SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                           --------------------------

                                    FORM 10-Q


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


For the quarterly period ended September 30, 1997
                               ------------------    

                                       OR

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


For the transition period from __________  to ___________

                         Commission file number 33-84778
                                                --------

                            FREEDOM CHEMICAL COMPANY
              ----------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

              Delaware                                       51-0340498
  --------------------------------                       ------------------
    (State or Other Jurisdiction                          (I.R.S. Employer
  of Incorporation or Organization)                      Identification No.)

          Five Radnor Corporate Center, 100 Matsonford Road, Suite 170,
          ------------------------------------------------------------
                           Radnor, Pennsylvania 19087
                           --------------------------
               (Address of Principal Executive Offices) (Zip Code)

        Registrant's Telephone Number, Including Area Code (610)964-9970
                                                            ------------

   ---------------------------------------------------------------------------
  (Former Address of Principal Executive Offices, if Changed Since Last Report)

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

As of November  13, 1997,  156,501  shares of the  registrant's  Series A Common
Stock and no shares of the registrant's Series B Common Stock were outstanding.


<PAGE>





                    FREEDOM CHEMICAL COMPANY and SUBSIDIARIES

                                    FORM 10-Q

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                                             Page
                                     PART I
<S>           <C>                                                                                           <C>

Item 1.       Consolidated Balance Sheets at December 31, 1996 and September 30, 1997.....................      3
              Consolidated Statements of Operations for the Three Months and Nine Months Ended
                  September 30, 1996 and 1997, respectively...............................................      4
              Consolidated Statements of Cash Flows for the Nine Months Ended
                  September 30, 1996 and 1997, respectively...............................................      5
              Notes to Consolidated Financial Statements..................................................   6-20

Item 2.       Management's Discussion and Analysis of Financial Condition and Results of Operations.......  21-26



                                     PART II

Item 2.       Change in Securities........................................................................     27

Item 5.       Other Information...........................................................................     27

Item 6.       Exhibits and Reports on Form 8-K............................................................     27

</TABLE>






<PAGE>
                     
                         Part I - Financial Information

   Item 1.        Financial Statements
   -------        --------------------

                    FREEDOM CHEMICAL COMPANY AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (Unaudited)
                    (Dollars in thousands, except share data)
<TABLE>
<CAPTION>


                                                                            December 31,      September 30,
                                                                                1996              1997
                                                                                ----              ----
                                     ASSETS
<S>                                                                        <C>                <C>

Current assets:
  Cash and cash equivalents.......................................         $     3,554        $       768
  Accounts receivable, net of allowance for doubtful
  accounts of $456 and $858, respectively.........................              44,249             45,283
  Due from shareholders...........................................                  22                 68
  Refundable income taxes.........................................               1,811                 --
  Inventories.....................................................              53,019             47,843
  Prepaid expenses and other current assets.......................               5,251              4,489
  Environmental indemnification...................................                 492                192
  Deferred income taxes...........................................               7,237              6,585
                                                                           -----------        -----------

      Total current assets........................................             115,635            105,228

Property plant and equipment:
  Land............................................................               3,872              3,680
  Buildings and improvements......................................              14,600             15,442
  Machinery and equipment.........................................             101,356            110,723
  Other...........................................................              11,137              6,440
                                                                           -----------        -----------

                                                                               130,965            136,285
Less accumulated depreciation.....................................              28,754             37,011
                                                                           -----------        -----------

                                                                               102,211             99,274

Intangible assets, net............................................              34,040             32,695
Environmental indemnification.....................................                   8                663
Deferred financing costs, net.....................................               6,902              6,605
Investments in joint ventures.....................................                 541              2,280
Other.............................................................               3,577              3,731
                                                                           -----------        -----------


      Total assets................................................         $   262,914        $   250,476
                                                                           ===========        ===========

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
  Current maturities of long-term debt............................         $     1,067        $         8
  Short-term borrowings...........................................                 936                412
  Notes payable...................................................               1,098                987
  Accounts payable................................................              20,996             21,923
  Accrued expenses................................................               7,889              7,966
  Accrued interest................................................               3,033              6,387
  Accrued compensation............................................               5,787              5,380
  Accrued restructuring and other charges.........................               4,127              2,239
  Environmental...................................................               1,700              2,812
                                                                           -----------        -----------

      Total current liabilities...................................              46,633             48,114

Long-term debt....................................................             153,560            150,797
Environmental.....................................................              15,987             12,279
Deferred income taxes.............................................              12,259             11,315
Postretirement benefits...........................................               4,416              4,632
Other.............................................................               3,346              1,969
Minority interest.................................................               3,390              3,445
Commitments and contingencies.....................................                  __                 __
Mandatory redeemable preferred stock:
  Series B, cumulative, $1,000 par value, authorized 40,000
  shares; issued and outstanding 21,322 shares and 21,519,
  respectively, stated at liquidation value of $1,000 per share plus
  accrued and unpaid dividends of $11,389 and $14,429, respectively             32,711             35,948
  Series C, cumulative, $1,000 par value, authorized 15,000 shares;
  issued 9,137 shares, outstanding 8,916 shares, stated at
  liquidation value of $1,054 per share plus accrued and unpaid
  dividends of $3,453 and $4,640, respectively....................              13,083             14,270

  Less: Treasury stock, at cost (221 shares of Series C preferred)                (262)              (262)
                                                                           -----------        -----------

                                                                                45,532             49,956
Stockholders' deficit:
  Common stock
    Series A, $.01 par value, authorized 200,000 shares; issued
    154,872 and 156,892 shares respectively, outstanding 154,481
    and 156,501 shares, respectively..............................                   2                  2
    Series B, $.01 par value, authorized 10,000 shares; none
    issued or outstanding.........................................                  --                 --
  Additional paid-in capital......................................              10,846              7,149
  Accumulated deficit.............................................             (30,444)           (34,742)
  Cumulative translation adjustment...............................                (397)            (2,224)
                                                                           -----------        ------------

                                                                               (19,993)           (29,815)
Less: Stockholder notes receivable................................              (2,113)            (2,113)
  Treasury stock, at cost (391 shares of Series A common).........                 (46)               (46)
  Minimum pension liability.......................................                 (57)               (57)
                                                                           -----------        -----------

Total stockholders' deficit.......................................             (22,209)           (32,031)
                                                                           -----------        -----------

       Total liabilities and stockholders' deficit................         $   262,914        $   250,476
                                                                           ===========        ===========


</TABLE>

                     The accompanying notes are an integral
                 part of the consolidated financial statements.



<PAGE>


                    FREEDOM CHEMICAL COMPANY AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
                             (Dollars in thousands)

<TABLE>
<CAPTION>


                                                                    Three Months Ended                 Nine Months Ended
                                                                       September 30,                     September 30,
                                                                  -----------------------           -----------------------


                                                                    1996             1997              1996            1997
                                                                    ----             ----              ----            ----
<S>                                                             <C>               <C>              <C>              <C>    

Net sales..................................................     $  73,264         $ 71,327         $ 229,051        $ 217,619
Cost of goods sold (excluding inventory valuation charges).        57,137           56,395           173,619          168,684
Inventory valuation charges................................         4,980               --             4,980            3,155
                                                                ---------         --------          --------        ---------
      Gross profit.........................................        11,147           14,932            50,452           45,780
Selling, general and administrative expense................        11,793           10,541            35,951           31,930
Non-cash compensation expense .............................            84              158               159              190
Research and development expense...........................         1,085            1,045             3,584            3,317
Restructuring and other charges ...........................            --              112                --            2,970
                                                                ---------         --------         ---------        ---------
      Operating income (loss).............................         (1,815)           3,076            10,758            7,373
Interest and debt expense..................................         3,550            3,982            10,339           12,876
Other income (loss)........................................           281             (177)              507              298
                                                                ---------         ---------        ---------        ---------

          Income (loss) before minority
           interest and income taxes.......................        (5,084)          (1,083)              926           (5,205)
Minority interest..........................................            69               88               195              220
                                                                ---------         --------         ---------        ---------

         Income (loss) before income taxes ................        (5,153)          (1,171)              731           (5,425)
Provision (benefit) for income taxes.......................          (508)             181               935              460
Equity in income of joint ventures.........................            72              459               527            1,587
                                                                ---------         --------         ---------        ---------

          Net income (loss)................................        (4,573)            (893)              323           (4,298)


Preferred dividends........................................           481            1,468             2,949            4,229
                                                                ---------         --------         ---------        ---------

     Net loss applicable to common shares..................     $  (5,054)        $ (2,361)        $  (2,626)       $  (8,527)
                                                                ==========        =========        ==========       ==========




</TABLE>






                   The accompanying notes are an integral part
                    of the consolidated financial statements.

<PAGE>
                    FREEDOM CHEMICAL COMPANY AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                             Nine Months Ended
                                                                                               September 30,

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




                                                                                          1996                1997
                                                                                          ----                ----
<S>                                                                                    <C>                <C>
Cash flows from operating activities:
    Net income (loss) .......................................................          $    323           $  (4,298)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
    Depreciation and amortization............................................            10,136              10,771
    Provision for doubtful accounts..........................................                65                 290
    (Gain) loss on sale of fixed assets......................................               (60)                131
    Minority interest........................................................               195                 203
    Non-cash compensation expense............................................               159                 190
    Equity increase of joint ventures........................................              (528)             (1,588)
    Deferred income taxes....................................................               621                 116
    Inventory valuation charges..............................................             4,980               3,155
    Restructuring and other charges (excluding inventory
     valuation charges), net of payments.....................................            (2,649)             (1,123)
    Other changes that provided (used) cash: ................................
        Accounts receivable..................................................            (7,940)             (3,238)
        Inventories..........................................................           (14,138)                (69)
        Prepaid expenses and other current assets............................            (2,620)              2,248
        Accounts payable, accrued expenses and other liabilities.............            10,581               4,963
                                                                                       --------           ---------

Net cash (used in) provided by operating activities..........................              (875)             11,751

Cash flows from investing activities:
       Capital expenditures..................................................            (7,883)             (9,300)
       Decrease in investments in joint ventures.............................                31                  --
       Proceeds from sale of capital equipment...............................             1,651                  67
       Payments for environmental liabilities................................            (1,988)             (3,744)
       Proceeds from environmental indemnification...........................             1,038                 300
       Other.................................................................                36                 184
                                                                                       --------           ---------

Net cash used in investing activities........................................            (7,115)            (12,493)

Cash flows from financing activities:
    Issuance of common stock.................................................                --                 223
    Issuance of preferred stock..............................................                --                 196
    Revolving borrowings under Credit Agreement..............................            47,000             128,011
    Revolving repayments under Credit Agreement.............................            (41,499)           (129,457)
    Term loan repayments under Credit Agreement.............................             (5,166)                 --
    Short-term borrowings under European Facility............................             8,329                  --
    Purchase of treasury stock...............................................               (87)                 --
    Payment of registration costs............................................              (114)               (733)
    Repayment of capital lease obligations...................................               (91)                (14)
    Payments for financing costs.............................................               (50)                (55)
    Dividends paid to minority interests.....................................              (130)               (129)
    Other....................................................................               (40)                (14)
                                                                                       ---------          ----------

Net cash provided by (used in) financing activities..........................             8,152              (1,972)

Effect of exchange rate changes on cash......................................               (68)                (72)
                                                                                       --------           ---------

Net increase (decrease) in cash and cash equivalents.........................                94              (2,786)

Cash and cash equivalents, beginning of period...............................             1,450               3,554
                                                                                       --------           ---------

Cash and cash equivalents, end of period.....................................          $  1,544           $     768
                                                                                       ========           =========
</TABLE>



                  The accompanying notes are an integral part
                    of the consolidated financial statements.



