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       June 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
                                                            ------------
      Mellon Center, Suite 3500, 1735 Market Street, Philadelphia, PA 19103
      ---------------------------------------------------------------------
  (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 August 13, 1997, 156,056 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 June 30, 1997..........................     3
              Consolidated Statements of Operations for the Three Months and Six Months  Ended
                  June 30, 1996 and 1997, respectively....................................................     4
              Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1997.......     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,        June 30,
                                                                                     1996              1997
                                                                                     ----              ----
                                     ASSETS

<S>                                                                             <C>                <C>
Current assets:
  Cash and cash equivalents.......................................              $     3,554        $     2,100
  Accounts receivable, net of allowance for doubtful accounts
    of $456 and $580, respectively................................                   44,249             47,828
  Due from shareholders...........................................                       22                 23
  Refundable income taxes.........................................                    1,811                413
  Inventories.....................................................                   53,019             48,030
  Prepaid expenses and other current assets.......................                    5,251              7,131
  Environmental indemnification...................................                      492                192
  Deferred income taxes...........................................                    7,237              7,287
                                                                                -----------         ----------
      Total current assets........................................                  115,635            113,004

Property, Plant and Equipment:
  Land............................................................                    3,872              3,792
  Buildings and improvements......................................                   14,600             15,424
  Machinery and equipment.........................................                  101,356            110,949
  Other...........................................................                   11,137              4,637
                                                                                -----------         ----------
                                                                                    130,965            134,802
Less accumulated depreciation.....................................                   28,754             34,193
                                                                                -----------         ----------
                                                                                    102,211            100,609
Other assets:
  Intangible assets, net..........................................                   34,040             32,867
  Environmental indemnification...................................                        8                 68
  Deferred financing costs, net...................................                    6,902              6,843
  Investments in joint ventures...................................                      541              1,484
  Other...........................................................                    3,577              3,889
                                                                                -----------         ----------

      Total assets................................................              $   262,914        $   258,764
                                                                                ===========        ===========

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
  Current maturities of long-term debt............................              $     1,067        $     1,028
  Short-term borrowings...........................................                      936                477
  Notes payable...................................................                    1,098              1,738
  Accounts payable................................................                   20,996             21,829
  Accrued expenses................................................                    7,889              6,582
  Accrued interest................................................                    3,033              3,120
  Accrued compensation............................................                    5,787              5,378
  Accrued restructuring and other charges.........................                    4,627              4,308
  Environmental...................................................                    1,200              1,200
                                                                                -----------         ----------

      Total current liabilities...................................                   46,633             45,660

Long-term debt....................................................                  153,560            158,648
Environmental.....................................................                   14,550             12,042
Deferred income taxes.............................................                   12,259             12,410
Postretirement benefits...........................................                    4,416              4,571
Accrued restructuring and other charges...........................                    1,437              1,437
Other.............................................................                    3,346              1,941
Minority interest.................................................                    3,390              3,396
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 21,421, respectively, stated at liquidation
  value of $1,000 per share plus accrued and unpaid dividends of $11,389
  and $13,373, respectively.......................................                   32,711             34,794
  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$4,228,
  respectively....................................................                   13,083             13,858

  Less: Treasury stock, at cost (221 shares of Series C preferred)                     (262)              (262)
                                                                                -----------         ----------
                                                                                     45,532             48,390
Stockholders' deficit:
  Common stock:
  Series A, $.01 par value, authorized 200,000 shares; issued 154,872 and 156,447
  shares respectively, outstanding 154,481 and 156,056 shares, respectively               2                  2
  Series B, $.01 par value, authorized 10,000 shares; none issued or outstanding         __                 __
  Additional paid-in capital......................................                   10,846              8,566
  Accumulated deficit.............................................                  (30,444)           (33,849)
  Cumulative translation adjustment...............................                     (397)            (2,234)
                                                                                -----------         ----------
                                                                                    (19,993)           (27,515)
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)           (29,731)
                                                                                -----------         ----------

       Total liabilities and stockholders' deficit................              $   262,914        $   258,764
                                                                                ===========         ==========

</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                Six Months, Ended
                                                                         June 30,                         June 30,
                                                                  -----------------------          -----------------------
                                                                    1996           1997               1996            1997
                                                                    ----           ----               ----            ----

<S>                                                            <C>               <C>              <C>              <C>     
Net sales..................................................    $  78,658         $ 75,617         $ 155,787        $146,292
Cost of goods sold (excluding Inventory valuation charge)..       59,898           57,597           116,482         112,289
Inventory valuation charge.................................            -            2,476                -            3,155
                                                                 -------         --------          -------         --------
      Gross profit.........................................       18,760           15,544            39,305          30,848
Selling, general and administrative expense................       11,439           10,432            24,158          21,389
Non-cash compensation expense .............................          38                26                75              32
Research and development expense...........................        1,264            1,236             2,499           2,272
Restructuring and other charges ...........................            -            2,770                 -           2,858
                                                                 -------         --------         ---------        --------
      Operating income ...................................         6,019            1,080            12,573           4,297
Interest and debt expense..................................        3,362            4,462             6,789           8,894
Other income...............................................          226              149               226             475
                                                                 -------         --------         ---------        --------

         Income (loss) before minority interest
         and income taxes..................................        2,883           (3,233)            6,010          (4,122)
Minority interest..........................................           67               67               126             132
                                                                 -------         --------         ---------        --------

         Income (loss) before income taxes ................        2,816           (3,300)            5,884          (4,254)
Provision for income taxes.................................          348              227             1,443             279
Equity in income of joint ventures.........................          337              581               455           1,128
                                                                 -------         --------         ---------        --------

          Net income (loss)................................        2,805           (2,946)            4,896          (3,405)


