  from its
property  insurance  carrier  as  final  settlement  for  the  property  damages
sustained from the March 25, 1997 dryer explosion.

     On November 10, 1999, a fire  destroyed some equipment and a portion of the
roof in one of the production buildings. No employees were injured. The fire had
an adverse  effect on operations  during the fourth  quarter of 1999,  and first
half of 2000.  Production  returned to normal levels in the second half of 2000.
Fairmount  incurred  approximately  $17,500 in professional  cost related to the
fires and  wrote-off  approximately  $22,000 of net  capitalized  equipment  and
building improvements damaged or destroyed by the fire.

     Fairmount's insurance carrier notified Fairmount that when its property and
boiler  insurance  policy  expired on February 1, 2000,  it would not be renewed
because of adverse loss  experience.  Fairmount  has obtained  coverage  through
another carrier, though at a substantially higher premium.

     On March 20, 1992, a Credit Facility Loan Agreement ("Credit Facility") was
created with monies  contributed to a fund ("the Fairmount  Fund") by William E.
Leistner and the Estate of Olga H. Knoepke.  At that date,  the  Fairmount  Fund
provided  Fairmount with a $2,494,000 credit facility under which all borrowings
required  interest at the rate of 5% per annum. The outstanding  borrowings from
the Credit  Facility were  $1,080,000.  On July 2, 1997 the Credit  Facility was
terminated and Fairmount  replaced the $1,080,000 of credit facility  borrowings
with new promissory  notes due January 1, 2005. The Leistner  Estate  received a
note for  $648,000.  Three  notes were  issued to  beneficiaries  of the Knoepke
Estate. These three notes were issued as follows:

          o    The da Mota Family Partnership - $224,640;
          o    Glen da Mota - $142,560; and
          o    Lynn da Mota - $64,800.

     All  of the  promissory  notes  described  above  have  similar  terms  and
conditions.  Interest is payable  commencing in 1999,  is at the corporate  base
rate posted by Citibank,  N.A. (or its successor) on the last banking day of the
previous  calendar year.  Interest on the unpaid  principal from January 1, 2000
through  December  31, 2000 is at the rate of 8.5% per annum.  Interest  payable
from  January  1, 1999  through  December  31,  1999 is at the rate of 7.75% per
annum.  All of the promissory  notes are  subordinated  to  Fairmount's  line of
credit financing with Summit Bank and are collaterized by security agreements on
Fairmount's accounts receivables, inventories and personal property.

     On  October 9, 1997 the  executors  of the  Leistner  Estate  endorsed  two
promissory  notes of $648,000 and $491,600 to the order of the Howard  Leistner,
Hedi Mizrack and Gilbert  Leistner  Irrevocable  Grantor  Trust.  This trust was
established  to expedite the  settlement  of the  Leistner  Estate and to be the
repository  of the  common and  preferred  shares of  Fairmount,  as well as the
promissory notes held by the Leistner Estate. Howard Leistner,  Hedi Mizrack and
Gilbert Leistner have sole voting rights to their common stock holdings.

     The promissory  note to the Leistner Estate for $491,600 is subordinated to
Fairmount's  line of credit financing with Summit Bank and to the new promissory
notes, totaling $1,080,000,  that replaced the Credit Facility. Interest paid on
the  aforementioned  promissory  notes/long-term  debt to affiliated parties was
$133,600 in 2000 and $121,800 in 1999.

     Fairmount entered into an employment agreement with Dr. Reidar Halle. Under
the  agreement,  which was made  effective  January 12,  1998,  Dr. Halle became
President and Chief Executive Officer. The agreement can be terminated be either
party by  giving  thirty  days  written  notice.  If  Fairmount  terminates  the
agreement for any reason other then for cause, as defined,  then Dr. Halle shall
be paid an amount  equal to six month's  annual base salary on January 12, 1998.
Dr. Reidar  Halle's  employment  agreement has been extended for one year on the
same terms and conditions, and now expires January 12, 2002.

Environmental Laws and Government Regulations


                                       8
<PAGE>

     Fairmount's  operations are subject to extensive  Federal,  state and local
laws, regulations and ordinances in the United States and abroad relating to the
generating, storage, handling, emission, transportation and discharge of certain
materials,  substances and waste into the environment,  and various other health
and safety matters.  Government authorities have the power to enforce compliance
with their  regulations,  and violators may be subject to fines,  injunctions or
both.  The  company  believes  it has the  ability  to comply  with the  present
environmental  statutes  applicable  to its  business.  Fairmount has an ongoing
program to treat and monitor its  wastewater  effluent for  compliance  with the
requirements of local laws and regulations.  Samples are analyzed for biological
oxygen  demand.  An outside  testing  laboratory  performs  a complete  chemical
analysis monthly and quarterly summary, and results are forwarded to the Passaic
Valley  Sewage  Commission  and  the  New  Jersey  Department  of  Environmental
Protection.

     Fairmount monitors compliance with environmental laws and regulations. Tank
dikes and equipment are inspected for leakage and any evidence of potential soil
contamination. Fairmount utilizes a training program, which includes instruction
on  its   responsibilities   regarding   environmental   laws  and  regulations.
Fairmount's  chemical  processing  operations  are  carried  out at  atmospheric
pressure or vacuum,  thereby mitigating the potential for atmospheric  pollution
from equipment rupture.

     Fairmount  anticipates that the regulation of its business operations under
federal,  state and local  environmental  regulations  in the United  States and
abroad will  increase over time.  Fairmount  must devote  substantial  financial
resources  to ensure  compliance,  however  the  company  can not, at this time,
estimate the impact of increased  regulation on its  operations,  future capital
expenditures requirements or the cost of compliance.

     The  Occupational  Safety and Health Act and its  regulations  also  impact
Fairmount's operations relating to workplace safety and workers' health.

     Fairmount  received notice from the New Jersey  Department of Environmental
Protection  ("NJDEP") that the NJDEP is investigating  whether any material from
the company  caused or contributed  to the  contamination  detected at the Ciuba
landfill  property in Newark.  The NJDEP alleges a  possibility  that during the
1970's Fairmount  disposed of waste generated at its facility through  contracts
with certain garbage removal companies located at the Ciuba landfill.  Fairmount
also received  notice from the United  States  Environmental  Protection  Agency
("USEPA") that the USEPA has information  indicating  that hazardous  substances
from  Fairmount  may  have  been  discharged  into  the  Passaic  River.  It  is
Fairmount's   understanding   that  these  USEPA   allegations  are  related  to
historical,  rather  than  present  events.  Fairmount's  position  is that  its
material  neither  caused nor  contributed to the  contamination  of the Passaic
River  and that it has not  discharged  hazardous  substances  into the  Passaic
River. In both cases,  the possibility  exists that the potentially  responsible
parties  will  bring  claims  against  Fairmount  alleging  that it is at  least
partially responsible for the contamination.

     Fairmount has no knowledge of  contamination  of soil on its  property.  No
underground   storage   tanks  exist  on   Fairmount's   property.   Fairmount's
manufacturing effluent system is connected to an above ground piping system. The
effluent is discharged to the local sewage commission.

     Environmental  compliance,  waste  disposal  and  regulatory  fees  totaled
approximately  $97,300 in 2000 and $101,800 in 1999. These costs are included in
general and administrative expenses.

Inflation

     Fairmount believes that inflation did not have a material impact on results
of operations in 2000.  Based on present  economic  conditions this trend should
continue in 2001.

Results of Operations 2000 - 1999

     Net sales for 2000 were  $11,808,100,  an  increase of $492,100 or 4.3 % as
compared to 1999.