<PAGE>


                    FREEDOM CHEMICAL COMPANY AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Unaudited)
                             (Dollars in thousands)



1.  Description of Business

     Freedom Chemical  Company,  the Registrant  ("FCC";  collectively  with its
subsidiaries referred to as the "Company") was incorporated in Delaware on April
14,  1992 for the  purpose  of  acquiring  specialty  chemical  companies  which
manufacture and market specialty chemical products for diverse applications. The
Company focuses globally on niche markets where it has strong market  positions,
which have relatively few  competitors and where there are significant  barriers
to entry.  In addition,  the Company's  products are often very important to the
performance of its  customers'  products,  but typically  represent a relatively
small  percentage of their total costs. The Company has five core product lines:
(i) Food and Personal Care Ingredients;  (ii)  Pharmaceutical  Intermediates and
Natural  Additives;  (iii) Specialty Organic Chemicals and  Intermediates;  (iv)
Organic Pigments and Dyes; and (v) Textile and Paper Chemicals.


2.  Accounting Policies

Principles of Consolidation
---------------------------

     The accompanying  consolidated  financial statements are unaudited and have
been  prepared  by  management  pursuant  to the  rules and  regulations  of the
Securities  and  Exchange  Commission.  In  the  opinion  of  management,  these
consolidated financial statements contain all of the adjustments,  consisting of
normal recurring  adjustments,  necessary to present fairly, in summarized form,
the financial  position of the Company as of September  30,1997;  the results of
its operations for the three and nine months ended  September 30, 1996 and 1997,
respectively;  and changes in its cash flows for the nine months ended September
30, 1996 and 1997,  respectively.  The results of  operations  for the three and
nine months periods ended September 30, 1997, respectively,  are not necessarily
indicative of the results that may be expected for the year ending  December 31,
1997. The financial  information  presented herein should be read in conjunction
with the consolidated  financial  statements included in the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996.

     The consolidated  financial  statements include the accounts of FCC and its
subsidiaries  which  include:  Freedom  Textile  Chemicals Co. and  subsidiaries
("FTCC"),  Hilton Davis Chemical Company  ("HDCC"),  Kalama  Chemical,  Inc. and
subsidiaries ("KCI"), Freedom Chemical Diamalt GmbH ("Diamalt") and subsidiaries
(collectively   "FCD"),   Freedom  Europe  B.V.  ("BV")  and  Diamalt  Inc.  All
significant  intercompany  accounts and  transactions  have been  eliminated  in
consolidation.

Reclassifications
-----------------

     Beginning in 1997, certain expenses related to evaluations of lower of cost
or market  which  were  previously  classified  as cost of goods  sold have been
reclassified  to inventory  valuation  charges as a separate  component of gross
profit.  All financial  information  has been restated to conform to the current
presentation.

     Certain other prior year amounts have been  reclassified  to conform to the
current year's presentation.

Forward Exchange Contracts
--------------------------

     The Company  enters into  forward  exchange  contracts  primarily as hedges
relating to identifiable  currency  positions.  These financial  instruments are
designed to minimize exposure and reduce risk from exchange rate fluctuations in
the regular course of business.  Gains and losses on forward exchange  contracts
that hedge  exposures  on firm  foreign  currency  commitments  are deferred and
recognized  as  adjustments  to the bases of those  assets.  Gains and losses on
forward  exchange  contracts which hedge foreign  currency assets or liabilities
are recognized in income as incurred.  Such amounts effectively offset gains and
losses on the foreign currency assets or liabilities  that are hedged.  The cash
flow from such  contracts is classified in the same category as the  transaction
hedged in the statements on consolidated cash flows.


<PAGE>


                    FREEDOM CHEMICAL COMPANY AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Unaudited)
                             (Dollars in thousands)

3.  New Pronouncements

     In February 1997, the Financial  Accounting Standards Board ("FASB") issued
Statement of Financial  Accounting  Standard  ("SFAS") No. 129,  "Disclosure  of
Information  about  Capital  Structure"  which  becomes  effective for financial
statements for periods ending after December 15, 1997.  SFAS No. 129 established
certain  required   disclosures   related  to  information   about   securities,
liquidation  preference of preferred  stock and  redeemable  stock.  The Company
currently discloses the capital structure information required by SFAS 129.

     In June  1997,  the FASB  issued  SFAS No.  130,  "Reporting  Comprehensive
Income" which becomes  effective for financial  statements for periods beginning
after December 15, 1997.  SFAS No. 130  established  standards for reporting and
display of comprehensive income and its components (revenues, expense, gains and
losses) in a full set of  general-purpose  financial  statements.  The statement
requires an enterprise to classify items of other comprehensive  income by their
nature in a financial  statement  and display the  accumulated  balance of other
comprehensive  income separately from retained  earnings and additional  paid-in
capital in the equity  section  of the  statement  of  financial  position.  The
implementation of this standard is not expected to have a material effect on the
Company's financial statements.

     In June 1997, the FASB issued SFAS No. 131,  "Disclosures about Segments of
an Enterprise  and Related  Information"  which becomes  effective for financial
statements  for  periods  beginning  after  December  15,  1997.  SFAS  No.  131
established  standards  for the way  that  public  business  enterprises  report
information about operating segments in annual financial statements and requires
that those enterprises  report selected  information about operating segments in
interim financial reports issued to shareholders.  It also established standards
for related  disclosures  about products and services,  geographical  areas, and
major customers.  The  implementation of this standard is not expected to have a
material effect on the Company's financial statements.


4.  Inventories

A summary of the major classifications of inventories is as follows:

                                            December 31,          September 30,
                                                1996                  1997
                                             ----------            ---------

       Raw materials, work in process        $   27,265            $  27,627
       Finished goods                            31,888               21,727
                                             ----------            ---------
                                                 59,153               49,354
       Less: reserves                           ( 6,134)              (1,511)
                                             ----------            ---------
                                             $   53,019            $  47,843
                                             ==========            =========



<PAGE>


                    FREEDOM CHEMICAL COMPANY AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Unaudited)
                             (Dollars in thousands)



5.  Inventory Valuation Charges

     During the nine months  ended  September  30,  1997,  the Company  recorded
inventory valuation charges of $3,155 related to write-downs of certain products
in its Pharmaceutical Intermediates and Natural Additives group. The write-downs
resulted  from an  evaluation  of  lower  of cost or  market  due  primarily  to
industry-wide  overproduction and declines in market values partially associated
with   recent   changes  in   government   regulation   governing   prescription
reimbursement.

     In March  1997,  a charge  of $679 was  recorded  based on an  analysis  of
conditions at that time. An anticipated  improvement in market conditions during
the three  months  ended June 30,  1997 did not occur.  Accordingly,  management
reviewed  the  inventory  balances at June 30, 1997 and  recorded an  additional
charge of $2,476.

     In September,  1996,  the Company  recorded  charges  totaling  $4,980 as a
result of inventory  obsolescence  principally in the Company's Organic Pigments
and Dyes product line.


6.  Restructuring and Other Charges

     In April  1997,  the Company  announced a plan to close its Vernon,  France
facility. This closure was completed in June 1997.  Manufacturing production and
certain  manufacturing  equipment were transferred to other locations as part of
the  closure  plan.  The Company  recorded  restructuring  and other  charges of
$2,606.  These charges include costs of $1,813 for severance to employees,  $660
for the  write-off of fixed assets and  inventory,  and $133 for other  charges,
primarily  for preparing  the site for sale.  The balance of this  restructuring
liability as of September 30, 1997 was $887 and should be paid or settled during
the 1997 fiscal year.

     As of September 30, 1997, the Company  recorded  charges totaling $444 as a
result of a marketing revitalization program the Company initiated primarily for
its Organic  Pigments  and Dyes  product  group.  The Company  expects to record
approximately  $600 in 1997 for this program.  These charges will be expensed as
incurred throughout the remainder of the year.



7.  Environmental Contingencies

     Contingencies exist for the Company and certain of its subsidiaries because
of legal  and  administrative  proceedings  arising  out of the  acquisition  of
businesses  and the  normal  course  of  business.  Such  contingencies  include
environmental  proceedings  directly and  indirectly  against the Company or its
subsidiaries  as well as  matters  internally  identified  by the  Company.  The
resolution of such matters often spans  several  years and  frequently  includes
regulatory  oversight  and/or  adjudication.   Additionally,   many  remediation
requirements   are  not  fixed  and  are  likely  to  be   affected   by  future
technological,  site and  regulatory  developments.  Consequently,  the ultimate
extent of liabilities with respect to such matters as well as the timing of cash
disbursements cannot be determined with certainty.

     In connection  with the purchase of a number of the  Company's  facilities,
contractual  rights were  obtained to indemnify the Company for certain types of
environmental  pollution  relating to those facilities.  As more fully described
below, the Company consequently believes that a portion of the costs incurred in
connection  with  environmental  liabilities  existing  prior  to the  Company's
ownership and remediation actions that may be required relating to the Company's
past  and  present  properties  will be the  responsibility  of  other  parties.
Accordingly,  the  Company  believes  that future  liabilities  over the amounts
accrued,  relating to environmental  conditions  existing prior to the Company's
ownership and  remediation  actions,  are not likely to have a material  adverse
effect on the financial position of the Company,  although the effect on results
of  operations  and cash  flows  could be  material  when these  conditions  are
resolved in a future period.


<PAGE>


                    FREEDOM CHEMICAL COMPANY AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Unaudited)
                             (Dollars in thousands)

7.  Environmental Contingencies, continued

     The  Company has sent wastes  from its  operations  to various  third-party
waste  disposal  sites.  From time to time the  Company  receives  notices  from
representatives of governmental agencies and private parties contending that the
Company is potentially liable for a portion of the investigation and remediation
costs and damages at formerly  owned or operated  sites and  third-party  sites,
some of which are  discussed  herein.  The  Company  does not  believe  that its
liabilities in connection with such third-party sites, either individually or in
the aggregate,  will have a material  adverse effect on the Company's  financial
position, results of operations or cash flows.

 FTCC

     In order to  consolidate  its  textile  operations,  in 1995,  the  Company
transferred  the  textile  assets of HDCC  located in Cowpens,  South  Carolina,
acquired  as a part of the HDCC  acquisition,  to FTCC.  In  1994,  the  Company
reached a tentative  agreement with the South Carolina  Department of Health and
Environmental  Control on an  administrative  consent  agreement  requiring  the
former owner of the Cowpens  facility prior to HDCC to take corrective  measures
and  conduct  additional  investigation,  and the Company and the State of South
Carolina  agreed on a work plan for assessment and  remediation.  As part of the
FTCC Asset  Purchase  Agreement,  the former owner of the property prior to HDCC
agreed that the costs to be expended for the  investigation  and  remediation of
the existing environmental  conditions would be deducted from the final purchase
price payment due to them of $350.