Less:  preferred dividends.................................        1,253            1,411             2,468           2,761
                                                                 -------         --------         ---------        --------

     Net income (loss) applicable to common shares.........      $ 1,552         $ (4,357)        $   2,428        $ (6,166)
                                                                 =======         =========        =========        =========


</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>

                                                                             Six Months Ended
                                                                                June 30,
                                                                        -------------------------


                                                                          1996               1997
                                                                          ----               ----
<S>                                                                  <C>               <C>        
Cash flows from operating activities:
   Net income (loss) ......................................          $     4,896       $   (3,405)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
    Depreciation and amortization...........................               6,719            7,228
    Provision for doubtful accounts.........................                 144               19
    (Gain) loss on sale of fixed assets.....................                ( 87)             125
    Minority interest.......................................                 126              132
    Non-cash compensation expense...........................                  75               32
    Equity decrease (increase) of joint ventures............                 367           (1,060)
    Deferred income taxes...................................               ( 455)              97
    Inventory valuation charge..............................                   _            3,155
    Restructuring and other charges, net of payments........                   _              313
    Other changes that provided (used) cash:
        Accounts receivable.................................            ( 11,303)          (5,067)
        Inventories.........................................             ( 8,040)           1,351
        Prepaid expenses and other current assets...........               ( 226)          (2,313)
        Accounts payable, accrued expenses
           and other liabilities.................................          8,722            1,104
                                                                     -----------       ----------

Net cash  provided by operating activities..................                 938            1,711

Cash flows from investing activities:
       Capital expenditures.................................             ( 3,986)          (7,093)
       Decrease in investments in joint ventures............                  41               24
       Proceeds from sale of capital equipment..............               1,659                8
       Payments for environmental liabilities...............             ( 1,355)          (2,508)
       Proceeds from environmental indemnification..........                 655              240
       Other................................................                  24               78
                                                                     -----------       ----------

Net cash used in investing activities.......................             ( 2,962)          (9,251)

Cash flows from financing activities:
    Issuance of common stock................................                  --              269
    Revolving borrowings under Credit Agreement.............              31,000           93,335
    Revolving repayments under Credit Agreement............             ( 29,500)         (86,495)
    Term loan repayments under Credit Agreement............              ( 3,547)              --
    Short-term borrowings under European Facility...........               4,890               --
    Repayments of short-term borrowing
      under European Facility................................                ( 3)              --

    Purchase of treasury stock..............................                ( 87)              --
    Payment of registration costs...........................                  --             (733)
    Repayment of capital lease obligations..................                ( 71)             (12)
    Payments for financing costs............................                ( 33)             (55)
    Dividends paid to minority interests....................               ( 130)            (129)
    Other...................................................                ( 26)              --
                                                                     -----------       ----------

Net cash provided by  financing activities..................               2,493            6,180

Effect of exchange rate changes on cash.....................                ( 66)             (94)
                                                                     -----------       ----------

Net decrease in cash and cash equivalents...................                 403           (1,454)

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

Cash and cash equivalents, end of period....................         $     1,853       $    2,100
                                                                     ===========       ==========
</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 June  30,1997;  the results of its
operations  for the  three  and  six  months  ended  June  30,  1996  and  1997,
respectively;  and  changes in its cash flows for the six months  ended June 30,
1996 and 1997,  respectively.  The results of  operations  for the three and six
months periods ended June 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.

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.  Inventories

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

                                               December 31,             June 30,
                                                   1996                   1997
                                                   ----                   ----

     Raw materials, work in process             $   27,265            $  26,313
     Finished goods                                 31,888               25,922
                                                ----------            ---------
                                                    59,153               52,235
     Less: reserves                                ( 6,134)              (4,205)
                                                ----------            ---------
                                                $   53,019            $  48,030
                                                ==========            =========


4.  Inventory Valuation Charge

     During the six months ended June 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.  This charge was classified as an inventory  valuation  charge
and the charges at March 31,  1997,  which were  included in cost of goods sold,
have  been  reclassified  for  comparative  purposes  with  the  June  30,  1997
presentation.


5.  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.







<PAGE>


                    FREEDOM CHEMICAL COMPANY AND SUBSIDIARIES

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


5.  New Pronouncements, continued

     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.


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 June 30,  1997 was $2,229 and should be paid or settled  during
the 1997 fiscal year.

     As of June 30, 1997, the Company recorded charges totaling $332 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 recorded 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.  FTCC 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 June 30, 1997, KCI
has accrued  approximately  $5,900 for this  liability  and believes the risk of
loss exposure is up to $18,200.  The associated  indemnification  as of June 30,
1997 is $600 to $7,300 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 June 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 June 30,  1997 is $200 to $400  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  June  30,  1997,  KCI  has  accrued
approximately  $3,800 for this  liability and believes the risk of loss exposure
is up to $5,800.  The associated  indemnification as of June 30, 1997 is $400 to
$900 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
                                          Parent  Subsidiaries Subsidiary Subsidiaries Eliminations 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
Other assets:
    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      3,016        557        101            --        4,627
    Environmental.....................         --      1,200         --         --            --        1,200
                                         --------   --------    -------    -------      --------     --------

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.........................         --     14,550         --         --            --       14,550
Deferred income taxes.................         --     15,416         --         47        (3,204)      12,259
Postretirement benefits...............         --      4,416         --         --            --        4,416
Accrued restructuring
and other charges.....................         --      1,437         --         --            --        1,437
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 June 30, 1997
                                          ----------------------------------------------------------------------

