UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-Q
(Mark One)

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

                For the quarterly period ended July 31, 1998

                                       OR

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

                For the transition period from _____________ to ______________

                                METALLURG, INC
              (Exact Name of Registrant as Specified in Its Charter)


        DELAWARE                                         13-1661467
_______________________________                   _____________________________
(State or Other Jurisdiction of                        (I.R.S. Employer
Incorporation or Organiz                              Identification No.)

                               6 EAST 43RD STREET
                            NEW YORK, NEW YORK 10017
                            ________________________
                    (Address of Principal Executive Offices)
                                   (Zip Code)

                                   (212) 835-0200
                                    _____________
              (Registrant's Telephone Number, Including Area Code)

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

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports  required  to be filed by  Sections  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.
                                                         Yes X  No
                                                            ---   ---


The number of shares of common stock, $0.01 par value, issued and outstanding as
of September 9, 1998 was 100.




<PAGE>

<TABLE>
<CAPTION>

                  METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES

                                      INDEX

                                                                                   Page No.
                                                                                   ________

Part I.    FINANCIAL INFORMATION:

           Item 1 -  Financial Statements (Unaudited)
<S>                             <C>                                                 <C>   

                Condensed Statements of Consolidated  Operations for the Quarter
                and the Two Quarters  Ended July 31, 1998 and the Quarters Ended
                July 31, 1997 and March 31, 1997                                      3

                Condensed  Statements of Consolidated  Comprehensive  Income for
                the  Quarter  and the Two  Quarters  Ended July 31, 1998 and the
                Quarters Ended July 31, 1997 and March 31, 1997                       4

                Condensed Consolidated Balance Sheets at July 31, 1998
                and January 31, 1998                                                  5

                Condensed Statements of Consolidated Cash Flows for the
                Two Quarters Ended July 31, 1998 and the Quarters Ended
                July 31, 1997 and March 31, 1997                                      6

                Notes to Condensed Unaudited Consolidated Financial Statements        7 - 14

           Item 2 - Management's Discussion and Analysis of
                Financial Condition and Results of Operations                         15 -19


Part II.   OTHER INFORMATION

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

           Item 6. (a)     EXHIBITS

                   6. (b)  REPORT ON FORM 8-K


           Signature Page                                                    


</TABLE>



                                   2


<PAGE>

<TABLE>
<CAPTION>

METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(In thousands)

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

                                                                                                                  Predecessor
                                                          Reorganized Company                                       Company
                                                          ---------------------------------------------------- -------------------
                                                              Quarter        Two Quarters        Quarter            Quarter
                                                               Ended             Ended            Ended               Ended
                                                              July 31,         July 31,          July 31,          March 31,
                                                                1998              1998             1997               1997
                                                          ----------------- ---------------- ----------------- -------------------

<S>                                                               <C>              <C>              <C>                <C>    

Total revenue ...........................................         $170,013         $337,843          $166,879            $155,587
                                                          ----------------- ---------------- ----------------- -------------------
Operating costs and expenses:
   Cost of sales ........................................          142,671          281,679           142,135             134,060
   Selling, general and administrative expenses .........           15,147           29,908            14,427              15,046
   Merger costs .........................................            4,416            4,416                 -                   -
                                                          ----------------- ---------------- ----------------- -------------------
                                                          ----------------- ---------------- ----------------- -------------------
   Total operating costs and expenses ...................          162,234          316,003           156,562             149,106
                                                          ----------------- ---------------- ----------------- -------------------
      Operating income ..................................            7,779           21,840            10,317               6,481
Other income (expense):
   Other income (expense), net ..........................             (333)             545               (76)              3,179
   Interest expense, net ................................           (2,544)          (4,616)           (1,479)               (245)
   Reorganization expense ...............................                -                -                 -              (2,663)
   Fresh-start revaluation ..............................                -                -                 -               5,107
                                                          ----------------- ---------------- ----------------- -------------------
Income before income tax provision and
      extraordinary item ................................            4,902           17,769             8,762              11,859
Income tax provision (benefit) ..........................            3,404            9,481             5,111              (3,063)
                                                          ----------------- ---------------- ----------------- -------------------
Net income before extraordinary item ....................            1,498            8,288             3,651              14,922
Extraordinary item ......................................                -                -                 -              43,032
                                                          ----------------- ---------------- ----------------- -------------------
Net income ..............................................        $   1,498         $  8,288          $  3,651            $ 57,954
                                                          ----------------- ---------------- ----------------- -------------------
                                                          ----------------- ---------------- ----------------- -------------------


----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

 See  notes to  condensed  unaudited  consolidated financial statements.


                                   3
<PAGE>

<TABLE>
<CAPTION>


METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (UNAUDITED)
(In thousands)


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

                                                                                                                   Predecessor
                                                                           Reorganized Company                       Company
                                                           ----------------------------------------------------
                                                                                                                 -----------------
                                                               Quarter         Two Quarters    Quarter Ended      Quarter Ended
                                                                Ended             Ended           July 31,        March 31, 1997
                                                               July 31,          July 31,           1997
                                                                 1998              1998
                                                           ----------------- ----------------------------------  -----------------
<S>                                                               <C>                <C>            <C>                 <C>   

Net income ...............................................          $ 1,498            $8,288           $3,651            $57,954

Other comprehensive income (loss):
  Foreign currency translation adjustments (a)............           (1,152)           (1,076)           1,245             (1,224)
                                                           ----------------- ----------------------------------  -----------------

Comprehensive income ....................................          $    346            $7,212           $4,896            $56,730
                                                           ----------------- ----------------------------------  -----------------

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



</TABLE>





(a)    The Company does not provide for U.S.  income  taxes on foreign  currency
       translation  adjustments  because it does not  provide  for such taxes on
       undistributed earnings of foreign subsidiaries.



See notes to condensed unaudited consolidated financial statements.

                                   4
<PAGE>

<TABLE>
<CAPTION>

METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)


                                                                            Reorganized Company
                                                                 --------------------------------------------
                                                                       July 31,             January 31,
                                                                         1998                  1998
                                                                 --------------------------------------------
<S>                                                                       <C>                    <C>   

ASSETS
Current assets:
   Cash and cash equivalents ..................................               $ 44,423              $ 43,003
   Accounts and notes receivable, net .........................                 95,192                83,931
   Inventories ................................................                121,651               117,589
   Other assets ...............................................                 15,708                14,239
                                                                 --------------------------------------------
      Total current assets ....................................                276,974               258,762
Property, plant and equipment, net ............................                 43,851                41,502
Other assets ..................................................                 20,505                19,522
                                                                 --------------------------------------------
      TOTAL ...................................................               $341,330              $319,786
                                                                 --------------------------------------------

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

LIABILITIES
Current liabilities:
   Short-term debt and current portion
      of long-term debt .......................................              $   1,868              $  4,016
   Trade payables .............................................                 59,226                51,308
   Accrued expenses ...........................................                 31,559                30,575
   Other current liabilities ..................................                  9,262                 5,106
                                                                 --------------------------------------------
      Total current liabilities ...............................                101,915                91,005
                                                                 --------------------------------------------