     At the time of the  acquisition,  the Company recorded a liability for $350
relating  to  the  payment  due  to  the  former   owners.   In  1994,   initial
investigations disclosed offsite groundwater contamination. The Company hired an
environmental   consultant   to  manage  this  project  and  is   developing  an
investigative  plan.  While the  Company  believes  that any  remediation  costs
incurred may be recovered from the prior owners, a $1,900 charge was recorded in
1995 for estimated remediation costs since any recoveries or reimbursements from
the prior owners are not currently determinable.  As of September 30, 1997, FTCC
has accrued  approximately  $1,612 for this  liability  and believes the risk of
loss exposure is up to $6,500.

   HDCC

     In  connection  with the  acquisition  of  HDCC,  Sterling  Winthrop,  Inc.
("SWI"), a former owner of HDCC, entered into an Environmental Matters Agreement
("EMA")  with  HDCC,  whereby  SWI has taken  responsibility  for  environmental
conditions  that  predate  1987,  with  certain  exceptions,   as  well  as  for
remediation  of the land at HDCC's  Cincinnati  facility  pursuant to an October
1986  Consent  Decree  entered  into  between  the State of Ohio and SWI and its
subsidiary.

     Under the EMA, HDCC has agreed to share responsibility with SWI for certain
specific environmental  conditions.  Also, HDCC is responsible for environmental
conditions  that postdate 1986. In addition,  PMC, Inc.  ("PMC"),  another prior
owner of HDCC, has placed $1,000 of the purchase price paid by the Company in an
escrow account to indemnify the Company against breaches of representations  and
warranties  contained  in the  Stock  Purchase  Agreement  between  PMC  and the
Company,  including schedules thereto, to the extent such liabilities (including
certain  claims not related to the  environment)  exceeded $200 in the aggregate
and subject to a total cap of $1,000  (excluding  certain  claims not related to
the  environment).  HDCC  does not  believe  that it will be  required  to incur
significant liability in connection with such environmental conditions.


<PAGE>


                    FREEDOM CHEMICAL COMPANY AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Unaudited)
                             (Dollars in thousands)

7.  Environmental Contingencies, continued

   KCI

     KCI owns three manufacturing facilities: Kalama, Washington;  Garfield, New
Jersey; and Beaufort, South Carolina. Operations at these three sites, including
operations by subsidiaries  formerly owned by KCI, have generated  environmental
liabilities.  The Stock  Purchase  Agreement  between  the  Company and BC Sugar
whereby the Company acquired KCI (the "KCI Stock Purchase Agreement"),  requires
BC Sugar to  indemnify  and  reimburse  the Company  for  certain  environmental
liabilities, as discussed in more detail below.

     The  Company's  Kalama,  Washington  facility is subject to an agreed order
between KCI and the  Environmental  Protection  Agency ("EPA")  requiring KCI to
remediate  portions of the site and to limit  potential  offsite  contamination,
pursuant to the Resource  Conservation  and Recovery Act  ("RCRA").  The EPA has
approved one of Kalama's interim corrective measures work plans and initial RCRA
facility  investigation  report  describing  proposed  remediation  of the site.
Capital  equipment has been installed in part of the facility and remediation is
ongoing.  The Company believes that the interim corrective measures will provide
most if not all of the  remediation  required  by the EPA. As of  September  30,
1997, KCI has accrued  approximately  $5,700 for this liability and believes the
risk of loss exposure is up to $18,000.  The  associated  indemnification  as of
September 30, 1997 is $435 to $7,200 based on the risk of loss exposure.

     The Company's  Garfield  facility is subject to an  administrative  consent
order with the State of New Jersey requiring remediation of portions of the site
and  potentially  requiring  remediation of areas  offsite,  pursuant to the New
Jersey  Industrial Site Recovery Act ("ISRA").  The Garfield facility cleanup is
also subject to a Settlement  Agreement  (the "Tenneco  Settlement  Agreement"),
dated April 28, 1994, to terminate  litigation between KCI and Tenneco Polymers,
Inc. ("Tenneco  Polymers"),  the successor in interest of the prior owner of the
site. The Tenneco Settlement  Agreement requires Tenneco Polymers to conduct the
cleanup of the  facility  required  by the State of New Jersey and to pay for 80
percent of the cleanup costs,  with KCI responsible for the remaining 20 percent
of such costs. BC Sugar will remain  responsible for certain of KCI's portion of
the cleanup  costs  pursuant to the KCI Stock  Purchase  Agreement  as described
below.  Tenneco Polymers is currently  conducting  additional site investigation
and discussing with the State of New Jersey the nature and scope of the required
remediation of the Garfield site. KCI has terminated manufacturing operations at
this facility.

     As of  September  30,  1997,  KCI has accrued  approximately  $500 for this
liability and believes the risk of loss exposure is up to $900.  The  associated
indemnification  as of  September  30, 1997 is $200 to $360 based on the risk of
loss exposure.

     The  Company's  Beaufort  facility  has been  listed on the EPA's  National
Priorities   List  pursuant  to  the   Comprehensive   Environmental   Response,
Compensation and Liability Act ("CERCLA").  KCI's  subsidiary,  Kalama Specialty
Chemicals,  Inc. ("KSCI"),  has conducted  environmental  studies of the site to
identify  the  extent  of  contamination  and to  evaluate  the  feasibility  of
remediation alternatives, pursuant to an administrative order of consent between
KSCI and the EPA.  The EPA and KSCI have reached  agreement on a consent  decree
under which KSCI is to perform  the  remediation  strategy  selected by the EPA.
Pilot  equipment was  installed  and test work  commenced in 1995. BC Sugar will
remain responsible for certain of KCI's portion of the cleanup costs pursuant to
the KCI Stock Purchase Agreement as described below. Manufacturing operations at
this  facility  have also  ceased.  As of September  30,  1997,  KCI has accrued
approximately  $3,300 for this  liability and believes the risk of loss exposure
is up to $5,300. The associated indemnification as of September 30, 1997 is $100
to $600 based on the risk of loss exposure.








<PAGE>


                    FREEDOM CHEMICAL COMPANY AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Unaudited)
                             (Dollars in thousands)

7.  Environmental Contingencies, continued

     KCI and its  subsidiaries  have also been named as potentially  responsible
parties  ("PRPs")  pursuant  to CERCLA or  similar  state laws at five sites not
owned by KCI at which it is alleged that hazardous  substances  generated by KCI
or its subsidiaries  were disposed.  These sites are being remediated or studied
for remediation.  KCI is cooperating with the relevant  governmental  agency and
other PRPs in the  investigation  and  cleanup at each of these  sites.  Various
contingencies such as the incomplete status of investigation, the uncertainty of
remediation  selection and  effectiveness,  the search for additional  PRPs, the
absence of binding commitments allocating liability among PRPs and the joint and
several  nature of liability  under CERCLA make it impossible to predict at this
time KCI's total liability at these sites.  KCI or one of its  subsidiaries  has
also been  named as a PRP at sites  under  which an  indemnitor  (other  than BC
Sugar) has agreed to undertake  the defense and  liability.  Finally,  claims of
liability   have  been  received  at  other  sites  for  which  KCI  has  denied
responsibility.  However,  BC  Sugar  is  responsible  for  certain  liabilities
incurred at these Superfund sites pursuant to the KCI Stock Purchase  Agreement,
as discussed in more detail below.

     The KCI Stock Purchase  Agreement  provides  certain  indemnifications  and
related provisions, which address these liabilities.  Pursuant to the agreement,
BC Sugar remains  responsible for the costs of investigation,  negotiations with
government  agencies,  and installation of the capital expenditure  component of
the cleanup required by the government at each of the three facilities currently
owned by KCI and its subsidiaries (i.e. Kalama, Garfield and Beaufort). BC Sugar
is also  responsible  for a total of 50  percent of the costs of  operation  and
maintenance arising from the capital  expenditure  component of cleanup at these
three sites until five years after the  installation of the capital  expenditure
component of each site.

     In addition,  BC Sugar is responsible for all costs incurred as a result of
KCI's  liability at the offsite  Superfund sites including the five at which KCI
is a  cooperating  PRP,  sites at which an  indemnitor  other  than BC Sugar has
agreed to accept  responsibility  and  other  identified  sites at which KCI has
received claims but is currently denying liability, provided that the sites were
identified in the schedules to the Kalama Stock Purchase  Agreement.  BC Sugar's
liability for these sites continues until three years after the  installation of
capital expenditures at all of the three currently owned facilities,  but in any
event no later than May 26, 2004.

     In the KCI  Stock  Purchase  Agreement,  BC Sugar  also  agreed  to  remain
responsible for certain  liabilities  arising from  violations of  environmental
laws occurring  before May 26, 1994, at sites currently or formerly owned by KCI
to the extent such  liabilities  in the  aggregate  exceed $2,000 and claims are
made by the Company for such reimbursement before May 26, 1996. However, the KCI
Stock Purchase Agreement also includes certain warranties and representations by
BC Sugar that KCI was in compliance  with  environmental  laws as of the closing
date  (May 26,  1994),  except  as set  forth  in a  schedule  accompanying  and
incorporated into the KCI Stock Purchase  Agreement.  BC Sugar further agreed to
indemnify the Company and KCI against  liabilities  arising out of the breach of
these  representations and warranties to the extent each such liability exceeded
$50 individually and all such  liabilities  exceeded $600 in the aggregate,  and
provided any such claim was made by the Company or KCI before May 26, 1996.  All
of the  indemnifications  and other provisions whereby BC Sugar agreed to remain
responsible  for  costs in the KCI Stock  Purchase  Agreement,  including  those
described  above,  are subject to an  aggregate  limit of $44,000 and  including
certain costs which may be directly  incurred or paid by BC Sugar. The KCI Stock
Purchase  Agreement  required  BC Sugar to  establish  a trust  fund to  provide
reimbursement  for  expenditures  for  environmental  liabilities by KCI and the
Company for which BC Sugar is liable under the agreement.

     As a result of the KCI Stock Purchase  Agreement and the Tenneco Settlement
Agreement, the Company does not believe that additional liabilities,  if any, to
be incurred by KCI under  environmental  laws would be material to the Company's
financial position, results of operations or cash flows.


<PAGE>


                    FREEDOM CHEMICAL COMPANY AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Unaudited)
                             (Dollars in thousands)

7.  Environmental Contingencies, continued

     In May  1991,  the EPA  issued  a  compliance  order to KCI  alleging  nine
violations of the Clean Air Act, dating back to 1984, at the Kalama facility. In
July 1994, KCI was  informally  notified by the EPA that these  violations  (and
possibly other alleged violations of the Clean Air Act) had been referred to the
Department of Justice for possible initiation of an enforcement action. In 1996,
the Company signed a consent  agreement  with the  Department of Justice,  which
contemplated  the payment of a penalty as well as an additional  payment to fund
supplemental   environmental  projects.  These  amounts  were  included  in  the
liabilities  established  by the Company in connection  with the  acquisition of
KCI. The consent  decree was  finalized in early 1997 and all required  payments
have been made totaling approximately $1,700. The Company has made a claim to BC
Sugar for indemnification in this matter.