                                                       U.S.      German       Non
                                                    Guarantor   Guarantor  Guarantor
                                          Parent  Subsidiaries Subsidiary Subsidiaries Eliminations Consolidated
                                          ------ ------------- ---------- ------------ ------------ ------------
                  ASSETS
<S>                                      <C>        <C>         <C>        <C>         <C>          <C>   
Current assets:
    Cash and cash equivalents.........        $16        $(6)      $731     $1,360           $(1)      $2,100
    Accounts receivable, net..........         --     34,283     10,072      3,462            11       47,828
    Due from affiliates...............      6,449        (59)       419      1,464        (8,273)          --
    Due from shareholder..............         23         --         --         --            --           23
    Refundable income taxes...........        413         --         --         --            --          413
    Inventories.......................         --     32,918     14,528        716          (132)      48,030
    Prepaid expenses and
    other current assets..............        489      3,034      2,554      1,056            (2)       7,131
    Environmental indemnification.....         --        192         --         --            --          192
    Deferred income taxes.............        609      6,617         --         61            --        7,287
                                         --------   --------    -------    -------      --------     --------

        Total current assets..........      7,999     76,979     28,304      8,119        (8,397)     113,004

   Property, Plant and Equipment:
    Land..............................         --      2,610        391        791            --        3,792
    Buildings and improvements........         --     13,192        627      1,605            --       15,424
    Machinery and equipment...........         --     97,237      7,950      5,762            --      110,949
    Other.............................        529      2,689        971        448            --        4,637
                                         --------   --------    -------    -------      --------     --------

                                              529    115,728      9,939      8,606            --      134,802
Less accumulated depreciation.........        192     30,661      1,727      1,613            --       34,193
                                         --------   --------    -------    -------     ---------      -------

                                              337     85,067      8,212      6,993            --      100,609
Other assets:
    Intangible assets, net............        289     32,175        155          1           247       32,867
    Environmental indemnification.....         --         68         --         --            --           68
    Deferred financing costs, net.....        439      5,595        803          6            --        6,843
    Investments in joint ventures.....         --         --      1,484         --            --        1,484
    Deferred income taxes.............      3,204         --         --         --        (3,204)          --
    Other.............................        159      3,492        196         42            --        3,889
Notes receivable, subsidiaries........    134,037      6,578        980         --      (141,595)          --
Investment in subsidiaries............     16,884        866      3,532         --       (21,282)          --
                                         --------   --------    -------    -------     ----------    --------

        Total assets..................   $163,348   $210,820    $43,666    $15,161     $(174,231)    $258,764
                                         ========   ========    =======    =======     ==========    ========


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
    Current maturities of long-term debt      $--         $8        $--     $1,020           $--       $1,028
    Short-term borrowings.............         --         --         --        477            --          477
    Notes payable.....................          4      1,448         --        286            --        1,738
    Accounts payable..................        453     17,436      2,863      1,079            (2)      21,829
    Due to affiliates.................         --        478      7,003        792        (8,273)          --
    Accrued expenses..................        836      4,754        631        358             3        6,582
    Accrued interest..................      2,957         --        107         56            --        3,120
    Accrued compensation..............         25      3,557      1,066        730            --        5,378
    Accrued restructuring
    and other charges.................      1,144        935         46      2,183            --        4,308
    Environmental.....................         --      1,200         --         --            --        1,200
                                         --------   --------    -------    -------      --------     --------

Total current liabilities.............      5,419     29,816     11,716      6,981        (8,272)      45,660
Long-term debt........................    137,000         --     20,364      1,284            --      158,648
Environmental.........................         --     12,042         --         --            --       12,042
Deferred income taxes.................         --     15,541         --         73        (3,204)      12,410
Postretirement benefits...............         --      4,571         --         --            --        4,571
Accrued restructuring
and other charges.................             --      1,437         --         --            --        1,437
Notes payable.........................         --    125,599     13,425      2,571      (141,595)          --
Other.................................      1,089        228        510        114            --        1,941
Minority interest.....................         --         --         --        291         3,105        3,396
Commitments and contingencies.........         --         --         --         --            --           --
Mandatory redeemable preferred stock:.     48,652      3,082         --         --        (3,082)      48,652
Less: Treasury stock..................       (262)        --         --         --            --         (262)
                                         --------   --------    -------    -------      --------     --------

                                           48,390      3,082         --         --        (3,082)      48,390
Stockholders' equity (deficit):
Common stock .........................          2      1,200      1,291      2,333        (4,824)           2
Preferred stock.......................         --      4,041         --         --        (4,041)          --
Additional paid-in capital............      8,566     33,927      8,241      2,761       (44,929)       8,566
Retained earnings (accumulated deficit)   (35,102)   (20,464)    (9,958)      (758)       32,433      (33,849)
Cumulative translation  adjustment....         --         --     (1,923)      (489)          178       (2,234)
Less: Stockholder note  receivable....     (1,913)      (200)        --         --            --       (2,113)
         Treasury stock, at cost......        (46)        --         --         --            --          (46)
         Minimum pension liability....        (57)        --         --         --            --          (57)
                                         --------   --------    -------    -------      --------     --------

Total stockholders' equity (deficit)..    (28,550)    18,504    (2,349)      3,847       (21,183)     (29,731)
                                         --------   --------    -------    -------      --------     --------

        Total liabilities and
        stockholders' equity (deficit)   $163,348   $210,820    $43,666    $15,161     $(174,231)    $258,764
                                         ========   ========    =======    =======     =========     ========

</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 June 30, 1996
                                                       ----------------------------------------------------------------------

                                                                    U.S.      German       Non
                                                                 Guarantor   Guarantor  Guarantor
                                                       Parent  Subsidiaries Subsidiary Subsidiaries Eliminations Consolidated
                                                       ------ ------------- ---------- ------------ ------------ ------------


<S>                                                   <C>        <C>          <C>          <C>         <C>         <C>      
Net sales........................................     $    --    $56,169      $20,519      $ 3,750     $(1,780)    $78,658
Cost of goods sold (excluding
    Inventory valuation charge)..................          --     43,150       15,920        2,608      (1,780)     59,898
Inventory valuation charge.......................          --         --           --           --          --          --
                                                      -------     ------      -------      -------      ------     -------
    Gross profit.................................          --     13,019        4,599        1,142          --      18,760