                                               2000          1999      Change
                                        -----------   -----------   ---------
     Imaging & Photographic Chemicals   $ 3,223,000     2,342,200   $ 880,800
     Hydrazine blends                     2,321,800     2,360,900     (39,100)
     Hydrazine derivatives                  792,300     1,029,000    (236,700)
     Plastics additives                   4,095,100     3,703,700     391,400
     Specialty chemicals                  1,375,900     1,880,200    (504,300)
                                        -----------   -----------   ---------

          Total                         $11,808,100   $11,316,000   $ 492,100
                                        ===========   ===========   =========


                                       9
<PAGE>

     The increase in imaging and photographic  chemical sales was due in part to
increased shipments to the photographic industry.  This increase in photographic
sales was due to shipments to new customers,  as well as increased  shipments to
its current  customers  base.  The demand for certain types of chemicals used in
photographic films is expected to decrease during the coming years as the market
for film diminishes due in part to new digital imaging  technologies.  Fairmount
is aware of this possibility and is taking steps to substitute new products that
are used in making  photographic paper and increase its market share of existing
products by broadening its customer base.

     The decreased sale of hydrazine  derivatives in 2000 was due to a softening
in that market and  customers  consolidating  and  reducing  their  inventories.
During 1999, one of the Company's major hydrazine derivative customers moved the
production  of their  products to other  plants  around the world and  Fairmount
anticipates  that it will no  longer  sell the same  volume of  product  to this
customer as it has done in the past.  Fairmount  will  continue to emphasize the
development  of what it  believes  will be an  expanding  market  for  hydrazine
derivatives.  Fairmount is becoming a major producer of hydrazine derivatives in
the U.S. and believes  there is substantial  growth  potential over the next few
years.

     Sales of plastics additives increased from $3,703,700 in 1999 to $4,095,100
in 2000,  an increase of $391,300 or 10.6%.  The increase in the sales amount is
net of price decreases effective during the second half of 1999 and the negative
effect of the weak EURO.  This sales value increase was due to increased  volume
to a major European customer; however, to meet competition,  Fairmount sales are
at a fixed EURO price and the Company is therefore  subject to currency exchange
rate  changes.  Fairmount  sells at a fixed EURO price for  competitive  reasons
During  2000,  because  of the weak  EURO,  Fairmount's  average  selling  price
decreased  by 11 %. The effect of this  unfavorable  change was a  reduction  in
sales and  profits  of  approximately  $334,800.  As in prior  years,  Fairmount
expects the downward pressure on plastics additive prices to continue.

     Also adversely  affecting  plastic additive sales was the loss of a foreign
customer because of risks  associated with lengthy payment terms.  Fairmount has
eliminated  this risk by  purchasing  business  credit  insurance  to cover such
receivables;  as a result of the  coverage  the Company can borrow  against such
receivables under it line of credit with Summit Bank.

     Sales of specialty chemicals were $1,375,900 in 2000 compared to $1,880,200
in 1999, a decrease of $504,300. This decrease in specialty chemicals was due in
part to decrease  shipments  of a  pharmaceutical  product.  The demand for this
product has decreased during the past few years and Fairmount expects that trend
to continue.  Also, the shipments of a newly introduced  specialty  products was
delayed by the customer until the first half of 2001.

     Each class of similar  products  contributed  the  following  percentage of
total sales in each of the last two calendar years:

                                                                2000    1999
                                                               -----   -----

     Imaging  & photographic chemicals                          27 %    21 %
     Hydrazine blends                                           19 %    21 %
     Hydrazine derivatives                                       7 %     9 %
     Plastics additives                                         35 %    33 %
     Specialty chemicals                                        12 %    16 %
                                                               -----   -----
                                                               100 %   100 %
                                                               =====   =====

     The gross profit for 2000 was $1,480,500, an increase of $233,500 or 18.7 %
compared to the same period in 1999.  As a percent of sales the gross margin was
12.5 % in 2000  compared to 11 % during  1999.  The increase in gross profit was
primarily  due to the  increase  in sales of imaging &  photographic  chemicals,
which are more profitable  than the Company's  other  products.  Offsetting this
increase,  the average  unit-selling  price of plastic  additives  has decreased
without a corresponding decrease in production cost.

     Selling,  general and administrative expenses increased by $144,000 in 2000
compared to 1999.  Selling expenses increased $41,100 primarily due to increased
commissions and advertising.  General and  administrative  expenses increased by
$102,900 in 2000 compared to 1999.  This increase was due primarily to increased
insurance  of  $14,900,  and  increased  travel and travel  related  expenses of
$63,400.


                                       10
<PAGE>

     Interest  expense was higher in 2000 versus 1999 due to an increase of 1.0%
in the interest  rate on the remaining  debt owed to affiliated  parties per the
new promissory note agreements. See Note 4 of the Notes to Financial Statements.

     During 2000, Fairmount received insurance proceeds of $333,100, compared to
$435,500,  net of related cost in 1999. The insurance  proceeds in 1999 included
$375,000 partial settlement for the property losses sustained from the explosion
on March 25, 1997 and $100,000  partial  payment for the property loss sustained
from the fire on November 10, 1999.  During 2000 Fairmount  received $333,100 in
partial settlement for the property loss sustained from the fire on November 10,
1999. See Note 13 of the Notes to Financial Statements.

     The  Company  has Federal and state net  operating  loss  carryforwards  of
approximately  $13,115,000 and $2,667,000,  respectively,  which expire in years
2001 through 2021. There is no tax expense recorded in the financial  statements
of the Company  because of its loss  position,  The Company has  reserved  fully
against its net deferred tax asset.

2001 Outlook

     Fairmount has budgeted  approximately  $500,000 for capital expenditures in
2001.  Major  expenditures  will consist of the  replacement  and improvement of
process equipment, new construction, and safety and environmental projects.

     The demand for certain  types of chemicals  used in  photographic  films is
expected to decrease  during the coming  years due to the  increased  use of new
imaging technologies,  including digital photography. Fairmount is aware of this
possibility  and has taken steps to  substitute  new  products  that are used in
making  photographic paper and increase its market share of existing products by
broadening its customer base.

     Fairmount continues to experience  competitive  pressures on the pricing of
certain  products  and has  reacted  by closely  monitoring  the cost of its raw
materials and by reevaluating its manufacturing processes. Some of the Company's
raw  material  prices  are  related to the price of crude oil and  natural  gas.
During the year ended  December 31, 2000,  the cost of crude oil and natural gas
increased and the price of some raw materials  increased  accordingly.  However,
most of the Company's principal raw materials did not experience any substantial
increases.

     Fairmount  is  refocusing  the  direction  of  its  marketing   efforts  by
concentrating  on  aggressively  expanding  the  customer  base for  Fairmount's
existing product line. Fairmount will also continue to develop new products when
there is a profitable  market  potential to be realized in relation to the costs
and efforts expended.

Forward Looking Statements

     This document  contains  forward-looking  statements that involve risks and
uncertainties  that could cause the results of  Fairmount  to differ  materially
from those expressed or implied by such forward-looking statements.  These risks
include the timely  development,  production  and acceptance of new products and
services;  competition;  the  flow of  products  into  third-party  distribution
channels;  and other risks detailed from time to time in Fairmount's  Securities
and  Exchange  Commission   filings.   The  words   "anticipates,"   "believes,"
"estimates,"  "expects,"  "intends,"  "will," and similar  expressions,  as they
relate to Fairmount or our management, may identify forward-looking  statements.
Such  statements  reflect the current views of Fairmount  with respect to future
events and are subject to certain risks,  uncertainties and assumptions.  Should
one or more of these risks or uncertainties  materialize,  or should  underlying
assumptions prove incorrect, actual results may vary from those described herein
as anticipated,  believed,  estimated or expected.  Fairmount does not intend to
update these forward-looking statements.