8. Condensed Consolidating Financial Statements

     The  following  condensed  consolidating  financial  data  illustrates  the
composition of the  consolidated  financial  statements.  The Parent is FCC. The
U.S. Guarantor  Subsidiaries include all domestic  subsidiaries of FCC including
the following:  FTCC and certain of its  subsidiaries  (Freedom Textile Chemical
Company (South  Carolina),  Inc. and FCC Acquisition  Corp.),  HDCC, KCI and its
subsidiaries  (Kalama  Specialty  Chemicals,   Inc.  and  Kalama  Foreign  Sales
Corporation)  and  Diamalt  Inc.  The German  Guarantor  Subsidiary  is Diamalt,
excluding  its  subsidiaries.   The  Non-Guarantor   Subsidiaries   include  the
following:  A-Chem (U.K.) Limited (a subsidiary of FTCC), BV, Societe  Francaise
Des Colloides,  S.A. (a subsidiary of BV), Diamalt Pharmorganica Pvt. Limited (a
subsidiary of Diamalt), Diamalt Srl (a subsidiary of Diamalt), Indiamalt Private
Limited (a subsidiary of Diamalt).  The U.S. and German  Guarantor  Subsidiaries
are wholly owned by the Parent.

     Investments  in  subsidiaries  are  accounted  for by the Parent,  the U.S.
Guarantor  Subsidiaries and the German Guarantor Subsidiary on an unconsolidated
basis using the equity  method for purposes of the  consolidating  presentation.
Earnings of subsidiaries are therefore reflected in the Parent's, U.S. Guarantor
Subsidiaries'  and  German  Guarantor   Subsidiary's   investment  accounts  and
earnings.  Income tax expense  (benefit)  is allocated  among the  consolidating
entities based upon taxable income (loss) by jurisdiction within each group.

     The principal elimination entries eliminate investments in subsidiaries and
intercompany  balances and transactions.  Separate  financial  statements of the
U.S.  Guarantor   Subsidiaries,   the  German  Guarantor  Subsidiary,   and  the
Non-Guarantor  Subsidiaries are not presented because  management has determined
that such financial statements would not be material to investors.

<PAGE>


                    FREEDOM CHEMICAL COMPANY AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Unaudited)
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                                           Condensed Consolidating Balance Sheet
                                                                  As of December 31, 1996
                                         ------------------------------------------------------------------------------

                                                             U.S.       German       Non
                                                           Guarantor   Guarantor  Guarantor    Elim-
                                                Parent   Subsidiaries Subsidiary Subsidiaries inations Consolidated
                                             ---------    ---------    --------    --------   --------   --------
                            ASSETS
<S>                                          <C>          <C>         <C>        <C>       <C>          <C>
Current assets:
    Cash and cash equivalents...............      $88         $344     $2,218       $992        $(88)     $3,554
    Accounts receivable, net................       --       29,933     11,458      2,858          --      44,249
    Due from affiliates.....................    6,294           --         --      1,566      (7,860)         --
    Due from shareholder....................       17            5         --         --          --          22
    Refundable income taxes.................    1,811           --         10         --         (10)      1,811
    Inventories.............................       --       33,522     17,481      2,069         (53)     53,019
    Prepaid expenses and
      other current assets.................        63        2,164      2,858        410        (244)      5,251
    Environmental indemnification...........       --          492         --         --          --         492
    Deferred income taxes...................      609        6,492         --        136          --       7,237
                                             --------     --------    -------    -------    --------    --------

          Total current assets..............    8,882       72,952     34,025      8,031      (8,255)    115,635


Property, plant and equipment:
    Land....................................       --        2,610        438        824          --       3,872
    Buildings and improvements..............       --       13,001        704        895          --      14,600
    Machinery and equipment.................       --       88,186      9,047      4,123          --     101,356
    Other...................................      376        8,805        733      1,223          --      11,137
                                             --------     --------      -----     ------      ------      ------

                                                  376      112,602     10,922      7,065          --     130,965
     Less accumulated depreciation..........      142       25,680      1,544      1,388          --      28,754
                                             --------     --------      -----     ------      ------      ------

                                                  234       86,922      9,378      5,677          --     102,211

Intangible assets, net......................      335       33,063        267         59         316      34,040
Environmental indemnification...............       --            8         --         --          --           8
Deferred financing costs, net...............       --        5,946        948          8          --       6,902
Investments in joint ventures...............       --           --        541         --          --         541
Deferred income taxes.......................    3,204           --         --         --      (3,204)         --
Other.......................................      148        3,163        220         46          --       3,577
Notes receivable, subsidiaries..............  127,943        6,578        539         --    (135,060)         --
Investment in subsidiaries..................   25,405        2,752      3,329         --     (31,486)         --
                                             --------     --------    -------    -------    --------    --------

          Total assets...................... $166,151     $211,384    $49,247    $13,821   $(177,689)   $262,914
                                             ========     ========    =======    =======   ==========   ========


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
    Current maturities of long-term debt....      $--          $26        $--     $1,041         $--      $1,067
    Short-term borrowings...................       --           --        458        478          --         936
    Notes payable...........................        2          773         --        323          --       1,098
    Accounts payable........................      186       15,654      4,072      1,169         (85)     20,996
    Due to affiliates.......................       --          479      7,161        220      (7,860)         --
    Accrued expenses........................      428        6,686        730        298        (253)      7,889
    Accrued interest........................    2,897           --        104         32          --       3,033
    Accrued compensation....................      345        4,184        750        508          --       5,787
    Accrued restructuring and other charges.      953        2,516        557        101          --       4,127
    Environmental...........................       --        1,700         --         --          --       1,700
                                             --------     --------     ------    -------    --------    --------

          Total current liabilities.........    4,811       32,018     13,832      4,170      (8,198)     46,633

Long-term debt..............................  134,500           --     18,591        469          --     153,560
Environmental...............................       --       15,987         --         --          --      15,987
Deferred income taxes.......................       --       15,416         --         47      (3,204)     12,259
Postretirement benefits.....................       --        4,416         --         --          --       4,416
Notes payable...............................       --      119,676     13,425      1,959    (135,060)         --
Other.......................................    2,456          173        456        261          --       3,346
Minority interest...........................       --           --         --        290       3,100       3,390
Commitments and contingencies...............       --           --         --         --          --          --
Mandatory redeemable preferred stock:.......   45,794        3,079         --         --      (3,079)     45,794
     Less: Treasury stock...................     (262)          --         --         --          --        (262)
                                             --------     --------    -------    -------    --------    --------

                                               45,532        3,079         --         --      (3,079)     45,532

Stockholders' equity (deficit):
Common stock................................        2        1,200      1,291      2,333      (4,824)          2
Preferred stock.............................       --        3,839         --         --      (3,839)         --
Additional paid-in capital..................   10,846       33,928      8,241      2,761     (44,930)     10,846
Retained earnings (accumulated deficit).....  (29,980)     (18,148)    (6,097)     1,648      22,133     (30,444)
Cumulative translation adjustment...........       --           --       (492)      (117)        212        (397)
Less: Stockholder note receivable...........   (1,913)        (200)        --         --          --      (2,113)
     Treasury stock, at cost................      (46)          --         --         --          --         (46)
     Minimum pension liability..............      (57)          --         --         --          --         (57)
                                             --------     --------    -------    -------    --------    --------

          Total stockholders' equity
           (deficit)........................  (21,148)      20,619      2,943      6,625     (31,248)    (22,209)

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

          Total liabilities and
            stockholders' equity (deficit).. $166,151     $211,384    $49,247    $13,821   $(177,689)   $262,914
                                             ========     ========    =======    =======   =========    ======== 
</TABLE>


<PAGE>


                    FREEDOM CHEMICAL COMPANY AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Unaudited)
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                               Condensed Consolidating Balance Sheet
                                                                     As of September 30, 1997
                                              ------------------------------------------------------------------------------

                                                                 U.S.        German        Non
                                                              Guarantor     Guarantor   Guarantor      Elimin-
                                                 Parent      Subsidiaries  Subsidiary  Subsidiaries     ations   Consolidated
                                                ---------    ----------    ----------   ----------    --------    ----------
                            ASSETS
<S>                                              <C>          <C>          <C>          <C>          <C>          <C>
Current assets:
    Cash and cash equivalents ................   $     424    $      73    $    (224)   $     722    $    (227)   $     768
    Accounts receivable, net .................          --       31,574       11,376        2,326            7       45,283
    Due from affiliates ......................       6,393          (38)         722          411       (7,488)          --
    Due from shareholder .....................          68           --           --           --           --           68
    Refundable income taxes ..................          --           --           --           --           --           --
    Inventories ..............................          --       34,145       12,856          964         (122)      47,843
    Prepaid expenses and
      other current assets ...................         380        2,225        1,660          224           --        4,489
    Environmental indemnification ............          --          192           --           --           --          192
    Deferred income taxes ....................         609        5,939           --           37           --        6,585
                                                 ---------    ---------    ---------    ---------    ---------    ---------

          Total current assets ...............       7,874       74,110       26,390        4,684       (7,830)     105,228


Property, plant and equipment:
    Land .....................................          --        2,514          384          782           --        3,680
    Buildings and improvements ...............          --       13,209          616        1,617           --       15,442
    Machinery and equipment ..................          --       97,499        7,898        5,326           --      110,723
    Other ....................................         660        4,632          994          154           --        6,440
                                                 ---------    ---------    ---------    ---------    ---------    ---------

                                                       660      117,854        9,892        7,879           --      136,285
     Less accumulated depreciation ...........         231       33,164        1,886        1,730           --       37,011
                                                 ---------    ---------    ---------    ---------    ---------    ---------

                                                       429       84,690        8,006        6,149           --       99,274

Intangible assets, net .......................         266       31,739          352          338           --       32,695
Environmental indemnification ................          --          663           --           --           --          663
Deferred financing costs, net ................         428        5,418          754            5           --        6,605
Investments in joint ventures ................          --           --        2,280           --           --        2,280
Deferred income taxes ........................       3,617           --           --           --       (3,617)          --
Other ........................................         159        3,534           --           38           --        3,731
Notes receivable, subsidiaries ...............     130,207        6,578        1,006           --     (137,791)          --
Investment in subsidiaries ...................      14,121          569        3,128           --      (17,818)          --
                                                 ---------    ---------    ---------    ---------    ---------    ---------

          Total assets .......................   $ 157,101    $ 207,301    $  41,916    $  11,214    $(167,056)   $ 250,476
                                                 =========    =========    =========    =========    =========    =========


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
    Current maturities of long-term debt .....   $      --    $       2    $      --    $       6    $      --    $       8
    Short-term borrowings ....................          --           --           --          412           --          412
    Notes payable ............................           2          958           --           27           --          987
    Accounts payable .........................         109       18,818        2,261          962         (227)      21,923
    Due to affiliates ........................          --          404        6,478          606       (7,488)          --
    Accrued expenses .........................         842        5,677        1,227          220           --        7,966
    Accrued interest .........................       6,222           --          132           33           --        6,387
    Accrued compensation .....................          47        3,900        1,070          363           --        5,380
    Accrued restructuring and other charges ..         959          393           --          887           --        2,239
    Environmental ............................          --        2,812           --           --           --        2,812
                                                 ---------    ---------    ---------    ---------    ---------    ---------