Long-term debt ................................................                102,641               103,133
Accrued pension liabilities ...................................                 38,134                38,351
Environmental liabilities, net ................................                 37,161                38,527
Other liabilities .............................................                  6,618                 6,999
                                                                 --------------------------------------------
      Total long-term liabilities .............................                184,554               187,010
                                                                 --------------------------------------------

      Total liabilities .......................................                286,469               278,015
                                                                 --------------------------------------------

SHAREHOLDERS' EQUITY
Common stock ..................................................                      -                    50
Additional paid-in capital ....................................                 46,137                40,209
Accumulated other comprehensive income (loss)..................                   (403)                  673
Retained earnings .............................................                  9,127                   839
                                                                 --------------------------------------------
   Total shareholders' equity .................................                 54,861                41,771
                                                                 --------------------------------------------
      TOTAL ...................................................               $341,330              $319,786
                                                                 --------------------------------------------

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

-------------------------------------------------------------------------------------------------------------
</TABLE>

See notes to condensed unaudited consolidated financial statements.

                                   5
<PAGE>

<TABLE>
<CAPTION>

METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In thousands)
---------------------------------------------------------------------------------------------------------------------
                                                                                                      Predecessor
                                                                       Reorganized Company              Company
                                                                ----------------------------------  -----------------
                                                                  Two Quarters       Quarter            Quarter
                                                                     Ended            Ended              Ended
                                                                    July 31,         July 31,          March 31,
                                                                      1998             1997               1997
                                                                ----------------------------------  -----------------
<S>                                                                       <C>           <C>               <C>   

Cash Flows from Operating Activities:
Net income ...................................................            $8,288           $3,651            $57,954
Adjustments to reconcile net income to net cash provided by
operating activities: ........................................
  Executive stock awards .....................................               750              500                500
  Extraordinary item .........................................                 -                -            (43,032)
  Fresh-start revaluation ....................................                 -                -             (5,107)
  Depreciation and amortization ..............................             4,282            1,962              2,143
  Gain on sale of assets .....................................              (592)              (6)            (3,266)
  Reorganization expense, net of payments ....................              (144)          (3,989)             1,538
  Deferred income taxes ......................................             2,029            1,661             (3,767)
  Provision for doubtful accounts ............................               606               61                162
  Provision for environmental costs, net of payments .........            (1,006)            (393)              (256)
  Other, net .................................................             2,791            1,628              3,057
                                                                ----------------------------------  -----------------
    Total ....................................................            17,004            5,075              9,926

Change in operating assets and liabilities:
  (Increase) decrease in trade receivables ...................           (12,596)           8,032            (20,272)
  Increase in inventories ....................................            (5,774)          (8,953)            (6,120)
  Decrease (increase) in other current assets ................             1,586            1,769               (355)
  Increase (decrease) in trade payables and accrued expenses .            16,542           (2,890)            18,895
  Decrease in prepetition liabilities ........................                 -                -                (39)
  Receipt from environmental trust, net ......................                 -                -              5,928
  Other assets and liabilities, net ..........................            (8,270)            (523)            (1,547)
                                                                ----------------------------------  -----------------
    Net cash provided by operating activities ................             8,492            2,510              6,416
                                                                ----------------------------------  -----------------

Cash Flows from Investing Activities:
  Additions to property, plant and equipment .................            (6,998)          (3,309)            (2,774)
  Proceeds from asset sales ..................................             1,286            1,205              4,966
  Other, net .................................................            (2,254)              33                (25)
                                                                ----------------------------------  -----------------
    Net cash (used in) provided by investing activities ......            (7,966)          (2,071)             2,167
                                                                ----------------------------------  -----------------

Cash Flows from Financing, Merger and Reorganization
  Activities:
  Capital contribution from Safeguard ........................             3,541                -                  -
  Cash distribution pursuant to plan of reorganization .......                 -                -            (59,366)
  Drawdown of prepetition letters of credit ..................                 -                -              9,700
  Proceeds from long-term debt, net ..........................                 -                -              8,100
  Net short-term borrowings...................................            (1,851)          (1,608)             1,062
  Repayment of long-term debt ................................              (548)             (83)              (487)
                                                                ----------------------------------  ------------------
    Net cash provided by (used in) financing and
       reorganization activities .............................             1,142           (1,691)           (40,991)
                                                                ----------------------------------  -----------------

Effects of exchange rate changes on cash and cash
  equivalents ................................................              (248)              75               (526)
                                                                ----------------------------------  ------------------
Net increase (decrease) in cash and cash equivalents .........             1,420           (1,177)           (32,934)
Cash and cash equivalents - beginning of period ..............            43,003           30,340             63,274
                                                                ----------------------------------  -----------------
Cash and cash equivalents - end of period ....................           $44,423          $29,163            $30,340
                                                                ----------------------------------  -----------------
                                                                ----------------------------------  -----------------

---------------------------------------------------------------------------------------------------------------------
See notes to condensed unaudited consolidated financial statements.
</TABLE>

                                   6
<PAGE>


METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
---------------------------------------------

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.....Basis of Presentation

      The accompanying  condensed unaudited  consolidated  financial  statements
      include  the   accounts  of   Metallurg,   Inc.   ("Metallurg")   and  its
      majority-owned subsidiaries (collectively, the "Company"). These financial
      statements  have been  prepared  in  accordance  with  generally  accepted
      accounting  principles  for  interim  financial  information  pursuant  to
      Accounting  Principles  Board  Opinion  No. 28.  Accordingly,  they do not
      include  all  of the  information  and  footnotes  required  by  generally
      accepted  accounting  principles for complete  financial  statements.  The
      condensed  consolidated  balance  sheet  as of  January  31,  1998 and the
      condensed  statements of consolidated  operations and of consolidated cash
      flows for the  quarter  ended  March 31, 1997 were  derived  from  audited
      financial  statements.  In the  opinion  of  management,  all  adjustments
      (consisting of normal recurring  adjustments)  considered  necessary for a
      fair  presentation  have been included.  Operating results for the interim
      periods  presented  are not  necessarily  indicative  of the results to be
      expected for a full year.

      On July 13, 1998, Metallurg, Inc. was acquired by a group of investors led
      by Safeguard International Fund, L.P.  ("Safeguard").  The acquisition was
      accomplished by Metallurg  Acquisition Corp., a wholly owned subsidiary of
      Metallurg Holdings, Inc. ("Metallurg  Holdings"),  a Delaware corporation,
      merging with and into Metallurg with Metallurg being the surviving company
      and  Metallurg  Holdings  becoming  the  sole  parent  of  Metallurg  (the
      "Merger").  Metallurg Holdings was formed on June 10, 1998 and is a wholly
      owned subsidiary of Safeguard,  an international  private equity fund that
      invests primarily in equity securities of companies in process industries.
      At the time of the Merger,  each  outstanding  share of  Metallurg  common
      stock was  converted  into the right to receive $30 in cash. In connection
      with the Merger, Metallurg received the consents of 100% of the registered
      holders of its Senior Notes to a one-time  waiver of the change of control
      provisions  of  the  Senior  Note   Indenture  to  make  such   provisions
      inapplicable  to the  Merger  and to amend the  definition  of  "Permitted
      Holders"  under the  Senior  Note  Indenture  to reflect  the  post-merger
      ownership  of  Metallurg.  As of July 13,  1998,  in  connection  with the
      Merger,  all of the then  outstanding  shares of common stock of Metallurg
      were  cancelled  and 100 shares of common  stock,  $0.01 par  value,  were
      issued to Metallurg Holdings.