                                       11
<PAGE>

Item 7. Financial Statements and Supplementary Data

Index to Financial Statements and Related Information

Financial Statements
                                                                        Page
                                                                        ----

     Independent Auditors' Report                                        13

     Statements of Operations for the years ended
       December 31, 2000 and 1999                                        14

     Balance Sheets as of December 31, 2000 and 1999                     15

     Statements of Changes in Stockholders' Equity and Comprehensive
       loss for the years ended December 31, 2000 and 1999               16

     Statements of Cash Flows for the years ended
       December 31, 2000 and 1999                                        17

     Notes to Financial Statements                                       18 - 26

     Schedule II - Valuation and Qualifying Accounts                     32


                                       12
<PAGE>

                          Independent Auditors' Report

The Board of Directors and Stockholders
Fairmount Chemical Co., Inc.:

We have audited the accompanying  balance sheets of Fairmount Chemical Co., Inc.
as of  December  31,  2000 and 1999 and the related  statements  of  operations,
changes in stockholders'  equity and  comprehensive  loss and cash flows for the
years then ended. In connection with our audits of the financial statements,  we
also have audited the financial  statement  schedule - valuation and  qualifying
accounts.  These financial  statements and financial  statement schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial  statements and financial statement schedule based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  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 financial  statements  referred to above present fairly, in
all material respects, the financial position of Fairmount Chemical Co., Inc. as
of December 31, 2000 and 1999,  and the results of its  operations  and its cash
flows  for the  years  then  ended  in  conformity  with  accounting  principles
generally  accepted in the United  States of America.  Also in our opinion,  the
related financial statement  schedule,  when considered in relation to the basic
financial statements presents fairly, in all material respects,  the information
set forth therein.

                                  /S/ KPMG LLP

Short Hills, New Jersey
February 26, 2001


                                       13
<PAGE>

                          FAIRMOUNT CHEMICAL CO., INC.

                            Statements of Operations

                     Years Ended December 31, 2000 and 1999

                                                2000            1999
                                            ------------    ------------
Net sales                                   $ 11,808,100    $ 11,316,000

Cost of goods sold                            10,327,600      10,069,000
                                            ------------    ------------
   Gross profit                                1,480,500       1,247,000

Research & development                           401,900         374,500

Selling, general and
     administrative expenses                   1,988,500       1,844,500
                                            ------------    ------------

   Operating loss                               (909,900)       (972,000)

Interest expense                                (181,300)       (149,100)
Interest income                                  133,400         110,600
Other income (expense), net                      (47,400)          9,500
Insurance proceeds, net                          333,100         435,500
                                            ------------    ------------

Loss before income taxes                        (672,100)       (565,500)

Income taxes                                        --                --
                                            ------------    ------------
Net loss                                    $   (672,100)   $   (565,500)
                                            ------------    ------------

Loss per share
   Basic                                    $       (.08)   $       (.07)
                                            ============    ============

Common shares and equivalents outstanding
   Basic                                       8,292,866       8,292,866
                                            ============    ============


                See accompanying notes to financial statements.


                                       14
<PAGE>

                          FAIRMOUNT CHEMICAL CO., INC.

                                 Balance Sheets

                           December 31, 2000 and 1999
<TABLE>
<CAPTION>
                                                             2000         1999
                                                         -----------  -----------
<S>                                                        <C>          <C>
Assets
   Current Assets:
         Cash                                              2,093,900    2,481,100
         Accounts receivable, less allowance
              for doubtful accounts of $20,600
              in 2000, and none in 1999                    1,913,400    1,985,100
         Inventories                                       2,700,100    1,957,800
         Prepaid expenses                                    124,100      114,100
         Other current assets                                 11,300       10,200
                                                         -----------  -----------
                  Total Current Assets                     6,842,800    6,548,300

   Property, plant and equipment
        Less accumulated depreciation of
        $5,756,800 and $5,204,400 in 2000
       and 1999 respectively                               3,938,900    3,805,800
   Other assets                                                  700          700
                                                         -----------  -----------
         Total Assets                                     10,782,400   10,354,800
                                                         ===========  ===========
Liabilities and Stockholders' Equity
   Current Liabilities:
         Short-term bank borrowings                          200,000         --
         Accounts payable                                  1,590,400      826,200
         Accrued compensation                                136,400       84,200
         Accrued pension liability                           153,000      153,200
         Other accrued liabilities                           399,600      236,700
                                                         -----------  -----------
                  Total Current Liabilities                2,479,400    1,300,300

   Promissory notes to affiliated parties                  1,571,600    1,571,600
   Accrued pension liability                                 146,700      145,900

   Redeemable convertible Preferred stock,
        par and liquidation value $1 per share:
        Authorized -- 10,000,000 shares: 5,400,000
        shares issued and outstanding (liquidation
        value $5,400,000)                                  5,400,000    5,400,000
Commitments and contingencies

Stockholders' Equity:
   Common stock, par value $1 per share:
        Authorized -- 15,000,000 shares; 8,293,366
        shares issued and outstanding in 2000 and 1999     8,293,400    8,293,400
   Less: Treasury stock (at cost) -- 500 shares                 (500)        (500)
   Capital in excess of par value                          7,316,000    7,316,000
   Accumulated deficit                                   (14,246,800) (13,574,700)
   Accumulated other comprehensive loss --
        additional minimum pension liability                (177,400)     (97,200)
                                                         -----------  -----------
         Total Stockholders' Equity                        1,184,700    1,937,000
                                                         -----------  -----------
   Total Liabilities and Stockholders' Equity             10,782,400   10,354,800
                                                         ===========  ===========
</TABLE>

                See accompanying notes to financial statements.


                                       15
<PAGE>

                          FAIRMOUNT CHEMICAL CO., INC.

                  Statement of Changes in Stockholders' Equity
                                       and
                               Comprehensive Loss
                     Years ended December 31, 2000 and 1999

<TABLE>
<CAPTION>
                                                   2000                      1999
                                               -------------             -------------
                                               Comprehensive             Comprehensive
                                                   (loss)                    (loss)
                                               -------------             -------------
Common stock:
<S>                                     <C>           <C>            <C>           <C>
     Balance at December 31               8,293,400                  8,293,400
                  (8,293,366 shares)

Treasury stock:
     Balance at December 31,                   (500)                      (500)
                (500 shares)

Capital in excess of par value:           7,316,000                  7,316,000
     Balance at December 31,

Accumulated deficit:
     Balance at January 1               (13,574,700)               (13,009,200)
     Net loss                              (672,100)   (672,100)      (565,000)   (565,500)

                                       ------------               ------------
     Balance at December 31,            (14,246,800)               (13,574,700)

Accumulated other comprehensive
     loss:
Balance at January 1                        (97,200)                  (301,600)
Change in additional minimum
   pension liability                        (80,200)    (80,200)       204,400     204,400
                                                       --------                   --------
Comprehensive loss                                     (752,300)                  (361,100)
                                                       ========                   ========

                                       ------------               ------------
Balance at December, 31                    (177,400)                   (97,200)

                                       ------------               ------------
Total Stockholders' equity             $  1,184,700               $  1,937,000
                                       ============               ============
</TABLE>

                See accompanying notes to financial statements.


                                       16
<PAGE>

                          FAIRMOUNT CHEMICAL CO., INC.