Selling, general and administrative expense......         873      6,859        3,131          649         (73)     11,439
Non-cash compensation expense....................          38         --           --           --          --          38
Research and development expense.................          --        893          321           50          --       1,264
                                                      -------     ------      -------      -------      ------     -------
    Operating income (loss)......................        (911)     5,267        1,147          443          73       6,019
Interest and debt expense (income)...............        (116)     2,794          602           81           1       3,362
Other income (expense)...........................       4,859     (4,620)         306         (165)       (154)        226
Equity in income (loss) of subsidiary............        (542)       613           21           --         (92)          --
                                                      -------    -------      -------      -------      ------     -------
    Income (loss) before minority interest
     and income taxes............................       3,522     (1,534)         872          197        (174)      2,883
Minority interest................................          --         --           --           --          67          67
                                                      -------    -------      -------      -------      ------     -------
    Income (loss) before income taxes............       3,522     (1,534)         872          197        (241)      2,816
Provision (benefit) for income taxes.............         507       (313)           1           92          61         348
Equity in income of joint ventures...............          --         --          337           --          --         337
                                                      -------    -------      -------      -------      ------     -------
    Net income (loss)............................       3,015     (1,221)       1,208          105        (302)      2,805
Less: preferred dividends........................       1,253         --           --           --          --       1,253
                                                      -------    -------      -------      -------      ------     -------
    Net income (loss) applicable to common shares     $ 1,762    $(1,221)     $ 1,208      $   105     $  (302)    $ 1,552
                                                      =======    =======      =======      =======     =======     =======

</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 June 30, 1997
                                                       ----------------------------------------------------------------------

                                                                    U.S.      German       Non
                                                                 Guarantor   Guarantor  Guarantor
                                                       Parent  Subsidiaries Subsidiary Subsidiaries Eliminations Consolidated
                                                       ------ ------------- ---------- ------------ ------------ ------------
<S>                                                  <C>         <C>         <C>         <C>           <C>         <C>      
Net sales ........................................   $     --    $ 59,552    $ 14,875    $  4,192      $ (3,002)   $ 75,617
Cost of goods sold (excluding
    Inventory valuation charge) ..................         --      44,097      13,449       3,516        (3,465)     57,597
Inventory valuation charge .......................         --          --       2,476          --            --       2,476
                                                     --------    --------    --------    --------      --------    --------
    Gross profit .................................         --      15,455      (1,050)        676           463      15,544

Selling, general and administrative expense ......        716       7,126       2,151         610          (171)     10,432
Non-cash compensation expense ....................         26          --          --          --            --          26
Research and development expense .................         --         960         239          37            --       1,236
Restructuring and other charges ..................         --         244          --       2,526            --       2,770
                                                     --------    --------    --------    --------      --------    --------
    Operating income (loss) ......................       (742)      7,125      (3,440)     (2,497)          634       1,080
Interest and debt expense ........................         85       3,315       1,004          58           --       4,462
Other income (expense) ...........................      2,588      (2,355)        269         (91)         (262)        149
Equity in income (loss) of subsidiary ............     (6,498)     (1,508)        399          --         7,607          --
                                                     --------    --------    --------    --------      --------    --------
    Income (loss) before minority
       interest and income taxes .................     (4,737)        (53)     (3,776)     (2,646)        7,979      (3,233)

Minority interest ................................         --          --          --          --            67          67
                                                     --------    --------    --------    --------      --------    --------
    Income (loss) before income taxes ............     (4,737)        (53)     (3,776)     (2,646)        7,912      (3,300)
Provision (benefit) for income taxes .............       (256)        579          (1)         95          (190)        227
Equity in income of joint ventures ...............         --          --         581          --            --         581
                                                     --------    --------    --------    --------      --------    --------
    Net income (loss) ............................     (4,481)       (632)     (3,194)     (2,741)        8,102      (2,946)
Less: preferred dividends ........................      1,411         169          --          --          (169)      1,411
                                                     --------    --------    --------    --------      --------    --------
    Net income (loss) applicable to common shares    $ (5,892)   $   (801)   $ (3,194)   $ (2,741)     $  8,271    $ (4,357)
                                                     ========    ========    ========    ========      ========    ========





</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 Six Months Ended June 30, 1996
                                                       ----------------------------------------------------------------------

                                                                    U.S.      German       Non
                                                                 Guarantor   Guarantor  Guarantor
                                                       Parent  Subsidiaries Subsidiary Subsidiaries Eliminations Consolidated
                                                       ------ ------------- ---------- ------------ ------------ ------------
<S>                                                <C>          <C>          <C>         <C>          <C>          <C>      
Net sales ......................................   $      --    $ 112,438    $  38,934   $   7,382    $  (2,967)   $ 155,787
Cost of goods sold .............................          --       84,565       29,585       5,243       (2,911)     116,482
Inventory valuation charge .....................          --           --           --          --           --           --
                                                   ---------    ---------    ---------   ---------    ---------    ---------
    Gross profit ...............................          --       27,873        9,349       2,139          (56)      39,305
Selling, general and administrative expense ....       1,800       14,939        6,320       1,355         (256)      24,158
Noncash compensation expense ...................          75           --           --          --           --           75
Research and development expense ...............          --        1,765          634         100           --        2,499
                                                   ---------    ---------    ---------   ---------    ---------    ---------
    Operating income (loss) ....................      (1,875)      11,169        2,395         684          200       12,573
Interest and debt expense ......................          50        5,419        1,171         148            1        6,789
Other income (expense) .........................       6,030       (5,611)         408        (201)        (400)         226
Equity in income (loss) of subsidiary ..........       1,645        1,204          210          --       (3,059)          --
                                                   ---------    ---------    ---------   ---------    ---------    ---------
    Income (loss) before minority
      interest and income taxes ................       5,750        1,343        1,842         335       (3,260)       6,010