          Total current liabilities ..........       8,181       32,964       11,168        3,516       (7,715)      48,114

Long-term debt ...............................     129,750           --       19,786        1,261           --      150,797
Environmental ................................          --       12,279           --           --           --       12,279
Deferred income taxes ........................          --       14,863           --           69       (3,617)      11,315
Postretirement benefits ......................          --        4,632           --           --           --        4,632
Accrued restructuring and other charges ......          --           --           --           --           --           --
Notes payable ................................          --      121,732       13,425        2,634     (137,791)          --
Other ........................................       1,068          221          552          128           --        1,969
Minority interest ............................          --           --           --          269        3,176        3,445
Commitments and contingencies ................          --           --           --           --           --           --
Mandatory redeemable preferred stock: ........      50,218        3,149           --           --       (3,149)      50,218
     Less: Treasury stock ....................        (262)          --           --           --           --         (262)
                                                 ---------    ---------    ---------    ---------    ---------    ---------

                                                    49,956        3,149           --           --       (3,149)      49,956

Stockholders' equity (deficit):

Common stock .................................           2        1,200        1,291        2,333       (4,824)           2
Preferred stock ..............................          --        4,147           --           --       (4,147)          --
Additional paid-in capital ...................       7,149       33,927        8,241        2,761      (44,929)       7,149
Retained earnings (accumulated deficit) ......     (36,965)     (21,613)     (10,649)      (1,177)      35,662      (34,742)
Cumulative translation adjustment ............         (24)          --       (1,898)        (580)         278       (2,224)
Less: Stockholder note receivable ............      (1,913)        (200)          --           --           --       (2,113)
     Treasury stock, at cost .................         (46)          --           --           --           --          (46)
     Minimum pension liability ...............         (57)          --           --           --           --          (57)
                                                 ---------    ---------    ---------    ---------    ---------    ---------

          Total stockholders'
           equity (deficit) ..................     (31,854)      17,461       (3,015)       3,337      (17,960)     (32,031)

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

          Total liabilities and
           stockholders' equity (deficit) ....   $ 157,101    $ 207,301    $  41,916    $  11,214    $(167,056)   $ 250,476
                                                 =========    =========    =========    =========    =========    =========

</TABLE>

<PAGE>


                    FREEDOM CHEMICAL COMPANY AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Unaudited)
                             (Dollars in thousands)

<TABLE>
<CAPTION>

                                                                 Condensed Consolidating Statement of Operations
                                                                  For the Three Months Ended September 30, 1996
                                              ------------------------------------------------------------------------------

                                                                   U.S.         German        Non
                                                                 Guarantor     Guarantor   Guarantor    Elimin-
                                                     Parent    Subsidiaries   Subsidiary  Subsidiary     ations Consolidated
                                                   ---------    ----------    ----------  ----------   --------  ----------
<S>                                                <C>         <C>         <C>           <C>          <C>        <C>
Net sales........................................  $     --    $ 52,474    $  18,313     $  3,731    $ (1,254)   $ 73,264
Cost of goods sold (excluding
  inventory valuation charges)...................        --      42,897       15,415        2,398        (924)     57,137
Inventory valuation charges......................        --       4,980           --           --          --       4,980
                                                   ---------   ---------   ----------    --------    ---------   ---------
    Gross profit.................................        --       7,246        2,898        1,333        (330)     11,147
Selling, general and administrative expense......     1,700       6,587        3,012          607        (113)     11,793
Non-cash compensation expense....................        84          --           --           --          --          84
Research and development expense.................        --         777          267           41          --       1,085
                                                   ---------   ---------   ----------    --------    ---------   ---------
    Operating income (loss)......................    (1,784)       (118)        (381)         685        (217)     (1,815)
Interest and debt expense (income)...............      (146)      2,899          726           72          (1)      3,550
Other income (loss)..............................     2,854      (2,467)         125          (40)       (191)        281
Equity in income (loss) of subsidiary............    (4,033)       (556)         420           --       4,169          --
                                                   ---------   ---------   ----------    --------    ---------   ---------
    Income (loss) before minority
      interest and income taxes...............       (2,817)     (6,040)        (562)         573       3,762      (5,084)
Minority interest................................        --          --           --           --          69          69
                                                   ---------   ---------   ----------    --------    ---------   ---------
    Income (loss) before income taxes............    (2,817)     (6,040)        (562)         573       3,693      (5,153)
Provision (benefit) for income taxes.............     1,488      (2,199)           2          409        (208)       (508)
Equity in income of joint ventures...............        --          --           72           --          --          72
                                                   ---------   ---------   ----------    --------    ---------   ---------
    Net income (loss)............................    (4,305)     (3,841)        (492)         164       3,901      (4,573)
Preferred dividends..............................       481        (637)          --           --         637         481
                                                   ---------   ---------   ----------    --------    ---------   ---------
    Net income (loss) applicable
      to common shares..........................   $ (4,786)   $ (3,204)   $    (492)    $    164    $   3,264   $ (5,054)
                                                   =========   =========   ==========    ========    =========   =========

</TABLE>


<PAGE>


                    FREEDOM CHEMICAL COMPANY AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Unaudited)
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                                                  Condensed Consolidating Statement of Operations
                                                                   For the Three Months Ended September 30, 1997
                                              ------------------------------------------------------------------------------

                                                                       U.S.       German       Non
                                                                     Guarantor   Guarantor  Guarantor  Elimin-
                                                         Parent   Subsidiaries Subsidiary Subsidiaries ations  Consolidated
                                                       ----------  ---------  ---------   ---------  ---------   --------
<S>                                                   <C>         <C>         <C>        <C>         <C>        <C>
Net sales........................................      $      --  $  56,238   $  14,940  $   2,593   $(2,444)   $  71,327
Cost of goods sold (excluding
 inventory valuation charges)....................             --     43,818      12,846      2,173    (2,442)      56,395
Inventory valuation charges......................             --         --          --         --         --          --
                                                       ----------  ---------  ---------   ---------  ---------   --------
    Gross profit.................................             --     12,420       2,094        420        (2)      14,932
Selling, general and administrative expense......          1,007      6,691       2,576        353       (86)      10,541
Non-cash compensation expense....................            158         --          --         --         --         158
Research and development expense.................             --        821         210         14         --       1,045
Restructuring and other charges..................             --        112          --         --         --         112
                                                       ----------  ---------  ---------   ---------  ---------   --------
    Operating income (loss)......................        (1,165)      4,796       (692)         53         84       3,076
Interest and debt expense .......................           (15)      3,359         568         70         --       3,982
Other income (loss)..............................          2,329    (2,187)         218      (345)      (192)       (177)
Equity in income (loss) of subsidiary............        (2,022)      (297)        (47)         --      2,366          --
                                                       ----------  ---------  ---------   ---------  ---------   --------
    Income (loss) before minority
      interest and income taxes..................          (843)    (1,047)     (1,089)      (362)       2,258    (1,083)
Minority interest................................             --         --          --         17         71          88
                                                       ----------  ---------  ---------   ---------  ---------   --------
    Income (loss) before income taxes............          (843)    (1,047)     (1,089)      (379)      2,187     (1,171)
Provision (benefit) for income taxes.............          1,020       (73)          14         40      (820)         181
Equity in income of joint ventures...............             --         --         412         --         47         459
                                                       ----------  ---------  ---------   ---------  ---------   --------
    Net income (loss)............................        (1,863)      (974)       (691)      (419)      3,054       (893)
Preferred dividends..............................          1,468        175          --         --      (175)       1,468
                                                       ----------  ---------  ---------   ---------  ---------   --------
    Net income (loss) applicable
      to common  shares..........................      $  (3,331)  $ (1,149)  $   (691)   $   (419)  $   3,229   $(2,361)
                                                       ==========  =========  =========   =========  =========   ========

</TABLE>





<PAGE>


                    FREEDOM CHEMICAL COMPANY AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Unaudited)
                             (Dollars in thousands)
<TABLE>
<CAPTION>


                                                               Condensed Consolidating Statement of Operations
                                                                For the Nine Months Ended September 30, 1996
                                              ------------------------------------------------------------------------------

                                                                U.S.       German       Non
                                                             Guarantor   Guarantor   Guarantor      Elimin-
                                                  Parent    Subsidiaries Subsidiary  Subsidiary      ations  Consolidated
                                                  -----       -------    ---------    ---------     -------    --------

<S>                                           <C>          <C>          <C>         <C>          <C>          <C>
Net sales .................................   $      --    $ 164,912    $  57,247   $  11,113    $  (4,221)   $ 229,051
Cost of goods sold (excluding
 inventory valuation charges) .............          --      124,813       45,000       7,641       (3,835)     173,619
Inventory valuation charges ...............          --        4,980           --          --           --        4,980
                                              ----------   ----------   ---------   ---------    ---------    ----------
    Gross profit ..........................          --       35,119       12,247       3,472         (386)      50,452
Selling, general and administrative expense       3,500       21,526        9,332       1,962         (369)      35,951
Noncash compensation expense ..............         159           --           --          --           --          159
Research and development expense ..........          --        2,542          901         141           --        3,584
                                              ----------   ----------   ---------   ---------    ---------    ----------
    Operating income (loss) ...............      (3,659)      11,051        2,014       1,369          (17)      10,758
Interest and debt expense .................         (96)       8,318        1,897         220           --       10,339
Other income (loss) .......................       8,884       (8,078)         533        (241)        (591)         507
Equity in income (loss) of subsidiary .....      (2,388)         648          630          --        1,110           --
                                              ----------   ----------   ---------   ---------    ---------    ----------
    Income (loss) before minority
      interest and income taxes ...........       2,933       (4,697)       1,280         908          502          926

Minority interest .........................          --           --           --          --          195          195
                                              ----------   ----------   ---------   ---------    ---------    ----------
    Income (loss) before income taxes .....       2,933       (4,697)       1,280         908          307          731
                                              ----------   ----------   ---------   ---------    ---------    ----------
Provision (benefit) for income taxes ......       2,015       (1,374)           4         498         (208)         935
Equity in income of joint ventures ........          --           --          527          --           --          527
                                              ----------   ----------   ---------   ---------    ---------    ----------
    Net income (loss) .....................         918       (3,323)       1,803         410          515          323
Preferred dividends .......................       2,949           --           --          --           --        2,949
                                              ----------   ----------   ---------   ---------    ---------    ----------
    Net income (loss) applicable
      to common shares ....................   $  (2,031)   $  (3,323)   $   1,803   $     410    $     515    $  (2,626)
                                              ==========   ==========   =========   =========    =========    ==========
</TABLE>



<PAGE>


                    FREEDOM CHEMICAL COMPANY AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Unaudited)
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                                               Condensed Consolidating Statement of Operations
                                                                For the Nine Months Ended September 30, 1997
                                              ------------------------------------------------------------------------------