      On  February  26,  1997,  the Fourth  Amended and  Restated  Joint Plan of
      Reorganization  (the  "Plan") of  Metallurg  and one of its  subsidiaries,
      Shieldalloy  Metallurgical Corporation  ("Shieldalloy"),  was confirmed by
      the  U.S.  Bankruptcy  Court  for  the  Southern  District  of  New  York.
      Transactions  contemplated by the Plan were  consummated on April 14, 1997
      (the "Effective Date"). For financial reporting purposes,  the Company has
      reflected the effects of the Plan  consummation as of March 31, 1997. As a
      result of the  consummation  of the Plan and the  adoption of  fresh-start
      reporting under the American  Institute of Certified  Public  Accountants'
      ("AICPA") Statement of Position 90-7,  "Financial Reporting by Entities in
      Reorganization  Under the Bankruptcy Code",  financial  statements for the
      quarter ended March 31, 1997,  which  includes the effects of the adoption
      of fresh-start  reporting and  consummation of the Plan are referred to as
      the "Predecessor Company".  Financial statements for periods subsequent to
      March 31, 1997 are referred to as the "Reorganized Company". The financial
      statements  of  the  Company  after  consummation  of  the  Plan  are  not
      comparable  to the  Company's  financial  statements  of prior periods and
      accordingly, a black line has been used to separate the periods.

      For  further  information,  see the  financial  statements  and  footnotes
      thereto  included  in  the  Company's   audited   consolidated   financial
      statements  for the three  quarters ended January 31, 1998 and the quarter
      ended March 31, 1997.


<PAGE>


      Effective  April 1, 1997,  the  Company  changed the  reporting  period of
      Metallurg from a calendar year ending  December 31 to a fiscal year ending
      January 31 and began  reporting the results of its operating  subsidiaries
      on a one-month  lag.  Accordingly,  the two  quarters  ended July 31, 1998
      include worldwide operating results for the six months ended June 30, 1998
      and operating  results of Metallurg,  the parent holding company,  for the
      six  months  ended July 31,  1998.  Balance  sheet  data at July 31,  1998
      reflect the  financial  position of  Metallurg at July 31, 1998 and of its
      subsidiaries at June 30, 1998.

2.    Change of Control

      Pursuant to existing  employment  agreements between Metallurg and Michael
      A. Standen,  J. Richard Budd,  Michael A. Banks, Barry C. Nuss and Eric L.
      Schondorf,  each  of  these  individuals  is,  in  certain  circumstances,
      entitled to payments of $1.2  million,  $474,300,  $321,300,  $321,300 and
      $313,650,  respectively,  if their  employment is terminated by them or by
      the Surviving Corporation in accordance with the terms of their respective
      employment  agreements following the Merger. See Metallurg's Annual Report
      on Form 10-K for the year ended January 31, 1998 which has been filed with
      the  Securities  and  Exchange   Commission  for  a  discussion  of  these
      employment  agreements  and of  certain  other  benefits  to  which  these
      employees may become entitled in the event of their termination.

      As of August 10, 1998, Mr. Standen  resigned as Metallurg's  President and
      chief executive  officer and therefore became entitled to the payments set
      forth in his contract,  including the payments  described  above. No other
      member of management has agreed to waive his right to receive the payments
      described  above and,  therefore  additional  payments may need to be made
      under existing contractual arrangements as described above.


3.    Inventories

      Inventories, net of reserves, consist of the following (in thousands):





                                               July 31,             January 31,
                                                  1998                  1998
                                         -------------------   -----------------

           Raw materials .................      $ 29,751             $  32,938
           Work in process ...............         2,551                 1,981
           Finished goods ................        84,523                77,473
           Other .........................         4,826                 5,197
                                         -------------------   -----------------
              Total .....................       $121,651              $117,589
                                         -------------------   -----------------

                                                     
4.    Commitments and Contingencies

      The Company  continues  defending various claims and legal actions arising
      in  the  normal   course  of  business,   including   those   relating  to
      environmental  matters.  Management  believes,  based  on  the  advice  of
      counsel,  that the  outcome  of such  litigation  will not have a material
      adverse effect on the Company's consolidated financial statements.

5.    Earnings Per Common Share

      The presentation of earnings per share is not meaningful since the Company
      is a wholly owned subsidiary of Metallurg Holdings.

                                   8
<PAGE>


6.    Recently Issued Accounting Pronouncements

      The Company adopted Statement of Financial  Accounting  Standards ("SFAS")
      No. 130,  "Reporting  Comprehensive  Income", as of February 1, 1998. This
      standard  requires the display of comprehensive  income and its components
      in the financial statements.

      In June 1997, the Financial  Accounting  Standards  Board ("FASB")  issued
      SFAS No. 131,  "Disclosure  about  Segments of an  Enterprise  and Related
      Information".  SFAS No. 131  requires  the  reporting  of profit and loss,
      specific revenue and expense items and assets for reportable segments.  It
      also requires the reconciliation of total segment revenues,  total segment
      profit or loss,  total  segment  assets and other  amounts  disclosed  for
      segments to the  corresponding  amounts in the general  purpose  financial
      statements.  The Company will adopt this standard in the fourth quarter of
      1998.

     In February  1998,  the FASB issued  SFAS No. 132,  "Employers'  Disclosure
     About  Pensions and Other  Postretirement  Benefits".  SFAS No. 132 changes
     current  financial  disclosure  requirements  from those that were required
     under SFAS No.  87,  "Employers'  Accounting  for  Pensions",  SFAS No. 88,
     "Employers'  Accounting for Settlement and  Curtailments of Defined Benefit
     Pension Plans and for Termination  Benefits" and SFAS No. 106,  "Employers'
     Accounting for  Postretirement  Benefits Other Than Pensions".  The Company
     will adopt this standard in the fourth  quarter of 1998.

     In June 1998,  the FASB  issued SFAS No. 133,  "Accounting  for  Derivative
     Instruments and Hedging  Activities".  SFAS No. 133 establishes  accounting
     and  reporting  standards for  derivative  instruments,  including  certain
     derivative  instruments  embedded  in  other  contracts,  and  for  hedging
     activities.  It requires that an entity recognize all derivatives as either
     assets or  liabilities  in the statement of financial  position and measure
     those  instruments at fair value.  SFAS No. 133 is effective for all fiscal
     quarters of fiscal  years  beginning  after June 15,  1999.  The Company is
     currently  evaluating  the impact  SFAS No. 133 will have on its  financial
     statements.