Minority interest ..............................          --           --           --          --          126          126
                                                   ---------    ---------    ---------   ---------    ---------    ---------
    Income (loss) before income taxes ..........       5,750        1,343        1,842         335       (3,386)       5,884

Provision (benefit) for income taxes ...........         527          825            2          89           --        1,443
Equity in income of joint ventures .............          --           --          455          --           --          455
                                                   ---------    ---------    ---------   ---------    ---------    ---------
    Net income (loss) ..........................       5,223          518        2,295         246       (3,386)       4,896
Less: preferred dividends ......................       2,468          637           --          --         (637)       2,468
                                                   ---------    ---------    ---------   ---------    ---------    ---------
    Net income (loss) applicable to common shares  $   2,755    $    (119)   $   2,295   $     246    $  (2,749)   $   2,428
                                                   =========    =========    =========   =========    =========    =========


</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 Six Months Ended June 30, 1997
                                                       ----------------------------------------------------------------------

                                                                    U.S.      German        Non
                                                                 Guarantor   Guarantor   Guarantor
                                                       Parent  Subsidiaries Subsidiary  Subsidiaries Eliminations Consolidated
                                                       ------ ------------- ----------  ------------ ------------ ------------
<S>                                                 <C>         <C>          <C>          <C>          <C>          <C>      
Net sales .......................................   $      --   $ 115,425    $  27,573    $   8,770    $  (5,476)   $ 146,292
Cost of goods sold (excluding
      Inventory valuation charge) ...............          --      87,657       23,757        6,666       (5,791)     112,289
Inventory valuation charge ......................          --          --        3,155           --           --        3,155
                                                    ---------   ---------    ---------    ---------    ---------    ---------
    Gross profit ................................          --      27,768          661        2,104          315       30,848
Selling, general and administrative expense .....       1,623      13,997        4,775        1,296         (302)      21,389
Non-cash compensation expense ...................          32          --           --           --           --           32
Research and development expense ................          --       1,698          495           79           --        2,272
Restructuring and other charges .................          --         332           --        2,526           --        2,858
                                                    ---------   ---------    ---------    ---------    ---------    ---------
    Operating income (loss) .....................      (1,655)     11,741       (4,609)      (1,797)         617        4,297
Interest and debt expense (income) ..............        (140)      7,022        1,908          104           --        8,894
Other income (expense) ..........................       5,027      (4,682)         887         (274)        (483)         475
Equity in income (loss) of subsidiary ...........      (8,427)     (1,800)         641           --        9,586           --
                                                    ---------   ---------    ---------    ---------    ---------    ---------
    Income (loss) before minority
      interest and income taxes .................      (4,915)     (1,763)      (4,989)      (2,175)       9,720       (4,122)

Minority interest ...............................          --          --           --           --          132          132
                                                    ---------   ---------    ---------    ---------    ---------    ---------
    Income (loss) before income taxes ...........      (4,915)     (1,763)      (4,989)      (2,175)       9,588       (4,254)
Provision (benefit) for income taxes ............         293         134           --          145         (293)         279
Equity in income of joint ventures ..............          --          --        1,128           --           --        1,128
                                                    ---------   ---------    ---------    ---------    ---------    ---------
    Net income (loss) ...........................      (5,208)     (1,897)      (3,861)      (2,320)       9,881       (3,405)
Less: preferred dividends .......................       2,761         333           --           --         (333)       2,761
                                                    ---------   ---------    ---------    ---------    ---------    ---------
   Net income (loss) applicable to common shares   $  (7,969)  $  (2,230)   $  (3,861)   $  (2,320)   $  10,214    $  (6,166)
                                                    =========    =========    =========    =========    =========    =========



</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 Six Months Ended June 30, 1996
                                                       ----------------------------------------------------------------------

                                                                    U.S.      German        Non
                                                                 Guarantor   Guarantor   Guarantor
                                                       Parent  Subsidiaries Subsidiary  Subsidiaries Eliminations Consolidated
                                                       ------ ------------- ----------  ------------ ------------ ------------
<S>                                                    <C>         <C>         <C>          <C>        <C>          <C>      

Net cash provided by (used in)operating activities .   $ (1,369)   $  2,540    $ (1,127)   $    967    $    (73)    $    938
                                                       --------    --------    --------    --------    --------     --------
Cash flow from investing activities:
    Capital expenditures ...........................        (83)     (3,144)       (551)       (208)         --       (3,986)
    Increase in investments in joint ventures ......         --          --         (14)         51           4           41
    Proceeds from sale of capital equipment ........         --       1,572         191          --        (104)       1,659
    Payments for environmental liabilities .........         --      (1,355)         --          --          --       (1,355)
    Proceeds from environmental indemnification ....         --         655          --          --          --          655
    Other ..........................................         --          24          --          --          --           24
                                                       --------    --------    --------    --------    --------     --------

Net cash provided by (used in) investing activities         (83)     (2,248)       (374)       (157)       (100)      (2,962)
                                                       --------    --------    --------    --------    --------     --------
Cash flows from financing activities:
    Revolving borrowings under Credit Agreement ....     31,000          --          --          --          --       31,000
    Revolving repayments under Credit Agreement ....    (29,500)         --          --          --          --      (29,500)
    Term loan repayments under Credit Agreement ....     (3,547)         --          --          --          --       (3,547)
    Short-term loan borrowings under European
        Facility ...................................         --          --       4,331         559          --        4,890
    Short-term loan repayments under European
        Facility ...................................         --          --          --          (3)         --           (3)
    Payment of treasury stock ......................        (87)         --          --          --          --          (87)
    Dividends paid to minority interests ...........         --        (130)         --          --          --         (130)
    Repayment of capital lease obligations .........         --         (47)         --         (24)         --          (71)
    Payments for financing costs ...................         --          --          --         (33)         --          (33)
    Other ..........................................         --         (26)         --          --          --          (26)
    Subsidiary loans ...............................      3,622         (89)     (2,969)       (564)         --           --
                                                       --------    --------    --------    --------    --------     --------