                            Statements of Cash Flows

                     Years Ended December 31, 2000 and 1999

<TABLE>
<CAPTION>
                                                                     2000           1999
                                                                -----------    -----------
<S>                                                             <C>            <C>
Cash Flow used in Operating Activities:
    Net loss                                                    $  (672,100)   $  (565,500)
   Adjustments to reconcile net loss to
        net cash used in operating activities:
             Depreciation                                           552,400        615,000
             Insurance proceeds, net                               (333,100)      (435,500)
             Disposal of equipment damaged by fire                     --           22,000

   Increase (decrease) from changes in:
        Accounts receivable, net                                     71,700       (103,700)
        Inventories                                                (742,300)       (15,900)
        Prepaid expenses                                            (10,000)        72,700
        Other current assets                                         (1,100)         8,900
        Accounts payable                                            764,200        317,700
        Accrued compensation                                         52,200        (31,500)
        Other liabilities                                            83,300         29,500
                                                                -----------    -----------
               Net Cash Flow Used In Operating Activities          (234,800)       (86,300)

Cash Flow (Used in) Provided by Investing Activities:
   Capital expenditures                                            (685,500)      (256,900)
    Insurance proceeds, net                                         333,100        435,500
                                                                -----------    -----------
          Net Cash (Used in) Provided by Investing Activities      (352,400)       178,600

Cash Flow Provided by (Used in) Financing Activities:
Bank borrowings                                                     600,000           --
Bank repayments                                                    (400,000)       (33,900)
                                                                -----------    -----------
    Net Cash Flow Provided by (Used in) Financing Activities        200,000        (33,900)
                                                                -----------    -----------

(Decrease) Increase in Cash                                        (387,200)        58,400

Cash at Beginning of Period                                       2,481,100      2,422,700
                                                                -----------    -----------

Cash at End of Period                                           $ 2,093,900    $ 2,481,100
                                                                ===========    ===========
Supplemental Disclosure of Cash Flow Information:

Interest paid                                                   $   181,300    $   148,600
                                                                ===========    ===========
Income taxes paid                                               $      --      $      --
                                                                ===========    ===========
</TABLE>

                See accompanying notes to financial statements.


                                       17
<PAGE>

                          FAIRMOUNT CHEMICAL CO., INC.
                     Years Ended December 31, 2000 and 1999
                          Notes to Financial Statements

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

     Fairmount   Chemical  Co.,  Inc.   ("Fairmount"   or  "the   Company")  was
incorporated   in  1938  under  New  Jersey  Law  and  is  in  the  business  of
manufacturing and distributing specialty chemicals.

RECLASSIFICATIONS

     Certain  prior year amounts have been  reclassified  to conform to the 2000
presentation.

REVENUE

     Revenue is recognized upon shipment of product. The Company's terms are FOB
shipping point and accordingly title for goods pass to the customer when product
is shipped. Sales are generally final, without a right of return. If the product
does not meet specifications, the Company may accept returns.

ACCOUNTS RECEIVABLE

     Trade  accounts  receivable are recorded at the invoice  amount.  Potential
uncollectable  amounts  are  recognized  when  in the  judgment  of  management,
collection is in doubt.  There was no provision for bad debts  recorded in 1999,
and a provision of $20,600 in 2000.

INVENTORIES

     Inventories  are stated at the lower of cost or market.  Cost is determined
by  the  first-in,   first-out   (FIFO)   method.   There  are  no  general  and
administrative costs in inventory.

PROPERTY, PLANT and EQUIPMENT

     Property,  plant and equipment are stated at cost and are depreciated using
the  straight-line  method over the  estimated  useful  lives of the  respective
assets.  Maintenance  and  repairs  are  charged  to expense  as  incurred,  and
expenditures  for renewals and betterments are  capitalized.  Gains or losses on
sales or retirements are recognized in income.

     The  Company  reviews  the  carrying  value of its  assets  for  impairment
whenever events or changes in  circumstances  indicate that the amount of assets
may not be fully  recovered.  Recoverability  of  assets  to be held and used is
measured  by a  comparison  of the  carrying  amount  of an asset to the  future
undiscounted  net cash flows  expected to be generated  by the asset.  The asset
will be written down to fair value if it is determined  that its carrying  value
is not recoverable by operations.  Discounted cash flows or appraised values are
used to determine the fair market  value,  depending on the nature of the asset.
Assets to be disposed of are  reported  at the lower of the  carrying  amount or
fair  value  less the cost to sell.  The  Company  considers  various  valuation
factors in determining fair value,  principally  discounted cash flows to assess
any impairment amount.

     Depreciation   expense  was   $552,400   and  $615,000  in  2000  and  1999
respectively. The estimated useful lives of classes of assets are as follows:

              Asset Description                     Life (years)
              -----------------                     ------------
                Buildings                                20
                Machinery & Equipment                 5  to 10
                Vehicles                              3  to  5
                Furniture and Fixtures                5  to 10


                                       18
<PAGE>

Notes to Financial Statements (Continued)

RESEARCH AND DEVELOPMENT COSTS

     Research and development costs are charged to operations as incurred.

INCOME TAXES

     The Company  accounts  for income  taxes in  accordance  with the asset and
liability method. Under the asset and liability method,  deferred tax assets and
liabilities  are  recognized  for the future tax  consequences  attributable  to
differences  between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards.  Deferred tax assets and  liabilities  are measured using enacted
tax rates  expected  to apply to  taxable  income  in the  years in which  those
temporary differences are expected to be recovered or settled.

STOCK-BASED COMPENSATION

     The  Company  applies  the  intrinsic   value-based  method  of  accounting
prescribed by Accounting  Principles  Board (APB) Opinion No. 25 "accounting for
Stock Issued to Employees",  and related interpretations,  in accounting for its
fixed plan  employee  stock  options.  As such,  compensation  expense  would be
recorded on the date of grant only if the current market price of the underlying
stock exceeded the exercise  price.  For disclosure  purposes pro forma net loss
and pro forma net loss per share  information  are provided in  accordance  with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" as if fair-value-based method had been applied.

USE OF ESTIMATES

     The  preparation  of financial  statements  in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  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.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The fair value of  financial  instruments  is  determined  by  reference to
market data and other valuation techniques as appropriate.  The Company believes
the  fair  value  of  its  financial  instruments,  principally  cash,  accounts
receivable,  inventories,  prepaid  expenses,  other current assets,  short term
borrowings,  accounts payable, accrued compensation,  accrued pension liability,
other accrued  liabilities,  and other long term obligation  approximates  their
recorded  value due to the  short-term  nature of the  instruments  or  interest
rates, which are comparable with current rates.

SEGMENT OF AN ENTERPRISE AND RELATED INFORMATION

     The Company is managed and operates as one  business,  which  manufactures,
distributes and sells  specialty and fine organic  chemicals.  Accordingly,  the
Company does not have  separate  reporting  segments as defined in SFAS No. 131,
"Disclosures about Segment of an Enterprise and Related Information".

SHIPPING AND HANDLING COSTS

     Shipping  and handling  costs were  $239,700 and $181,200 in 2000 and 1999,
respectively,  which are included in selling,  general and administrative in the
accompanying statements of operations.

NOTE 2. INVENTORIES

         Inventories at December 31, consisted of:

                                        2000         1999
                                    ----------   ----------

         Finished goods             $2,481,500   $1,622,900
         Raw materials                 218,600      334,900
                                    ----------   ----------
                      Total         $2,700,100   $1,957,800
                                    ==========   ==========


                                       19
<PAGE>

Notes to Financial Statements (Continued)

     The  reserve  for   obsolete   inventory   was  $167,700  and  $142,100  at
December 31, 2000 and 1999, respectively.

NOTE 3. PROPERTY, PLANT and EQUIPMENT

     Property,  plant and equipment,  by major  classification,  at December 31,
2000 and 1999 is summarized as follows:

                                               2000         1999
                                           ----------   ----------
         Land                              $  259,300   $  259,300
         Buildings                          3,899,500    3,561,400
         Machinery and  equipment           5,266,800    4,924,500
         Vehicles                              68,800       66,800
         Furniture and fixtures               201,300      198,200
                                           ----------   ----------

                                            9,695,700    9,010,200
         Less:  Accumulated depreciation    5,756,800    5,204,400
                                           ----------   ----------

                                           $3,938,900   $3,805,800
                                           ==========   ==========

     There  was  no  construction  in  progress  at  December  31,  2000  and at
December 31, 1999.