7.    Supplemental Guarantor Information

      In November  1997, the Company sold $100 million  principal  amount of 11%
      senior notes due 2007 (the "Senior Notes").  Under the terms of the Senior
      Notes,  Shieldalloy,  Metallurg Holdings Corporation,  Metallurg Services,
      Inc. and MIR (China), Inc. (collectively, the "Guarantors"),  wholly-owned
      subsidiaries of the Company, will fully and unconditionally guarantee on a
      joint  and  several  basis the  Company's  obligations  to pay  principal,
      premium  and  interest  relative  to  the  Senior  Notes.  Management  has
      determined  that  separate,  full  financial  statements of the Guarantors
      would not be material and, accordingly,  such financial statements are not
      provided.   Supplemental   financial  information  of  the  Guarantors  is
      presented below.



                                   9
<PAGE>

<TABLE>
<CAPTION>


                                      CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                                            FOR THE QUARTER ENDED JULY 31, 1998
                                                      (In thousands)

                                                           Combined           Combined
                                                           Guarantor        Non-Guarantor
                                      Metallurg, Inc.    Subsidiaries       Subsidiaries        Eliminations        Consolidated
                                      ----------------  ---------------- -------------------- ------------------ -------------------
<S>                                         <C>              <C>                  <C>                <C>                <C>

Total revenue ......................           $14,513          $57,205             $121,775           $(23,480)          $170,013
                                     ------------------ ---------------- -------------------- ------------------ -------------------
Operating costs and expenses:
   Cost of sales ...................            14,009           47,264              104,878            (23,480)            142,671
   Selling, general and
      administrative expenses ......             2,009            2,718               10,420                  -              15,147
   Merger costs ....................             4,416                -                    -                  -               4,416
                                     ------------------ ---------------- -------------------- --------------------------------------
Total operating costs and
      expenses .....................            20,434           49,982              115,298            (23,480)            162,234
                                     ----------------------------------- -------------------- ------------------ -------------------
Operating income (loss) ............            (5,921)           7,223                6,477                  -               7,779
Other income (expense):
   Other income (expense), net .....                 -               (7)                (326)                 -                (333)
   Interest income (expense), net               (2,382)             316                 (478)                 -              (2,544)
   Equity in earnings of
      subsidiaries .................             7,870            3,148                    -            (11,018)                  -
                                     ----------------------------------- -------------------- --------------------------------------
Income before income
     tax provision .................              (433)          10,680                5,673            (11,018)              4,902
Income tax provision (benefit) .....            (1,931)           3,114                2,471               (250)              3,404
                                     ------------------ ---------------- -------------------- --------------------------------------
Net income .........................           $ 1,498          $ 7,566              $ 3,202           $(10,768)            $ 1,498
                                     ------------------ ---------------- -------------------- ------------------ -------------------

                                     ------------------ ---------------- -------------------- ------------------ -------------------
</TABLE>

                                             10

<PAGE>

<TABLE>
<CAPTION>

                                      CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                                         FOR THE TWO QUARTERS ENDED JULY 31, 1998
                                                      (In thousands)

                                                           Combined           Combined
                                                           Guarantor        Non-Guarantor
                                      Metallurg, Inc.    Subsidiaries       Subsidiaries        Eliminations     Consolidated
                                     ----------------- ---------------- -------------------- ----------------------------------
<S>                                         <C>               <C>                 <C>                  <C>              <C>    
                                     
Total revenue ......................           $26,309         $112,752             $247,902          $(49,120)        $337,843
                                     ------------------ ---------------- -------------------- ----------------------------------
Operating costs and expenses:
   Cost of sales ...................            24,340           92,867              213,092           (48,620)         281,679
   Selling, general and
      administrative expenses ......             4,014            5,246               20,648                 -           29,908
   Merger costs ....................             4,416                -                    -                 -            4,416
                                     ------------------ ---------------- -------------------- ----------------------------------
Total operating costs and
      expenses .....................            32,770           98,113              233,740           (48,620)         316,003
                                     ------------------ ---------------- -------------------------------------------------------
Operating income (loss) ............            (6,461)          14,639                14,162             (500)          21,840
Other income (expense):
   Other income (expense), net .....               878               (7)                (326 )               -              545
   Interest income (expense), net               (4,559)             554                  (611)               -           (4,616)
   Equity in earnings of
      subsidiaries .................            16,033            5,752                     -          (21,785)               -
                                     ------------------ ---------------- -------------------------------------------------------
Income before income
     tax provision .................             5,891           20,938                13,225          (22,285)          17,769
Income tax provision (benefit) .....            (2,397)           6,280                 5,848             (250)           9,481
                                     ------------------ ---------------- -------------------------------------------------------
Net income .........................           $ 8,288         $ 14,658              $  7,377         $(22,035)        $  8,288
                                     ------------------ ---------------- -------------------- ----------------------------------

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

</TABLE>

                                             11

<PAGE>



<TABLE>
<CAPTION>


                                 CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
                                            FOR THE QUARTER ENDED JULY 31, 1998
                                                      (In thousands)

                                                           Combined           Combined
                                                           Guarantor        Non-Guarantor
                                      Metallurg, Inc.    Subsidiaries       Subsidiaries        Eliminations        Consolidated
                                     ------------------ ---------------- -------------------- ------------------ -------------------
<S>                                          <C>               <C>                <C>                   <C>

Net income .........................            $1,498           $7,566               $3,202           $(10,768)            $ 1,498

Other comprehensive income
   (loss):
   Foreign currency translation
      adjustment ...................            (1,152)            (841)              (1,163)             2,004              (1,152)
                                     ------------------ ---------------- -------------------- ------------------ -------------------

Comprehensive income ...............           $   346           $6,725               $2,039           $ (8,764)            $   346
                                     ------------------ ---------------- -------------------- ------------------ -------------------

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

</TABLE>
<TABLE>
<CAPTION>


                                 CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
                                         FOR THE TWO QUARTERS ENDED JULY 31, 1998
                                                      (In thousands)

                                                           Combined           Combined
                                                           Guarantor        Non-Guarantor
                                      Metallurg, Inc.    Subsidiaries       Subsidiaries        Eliminations        Consolidated
                                     ------------------ ---------------- -------------------- ------------------ -------------------
<S>                                         <C>                <C>                <C>               <C>                 <C>  

Net income .........................           $ 8,288          $14,658               $7,377           $(22,035)             $8,288

Other comprehensive income
   (loss):
   Foreign currency translation
      adjustment ...................            (1,076)            (401)              (1,087)             1,488              (1,076)
                                     ------------------ ---------------- -------------------- ------------------ -------------------

Comprehensive income ...............           $ 7,212          $14,257               $6,290           $(20,547)             $7,212
                                     ------------------ ---------------- -------------------- ------------------ -------------------

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



</TABLE>
                                             
                                             12

<PAGE>
<TABLE>

<CAPTION>

                                  CONDENSED CONSOLIDATING BALANCE SHEET AT JULY 31, 1998
                                                      (In thousands)