Net cash provided by (used in) financing activities       1,488        (292)      1,362         (65)         --        2,493

Effect of exchange rate changes on cash ............         --          --         (28)       (175)        137          (66)
                                                       --------    --------    --------    --------    --------     --------

Net increase (decrease) in cash and cash equivalents         36          --        (167)        570         (36)         403

Cash and cash equivalents,  beginning of period ....        248          --         428       1,022        (248)       1,450
                                                       --------    --------    --------    --------    --------     --------

Cash and cash equivalents, end of  period ..........   $    284    $     --    $    261    $  1,592    $   (284)    $  1,853
                                                       ========    ========    ========    ========    ========     ========

</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 Six Months Ended June 30, 1997
                                                       ----------------------------------------------------------------------

                                                                    U.S.      German        Non
                                                                 Guarantor   Guarantor   Guarantor
                                                       Parent  Subsidiaries Subsidiary  Subsidiaries Eliminations Consolidated
                                                       ------ ------------- ----------  ------------ ------------ ------------
<S>                                                    <C>         <C>         <C>         <C>         <C>         <C>      

Net cash provided by (used in) operating activities    $  4,127    $  1,011    $ (4,156)   $    806    $    (77)   $  1,711
                                                       --------    --------    --------    --------    --------    --------
Cash flow from investing activities:
    Capital expenditures ...........................       (141)     (4,899)       (390)     (1,663)         --      (7,093)
    Increase in investments in joint ventures ......         --          --          24          --          --          24
    Proceeds from sale of capital equipment ........         --          --          --           8          --           8
    Payments for environmental liabilities .........         --      (2,508)         --          --          --      (2,508)
    Proceeds from environmental indemnification ....         --         240          --          --          --         240
    Other ..........................................         --          24          54          --          --          78

                                                       --------    --------    --------    --------    --------    --------
Net cash used in investing activities ..............       (141)     (7,143)       (312)     (1,655)         --      (9,251)
                                                       --------    --------    --------    --------    --------    --------
Cash flows from financing activities:
     Issuance of common stock ......................        269          --          --          --          --         269
    Revolving borrowings under Credit Agreement ....     41,000          --      51,312       1,023          --      93,335
    Revolving repayments under Credit Agreement ....    (38,500)         --     (47,724)       (271)         --     (86,495)
    Payment of registration costs ..................       (733)         --          --          --          --        (733)
    Repayment of capital lease obligations .........         --         (12)         --          --          --         (12)
    Payments for financing costs ...................         --          --         (55)         --          --         (55)
    Dividends paid to minority interests ...........         --        (129)         --          --          --        (129)
    Subsidiary loans ...............................     (6,094)      5,923        (441)        612          --          --

                                                       --------    --------    --------    --------    --------    --------
Net cash provided by (used in) financing activities      (4,058)      5,782       3,092       1,364          --       6,180
                                                       --------    --------    --------    --------    --------    --------
Effect of exchange rate changes on cash ............         --          --        (112)       (148)        166         (94)
                                                       --------    --------    --------    --------    --------    --------

Net increase (decrease) in cash and cash equivalents        (72)       (350)     (1,488)        367          89      (1,454)

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

                                                       --------    --------    --------    --------    --------    --------
Cash and cash equivalents, end of period ...........   $     16    $     (6)   $    730    $  1,359    $      1    $  2,100
                                                       ========    ========    ========    ========    ========    ========

</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.


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 six months ended June 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.  This charge was classified as an
inventory  valuation charge and the charge at March 31, 1997, which was included
in cost of goods sold, have been reclassified for comparative  purposes with the
June 30, 1997 presentation. After recording this adjustment,  management expects
that  product  line  profitability  will  return to  historical  levels  for the
Pharmaceutical Intermediates and Natural Additives product line.

     During the six months ended June 30,  1997,  the Company  recorded  charges
totaling $0.3 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 recorded as incurred throughout
the remainder of the year.


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                  Six Months Ended
                                                                            June 30,                           June 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 charge)            76.1             76.2              74.8             76.8

Inventory valuation charge                                             --              3.3                --              2.2

Gross profit                                                         23.9             20.6              25.2             21.1

Selling, general and administrative expense                          14.5             13.8              15.5             14.6

Research and development expense                                      1.6              1.6               1.6              1.6

Restructuring and other charges                                        --              3.7                --              2.0

Operating income                                                      7.7              1.4               8.1              2.9

Interest and debt expense                                             4.3              5.9               4.4              6.1

Net income (loss)                                                     3.6             (3.9)              3.1             (2.3)

Less: preferred dividends                                             1.6              1.9               1.6              1.9

Net income (loss) applicable to common shares                         2.0             (5.8)              1.6             (4.2)

</TABLE>


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

     Net Sales.  Net sales declined $3.1 million to $75.6 million in the quarter
ended June 30,  1997  compared  to the  quarter  ended June 30,  1996.  Sales of
Pharmaceuticals declined $3.1 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 cough  medicines 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  declined by
$2.7  million  compared  to the same period in the prior  year,  primarily  as a
result of  discontinuation of unprofitable  product lines.  Organic Pigments and
Dyes increased by $2.1 million as a result of increased  sales in Graphics Arts,
Coatings,  and Color  Formers.  Specialty  Organics and Chemical  Intermediates'
revenues  improved by $1.1  million  compared  to the same period in 1996.  This
improvement  is a  result  primarily  of  plant  expansions.  This  increase  is
primarily  volume  related as this product line  experienced  some overall price
level deterioration and also shows some negative impact (at the sale level only)
as a result of foreign exchange.