NOTE 4. PROMISSORY NOTES/LONG-TERM PAYABLE TO AFFILIATED PARTIES

     A. As of January 1, 1993 the Company  owed William E.  Leistner  $5,603,700
(the "Leistner  Loan").  At the Board Meeting following the 1993 Annual Meeting,
the  board  approved  the sale of  5,400,000  shares of  cumulative  convertible
Preferred  Stock,  $1.00 par  value  per  share,  in a  private  transaction  to
Leistner, the Company's principal stockholder, in consideration of retirement of
debt owed to Leistner of  $5,400,000.  The balance of the Leistner Loan was paid
out  of  corporate  funds  of  approximately  $203,700  during  May  1993.  This
transaction  retired the  principal of the Leistner  Loan.  Accrued  interest of
$491,600 remained.  On July 2, 1997 the Company replaced the $491,600 balance of
the  Leistner  Loan that was due April 1, 1998,  with a  promissory  note to the
Leistner Estate for the same amount, due January 1, 2005.

     B. On March 20, 1992, a Credit Facility Loan Agreement ("Credit  Facility")
was created with monies  contributed to a fund ("the Fairmount Fund") by William
E. Leistner and the Estate of Olga H. Knoepke.  At that date, the Fairmount Fund
provided  the  Company  with  a  $2,494,000  credit  facility  under  which  all
borrowings paid interest at the rate of 5% per annum. The outstanding borrowings
from the Credit  Facility were  $1,080,000.  On July 2, 1997 the Credit Facility
was  terminated  and the Company  replaced  the  $1,080,000  of credit  facility
borrowings  with new promissory  notes due January 1, 2005. The Leistner  Estate
received  a  note  for  $648,000.   Three   additional   notes  were  issued  to
beneficiaries  of the  Knoepke  Estate.  These three notes were issued to the da
Mota Family  Partnership - $224,640,  Glen da Mota - $142,560 and Lynn da Mota -
$64,800.

     All  of the  promissory  notes  described  above  have  similar  terms  and
conditions.  Interest is payable  commencing in 1999, at the corporate base rate
posted by  Citibank,  N.A.  (or its  successor)  on the last  banking day of the
previous  calendar year.  Interest on the unpaid  principal from January 1, 1999
through  December  31, 1999 is at the rate of 7.5% per annum.  Interest  payable
from January 1, 2000 through December 31, 2000 is at the rate of 8.5% per annum.
All of the  promissory  notes are  subordinated  to the Company's line of credit
financing with Summit Bank and are  collaterized  by security  agreements on the
Company's accounts receivables, inventories and personal property.

     The promissory  note to the Leistner Estate for $491,600 is subordinated to
the  Company's  line  of  credit  financing  with  Summit  Bank  and to the  new
promissory  notes,  totaling  $1,080,000,  that  replaced  the Credit  Facility.
Interest  paid  on  the  aforementioned   promissory   notes/long-term  debt  to
affiliated parties was $133,600 in 2000 and. $121,800 in 1999.


                                       20
<PAGE>

Notes to Financial Statements (Continued)

     On  October 9, 1997 the  executors  of the  Leistner  Estate  endorsed  two
promissory  notes of $648,000 and $491,600 to the order of the Howard  Leistner,
Hedi Mizrack and Gilbert Leistner Irrevocable Grantor Trust (the "Trust").  This
trust was  established to expedite the settlement of the Leistner  Estate and to
be the repository of the common and preferred shares of the Company,  as well as
the promissory notes held by the Leistner Estate. Howard Leistner,  Hedi Mizrack
and Gilbert Leistner have sole voting rights to their common stock holdings.

NOTE 5. LONG-TERM DEBT

                                             2000     1999
                                             ----     ----

      Working Capital Line of Credit       $200,000    --
                                           --------   ----
               Less Current Indebtedness   $200,000

                                           --------   ----

               Long Term Debt              $   --     $--
                                           ========   ====

     The Company has a  $1,250,000  line of credit  from Summit  Bank,  of which
$200,000 was  outstanding as of December 31, 2000. The line of credit is subject
to an annual review for renewal.  The working capital line of credit was renewed
and amended during the second quarter of 2000. Under the amended loan agreement,
the Company has available the lesser of $1,250,000 or up to 80 % of its eligible
receivables,  as  defined in the loan  agreement.  Foreign  customer's  accounts
receivable were ineligible,  however Fairmount has obtained  insurance  coverage
for most of its foreign customers, and Summit Bank now considers those customers
as eligible for  borrowing  purposes.  The bank has been given a first  security
interest in the accounts  receivable,  inventories and personal  property of the
Company.  As of  December  31,  2000,  Fairmount's  borrowing  availability  was
$723,700, of which Fairmount had borrowed $200,000.

NOTE 6. STOCK OPTIONS

     On April 19, 1983, the stockholders approved an Incentive Stock Option Plan
(the "1983  Plan"),  which was adopted by the Board of  Directors  on August 17,
1982.  The 1983 Plan  provides  for  granting  incentive  stock  options  to key
employees  to  purchase  not more than  75,000  shares  of  common  stock of the
Company. The option price per share cannot be less than the market price on date
of grant. The option is exercisable after the optionee has been in the employ of
the  Company  for at least one year after the date of grant  (subject to limited
exceptions) and may be exercised for a period of 10 years from the date of grant
unless an earlier date is stated in the option.

     On July 10, 1984, the Board of Directors amended the 1983 Plan,  increasing
the number of shares in the Plan by 100,000 shares.  The  stockholders  approved
this  amendment  on May 15, 1985.  On November 29, 1988,  the Board of Directors
further amended the plan,  effective January 1, 1987, to reflect changes made by
the Internal  Revenue Code of 1986 by modifying  the  provisions  regarding  the
annual dollar  limitation  with respect to grants of options and the sequence in
which  stock  options  may be  exercised.  On  January  29,  1991,  the Board of
Directors adopted a new amendment to the Plan,  increasing the maximum number of
shares for which  options can be granted  under the Plan from 175,000  shares to
350,000  shares.  The  stockholders  approved such  amendment on May 6, 1991. In
addition,  on March 2, 1993,  the Board of Directors  adopted a new amendment to
the Plan,  increasing  the  maximum  number of shares for which  options  can be
granted under the Plan from 350,000 shares to 500,000 shares.  The  stockholders
approved such amendment on May 4, 1993.

     In addition to the incentive stock options, effective January 12, 1998, Dr.
Reidar Halle,  President and Chief Executive  Officer of the Company was granted
stock options to purchase One Million (1,000,000) shares of common stock, with a
fair marker  value of eleven  cents  ($.11) per share,  at an exercise  price of
eleven cents ($.11) per share subject to the following vesting schedule

                  Vesting Date             Exercisable Options
                  ------------             -------------------

                January 12, 1999                334,000
                January 12, 2000                333,000
                January 12, 2001                333,000


                                       21
<PAGE>

Notes to Financial Statements (Continued)

Stock option transactions for the years ended December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                            2000                           1999
                                  -----------------------      ------------------------
                                              Weighed                      Weighed
                                              Average                       Average
                                  Shares   Exercise Price      Shares    Exercise Price
                                  -----------------------      ------------------------
<S>                             <C>             <C>           <C>                 <C>
Outstanding
at beginning
of the year                     1,072,500       $.17          1,072,500           $.17

Granted

Forfeited                          13,500      $1.00               --             --

Expired                              --         --                 --             --
---------------------------------------------------------------------------------------
Outstanding
at end
of the year                     1,059,000       $.18          1,072,500           $.17
---------------------------------------------------------------------------------------
Exercisable                       726,000       $.18            406,500           $.27
=======================================================================================
Weighted fair market value
of the grants during the year                   $ --                              $.--
=======================================================================================
</TABLE>

     All incentive  stock options  outstanding  as of December 31, 2000 and 1999
are  exercisable  at $.11 to $1.00 per share.  The  average  life of those stock
options  outstanding  as of  December  31,  2000 and  1999 is one and two  years
respectively.

     The fair value of each option was  estimated on the date of the grant using
the Black-Scholes  value of 350 large general  industrial public companies.  The
2000 assumptions included in this estimation are as follows:  risk free interest
rate of 6.23 %,  expected  life of 8.5 years,  volatility  of 98 %, and dividend
yield of 0 %. The 1999  assumptions  included in this estimation are as follows:
risk free interest  rate of 6.23 %,  expected  life of 8.5 years,  volatility of
98.0 %, and dividend yield of 0 %.