                                                          Combined           Combined
                                                         Guarantor         Non-Guarantor
                                     Metallurg, Inc.    Subsidiaries       Subsidiaries        Eliminations       Consolidated
                                    ----------------  ----------------- -------------------- -------------------------------------
                                    
<S>                                         <C>               <C>                 <C>              <C>

ASSETS
Current assets:
   Cash and cash equivalents ......          $ 17,775         $  2,432             $ 24,216                              $ 44,423
   Accounts and notes
      receivable, net .............            39,557           64,565               69,219          $ (78,149)            95,192
   Inventories ....................             7,347           43,287               75,262             (4,245)           121,651
   Other assets ...................             8,302               97                7,059                250             15,708
                                    ----------------------------------- -------------------- -------------------------------------
       Total current assets .......            72,981          110,381              175,756            (82,144)           276,974
Investments - intergroup ..........           104,625           54,766                    -           (159,391)                 -
Investments - other ...............               250                -                3,351                  -              3,601
Property, plant and
   equipment, net .................               982            6,866               36,003                  -             43,851
Other assets ......................             5,851                3               11,089                (39)            16,904
                                    ----------------------------------- -------------------- -------------------------------------
      Total .......................          $184,689         $172,016             $226,199          $(241,574)          $341,330
                                    ----------------------------------- -------------------- -------------------------------------

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

LIABILITIES
Current liabilities:
   Short-term debt and current
     portion of long-term debt ....                                                $  1,868                             $   1,868
    Trade payables ................          $  2,599         $ 16,828               52,927          $ (13,128)            59,226
   Accrued expenses ...............             3,429            9,432               18,698                  -             31,559
   Loans payable - intergroup ....             22,063           16,524               36,435            (75,022)                 -
   Other current liabilities ......                 -            6,099                3,163                  -              9,262
                                    ----------------------------------- -------------------- -------------------------------------
      Total current liabilities ...            28,091           48,883              113,091            (88,150)           101,915
                                    ----------------------------------- -------------------- -------------------------------------
Long-term liabilities:
   Long-term debt .................           100,000                -                2,641                  -            102,641
   Accrued pension liabilities ....               342            1,834               35,958                  -             38,134
   Environmental liabilities, net                   -           34,196                2,965                  -             37,161
   Other liabilities ..............             1,395                -                5,262                (39)             6,618
                                    ----------------------------------- -------------------- -------------------------------------
      Total long-term liabilities             101,737           36,030               46,826                (39)           184,554
                                    ----------------------------------- -------------------- -------------------------------------
      Total liabilities ...........           129,828           84,913              159,917            (88,189)           286,469
                                    ----------------------------------- -------------------- -------------------------------------

SHAREHOLDERS' EQUITY:
   Common stock outstanding .......                 -            1,227               80,358            (81,585)                 -
   Additional paid-in capital .....            46,137           90,867                1,104            (91,971)            46,137
   Accumulated other
     comprehensive income..........              (403)             708               21,299            (22,007)              (403)
   Retained earnings (deficit) ....             9,127           (5,699)             (36,479)            42,178              9,127
                                    ----------------------------------- -------------------- -------------------------------------
   Shareholders' equity ...........            54,861           87,103               66,282           (153,385)            54,861
                                    ----------------------------------- -------------------- -------------------------------------
      Total .......................          $184,689         $172,016             $226,199          $(241,574)          $341,330
                                    ----------------------------------- -------------------- -------------------------------------

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

</TABLE>
                                             13

<PAGE>
<TABLE>
<CAPTION>


                                      CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                                         FOR THE TWO QUARTERS ENDED JULY 31, 1998
                                                      (In thousands)


                                                                              Combined         Combined
                                                                             Guarantor       Non-Guarantor
                                                        Metallurg, Inc.     Subsidiaries     Subsidiaries      Consolidated
                                                       ------------------ ----------------------------------- ----------------
<S>                                                             <C>               <C>            <C>                <C>   

Net Cash Flows from
   Operating Activities .............................           $(12,319)           $8,155           $12,656           $8,492
                                                       ------------------ ----------------------------------- ----------------

Cash Flows from Investing Activities:
   Additions to property, plant and equipment .......                (49)             (786)           (6,163)          (6,998)
   Proceeds from asset sales ........................              1,122               109                55            1,286
   Other, net .......................................               (212)                -            (2,042)          (2,254)
                                                       ------------------ ----------------------------------- ----------------
Net cash provided by (used in) investing
   activities .......................................                861              (677)           (8,150)          (7,966)
                                                       ------------------ ----------------------------------- ----------------

Cash Flows from Financing and Merger
 Activities:
   Capital contribution from Safeguard ..............              3,541                 -                 -            3,541
   Intergroup borrowings (repayments) ...............              6,691            (5,770)             (921)               -
   Net short-term borrowings ........................                  -                 -            (1,851)          (1,851)
   Repayment of long-term debt ......................                  -                 -              (548)            (548)
   Dividends received (paid)                                       3,118                 -            (3,118)               -
                                                       ------------------ ----------------------------------- ----------------
Net cash provided by (used in) financing
   activities .......................................             13,350            (5,770)           (6,438)           1,142
                                                       ------------------ ----------------------------------- ----------------

Effects of exchange rate changes on cash
   and cash equivalents .............................                  -                 -              (248)            (248)
                                                       ------------------ ----------------------------------- ----------------

Net increase (decrease) in cash and cash
   equivalents ......................................              1,892             1,708            (2,180)           1,420
Cash and cash equivalents -
   beginning of period ..............................             15,883               724            26,396           43,003
                                                       ------------------ ----------------------------------- ----------------
Cash and cash equivalents -
   end of period ....................................            $17,775            $2,432           $24,216          $44,423
                                                       ------------------ ----------------------------------- ----------------

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

</TABLE>

                                             14

<PAGE>



                  METALLURG, INC. AND CONSOLIDATED SUBSIDIARIES
      ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS



Overview

On  July  13,  1998,   Metallurg  was  acquired  by  a  group  of  institutional
co-investors  led by  Safeguard.  Metallurg is now a wholly owned  subsidiary of
Metallurg  Holdings  Inc.,  a Delaware  corporation  formed on June 10,  1998 by
Safeguard to effect the acquisition.

Effective March 31, 1997, the Company implemented fresh-start reporting relating
to its emergence from bankruptcy.  Accordingly,  all assets and liabilities were
restated to reflect their respective fair values and the consolidated  financial
statements  subsequent to that date include the related  amortization of credits
associated  with  the  fair  value  adjustments.   The  consolidated   financial
statements  after  that date are  those of a new  reporting  entity  and are not
comparable to the pre-confirmation periods.

In  addition,  as a result  of  Metallurg's  change  in its  fiscal  year from a
calendar  year to January 31,  effective as of April 1, 1997,  the  consolidated
operating  results of the  Company  for the two  quarters  ending  July 31, 1998
include the results of Metallurg,  Inc., the parent holding company, for the six
month period ended July 31, 1998 and the results of its  operating  subsidiaries
(whose  fiscal years  remain the  calendar  year) for the six month period ended
June 30, 1998.  The  consolidated  balance sheet data of the Company at July 31,
1998 reflect the financial  position of Metallurg,  Inc. at July 31, 1998 and of
the operating subsidiaries at June 30, 1998.