     Gross Profit.  Gross profit,  excluding the inventory  valuation  charge of
$2.5 million,  declined $0.8 million for the three months ended June 30, 1997 to
$18.0  million  compared to $18.8  million for the three  months  ended June 30,
1996. This decline resulted  primarily from the following:  (i) $2.1 million was
due to lower sales of  Pharmaceuticals;  (ii) $1.8 million  resulted  from price
level  deterioration  and higher  toluene and energy costs  impacting  Specialty
Organics  and  Intermediates,  which  costs are  expected  to  moderate  for the
remainder  of  1997.  These  negative  impacts  were  offset  by  the  following
improvements:  (i) $1.5 million in Organic  Pigments and Dyes as a result of the
increased sales and improving  margins in the Graphic Arts and Coatings  product
lines;  (ii) $0.6 million in Textile and Paper Chemicals as a result of improved
product line profitability due to the  discontinuation  of unprofitable  product
lines; and (iii) $1.0 million in Food and Personal Care primarily as a result of
improvements in our Preservatives and Food Color product lines.

     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,  and gross profit  percentage for the quarters  ending June 30,
1997 and 1996,  respectively.  (All  values are in  millions  except for average
price.)


<PAGE>
<TABLE>
<CAPTION>


                                                             Three Months Ended
                                          June 30, 1997                                  June 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
 & Intermediates          32.86      $0.50   $16.29    $3.37    20.67%     27.48    $0.55   $15.12    $5.13    33.93%

Food & Personal
 Care Ingredients          1.85      $1.01   $18.73    $6.30    33.62%     19.23    $1.00   $19.27    $5.32    27.60%

Pharmaceutical 
 Intermediates             0.72     $11.92    $8.55    $0.21     2.42%      0.65   $17.79   $11.65    $2.27    19.47%

Textile & Paper
 Chemicals                22.27      $0.76   $16.97    $4.78    28.18%     26.12    $0.75   $19.68    $4.21    21.37%

Organic Pigments 
 & Dyes                    3.51      $4.29   $15.08    $3.36    22.34%      0.27    $4.79   $12.94    $1.83    14.21%


Company Total             77.89      $0.97   $75.62   $18.02    23.83%     76.18    $1.03   $78.66   $18.76    23.85%

</TABLE>

     The Company  recorded  estimated costs of shutdown of $0.4 million and $0.3
million for the three  months  ended June 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 June 30, 1997,
$0.6 million was accrued  related to such costs,  which  represented  a decrease
from  December  31,  1996 of $0.3  million due  primarily  to  shutdowns  at the
Company's  Hilton Davis and Kalama  facilities in June and the timing of various
other plant shutdowns scheduled in 1997.

     Selling,  General  and  Administrative  Expense.   Selling,   general,  and
administrative  expense  decreased  $1.0  million to $10.4  million in the three
months  ended  June 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 from 14.5% in the three months ended June 30,
1996 to 13.8% for the same period in 1997.

     Research and Development  Expense.  Research and development expense stayed
constant at $1.2  million  compared  to the same period of the prior year.  As a
percentage of sales,  research and development  also was constant at 1.6% in the
three months ended June 30, 1996 compared to the same period in 1997.

     Operating Income. Operating income declined $4.9 million to $1.1 million in
the quarter ended June 30, 1997 compared to the same quarter of 1996.  Excluding
the impact of the inventory  adjustment and the restructuring  costs,  Operating
income for the quarter ended June 30, 1997 was $6.3 million  compared to $6.0 in
the same quarter of 1996.  This  improvement  is primarily a result of the gross
profit and selling, general and administrative expense impacts discussed above.

     Interest and Debt  Expense.  Interest and debt expense was $4.5 million and
$3.4 million for the three  months  ended June 30, 1997 and 1996,  respectively.
The weighted average interest rate of the Company's  borrowings was 9.8% at June
30,  1997,  as compared to 8.9% at June 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  $5.8  million to a loss of $2.9
million in the three  months  ended June 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
$0.3  million for the three  months  ended June 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  $0.4
million.

     Net Income (Loss) Applicable to Common Shares. The net income applicable to
common shares  decreased by $5.9 million to a loss of $4.4 million for the three
months ended June 30, 1997 as compared to the same period of the prior year. The
decrease resulted from the items referred to above.

Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996

     Net Sales.  Net sales  declined  $9.5 million to $146.3  million in the six
months  June  30,  1997   compared  to  the  same  period  in  1996.   Sales  of
Pharmaceuticals declined $11.6 million because of (i) industry-wide overstocking
due to producer and customer  expectations of comparable  business  strengths in
1997 versus 1996, and (ii) a change in German social  legislation  regarding the
reimbursement  for certain cough  medicines 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  declined by
$1.1  million  compared  to the same period in the prior  year,  primarily  as a
result of  discontinuation of unprofitable  product lines.  Organic Pigments and
Dyes  increased  by $1.3  million,  while 1996  results  show $0.8  million of a
discontinued  product  line.  Specialty  Organics  and  Chemical  Intermediates'
revenues  improved by $1.1  million  compared  to the same period in 1996.  This
improvement  is a  result  primarily  of  plant  expansions.  This  increase  is
primarily  volume  related as this product line  experienced  some overall price
level deterioration and also shows some negative impact (at the sale level only)
as a result of foreign exchange.