                                                                   U.S.         German        Non
                                                                 Guarantor     Guarantor   Guarantor    Elimin-
                                                       Parent  Subsidiaries   Subsidiary  Subsidiaries   ations   Consolidated
                                                       ------    --------      -------     ---------    -------    ----------
<S>                                                 <C>          <C>          <C>          <C>          <C>          <C>
Net sales .......................................   $      --    $ 171,663    $  42,513    $  11,363    $  (7,920)   $ 217,619
Cost of goods sold (excluding
 inventory valuation charges) ...................          --      131,475       36,603        8,839       (8,233)     168,684
Inventory valuation charges .....................          --           --        3,155           --           --        3,155
                                                    ---------    ---------    ---------    ---------    ---------    ---------
    Gross profit ................................          --       40,188        2,755        2,524          313       45,780
Selling, general and administrative expense .....       2,630       20,688        7,351        1,649         (388)      31,930
Non-cash compensation expense ...................         190           --           --           --           --          190
Research and development expense ................          --        2,519          705           93           --        3,317
Restructuring and other charges .................          --          444           --        2,526           --        2,970
                                                    ---------    ---------    ---------    ---------    ---------    ---------
    Operating income (loss) .....................      (2,820)      16,537       (5,301)      (1,744)         701        7,373
Interest and debt expense (income) ..............        (155)      10,381        2,476          174           --       12,876
Other income (loss) .............................       7,356       (6,869)       1,105         (619)        (675)         298
Equity in income (loss) of subsidiary ...........     (10,449)      (2,097)         594           --       11,952           --
                                                    ---------    ---------    ---------    ---------    ---------    ---------
    Income (loss) before minority
      interest and income taxes .................      (5,758)      (2,810)      (6,078)      (2,537)      11,978       (5,205)

Minority interest ...............................          --           --           --           17          203          220
                                                    ---------    ---------    ---------    ---------    ---------    ---------
    Income (loss) before income taxes ...........      (5,758)      (2,810)      (6,078)      (2,554)      11,775       (5,425)
Provision (benefit) for income taxes ............       1,313           61           14          185       (1,113)         460
Equity in income of joint ventures ..............          --           --        1,540           --           47        1,587
                                                    ---------    ---------    ---------    ---------    ---------    ---------
    Net income (loss) ...........................      (7,071)      (2,871)      (4,552)      (2,739)      12,935       (4,298)
Preferred dividends .............................       4,229          508           --           --         (508)       4,229
                                                    ---------    ---------    ---------    ---------    ---------    ---------
    Net income (loss) applicable to common shares   $ (11,300)   $  (3,379)   $  (4,552)   $  (2,739)   $  13,443    $  (8,527)
                                                    =========    =========    =========    =========    =========    =========
</TABLE>




<PAGE>


                    FREEDOM CHEMICAL COMPANY AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Unaudited)
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                         Condensed Consolidating Statement of Cash Flows
                                                          For the Nine Months Ended September 30, 1996
                                     ---------------------------------------------------------------------------

                                                                U.S.       German        Non
                                                              Guarantor   Guarantor   Guarantor    Elimin-
                                                    Parent  Subsidiaries Subsidiary  Subsidiary     ations   Consolidated
                                                  --------    --------    --------    --------    --------    ----------


<S>                                               <C>         <C>         <C>         <C>         <C>         <C>
Net cash provided by (used in)
      operating activities ....................   $  2,853    $  1,521    $ (4,910)   $   (304)   $    (35)   $   (875)
                                                  --------    --------    --------    --------    --------    --------
Cash flows from investing activities:
    Capital expenditures ......................       (113)     (5,856)       (890)     (1,024)         --      (7,883)
    (Increase) decrease in
      investments in joint ventures ...........         --          --         (20)         51          --          31
    Proceeds from sale of capital equipment ...         --       1,572          79          --          --       1,651
    Payments for environmental liabilities ....         --      (1,988)         --          --          --      (1,988)
    Proceeds from environmental indemnification         --       1,038          --          --          --       1,038
    Other .....................................         --          30          --           6          --          36


Net cash used in investing activities .........       (113)     (5,204)       (831)       (967)         --      (7,115)
                                                  --------    --------    --------    --------    --------    --------
Cash flows from financing activities:
    Issuance of common stock ..................         --          --          --          --          --          --
    Issuance of preferred stock ...............         --          --          --          --          --          --
    Revolving borrowings under Credit Agreement     47,000          --          --          --          --      47,000
    Revolving repayments under Credit Agreement    (41,499)         --          --          --          --     (41,499)
    Term loan repayments under Credit Agreement     (5,166)         --          --          --          --      (5,166)
    Short-term loan borrowings
      under European Facility .................         --          --       7,906         423          --       8,329
    Payment of treasury stock .................        (87)         --          --          --          --         (87)
    Payment of registration costs .............       (114)         --          --          --          --        (114)
    Repayment of capital lease obligations ....         --         (56)         --         (35)         --         (91)
    Payments for financing costs ..............         --          --          --         (50)         --         (50)
    Dividends paid to minority interests ......         --        (130)         --          --          --        (130)
    Other .....................................         --         (40)         --          --          --         (40)
    Subsidiary loans ..........................     (2,870)      4,445      (2,216)        611          30          --

                                                  --------    --------    --------    --------    --------    --------
Net cash provided by (used in)
      financing activities ....................     (2,736)      4,219       5,690         949          30       8,152

Effect of exchange rate changes on cash .......         --          --         112        (180)         --         (68)
                                                  --------    --------    --------    --------    --------    --------
Net increase (decrease) in cash
      and cash equivalents ....................          4         536          61        (502)         (5)         94
                                                  --------    --------    --------    --------    --------    --------
Cash and cash equivalents, beginning of period         248          --         429       1,021        (248)      1,450
                                                  --------    --------    --------    --------    --------    --------

Cash and cash equivalents, end of  period .....   $    252    $    536    $    490    $    519    $   (253)   $  1,544
                                                  ========    ========    ========    ========    ========    ========

</TABLE>



<PAGE>


                    FREEDOM CHEMICAL COMPANY AND SUBSIDIARIES

             Notes to Consolidated Financial Statements (Unaudited)
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                             Condensed Consolidating Statement of Cash Flows
                                                              For the Nine Months Ended September 30, 1997
                                              ------------------------------------------------------------------------------

                                                                  U.S.       German         Non
                                                                Guarantor   Guarantor     Guarantor     Elimin-
                                                     Parent   Subsidiaries  Subsidiary    Subsidiary     ations    Consolidated
                                                  --------    --------    --------    --------    --------    ----------

<S>                                               <C>          <C>          <C>          <C>          <C>          <C>
Net cash provided by (used in)
 operating activities .........................   $   7,709    $   7,900    $  (4,140)   $     980    $    (698)   $  11,751
                                                  ---------    ---------    ---------    ---------    ---------    ---------
Cash flows from investing activities:
    Capital expenditures ......................        (295)      (6,679)        (524)      (1,802)          --       (9,300)
    Increase in investments in subsidiaries ...          --           --         (581)          --          581           --
    Proceeds from sale of capital equipment ...          --           --           --           67           --           67
    Payments for environmental liabilities ....          --       (3,744)          --           --           --       (3,744)
    Proceeds from environmental
      indemnification .........................          --          300           --           --           --          300
    Other .....................................          --           36          148           --           --          184


Net cash used in investing activities .........        (295)     (10,087)        (957)      (1,735)          --      (12,493)
                                                  ---------    ---------    ---------    ---------    ---------    ---------
Cash flows from financing activities:
    Issuance of common stock ..................         223           --           --            8           (8)         223
    Issuance of preferred stock ...............         196           --           --           --           --          196
    Revolving borrowings under Credit Agreement      55,000           --       71,452        1,559           --      128,011
    Revolving repayments under Credit Agreement     (59,500)          --      (68,143)      (1,814)          --     (129,457)
    Term loan repayments under Credit Agreement          --           --           --           --           --           --
    Short-term loan borrowings
      under European Facility .................          --           --           --           --           --           --
    Payment of treasury stock .................          --           --           --           --           --           --
    Payment of registration costs .............        (733)          --           --           --           --         (733)
    Repayment of capital lease obligations ....          --          (14)          --           --           --          (14)
    Payments for financing costs ..............          --           --          (55)          --           --          (55)
    Dividends paid to minority interests ......          --         (129)          --           --           --         (129)
    Other .....................................          --            2           --          (16)          --          (14)
    Subsidiary loans ..........................      (2,264)       2,056         (467)         675           --           --
                                                  ---------    ---------    ---------    ---------    ---------    ---------
Net cash provided by (used in)
       financing activities ...................      (7,078)       1,915        2,787          412           (8)      (1,972)
Effect of exchange rate changes on cash .......          --            1         (132)         (89)         148          (72)
                                                  ---------    ---------    ---------    ---------    ---------    ---------
Net increase (decrease) in cash
      and cash equivalents ....................         336         (271)      (2,442)        (432)          23       (2,786)

Cash and cash equivalents, beginning of period           88          344        2,218          992          (88)       3,554
                                                  ---------    ---------    ---------    ---------    ---------    ---------

Cash and cash equivalents, end of period ......   $     424    $      73    $    (224)   $     560    $     (65)   $     768
                                                  =========    =========    =========    =========    =========    =========

</TABLE>

<PAGE>




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

     The following should be read in conjunction with Item 1 of this report.

General

     The Company is a leading global  manufacturer and marketer of a broad range
of specialty  and fine  chemical  products  which are sold into  several  market
segments  for  use in food  and  beverage  products,  household  and  industrial
products,  cosmetics and personal  care  products,  pharmaceuticals,  pet foods,
textile and paper  products  and many other  diverse  applications.  The Company
operates in one industry segment,  with revenues derived from sales in five core
product  groups:  (i) Food and Personal Care  Ingredients;  (ii)  Pharmaceutical
Intermediates  and Natural  Additives;  (iii)  Specialty  Organic  Chemicals and
Intermediates;  (iv)  Organic  Pigments  and  Dyes;  and (v)  Textile  and Paper
Chemicals.


Inventory Valuation Charges

     During the nine months  ended  September  30,  1997,  the Company  recorded
inventory  valuation  charges of $3.2 million  related to write-downs of certain
products in its  Pharmaceutical  Intermediates  and Natural Additives group. The
write-downs resulted from an evaluation of lower of cost or market due primarily
to  industry-wide   overproduction  and  declines  in  market  values  partially
associated with recent changes in government  regulation governing  prescription
reimbursement.  In March 1997, a charge of $0.7 million was recorded based on an
analysis  of  conditions  at that date.  An  anticipated  improvement  in market
conditions  during  the  three  months  ended  June  30,  1997  did  not  occur.
Accordingly,  management  reviewed the  inventory  balances at June 30, 1997 and
recorded an additional charge of $2.5 million.  After recording this adjustment,
management  expects that  profitability will return to historical levels for the
Pharmaceutical Intermediates and Natural Additives product line.

     In September, 1996, the Company recorded charges totaling $5.0 million as a
result of inventory  obsolescence  principally in the Company's Organic Pigments
and Dyes product line.


Restructuring and Other Charges

     In April  1997,  the Company  announced a plan to close its Vernon,  France
facility. This closure was completed in June 1997.  Manufacturing production and
certain  manufacturing  equipment were transferred to other locations as part of
the  closure.  The  Company  recorded  restructuring  and other  charges of $2.6
million. These charges include costs of $1.8 million for severance to employees,
$0.7 million for the write-off of fixed assets and  inventory,  and $0.1 million
for other  charges,  primarily for  preparing the site for sale.  The closing of
this facility is consistent  with the Company's  strategic plan of improving its
cost structure by having fewer  manufacturing  plants  producing  greater volume
products.  The  Company  estimates  that the annual  savings as a result of this
plant  closure  will be  approximately  $2.2 million most of which will begin in
1998.