Results of Operations

Total Revenues
---------------
Total  revenues  for  Metallurg  increased by 1.9%,  from $166.9  million in the
quarter  ended July 31,  1997 to $170.0  million in the  quarter  ended July 31,
1998. Increased volume and selling prices of ferrovanadium accounted for most of
the increase.  In addition,  revenues from increased sales of ferrotitanium  and
chromium metal, due primarily to increased volume,  more than offset a reduction
in sales  of low  carbon  ferrochrome,  ferroboron  and  polishing  powders  due
primarily to increased price competition.

Total revenues for Metallurg increased by 7.9%, from $155.6 million in the first
quarter of 1997 to $167.8 million in the first quarter of 1998. Increased volume
and selling  prices of  ferrovanadium  accounted  for  substantially  all of the
increase.  In addition,  revenues from increased sales of ferrotitanium  and low
carbon  ferrochrome,  due  primarily  to  increased  volume,  more than offset a
reduction in sales of ferroboron  and polishing  powders due to increased  price
competition.

Gross Margins
-------------
Gross margins increased from $24.7 million in the quarter ended July 31, 1997 to
$27.3  million in the quarter  ended July 31,  1998,  an increase of 10.5%,  due
principally   to  the  price  and  volume   increases   in   ferrovanadium   and
ferrotitanium.  In  aluminum  master  alloys and  compacted  products,  a slight
decrease  in volume was more than  offset by  improvements  in  product  mix and
selling prices.  Improvement in gross margins was partially  offset by decreases
in low carbon  ferrochrome  margins resulting from lower selling prices and less
favorable  product mix. The values of the Company's assets were reduced pursuant
to fresh-start reporting,  reducing depreciation expense in each of the quarters
ended July 31, 1998 and 1997 by $0.3 million and increasing  gross margins by an
equal amount.

                                             15

<PAGE>


Gross margins increased from $21.5 million in the first quarter of 1997 to $28.8
million in the first quarter of 1998, an increase of 33.9%,  due  principally to
the price and volume  increases  discussed  above. In aluminum master alloys and
compacted  products,  a slight  decrease  in  volume  was more  than  offset  by
improvements in product mix and selling prices, which offset negative production
variances.  The  values  of  the  Company's  assets  were  reduced  pursuant  to
fresh-start reporting,  reducing depreciation expense in the quarter ended April
30, 1998 by $0.3 million and increasing gross margins by an equal amount.

Selling, General and Administrative Expenses
--------------------------------------------
Selling,  general and  administrative  expenses  ("SG&A")  increased  from $14.4
million in the quarter ended July 31, 1997 to $15.1 million in the quarter ended
July 31, 1998, an increase of 5.0%.  For the quarter  ended July 31, 1997,  SG&A
represented  8.7% of the Company's  sales compared to 8.9% for the quarter ended
July  31,  1998.  SG&A  were  higher  in  1998  due  partly  to the  accelerated
amortization  of awards under the Stock Award and Stock Option Plan of Metallurg
issued in connection with the consummation of the Plan.

SG&A  decreased from $15.0 million in the first quarter of 1997 to $14.8 million
in the first quarter of 1998, a decrease of 1.9%. For the first quarter of 1997,
SG&A  represented  9.7% of the  Company's  sales  compared to 8.8% for the first
quarter of 1998.  SG&A was higher in 1997 due to  increased  bonus  accruals and
Stock  Awards  incurred  in  connection  with the  consummation  of the Plan and
additional costs related to the audit of March 31, 1997 financial statements.

Operating Income
----------------
Operating income decreased from $10.3 million in the quarter ended July 31, 1997
to $7.8 million in the quarter  ended July 31,  1998,  a decrease of 24.6%.  The
decrease  results almost entirely from the merger costs of $4.4 million incurred
in July 1998.  These costs  included  (a) $3.5  million  for  payments to cancel
compensatory  options;  (b) $0.6  million in consent  fees  incurred in order to
obtain a one-time waiver of the change of control  provisions of the Senior Note
Indenture  and to amend the  Indenture to reflect the  post-Merger  ownership of
Metallurg, Inc.; and (c) $0.3 million of other merger costs.

Operating  income  increased  from $6.5 million for the first quarter of 1997 to
$14.1 million for the first quarter of 1998, an increase of 117.0%. The increase
resulted from the  improvement in gross margins and decrease in SG&A,  mentioned
above.

Interest Income (Expense), Net
-------------------------------
Interest income (expense), net is as follows (in thousands):
<TABLE>
<CAPTION>

                                                        Quarter          Quarter              Quarter          Quarter
                                                         Ended            Ended                Ended            Ended
                                                       July 31,         April 30,             July 31,        March 31,
                                                         1998              1998                 1997             1997
                                                    ---------------- ----------------- ------------------  --------------
<S>                                                        <C>                <C>                 <C>               <C>


      Interest income ...........................          $    820          $    828             $    947          $ 1,461
      Interest expense ...........................           (3,364)           (2,900)              (2,426)          (1,706)
                                                                ---                    
                                                    ---------------- ------------------   ----------------------------------
         Interest income (expense), net .........           $(2,544)          $(2,072)             $(1,479)         $  (245)
                                                    ---------------- ------------------   ----------------------------------

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

</TABLE>

Interest  expense  increased  significantly  in 1998.  In each of the  first two
quarters of 1998,  the Company  accrued  approximately  $2.8 million of interest
expense on $100 million  aggregate  principal amount of its 11% senior notes due
2007 (the "11% Senior  Notes"),  which were issued in November 1997. The Company
used a portion of the proceeds from the 11% Senior Notes to retire $39.5 million
of the then  outstanding 12%  Senior-Secured  Notes of Metallurg,  Inc. due 2007
(the "12% Senior-Secured Notes"). In each of the first two quarters of 1997, the
Company  accrued  approximately  $1.2  million of interest  expense on these 12%
Senior-Secured Notes. The Company did not accrue interest on debt incurred prior
to entering Chapter 11 proceedings.  As a result,  approximately $2.1 million of
contractual interest on these unsecured obligations, which were reported as part
of  liabilities  subject to  compromise,  was not reflected in the quarter ended
March 31, 1997.