     Using the  measurement  principles of SFAS 123  "Accounting for Stock Based
Compensation",  the  proforma  effect  on  net  loss  of  reporting  incremental
compensation  expense  would  have been a increase  in net loss of  $36,600  and
$178,200 in 2000 and 1999,  respectively.  Accordingly,  proforma net loss would
have been $(708,700) in 2000 and $(743,700) in 1999. In addition, proforma basic
loss per share would have been $(.09) in 2000, and $ (.09) in 1999.

NOTE 7. PENSION PLAN

     The  Company  has a  defined  benefit  pension  plan  covering  all  of its
employees.  The  benefits  are  based  on years of  service  and the  employees'
compensation.  The  Company's  funding  policy  is to  contribute  annually  the
statutory  minimum.  In 2000,  the Company  made  contributions  of $130,300 and
$102,500 for the plan years of 2000 and 1999, respectively.  In 1999 the Company
made  contributions  of  $150,000  and $54,000 for the plan years 1999 and 1998,
respectively.  Assets of the plan are held by an insurance company in guaranteed
annuity contracts.


                                       22
<PAGE>

Notes to Financial Statements (Continued)

     The  following  table  sets  forth the plan's  funded  status  and  amounts
recognized in the Company's balance sheet at December 31, 2000, and 1999.

Actuarial present value of benefit obligation:

<TABLE>
<CAPTION>
                                                                      2000                    1999
                                                                  -----------             -----------
<S>                                                                <C>                     <C>
Vested benefit obligation                                          $3,665,700              $3,518,400
                                                                  -----------             -----------
Accumulated benefit obligation                                     $3,725,500              $3,577,900
                                                                  -----------             -----------
Change in projected benefit obligation
     Projected benefit obligation at beginning of year            $(3,760,500)            $(3,903,600)
     Service Cost less expense component                             (119,500)               (108,300)
     Interest Cost                                                   (283,900)               (265,900)
     Actuarial Gain (loss)                                            (41,200)                259,500
     Benefits Paid                                                    274,700                 257,800
                                                                  -----------             -----------
     Projected benefits Obligation at end of year                  (3,930,400)             (3,760,500)
Change in plan assets
     Fair Value of Plan Assets at beginning of year                 3,278,800               3,148,000
     Actual Return on Plan Assets                                     204,100                 199,600
     Employer Contribution                                            232,700                 204,000
     Benefits Paid and Expenses                                      (289,700)               (272,800)
                                                                  -----------             -----------
     Fair Market Value of Plan Assets at end of year                3,425,900               3,278,800

                                                                  -----------             -----------
Fund status                                                          (504,400)               (481,700)

Unrecognized net obligation                                            10,900                  22,000
Unrecognized prior service cost                                       (28,100)                (41,500)
Unrecognized net loss                                                 399,300                 299,400
                                                                  -----------             -----------
Accrued benefit cost recognized in the
financial statements                                                 (122,300)               (201,800)
                                                                  ===========             ===========
Amount recognized in the statement of
financial position consist of
          Accrued benefit liability                                  (299,700)               (299,000)
          Accumulated other comprehensive income                      177,400                  97,200
                                                                  -----------             -----------
Net amount recognized                                                (122,300)               (201,800)
                                                                  ===========             ===========
Reconciliation of Accrued:
          Accrued Pension Cost at beginning of year                  (201,800)               (252,700)
           Minus Net Periodic Pension Cost                           (153,000)               (153,100)
          Plus Contribution                                           232,700                 204,000
                                                                  -----------             -----------
                                                                     (122,300)               (201,800)
                                                                  ===========             ===========

Net pension  cost  included in operating  results for 2000 and 1999  amounted to
$153,000 and $153,100, respectively, and was comprised of the following:

Service cost with expense component                                  $134,500                $123,300

Interest Cost                                                         283,900                 265,900

Expected return on plan assets                                       (263,100)               (249,100)

Net amortization and deferral                                          (2,300)                 13,000
                                                                  -----------             -----------

Total net pension cost                                               $153,000                $153,100
                                                                  ===========             ===========
</TABLE>


                                       23
<PAGE>

Notes to Financial Statements (Continued)

     The  weighted  average  discount  rate used in  determining  the  actuarial
present value of the  projected  benefit  obligation,  the  accumulated  benefit
obligation,  and vested benefit obligation as of December 31, 2000 was 7.75% and
1999  was 7.75 % and  future  salaries  increases  of 5.0%  per  annum  plus the
component  for  merit  and  promotion  and  expected  return  on assets of 8.0%,
respectively.

     The  provisions  of SFAS  No.  87,  "Employees  Accounting  for  Pensions",
requires  recognition  in the balance sheet of an additional  minimum  liability
when accumulated  benefits are in excess of plan assets. The Company recorded an
(increase)  decrease  of  $(80,200)  and  $204,400,  to the  additional  minimum
liability in 2000 and 1999,  respectively.  The adjustment had no effect on 2000
operations but was accounted for as a component of stockholders' equity.

NOTE 8. INCOME TAXES

     Income tax expense (benefit) for the years ended December 31, 2000 and 1999
differed from the amounts  computed by applying the U.S. Federal income tax rate
of 34% to pretax loss as a result of the following:

                                                    2000             1999
                                                    ----             ----

     Computed "expected" tax (benefit)           $(228,500)      $(192,100)
     State tax net of federal benefit              (39,000)        (33,900)
     Change in valuation allowance                 262,400         222,400
     Non-deductible penalties                        1,700
     Non-deductible travel and entertainment         3,400           3,600
                                                 ---------       ---------
                                                 $     -0-       $     -0-
                                                 =========       =========

     The  temporary  differences  which  give rise to a  significant  portion of
deferred tax assets and  liabilities at December 31, 2000 and 1999 are presented
below.

                                                        2000            1999
                                                    -----------     -----------
Deferred tax assets:
          Charitable contribution                   $     2,000     $     2,000
          Pension                                       101,000          69,000
          Interest                                      195,000         196,000
          Inventory                                      86,000          41,000
          Research and development tax credits          434,000         434,000
          Net operating loss -- state                   158,400         113,000
          Net operating loss -- Federal               4,459,000       4,199,000
                                                    -----------     -----------
Total deferred tax assets                             5,435,400        5054,000
Valuation allowance                                   4,724,400       4,462,000
                                                    -----------     -----------
Net deferred tax assets                                 711,000         592,000
Deferred tax liability:
  Depreciation deferred tax credit                     (711,000)       (592,000)
                                                    ===========     ===========
Net deferred tax asset                                     $-0-            $-0-
                                                    ===========     ===========

     At  December  31,  2000,  a  valuation  allowance  of  $4,724,400  has been
recognized to fully offset the net deferred tax assets as  realization  of these
assets is  uncertain.  The net change in the  valuation  allowance for the years
ended  December  31,  2000 and 1999 were  increases  of $262,400  and  $222,400,
respectively,  related  primarily  to  additional  net  losses  incurred  by the
Company.  In assessing  the  realizability  of deferred  tax assets,  management
considers  whether it is more  likely  than not that some  portion or all of the
deferred tax assets will not be realized.  The Company has Federal and state net
operating  loss  carryforwards  of  approximately  $13,115,000  and  $2,667,000,
respectively, which expire in years 2001 through 2021.

NOTE 9. NET LOSS PER SHARE

     Basic loss per share is based on the net loss of the  Company  since  there
were no preferred  dividends paid in 2000 and 1999. Due to the Company reporting
losses for 2000 and 1999,  the  exercise  of options and the  conversion  of the
preferred stock is not assumed, as the result would be anti-dilutive.