     During the nine months  ended  September  30,  1997,  the Company  recorded
charges  totaling $0.4 million which reduced  operating  income as a result of a
marketing revitalization program the Company initiated primarily for its Organic
Pigments and Dyes product  group.  The Company  expects to record  approximately
$0.6  million  in 1997 for this  program.  These  charges  will be  expensed  as
incurred throughout the remainder of the year.






<PAGE>



Results of Operations

     The following table sets forth certain data from the Consolidated Financial
Statements (Unaudited) expressed as a percentage of net sales.

<TABLE>
<CAPTION>

                                                                       Three Months Ended                  Nine Months Ended
                                                                          September 30,                      September 30,
                                                                  -----------------------              -----------------------



                                                                     1996             1997              1996             1997
                                                                     ----             ----              ----             ----
<S>                                                                 <C>              <C>               <C>              <C>    
Net sales                                                           100.0%           100.0%            100.0%           100.0%

Cost of goods sold (excluding inventory valuation charges)           78.0             79.1              75.8             77.5

Inventory valuation charges                                           6.8              --                2.2              1.4

Gross profit                                                         15.2             20.9              22.0             21.0

Selling, general and administrative expense                          16.1             14.8              15.7             14.7

Research and development expense                                      1.5              1.5               1.6              1.5

Restructuring and other charges                                       --               0.2               --               1.4

Operating income (loss)                                              (2.4)             4.3               4.7              3.4

Interest and debt expense                                             4.8              5.6               4.5              5.9

Net (loss) income                                                    (6.2)            (1.3)              0.1             (2.0)

Preferred dividends                                                   0.7              2.1               1.3              1.9

Net loss applicable to common shares                                 (6.9)            (3.3)             (1.1)            (3.9)

</TABLE>


                     Three Months Ended September 30, 1997
               Compared to Three Months Ended September 30, 1996

     Net Sales.  Net sales declined $1.9 million to $71.3 million in the quarter
ended  September  30, 1997  compared to the quarter  ended  September  30, 1996.
Pharmaceuticals  revenues  declined  $3.7 million  because of (i)  industry-wide
overstocking  due to producer and customer  expectations of comparable  business
strengths in 1997 versus 1996,  and (ii)  changes in German  social  legislation
regarding  the  reimbursement  for  certain  medications  in  which  one  of the
Company's main products is used. It is expected that this  development  will not
result in a permanent  loss of business.  Textile and Paper  Chemicals  revenues
decreased  $2.9  million,  primarily  as a  result  of  the  discontinuation  of
unprofitable  product  lines.  Organic  Pigment and Dye revenues  declined  $0.5
million as a result of effects of increased European competition on Color Former
sales,  offset  partially by  increased  sales in Inks.  Specialty  Organics and
Intermediates  revenues  increased  $4.8  million,  primarily  due  to  capacity
expansion.

     Gross Profit. Gross profit,  excluding inventory charges of $5.0 million in
1996,  decreased  $1.2 million for the three months ended  September 30, 1997 to
$14.9 million compared to $16.1 million for the three months ended September 30,
1996. This decrease resulted primarily from the following:  (i) $1.5 million was
due to lower  Pharmaceutical  sales  and  $2.4  million  in  Textile  and  Paper
Chemicals  due to  unfavorable  yield  variances.  These  negative  impacts were
offset,  in part, by the following  improvements:  (i) $1.8 million in Specialty
Organics and Chemical  Intermediates  due to increased sales and $1.1 million in
Food and Personal Care  Ingredients due to a favorable change in product mix and
plant cost structure.

     The following  table  displays a comparison  for each of the Company's five
core product lines of pounds of product sold,  average prices,  net sales, gross
profit  dollars  (excluding  inventory  valuation  charges),  and  gross  profit
percentage for the quarters  ending  September 30, 1997 and 1996,  respectively.
(All values are in millions except for average price.)


<PAGE>
<TABLE>
<CAPTION>


                                                             Three Months Ended
                                       September 30, 1997                                   September 30, 1996
                          -----------------------------------------------    ------------------------------------------------

                          Volume    Average     Net       Gross     Gross     Volume   Average      Net      Gross      Gross
Line                     (pounds)    Price     Sales     Profit    Margin    (pounds)   Price      Sales    Profit     Margin
                         --------    -----     -----     ------    ------    --------   -----      -----    ------     ------

<S>                         <C>      <C>        <C>       <C>        <C>       <C>        <C>      <C>       <C>        <C>
Specialty Organics
 and Intermediates          33.69     $0.50     $16.96     $4.76     28.10%    23.78      $0.51    $12.13     $2.96     24.37%

Food and Personal
 Care Ingredients           15.98     $1.17     $18.62     $6.17     33.14%    17.30      $1.06    $18.27     $5.04     27.60%
                                                                           

Pharmaceutical
 Intermediates               0.50    $16.79      $8.43     $0.56      6.64%     0.53      $23.04   $12.12     $2.01     16.56%
                                                                             

Textile and Paper
 Chemicals                  27.88     $0.51     $14.10     $1.90     13.51%    29.65      $0.57    $17.03     $4.28     25.14%
                                                                           

Organic Pigments
 and Dyes                    3.10     $4.27     $13.22     $1.53     11.58%     2.78      $4.93    $13.71     $1.83     13.39%
                                                                             

Company Total               81.15     $0.88     $71.33    $14.93     20.93%    74.03      $0.99    $73.26    $16.12     22.01%
                                                                           
</TABLE>


     The Company  recorded  estimated costs of shutdown of $0.7 million and $0.4
million for the three months ended  September  30, 1997 and 1996,  respectively.
The costs of shutdown  are  accrued on a pro rata basis over the period  between
shutdowns. Plant shutdowns are typically scheduled on a semi-annual;  nine-month
and  annual  basis  at the  Company's  various  plants  for the  performance  of
maintenance  and inspection of various pieces of equipment.  As of September 30,
1997,  $0.7  million was  accrued  related to such costs,  which  represented  a
decrease  from  December 31, 1996 of $0.2 million due  primarily to shutdowns at
the Company's Hilton Davis and Kalama  facilities in June and Freedom Textile in
July and the timing of various other plant shutdowns scheduled in 1997.

     Selling,  General  and  Administrative  Expense.   Selling,   general,  and
administrative  expense  decreased  $1.3  million to $10.5  million in the three
months ended  September  30, 1997  compared to the same period of the prior year
primarily  due to  personnel  reductions  and  plant  closings  as a  result  of
restructuring and other charges. As a percentage of sales, selling, general, and
administrative  expense  decreased to 14.8% in the three months ended  September
30, 1997 from 16.1% for the same period in 1996.

     Research and Development Expense. Research and development expense remained
constant at $1.1  million  compared  to the same period of the prior year.  As a
percentage of sales,  research and development  also was constant at 1.5% in the
three months ended September 30, 1997 compared to the same period in 1996.

     Operating Income. Operating income, excluding restructuring charges of $0.1
million in 1997 and inventory charges of $5.0 million in 1996, remained constant
at $3.2 million for the quarter  ended  September  30, 1997 compared to the same
quarter of 1996.

 Interest and Debt Expense.  Interest and debt expense increased $0.4 million to
$4.0 million for the three months ended  September 30, 1997 compared to the same
period of the prior year.  The weighted  average  interest rate of the Company's
borrowings  was 9.9% at September 30, 1997, as compared to 8.9% at September 30,
1996. The increase in the weighted  average interest rate is attributable to the
issuance of the 10 5/8% Senior  Subordinated  Notes due 2006 (the  "Notes") that
were issued in October 1996.

     Net  Income  (Loss).  Net loss  decreased  $3.7  million  to a loss of $0.9
million in the three  months  ended  September  30, 1997 as compared to the same
period of the prior year. The decreases  resulted primarily from items discussed
above.

     Net Income (Loss)  Applicable to Common Shares.  The net loss applicable to
common shares  decreased by $2.7 million to a loss of $2.4 million for the three
months  ended  September  30,  1997 as  compared to the same period of the prior
year. The decrease resulted from the items referred to above.



                      Nine months Ended September 30, 1997
                Compared to Nine months Ended September 30, 1996

     Net Sales.  Net sales  declined $11.4 million to $217.6 million in the nine
months  ended   September  30,  1997  compared  to  the  same  period  in  1996.
Pharmaceuticals  revenues  declined $15.3 million  because of (i)  industry-wide
overstocking  due to producer and customer  expectations of comparable  business
strengths in 1997 versus 1996,  and (ii)  changes in German  social  legislation
regarding  the  reimbursement  for  certain  medications  in  which  one  of the
Company's main products is used. It is expected that this  development  will not
result in a permanent  loss of business.  Textile and Paper  Chemicals  revenues
decreased  $4.0  million,  primarily  as a  result  of  the  discontinuation  of
unprofitable  product lines.  These  declines were offset by the following:  (i)
Organic  Pigment and Dye revenues  increased  $0.8 million as a result of strong
sales in the Inks  product  line,  (ii)  Specialty  Organics  and  Intermediates
revenues increased $5.9 million,  primarily due to capacity expansion, and (iii)
Food and Personal Care Ingredients  revenues  increased $1.2 million as a result
of strong sales in Preservatives, Colors and Cosmetics.

     Gross Profit.  Gross profit,  excluding the inventory  valuation charges of
$3.2  million and $5.0  million in 1997 and 1996,  respectively,  declined  $6.5
million for nine months ended  September 30, 1997 to $48.9  million  compared to
$55.4  million  for the nine months  ended  September  30,  1996.  This  decline
resulted  primarily  from  the  following:  (i)  $6.0  million  was due to lower
Pharmaceutical  sales,  (ii) $1.6 million in Textile and Paper  Chemicals due to
unfavorable  yield variances,  which was offset by the favorable  effects of the
discontinuation  of  unprofitable  product  lines  and  (iii)  $0.1  million  in
Specialty  Organics and  Intermediates  due primarily to lower  overall  prices,
higher toluene and energy costs, offset by higher sales volumes.  These negative
impacts were offset by  improvements  of $1.4 million in Food and Personal  Care
Ingredients  due  primarily  to  increased  sales in  Preservatives,  Colors and
Cosmetics.

     The following  table  displays a comparison  for each of the Company's five
core product lines of pounds of product sold,  average prices,  net sales, gross
profit  dollars  (excluding  inventory  valuation  charges),  and  gross  profit
percentage for the nine months ended September 30, 1997 and 1996,  respectively.
(All values are in millions except for average price.)