                                             16
<PAGE>


Income Tax Provision (Benefit):
-------------------------------
Income tax provision, net of tax benefits, is as follows (in thousands):
<TABLE>
<CAPTION>

                                                        Quarter          Quarter              Quarter          Quarter
                                                         Ended            Ended                Ended            Ended
                                                       July 31,         April 30,             July 31,        March 31,
                                                         1998              1998                 1997             1997
                                                    ---------------- -----------------    ----------------  ----------------
                                                                                        
<S>                                                        <C>                <C>               <C>               <C>    


      Total current .............................            $2,512            $4,690               $2,410         $    704
      Total deferred .............................              892             1,387                2,701           (3,767)
                                                                ---                  
                                                    ---------------- -----------------    ------------------ -----------------
         Income tax provision (benefit), net ....            $3,404            $6,077               $5,111          $(3,063)
                                                    ---------------- -----------------    ------------------ -----------------
                                                    ---------------- -----------------    ------------------ -----------------
</TABLE>


The differences  between the statutory Federal income tax rate and the Company's
effective rate result primarily  because of: (i) the excess of foreign tax rates
over the statutory  Federal income tax rate; (ii) certain  deductible  temporary
differences  which, in other  circumstances  would have generated a deferred tax
benefit,  have been  fully  provided  for in a  valuation  allowance;  (iii) the
deferred  tax  effects of certain tax assets,  primarily  foreign net  operating
losses,  for which the  benefit  had been  previously  recognized  approximating
$(0.1)  million and $0.5 million in the  quarters  ended July 31, 1998 and April
30, 1998,  respectively;  and (iv) the deferred tax effects of certain  deferred
tax assets for which a  corresponding  credit has been  recorded to  "Additional
paid-in  capital"  approximating  $1.0  million and $0.9 million in the quarters
ended July 31, 1998 and April 30, 1998, respectively.  The deferred tax expenses
referred  to in items  (iii) and (iv) above will not result in cash  payments in
future periods.

Net Income
-----------
Net income  decreased  from $3.7 million for the quarter  ended July 31, 1997 to
$1.5  million  for the  quarter  ended  July 31,  1998.  The  decrease  resulted
primarily from the merger costs and increased interest expense, partially offset
by increased gross margins, noted above.

Net income was $6.8  million  for the first  quarter of 1998  compared  to $58.0
million  for the first  quarter of 1997.  Included  in the 1997 net income is an
extraordinary  item of  $43.0  million  representing  the  cancellation  of debt
resulting from the consummation of the Company's  Reorganization Plan and a $5.1
million credit  representing  the effects of revaluing the Company's  assets and
liabilities under fresh-start reporting.  Reorganization  expenses for the first
quarter of 1997 were $2.7 million.  In March 1998, the Company sold its minority
investment in a Luxembourg  affiliate and realized a gain of approximately  $0.9
million. In the first quarter of 1997, other income included a $2.7 million gain
on the sale of the Company's New York office building.

Liquidity and Financial Resources

General
-------
The  Company's  sources of liquidity  include cash from  operations  and amounts
available under credit facilities. In addition, the Company has $44.4 million of
cash and cash  equivalents  at July 31, 1998. In November 1997, the Company sold
$100  million  principal  amount of 11% Senior  Notes due 2007,  the proceeds of
which were used to retire the Company's then existing 12%  Senior-Secured  Notes
(approximately  $39.5  million),  repay  certain  debt  of  the  UK  and  German
subsidiaries   (approximately   $19.8  million)  and  to  pay  a  cash  dividend
(approximately $20.0 million).  The balance of the net proceeds will be used for
general  corporate  purposes.  The  Company  believes  that  these  sources  are
sufficient to fund the current and  anticipated  future  requirements of working
capital,  capital  expenditures,  pension benefits,  potential  acquisitions and
environmental expenditures through at least 1999.


                                        17
<PAGE>


At July 31, 1998, the Company had $44.4 million in cash and cash equivalents and
working  capital of $175.1  million,  as  compared  to $43.0  million and $167.8
million,  respectively, at January 31, 1998. For the first two quarters of 1998,
the Company generated $8.5 million in cash from operations and received proceeds
of approximately $1.1 million on the sale of its Luxembourg  affiliate.  Capital
expenditures approximated $7.0 million in the first two quarters and in February
1998,  the Company  purchased an additional  5% interest in a Russian  magnesium
metal producer for approximately $2.0 million.


Credit Facilities and Other Financing Arrangements
---------------------------------------------------
The Company has a credit  facility with certain  financial  institutions  led by
BankBoston,  N.A. as agent (the  "Revolving  Credit  Facility")  which  provides
Metallurg,  Shieldalloy  and  certain  of  their  subsidiaries  with up to $50.0
million of financing  resources  at a rate per annum equal to (i) the  Alternate
Base Rate plus 1.0% per annum  (the  Alternate  Base Rate is the  greater of the
Base Rate or the  Federal  Funds  Effective  Rate plus 0.5%) or (ii) the reserve
adjusted  Eurodollar  rate plus 2.5% for  interest  periods of one, two or three
months.  The Revolving Credit Facility permits borrowings of up to $50.0 million
for working capital  requirements and general  corporate  purposes,  up to $30.0
million of which may be used for letters of credit in the U.S. At July 31, 1998,
there  were no  outstanding  loans  and  $28.3  million  of  letters  of  credit
outstanding  in the U.S.  under the Revolving  Credit  Facility.  On October 20,
1997,  BankBoston,  N.A., through its Frankfurt office,  made available up to DM
20.5 million (approximately $11.3 million) of financing to certain of its German
subsidiaries  (the "German  Subfacility"),  which is guaranteed by Metallurg and
the other U.S. borrowers under the Revolving Credit Facility.

In addition,  several of the other foreign subsidiaries of Metallurg have credit
facility  arrangements  with local  banking  institutions  to provide  funds for
working capital and general  corporate  purposes.  These local credit facilities
contain  restrictions that vary from company to company. At July 31, 1998, there
were $0.8 million of outstanding loans under these local credit facilities.

Capital Expenditures

The Company invested $7.0 million in capital  expenditures  during the first two
quarters of 1998. Capital expenditures are expected to total approximately $20.0
million in 1998.  Although  the Company has  budgeted  these items in 1998,  the
Company has not committed to complete  these  projects  which are  contingent on
senior management approval and other conditions. The Company believes that these
projects will be funded through internally generated cash,  borrowings under the
Revolving Credit Facility and local credit lines.

Environmental Remediation Costs

In 1996, the Company  elected early adoption of the AICPA  Statement of Position
96-1, "Environmental  Remediation Liabilities",  which among other requirements,
states that losses  associated with  environmental  remediation  obligations are
accrued when such losses are deemed  probable  and  reasonably  estimable.  Such
accruals  generally are  recognized no later than the completion of the remedial
feasibility  study  and  are  adjusted  as  further   information   develops  or
circumstances change. Costs of future expenditures for environmental remediation
obligations  are generally not  discounted  to their present  value.  During the
first two quarters of 1998, the Company expended $1.0 million for  environmental
remediation.

                                   18

<PAGE>

As part of the Plan, Shieldalloy entered into settlement agreements with various
environmental  regulatory  authorities  with  regard  to all of the  significant
environmental  remediation  liabilities of which it is aware.  Pursuant to these
agreements,  Shieldalloy has agreed to perform environmental  remediation which,
as of July 31, 1998, had an estimated  cost of completion of $38.9  million.  Of
this amount, approximately $2.9 million is expected to be expended in the second
half of 1998,  $4.3 million in 1999 and $8.1 million in 2000.  In addition,  the
Company  estimates  it will make  expenditures  of $5.0  million with respect to
environmental   remediation   at  its  foreign   facilities.   Of  this  amount,
approximately  $0.5  million is  expected  to be  expended in the second half of
1998, $0.7 million in 1999 and $0.7 million in 2000.