                                       24
<PAGE>

Notes to Financial Statements (Continued)

NOTE 10. REDEEMABLE CONVERITIBLE PREFERRED STOCK

     The preferred  shareholder  may convert all or any portion of the shares of
preferred stock owned  share-for-share  to common stock at any time. The Company
may redeem all or any part of its  preferred  stock by paying  the  holders  par
value for each such share redeemed.  The preferred shareholder may redeem at par
value all or any portion of the shares of preferred  stock owned and/or  convert
share-for-share  all or any  portion of the shares of  preferred  stock owned to
common stock if there is a significant  change of ownership or control,  sale of
the business or reorganization. After written notice of an impending significant
change of ownership,  each preferred  stockholder  shall have 15 days to require
redemption and/or conversion. Dividends only accrue if declared by the Board. To
date no dividends  have been declared and therefore  none have been accrued.  In
the event of involuntary liquidation,  each preferred shareholder is entitled to
cash payment, at par value plus declared but unpaid dividends in preference over
the common stockholders. There are no restrictions on retained earnings.

NOTE 11. FOREIGN SALES AND MAJOR CUSTOMERS

     The  business  of the  Company is the  manufacturing  and  distribution  of
chemical  products both domestically and  internationally.  Export sales in 2000
and 1999 amounted to $4,109,700 and $4,434,200,  respectively.  During 2000, two
customers  accounted for  approximately  37.5 % of the Company's  sales.  During
1999, three customers  accounted for approximately 40.5% of the Company's sales.
The loss of one of these customers  could have a material  adverse effect on the
Company's business.

     Major foreign  geographical areas contributed the following  percentages to
net sales:

                                                  2000         1999
                                                 ------       ------

             Europe, (Primarily Germany,
             Belgium, and England                 27.1%        20.0%
             Asia (Primarily Israel)               6.5%        18.0%
             North and South America               1.2%         1.2%

NOTE 12. ENVIRONMENTAL MATTERS AND COMMITMENTS AND CONTINGENCIES

     The  Company  has  received  notice  from  the  New  Jersey  Department  of
Environmental  Protection ("NJDEP") that the NJDEP is investigating  whether any
material  from the  Company  has  caused  or  contributed  to the  contamination
detected at the Ciuba landfill property in Newark.  The NJDEP alleges that there
is a possibility  that during the 1970's the Company disposed of waste generated
at the  Company's  facility  through  contracts  with  certain  garbage  removal
companies  located at the Ciuba  landfill.  The Company has also received notice
from the United States Environmental  Protection Agency ("USEPA") that the USEPA
has information  indicating that hazardous  substances from the Company may have
been discharged into the Passaic River. It is the Company's  understanding  that
these  allegations  by the EPA are related to  historical  rather  than  present
events.  The Company has taken the position that its material neither caused nor
contributed  to the  contamination  of the  Passaic  River  and  that it has not
discharged  hazardous  substances  into the Passaic River.  In both cases, it is
possible  that  potentially  responsible  parties will bring claims  against the
Company   alleging  that  it  is  at  least   partially   responsible   for  the
contamination.  To date,  no  litigation  has  commenced  with  respect to these
matters.

     It  is  the  Company's  policy  to  accrue  and  charge  against  earnings,
environmental  cleanup  costs  when it is  probable  that a  liability  has been
incurred  and an amount is  reasonably  estimable.  These  accruals are reviewed
periodically  and adjusted,  if necessary,  as  additional  information  becomes
available.  These  accruals  can  change  substantially  due to such  factors as
additional information on the nature or extent of the contamination,  methods of
remediation  required  and other  actions  by  government  agencies  or  private
parties.  Cash  expenditures  often lag behind the period in which an accrual is
recorded by a number of years.  The Company has not accrued cost associated with
the above two matters, because the amounts cannot be reasonably estimated.

     Management does not believe that the resolution of such matters will have a
material  adverse  affect on the financial  position of the Company but could be
material  to the results of  operations  and cash flow of the Company in any one
accounting period.


                                       25
<PAGE>

Notes to Financial Statements (Continued)

     A bodily  injury claim was filed against the Company on December 2, 1998 in
the Superior  Court of New Jersey Law  Division,  Hudson  County.  The plaintiff
alleges that on March 25, 1997, the date of an explosion at the Company's plant,
the force of the  explosion  threw him backward  and  resulted in injuries.  The
plaintiff was an invitee upon the adjoining property to the Company.  This claim
was settled on July 20, 2000 for an immaterial amount.

     On May 13,  1999,  a toxic tort case was  brought  against  the Company and
other defendants by former employees,  family members of the former employees or
heirs of  deceased  former  employees  of La Gloria and Gas  Company  and the La
Gloria Refinery located in Tyler, Texas. The claimants contend that the employee
plaintiffs  and their  families  were exposed to a number of toxic  chemicals by
working  in  and  around  them  or  with  them  at the La  Gloria  Plant  and by
second-hand  exposure occurring as a result of the toxic substance being brought
home on the clothing and bodies of the employee plaintiffs. Plaintiffs have sued
the employer defendants and numerous manufacturers,  suppliers, and distributors
of chemicals, solvents and products supplied to the La Gloria Plant. The Company
sold a hydrazine  blend to La Gloria  during 1990 and 1991. On October 21, 1999,
the  Federal  Court  granted  defendants'  motion to dismiss  because of lack of
subject matter  jurisdiction.  Claimants  re-filed this cause of action in Texas
state court in the  District  Court of Harrison  County,  Texas on December  15,
1999.  Claimants'  allegations  in the state court petition are identical to the
allegations  discussed above. The discovery  process is in the initial phase and
the  Company is not able to  determine  potential  exposure  at this  time.  The
Company's commercial general liability and commercial umbrella insurance carrier
is defending the Company in that action.

     On October 10,  2000,  a breach of contract  claim was brought  against the
Company in the Worcester  Superior Court of the  Commonwealth of  Massachusetts.
The  plaintiff  alleges  that  a  defective   component  chemical  used  in  the
plaintiff's  manufacturing  process was supplied by  Fairmount.  This action has
been moved from Worcester  Superior Court to the Federal  District Court for the
Western District of  Massachusetts.  The Company is in the process of exchanging
documents. The Company intends to contest the case vigorously.

     The  Company  is  subject  to  various  other  claims,  and  other  routine
litigation  arising in the normal  course of its business.  Management  believes
that the  resolution of such matters will not have a material  adverse affect on
the  financial  position  of the Company but could be material to the results of
operations of the Company in any one accounting period.

NOTE 13. INSURANCE PROCEEDS

     During  February  1999 the Company  received a payment of $375,000 from its
property  insurance  carrier  as  final  settlement  for  the  property  damages
sustained  from the  March 25,  1997  dryer  explosion.  The  destroyed  assets,
principally property, plant and equipment, were fully depreciated at the time of
the incident.

     On November 10, 1999 a fire  destroyed  certain  equipment and a portion of
the roof in one of the production buildings. No employees were injured. The fire
had an adverse  effect on operations  during the fourth quarter of 1999, and the
first half of 2000.  The Company  started to conduct  normal  operations  in the
building  during  the  second  half of  2000.  In  1999,  the  Company  incurred
approximately  $17,500 in  professional  costs related to the fire and wrote-off
approximately  $22,000 of net  capitalized  equipment and building  improvements
damaged or destroyed by the fire.

     The  Company  received  $100,000  from its  property  insurance  carrier in
December  1999,  $100,000  in March 2000 and  $233,100  in May 2000,  in partial
settlement for its property losses caused by the fire.


                                       26
<PAGE>

Item 8. Changes In and Disagreement with Accountants on Accounting and Financial
Disclosure

         N/A

PART III

Item 9.  Directors,  Executive  Officers  and  Control  Persons  of the  Issuer,
Compliance with Section 16(a) of the Exchange Act.

     Incorporated by reference to Fairmount's 2000 Definitive Proxy Statement.

Item 10. Executive Compensation

     Incorporated by reference to Fairmount's 2001 Definitive Proxy Statement.

Item 11. Security Ownership of Certain Beneficial Owners and Management

     Incorporated by reference to Fairmount's 2001 Definitive Proxy Statement.