<TABLE>
<CAPTION>

                                                               Nine months Ended
                                        September 30, 1997                                 September 30, 1996
                         ------------------------------------------------    ----------------------------------------------
                          Volume    Average     Net       Gross     Gross     Volume   Average    Net      Gross      Gross
Line                     (pounds)    Price     Sales     Profit    Margin    (pounds)   Price    Sales    Profit     Margin
                         --------    -----     -----     ------    ------    --------   -----    -----    ------     ------

<S>                        <C>       <C>       <C>        <C>        <C>      <C>       <C>     <C>       <C>        <C>
Specialty Organics
 and Intermediates          94.72     $0.51     $48.43    $11.83     24.42%    78.45     $0.54   $42.51   $11.96     28.13%
                                                                           

Food and Personal
 Care Ingredients           50.97     $1.07     $54.68    $17.15     31.36%    50.43     $1.06   $53.49   $15.71     29.37%
                                                                           

Pharmaceutical
 Intermediates               1.45    $16.44     $23.80     $2.79     11.72%     1.84    $21.21   $39.10    $8.80     22.49%
                                                                             

Textile and Paper
 Chemicals                  77.15    $0.63      $48.45     $9.84     20.31%    80.62     $0.65   $52.46   $11.46     21.85%
                                                                           

Organic Pigments
 and Dyes                    9.76     $4.33     $42.26     $7.33     17.35%     8.52     $4.87   $41.49    $7.50     18.09%
                                                                             

Company Total              234.05     $0.93    $217.62    $48.94     22.49%   219.86     $1.04  $229.05     55.43    24.20%

</TABLE>

     The Company  recorded  estimated costs of shutdown of $1.6 million and $1.1
million for the nine months ended September 30, 1997 and 1996, respectively. The
costs of  shutdown  are  accrued on a pro rata  basis  over the  period  between
shutdowns. Plant shutdowns are typically scheduled on a semi-annual,  nine-month
and  annual  basis  at the  Company's  various  plants  for the  performance  of
maintenance  and inspection of various pieces of equipment.  As of September 30,
1997,  $0.7  million was  accrued  related to such costs,  which  represented  a
decrease  from  December 31, 1996 of $0.2 million due  primarily to shutdowns at
the Company's Hilton Davis and Kalama  facilities in June and Freedom Textile in
July and the timing of various other plant shutdowns scheduled in 1997.





     Selling,  General  and  Administrative  Expense.   Selling,   general,  and
administrative  expense  decreased  $4.0  million  to $31.9  million in the nine
months ended  September  30, 1997  compared to the same period of the prior year
primarily  due to  personnel  reductions  and  plant  closings  as a  result  of
restructuring and other charges. As a percentage of sales, selling, general, and
administrative expense decreased to 14.7% in the nine months ended September 30,
1997 from 15.7% for the same period in 1996.

     Research and Development Expense. Research and development expense declined
$0.3 million to $3.3 million compared to the same period of the prior year. As a
percentage  of sales,  research  and  development  declined  to 1.5% in the nine
months ended September 30, 1997 from 1.6% for the same period in 1996.

     Operating  Income.  Operating  income,  excluding  inventory  valuation and
restructuring  charges  of $6.1  million  and $5.0  million  in 1997  and  1996,
respectively,  declined  $2.2 million to $13.5 million for the nine months ended
September  30, 1997 compared to the same period of 1996.  The decrease  resulted
primarily from items discussed above.

     Interest and Debt Expense. Interest and debt expense increased $2.5 million
to $12.9  million for the nine months ended  September  30, 1997 compared to the
same  period  of the prior  year.  The  weighted  average  interest  rate of the
Company's  borrowings  was 9.9% at September  30,  1997,  as compared to 8.9% at
September  30,  1996.  The  increase in the weighted  average  interest  rate is
attributable to the issuance of the 10 5/8% Senior  Subordinated  Notes due 2006
(the "Notes") that were issued in October 1996.

     Net Income  (Loss).  Net income  decreased  $4.6  million to a loss of $4.3
million in the nine  months  ended  September  30,  1997 as compared to the same
period of the prior  year.  The loss  resulted  primarily  from items  discussed
above.

     In addition,  the Company's  equity in income of joint  ventures  increased
$1.1  million for the nine months  ended  September  30, 1997 as compared to the
same period of the prior year.  The  increase is primarily  attributable  to the
increase in the equity in income of Srinivasa  Cystine  Limited which  increased
$1.1 million.

     Net Income (Loss)  Applicable to Common Shares.  The net loss applicable to
common  shares  increased by $5.9 million to a loss of $8.5 million for the nine
months  ended  September  30,  1997 as  compared to the same period of the prior
year. The decrease resulted from the items referred to above.

Liquidity and Capital Resources

     Net Cash Provided By Operating  Activities.  Net cash provided by operating
activities for the nine months ended September 30, 1997 was $11.8 million, which
represented  a change of $12.6  million  from the $0.9  million net cash used in
operating  activities in the same period of the prior year.  This change was due
primarily to a decrease in inventory.

     Net  Cash  Used  in  Investing  Activities.  Net  cash  used  in  investing
activities for the nine months ended  September 30, 1997 was $12.5  million,  an
increase of $5.4 million compared to the same period of the prior year.  Capital
expenditures  in the nine months  ended  September  30,  1997 were $9.3  million
compared to $7.9 million in the same period of the prior year.  This increase in
capital  expenditures  in 1997  included  $2.5 million  related to the expansion
program at the Company's Kalama facility.

     Net  Cash  Used  in  Financing  Activities.  Net  cash  used  in  financing
activities  for the nine months ended  September  30, 1997 was $2.0  million,  a
change of $10.1  million from the net cash  provided by financing  activities of
$8.1  million over the same period of the prior year.  This change  includes net
repayments  of $1.4 million  compared to net  borrowings of $8.7 million for the
same  period  in the  prior  year and cash  proceeds  of $0.4  million  from the
issuance of common and preferred stock.

     Liquidity. On October 17, 1996, the Company issued the Notes. The Notes are
fully and  unconditionally  guaranteed,  on a joint  and  several  basis,  as to
payment of principal,  premium,  if any, and  interest,  by all of the Company's
domestic subsidiaries and Diamalt.






     Concurrently  with the  consummation  of the  offering  of the  Notes,  the
Company  amended and  restated  its existing  credit  agreement  (as amended and
restated,  the "Amended and Restated Credit  Agreement") to, among other things,
increase the amount of the  revolving  loan  facility to $85 million and include
Diamalt as a  co-borrower.  The Amended and Restated  Credit  Agreement  and the
Indenture  related  to  the  Notes  contain  certain  financial  covenants  that
restrict,  among other things,  the incurrence of additional  indebtedness,  the
sale of assets, and certain  investments,  acquisitions and distributions by the
Company.  The Amended and Restated Credit Agreement also requires the Company to
maintain specified financial ratios and tests, including maximum leverage ratios
and minimum interest  coverage  ratios.  The Company was in compliance with such
ratios and tests at September 30, 1997.

     The  Company  expects  that its  ongoing  cash  requirements  will  consist
primarily of interest  payments on its outstanding  indebtedness,  including the
Notes and any borrowings under the Amended and Restated Credit Agreement.  As of
September  30, 1997 the Company had $57.1  million of working  capital  (current
assets less current  liabilities) and $59.1 million  available under the Amended
and Restated Credit Agreement.

     Although the Company  expects that cash flows from operations and available
borrowings  under  the  Amended  and  Restated  Credit  Agreement  will  provide
sufficient working capital to operate the Company's  business,  to make expected
capital   expenditures   and  to  meet  the  Company's   foreseeable   liquidity
requirements, there can be no assurance that sufficient sources of funds will be
available.


Foreign Currency Exchange Rates

     The  Company's  substantial  foreign  operations  expose  it to the risk of
exchange rate fluctuations. If foreign currency denominated revenues are greater
than costs, the translation of foreign currency  denominated  costs and revenues
into  U.S.  dollars  will  improve   profitability  when  the  foreign  currency
strengthens  against  the U.S.  dollar and will  reduce  profitability  when the
foreign currency  weakens.  In addition,  the  remeasurement of foreign currency
denominated  assets  and  liabilities  into U.S.  dollars  gives rise to foreign
exchange gains or losses, which are included in the determination of net income.

     The Company's  foreign  currency  exposures  are managed on a  consolidated
basis, which allows certain exposures to be offset naturally.  However,  forward
contracts  are entered into  periodically  to hedge  specific  foreign  currency
exposures.  Under this  strategy,  gains or losses on hedging  transactions  are
offset by gains or losses on the underlying exposures being hedged.



<PAGE>


                           PART II - OTHER INFORMATION


Item 2.       Changes in Securities

Recent Sales of Unregistered Securities

In September 1997, the Company issued 445.75 shares of its Series A Common Stock
and 98.292  shares of its Series B  Redeemable  Preferred  Stock to Alexander R.
Castaldi for an aggregate purchase price of $150,000.

In April 1997, the Company issued 445.75 shares of its Series A Common Stock and
98.292 shares of its Series B Redeemable  Preferred  Stock to Vincent P. Langone
for an aggregate purchase price of $150,000.

The  issuance of these  securities  was made in reliance on the  exemption  from
registration provided by Section 4(2) of the Securities Act of 1933, as amended,
for transactions not involving a public offering.


Item 5.       Other Information

On March  18,  1997,  the  Company  consummated  a  fully-subscribed  registered
exchange  offer for the Notes (the "Exchange  Offer") to satisfy  certain of the
Company's  obligations  under a registration  rights  agreement  relating to the
Notes.  The form and terms of the Notes  issued  under  the  Exchange  Offer are
substantially  identical in all  material  respects to the form and terms of the
Notes issued on October 17, 1996.


Item 6.       Exhibits and Reports on Form 8-K

         (a)  Exhibits.

Exhibit
  No.                             Description of Exhibit

3.1        Restated Certificate of Incorporation of Freedom Chemical Company and
           Certificate of Designation  for Preferred Stock (filed as Exhibit 3.1
           to the Company's  Registration  Statement on Form S-1  (33-84778) and
           incorporated herein by reference).

3.2        By-laws of Freedom Chemical Company (filed as Exhibit 3.2 to the
           Company's Registration Statement on Form S-1 (33-84778) and
           incorporated herein by reference).


27         Financial Data Schedule.


          (b)     Reports on Form 8-K.

No reports on Form 8-K were filed  during the  quarter  for which this report is
filed.



                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.



                                     FREEDOM CHEMICAL COMPANY
                                              (Registrant)


                                     By:  /s/ BRIAN F. MCNAMARA
                                          ---------------------
                                                       Brian F. McNamara
                                                       Vice President, Secretary
                                                          and General Counsel



Date: November 13, 1997              By:  /s/ DENNIS M. MONAHAN
                                          ---------------------
                                                       Dennis M. Monahan
                                                       Vice President, Finance
                                                         and Control



<PAGE>



                            FREEDOM CHEMICAL COMPANY
                   Form 10-Q Report for the Nine Months Ended
                               September 30, 1997



                                INDEX TO EXHIBITS


Exhibit
  No.   Description of Exhibit

3.1      Restated  Certificate of  Incorporation of Freedom Chemical Company and
         Certificate of Designation for Preferred Stock (filed as Exhibit 3.1 to
         the  Company's  Registration  Statement  on  Form  S-1  (33-84778)  and
         incorporated herein by reference).

3.2      By-laws of Freedom Chemical Company (filed as Exhibit 3.2 to the
         Company's Registration Statement on Form S-1 (33-84778)and
         incorporated herein by reference).

27       Financial Data Schedule.