     Gross Profit.  Gross profit,  excluding the inventory  valuation  charge of
$3.2 million,  declined $5.3 million for six months ended June 30, 1997 to $34.0
million  compared to $39.3 million for the six three months ended June 30, 1996.
This decline resulted primarily from the following:  (i) $4.6 million was due to
lower sales of  Pharmaceuticals;  (ii) $1.9 million  resulted from lower overall
prices,  higher  toluene  and energy  costs  impacting  Specialty  Organics  and
Intermediates,  which costs are expected to moderate for the  remainder of 1997.
These  negative  impacts  were  offset by the  following  improvements  (i) $0.1
million in Organic  Pigments and Dyes as a result of the increased sales as well
as improving  margins in the Graphic Arts and Coatings  product lines while 1996
results show $0.4 million from a discontinued product line; (ii) $0.7 million in
Textile and Paper Chemicals as a result of improved  product line  profitability
as a result of the discontinuation of unprofitable product lines; and (iii) $0.3
million in Food and Personal Care primarily as a result of  improvements  in our
Preservatives and Food Color product lines.

     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,  and gross profit  percentage for the six months ended June 30,
1997 and 1996,  respectively.  (All  values are in  millions  except for average
price.)

<TABLE>
<CAPTION>

                                                              Six Months Ended
                                          June 30, 1997                                  June 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
 & Intermediates          61.03     $0.52   $31.47    $7.06     22.44%     54.67    $0.56   $30.37   $9.00    29.64%

Food & Personal
 Care Ingredients         34.99     $1.03   $36.06   $10.98     30.44%     33.21    $1.06   $35.22  $10.67    30.28%

Pharmaceutical
 Intermediates            1..25    $12.25   $15.37    $2.23     14.50%     1..32   $20.48   $26.98   $6.79    25.16%

Textile & Paper
 Chemicals                49.27     $0.70   $34.35    $7.93     23.11%     50.98    $0.69   $35.43   $7.18    20.27%

Organic Pigments
 & Dyes                    6.66     $4.36   $29.04    $5.80     19.97%      5.74    $4.84   $27.79   $5.67    20.40%

Company                  153.20     $0.96  $146.29   $34.00     23.24%    145.83    $1.07  $155.79  $39.31    25.23%

</TABLE>




     The Company  recorded  estimated costs of shutdown of $0.8 million and $0.4
million for the three  months  ended June 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 June 30, 1997,
$0.6 million was accrued  related to such costs,  which  represented an increase
from  December  31,  1996 of $0.3  million due  primarily  to  shutdowns  at the
Company's  Hilton Davis and Kalama  facilities in June and the timing of various
other plant shutdowns scheduled in 1997.

     Selling,  General  and  Administrative  Expense.   Selling,   general,  and
administrative expense decreased $2.8 million to $21.4 million in the six months
ended June 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 from 15.5% in the six months ended June 30, 1996 to 14.6% for
the same period in 1997.

     Research and Development Expense. Research and development expense declined
$0.2 million to $2.3 million compared to the same period of the prior year. As a
percentage  of sales,  research  and  development  remained  at 1.6% for the six
months ended June 30, 1997 compared to the same period in 1996.

     Operating  Income.  Operating  income declined $8.3 million to $4.3 million
for the six months  ended June 30,  1997  compared  to the same  period of 1996.
Excluding the impact of the inventory  adjustment and the  restructuring  costs,
Operating  Income  for the six  months  ended  June 30,  1997 was $10.3  million
compared to $12.6 million for the same period 1996. This performance is a result
of the decline in gross profit as a result of the  Pharmaceutical  Sales decline
and the  increased  cost of toluene and energy offset by  improvements  in other
product lines and the decline in selling, general and administrative expense.

     Interest and Debt  Expense.  Interest and debt expense was $8.9 million and
$6.8 million for the six months ended June 30, 1997 and 1996, respectively.  The
Company had net  borrowings  of $6.8  million for the six months  ended June 30,
1997,  as compared to net  borrowings  of $2.8  million for the six months ended
June 30, 1996. The weighted  average  interest rate of the Company's  borrowings
was 9.8% at June 30, 1997, as compared to 8.9% at June 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  $8.3  million to a loss of $3.4
million in the six months  ended June 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
$0.7  million  for the six months  ended June 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  $0.8
million.

     Net Income (Loss) Applicable to Common Shares. The net income applicable to
common  shares  decreased  by $8.6 million to a loss of $6.2 million for the six
months ended June 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 six months ended June 30, 1997 was $1.7 million,  an increase
of $0.8  million over the same period of the prior year.  This  increase was due
primarily to increases in accounts receivable from increased international sales
from domestic operations, increased inventories attributable to customer demand,
and a decrease in net income of $8.3 million.

     Net  Cash  Used  in  Investing  Activities.  Net  cash  used  in  investing
activities for the six months ended June 30, 1997 was $9.3 million,  an increase
of $6.3 million over the same period of the prior year. Capital  expenditures in
the six months ended June 30, 1997 were $7.1 million compared to $4.0 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 Provided by Financing  Activities.  Net cash provided by financing
activities for the six months ended June 30, 1997 was $6.2 million,  an increase
of $3.7  million  over the same  period  of the  prior  year and  includes  cash
proceeds of $0.3 million from the issuance of common stock. This increase is due
primarily  to both  lower  operating  results  and  increased  levels of capital
expenditures in 1997.

     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 June 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
June 30, 1997 the Company had $67.3 million of working  capital  (current assets
less current  liabilities)  and $52.1  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 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: August 14, 1997                       By:  /s/ DENNIS M. MONAHAN
                                                 ---------------------
                                                     Dennis M. Monahan
                                                     Vice President, Finance
                                                     and Control



<PAGE>



                            FREEDOM CHEMICAL COMPANY
                   Form 10-Q Report for the Three Months Ended
                                  June 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.