Year 2000 Compliance

Metallurg  has  completed  an  internal  review  of  its  and its  subsidiaries'
information technology  systems in connection  with its assessment of Year  2000
compliance.  Metallurg is in the process of replacing  or  modifying some of the
management and accounting systems at its subsidiaries to upgrade  them generally
and to make them  Year 2000 compliant.  Metallurg expects to spend  between $1.0
million and $2.0 million on these  systems changes.  Metallurg  expects that the
information technology  systems for all of its  subsidiaries will  be  Year 2000
compliant by  March 31, 1999.  Metallurg is  currently assessing  whether any of
its  non-information  technology  will need to be  modified to become  Year 2000
compliant.  

Metallurg has not received written assurances from its significant suppliers and
customers  to determine the state of  their readiness  with regard to Year  2000
compliance.  Metallurg believes that they will be  prepared for Year 2000  based
on Metallurg's normal interactions  with its customers and suppliers and because
of the wide attention which the issue has received.  Metallurg has not yet  seen
the  need for contingency  plans for  the  Year 2000 issue,  but this need  will
continue to be monitored as Metallurg obtains more information about  the  state
of readiness of its suppliers and customers.

         Metallurg presently believes that the Year  2000  issue  will not  pose
significant  operational  problems  for its business systems.  However,  if  any
needed  modifications  and  conversions  were  not  made,  or were not completed
timely, the Year 2000  issue  could  have  an  adverse impact on the Metallurg's
operations and liquidity.  If any of Metallurg's suppliers or customers  do not,
or  if  Metallurg  itself  does not, successfully deal with the Year 2000 issue,
Metallurg  could  experience delays  in  receiving  or  shipping products and in
receiving payments.  The severity of these possible problems would depend on the
nature of the problem and how quickly it  could  be  corrected or an alternative
implemented, which is unknown at this time.

         The anticipated costs for  Metallurg  to become Year 2000 compliant and
the anticipated timing for Metallurg to complete the Year 2000 modifications are
based on management's  best  estimates,  which were  derived  utilizing numerous
assumptions of future events, including timely performance by  third parties who
will provide Metallurg with the  software  for its new  systems.  However, there
can be no guarantee that these estimates will be  achieved  and  actual  results
could differ materially from those  anticipated.  Specific  factors  that  might
cause such material differences  include,  but  are not limited  to, the ability
to locate and correct all relevant computer codes, the  ability to  successfully
integrate   new   business  systems  with   existing   operations   and  similar
uncertainties.  Some  risks  of  the  Year  2000 issue are beyond the control of
Metallurg  and  its suppliers and customers.  In  particular,  Metallurg  cannot
predict the effect that the Year 2000 issue will have on the general economy.


                                        19


<PAGE>



PART II               OTHER  INFORMATION



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

 ......Election of Directors

         (a) The 1998 annual meeting of stockholders was held on June 10, 1998.
         (b)   All of the Company's nominees,  as set forth below, were elected.
               There  was  no   solicitation  in  opposition  to  the  Company's
               nominees.
         (c)   The  sole  matter  voted  on  at  the  1998  annual   meeting  of
               shareholders  was the election of directors.  Set forth below are
               the number of votes cast for each director.
<TABLE>
<CAPTION>

           Director                         Votes For         Voted Against or         Abstentions           Broker
                                                                  Withheld                                  Non-Votes
<S>           <C>                             <C>                   <C>                     <C>                <C>

           Michael A. Standen               2,957,756                193                  -----               -----
           Alan D. Ewart                    2,957,915                34                   -----               -----
           Jon R. Bauer                     2,957,915                34                   -----               -----
           Peter A. Langerman               2,957,915                34                   -----               -----
           Herbert E. Seif                  2,957,915                34                   -----               -----

</TABLE>

         Acquisition of Metallurg, Inc.

         On  June  15,  1998,   Metallurg,   Metallurg  Holdings  and  Metallurg
         Acquisition  Corp.  ("Metallurg  Acquisition")  entered  into a  merger
         agreement (the "Merger  Agreement").  On July 13, 1998, pursuant to the
         Merger Agreement, Metallurg Acquisition merged with and into Metallurg,
         with  Metallurg  being the  surviving  corporation  of the merger  (the
         "Merger").  Upon consummation of the Merger,  each share of Metallurg's
         outstanding common stock was converted into the right to receive $30.00
         in cash. Upon consummation of the Merger, Metallurg Holdings became the
         owner of 100% of the outstanding  common stock of Metallurg.  Metallurg
         Holdings is owned by a group led by Safeguard International.  Safeguard
         International  is an  international  public equity fund based in Wayne,
         Pennsylvania.

         On June 18,  Metallurg,  Inc.  received written consent from holders of
         4,243,280  shares who voted for the Plan and  Agreement of Merger dated
         June  15,  1998  by  and  among,  Metallurg,  Metallurg  Holdings,  and
         Metallurg Acquisition. No holders of shares abstained or withheld 
         consent with respect to such vote.


Item 6. (a)           EXHIBITS

                      27 Financial Data Schedule


       6. (b)         REPORT ON FORM 8-K

                      1.   Form 8-K dated June 15, 1998 (filed on June 16, 1998)
                           announcing  that  Metallurg had entered into a merger
                           agreement  with  Metallurg   Holdings  and  Metallurg
                           Acquisition  pursuant to which Metallurg  Acquisition
                           merged with and into Metallurg  with Metallurg  being
                           the  Surviving   Corporation  of  the  Merger.   Upon
                           consummation of the Merger, each share of Metallurg's
                           outstanding common stock was converted into the right
                           to receive $30.00 in cash.  Upon  consummation of the
                           Merger,  Metallurg  Holdings became the owner of 100%
                           of the outstanding common stock of Metallurg.

                                        20

<PAGE>


                      2.   Form 8-K/A (filed on July 2, 1998)  relating to Press
                           Releases  dated June 19, 1998 regarding the financing
                           of  the  Merger  by   Metallurg   Holdings   and  the
                           Commencement  of a  Consent  Solicitation  of the 11%
                           Senior Notes.

                      3.   Form 8-K/A  (filed July 21,  1998)  relating to Press
                           Release dated July 13, 1998  announcing  consummation
                           of Merger transaction.

                      4.   Form 8-K dated August 10, 1998 (filed August 12, 
                           1998) announcement of new management team of
                           Metallurg.


                                        21
<PAGE>



                                   SIGNATURES



      Pursuant to the  requirements of the Securities  Exchange Act of 1934, the
registrant has duly caused this report to be signed on September 9, 1998 on its
behalf by the undersigned thereunto duly authorized.


                                                METALLURG, INC.




                                                /s/  BARRY C. NUSS
                                                -------------------------------
                                                Barry C. Nuss
                                                Chief Financial Officer
                                                (Principal Financial Officer and
                                                Principal Accounting Officer)



                                        22