Item 12. Certain Relationships and Related Transactions

     Incorporated by reference to Fairmount's 2001 Definitive Proxy Statement.

Item 13. Exhibits and Reports on Form 8-K

     (a)    Exhibits

            Reference is made to the Index of Exhibits commencing this page; all
            Exhibits are listed.

  (a)(3)    Exhibits:

     (3)    Restated  Certificate  of  Incorporation  filed  May 11,  1982  with
            Secretary of State of New Jersey,  incorporated  by  reference  from
            Fairmount's  Form 10-K for the fiscal year ending  December 31, 1982
            (Exhibit 3.3).

     (3)    Restated  Certificate of  Incorporation  filed May 13, 1993 with the
            Secretary of State of New Jersey,  incorporated  by  reference  from
            Fairmount's  Form 10-KSB or the fiscal year ending December 31, 1993
            (Exhibit 3.1.)

     (3)    Restated  Certificate of  Incorporation  filed June 8, 1994 with the
            Secretary of the State of New Jersey, incorporated by reference from
            Fairmount's Form 10-KSB for the fiscal year ending December 31, 1994
            (Exhibit 3.1.)

     (3)    Certificate of Amendment to Certificate of Incorporation  filed June
            9, 1986  with  Secretary  of State of New  Jersey,  incorporated  by
            reference  from  Fairmount's  Form 10-KSB for the fiscal year ending
            December 31, 1986 (Exhibit 3.1.)

     (3)    Certificate of Amendment to Certificate of Incorporation  filed June
            1, 1988  with  Secretary  of State of New  Jersey,  incorporated  by
            reference  from  Fairmount's  Form 10-K for the fiscal  year  ending
            December 31, 1988 (Exhibit 3)

     (3)    By-laws as last amended February 21, 1984, incorporated by reference
            from  Fairmount's  Form 10-K for the fiscal year ending December 31,
            1983 (sequentially numbered pages 56 through 69).

     (4)    Letter  Agreement   extending  the  date  for  maturity  of  current
            indebtedness  to  Fairmount  Fund  and the  Estate  of  Leistner  to
            April 1,  1998  incorporated  by reference  from the Company's  Form
            10-KSB for the fiscal year ending December 31, 1996. (Exhibit 4(a)).


                                       27
<PAGE>

     (4)    Employment agreement between Todd K. Walker (Employee) and Fairmount
            incorporated  by  reference  from  Fairmount's  Form  10-KSB for the
            fiscal year ending December 31, 1994 as Exhibit 4(b).

     (4)    Termination of the 1992 Credit Facility Loan Agreement  incorporated
            by reference from  Fairmount's Form 10-KSB for the fiscal year ended
            December 31, 1997 as Exhibit 4(a).

     (4)    Employment  agreement  between Reidar Halle (Employee) and Fairmount
            incorporated  by  reference  from  Fairmount's  Form  10-QSB for the
            quarter ending June 30, 1998 as Exhibit 10.

    (10)(i) Statement on Schedule 13 D, dated  September  19,  1993,  previously
            filed by the Estate of  William  E.  Leistner  with  Securities  and
            Exchange  Commission on March 30, 1994 with respect to the Estate of
            William E. Leistner acquiring direct beneficial ownership of William
            E.  Leistner's  shares  of  Common  Stock  and  5,400,000  shares of
            Preferred  Stock of Fairmount  Chemical  Co., Inc. upon his death on
            September 19, 1993 is incorporated into Part III.

    (10)(i) Amendment  No. 1, dated  December  28,  1992,  to the  Statement  on
            Schedule  13 D,  previously  filed by William E.  Leistner  with the
            Securities and Exchange  Commission on April 14, 1992,  with respect
            to  Fairmount's   issuance  to  Leistner  of  1,000,000   shares  of
            Fairmount's Common Stock in cancellation of current debt to Leistner
            is incorporated into Part III.

(10)(ii)(A) Incentive   Stock   Option  Plan,   incorporated   by  reference  to
            Fairmount's  Definitive  Proxy  Statement for its Annual  Meeting of
            Stockholders held April 19, 1983 (Exhibit A), and amendment thereto,
            incorporated  by reference  from the  Fairmount's  Definitive  Proxy
            Statement for its Annual Meeting of  Stockholders  held May 15, 1985
            (Exhibit  A);  Incentive  Stock  Option  Plan,  as  amended in 1988,
            incorporated by reference from  Fairmount's Form 10-K for the fiscal
            year ending  December  31,  1988  (Exhibit  10);  and  amendment  to
            Incentive  Stock Option Plan in 1991,  incorporated  by reference to
            Fairmount's  Definitive  Proxy  Statement for its Annual  Meeting of
            Stockholders held May 6, 1991 (Exhibit A).

     (23.1) Consent of KPMG LLP,  consent of Independent  Auditors,  attached to
            this Form 10-KSB as Exhibit 24, sequentially numbered page 32.

     (b)    Reports on Form 8-K during the last quarter of 2000 -- None.

     (c)    Financial statement schedule -- Schedule II Valuation and Qualifying
            Accounts


                                       28
<PAGE>

                                   SIGNATURES

     In accordance  with Section 13 or 15 (d) of the Securities and Exchange Act
of 1934,  the  Registrant  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                  FAIRMOUNT CHEMICAL CO., INC.
                                  Registrant


         March 30, 2001           By: /s/ Dr. Reidar Halle
                                      -------------------------------------
                                      Chief Executive Officer and President


         March 30, 2001           By: /s/ William C. Kaltnecker
                                      -------------------------
                                      Controller


                                       29
<PAGE>

     In accordance with the Securities and Exchange Act of 1934, this report has
been signed below by the following  persons on behalf of the  Registrant  and in
the capacities and on the dates indicated.

Signature                    Title                                 Date
---------                    -----                                 ----


/s/ Howard R. Leistner      Director                             March  30, 2001
-----------------------
(Howard R. Leistner)


/s/ Dr. Reidar T. Halle     Director, Chief Executive Officer,   March 30, 2001
-----------------------     President
(Dr. Reidar T. Halle)


/s/ Richard Mizrack         Director                             March 30, 2001
-----------------------
(Richard Mizrack)


                                       30
<PAGE>

                         Consent of Independent Auditors


The Board of Directors
Fairmount Chemical Co., Inc.


We consent to  incorporation  by reference in the  Registration  Statements Nos.
2-84988 and 2-99610 on Form S-8 of Fairmount  Chemical  Co.,  Inc. of our report
dated February 26, 2001,  relating to the balance  sheets of Fairmount  Chemical
Co.,  Inc. as of  December  31, 2000 and 1999,  and the  related  statements  of
operations,  changes in stockholders'  equity and  comprehensive  loss, and cash
flows for the years then ended,  which  report  appears in the December 31, 2000
annual report on Form 10-KSB of Fairmount Chemical Co., Inc.


                                         /S/ KPMG LLP


Short Hills, New Jersey
March 28, 2001


                                       31
<PAGE>

                                                                     Schedule II
                          FAIRMOUNT CHEMICAL CO., INC.
                        Valuation and Qualifying Accounts
                     Years Ended December 31, 2000 and 1999

<TABLE>
<CAPTION>
                                    Balance at  Charged to      Charged to                  Balance at
                                    Beginning    Cost and         Other                         End
Description                          of Year     Expenses        Accounts      Deductions     of Year
-----------                          -------     --------        --------      ----------     -------
<S>                                  <C>          <C>               <C>            <C>       <C>
Allowance for doubtful accounts
    Year ended
         December 31, 1999               --          --             --             --            --
         December 31, 2000               --       $20,600           --             --        $ 20,600

Reserve for obsolete inventory
     Year ended
         December 31, 1999           $ 70,700     $71,400           --             --        $142,100
         December 31, 2000           $142,100     $25,600           --             --        $167,700
</TABLE>


                                       32